[Title 12 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 2003 Edition]
[From the U.S. Government Printing Office]
[[Page i]]
12
Parts 1 to 199
Revised as of January 1, 2003
Banks and Banking
Containing a codification of documents of general
applicability and future effect
As of January 1, 2003
With Ancillaries
Published by
the Office of the Federal Register
National Archives and Records
Administration
A Special Edition of the Federal Register
[[Page ii]]
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[[Page iii]]
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........................ 357
Alphabetical List of Agencies Appearing in the CFR...... 375
List of CFR Sections Affected........................... 385
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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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[[Page v]]
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
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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
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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
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OBSOLETE PROVISIONS
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[[Page vii]]
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Raymond A. Mosley,
Director,
Office of the Federal Register.
January 1, 2003.
[[Page ix]]
THIS TITLE
Title 12--Banks and Banking is composed of seven volumes. The parts
in these volumes are arranged in the following order: parts 1-199, 200-
219, 220-299, 300-499, 500-599, part 600-899, and 900-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 parts 600-899 is
comprised of chapter VI--Farm Credit Administration, chapter VII--
National Credit Union Administration, chapter VIII--Federal Financing
Bank. The seventh volume containing part 900-end is comprised of 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, 2003.
[[Page x]]
[[Page 1]]
TITLE 12--BANKS AND BANKING
(This book contains parts 1 to 199)
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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
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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........................ 49
5 Rules, policies, and procedures for
corporate activities.................... 69
6 Prompt corrective action.................... 115
7 Bank activities and operations.............. 123
8 Assessment of fees.......................... 142
9 Fiduciary activities of national banks...... 147
10 Municipal securities dealers................ 157
11 Securities Exchange Act disclosure rules.... 158
12 Recordkeeping and confirmation requirements
for securities transactions............. 159
13 Government securities sales practices....... 167
14 Consumer protection in sales of insurance... 170
15 [Reserved]
16 Securities offering disclosure rules........ 174
18 Disclosure of financial and other
information by national banks........... 179
19 Rules of practice and procedure............. 182
21 Minimum security devices and procedures,
reports of suspicious activities, and
Bank Secrecy Act Compliance Program..... 219
22 Loans in areas having special flood hazards. 222
23 Leasing..................................... 227
24 Community development corporations,
community development projects, and
other public welfare investments........ 230
25 Community Reinvestment Act and Interstate
Deposit Production regulations.......... 234
26 Management official interlocks.............. 255
27 Fair housing home loan data system.......... 259
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28 International banking activities............ 270
29 [Reserved]
30 Safety and soundness standards.............. 282
31 Extensions of credit to insiders and
transactions with affiliates............ 290
32 Lending limits.............................. 294
33 [Reserved]
34 Real estate lending and appraisals.......... 306
35 Disclosure and reporting of CRA-related
agreements.............................. 319
36 [Reserved]
37 Debt cancellation contracts and debt
suspension agreements................... 331
38-39 [Reserved]
40 Privacy of consumer financial information... 336
41-199 [Reserved]
Cross Reference: 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.
[[Page 5]]
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) Municipal bonds means obligations of a State or political
subdivision other than general obligations, and includes limited
obligation bonds, revenue bonds, and obligations that satisfy the
requirements of section 142(b)(1) of the Internal Revenue Code of 1986
issued by or on behalf of any State or political subdivision of a State,
including any municipal corporate instrumentality of 1 or more States,
or any public agency or authority of any State or political subdivision
of a State.
(h) NRSRO means a nationally recognized statistical rating
organization.
(i) 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.
(j) 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 thereof; and municipal bonds if the national bank
is well capitalized as defined in 12 CFR 6.4(b)(1);
(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).
(k) 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 that
would not satisfy the definition of Type I securities pursuant to
paragraph (j) of Sec. 1.2;
(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).
(l) Type III security means an investment security that does not
qualify as a Type I, II, IV, or V security. Examples of Type III
securities include corporate bonds and municipal bonds that do not
satisfy the definition of Type I securities pursuant to paragraph (j) of
Sec. 1.2 or the definition of Type II securities pursuant to paragraph
(k) of Sec. 1.2.
(m) 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
[[Page 7]]
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 rated investment grade in one of the two highest
investment grade rating categories, and that does not otherwise qualify
as a Type I security.
(n) 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.
[61 FR 63982, Dec. 2, 1996, as amended at 66 FR 34791, July 2, 2001]
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
[[Page 8]]
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 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
[[Page 9]]
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 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
[[Page 10]]
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 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.
[[Page 11]]
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 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.
[[Page 12]]
(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'').
(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
[[Page 13]]
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
(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
[[Page 14]]
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, deferred tax assets, and credit-enhancing
interest-only strips, that are deducted from Tier 1 capital, and minus
nonfinancial equity investments for which a Tier 1 capital deduction is
required pursuant to section 2(c)(5) of appendix A of this part 3. 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 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;
67 FR 3795, Jan. 25, 2002]
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.
(a) Deductions from capital. 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 find that a particular intangible asset, deferred tax asset
or credit-enhancing interest-only strip need not be deducted from Tier 1
or Tier 2 capital. Conversely, the OCC may find that a particular
intangible asset, deferred tax asset, credit-enhancing interest-only
strip or other 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 from Tier 1 or Tier 2 capital of
all of the component or of a greater portion of the component than is
otherwise required.
(b) Risk weight categories. Notwithstanding the risk categories in
sections 3 and 4 of appendix A to this part, the OCC will look to the
substance of the transaction and may find that the assigned risk weight
for any asset or the credit equivalent amount or credit conversion
factor for any off-balance sheet item does not appropriately reflect the
risks imposed on a bank and may require another risk weight, credit
equivalent amount, or credit conversion factor that the OCC deems
appropriate. Similarly, if no risk weight, credit equivalent amount, or
credit conversion factor is specifically assigned, the
[[Page 15]]
OCC may assign any risk weight, credit equivalent amount, or credit
conversion factor that the OCC deems appropriate. In making its
determination, the OCC considers risks associated with the asset or off-
balance sheet item as well as other relevant factors.
[55 FR 38800, Sept. 21, 1990, as amended at 66 FR 59630, Nov. 29, 2001]
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 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
[[Page 16]]
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:
(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
[[Page 17]]
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 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
[[Page 18]]
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 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
[[Page 19]]
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;
(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
[[Page 20]]
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 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
[[Page 21]]
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) Adjusted carrying value means, for purposes of section 2(c)(5)
of this appendix A, the aggregate value that investments are carried on
the balance sheet of the bank reduced by any unrealized gains on the
investments that are reflected in such carrying value but excluded from
the bank's Tier 1 capital and reduced by any associated deferred tax
liabilities. For example, for investments held as available-for-sale
(AFS), the adjusted carrying value of the investments would be the
aggregate carrying value of the investments (as reflected on the
consolidated balance sheet of the bank) less any unrealized gains on
those investments that are included in other comprehensive income and
that are not reflected in Tier 1 capital, and less any associated
deferred tax liabilities. Unrealized losses on AFS nonfinancial equity
investments must be deducted from Tier 1 capital in accordance with
section 1(c)(8) of this appendix A. The treatment of small business
investment companies that are consolidated for accounting purposes under
generally accepted accounting principles is discussed in section
2(c)(5)(ii) of this appendix A. For investments in a nonfinancial
company that is consolidated for accounting purposes, the bank's
adjusted carrying value of the investment is determined under the equity
method of accounting (net of any intangibles associated with the
investment that are deducted from the bank's Tier 1 capital in
accordance with section 2(c)(2) of this appendix A). Even though the
assets of the nonfinancial company are consolidated for accounting
purposes, these assets (as well as the credit equivalent amounts of the
company's off-balance sheet items) are excluded from the bank's risk-
weighted assets.
(2) 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.
(3) 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.
(4) Banking and finance subsidiary means any subsidiary of a
national bank that engages in banking- and finance-related activities.
(5) 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.
(6) 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 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.
(7) 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.
(8) 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.
(9) 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.
(10) Deferred tax assets means the tax consequences attributable to
tax carryforwards
[[Page 22]]
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.
(11) 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.
(12) 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.
(13) Equity investment means, for purposes of section 1(c)(19) and
section 2(c)(5) of this appendix A, any equity instrument including
warrants and call options that give the holder the right to purchase an
equity instrument, any equity feature of a debt instrument (such as a
warrant or call option), and any debt instrument that is convertible
into equity. An investment in any other instrument, including
subordinated debt or other types of debt instruments, may be treated as
an equity investment if the OCC determines that the instrument is the
functional equivalent of equity or exposes the bank to essentially the
same risks as an equity instrument.
(14) 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.
(15) 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.
(16) 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.
(17) 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.
(18) 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.
(19) Nationally recognized statistical rating organization (NRSRO)
means an entity recognized by the Division of Market Regulation of the
Securities and Exchange Commission (or any successor Division)
(Commission or SEC) as a nationally recognized statistical rating
organization for various purposes, including the Commission's uniform
net capital requirements for brokers and dealers.
(20) Nonfinancial equity investment means any equity investment held
by a bank in a nonfinancial company through a small business investment
company (SBIC) under section 302(b) of the Small Business Investment Act
of 1958 (15 U.S.C. 682(b)) or under the portfolio investment provisions
of Regulation K (12 CFR 211.8(c)(3)). An equity investment made under
section 302(b) of the Small Business Investment Act of 1958 in a SBIC
that is not consolidated with the bank is treated as a nonfinancial
equity investment in the manner provided in section 2(c)(5)(ii)(C) of
this appendix A. A nonfinancial company is an entity that engages in any
activity that has not been determined to be permissible for a bank to
conduct directly or to be financial in nature or incidental to financial
activities under section 4(k) of the Bank Holding Company Act (12 U.S.C.
1843(k)).
(21) 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
[[Page 23]]
IMF's General Arrangements to Borrow,\1\ but 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.
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(22) 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.
(23) 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.
(24) 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.
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(25) 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.
(26) 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.
(27) 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.
(28) 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.
(29) 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.
(30) 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
[[Page 24]]
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.
(31) Total capital means the sum of a national bank's core (Tier 1)
and qualifying supplementary (Tier 2) capital elements.
(32) 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.
(33) 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.
(34) 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.
(35) 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\
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\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.
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(3) Minority interests in the equity accounts of consolidated
subsidiaries, except that minority interests in a small business
investment company or investment fund that holds nonfinancial equity
investments, and minority interests in a subsidiary that is engaged in
nonfinancial activities and is held under one of the legal authorities
listed in section 1(c)(19) of this appendix A, are not included in Tier
1 capital or total capital.
(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;
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\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.
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(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\
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\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.
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(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,
[[Page 25]]
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, 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) 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;
(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 purchased credit card relationships, mortgage servicing
assets and non-mortgage servicing assets; and
(iv) Credit-enhancing interest-only strips (as defined in section
4(a)(3) of this appendix A), as provided in section 2(c)(4).
(v) Nonfinancial equity investments as provided by section 2(c)(5)
of this appendix A.
(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 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, credit-
enhancing interest-only strips as defined in section 4(a)(3) are
deducted from Tier 1 capital in accordance with section 2(c)(4) of this
appendix A. Any non credit-enhancing IO strips receivable are subject to
a 100% risk weight under section 3(a)(4) of this appendix A.
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(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 other identifiable intangibles, other than purchased
credit card relationships, mortgage servicing assets and non-mortgage
servicing assets.
(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.
[[Page 26]]
(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 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) Credit-enhancing interest-only strips. Credit-enhancing
interest-only strips, whether purchased or retained, that exceed 25% of
Tier 1 capital must be deducted from Tier 1 capital. Purchased and
retained credit-enhancing interest-only strips, on a non-tax adjusted
basis, are included in the total amount that is used for purposes of
determining whether a bank exceeds its Tier 1 capital.
(i) The 25% limitation on credit-enhancing interest-only strips will
be based on Tier 1 capital net of goodwill and all identifiable
intangibles, other than purchased credit card relationships, mortgage
servicing assets and non-mortgage servicing assets.
(ii) Banks must value each credit-enhancing interest-only strip
included in Tier 1 capital at least quarterly. The quarterly
determination of the current fair value of the credit-enhancing
interest-only strip must include adjustments for any significant changes
in original valuation assumptions, including changes in prepayment
estimates.
(iii) Banks may elect to deduct disallowed credit-enhancing
interest-only strips 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.
(5) Nonfinancial equity investments--(i) General. (A) A bank must
deduct from its Tier 1 capital the appropriate percentage, as determined
in accordance with Table A, of the adjusted carrying value of all
nonfinancial equity investments held by the bank and its subsidiaries.
Table A.--Deduction for Nonfinancial Equity Investments
------------------------------------------------------------------------
Aggregate adjusted carrying value of all
nonfinancial equity investments held Deduction from Tier 1 Capital
directly or indirectly by banks (as a (as a percentage of the
percentage of the Tier 1 capital of the adjusted carrying value of
bank)\1\ the investment)
------------------------------------------------------------------------
Less than 15 percent..................... 8.0 percent.
Greater than or equal to 15 percent but 12.0 percent.
less than 25 percent.
[[Page 27]]
Greater than or equal to 25 percent...... 25.0 percent.
------------------------------------------------------------------------
\1\ For purposes of calculating the adjusted carrying value of
nonfinancial equity investments as a percentage of Tier 1 capital,
Tier 1 capital is defined as the sum of the Tier 1 capital elements
net of goodwill and net of all identifiable intangible assets other
than mortgage servicing assets, nonmortgage servicing assets and
purchased credit card relationships, but prior to the deduction for
disallowed mortgage servicing assets, disallowed nonmortgage servicing
assets, disallowed purchased credit card relationships, disallowed
credit-enhancing interest only strips (both purchased and retained),
disallowed deferred tax assets, and nonfinancial equity investments.
(B) Deductions for nonfinancial equity investments must be applied
on a marginal basis to the portions of the adjusted carrying value of
nonfinancial equity investments that fall within the specified ranges of
the bank's Tier 1 capital. For example, if the adjusted carrying value
of all nonfinancial equity investments held by a bank equals 20 percent
of the Tier 1 capital of the bank, then the amount of the deduction
would be 8 percent of the adjusted carrying value of all investments up
to 15 percent of the bank's Tier 1 capital, and 12 percent of the
adjusted carrying value of all investments equal to, or in excess of, 15
percent of the bank's Tier 1 capital.
(C) The total adjusted carrying value of any nonfinancial equity
investment that is subject to deduction under section 2(c)(5) of this
appendix A is excluded from the bank's weighted risk assets for purposes
of computing the denominator of the bank's risk-based capital ratio. For
example, if 8 percent of the adjusted carrying value of a nonfinancial
equity investment is deducted from Tier 1 capital, the entire adjusted
carrying value of the investment will be excluded from risk-weighted
assets in calculating the denominator of the risk-based capital ratio.
(D) Banks engaged in equity investment activities, including those
banks with a high concentration in nonfinancial equity investments
(e.g., in excess of 50 percent of Tier 1 capital), will be monitored and
may be subject to heightened supervision, as appropriate, by the OCC to
ensure that such banks maintain capital levels that are appropriate in
light of their equity investment activities, and the OCC may impose a
higher capital charge in any case where the circumstances, such as the
level of risk of the particular investment or portfolio of investments,
the risk management systems of the bank, or other information, indicate
that a higher minimum capital requirement is appropriate.
(ii) Small business investment company investments. (A)
Notwithstanding section 2(c)(5)(i) of this appendix A, no deduction is
required for nonfinancial equity investments that are made by a bank or
its subsidiary through a SBIC that is consolidated with the bank, or in
a SBIC that is not consolidated with the bank, to the extent that such
investments, in the aggregate, do not exceed 15 percent of the Tier 1
capital of the bank. Except as provided in paragraph (c)(5)(ii)(B) of
this section, any nonfinancial equity investment that is held through or
in a SBIC and not deducted from Tier 1 capital will be assigned to the
100 percent risk-weight category and included in the bank's consolidated
risk-weighted assets.
(B) If a bank has an investment in a SBIC that is consolidated for
accounting purposes but the SBIC is not wholly owned by the bank, the
adjusted carrying value of the bank's nonfinancial equity investments
held through the SBIC is equal to the bank's proportionate share of the
SBIC's adjusted carrying value of its equity investments in nonfinancial
companies. The remainder of the SBIC's adjusted carrying value (i.e.,
the minority interest holders' proportionate share) is excluded from the
risk-weighted assets of the bank.
(C) If a bank has an investment in a SBIC that is not consolidated
for accounting purposes and has current information that identifies the
percentage of the SBIC's assets that are equity investments in
nonfinancial companies, the bank may reduce the adjusted carrying value
of its investment in the SBIC proportionately to reflect the percentage
of the adjusted carrying value of the SBIC's assets that are not equity
investments in nonfinancial companies. The amount by which the adjusted
carrying value of the bank's investment in the SBIC is reduced under
this paragraph will be risk weighted at 100 percent and included in the
bank's risk-weighted assets.
(D) To the extent the adjusted carrying value of all nonfinancial
equity investments that the bank holds through a consolidated SBIC or in
a nonconsolidated SBIC equals or exceeds, in the aggregate, 15 percent
of the Tier 1 capital of the bank, the appropriate percentage of such
amounts, as set forth in Table A, must be deducted from the bank's Tier
1 capital. In addition, the aggregate adjusted carrying value of all
nonfinancial equity investments held through a consolidated SBIC and in
a nonconsolidated SBIC
[[Page 28]]
(including any nonfinancial equity investments for which no deduction is
required) must be included in determining, for purposes of Table A the
total amount of nonfinancial equity investments held by the bank in
relation to its Tier 1 capital.
(iii) Nonfinancial equity investments excluded. (A) Notwithstanding
section 2(c)(5)(i) and (ii) of this appendix A, no deduction from Tier 1
capital is required for the following:
(1) Nonfinancial equity investments (or portion of such investments)
made by the bank prior to March 13, 2000, and continuously held by the
bank since March 13, 2000.
(2) Nonfinancial equity investments made on or after March 13, 2000,
pursuant to a legally binding written commitment that was entered into
by the bank prior to March 13, 2000, and that required the bank to make
the investment, if the bank has continuously held the investment since
the date the investment was acquired.
(3) Nonfinancial equity investments received by the bank through a
stock split or stock dividend on a nonfinancial equity investment made
prior to March 13, 2000, provided that the bank provides no
consideration for the shares or interests received, and the transaction
does not materially increase the bank's proportional interest in the
nonfinancial company.
(4) Nonfinancial equity investments received by the bank through the
exercise on or after March 13, 2000, of an option, warrant, or other
agreement that provides the bank with the right, but not the obligation,
to acquire equity or make an investment in a nonfinancial company, if
the option, warrant, or other agreement was acquired by the bank prior
to March 13, 2000, and the bank provides no consideration for the
nonfinancial equity investments.
(B) Any excluded nonfinancial equity investments described in
section 2(c)(5)(iii)(A) of this appendix A must be included in
determining the total amount of nonfinancial equity investments held by
the bank in relation to its Tier 1 capital for purposes of Table A. In
addition, any excluded nonfinancial equity investments will be risk
weighted at 100 percent and included in the bank's risk-weighted assets.
(6) 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
[[Page 29]]
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 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\
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\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
[[Page 30]]
States Government or its agencies, or the central government of an OECD
country, 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\
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\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.
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(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.
(xiii) Claims on, or guaranteed by, a securities firm incorporated
in an OECD country, that satisfies the following conditions:
(A) If the securities firm is incorporated in the United States,
then the firm must be a broker-dealer that is registered with the SEC
and must be in compliance with the SEC's net capital regulation (17 CFR
240.15c3(1)).
(B) If the securities firm is incorporated in any other OECD
country, then the bank must be able to demonstrate that the firm is
subject to consolidated supervision and regulation, including its
subsidiaries, comparable to that imposed on depository institutions in
OECD countries; such regulation must include risk-based capital
standards comparable to those applied to depository institutions under
the Basel Capital Accord.\11a\
---------------------------------------------------------------------------
\11a\ See Accord on International Convergence of Capital Measurement
and Capital Standards as adopted by the Basle Committee on Banking
Regulations and Supervisory Practices (renamed as the Basel Committee on
Banking Supervision), dated July 1988 (amended 1998).
---------------------------------------------------------------------------
(C) The securities firm, whether incorporated in the United States
or another OECD country, must also have a long-term credit rating in
accordance with section 3(a)(2)(xiii)(C)(1) of this appendix A; a parent
company guarantee in accordance with section 3(a)(2)(xiii)(C)(2) of this
appendix A; or a collateralized claim in accordance with section
3(a)(2)(xiii)(C)(3) of this appendix A. Claims representing capital of a
securities firm must be risk weighted at 100 percent in accordance with
section 3(a)(4) of this Appendix A.
(1) Credit rating. The securities firm must have either a long-term
issuer credit rating or a credit rating on at least one issue of long-
term unsecured debt, from a NRSRO that is in one of the three highest
investment-grade categories used by the NRSRO. If the securities firm
has a credit rating from more than one NRSRO, the lowest credit rating
must be used to determine the credit rating under this paragraph.
[[Page 31]]
(2) Parent company guarantee. The claim on, or guaranteed by, the
securities firm must be guaranteed by the firm's parent company, and the
parent company must have either a long-term issuer credit rating or a
credit rating on at least one issue of long-term unsecured debt, from a
NRSRO that is in one of the three highest investment-grade categories
used by the NRSRO.
(3) Collateralized claim. The claim on the securities firm must be
collateralized subject to all of the following requirements:
(i) The claim must arise from a reverse repurchase/repurchase
agreement or securities lending/borrowing contract executed using
standard industry documentation.
(ii) The collateral must consist of debt or equity securities that
are liquid and readily marketable.
(iii) The claim and collateral must be marked-to-market daily.
(iv) The claim must be subject to daily margin maintenance
requirements under standard industry documentation.
(v) The contract from which the claim arises can be liquidated,
terminated, or accelerated immediately in bankruptcy or similar
proceedings, and the security or collateral agreement will not be stayed
or avoided under the applicable law of the relevant jurisdiction. To be
exempt from the automatic stay in bankruptcy in the United States, the
claim must arise from a securities contract or a repurchase agreement
under section 555 or 559, respectively, of the Bankruptcy Code (11
U.S.C. 555 or 559), a qualified financial contract under section
11(e)(8) of the Federal Deposit Insurance Act (12 U.S.C. 1821(e)(8)), or
a netting contract between or among financial institutions under
sections 401-407 of the Federal Deposit Insurance Corporation
Improvement Act of 1991 (912 U.S.C. 4407), or the Regulation EE (12 CFR
part 231).
(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 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
[[Page 32]]
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: \11b\
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\11b\ 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 4(b) of this appendix A.
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(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%;\11c\
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\11c\ 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.
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(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:
(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:
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\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.
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[[Page 33]]
(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,
\12a\ including:
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\12a\ A bank subject to the market risk capital requirements
pursuant to appendix B of this part 3 may calculate the capital
requirement for qualifying securities borrowing transactions pursuant to
section 3(a)(1)(ii) of appendix B of this part 3.
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(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.
(x) Claims representing capital of a securities firm notwithstanding
section 3(a)(2)(xiii) of this appendix A.
(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.
However, direct credit substitutes, recourse obligations, and securities
issued in connection with asset securitizations are treated as described
in section 4 of this appendix A.
(1) 100 percent credit conversion factor. (i) [Reserved] \13\
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\13\ [Reserved]
---------------------------------------------------------------------------
(ii) Risk participations purchased in bankers' acceptances;
(iii) [Reserved] \14\
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\14\ [Reserved]
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(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\
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\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.
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(2) 50 percent credit conversion factor. (i) Transaction-related
contingencies including, among other things, performance bonds and
performance-based standby letters of credit
[[Page 34]]
related to a particular transaction.\16\ To the 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;
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\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
non-financial or commercial obligation. Participations in performance-
based standby letters of credit are treated in accordance with section 4
of this appendix A.
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(ii) Unused portion of commitments, including home equity lines of
credit, with an original maturity exceeding one year; \17\ and
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\17\ Participations in commitments are treated in accordance with
section 4 of this appendix A.
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(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--
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\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
[[Page 35]]
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.
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\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.
Table B--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=0.4xAgross+(0.6xNGRxAgross)
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
[[Page 36]]
relevant law and to ensure that the qualifying bilateral netting
contract continues to satisfy the requirement of this section.
(6) The bank maintains in its files documentation adequate to
support the netting of a derivative contract.\21\
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\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.
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\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.
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(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.
Section 4. Recourse, Direct Credit Substitutes and Positions in
Securitizations
(a) Definitions. For purposes of this section 4 of this appendix A,
the following definitions apply:
(1) Credit derivative means a contract that allows one party (the
protection purchaser) to transfer the credit risk of an asset or off-
balance sheet credit exposure to another party (the protection
provider). The value of a credit derivative is dependent, at least in
part, on the credit performance of a ``reference asset.''
(2) Credit-enhancing interest-only strip means an on-balance sheet
asset that, in form or in substance:
(i) Represents the contractual right to receive some or all of the
interest due on transferred assets; and
(ii) Exposes the bank to credit risk directly or indirectly
associated with the transferred assets that exceeds its pro rata claim
on the assets whether through subordination provisions or other credit
enhancing techniques.
(3) Credit-enhancing representations and warranties means
representations and warranties that are made or assumed in connection
with a transfer of assets (including loan servicing assets) and that
obligate a bank to protect investors from losses arising from credit
risk in the assets transferred or the loans serviced. Credit-enhancing
representations and warranties include promises to protect a party from
losses resulting from the default or nonperformance of another party or
from an insufficiency in the value of the collateral. Credit-enhancing
representations and warranties do not include:
(i) Early-default clauses and similar warranties that permit the
return of, or premium refund clauses covering, 1-4 family residential
first mortgage loans (as described in section 3(a)(3)(iii) of this
appendix A) for a period not to exceed 120 days from the date of
transfer. These warranties may cover only those loans that were
originated within 1 year of the date of transfer;
(ii) Premium refund clauses that cover assets guaranteed, in whole
or in part, by the U.S. Government, a U.S. Government agency, or a U.S.
Government-sponsored enterprise, provided the premium refund clauses are
for a period not to exceed 120 days from the date of transfer; or
(iii) Warranties that permit the return of assets in instances of
fraud, misrepresentation or incomplete documentation.
(4) Direct credit substitute means an arrangement in which a bank
assumes, in form or in substance, credit risk associated with an on- or
off-balance sheet asset or exposure that was not previously owned by the
bank (third-party asset) and the risk assumed by the bank exceeds the
pro rata share of the bank's interest in the third-party asset. If a
bank has no claim on the third-party asset, then the bank's assumption
of any credit risk is a direct credit substitute. Direct credit
substitutes include:
(i) Financial standby letters of credit that support financial
claims on a third party
[[Page 37]]
that exceed a bank's pro rata share in the financial claim;
(ii) Guarantees, surety arrangements, credit derivatives and similar
instruments backing financial claims that exceed a bank's pro rata share
in the financial claim;
(iii) Purchased subordinated interests that absorb more than their
pro rata share of losses from the underlying assets;
(iv) Credit derivative contracts under which the bank assumes more
than its pro rata share of credit risk on a third-party asset or
exposure;
(v) Loans or lines of credit that provide credit enhancement for the
financial obligations of a third party;
(vi) Purchased loan servicing assets if the servicer is responsible
for credit losses or if the servicer makes or assumes credit-enhancing
representations and warranties with respect to the loans serviced.
Mortgage servicer cash advances that meet the conditions of section
4(a)(8)(i) and (ii) of this appendix A, are not direct credit
substitutes; and
(vii) Clean-up calls on third-party assets. Clean-up calls that are
10% or less of the original pool balance and that are exercisable at the
option of the bank are not direct credit substitutes.
(5) Externally rated means that an instrument or obligation has
received a credit rating from at least one nationally recognized
statistical rating organization.
(6) Face amount means the notional principal, or face value, amount
of an off-balance sheet item; the amortized cost of an asset not held
for trading purposes; and the fair value of a trading asset.
(7) Financial asset means cash or other monetary instrument,
evidence of debt, evidence of an ownership interest in an entity, or a
contract that conveys a right to receive or exchange cash or another
financial instrument from another party.
(8) Financial standby letter of credit means a letter of credit or
similar arrangement that represents an irrevocable obligation to a
third-party beneficiary:
(i) To repay money borrowed by, or advanced to, or for the account
of, a second party (the account party); or
(ii) To make payment on behalf of the account party, in the event
that the account party fails to fulfill its obligation to the
beneficiary.
(9) Mortgage servicer cash advance means funds that a residential
mortgage servicer advances to ensure an uninterrupted flow of payments,
including advances made to cover foreclosure costs or other expenses to
facilitate the timely collection of the loan. A mortgage servicer cash
advance is not a recourse obligation or a direct credit substitute if:
(i) The servicer is entitled to full reimbursement and this right is
not subordinated to other claims on the cash flows from the underlying
asset pool; or
(ii) For any one loan, the servicer's obligation to make
nonreimbursable advances is contractually limited to an insignificant
amount of the outstanding principal amount of that loan.
(10) Nationally recognized statistical rating organization (NRSRO)
means an entity recognized by the Division of Market Regulation of the
Securities and Exchange Commission (or any successor Division)
(Commission) as a nationally recognized statistical rating organization
for various purposes, including the Commission's uniform net capital
requirements for brokers and dealers.
(11) Recourse means a bank's retention, in form or in substance, of
any credit risk directly or indirectly associated with an asset it has
sold that exceeds a pro rata share of that bank's claim on the asset. If
a bank has no claim on a sold asset, then the retention of any credit
risk is recourse. A recourse obligation typically arises when a bank
transfers assets and retains an explicit obligation to repurchase assets
or to absorb losses due to a default on the payment of principal or
interest or any other deficiency in the performance of the underlying
obligor or some other party. Recourse may also exist implicitly if a
bank provides credit enhancement beyond any contractual obligation to
support assets it has sold. The following are examples of recourse
arrangements:
(i) Credit-enhancing representations and warranties made on
transferred assets;
(ii) Loan servicing assets retained pursuant to an agreement under
which the bank will be responsible for losses associated with the loans
serviced. Mortgage servicer cash advances that meet the conditions of
section 4(a)(8)(i) and (ii) of this appendix A, are not recourse
arrangements;
(iii) Retained subordinated interests that absorb more than their
pro rata share of losses from the underlying assets;
(iv) Assets sold under an agreement to repurchase, if the assets are
not already included on the balance sheet;
(v) Loan strips sold without contractual recourse where the maturity
of the transferred portion of the loan is shorter than the maturity of
the commitment under which the loan is drawn;
(vi) Credit derivatives issued that absorb more than the bank's pro
rata share of losses from the transferred assets; and
(vii) Clean-up calls. Clean-up calls that are 10% or less of the
original pool balance and that are exercisable at the option of the bank
are not recourse arrangements.
(12) Residual interest means any on-balance sheet asset that
represents an interest (including a beneficial interest) created by a
transfer that qualifies as a sale (in accordance with generally accepted
accounting principles) of financial assets, whether
[[Page 38]]
through a securitization or otherwise, and that exposes a bank to any
credit risk directly or indirectly associated with the transferred asset
that exceeds a pro rata share of that bank's claim on the asset, whether
through subordination provisions or other credit enhancement techniques.
Residual interests generally include credit-enhancing interest-only
strips, spread accounts, cash collateral accounts, retained subordinated
interests (and other forms of overcollateralization) and similar assets
that function as a credit enhancement. Residual interests further
include those exposures that, in substance, cause the bank to retain the
credit risk of an asset or exposure that had qualified as a residual
interest before it was sold. Residual interests generally do not include
interests purchased from a third party.
(13) Risk participation means a participation in which the
originating party remains liable to the beneficiary for the full amount
of an obligation (e.g. a direct credit substitute) notwithstanding that
another party has acquired a participation in that obligation.
(14) Securitization means the pooling and repackaging by a special
purpose entity of assets or other credit exposures that can be sold to
investors. Securitization includes transactions that create stratified
credit risk positions whose performance is dependent upon an underlying
pool of credit exposures, including loans and commitments.
(15) Structured finance program means a program where receivable
interests and asset-backed securities issued by multiple participants
are purchased by a special purpose entity that repackages those
exposures into securities that can be sold to investors. Structured
finance programs allocate credit risks, generally, between the
participants and credit enhancement provided to the program.
(16) Traded position means a position retained, assumed or issued in
connection with a securitization that is externally rated, where there
is a reasonable expectation that, in the near future, the rating will be
relied upon by:
(i) Unaffiliated investors to purchase the position; or
(ii) An unaffiliated third party to enter into a transaction
involving the position, such as a purchase, loan or repurchase
agreement.
(b) Credit equivalent amounts and risk weights of recourse
obligations and direct credit substitutes--(1) Credit-equivalent amount.
Except as otherwise provided, the credit-equivalent amount for a
recourse obligation or direct credit substitute is the full amount of
the credit-enhanced assets for which the bank directly or indirectly
retains or assumes credit risk multiplied by a 100% conversion factor.
(2) Risk-weight factor. To determine the bank's risk-weighted assets
for off-balance sheet recourse obligations and direct credit
substitutes, the credit equivalent amount is assigned to the risk
category appropriate to the obligor in the underlying transaction, after
considering any associated guarantees or collateral. For a direct credit
substitute that is an on-balance sheet asset (e.g., a purchased
subordinated security), a bank must calculate risk-weighted assets using
the amount of the direct credit substitute and the full amount of the
assets it supports, i.e., all the more senior positions in the
structure.
(c) Credit equivalent amount and risk weight of participations in,
and syndications of, direct credit substitutes. The credit equivalent
amount for a participation interest in, or syndication of, a direct
credit substitute is calculated and risk weighted as follows:
(1) In the case of a direct credit substitute in which a bank has
conveyed a risk participation, the full amount of the assets that are
supported by the direct credit substitute is converted to a credit
equivalent amount using a 100% conversion factor. The pro rata share of
the credit equivalent amount that has been conveyed through a risk
participation is then assigned to whichever risk-weight category is
lower: the risk-weight category appropriate to the obligor in the
underlying transaction, after considering any associated guarantees or
collateral, or the risk-weight category appropriate to the party
acquiring the participation. The pro rata share of the credit equivalent
amount that has not been participated out is assigned to the risk-weight
category appropriate to the obligor after considering any associated
guarantees or collateral.
(2) In the case of a direct credit substitute in which the bank has
acquired a risk participation, the acquiring bank's pro rata share of
the direct credit substitute is multiplied by the full amount of the
assets that are supported by the direct credit substitute and converted
using a 100% credit conversion factor. The resulting credit equivalent
amount is then assigned to the risk-weight category appropriate to the
obligor in the underlying transaction, after considering any associated
guarantees or collateral.
(3) In the case of a direct credit substitute that takes the form of
a syndication where each bank or participating entity is obligated only
for its pro rata share of the risk and there is no recourse to the
originating entity, each bank's credit equivalent amount will be
calculated by multiplying only its pro rata share of the assets
supported by the direct credit substitute by a 100% conversion factor.
The resulting credit equivalent amount is then assigned to the risk-
weight category appropriate to the obligor in the underlying
transaction, after considering any associated guarantees or collateral.
[[Page 39]]
(d) Externally rated positions: credit-equivalent amounts and risk
weights.--(1) Traded positions. With respect to a recourse obligation,
direct credit substitute, residual interest (other than a credit-
enhancing interest-only strip) or asset- or mortgage-backed security
that is a ``traded position'' and that has received an external rating
on a long-term position that is one grade below investment grade or
better or a short-term position that is investment grade, the bank may
multiply the face amount of the position by the appropriate risk weight,
determined in accordance with Tables C or D of this Appendix A.\24\ If a
traded position receives more than one external rating, the lowest
single rating will apply.
---------------------------------------------------------------------------
\24\ Stripped mortgage-backed securities or other similar
instruments, such as interest-only or principal-only strips, that are
not credit enhancing must be assigned to the 100% risk category.
Table C
------------------------------------------------------------------------
Risk weight
Long-term rating category Examples (In percent)
------------------------------------------------------------------------
Highest or second highest AAA, AA............. 20
investment grade.
Third highest investment grade.... A................... 50
Lowest investment grade........... BBB................. 100
One category below investment BB.................. 200
grade.
------------------------------------------------------------------------
Table D
------------------------------------------------------------------------
Risk weight
Short-term rating category Examples (In percent)
------------------------------------------------------------------------
Highest investment grade.......... A-1, P-1............ 20
Second highest investment grade... A-2, P-2............ 50
Lowest investment grade........... A-3, P-3............ 100
------------------------------------------------------------------------
(2) Non-traded positions. A recourse obligation, direct credit
substitute, residual interest (but not a credit-enhancing interest-only
strip) or asset- or mortgage-backed security extended in connection with
a securitization that is not a ``traded position'' may be assigned a
risk weight in accordance with section 4(d)(1) of this appendix A if:
(i) It has been externally rated by more than one NRSRO;
(ii) It has received an external rating on a long-term position that
is one category below investment grade or better or a short-term
position that is investment grade by all NRSROs providing a rating;
(iii) The ratings are publicly available; and
(iv) The ratings are based on the same criteria used to rate traded
positions.
If the ratings are different, the lowest rating will determine the risk
category to which the recourse obligation, residual interest or direct
credit substitute will be assigned.
(e) Senior positions not externally rated. For a recourse
obligation, direct credit substitute, residual interest or asset- or
mortgage-backed security that is not externally rated but is senior or
preferred in all features to a traded position (including
collateralization and maturity), a bank may apply a risk weight to the
face amount of the senior position in accordance with section 4(d)(1) of
this appendix A, based upon the traded position, subject to any current
or prospective supervisory guidance and the bank satisfying the OCC that
this treatment is appropriate. This section will apply only if the
traded position provides substantive credit support to the unrated
position until the unrated position matures.
(f) Residual Interests--(1) Concentration limit on credit-enhancing
interest-only strips. In addition to the capital requirement provided by
section 4(f)(2) of this appendix A, a bank must deduct from Tier 1
capital all credit-enhancing interest-only strips in excess of 25
percent of Tier 1 capital in accordance with section 2(c)(2)(iv) of this
appendix A.
(2) Credit-enhancing interest-only strip capital requirement. After
applying the concentration limit to credit-enhancing interest-only
strips in accordance with section (f)(1), a bank must maintain risk-
based capital for a credit-enhancing interest-only strip equal to the
remaining amount of the credit-enhancing interest-only strip (net of any
existing associated deferred tax liability), even if the amount of risk-
based capital required to be maintained exceeds the full risk-based
capital requirement for the assets transferred. Transactions that, in
substance, result in the retention of credit risk associated with a
transferred credit-enhancing interest-only strip will be treated as if
the credit-enhancing interest-only strip was retained by the bank and
not transferred.
[[Page 40]]
(3) Other residual interests capital requirement. Except as provided
in sections (d) or (e) of this section, a bank must maintain risk-based
capital for a residual interest (excluding a credit-enhancing interest-
only strip) equal to the face amount of the residual interest that is
retained on the balance sheet (net of any existing associated deferred
tax liability), even if the amount of risk-based capital required to be
maintained exceeds the full risk-based capital requirement for the
assets transferred. Transactions that, in substance, result in the
retention of credit risk associated with a transferred residual interest
will be treated as if the residual interest was retained by the bank and
not transferred.
(4) Residual interests and other recourse obligations. Where the
aggregate capital requirement for residual interests (including credit-
enhancing interest-only strips) and recourse obligations arising from
the same transfer of assets exceed the full risk-based capital
requirement for those assets, a bank must maintain risk-based capital
equal to the greater of the risk-based capital requirement for the
residual interest as calculated under sections 4(f)(1) through (3) of
this appendix A or the full risk-based capital requirement for the
assets transferred.
(g) Positions that are not rated by an NRSRO. A position (but not a
residual interest) extended in connection with a securitization and that
is not rated by an NRSRO may be risk-weighted based on the bank's
determination of the credit rating of the position, as specified in
Table E of this appendix A, multiplied by the face amount of the
position. In order to qualify for this treatment, the bank's system for
determining the credit rating of the position must meet one of the three
alternative standards set out in section 4(g)(1)through (3) of this
appendix A.
Table E
------------------------------------------------------------------------
Risk weight
Rating category Examples (In percent)
------------------------------------------------------------------------
Investment grade.................. BBB, or better...... 100
One category below investment BB.................. 200
grade.
------------------------------------------------------------------------
(1) Internal risk rating used for asset-backed programs. A direct
credit substitute (but not a purchased credit-enhancing interest-only
strip) is assumed by a bank in connection with an asset-backed
commercial paper program sponsored by the bank and the bank is able to
demonstrate to the satisfaction of the OCC, prior to relying upon its
use, that the bank's internal credit risk rating system is adequate.
Adequate internal credit risk rating systems usually contain the
following criteria:
(i) The internal credit risk system is an integral part of the
bank's risk management system that explicitly incorporates the full
range of risks arising from a bank's participation in securitization
activities;
(ii) Internal credit ratings are linked to measurable outcomes, such
as the probability that the position will experience any loss, the
position's expected loss given default, and the degree of variance in
losses given default on that position;
(iii) The bank's internal credit risk system must separately
consider the risk associated with the underlying loans or borrowers, and
the risk associated with the structure of a particular securitization
transaction;
(iv) The bank's internal credit risk system must identify gradations
of risk among ``pass'' assets and other risk positions;
(v) The bank must have clear, explicit criteria that are used to
classify assets into each internal risk grade, including subjective
factors;
(vi) The bank must have independent credit risk management or loan
review personnel assigning or reviewing the credit risk ratings;
(vii) An internal audit procedure should periodically verify that
internal risk ratings are assigned in accordance with the bank's
established criteria.
(viii) The bank must monitor the performance of the internal credit
risk ratings assigned to nonrated, nontraded direct credit substitutes
over time to determine the appropriateness of the initial credit risk
rating assignment and adjust individual credit risk ratings, or the
overall internal credit risk ratings system, as needed; and
(ix) The internal credit risk system must make credit risk rating
assumptions that are consistent with, or more conservative than, the
credit risk rating assumptions and methodologies of NRSROs.
(2) Program Ratings. A direct credit substitute or recourse
obligation (but not a residual interest) is assumed or retained by a
bank in connection with a structured finance program and a NRSRO has
reviewed the terms of the program and stated a rating for positions
associated with the program. If the program has options for different
combinations of assets, standards, internal credit enhancements and
other relevant factors, and the NRSRO specifies ranges of rating
categories to them, the bank may apply the rating category applicable to
the option that corresponds to the bank's position. In order
[[Page 41]]
to rely on a program rating, the bank must demonstrate to the OCC's
satisfaction that the credit risk rating assigned to the program meets
the same standards generally used by NRSROs for rating traded positions.
The bank must also demonstrate to the OCC's satisfaction that the
criteria underlying the NRSRO's assignment of ratings for the program
are satisfied for the particular position. If a bank participates in a
securitization sponsored by another party, the OCC may authorize the
bank to use this approach based on a program rating obtained by the
sponsor of the program.
(3) Computer Program. The bank is using an acceptable credit
assessment computer program to determine the rating of a direct credit
substitute or recourse obligation (but not a residual interest) extended
in connection with a structured finance program. A NRSRO must have
developed the computer program and the bank must demonstrate to the
OCC's satisfaction that ratings under the program correspond credibly
and reliably with the rating of traded positions.
(h) Limitations on risk-based capital requirements--(1) Low-level
exposure rule. If the maximum contractual exposure to loss retained or
assumed by a bank is less than the effective risk-based capital
requirement, as determined in accordance with section 4(b) of this
appendix A, for the asset supported by the bank's position, the risk
based capital required under this appendix A is limited to the bank's
contractual exposure, less any recourse liability account established in
accordance with generally accepted accounting principles. This
limitation does not apply when a bank provides credit enhancement beyond
any contractual obligation to support assets that it has sold.
(2) Related on-balance sheet assets. If an asset is included in the
calculation of the risk-based capital requirement under this section 4
of this appendix A and also appears as an asset on a bank's balance
sheet, the asset is risk-weighted only under this section 4 of this
appendix A, except in the case of loan servicing assets and similar
arrangements with embedded recourse obligations or direct credit
substitutes. In that case, both the on-balance sheet servicing assets
and the related recourse obligations or direct credit substitutes must
both be separately risk weighted and incorporated into the risk-based
capital calculation.
(i) Alternative Capital Calculation for Small Business Obligations.
(1) Definitions. For purposes of this section 4(i):
(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 4(i), or
(B) Is adequately capitalized as defined in 12 CFR 6.4 without
applying the capital treatment described in this section 4(i) and has
received written permission from the appropriate district office of the
OCC to apply the capital treatment described in this section 4(i).
(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. Notwithstanding the risk-based
capital treatment outlined in section 2(c)(4) and any other subsection
(other than subsection (i)) of this section 4, 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; and
(ii) For purposes of calculating the bank's risk-based capital
ratio, the bank includes only the face amount of its recourse in its
risk-weighted assets.
(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
4(i)(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 4(i)(3) of this appendix A, the bank may continue to
apply the capital treatment described in section 4(i)(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 4(i) 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 4(i)) and, after applying the
capital treatment described in this section 4(i), the bank would be well
capitalized.
(ii) A bank shall compute its capital without regard to this section
4(i) for purposes of 12 U.S.C. 1831o(g) regardless of the bank's capital
level.
[[Page 42]]
Section 5. 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 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.
[[Page 43]]
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
Table 2--Credit Conversion Factors for Off-Balance Sheet Items
------------------------------------------------------------------------
-------------------------------------------------------------------------
100 Percent Conversion Factor
1. [Reserved]
------------------------------------------------------------------------
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
contracts are subject to a qualifying bilateral netting contract.
[[Page 44]]
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, which
appears in the Finding Aids section of the printed volume and on GPO
Access.
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 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.
---------------------------------------------------------------------------
[[Page 45]]
(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. (i) Covered positions. Calculate
adjusted risk-weighted assets, which equal risk-weighted assets (as
determined in accordance with appendix A of this part), excluding the
risk-weighted amount of all covered positions (except foreign exchange
positions outside the trading account and over-the-counter derivatives
positions).\7\
(ii) Securities borrowing transactions. In calculating adjusted
risk-weighted assets, a bank also may exclude a receivable that results
from the bank's posting of cash collateral in a securities borrowing
transaction to the extent that the receivable is collateralized by the
market value of the borrowed securities and subject to the following
conditions:
(A) The borrowed securities must be includable in the trading
account and must be liquid and readily marketable;
(B) The borrowed securities must be marked to market daily;
(C) The receivable must be subject to a daily margining requirement;
and
(D) The securities borrowing transaction must be a securities
contract for purposes of section 555 of the Bankruptcy Code (11 U.S.C.
555741(7)), a qualified financial contract for purposes of section
11(e)(8) of the Federal Deposit Insurance Act (12 U.S.C. 1821(e)(8)), or
a
[[Page 46]]
netting contract between or among financial institutions, for purposes
of sections 401-407 of the Federal Deposit Insurance Corporation
Improvement Act of 1991 (12 U.S.C. 4401-4407) or Regulation EE (12 CFR
Part 231).
---------------------------------------------------------------------------
\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;
(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.
---------------------------------------------------------------------------
[[Page 47]]
(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 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
[[Page 48]]
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
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.
[[Page 49]]
(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 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;
65 FR 75858, Dec. 5, 2000]
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.
[[Page 50]]
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
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:
[[Page 51]]
------------------------------------------------------------------------
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
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;
[[Page 52]]
(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
(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
[[Page 53]]
an Executive order, to be kept secret in 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
[[Page 54]]
OCC makes the following information 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 55]]
(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 56]]
(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 57]]
(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 58]]
(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 59]]
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 60]]
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 61]]
(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 62]]
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 63]]
(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 64]]
(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 65]]
(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 66]]
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 of Part 4--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 67]]
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
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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 69]]
(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.
5.39 Financial subsidiaries.
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., 24a, 24(Seventh), 93a, and 3101 et
seq.
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
[[Page 70]]
natural disasters or unusual transactions, after providing notice of the
change to the applicant and to any other party that the OCC determines
should receive notice.
(c) Additional information. The ``Comptroller's Corporate Manual''
(Manual) provides additional guidance, including policies, procedures,
and sample forms. The Manual is sent to all national banks and is
available for a fee by writing to the Comptroller of the Currency, P.O.
Box 70004, Chicago, IL 60673-0004.
Sec. 5.3 Definitions.
(a) Applicant means a person or entity that submits a notice or
application to the OCC under this part.
(b) Application means a submission requesting OCC approval to engage
in various corporate activities and transactions.
(c) Appropriate district office means:
(1) Bank Organization and Structure for all national bank
subsidiaries of certain holding companies assigned to the Washington,
DC, 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
[[Page 71]]
the OCC to engage in corporate activities and transactions as described
in this part.
(b) Availability of forms. Individual sample forms and instructions
for filings are available in the Manual and from each district office.
(c) Other applications accepted. At the request of the applicant,
the OCC may accept an application form or other filing submitted to
another Federal agency that covers the proposed action or transaction
and contains substantially the same information as required by the OCC.
The OCC may also require the applicant to submit supplemental
information.
(d) Where to file. An applicant should address a filing or other
submission under this part to the attention of the Licensing Manager at
the appropriate district office. However, the OCC may advise an
applicant through a pre-filing communication to send the filing or
submission directly to the Bank Organization and Structure Department or
elsewhere as otherwise directed by the OCC. Relevant addresses are
listed in the Manual.
(e) Incorporation of other material. An applicant may incorporate
any material contained in any other application or filing filed with the
OCC or other Federal agency by reference, provided that the material is
attached to the application and is current and responsive to the
information requested by the OCC. The filing must clearly indicate that
the information is so incorporated and include a cross-reference to the
information incorporated.
Sec. 5.5 Fees.
An applicant shall submit the appropriate filing fee, if any, in
connection with its filing. An applicant shall pay the fee by check
payable to the Comptroller of the Currency or by other means acceptable
to the OCC. The OCC publishes a fee schedule annually in the ``Notice of
Comptroller of the Currency fees,'' described in 12 CFR 8.8. The OCC
generally does not refund the filing fees.
Sec. 5.6 [Reserved]
Sec. 5.7 Investigations.
(a) Authority. The OCC may examine or investigate and evaluate facts
related to a filing to the extent necessary to reach an informed
decision.
(b) Fees. The OCC may assess fees for investigations or examinations
conducted under paragraph (a) of this section. The OCC publishes the
rates, described in 12 CFR 8.6, annually in the ``Notice of Comptroller
of the Currency fees.''
Sec. 5.8 Public notice.
(a) General. An applicant shall publish a public notice of its
filing in a newspaper of general circulation in the community in which
the applicant proposes to engage in business, on the date of filing, or
as soon as practicable before or after the date of filing.
(b) Contents of the public notice. The public notice shall state
that a filing is being made, the date of the filing, the name of the
applicant, the subject matter of the filing, that the public may submit
comments to the OCC, the address of the appropriate office(s) where
comments should be sent, the closing date of the public comment period,
and any other information that the OCC requires.
(c) Confirmation of public notice. The applicant shall mail or
otherwise deliver a statement containing the date of publication, the
name and address of the newspaper that published the public 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.
[[Page 72]]
(e) Joint public notices accepted. Upon the request of an applicant
for a transaction subject to the OCC's public notice requirements and
public notice required by another Federal agency, the OCC may accept
publication of a single joint notice containing the information required
by both the OCC and the other Federal agency, provided that the notice
states that comments must be submitted to both the OCC and, if
applicable, the other Federal agency.
(f) Public notice by the OCC. In addition to the foregoing, the OCC
may require or give public notice and request comment on any filing and
in any manner the OCC determines appropriate for the particular filing.
Sec. 5.9 Public availability.
(a) General. The OCC provides a copy of the public file to any
person who requests it. A requestor should submit a request for the
public file concerning a pending application to the appropriate district
office. A requestor should submit a request for the public file
concerning a decided or closed application to the Disclosure Officer,
Communications Division, at the address listed in the Manual. Requests
should be in writing. The OCC may impose a fee in accordance with 12 CFR
4.17 and with the rates the OCC publishes annually in the ``Notice of
Comptroller of the Currency Fees'' described in 12 CFR 8.8.
(b) Public file. A public file consists of the portions of the
filing, supporting data, supplementary information, and information
submitted by interested persons, to the extent that those documents have
not been afforded confidential treatment. Applicants and other
interested persons may request that confidential treatment be afforded
information submitted to the OCC pursuant to paragraph (c) of this
section.
(c) Confidential treatment. The applicant or an interested person
submitting information may request that specific information be treated
as confidential under the Freedom of Information Act, 5 U.S.C. 552 (see
12 CFR 4.12(b)). A submitter should draft its request for confidential
treatment narrowly to extend only to those portions of a document it
considers to be confidential. If a submitter requests confidential
treatment for information that the OCC does not consider to be
confidential, the OCC may include that information in the public file
after providing notice to the submitter. Moreover, at its own
initiative, the OCC may determine that certain information should be
treated as confidential and withhold that information from the public
file. A person requesting information withheld from the public file
should submit the request to the Disclosure Officer, Communications
Division, under the procedures described in 12 CFR part 4, subpart B.
That request may be subject to the predisclosure notice procedures of 12
CFR 4.16.
Sec. 5.10 Comments.
(a) Submission of comments. During the comment period, any person
may submit written comments on a filing to the appropriate district
office.
(b) Comment period--(1) General. Unless otherwise stated, the
comment period is 30 days after publication of the public notice
required by Sec. 5.8(a).
(2) Extension. The OCC may extend the comment period if:
(i) The applicant fails to file all required publicly available
information on a timely basis to permit review by interested persons or
makes a request for confidential treatment not granted by the OCC that
delays the public availability of that information;
(ii) Any person requesting an extension of time satisfactorily
demonstrates to the OCC that additional time is necessary to develop
factual information that the OCC determines is necessary to consider the
application; or
(iii) The OCC determines that other extenuating circumstances exist.
(3) Applicant response. The OCC may give the applicant an
opportunity to respond to comments received.
Sec. 5.11 Hearings and other meetings.
(a) Hearing requests. Prior to the end of the comment period, any
person may submit to the appropriate district office a written request
for a hearing on a filing. The request must describe the nature of the
issues or facts to be presented and the reasons why written submissions
would be insufficient to make an adequate presentation of
[[Page 73]]
those issues or facts to the OCC. A person requesting a hearing shall
simultaneously submit a copy of the request to the applicant.
(b) Action on a hearing request. The OCC may grant or deny a request
for a hearing and may limit the issues to those it deems relevant or
material. The OCC generally grants a hearing request only if the OCC
determines that written submissions would be insufficient or that a
hearing would otherwise benefit the decisionmaking process. The OCC also
may order a hearing if it concludes that a hearing would be in the
public interest.
(c) Denial of a hearing request. If the OCC denies a hearing
request, it shall notify the person requesting the hearing of the reason
for the denial.
(d) OCC procedures prior to the hearing--(1) Notice of Hearing. The
OCC issues a Notice of Hearing if it grants a request for a hearing or
orders a hearing because it is in the public interest. The OCC sends a
copy of the Notice of Hearing to the applicant, to the person requesting
the hearing, and anyone else requesting a copy. The Notice of Hearing
states the subject and date of the filing, the time and place of the
hearing, and the issues to be addressed.
(2) Presiding officer. The OCC appoints a presiding officer to
conduct the hearing. The presiding officer is responsible for all
procedural questions not governed by this section.
(e) Participation in the hearing. Any person who wishes to appear
(participant) shall notify the appropriate district office of his or her
intent to participate in the hearing within ten days from the date the
OCC issues the Notice of Hearing. At least five days before the hearing,
each participant shall submit to the appropriate district office, the
applicant, and any other person the OCC requires, the names of
witnesses, and one copy of each exhibit the participant intends to
present.
(f) Transcripts. The OCC arranges for a hearing transcript. The
person requesting the hearing generally bears the cost of one copy of
the transcript for his or her use.
(g) Conduct of the hearing--(1) Presentations. Subject to the
rulings of the presiding officer, the applicant and participants may
make opening statements and present witnesses, material, and data.
(2) Information submitted. A person presenting documentary material
shall furnish one copy to the OCC, and one copy to the applicant and
each participant.
(3) Laws not applicable to hearings. The Administrative Procedure
Act (5 U.S.C. 551 et seq.), the Federal Rules of Evidence (28 U.S.C.
Appendix), the Federal Rules of Civil Procedure (28 U.S.C. Rule 1 et
seq.), and the OCC's Rules of Practice and Procedure (12 CFR part 19) do
not apply to hearings under this section.
(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
[[Page 74]]
condition of an affiliate of the applicant that may reasonably reflect
on or affect the applicant.
(1) Conditional approval. The OCC may impose conditions on any
approval, including to address a significant supervisory, CRA (if
applicable), or compliance concern, if the OCC determines that the
conditions are necessary or appropriate to ensure that approval is
consistent with relevant statutory and regulatory standards and OCC
policies thereunder and safe and sound banking practices.
(2) Expedited review. The OCC grants eligible banks expedited review
within a specified time after filing or commencement of the public
comment period, including any extension of the comment period granted
pursuant to Sec. 5.10, as described in applicable sections of this part.
(i) The OCC may extend the expedited review process for a filing
subject to the CRA up to an additional 10 days if a comment contains
specific assertions concerning a bank's CRA performance that, if true,
would indicate a reasonable possibility that:
(A) A bank's CRA rating would be less than satisfactory,
institution-wide, or, where applicable, in a state or multistate MSA; or
(B) A bank's CRA performance would be less than satisfactory in an
MSA, or in the non-MSA portion of a state, in which it seeks to expand
through approval of an application for a deposit facility as defined in
12 U.S.C. 2902(3).
(ii) The OCC will remove a filing from expedited review procedures,
if the OCC concludes that the filing, or an adverse comment regarding
the filing, presents a significant supervisory, CRA (if applicable), or
compliance concern, or raises a significant legal or policy issue,
requiring additional OCC review. The OCC will provide the applicant with
a written explanation if it decides not to process an application from
an eligible bank under expedited review pursuant to this paragraph
(a)(2)(ii). For purposes of this section, a significant CRA concern
exists if the OCC concludes that:
(A) A bank's CRA rating is less than satisfactory, institution-wide,
or, where applicable, in a state or multistate MSA; or
(B) A bank's CRA performance is less than satisfactory in an MSA, or
in the non-MSA portion of a state, in which it seeks to expand through
approval of an application for a deposit facility as defined in 12
U.S.C. 2902(3).
(iii) Adverse comments that the OCC determines do not raise a
significant supervisory, CRA (if applicable), or compliance concern, or
a significant legal or policy issue, or are frivolous, filed primarily
as a means of delaying action on the filing, or that raise a CRA concern
that the OCC determines has been satisfactorily resolved, do not affect
the OCC's decision under paragraphs (a)(2)(i) or (a)(2)(ii) of this
section. The OCC considers a CRA concern to have been satisfactorily
resolved if the OCC previously reviewed (e.g., in an examination or an
application) a concern presenting substantially the same issue in
substantially the same assessment area during substantially the same
time, and the OCC determines that the concern would not warrant denial
or imposition of a condition on approval of the application.
(iv) If a bank files an application for any activity or transaction
that is dependent upon the approval of another application under this
part, or if requests for approval for more than one activity or
transaction are combined in a single application under applicable
sections of this part, none of the subject applications may be deemed
approved upon expiration of the applicable time periods, unless all of
the applications are subject to expedited review procedures and the
longest of the time periods expires without the OCC issuing a decision
or notifying the bank that the filings are not eligible for expedited
review under the standards in paragraph (a)(2)(ii) of this section.
(b) Denial. The OCC may deny a filing if:
(1) A significant supervisory, CRA (if applicable), or compliance
concern exists with respect to the applicant;
(2) Approval of the filing is inconsistent with applicable law,
regulation, or OCC policy thereunder; or
(3) The applicant fails to provide information requested by the OCC
that is necessary for the OCC to make an informed decision.
[[Page 75]]
(c) Required information and abandonment of filing. A filing must
contain information required by the applicable section set forth in this
part. To the extent necessary to evaluate an application, the OCC may
require an applicant to provide additional information. The OCC may deem
a filing abandoned if information required or requested by the OCC in
connection with the filing is not furnished within the time period
specified by the OCC.
(d) Notification of final disposition. The OCC notifies the
applicant, and any person who makes a written request, of the final
disposition of a filing, including confirmation of an expedited review
under this part. If the OCC denies a filing, the OCC notifies the
applicant in writing of the reasons for the denial.
(e) Publication of decision. The OCC will issue a public decision
when a decision represents a new or changed policy or presents issues of
general interest to the public or the banking industry. In rendering its
decisions, the OCC may elect not to disclose information that the OCC
deems to be private or confidential.
(f) Appeal. An applicant may file an appeal of an OCC decision with
the Deputy Comptroller for Bank Organization and Structure or with the
Ombudsman. Relevant addresses and telephone numbers are located in the
Manual.
(g) Extension of time. When the OCC approves or conditionally
approves a filing, the OCC generally gives the applicant a specified
period of time to commence that new or expanded activity. The OCC does
not generally grant an extension of the time specified to commence a new
or expanded corporate activity approved under this 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
[[Page 76]]
authorizing a national bank to open for business.
(4) Holding company means any company that controls or proposes to
control a national bank whether or not the company is a bank holding
company under section 2 of the Bank Holding Company Act, 12 U.S.C.
1841(a)(1).
(5) Lead depository institution means the largest depository
institution controlled by a bank holding company based on a comparison
of the average total assets controlled by each depository institution as
reported in its Consolidated Report of Condition and Income required to
be filed for the immediately preceding four calendar quarters.
(6) Organizing group means five or more persons acting on their own
behalf, or serving as representatives of a sponsoring holding company,
who apply to the OCC for a national bank charter.
(7) Preliminary approval means a decision by the OCC permitting an
organizing group to go forward with the organization of the proposed
national bank. A preliminary approval generally is subject to certain
conditions that an applicant must satisfy before the OCC will grant
final approval.
(e) Statutory requirements--(1) General. The OCC charters a national
bank under the authority of the National Bank Act of 1864, as amended,
12 U.S.C. 1 et seq. The name of a proposed bank must include the word
``national.'' In determining whether to approve an application to
establish a national bank, the OCC verifies that the proposed national
bank has complied with the following requirements of the National Bank
Act. A national bank shall:
(i) Draft and file articles of association with the OCC;
(ii) Draft and file an organization certificate containing specified
information with the OCC;
(iii) Ensure that all capital stock is paid in; and
(iv) Have at least five elected directors.
(2) Community Reinvestment Act. Twelve CFR part 25 requires the OCC
to take into account a proposed insured national bank's description of
how it will meet its CRA objectives.
(f) Policy--(1) General. The marketplace is normally the best
regulator of economic activity, and competition within the marketplace
promotes efficiency and better customer service. Accordingly, it is the
OCC's policy to approve proposals to establish national banks, including
minority-owned institutions, that have a reasonable chance of success
and that will be operated in a safe and sound manner. It is not the
OCC's policy to ensure that a proposal to establish a national bank is
without risk to the organizers or to protect existing institutions from
healthy competition from a new national bank.
(2) Policy considerations. (i) In evaluating an application to
establish a national bank, the OCC considers whether the proposed bank:
(A) Has organizers who are familiar with national banking laws and
regulations;
(B) Has competent management, including a board of directors, with
ability and experience relevant to the types of services to be provided;
(C) Has capital that is sufficient to support the projected volume
and type of business;
(D) Can reasonably be expected to achieve and maintain
profitability; and
(E) Will be operated in a safe and sound manner.
(ii) The OCC may also consider additional factors listed in section
6 of the Federal Deposit Insurance Act, 12 U.S.C. 1816, including the
risk to the Federal deposit insurance fund, and whether the proposed
bank's corporate powers are consistent with the purposes of the Federal
Deposit Insurance Act and the National Bank Act.
(3) OCC evaluation. The OCC evaluates a proposed national bank's
organizing group and its operating plan together. The OCC's judgment
concerning one may affect the evaluation of the other. An organizing
group and its operating plan must be stronger in markets where economic
conditions are marginal or competition is intense.
(g) Organizing group--(1) General. Strong organizing groups
generally include diverse business and financial interests and community
involvement. An organizing group must have the experience, competence,
willingness, and ability to be active in directing the
[[Page 77]]
proposed national bank's affairs in a safe and sound manner. The bank's
initial board of directors generally is comprised of many, if not all,
of the organizers. The operating plan and other information supplied in
the application must demonstrate an organizing group's collective
ability to establish and operate a successful bank in the economic and
competitive conditions of the market to be served. Each organizer should
be knowledgeable about the operating plan. A poor operating plan
reflects adversely on the organizing 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,
[[Page 78]]
or may be serious enough by themselves to result in denial. The OCC
considers inadequacies in an operating plan to reflect negatively on the
organizing group's ability to operate a successful bank.
(2) Earnings prospects. The organizing group shall submit pro forma
balance sheets and income statements as part of the operating plan. The
OCC reviews all projections for reasonableness of assumptions and
consistency with the operating plan.
(3) Management. (i) The organizing group shall include in the
operating plan information sufficient to permit the OCC to evaluate the
overall management ability of the organizing group. If the organizing
group has limited banking experience or community involvement, the
senior executive officers must be able to compensate for such
deficiencies.
(ii) The organizing group may not hire an officer or elect or
appoint a director if the OCC objects to that person at any time prior
to the date the bank commences business.
(4) Capital. A proposed bank must have sufficient initial capital,
net of any organizational expenses that will be charged to the bank's
capital after it begins operations, to support the bank's projected
volume and type of business.
(5) Community service. (i) The operating plan must indicate the
organizing group's knowledge of and plans for serving the community. The
organizing group shall evaluate the banking needs of the community,
including its consumer, business, nonprofit, and government sectors. The
operating plan must demonstrate how the proposed bank responds to those
needs consistent with the safe and sound operation of the bank. The
provisions of this paragraph may not apply to an application to organize
a bank for a special purpose.
(ii) As part of its operating plan, the organizing group shall
submit a statement that demonstrates its plans to achieve CRA
objectives.
(iii) Because community support is important to the long-term
success of a bank, the organizing group shall include plans for
attracting and maintaining community support.
(6) Safety and soundness. The operating plan must demonstrate that
the organizing group (and the sponsoring company, if any), is aware of,
and understands, national banking laws and regulations, and safe and
sound banking operations and practices. The OCC will deny an application
that does not meet these safety and soundness requirements.
(7) Fiduciary services. The operating plan must indicate if the
proposed bank intends to offer fiduciary services. The information
required by Sec. 5.26 shall be filed with the charter application. A
separate application is not required.
(i) Procedures--(1) Prefiling meeting. The OCC normally requires a
prefiling meeting with the organizers of a proposed national bank before
the organizers file an application. Organizers should be familiar with
the OCC's chartering policy and procedural requirements in the Manual
before the prefiling meeting. The prefiling meeting normally is held in
the district office where the application will be filed but may be held
at another location at the request of the applicant.
(2) Operating plan. An organizing group shall file an operating plan
that addresses the subjects discussed in paragraph (h) of this section.
(3) Spokesperson. The organizing group shall designate a
spokesperson to represent the organizing group in all contacts with the
OCC. The spokesperson shall be an organizer and proposed director of the
new bank, except a representative of the sponsor or sponsors may serve
as spokesperson if an application is sponsored by an existing holding
company, individuals currently affiliated with other depository
institutions, or individuals who, in the OCC's view, are otherwise
collectively experienced in banking and 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
[[Page 79]]
has filed its organization certificate and articles of association with
the OCC as required by law. In addition, the organizing group shall
elect a board of directors. The proposed bank may not conduct the
business of banking until the OCC grants final approval.
(ii) For all capital obtained through a public offering a proposed
national bank shall use an offering circular that complies with the
OCC's securities offering regulations, 12 CFR part 16.
(iii) A national bank in organization shall raise its capital before
it commences business. Preliminary approval expires if a national bank
in organization does not raise the required capital within 12 months
from the date the OCC grants preliminary approval. Approval expires if
the national bank does not commence business within 18 months from the
date the OCC grants preliminary approval.
(j) Expedited review. An application to establish a full-service
national bank that is sponsored by a bank holding company whose lead
depository institution is an eligible bank or eligible depository
institution is deemed preliminarily approved by the OCC as of the 15th
day after the close of the public comment period or the 45th day after
the filing is received by the OCC, whichever is later, unless the OCC:
(1) Notifies the applicant prior to that date that the filing is not
eligible for expedited review, or the expedited review process is
extended, under Sec. 5.13(a)(2); or
(2) Notifies the applicant prior to that date that the OCC has
determined that the proposed bank will offer banking services that are
materially different than those offered by the lead depository
institution.
(k) National bankers' banks--(1) Activities and customers. In
addition to the other requirements of this section, when an organizing
group seeks to organize a national bankers' bank, the organizing group
shall list in the application the anticipated activities and customers
or clients of the proposed national bankers' bank.
(2) Waiver of requirements. At the organizing group's request, the
OCC may waive requirements that are applicable to national banks in
general if those requirements are inappropriate for a national bankers'
bank and would impede its ability to provide desired services to its
market. An applicant must submit a request for a waiver with the
application and must support the request with adequate justification and
legal analysis. A national bankers' bank that is already in operation
may also request a waiver. The OCC cannot waive statutory provisions
that specifically apply to national bankers' banks pursuant to 12 U.S.C.
27(b)(1).
(3) Investments. A national bank may invest up to ten percent of its
capital and surplus in a bankers' bank and may own five percent or less
of any class of a bankers' bank's voting securities.
(l) Special purpose banks. An applicant for a national bank charter
that will limit its activities to fiduciary activities, credit card
operations, or another special purpose shall adhere to established
charter procedures with modifications appropriate for the circumstances
as determined by the OCC. An applicant for a national bank charter that
will have a community development focus shall also adhere to established
charter procedures with modifications appropriate for the circumstances
as determined by the OCC. In addition to the other requirements in this
section, a bank limited to fiduciary activities, credit card operations,
or another special purpose may not conduct that business until the OCC
grants final approval for the bank to commence operations. A national
bank that seeks to invest in a bank with a community development focus
must comply with applicable requirements of 12 CFR part 24.
Sec. 5.24 Conversion.
(a) Authority. 12 U.S.C. 35, 93a, 214a, 214b, 214c, and 2903.
(b) Licensing requirements. A state bank (including a ``state bank''
as defined in 12 U.S.C. 214(a)) or a Federal savings association shall
submit an application and obtain prior OCC approval to convert to a
national bank charter. A national bank shall give notice to the OCC
before converting to a state bank (including a ``state bank'' as defined
in 12 U.S.C. 214(a)) or Federal savings association.
[[Page 80]]
(c) Scope. This section describes procedures and standards governing
OCC review and approval of an application by a state bank or Federal
savings association to convert to a national bank charter. This section
also describes notice procedures for a national bank seeking to convert
to a state bank or Federal savings association.
(d) Conversion of a state bank or Federal savings association to a
national bank--(1) Policy. Consistent with the OCC's chartering policy,
it is OCC policy to allow conversion to a national bank charter by
another financial institution that can operate safely and soundly as a
national bank in compliance with applicable laws, regulations, and
policies. The OCC may deny an application by any state bank (including a
``state bank'' as defined in 12 U.S.C. 214(a)) and any Federal savings
association to convert to a national bank charter on the basis of the
standards for denial set forth in Sec. 5.13(b), or when conversion would
permit the applicant to escape supervisory action by its current
regulator.
(2) Procedures. (i) Prefiling communications. The applicant should
consult with the appropriate district office prior to filing if it
anticipates that its application will raise unusual or complex issues.
If a prefiling meeting is appropriate, it will normally be held in the
district office where the application will be filed, but may be held at
another location at the request of the applicant.
(ii) A state bank (including a state bank as defined in 12 U.S.C.
214(a)) or Federal savings association shall submit its application to
convert to a national bank to the appropriate district office. The
application must:
(A) Be signed by the president or other duly authorized officer;
(B) Identify each branch that the resulting bank expects to operate
after conversion;
(C) Include the institution's most recent audited financial
statements (if any);
(D) Include the latest report of condition and report of income (the
most recent daily statement of condition will suffice if the institution
does not file these reports);
(E) Unless otherwise advised by the OCC in a prefiling
communication, include an opinion of counsel that, in the case of a
state bank, the conversion is not in contravention of applicable state
law, or in the case of a Federal savings association, the conversion is
not in contravention of applicable Federal law;
(F) State whether the institution wishes to exercise fiduciary
powers after the conversion;
(G) Identify all subsidiaries that will be retained following the
conversion, and provide the information and analysis of the
subsidiaries' activities that would be required if the converting bank
or savings association were a national bank establishing each subsidiary
pursuant to Secs. 5.34 or 5.39; 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
[[Page 81]]
30th day after the filing is received by the OCC, unless the OCC
notifies the applicant prior to that date that the filing is not
eligible for expedited review under Sec. 5.13(a)(2).
(e) Conversion of a national bank to a state bank--(1) Procedure. A
national bank may convert to a state bank, in accordance with 12 U.S.C.
214c, without prior OCC approval. Termination of the national bank's
status as a national bank occurs upon the bank's completion of the
requirements of 12 U.S.C. 214a, and upon the appropriate district
office's receipt of the bank's national bank charter (or copy) in
connection with the consummation of the transaction.
(2) Notice of intent. A national bank that desires to convert to a
state bank shall submit to the appropriate district office a notice of
its intent to convert. The national bank shall file this notice when it
first submits a request to convert to the appropriate state authorities.
The appropriate district office then provides instructions to the
national bank for terminating its status as a national bank.
(3) Exceptions to the rules of general applicability. Sections 5.5
through 5.8, and 5.10 through 5.13, do not apply to the conversion of a
national bank to a state bank.
(f) Conversion of a national bank to a Federal savings association.
A national bank may convert to a Federal savings association without
prior OCC approval. The requirements and procedures set forth in
paragraph (e) of this section and 12 U.S.C. 214a and 12 U.S.C. 214c
apply to a conversion to a Federal savings association, except as
follows:
(1) In paragraph (e) of this section references to ``appropriate
state authorities'' mean ``appropriate Federal authorities''; and
(2) References in 12 U.S.C. 214c to the ``law of the State in which
the national banking association is located'' and ``any State
authority'' mean ``laws and regulations governing Federal savings
associations'' and ``Office of Thrift Supervision,'' respectively.
[61 FR 60363, Nov. 27, 1996, as amended at 65 FR 12910, Mar. 10, 2000]
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
[[Page 82]]
fiduciary powers shall submit to the OCC an application requesting
approval. The application must contain:
(A) A statement requesting full or limited powers (specifying which
powers);
(B) An opinion of counsel that the proposed activities do not
violate applicable Federal or state law, including citations to
applicable law;
(C) A statement that the capital and surplus of the national bank is
not less than the capital and surplus required by state law of state
banks, trust companies, and other corporations exercising comparable
fiduciary powers;
(D) Sufficient biographical information on proposed trust management
personnel to enable the OCC to assess their qualifications; and
(E) A description of the locations where the bank will conduct
fiduciary activities.
(ii) If approval to exercise fiduciary powers is desired in
connection with any other transaction subject to an application under
this part, the applicant covered under paragraph (e)(1)(ii) or
(e)(1)(iii) of this section may include a request for approval of
fiduciary powers, including the information required by paragraph
(e)(2)(i) of this section, as part of its other application. The OCC
does not require a separate application requesting approval to exercise
fiduciary powers under these circumstances.
(3) Expedited review. (i) An application by an eligible bank to
exercise fiduciary powers is deemed approved by the OCC as of the 30th
day after the application is received by the OCC, unless the OCC
notifies the bank prior to that date that the filing is not eligible for
expedited review under Sec. 5.13(a)(2).
(ii) An eligible bank applying for fiduciary powers may omit the
opinion of counsel required by paragraph (e)(2)(i)(B) of this section
unless such opinion is specifically requested by the OCC.
(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 in additional states. No further
application under this section is required when a national bank with
existing OCC approval to exercise fiduciary powers plans to engage in
any of the activities specified in Sec. 9.7(d) of this chapter or to
conduct activities ancillary to its fiduciary business, in a state in
addition to the state described in the application for fiduciary powers
that the OCC has approved. Instead, unless the bank provides notice
through other means (such as a merger application), the bank shall
provide written notice to the OCC no later than ten days after it begins
to engage in any of the activities specified in Sec. 9.7(d) of this
chapter in the new state. The written notice must identify the new state
or states involved, identify the fiduciary activities to be conducted,
and describe the extent to which the activities differ materially from
the fiduciary activities that the bank was previously authorized to
conduct. No notice is required if the bank is conducting only activities
ancillary to its fiduciary business through a trust representative
office or otherwise.
(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.
[61 FR 60363, Nov. 27, 1996, as amended at 66 FR 34797, July 2, 2001]
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
[[Page 83]]
standards of this section and, as applicable, 12 U.S.C. 36(b), but not
the procedures set forth in this section, apply to a branch established
as a result of a business combination approved under Sec. 5.33. A branch
established through a business combination is subject only to the
procedures set forth in Sec. 5.33.
(d) Definitions--(1) Branch includes any branch bank, branch office,
branch agency, additional office, or any branch place of business
established by a national bank in the United States or its territories
at which deposits are received, checks paid, or money lent. A branch
does not include an automated teller machine (ATM) or a remote service
unit.
(i) A branch established by a national bank includes a mobile
facility, temporary facility, drop box or a seasonal agency, as
described in 12 U.S.C. 36(c).
(ii) A facility otherwise described in this paragraph (d)(1) is not
a branch if:
(A) The bank establishing the facility does not permit members of
the public to have physical access to the facility for purposes of
making deposits, paying checks, or borrowing money (e.g., an office
established by the bank that receives deposits only through the mail);
or
(B) It is located at the site of, or is an extension of, an approved
main or branch office of the national bank. The OCC determines whether a
facility is an extension of an existing main or branch office on a case-
by-case basis.
(2) Home state means the state in which the national bank's main
office is located.
(3) Messenger service has the meaning set forth in 12 CFR 7.1012.
(4) Mobile branch is a branch, other than a messenger service
branch, that does not have a single, permanent site, and includes a
vehicle that travels to various public locations to enable customers to
conduct their banking business. A mobile branch may provide services at
various regularly scheduled locations or it may be open at irregular
times and locations such as at county fairs, sporting events, or school
registration periods. A branch license is needed for each mobile unit.
(5) Temporary branch means a branch that is located at a fixed site
and which, from the time of its opening, is scheduled to, and will,
permanently close no later than a certain date (not longer than one year
after the branch is first opened) specified in the branch application
and the public notice.
(e) Policy. In determining whether to approve an application to
establish or relocate a branch, the OCC is guided by the following
principles:
(1) Maintaining a sound banking system;
(2) Encouraging a national bank to help meet the credit needs of its
entire community;
(3) Relying on the marketplace as generally the best regulator of
economic activity; and
(4) Encouraging healthy competition to promote efficiency and better
service to customers.
(f) Procedures--(1) General. Except as provided in paragraph (f)(2)
of this section, each national bank proposing to establish a branch
shall submit to the appropriate district office a separate application
for each proposed branch.
(2) Messenger services. A national bank may request approval,
through a single application, for multiple messenger services to serve
the same general geographic area. (See 12 CFR 7.1012). Unless otherwise
required by law, the bank need not list the specific locations to be
served.
(3) Jointly established branches. If a national bank proposes to
establish a branch jointly with one or more national banks or depository
institutions, only one of the national banks must submit a branch
application. The national bank submitting the application may act as
agent for all national banks in the group of depository institutions
proposing to share the branch. The application must include the name and
main office address of each national bank in the group.
(4) Authorization. The OCC authorizes operation of the branch when
all requirements and conditions for opening are satisfied.
(5) Expedited review. An application submitted by an eligible bank
to establish or relocate a branch is deemed approved by the OCC as of
the 15th day after the close of the applicable public comment period, or
the 45th day after the filing is received by the OCC,
[[Page 84]]
whichever is later, unless the OCC notifies the bank prior to that date
that the filing is not eligible for expedited review, or the expedited
review process is extended, under Sec. 5.13(a)(2). An application to
establish or relocate more than one branch is deemed approved by the OCC
as of the 15th day after the close of the last public comment period.
(g) Interstate branches. A national bank that seeks to establish and
operate a de novo branch in any state other than the bank's home state
or a state in which the bank already has a branch shall satisfy the
standards and requirements of 12 U.S.C. 36(g).
(h) Exceptions to rules of general applicability. (1) A national
bank filing an application for a mobile branch or messenger service
branch shall publish a public notice, as described in Sec. 5.8, in the
communities in which the bank proposes to engage in business.
(2) The comment period on an application to engage in a short-
distance branch relocation is 15 days.
(3) The OCC may waive or reduce the public notice and comment
period, as appropriate, with respect to an application to establish a
branch to restore banking services to a community affected by a disaster
or to temporarily replace banking facilities where, because of an
emergency, the bank 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.
[[Page 85]]
(4) Interim bank means a national bank that does not operate
independently but exists solely as a vehicle to accomplish a business
combination.
(e) Policy--(1) Factors. The OCC considers the following factors in
evaluating an application for a business combination:
(i) Competition. (A) The OCC considers the effect of a proposed
business combination on competition. The applicant shall provide a
competitive analysis of the transaction, including a definition of the
relevant geographic market or markets. An applicant may refer to the
Manual for procedures to expedite its competitive analysis.
(B) The OCC will deny an application for a business combination if
the combination would result in a monopoly or would be in furtherance of
any combination or conspiracy to monopolize or attempt to monopolize the
business of banking in any part of the United States. The OCC also will
deny any proposed business combination whose effect in any section of
the United States may be substantially to lessen competition, or tend to
create a monopoly, or which in any other manner would be in restraint of
trade, unless the probable effects of the transaction in meeting the
convenience and needs of the community clearly outweigh the
anticompetitive effects of the transaction. For purposes of weighing
against anticompetitive effects, a business combination may have
favorable effects in meeting the convenience and needs of the community
if the depository institution being acquired has limited long-term
prospects, or if the resulting national bank will provide significantly
improved, additional, or less costly services to the community.
(ii) Financial and managerial resources and future prospects. The
OCC considers the financial and managerial resources and future
prospects of the existing or proposed institutions.
(iii) Convenience and needs of community. The OCC considers the
probable effects of the business combination on the convenience and
needs of the community served. The applicant shall describe these
effects in its application, including any planned office closings or
reductions in services following the business combination and the likely
impact on the community. The OCC also considers additional relevant
factors, including the resulting national bank's ability and plans to
provide expanded or less costly services to the community.
(iv) Community reinvestment. The OCC considers the performance of
the applicant and the other depository institutions involved in the
business combination in helping to meet the credit needs of the relevant
communities, including low- and moderate-income neighborhoods,
consistent with safe and sound banking practices.
(2) Acquisition and retention of branches. An applicant shall
disclose the location of any branch it will acquire and retain in a
business combination. The OCC considers the acquisition and retention of
a branch under the standards set out in Sec. 5.30, but it does not
require a separate application under Sec. 5.30.
(3) Subsidiaries. (i) An applicant must 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 or a separate notice under Sec. 5.39.
(ii) An applicant proposing to acquire, through a business
combination, a subsidiary of a depository institution other than a
national bank must provide the same information and analysis of the
subsidiary's activities that would be required if the applicant were
establishing the subsidiary pursuant to Secs. 5.34 or 5.39.
(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:
[[Page 86]]
(A) On the date the OCC advises the interim bank that its articles
of association and organization certificate are acceptable; or
(B) On the date the interim bank files articles of association and
an organization certificate that conform to the form for those documents
provided by the OCC in the Manual.
(iv) Other corporate procedures. An applicant should consult the
Manual to determine what other information is necessary to complete the
chartering of the interim bank as a national bank.
(5) Nonconforming assets. An applicant shall identify any
nonconforming activities and assets, including nonconforming
subsidiaries, of other institutions involved in the business
combination, that will not be disposed of or discontinued prior to
consummation of the transaction. The OCC generally requires a national
bank to divest or conform nonconforming assets, or discontinue
nonconforming activities, within a reasonable time following the
business combination.
(6) Fiduciary powers. An applicant shall state whether the resulting
bank intends to exercise fiduciary powers pursuant to Sec. 5.26(b) (1)
or (2).
(7) Expiration of approval. Approval of a business combination, and
conditional approval to form an interim bank charter, if applicable,
expires if the business combination is not consummated within one year
after the date of OCC approval.
(8) Adequacy of disclosure. (i) An applicant shall inform
shareholders of all material aspects of a business combination and shall
comply with any applicable requirements of the Federal securities laws
and securities regulations of the OCC. Accordingly, an applicant shall
ensure that all proxy and information statements prepared in connection
with a business combination do not contain any untrue or misleading
statement of a material fact, or omit to state a material fact necessary
in order to make the statements made, in the light of the circumstances
under which they were made, not misleading.
(ii) A national bank applicant with one or more classes of
securities subject to the registration provisions of section 12 (b) or
(g) of the Securities Exchange Act of 1934, 15 U.S.C. 78l(b) or 78l(g),
shall file preliminary proxy material or information statements for
review with the Director, Securities and Corporate Practices Division,
OCC, Washington, DC 20219, and with the appropriate district office. Any
other applicant shall submit the proxy materials or information
statements it uses in connection with the combination to the appropriate
district office no later than when the materials are sent to the
shareholders.
(f) Exceptions to rules of general applicability--(1) National bank
applicant. Section 5.8 (a) through (c) does not apply to a national bank
applicant that is subject to specific statutory notice requirements for
a business combination. A national bank applicant shall follow, as
applicable, the public notice requirements contained in 12 U.S.C.
1828(c)(3) (business combinations), 12 U.S.C. 215(a) (consolidation
under a national bank charter), 12 U.S.C. 215a(a)(2) (merger under a
national bank charter), and paragraph (g) of this section (merger or
consolidation with a Federal savings association resulting in a state
bank).
(2) Interim bank. Sections 5.8, 5.10, and 5.11 do not apply to an
application to organize an interim bank. However, if the OCC concludes
that an application presents significant and novel policy, supervisory,
or legal issues, the OCC may determine that any or all parts of
Secs. 5.8, 5.10, and 5.11 apply. The OCC treats an application to
organize an interim bank as part of the related application to engage in
a business combination and does not require a separate public notice and
public comment process.
(3) State bank or Federal savings association as resulting
institution. Sections 5.2 and 5.5 through 5.13 do not apply to
transactions covered by paragraph (g)(3) of this section.
(g) Approval procedures and treatment of dissenting shareholders in
consolidations and mergers--(1) Consolidations and mergers with other
national banks and state banks as defined in 12 U.S.C. 215b(1) resulting
in a national bank. A national bank entering into a consolidation or
merger authorized pursuant to 12
[[Page 87]]
U.S.C. 215 or 215a, respectively, is subject to the approval procedures
and requirements with respect to treatment of dissenting shareholders
set forth in those provisions.
(2) Consolidations and mergers with Federal savings associations
under 12 U.S.C. 215c resulting in a national bank. (i) With the approval
of the OCC, any national bank and any Federal savings association may
consolidate or merge with a national bank as the resulting institution
by complying with the following procedures:
(A) A national bank entering into the consolidation or merger shall
follow the procedures of 12 U.S.C. 215 or 215a, respectively, as if the
Federal savings association were a state or national bank.
(B) A Federal savings association entering into the consolidation or
merger also shall follow the procedures of 12 U.S.C. 215 or 215a,
respectively, as if the Federal savings association were a state bank or
national bank, except where the laws or regulations governing Federal
savings associations specifically provide otherwise.
(ii) The OCC may conduct an appraisal or reappraisal of dissenters'
shares of stock in a national bank involved in a consolidation or merger
with a Federal savings association if all parties agree that the
determination is final and binding on each party.
(3) Merger or consolidation of a national bank resulting in a state
bank as defined in 12 U.S.C. 214(a) or a Federal savings association--
(i) Policy. Prior OCC approval is not required for the merger or
consolidation of a national bank with a state bank or Federal savings
association when the resulting institution will be a state bank or
Federal savings association. Termination of a national bank's status as
a national banking association is automatic upon completion of the
requirements of 12 U.S.C. 214a, in accordance with 12 U.S.C. 214c, in
the case of a merger or consolidation when the resulting institution is
a state bank, or paragraph (g)(3)(iii) of this section, in the case of a
merger or consolidation when the resulting institution is a Federal
savings association, and consummation of the transaction.
(ii) Procedures. A national bank desiring to merge or consolidate
with a state bank or a Federal savings association when the resulting
institution will be a state bank or Federal savings association shall
submit a notice to the appropriate district office advising of its
intention. The national bank shall submit this notice at the time the
application to merge or consolidate is filed with the responsible agency
under the Bank Merger Act, 12 U.S.C. 1828(c). The OCC then provides
instructions to the national bank for terminating its status as a
national bank, including requiring the bank to provide the appropriate
district office with the bank's charter (or a copy) in connection with
the consummation of the transaction.
(iii) Special procedures for merger or consolidation into a Federal
savings association. (A) With the exception of the procedures in
paragraph (g)(3)(iii)(B) of this section, a national bank entering into
a merger or consolidation with a Federal savings association when the
resulting institution will be a Federal savings association shall comply
with the requirements of 12 U.S.C. 214a and 12 U.S.C. 214c as if the
Federal savings 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
[[Page 88]]
the resulting Federal savings association not taken by the dissenting
shareholders of the national bank.
(h) Interstate combinations. A business combination between banks
under the authority of 12 U.S.C. 1831u(a)(1) must satisfy the standards
and requirements and comply with the procedures of 12 U.S.C. 1831u and
the procedures of 12 U.S.C. 215 and 215a as applicable. For purposes of
this section, the acquisition of a branch without the acquisition of all
or substantially all of the assets of a bank is treated as the
acquisition of a bank whose home state is the state in which the branch
is located.
(i) Expedited review for business reorganizations and streamlined
applications. A filing that qualifies as a business reorganization as
defined in paragraph (d)(2) of this section, or a filing that qualifies
as a streamlined application as described in paragraph (j) of this
section, is deemed approved by the OCC as of the 45th day after the
application is received by the OCC, or the 15th day after the close of
the comment period, whichever is later, unless the OCC notifies the
applicant that the filing is not eligible for expedited review, or the
expedited review process is extended, under Sec. 5.13(a)(2). An
application under this paragraph must contain all necessary information
for the OCC to determine if it qualifies as a business reorganization or
streamlined application.
(j) Streamlined applications. (1) An applicant may qualify for a
streamlined business combination application in the following
situations:
(i) At least one party to the transaction is an eligible bank, and
all other parties to the transaction are eligible banks or eligible
depository institutions, the resulting national bank will be well
capitalized immediately following consummation of the transaction, and
the total assets of the target institution are no more than 50 percent
of the total assets of the acquiring bank, as reported in each
institution's Consolidated Report of Condition and Income filed for the
quarter immediately preceding the filing of the application;
(ii) The acquiring bank is an eligible bank, the target bank is not
an eligible bank or an eligible depository institution, the resulting
national bank will be well capitalized immediately following
consummation of the transaction, and the applicants in a prefiling
communication request and obtain approval from the appropriate district
office to use the streamlined application; or
(iii) The acquiring bank is an eligible bank, the target bank is not
an eligible bank or an eligible depository institution, the resulting
bank will be well capitalized immediately following consummation of the
transaction, and the total assets acquired do not exceed 10 percent of
the total assets of the acquiring national bank, as reported in each
institution's Consolidated Report of Condition and Income filed for the
quarter immediately preceding the filing of the application.
(2) When a business combination qualifies for a streamlined
application, the applicant should consult the Manual to determine the
abbreviated application information required by the OCC. The OCC
encourages prefiling communications between the applicants and the
appropriate district office before filing under paragraph (j) of this
section.
[61 FR 60363, Nov. 27, 1996, as amended at 64 FR 60098, Nov. 4, 1999; 65
FR 12911, Mar. 10, 2000]
Sec. 5.34 Operating subsidiaries.
(a) Authority. 12 U.S.C. 24 (Seventh), 24a, 93a, 3101 et seq.
(b) Licensing requirements. A national bank must file a notice or
application as prescribed in this section to acquire or establish an
operating subsidiary, or to commence a new activity in an existing
operating subsidiary.
(c) Scope. This section sets forth authorized activities and
application or notice procedures for national banks engaging in
activities through an operating subsidiary. The procedures in this
section do not apply to financial subsidiaries authorized under
Sec. 5.39. Unless provided otherwise, this section applies to a Federal
branch or agency that acquires, establishes, or maintains any subsidiary
that a national bank is authorized to acquire or establish under this
section in the same manner
[[Page 89]]
and to the same extent as if the Federal branch or agency were a
national bank, except that the ownership interest required in paragraphs
(e)(2) and (e)(5)(i)(B) of this section shall apply to the parent
foreign bank of the Federal branch or agency and not to the Federal
branch or agency.
(d) Definitions. For purposes of this Sec. 5.34:
(1) Authorized product means a product that would be defined as
insurance under section 302(c) of the Gramm-Leach-Bliley Act (Public Law
106-102, 113 Stat. 1338, 1407) (GLBA) (15 U.S.C. 6712) that, as of
January 1, 1999, the OCC had determined in writing that national banks
may provide as principal or national banks were in fact lawfully
providing the product as principal, and as of that date no court of
relevant jurisdiction had, by final judgment, overturned a determination
by the OCC that national banks may provide the product as principal. An
authorized product does not include title insurance, or an annuity
contract the income of which is subject to treatment under section 72 of
the Internal Revenue Code of 1986 (26 U.S.C. 72).
(2) Well capitalized means the capital level described in 12 CFR
6.4(b)(1) or, in the case of a Federal branch or agency, the capital
level described in 12 CFR 4.7(b)(1)(iii).
(3) Well managed means, unless otherwise determined in writing by
the OCC:
(i) In the case of a national bank:
(A) The national bank has received a composite rating of 1 or 2
under the Uniform Financial Institutions Rating System in connection
with its most recent examination; or
(B) In the case of any national bank that has not been examined, the
existence and use of managerial resources that the OCC determines are
satisfactory.
(ii) In the case of a Federal branch or agency:
(A) The Federal branch or agency 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;
or
(B) In the case of a Federal branch or agency that has not been
examined, the existence and use of managerial resources that the OCC
determines are satisfactory.
(e) Standards and requirements--(1) Authorized activities. A
national bank may conduct in an operating subsidiary activities that are
permissible for a national bank to engage in directly either as part of,
or incidental to, the business of banking, as determined by the OCC, or
otherwise under other statutory authority, including:
(i) Providing authorized products as principal; and
(ii) Providing title insurance as principal if the national bank or
subsidiary thereof was actively and lawfully underwriting title
insurance before November 12, 1999, and no affiliate of the national
bank (other than a subsidiary) provides insurance as principal. A
subsidiary may not provide title insurance as principal if the state had
in effect before November 12, 1999, a law which prohibits any person
from underwriting title insurance with respect to real property in that
state.
(2) Qualifying subsidiaries. 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 operating
subsidiary; or the parent bank otherwise controls the operating
subsidiary and no other party controls more than 50 percent of the
voting (or similar type of controlling) interest of the operating
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 bank
service company under 12 U.S.C. 1861 et seq. or a financial subsidiary
under section 5136A of the Revised Statutes (12 U.S.C. 24a)); and
(ii) A subsidiary in which the bank has acquired, in good faith,
shares through foreclosure on collateral, by way of compromise of a
doubtful claim, or to avoid a loss in connection with a debt previously
contracted.
[[Page 90]]
(3) Examination and supervision. An operating subsidiary conducts
activities authorized under this section pursuant to the same
authorization, terms and conditions that apply to the conduct of such
activities by its parent national bank. If, upon examination, the OCC
determines that the operating subsidiary is operating in violation of
law, regulation, or written condition, or in an unsafe or unsound manner
or otherwise threatens the safety or 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
operating subsidiary, or discontinue specified activities. OCC authority
under this paragraph is subject to the limitations and requirements of
section 45 of the Federal Deposit Insurance Act (12 U.S.C. 1831v) and
section 115 of the Gramm-Leach-Bliley Act (12 U.S.C. 1820a).
(4) Consolidation of figures--(i) National banks. Pertinent book
figures of the parent national bank and its operating subsidiary shall
be combined for the purpose of applying statutory or regulatory
limitations when combination is needed to effect the intent of the
statute or regulation, e.g., for purposes of 12 U.S.C. 56, 60, 84, and
371d.
(ii) Federal branch or agencies. Transactions conducted by all of a
foreign bank's Federal branches and agencies and State branches and
agencies, and their operating subsidiaries, shall be combined for the
purpose of applying any limitation or restriction as provided in 12 CFR
28.14.
(5) Procedures--(i) Application required. (A) Except as provided in
paragraph (e)(5)(iv) or (e)(5)(vi) of this section, a national bank that
intends to acquire or establish an operating subsidiary, or to perform a
new activity in an existing operating subsidiary, must first submit an
application to, and receive approval from, the OCC. 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. To the extent the application relates
to the initial affiliation of the bank with a company engaged in
insurance activities, the bank should describe the type of insurance
activity that the company is engaged in and has present plans to
conduct. The bank must also list for each state the lines of business
for which the company holds, or will hold, an insurance license,
indicating the state where the company holds a resident license or
charter, as applicable. The application must state whether the operating
subsidiary will conduct any activity 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
these cases, the OCC encourages applicants to have a pre-filing meeting
with the OCC.
(B) A national bank must file an application and obtain prior
approval before acquiring or establishing an operating subsidiary, or
performing a new activity in an existing operating 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 the filing exemption in paragraph
(e)(5)(vi) of this section and are not eligible for the notice
procedures in paragraph (e)(5)(iv) 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 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.
[[Page 91]]
(iv) Notice process for certain activities. A national bank that is
``well capitalized'' and ``well managed'' may acquire or establish an
operating subsidiary, or perform a new activity in an existing operating
subsidiary, by providing the appropriate district office written notice
within 10 days after acquiring or establishing the subsidiary, or
commencing the activity, if the activity is listed in paragraph
(e)(5)(v) 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. To the extent the
notice relates to the initial affiliation of the bank with a company
engaged in insurance activities, the bank should describe the type of
insurance activity that the company is engaged in and has present plans
to conduct. The bank must also list for each state the lines of business
for which the company holds, or will hold, an insurance license,
indicating the state where the company holds a resident license or
charter, as applicable. 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.
(v) Activities eligible for notice. The following activities qualify
for the notice procedures, provided the activity is conducted pursuant
to the same terms and conditions as would be applicable if the activity
were conducted directly by a national bank:
(A) Holding and managing assets acquired by the parent bank,
including investment assets and property 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) Providing services to or for the bank or its affiliates,
including accounting, auditing, appraising, advertising and public
relations, and financial advice and consulting;
(C) Making loans or other extensions of credit, and selling money
orders, savings bonds, and travelers checks;
(D) Purchasing, selling, servicing, or warehousing loans or other
extensions of credit, or interests therein;
(E) Providing courier services between financial institutions;
(F) Providing management consulting, operational advice, and
services for other financial institutions;
(G) Providing check guaranty, verification and payment services;
(H) Providing data processing, data warehousing and data
transmission products, services, and related activities and facilities,
including associated equipment and technology, for the bank or its
affiliates;
(I) Acting as investment adviser (including an adviser with
investment discretion) or financial adviser or counselor to governmental
entities or instrumentalities, businesses, or individuals, including
advising registered investment companies and mortgage or real estate
investment trusts, furnishing economic forecasts or other economic
information, providing investment advice related to futures and options
on futures, and providing consumer financial counseling;
(J) Providing tax planning and preparation services;
(K) Providing financial and transactional advice and assistance,
including advice and assistance for customers in structuring, arranging,
and executing mergers and acquisitions, divestitures, joint ventures,
leveraged buyouts, swaps, foreign exchange, derivative transactions,
coin and bullion, and capital restructurings;
(L) Underwriting credit related insurance to the extent permitted
under section 302 of the GLBA (15 U.S.C. 6712);
(M) Leasing of personal property and acting as an agent or adviser
in leases for others;
(N) Providing securities brokerage or acting as a futures commission
merchant, and providing related credit and other related services;
(O) Underwriting and dealing, including making a market, in bank
permissible securities and purchasing and selling as principal, asset
backed obligations;
(P) Acting as an insurance agent or broker, including title
insurance to the extent permitted under section 303 of the GLBA (15
U.S.C. 6713);
[[Page 92]]
(Q) Reinsuring mortgage insurance on loans originated, purchased, or
serviced by the bank, its subsidiaries, or its affiliates, provided that
if the subsidiary enters into a quota share agreement, the subsidiary
assumes less than 50 percent of the aggregate insured risk covered by
the quota share agreement. A ``quota share agreement'' is an agreement
under which the reinsurer is liable to the primary insurance underwriter
for an agreed upon percentage of every claim arising out of the covered
book of business ceded by the primary insurance underwriter to the
reinsurer;
(R) Acting as a finder pursuant to 12 CFR 7.1002 to the extent
permitted by published OCC precedent; \1\
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\1\ See, e.g., the OCC's monthly publication ``Interpretations and
Actions.'' Beginning with the May 1996 issue, the OCC's Web site
provides access to electronic versions of ``Interpretations and
Actions'' (www.occ.treas.gov).
---------------------------------------------------------------------------
(S) Offering correspondent services to the extent permitted by
published OCC precedent;
(T) Acting as agent or broker in the sale of fixed or variable
annuities;
(U) Offering debt cancellation or debt suspension agreements;
(V) Providing real estate settlement, closing, escrow, and related
services; and real estate appraisal services for the subsidiary, parent
bank, or other financial institutions;
(W) Acting as a transfer or fiscal agent;
(X) Acting as a digital certification authority to the extent
permitted by published OCC precedent, subject to the terms and
conditions contained in that precedent; and
(Y) Providing or selling public transportation tickets, event and
attraction tickets, gift certificates, prepaid phone cards, promotional
and advertising material, postage stamps, and Electronic Benefits
Transfer (EBT) script, and similar media, to the extent permitted by
published OCC precedent, subject to the terms and conditions contained
in that precedent.
(vi) No application or notice required. A national bank may acquire
or establish an operating subsidiary without filing an application or
providing notice to the OCC, if the bank is adequately capitalized or
well capitalized and the:
(A) 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;
(B) Activities in which the new subsidiary will engage continue to
be legally permissible for the subsidiary; and
(C) 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.
(vii) 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.
[65 FR 12911, Mar. 10, 2000, as amended at 66 FR 49097, Sept. 26, 2001;
66 FR 62914, Dec. 4, 2001]
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
[[Page 93]]
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 a bank
service company that conducts activities described in paragraphs (f)(3)
and (f)(4) 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)(4) of this section, a national
bank that intends to make an investment in a bank service company, or to
perform new activities in an existing bank service company, must submit
a notice to and receive prior approval from the OCC. The OCC approves or
denies a proposed investment within 60 days after the filing is received
by the OCC, unless the OCC notifies the bank prior to that date that the
filing presents a significant supervisory or compliance concern, or
raises a significant legal or policy issue. The notice must include the
information required by paragraph (g) of this section.
(2) Notice process only for certain activities. A national bank that
is ``well capitalized'' and ``well managed'' as defined in Sec. 5.34(d)
may invest in a bank service company, or perform a new activity in an
existing bank service company, by providing the appropriate district
office written notice within 10 days after the investment, if the bank
service company engages only in the activities listed in
Sec. 5.34(e)(5)(v). No prior OCC approval is required. The written
notice must include a complete description of the bank's investment in
the bank service company and of the activity conducted and a
representation and undertaking that the activity will be conducted in
accordance with OCC guidance. To the extent the notice relates to the
initial affiliation of the bank with a company engaged in insurance
activities, the bank should describe the type of insurance activity that
the company is engaged in and has present plans to conduct. The bank
must also list for each state the lines of business for which the
company holds, or will hold, an insurance license, indicating the state
where the company holds a resident license or charter, as applicable.
Any bank receiving approval under this paragraph is deemed to have
agreed that the bank service company will conduct the activity in a
manner consistent with the published OCC guidance.
(3) 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.
(4) 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
[[Page 94]]
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).
(5) 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. To the extent the notice relates to the initial
affiliation of the bank with a company engaged in insurance activities,
the bank should describe the type of insurance activity that the company
is engaged in and has present plans to conduct. The bank must also list
for each state the lines of business for which the company holds, or
will hold, an insurance license, indicating the state where the company
holds a resident license or charter, as applicable;
(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 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. OCC authority under this paragraph is subject to the
limitations and requirements of section 45 of the Federal Deposit
Insurance Act (12 U.S.C. 1831v) and section 115 of the Gramm-Leach-
Bliley Act (12 U.S.C. 1820a).
(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. Except as provided in paragraph (f)(4) 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; 65
FR 12913, Mar. 10, 2000]
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) Definitions. For purposes of this Sec. 5.36:
(1) Enterprise means any corporation, limited liability company,
partnership, trust, or similar business entity.
(2) Well capitalized means the capital level described in 12 CFR
6.4(b)(1).
(3) Well managed has the meaning set forth in Sec. 5.34(d)(3).
(d) 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:
[[Page 95]]
(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.
(e) Non-controlling investments. A national bank may make a non-
controlling investment, directly or through its operating subsidiary, in
an enterprise that engages in the activities described in paragraph
(e)(2) of this section by filing a written notice. The written notice
must be filed with the appropriate district office no later than 10 days
after making the investment and must:
(1) Describe the structure of the investment and the activity or
activities conducted by the enterprise in which the bank is investing.
To the extent the notice relates to the initial affiliation of the bank
with a company engaged in insurance activities, the bank should describe
the type of insurance activity that the company is engaged in and has
present plans to conduct. The bank must also list for each state the
lines of business for which the company holds, or will hold, an
insurance license, indicating the state where the company holds a
resident license or charter, as applicable;
(2) State which paragraphs of Sec. 5.34(e)(5)(v) describe the
activity or activities, or state that, and describe how, the activity is
substantively the same as that contained in published OCC precedent
approving a non-controlling investment by a national bank or its
operating subsidiary, state that the activity will be conducted in
accordance with the same terms and conditions applicable to the activity
covered by the precedent, and provide the citation to the applicable
precedent;
(3) Certify that the bank is well managed and well capitalized at
the time of the investment;
(4) Describe how the bank has the ability to prevent the enterprise
from engaging in activities that are not set forth in Sec. 5.34(e)(5)(v)
or not contained in published OCC precedent approving a non-controlling
investment by a national bank or its operating subsidiary, or how the
bank otherwise has the ability to withdraw its investment;
(5) Certify that the bank will account for its investment under this
section under the equity or cost method of accounting;
(6) Describe how the investment is convenient and useful to the bank
in carrying out its business and not a mere passive investment unrelated
to the bank's banking business;
(7) Certify that the bank's loss exposure is limited, as a legal and
accounting matter, and the bank does not have open-ended liability for
the obligations of the enterprise; and
(8) Certify that the enterprise in which the bank is investing
agrees to be subject to OCC supervision and examination, subject to the
limitations and requirements of section 45 of the Federal Deposit
Insurance Act (12 U.S.C. 1831v) and section 115 of the Gramm-Leach-
Bliley Act (12 U.S.C. 1820a).
(f) 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.
[61 FR 60363, Nov. 27, 1996, as amended at 65 FR 12913, Mar. 10, 2000;
65 FR 41560, July 6, 2000]
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;
[[Page 96]]
(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 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]
Sec. 5.39 Financial subsidiaries.
(a) Authority. 12 U.S.C. 93a and section 121 of Public Law 106-102,
113 Stat. 1338, 1373.
(b) Approval requirements. A national bank must file a notice as
prescribed in this section prior to acquiring a financial subsidiary or
engaging in activities authorized pursuant to section 5136A(a)(2)(A)(i)
of the Revised Statutes (12 U.S.C. 24a) through a financial subsidiary.
When a financial subsidiary proposes to conduct a new activity permitted
under Sec. 5.34, the bank shall follow the procedures in Sec. 5.34(e)(5)
instead of paragraph (i) of this section.
(c) Scope. This section sets forth authorized activities, approval
procedures, and, where applicable, conditions for national banks
engaging in activities through a financial subsidiary.
(d) Definitions. For purposes of this Sec. 5.39:
(1) Affiliate has the meaning set forth in section 2 of the Bank
Holding Company Act of 1956 (12 U.S.C. 1841), except that the term
``affiliate'' for purposes of paragraph (h)(5) of this section shall
have the meaning set forth in sections 23A or 23B of the Federal Reserve
Act (12 U.S.C. 371c and 371c-1), as applicable.
(2) Appropriate Federal banking agency has the meaning set forth in
section 3
[[Page 97]]
of the Federal Deposit Insurance Act (12 U.S.C. 1813).
(3) Company has the meaning set forth in section 2 of the Bank
Holding Company Act of 1956 (12 U.S.C. 1841), and includes a limited
liability company (LLC).
(4) Control has the meaning set forth in section 2 of the Bank
Holding Company Act of 1956 (12 U.S.C. 1841).
(5) Eligible debt means unsecured long-term debt that is:
(i) Not supported by any form of credit enhancement, including a
guaranty or standby letter of credit; and
(ii) Not held in whole or in any significant part by any affiliate,
officer, director, principal shareholder, or employee of the bank or any
other person acting on behalf of or with funds from the bank or an
affiliate of the bank.
(6) Financial subsidiary means any company that is controlled by one
or more insured depository institutions, other than a subsidiary that:
(i) Engages solely in activities that national banks may engage in
directly and that are conducted subject to the same terms and conditions
that govern the conduct of these activities by national banks; or
(ii) A national bank is specifically authorized to control by the
express terms of a Federal statute (other than section 5136A of the
Revised Statutes), and not by implication or interpretation, such as by
section 25 of the Federal Reserve Act (12 U.S.C. 601-604a), section 25A
of the Federal Reserve Act (12 U.S.C. 611-631), or the Bank Service
Company Act (12 U.S.C. 1861 et seq.)
(7) Insured depository institution has the meaning set forth in
section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813).
(8) Long term debt means any debt obligation with an initial
maturity of 360 days or more.
(9) Subsidiary has the meaning set forth in section 2 of the Bank
Holding Company Act of 1956 (12 U.S.C. 1841).
(10) Tangible equity has the meaning set forth in 12 CFR 6.2(g).
(11) Well capitalized with respect to a depository institution means
the capital level designated as ``well capitalized'' by the
institution's appropriate Federal banking agency pursuant to section 38
of the Federal Deposit Insurance Act (12 U.S.C. 1831o).
(12) Well managed means:
(i) Unless otherwise determined in writing by the appropriate
Federal banking agency, the institution has received a composite rating
of 1 or 2 under the Uniform Financial Institutions Rating System (or an
equivalent rating under an equivalent rating system) in connection with
the most recent examination or subsequent review of the depository
institution and, at least a rating of 2 for management, if such a rating
is given; or
(ii) In the case of any depository institution that has not been
examined by its appropriate Federal banking agency, the existence and
use of managerial resources that the appropriate Federal banking agency
determines are satisfactory.
(e) Authorized activities. A financial subsidiary may engage only in
the following activities:
(1) Activities that are financial in nature and activities
incidental to a financial activity, authorized pursuant to
5136A(a)(2)(A)(i) of the Revised Statutes (12 U.S.C. 24a) (to the extent
not otherwise permitted under paragraph (e)(2) of this section),
including:
(i) Lending, exchanging, transferring, investing for others, or
safeguarding money or securities;
(ii) Engaging as agent or broker in any state for purposes of
insuring, guaranteeing, or indemnifying against loss, harm, damage,
illness, disability, death, defects in title, or providing annuities as
agent or broker;
(iii) Providing financial, investment, or economic advisory
services, including advising an investment company as defined in section
3 of the Investment Company Act (15 U.S.C. 80a-3);
(iv) Issuing or selling instruments representing interests in pools
of assets permissible for a bank to hold directly;
(v) Underwriting, dealing in, or making a market in securities;
(vi) Engaging in any activity that the Board of Governors of the
Federal Reserve System has determined, by order or regulation in effect
on November 12, 1999, to be so closely related to banking or managing or
controlling
[[Page 98]]
banks as to be a proper incident thereto (subject to the same terms and
conditions contained in the order or regulation, unless the order or
regulation is modified by the Board of Governors of the Federal Reserve
System);
(vii) Engaging, in the United States, in any activity that a bank
holding company may engage in outside the United States and the Board of
Governors of the Federal Reserve System has determined, under
regulations prescribed or interpretations issued pursuant to section
4(c)(13) of the Bank Holding Company Act of 1956 (12 U.S.C. 1843(c)(13))
as in effect on November 11, 1999, to be usual in connection with the
transaction of banking or other financial operations abroad; and
(viii) Activities that the Secretary of the Treasury in consultation
with the Board of Governors of the Federal Reserve System, as provided
in section 5136A of the Revised Statutes, determines to be financial in
nature or incidental to a financial activity; and
(2) Activities that may be conducted by an operating subsidiary
pursuant to Sec. 5.34.
(f) Impermissible activities. A financial subsidiary may not engage
as principal in the following activities:
(1) Insuring, guaranteeing, or indemnifying against loss, harm,
damage, illness, disability or death, or defects in title (except to the
extent permitted under sections 302 or 303(c) of the Gramm-Leach-Bliley
Act (GLBA)), 113 Stat. 1407-1409, (15 U.S.C. 6712 or 15 U.S.C. 6713) or
providing or issuing annuities the income of which is subject to tax
treatment under section 72 of the Internal Revenue Code (26 U.S.C. 72);
(2) Real estate development or real estate investment, unless
otherwise expressly authorized by law; and
(3) Activities authorized for bank holding companies by section
4(k)(4)(H) or (I) (12 U.S.C. 1843) of the Bank Holding Company Act,
except activities authorized under section 4(k)(4)(H) that may be
permitted in accordance with section 122 of the GLBA, 113 Stat. 1381.
(g) Qualifications. A national bank may, directly or indirectly,
control a financial subsidiary or hold an interest in a financial
subsidiary only if:
(1) The national bank and each depository institution affiliate of
the national bank are well capitalized and well managed;
(2) The aggregate consolidated total assets of all financial
subsidiaries of the national bank do not exceed the lesser of 45 percent
of the consolidated total assets of the parent bank or $50 billion (or
such greater amount as is determined according to an indexing mechanism
jointly established by regulation by the Secretary of the Treasury and
the Board of Governors of the Federal Reserve System); and
(3) If the national bank is one of the 100 largest insured banks,
determined on the basis of the bank's consolidated total assets at the
end of the calendar year, the bank has at least one issue of outstanding
eligible debt that is currently rated in one of the three highest
investment grade rating categories by a nationally recognized
statistical rating organization. If the national bank is one of the
second 50 largest insured banks, it may either satisfy this requirement
or satisfy alternative criteria the Secretary of the Treasury and the
Board of Governors of the Federal Reserve System establish jointly by
regulation. This paragraph (g)(3) does not apply if the financial
subsidiary is engaged solely in activities in an agency capacity.
(h) Safeguards. The following safeguards apply to a national bank
that establishes or maintains a financial subsidiary:
(1) For purposes of determining regulatory capital:
(i) The national bank must deduct the aggregate amount of its
outstanding equity investment, including retained earnings, in its
financial subsidiaries from its total assets and tangible equity and
deduct such investment from its total risk-based capital (this deduction
shall be made equally from Tier 1 and Tier 2 capital); and
(ii) The national bank may not consolidate the assets and
liabilities of a financial subsidiary with those of the bank;
(2) Any published financial statement of the national bank shall, in
addition to providing information prepared in accordance with generally
accepted accounting principles, separately present
[[Page 99]]
financial information for the bank in the manner provided in paragraph
(h)(1) of this section;
(3) The national bank must have reasonable policies and procedures
to preserve the separate corporate identity and limited liability of the
bank and the financial subsidiaries of the bank;
(4) The national bank must have procedures for identifying and
managing financial and operational risks within the bank and the
financial subsidiary that adequately protect the national bank from such
risks;
(5) Sections 23A and 23B of the Federal Reserve Act (12 U.S.C. 371c
and 371c-1) apply to transactions involving a financial subsidiary in
the following manner:
(i) A financial subsidiary shall be deemed to be an affiliate of the
bank and shall not be deemed to be a subsidiary of the bank;
(ii) The restrictions contained in section 23A(a)(1)(A) of the
Federal Reserve Act shall not apply with respect to covered transactions
between a bank and any individual financial subsidiary of the bank;
(iii) The bank's investment in the financial subsidiary shall not
include retained earnings of the financial subsidiary;
(iv) Any purchase of, or investment in, the securities of a
financial subsidiary of a bank by an affiliate of the bank will be
considered to be a purchase of or investment in such securities by the
bank; and
(v) Any extension of credit by an affiliate of a bank to a financial
subsidiary of the bank may be considered an extension of credit by the
bank to the financial subsidiary if the Board of Governors of the
Federal Reserve System determines that such treatment is necessary or
appropriate to prevent evasions of the Federal Reserve Act and the GLBA.
(6) A financial subsidiary shall be deemed a subsidiary of a bank
holding company and not a subsidiary of the bank for purposes of the
anti-tying prohibitions set forth in 12 U.S.C. 1971 et seq.
(i) Procedures to engage in activities through a financial
subsidiary. A national bank that intends, directly or indirectly, to
acquire control of, or hold an interest in, a financial subsidiary, or
to commence a new activity in an existing financial subsidiary, must
obtain OCC approval through the procedures set forth in paragraph (i)(1)
or (i)(2) of this section.
(1) Certification with subsequent notice. (i) At any time, a
national bank may file a ``Financial Subsidiary Certification'' with the
appropriate district office listing the bank's depository institution
affiliates and certifying that the bank and each of those affiliates is
well capitalized and well managed.
(ii) Thereafter, at such time as the bank seeks OCC approval to
acquire control of, or hold an interest in, a new financial subsidiary,
or commence a new activity authorized under section 5136A(a)(2)(A)(i) of
the Revised Statutes (12 U.S.C. 24a) in an existing subsidiary, the bank
may file a written notice with the appropriate district office at the
time of acquiring control of, or holding an interest in, a financial
subsidiary, or commencing such activity in an existing subsidiary. The
written notice must be labeled ``Financial Subsidiary Notice'' and must:
(A) State that the bank's Certification remains valid;
(B) Describe the activity or activities conducted by the financial
subsidiary. To the extent the notice relates to the initial affiliation
of the bank with a company engaged in insurance activities, the bank
should describe the type of insurance activity that the company is
engaged in and has present plans to conduct. The bank must also list for
each state the lines of business for which the company holds, or will
hold, an insurance license, indicating the state where the company holds
a resident license or charter, as applicable;
(C) Cite the specific authority permitting the activity to be
conducted by the financial subsidiary. (Where the authority relied on is
an agency order or interpretation under section 4(c)(8) or 4(c)(13),
respectively, of the Bank Holding Company Act of 1956, a copy of the
order or interpretation should be attached);
(D) Certify that the bank will be well capitalized after making
adjustments required by paragraph (h)(1) of this section;
[[Page 100]]
(E) Demonstrate the aggregate consolidated total assets of all
financial subsidiaries of the national bank do not exceed the lesser of
45 percent of the bank's consolidated total assets or $50 billion (or
the increased level established by the indexing mechanism); and
(F) If applicable, certify that the bank meets the eligible debt
requirement in paragraph (g)(3) of this section.
(2) Combined certification and notice. A national bank may file a
combined certification and notice with the appropriate district office
at least five business days prior to acquiring control of, or holding an
interest in, a financial subsidiary, or commencing a new activity
authorized pursuant to section 5136A(a)(2)(A)(i) of the Revised Statutes
in an existing subsidiary. The written notice must be labeled
``Financial Subsidiary Certification and Notice'' and must:
(i) List the bank's depository institution affiliates and certify
that the bank and each depository institution affiliate of the bank is
well capitalized and well managed;
(ii) Describe the activity or activities to be conducted in the
financial subsidiary. To the extent the notice relates to the initial
affiliation of the bank with a company engaged in insurance activities,
the bank should describe the type of insurance activity that the company
is engaged in and has present plans to conduct. The bank must also list
for each state the lines of business for which the company holds, or
will hold, an insurance license, indicating the state where the company
holds a resident license or charter, as applicable;
(iii) Cite the specific authority permitting the activity to be
conducted by the financial subsidiary. (Where the authority relied on is
an agency order or interpretation under section 4(c)(8) or 4(c)(13),
respectively, of the Bank Holding Company Act of 1956, a copy of the
order or interpretation should be attached);
(iv) Certify that the bank will remain well capitalized after making
the adjustments required by paragraph (h)(1) of this section;
(v) Demonstrate the aggregate consolidated total assets of all
financial subsidiaries of the national bank do not exceed the lesser of
45% of the bank's consolidated total assets or $50 billion (or the
increased level established by the indexing mechanism); and
(vi) If applicable, certify that the bank meets the eligible debt
requirement in paragraph (g)(3) of this section.
(3) Exceptions to rules of general applicability. Sections 5.8,
5.10, 5.11, and 5.13 do not apply to activities authorized under this
section.
(4) Community Reinvestment Act (CRA). A national bank may not apply
under this paragraph (i) to commence a new activity authorized under
section 5136A(a)(2)(A)(i) of the Revised Statutes (12 U.S.C. 24a), or
directly or indirectly acquire control of a company engaged in any such
activity, if the bank or any of its insured depository institution
affiliates received a CRA rating of less than ``satisfactory record of
meeting community credit needs'' on its most recent CRA examination
prior to when the bank would file a notice under this section.
(j) Failure to continue to meet certain qualification requirements--
(1) Qualifications and safeguards. A national bank, or, as applicable,
its affiliated depository institutions, must continue to satisfy the
qualification requirements set forth in paragraphs (g)(1) and (2) of
this section and the safeguards in paragraphs (h)(1), (2), (3) and (4)
of this section following its acquisition of control of, or an interest
in, a financial subsidiary. A national bank that fails to continue to
satisfy these requirements will be subject to the following procedures
and requirements:
(i) The OCC shall give notice to the national bank and, in the case
of an affiliated depository institution to that depository institution's
appropriate Federal banking agency, promptly upon determining that the
national bank, or, as applicable, its affiliated depository institution,
does not continue to meet the requirements in paragraph (g)(1) or (2) of
this section or the safeguards in paragraph (h)(1), (2), (3), or (4) of
this section. The bank shall be deemed to have received such notice
three business days after mailing of the letter by the OCC;
[[Page 101]]
(ii) Not later than 45 days after receipt of the notice under
paragraph (j)(1)(i) of this section, or any additional time as the OCC
may permit, the national bank shall execute an agreement with the OCC to
comply with the requirements in paragraphs (g)(1) and (2) and (h)(1),
(2), (3), and (4) of this section;
(iii) The OCC may impose limitations on the conduct or activities of
the national bank or any subsidiary of the national bank as the OCC
determines appropriate under the circumstances and consistent with the
purposes of section 5136A of the Revised Statutes; and
(iv) The OCC may require a national bank to divest control of a
financial subsidiary if the national bank does not correct the
conditions giving rise to the notice within 180 days after receipt of
the notice provided under paragraph (j)(1)(i) of this section.
(2) Eligible debt rating requirement. A national bank that does not
continue to meet the qualification requirement set forth in paragraph
(g)(3) of this section, applicable where the bank's financial subsidiary
is engaged in activities other than solely in an agency capacity, may
not directly or through a subsidiary, purchase or acquire any additional
equity capital of any such financial subsidiary until the bank meets the
requirement in paragraph (g)(3) of this section. For purposes of this
paragraph (j)(2), the term ``equity capital'' includes, in addition to
any equity investment, any debt instrument issued by the financial
subsidiary if the instrument qualifies as capital of the subsidiary
under federal or state law, regulation, or interpretation applicable to
the subsidiary.
(k) Examination and supervision. A financial subsidiary is subject
to examination and supervision by the OCC, subject to the limitations
and requirements of section 45 of the Federal Deposit Insurance Act (12
U.S.C. 1831v) and section 115 of the GLBA (12 U.S.C. 1820a).
[65 FR 12914, Mar. 10, 2000]
Subpart D--Other Changes in Activities and Operations
Sec. 5.40 Change in location of main office.
(a) Authority 12 U.S.C. 30, 93a, and 2901 through 2907.
(b) Licensing requirements. A national bank shall give prior notice
to the OCC to relocate its main office within city, town, or village
limits to an authorized branch location. A national bank shall submit an
application and obtain prior OCC approval to relocate its main office to
any other location in the city, town, or village, or within 30 miles of
the limits of the city, town, or village in which the main office of the
bank is located.
(c) Scope. This section describes OCC procedures and approval
standards for an application or a notice by a national bank to change
the location of its main office.
(d) Procedure--(1) Main office relocation to an authorized branch
location within city, town, or village limits. A national bank may
change the location of its main office to an authorized branch location
(approved or existing branch site) within the limits of the same city,
town, or village. The national bank shall submit a notice to the
appropriate district office before the relocation. The notice must
include the new address of the main office and the effective date of the
relocation.
(2) To any other location. To relocate its main office to any other
location, a national bank shall file an application to relocate with the
appropriate district office. If relocating the main office outside the
limits of its city, town, or village, a national bank shall also:
(i) Obtain the approval of shareholders owning two-thirds of the
voting stock of the bank; and
(ii) Amend its articles of association.
(3) Establishment of a branch at site of former main office. A
national bank desiring to establish a branch at its former main office
location shall obtain OCC approval pursuant to the standards of
Sec. 5.30.
(4) Expedited review. A main office relocation application submitted
by an eligible bank under paragraph (d)(2) of
[[Page 102]]
this section is deemed approved by the OCC as of the 15th day after the
close of the public comment period or the 45th day after the filing is
received by the OCC, whichever is later, unless the OCC notifies the
bank prior to that time that the filing is not eligible for expedited
review, or the expedited review period is extended, under
Sec. 5.13(a)(2).
(5) Exceptions to rules of general applicability. (i) Sections 5.8,
5.9, 5.10, and 5.11 do not apply to a main office relocation to an
authorized branch location within the limits of the city, town, or
village as described in paragraph (d)(1) of this section. However, if
the OCC concludes that the notice under paragraph (d)(1) of this section
presents a significant and novel policy, supervisory, or legal issue,
the OCC may determine that any or all parts of Secs. 5.8, 5.9, 5.10, and
5.11 apply.
(ii) The comment period on any application filed under paragraph
(d)(2) of this section to engage in a short-distance relocation of a
main office is 15 days.
(e) Expiration of approval. Approval expires if the national bank
has not opened its main office at the relocated site within 18 months of
the date of approval.
Sec. 5.42 Corporate title.
(a) Authority. 12 U.S.C. 21a, 30, and 93a.
(b) Scope. This section describes the method by which a national
bank may change its corporate title.
(c) Standards. A national bank may change its corporate title
provided that the new title includes the word ``national'' and complies
with other applicable Federal laws, including 18 U.S.C. 709, regarding
false advertising and the misuse of names to indicate a Federal agency,
and any applicable OCC guidance.
(d) Procedures--(1) Notice process. A national bank shall promptly
notify the appropriate district office if it changes its corporate
title. The notice must contain the old and new titles and the effective
date of the change.
(2) Amendment to articles of association. A national bank whose
corporate title is specified in its articles of association shall amend
its articles, in accordance with the procedures of 12 U.S.C. 21a, to
change its title.
(3) Exceptions to rules of general applicability. Sections 5.8, 5.9,
5.10, 5.11, and 5.13(a) do not apply to a national bank's change of
corporate title. However, if the OCC concludes that the application
presents a significant and novel policy, supervisory, or legal issue,
the OCC may determine that any or all parts of Secs. 5.8, 5.9, 5.10,
5.11, and 5.13(a) apply.
Sec. 5.46 Changes in permanent capital.
(a) Authority. 12 U.S.C. 21a, 51, 51a, 51b, 51b-1, 52, 56, 57, 59,
60, and 93a.
(b) Licensing requirements. A national bank shall submit an
application and obtain OCC approval to decrease its permanent capital.
Generally, a national bank need only submit a notice to increase its
permanent capital, although, in certain circumstances, a national bank
shall be required to submit an application and obtain OCC approval.
(c) Scope. This section describes procedures and standards relating
to a transaction resulting in a change in a national bank's permanent
capital.
(d) Exceptions to rules of general applicability. Sections 5.8,
5.10, and 5.11 do not apply to changes in a national bank's permanent
capital.
(e) Definitions. For the purposes of this section the following
definitions apply:
(1) Capital plan means a plan describing the manner and schedule by
which a national bank will attain specified capital levels or ratios,
including a plan to achieve minimum capital ratios filed with the
appropriate district office under 12 CFR 3.7 and a capital restoration
plan filed with the OCC under 12 U.S.C. 1831o and 12 CFR 6.5.
(2) Capital stock means the total amount of common stock and
preferred stock.
(3) Capital surplus means the total of:
(i) The amount paid in on capital stock in excess of the par or
stated value;
(ii) Direct capital contributions representing the amounts paid in
to the national bank other than for capital stock;
[[Page 103]]
(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 receives the letter of notification. The
[[Page 104]]
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 105]]
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 106]]
(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 107]]
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 108]]
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 109]]
(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 110]]
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 111]]
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 112]]
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 113]]
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 114]]
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 115]]
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 116]]
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 117]]
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 118]]
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 119]]
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 120]]
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 121]]
(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 122]]
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 123]]
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.
7.1020 Purchase of open accounts.
7.1021 National bank participation in financial literacy programs.
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.
7.4006 Applicability of State law to national bank operating
subsidiaries.
Subpart E--Electronic Activities
7.5000 Scope.
[[Page 124]]
7.5001 Electronic activities that are part of, or incidental to, the
business of banking.
7.5002 Furnishing of products and services by electronic means and
facilities.
7.5003 Composite authority to engage in electronic activities.
7.5004 Sale of excess electronic capacity and by-products.
7.5005 National bank acting as digital certification authority.
7.5006 Data processing.
7.5007 Correspondent services.
7.5008 Location of national bank conducting electronic activities.
7.5009 Location under 12 U.S.C. 85 of national banks operating
exclusively through the Internet.
7.5010 Shared electronic space.
Authority: 12 U.S.C. 1 et seq., 92, 92a, 93, 93a, 481, 484, 1818.
Source: 61 FR 4862, Feb. 9, 1996, unless otherwise noted.
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
[[Page 125]]
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.
Sec. 7.1002 National bank acting as finder.
(a) General. It is part of the business of banking under 12 U.S.C.
24(Seventh) for a national bank to act as a finder, bringing together
interested parties to a transaction.
(b) Permissible finder activities. A national bank that acts as a
finder may identify potential parties, make inquiries as to interest,
introduce or arrange contacts or meetings of interested parties, act as
an intermediary between interested parties, and otherwise bring parties
together for a transaction that the parties themselves negotiate and
consummate. The following list provides examples of permissible finder
activities. This list is illustrative and not exclusive; the OCC may
determine that other activities are permissible pursuant to a national
bank's authority to act as a finder.
(1) Communicating information about providers of products and
services, and proposed offering prices and terms to potential markets
for these products and services;
(2) Communicating to the seller an offer to purchase or a request
for information, including forwarding completed applications,
application fees, and requests for information to third-party providers;
(3) Arranging for third-party providers to offer reduced rates to
those customers referred by the bank;
(4) Providing administrative, clerical, and record keeping functions
related to the bank's finder activity, including retaining copies of
documents, instructing and assisting individuals in the completion of
documents, scheduling sales calls on behalf of sellers, and conducting
market research to identify potential new customers for retailers;
(5) Conveying between interested parties expressions of interest,
bids, offers, orders, and confirmations relating to a transaction;
(6) Conveying other types of information between potential buyers,
sellers, and other interested parties; and
(7) Establishing rules of general applicability governing the use
and operation of the finder service, including rules that:
(i) Govern the submission of bids and offers by buyers, sellers, and
other interested parties that use the finder service and the
circumstances under which the finder service will pair bids and offers
submitted by buyers, sellers, and other interested parties; and
(ii) Govern the manner in which buyers, sellers, and other
interested parties may bind themselves to the terms of a specific
transaction.
(c) Limitation. The authority to act as a finder does not enable a
national bank to engage in brokerage activities that have not been found
to be permissible for national banks.
(d) Advertisement and fee. Unless otherwise prohibited by Federal
law, a national bank may advertise the availability of, and accept a fee
for, the services provided pursuant to this section.
[67 FR 35004, May 17, 2002]
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
[[Page 126]]
borrower in person at a place that is not the bank's main office and is
not licensed as a branch without violating 12 U.S.C. 36, 12 U.S.C. 81
and 12 CFR 5.30, provided that a third party is used to deliver the
funds and the place is not established by the lending bank or its
operating subsidiary. A third party includes a person who satisfies the
requirements of Sec. 7.1012(c)(2), or one who customarily delivers loan
proceeds directly from bank funds under accepted industry practice, such
as an attorney or escrow agent at a real estate closing.
Sec. 7.1004 Loans originating at other than banking offices.
(a) General. A national bank may use the services of, and compensate
persons not employed by, the bank for originating loans.
(b) Approval. An employee or agent of a national bank or of its
operating subsidiary may originate a loan at a site other than the main
office or a branch office of the bank. This action does not violate 12
U.S.C. 36 and 12 U.S.C. 81 if the loan is approved and made at the main
office or a branch office of the bank or at an office of the operating
subsidiary located on the premises of, or contiguous to, the main office
or branch office of the bank.
Sec. 7.1005 Credit decisions at other than banking offices.
A national bank and its operating subsidiary may make a credit
decision regarding a loan application at a site other than the main
office or a branch office of the bank without violating 12 U.S.C. 36 and
12 U.S.C. 81, provided that ``money'' is not deemed to be ``lent' at
those other sites within the meaning of Sec. 7.1003.
Sec. 7.1006 Loan agreement providing for a share in profits, income, or earnings or for stock warrants.
A national bank may take as consideration for a loan a share in the
profit, income, or earnings from a business enterprise of a borrower. A
national bank also may take as consideration for a loan a stock warrant
issued by a business enterprise of a borrower, provided that the bank
does not exercise the warrant. The share or stock warrant may be taken
in addition to, or in lieu of, interest. The borrower's obligation to
repay principal, however, may not be conditioned upon the value of the
profit, income, or earnings of the business enterprise or upon the value
of the warrant received.
Sec. 7.1007 Acceptances.
A national bank is not limited in the character of acceptances it
may make in financing credit transactions. Bankers' acceptances may be
used for such purpose, since the making of acceptances is an essential
part of banking authorized by 12 U.S.C. 24.
Sec. 7.1008 Preparing income tax returns for customers or public.
A national bank may not serve as an expert tax consultant. However,
a national bank may assist its customers in preparing their tax returns,
either gratuitously or for a reasonable fee.
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.
[[Page 127]]
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
(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
[[Page 128]]
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.
Effective Date Note: At 67 FR 58976, Sept. 19, 2002, Sec. 7.1013 was
removed, effective June 16, 2003.
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 and other independent undertakings, the bank's
obligation to honor depends upon the presentation of specified documents
and not upon nondocumentary conditions or resolution of questions of
fact or law at issue between the applicant and the beneficiary. A
national bank may also confirm or otherwise undertake to honor or
purchase specified documents upon their presentation under another
person's independent undertaking within the scope of such laws or rules.
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\30\ Examples of such laws or rules of practice include: The
applicable version of Article 5 of the Uniform Commercial Code (UCC)
(1962, as amended 1990) or revised Article 5 of the UCC (as amended
1995) (available from West Publishing Co., 1/800/328-4880); the Uniform
Customs and Practice for Documentary Credits (International Chamber of
Commerce (ICC) Publication No. 500) (available from ICC Publishing,
Inc., 212/206-1150; http://www.iccwbo.org); the International Standby
Practices (ISP98) (ICC Publication No. 590) (available from the
Institute of International Banking Law & Practice, 301/869-9840; http://
www.iiblp.org); the United Nations Convention on Independent Guarantees
and Stand-by Letters of Credit (adopted by the U.N. General Assembly in
1995 and signed by the U.S. in 1997) (available from the U.N. Commission
on International Trade Law, 212/963-5353); and the Uniform Rules for
Bank-to-Bank Reimbursements Under Documentary Credits (ICC Publication
No. 525) (available from ICC Publishing, Inc., 212/206-1150; http://
www.iccwbo.org); as any of the foregoing may be amended from time to
time.
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(b) Safety and soundness considerations--(1) Terms. As a matter of
safe and sound banking practice, banks that issue independent
undertakings should
[[Page 129]]
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]
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
[[Page 130]]
(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. 7.1020 Purchase of open accounts.
(a) General. The purchase of open accounts is a part of the business
of banking and within the power of a national bank.
(b) Export transactions. A national bank may purchase open accounts
in connection with export transactions; the accounts should be protected
by insurance such as that provided by the Foreign Credit Insurance
Association and the Export-Import Bank.
Sec. 7.1021 National bank participation in financial literacy programs.
A national bank may participate in a financial literacy program on
the premises of, or at a facility used by, a school. The school premises
or facility will not be considered a branch of the bank if:
(a) The bank does not establish and operate the school premises or
facility on which the financial literacy program is conducted; and
(b) The principal purpose of the financial literacy program is
educational. For example, a program is educational if it is designed to
teach students the principles of personal economics or the benefits of
saving for the future, and is not designed for the purpose of profit-
making.
[66 FR 34791, July 2, 2001]
Subpart B--Corporate Practices
Sec. 7.2000 Corporate governance procedures.
(a) General. A national bank proposing to engage in a corporate
governance procedure shall comply with applicable Federal banking
statutes and regulations, and safe and sound banking practices.
(b) Other sources of guidance. To the extent not inconsistent with
applicable Federal banking statutes or regulations, or bank safety and
soundness, a national bank may elect to follow the corporate governance
procedures of the law of the state in which the main office of the bank
is located, the law of the state in which the holding company of the
bank is incorporated, the Delaware General Corporation Law, Del. Code
Ann. tit. 8 (1991, as amended 1994, and as amended thereafter), or the
Model Business Corporation Act (1984, as amended 1994, and as amended
thereafter). A national bank shall designate in its bylaws the body of
law selected for its corporate governance procedures.
(c) No-objection procedures. The OCC also considers requests for its
staff's position on the ability of a national bank to engage in a
particular corporate governance procedure in accordance with the no-
objection procedures set forth in Banking Circular 205 or any
subsequently published agency procedures.\2\ Requests should demonstrate
how the proposed practice is not inconsistent with applicable Federal
statutes or regulations, and is consistent with safe and sound banking
practices.
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\2\ Available upon request from the OCC Communications Division, 250
E Street, SW., Washington, DC 20219, (202) 874-4700.
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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
[[Page 131]]
first class mail, unless the OCC determines that an emergency
circumstance exists. Where a national bank is a wholly-owned subsidiary,
the sole shareholder is permitted to waive notice of the shareholder's
meeting. The articles of association, bylaws, or law applicable to a
national bank may require a longer period of notice.
Sec. 7.2002 Director or attorney as proxy.
Any person or group of persons, except the bank's officers, clerks,
tellers, or bookkeepers, may be designated to act as proxy. The bank's
directors or attorneys may act as proxy if they are not also employed as
an officer, clerk, teller or bookkeeper of the bank.
Sec. 7.2003 Annual meeting for election of directors.
When the day fixed for the regular annual meeting of the
shareholders falls on a legal holiday in the state in which the bank is
located, the shareholders' meeting shall be held, and the directors
elected, on the next following banking day.
Sec. 7.2004 Honorary directors or advisory boards.
A national bank may appoint honorary or advisory members of a board
of directors to act in advisory capacities without voting power or power
of final decision in matters concerning the business of the bank. Any
listing of honorary or advisory directors must distinguish between them
and the bank's board of directors or indicate their advisory status.
Sec. 7.2005 Ownership of stock necessary to qualify as director.
(a) General. A national bank director must own a qualifying equity
interest in a national bank or a company that has control of a national
bank. The director must own the qualifying equity interest in his or her
own right and meet a certain minimum threshold ownership.
(b) Qualifying equity interest--(1) Minimum required equity
interest. For purposes of this section, a qualifying equity interest
includes common or preferred stock of the bank or of a company that
controls the bank that has not less than an aggregate par value of
$1,000, an aggregate shareholders' equity of $1,000, or an aggregate
fair market value of $1,000.
(i) The value of the common or preferred stock held by a national
bank director is valued as of the date purchased or the date on which
the individual became a director, whichever value is greater.
(ii) In the case of a company that owns more than one national bank,
a director may use his or her equity interest in the controlling company
to satisfy, in whole or in part, the equity interest requirement for any
or all of the controlled national banks.
(iii) Upon request, the OCC may consider whether other interests in
a company controlling a national bank constitute an interest equivalent
to $1,000 par value of national bank stock.
(2) Joint ownership and tenancy in common. Shares held jointly or as
a tenant in common are qualifying shares held by a director in his or
her own right only to the extent of the aggregate value of the shares
which the director would be entitled to receive on dissolution of the
joint tenancy or tenancy in common.
(3) Shares in a living trust. Shares deposited by a person in a
living trust (inter vivos trust) as to which the person is a trustee and
retains an absolute power of revocation are shares owned by the person
in his or her own right.
(4) Other arrangements--(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
[[Page 132]]
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 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
[[Page 133]]
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;
(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
[[Page 134]]
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;
(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
[[Page 135]]
(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 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 legal holiday due to emergency
conditions, a national bank may temporarily limit or suspend operations
at its affected offices. Alternatively, the national bank may continue
its operations unless the Comptroller by written order directs
otherwise.
(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.
[61 FR 4862, Feb. 9, 1996, as amended at 66 FR 34791, July 2, 2001]
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
[[Page 136]]
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 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
[[Page 137]]
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, creditor-imposed not sufficient funds (NSF) fees charged when a
borrower tenders payment on a debt with a check drawn on insufficient
funds, overlimit fees, annual fees, cash advance fees, and membership
fees. It does not ordinarily include appraisal fees, premiums and
commissions attributable to insurance guaranteeing repayment of any
extension of credit, finders' fees, fees for document preparation or
notarization, or fees incurred to obtain credit reports.
(b) Authority. A national bank located in a state may charge
interest at the maximum rate permitted to any state-chartered or
licensed lending institution by the law of that state. If state law
permits different interest charges on specified classes of loans, a
national bank making such loans is subject only to the provisions of
state law relating to that class of loans that are material to the
determination of the permitted interest. For example, a national bank
may lawfully charge the highest rate permitted to be charged by a state-
licensed small loan company, without being so licensed, but subject to
state law limitations on the size of loans made by small loan companies.
(c) Effect on state definitions of interest. The Federal definition
of the term ``interest'' in paragraph (a) of this section does not
change how interest is defined by the individual states (nor how the
state definition of interest is used) solely for purposes of state law.
For example, if late fees are not ``interest'' under state law where a
national bank is located but state law permits its most favored lender
to charge late fees, then a national bank located in that state may
charge late fees to its intrastate customers. The national bank may also
charge late fees to its interstate customers because the fees are
interest under the Federal definition of interest and an allowable
charge under state law where the national bank is located. However, the
late fees would not be treated as interest for purposes of evaluating
compliance with state usury limitations because state law excludes late
fees when calculating the maximum interest that lending institutions may
charge under those limitations.
(d) Usury. A national bank located in a state the law of which
denies the defense of usury to a corporate borrower may charge a
corporate borrower any rate of interest agreed upon by a corporate
borrower.
[61 FR 4862, Feb. 9, 1996, as amended at 66 FR 34791, July 2, 2001]
Sec. 7.4002 National bank charges.
(a) Authority to impose charges and fees. A national bank may charge
its customers non-interest charges and fees, including deposit account
service charges.
(b) Considerations. (1) All charges and fees should be arrived at by
each bank
[[Page 138]]
on a competitive basis and not on the basis of any agreement,
arrangement, undertaking, understanding, or discussion with other banks
or their officers.
(2) The establishment of non-interest charges and fees, their
amounts, and the method of calculating them are business decisions to be
made by each bank, in its discretion, according to sound banking
judgment and safe and sound banking principles. A national bank
establishes non-interest charges and fees in accordance with safe and
sound banking principles if the bank employs a decision-making process
through which it considers the following factors, among others:
(i) The cost incurred by the bank in providing the service;
(ii) The deterrence of misuse by customers of banking services;
(iii) The enhancement of the competitive position of the bank in
accordance with the bank's business plan and marketing strategy; and
(iv) 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 applies preemption principles derived from
the United States Constitution, as interpreted through judicial
precedent, when determining whether State laws apply that purport to
limit or prohibit charges and fees described in this section.
(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.
[66 FR 34791, July 2, 2001]
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 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]
[[Page 139]]
Sec. 7.4006 Applicability of State law to national bank operating subsidiaries.
Unless otherwise provided by Federal law or OCC regulation, State
laws apply to national bank operating subsidiaries to the same extent
that those laws apply to the parent national bank.
[66 FR 34791, July 2, 2001]
Subpart E--Electronic Activities
Source: 67 FR 35004, May 17, 2002, unless otherwise noted.
Sec. 7.5000 Scope.
This subpart applies to a national bank's use of technology to
deliver services and products consistent with safety and soundness.
Sec. 7.5001 Electronic activities that are part of, or incidental to, the business of banking.
(a) Purpose. This section identifies the criteria that the OCC uses
to determine whether an electronic activity is authorized as part of, or
incidental to, the business of banking under 12 U.S.C. 24 (Seventh) or
other statutory authority.
(b) Restrictions and conditions on electronic activities. The OCC
may determine that activities are permissible under 12 U.S.C. 24
(Seventh) or other statutory authority only if they are subject to
standards or conditions designed to provide that the activities function
as intended and are conducted safely and soundly, in accordance with
other applicable statutes, regulations, or supervisory policies.
(c) Activities that are part of the business of banking. (1) An
activity is authorized for national banks as part of the business of
banking if the activity is described in 12 U.S.C. 24 (Seventh) or other
statutory authority. In determining whether an electronic activity is
part of the business of banking, the OCC considers the following
factors:
(i) Whether the activity is the functional equivalent to, or a
logical outgrowth of, a recognized banking activity;
(ii) Whether the activity strengthens the bank by benefiting its
customers or its business;
(iii) Whether the activity involves risks similar in nature to those
already assumed by banks; and
(iv) Whether the activity is authorized for state-chartered banks.
(2) The weight accorded each factor set out in paragraph (c)(1) of
this section depends on the facts and circumstances of each case.
(d) Activities that are incidental to the business of banking. (1)
An electronic banking activity is authorized for a national bank as
incidental to the business of banking if it is convenient or useful to
an activity that is specifically authorized for national banks or to an
activity that is otherwise part of the business of banking. In
determining whether an activity is convenient or useful to such
activities, the OCC considers the following factors:
(i) Whether the activity facilitates the production or delivery of a
bank's products or services, enhances the bank's ability to sell or
market its products or services, or improves the effectiveness or
efficiency of the bank's operations, in light of risks presented,
innovations, strategies, techniques and new technologies for producing
and delivering financial products and services; and
(ii) Whether the activity enables the bank to use capacity acquired
for its banking operations or otherwise avoid economic loss or waste.
(2) The weight accorded each factor set out in paragraph (d)(1) of
this section depends on the facts and circumstances of each case.
Sec. 7.5002 Furnishing of products and services by electronic means and facilities.
(a) Use of 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, subject to Sec. 7.5001(b) and
applicable OCC guidance. The following list provides examples of
permissible activities under this authority. This list is illustrative
and not exclusive; the OCC may determine that other activities are
permissible pursuant to this authority.
(1) Acting as an electronic finder by:
[[Page 140]]
(i) Establishing, registering, and hosting commercially enabled web
sites in the name of sellers;
(ii) Establishing hyperlinks between the bank's site and a third-
party site, including acting as a ``virtual mall'' by providing a
collection of links to web sites of third-party vendors, organized by-
product type and made available to bank customers;
(iii) Hosting an electronic marketplace on the bank's Internet web
site by providing links to the web sites of third-party buyers or
sellers through the use of hypertext or other similar means;
(iv) Hosting on the bank's servers the Internet web site of:
(A) A buyer or seller that provides information concerning the
hosted party and the products or services offered or sought and allows
the submission of interest, bids, offers, orders and confirmations
relating to such products or services; or
(B) A governmental entity that provides information concerning the
services or benefits made available by the governmental entity, assists
persons in completing applications to receive such services or benefits
and permits persons to transmit their applications for such services or
benefits;
(v) Operating an Internet web site that permits numerous buyers and
sellers to exchange information concerning the products and services
that they are willing to purchase or sell, locate potential counter-
parties for transactions, aggregate orders for goods or services with
those made by other parties, and enter into transactions between
themselves;
(vi) Operating a telephone call center that provides permissible
finder services; and
(vii) Providing electronic communications services relating to all
aspects of transactions between buyers and sellers;
(2) Providing electronic bill presentment services;
(3) Offering electronic stored value systems; and
(4) Safekeeping for personal information or valuable confidential
trade or business information, such as encryption keys.
(b) Applicability of guidance and requirements not affected. When a
national bank performs, provides, or delivers through electronic means
and facilities an activity, function, product, or service that it is
otherwise authorized to perform, provide, or deliver, the electronic
activity is not exempt from the regulatory requirements and supervisory
guidance that the OCC would apply if the activity were conducted by non-
electronic means or facilities.
(c) State laws. As a general rule, and except as provided by Federal
law, State law is not applicable to a national bank's conduct of an
authorized activity through electronic means or facilities if the State
law, as applied to the activity, would be preempted pursuant to
traditional principles of Federal preemption derived from the Supremacy
Clause of the U.S. Constitution and applicable judicial precedent.
Accordingly, State laws that stand as an obstacle to the ability of
national banks to exercise uniformly their Federally authorized powers
through electronic means or facilities, are not applicable to national
banks.
Sec. 7.5003 Composite authority to engage in electronic activities.
Unless otherwise prohibited by Federal law, a national bank may
engage in an electronic activity that is comprised of several component
activities if each of the component activities is itself part of or
incidental to the business of banking or is otherwise permissible under
Federal law.
Sec. 7.5004 Sale of excess electronic capacity and by-products.
(a) A national bank may, in order to optimize the use of the bank's
resources or avoid economic loss or waste, market and sell to third
parties electronic capacities legitimately acquired or developed by the
bank for its banking business.
(b) With respect to acquired equipment or facilities, legitimate
excess electronic capacity that may be sold to others can arise in a
variety of situations, including the following:
(1) Due to the characteristics of the desired equipment or
facilities available in the market, the capacity of the most practical
optimal equipment or
[[Page 141]]
facilities available to meet the bank's requirements exceeds its present
needs;
(2) The acquisition and retention of additional capacity, beyond
present needs, reasonably may be necessary for planned future expansion
or to meet the expected future banking needs during the useful life of
the equipment;
(3) Requirements for capacity fluctuate because a bank engages in
batch processing of banking transactions or because a bank must have
capacity to meet peak period demand with the result that the bank has
periods when its capacity is underutilized; and
(4) After the initial acquisition of capacity thought to be fully
needed for banking operations, the bank experiences either a decline in
level of the banking operations or an increase in the efficiency of the
banking operations using that capacity.
(c) Types of electronic capacity in equipment or facilities that
banks may have legitimately acquired and that may be sold to third
parties if excess to the bank's needs for banking purposes include:
(1) Data processing services;
(2) Production and distribution of non-financial software;
(3) Providing periodic back-up call answering services;
(4) Providing full Internet access;
(5) Providing electronic security system support services;
(6) Providing long line communications services; and
(7) Electronic imaging and storage.
(d) A national bank may sell to third parties electronic by-products
legitimately acquired or developed by the bank for its banking business.
Examples of electronic by-products that banks may have legitimately
acquired that may be sold to third parties if excess to the bank's needs
include:
(1) Software acquired (not merely licensed) or developed by the bank
for banking purposes or to support its banking business; and
(2) Electronic databases, records, or media (such as electronic
images) developed by the bank for or during the performance of its
permissible data processing activities.
Sec. 7.5005 National bank acting as digital certification authority.
(a) It is part of the business of banking under 12 U.S.C.
24(Seventh) for a national bank to act as a certificate authority and to
issue digital certificates verifying the identity of persons associated
with a particular public/private key pair. As part of this service, the
bank may also maintain a listing or repository of public keys.
(b) A national bank may issue digital certificates verifying
attributes in addition to identity of persons associated with a
particular public/private key pair where the attribute is one for which
verification is part of or incidental to the business of banking. For
example, national banks may issue digital certificates verifying certain
financial attributes of a customer as of the current or a previous date,
such as account balance as of a particular date, lines of credit as of a
particular date, past financial performance of the customer, and
verification of customer relationship with the bank as of a particular
date.
(c) When a national bank issues a digital certificate relating to
financial capacity under this section, the bank shall include in that
certificate an express disclaimer stating that the bank does not thereby
promise or represent that funds will be available or will be advanced
for any particular transaction.
Sec. 7.5006 Data processing.
(a) Eligible activities. It is part of the business of banking under
12 U.S.C. 24(Seventh) for a national bank to provide data processing,
and data transmission services, facilities (including equipment,
technology, and personnel), data bases, advice and access to such
services, facilities, data bases and advice, for itself and for others,
where the data is banking, financial, or economic data, and other types
of data if the derivative or resultant product is banking, financial, or
economic data. For this purpose, economic data includes anything of
value in banking and financial decisions.
(b) Other data. A national bank also may perform the activities
described in paragraph (a) of this section for itself and others with
respect to additional
[[Page 142]]
types of data to the extent convenient or useful to provide the data
processing services described in paragraph (a), including where
reasonably necessary to conduct those activities on a competitive basis.
The total revenue attributable to the bank's data processing activities
under this section must be derived predominantly from processing the
activities described in paragraph (a) of this section.
Sec. 7.5007 Correspondent services.
It is part of the business of banking for a national bank to offer
as a correspondent service to any of its affiliates or to other
financial institutions any service it may perform for itself. The
following list provides examples of electronic activities that banks may
offer correspondents under this authority. This list is illustrative and
not exclusive; the OCC may determine that other activities are
permissible pursuant to this authority.
(a) The provision of computer networking packages and related
hardware;
(b) Data processing services;
(c) The sale of software that performs data processing functions;
(d) The development, operation, management, and marketing of
products and processing services for transactions conducted at
electronic terminal devices;
(e) Item processing services and related software;
(f) Document control and record keeping through the use of
electronic imaging technology;
(g) The provision of Internet merchant hosting services for resale
to merchant customers;
(h) The provision of communication support services through
electronic means; and
(i) Digital certification authority services.
Sec. 7.5008 Location of a national bank conducting electronic activities.
A national bank shall not be considered located in a State solely
because it physically maintains technology, such as a server or
automated loan center, in that state, or because the bank's products or
services are accessed through electronic means by customers located in
the state.
Sec. 7.5009 Location under 12 U.S.C. 85 of national banks operating exclusively through the Internet.
For purposes of 12 U.S.C. 85, the main office of a national bank
that operates exclusively through the Internet is the office identified
by the bank under 12 U.S.C. 22(Second) or as relocated under 12 U.S.C.
30 or other appropriate authority.
Sec. 7.5010 Shared electronic space.
National banks that share electronic space, including a co-branded
web site, with a bank subsidiary, affiliate, or another third-party must
take reasonable steps to clearly, conspicuously, and understandably
distinguish between products and services offered by the bank and those
offered by the bank's subsidiary, affiliate, or the third-party.
PART 8--ASSESSMENT OF FEES--Table of Contents
Sec.
8.1 Scope and application.
8.2 Semiannual assessment.
8.6 Fees for special examinations and investigations.
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, 1867, 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, 1867, 3102, and 3108; 15
U.S.C. 78c and 78l; and 26 D.C. Code 102.
[67 FR 37665, May 30, 2002]
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:
[[Page 143]]
------------------------------------------------------------------------
If the bank's total assets The semiannual assessment is:
(consolidated domestic and -------------------------------------------
foreign subsidiaries) 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 X1 0
2 20 X2 Y1 $2
20 100 X3 Y2 20
100 200 X4 Y3 100
200 1,000 X5 Y4 200
1,000 2,000 X6 Y5 1,000
2,000 6,000 X7 Y6 2,000
6,000 20,000 X8 Y7 6,000
20,000 40,000 X9 Y8 20,000
40,000 ............. X10 Y9 40,000
------------------------------------------------------------------------
(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 of 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 the 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)).
(b)(1) Each Federal branch and each Federal agency shall pay to the
Comptroller of the Currency on or before
[[Page 144]]
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.
(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.
(c) Additional assessment for independent credit card banks--(1)
General rule. In addition to the assessment calculated according to
paragraph (a) of this section, each independent credit card bank will
pay an assessment based on receivables attributable to credit card
accounts owned by the bank. This assessment will be computed by adding
to its asset-based assessment an additional amount determined by its
level of receivables attributable. The dollar amount of the additional
assessment will be published in the ``Notice of Comptroller of the
Currency Notice of Fees,'' described at Sec. 8.8.
(2) Credit card banks affiliated with full-service national banks.
The OCC will assess an independent credit card bank in accordance with
paragraph (c)(1) of this section, notwithstanding that the bank is
affiliated with a full-service national bank, if the OCC concludes that
the affiliation is intended to evade this part.
(3) Definitions. For purposes of this paragraph (c), the following
definitions apply:
(i) Affiliate has the same meaning as this term has in 12 U.S.C.
221a(b).
(ii) Engaged primarily in card operations means a bank described in
section 2(c)(2)(F) of the Bank Holding Company Act (12 U.S.C.
1841(c)(2)(F)) or whose ratio of total gross receivables attributable to
the bank's balance sheet assets exceeds 50%.
(iii) Full-service national bank is a national bank that generates
more than 50% of its interest and non-interest income from activities
other than credit card operations or trust activities and is authorized
according to its charter to engage in all types of permissible banking
activities.
(iv) Independent credit card bank is a national bank that engages
primarily in credit card operations and is not affiliated with a full-
service national bank.
(v) Receivables attributable is the total amount of outstanding
balances due on credit card accounts owned by an independent credit card
bank (the receivables attributable to those accounts) on the last day of
the assessment period, minus receivables retained on the bank's balance
sheet as of that day.
(4) Reports of receivables attributable. Independent credit card
banks will report receivables attributable data to the OCC semiannually
at a time specified by the OCC.
(d) Surcharge based on the condition of the bank. Subject to any
limit that the OCC prescribes in the Notice of the Comptroller of the
Currency Fees, the OCC shall apply a surcharge to the semiannual
assessment computed in
[[Page 145]]
accordance with paragraphs (a) through (c) of this section. This
surcharge will be determined by multiplying the semiannual assessment
computed in accordance with paragraphs (a) through (c) of this section
by--
(1) 1.5, in the case of any bank that receives a composite rating of
3 under the Uniform Financial Institutions Rating System (UFIRS) and any
Federal branch or agency that receives a composite rating of 3 under the
ROCA rating system (which rates risk management, operational controls,
compliance, and asset quality) at its most recent examination; and
(2) 2.0, in the case of any bank that receives a composite UFIRS
rating of 4 or 5 and any Federal branch or agency that receives a
composite rating of 4 or 5 under the ROCA rating system 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; 66 FR 29893, June 1,
2001; 66 FR 57647, Nov. 16, 2001; 66 FR 58786, Nov. 23, 2001; 67 FR
57509, Sept. 11, 2002; 67 FR 62873, Oct. 9, 2002]
Sec. 8.6 Fees for special examinations and investigations.
(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:
(1) Examining the fiduciary activities of national and District of
Columbia banks and related entities;
(2) Conducting special examinations and investigations of national
banks, District of Columbia banks, and Federal branches or Federal
agencies of foreign banks;
(3) Conducting special examinations and investigations of an entity
with respect to its performance of activities described in section 7(c)
of the Bank Service Company Act (12 U.S.C. 1867(c)), if the OCC
determines that assessment of the fee is warranted with regard to a
particular bank because of the high risk or unusual nature of the
activities performed; the significance to the bank's operations and
income of the activities performed; or the extent to which the bank has
sufficient systems, controls, and personnel to adequately monitor,
measure, and control risks arising from such activities;
(4) Conducting special examinations and investigations of affiliates
of national banks, District of Columbia banks, and Federal branches or
Federal agencies of foreign banks; and
(5) 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.
(c) Additional assessments on trust banks. (1) Independent trust
banks. The assessment of independent trust banks will include a
fiduciary and related asset component, in addition to the assessment
calculated according to Sec. 8.2 of this part, as follows:
(i) Minimum fee. All independent trust banks will pay a minimum fee,
to be provided in the Notice of Comptroller of the currency Fees.
(ii) Additional amount for independent trust banks with fiduciary
and related assets in excess of $1 billion. Independent trust banks with
fiduciary and related assets in excess of $1 billion will pay an amount
that exceeds the minimum fee. The amount to be paid will be calculated
by multiplying the amount of fiduciary and related assets by a rate or
rates provided by the OCC in the Notice of Comptroller of the Currency
Fees.
(iii) Surcharge based on the condition of the bank. Subject to any
limit that the OCC prescribes in the Notice of the Comptroller of the
Currency Fees, the OCC shall adjust the semiannual assessment computed
in accordance with paragraphs (c)(1)(i) and (ii) of this section by
multiplying that figure by 1.5 for each independent trust bank that
receives a composite rating of 3 under the Uniform Financial
Institutions Rating System (UFIRS) at its most recent examination and by
2.0 for each bank that receives a composite UFIRS rating of 4 or 5 at
such examination.
(2) Trust banks affiliated with full-service national banks. The OCC
will assess
[[Page 146]]
a trust bank in accordance with paragraph (c)(1) of this section,
notwithstanding that the bank is affiliated with a full-service national
bank, if the OCC concludes that the affiliation is intended to evade the
assessment regulation.
(3) Definitions. For purposes of this paragraph (c) of this section,
the following definitions apply:
(i) Affiliate has the same meaning as this term has in 12 U.S.C.
221a(b);
(ii) Full-service national bank is a national bank that generates
more than 50% of its interest and non-interest income from activities
other than credit card operations or trust activities and is authorized
according to its charter to engage in all types of permissible banking
activities.
(iii) Independent trust bank is a national bank that has trust
powers, does not primarily offer full-service banking, and is not
affiliated with a full-service national bank; and
(iv) Fiduciary and related assets are those assets reported on
Schedule RC-T of FFIEC Forms 031 and 041, Line 9 (columns A and B) and
Line 10 (column B), any successor form issued by the FFIEC, and any
other fiduciary and related assets defined in the Notice of Comptroller
of the Currency Fees.
[59 FR 59642, Nov. 18, 1994, as amended at 65 FR 75862, Dec. 5, 2000; 66
FR 23153, May 8, 2001; 66 FR 29894, June 1, 2001; 67 FR 37665, May 30,
2002]
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
(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
[[Page 147]]
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.
9.7 Multi-state fiduciary operations.
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.
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
[[Page 148]]
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.
(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.
(j) Trust office means an office of a national bank, other than a
main office or a branch, at which the bank engages in one or more of the
activities specified in Sec. 9.7(d). Pursuant to 12 U.S.C. 36(j), a
trust office is not a ``branch'' for purposes of 12 U.S.C. 36, unless it
is also an office at which deposits are received, or checks paid, or
money lent.
(k) Trust representative office means an office of a national bank,
other than a main office, branch, or trust office, at which the bank
performs activities ancillary to its fiduciary business, but does not
engage in any of the activities specified in Sec. 9.7(d). Examples of
ancillary activities include advertising, marketing, and soliciting for
fiduciary business; contacting existing or potential customers,
answering questions, and providing information about matters related to
their accounts; acting as a liaison between the trust office and the
customer (e.g., forwarding requests for distribution or changes in
investment objectives, or forwarding forms and funds received from the
customer); inspecting or maintaining custody of fiduciary assets or
holding title to real property. This list is illustrative and not
comprehensive. Other activities may also be ``ancillary activities'' for
the purposes of this definition. Pursuant to 12 U.S.C. 36(j), a trust
representative office is not a ``branch'' for purposes of 12 U.S.C. 36,
unless it is also an office at which deposits are received, or checks
paid, or money lent.
[61 FR 68554, Dec.30, 1996, as amended at 66 FR 34797, July 2, 2001]
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 national bank that has obtained the OCC s approval to exercise
fiduciary powers is not required to obtain the OCC s prior approval to
engage in any of the activities specified in Sec. 9.7(d) in a new state
or to conduct, in a new state, activities that are ancillary to its
fiduciary business. Instead, the national bank must follow the notice
procedures prescribed by 12 CFR 5.26(e).
(c) 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.
[61 FR 68554, Dec. 30, 1996, as amended at 66 FR 34798, July 2, 2001]