[Federal Register Volume 64, Number 91 (Wednesday, May 12, 1999)]
[Proposed Rules]
[Pages 25469-25472]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-12011]
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Chap. I
[Docket No. 99-05]
Community Bank-Focused Regulation Review
AGENCY: Office of the Comptroller of the Currency, Treasury.
ACTION: Advance notice of proposed rulemaking.
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SUMMARY: The Office of the Comptroller of the Currency (OCC) is
undertaking a review of its regulations with a view toward identifying
rules that may impose disproportionate or unnecessary burden on
community banks. This advance notice of proposed rulemaking (ANPR)
identifies several parts of the OCC's regulations that are already
under review, requests comment on changes that could be made to these
regulations, and solicits suggestions for improvements in other areas
that would be helpful to community banks. The intended effect of this
action is to identify areas where the OCC could reduce unnecessary
burden on community banks without impairing their safety and soundness.
DATES: Comments must be received by July 12, 1999.
ADDRESSES: Please direct your comments to: Docket No. 99-05,
Communications Division, Third Floor, Office of the Comptroller of the
Currency, 250 E Street, SW, Washington, DC, 20219. You can inspect and
photocopy all comments received at that address. In addition, you may
send comments by facsimile transmission to FAX number (202) 874-5274,
or by electronic mail to [email protected].
FOR FURTHER INFORMATION CONTACT:
Stuart Feldstein, Assistant Director, or Heidi Thomas, Senior Attorney,
Legislative and Regulatory Activities, at (202) 874-5090.
SUPPLEMENTARY INFORMATION:
Background
The OCC supervises over 2,400 national banks that vary widely in
size, business strategy, complexity, and
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geographic diversity. The OCC has a strong commitment to ensure that
our regulations encourage, rather than impede, national banks'
efficiency and competitiveness, consistent with safety and soundness.
Toward that end, we continually reevaluate our rules in order to
identify and eliminate requirements that impose burdens on banks that
are not necessary to maintain safety and soundness, promote fair access
to financial services for consumers, or accomplish the OCC's other
statutory responsibilities.
In 1996, the OCC completed a three-year, comprehensive effort to
review and revise all of its regulations. The results of this effort,
which was called the Regulation Review Program (Program), were
positive. Most of the bankers, trade group representatives, banking
lawyers, and consumer representatives whom the OCC asked about the
effects of the Program thought that, on balance, it had been a success.
While some of the regulatory changes made pursuant to the Program were
designed to benefit community banks, the Program did not have the
community bank charter as a particular focus.
The OCC recognizes that community banks operate with more limited
resources than larger institutions and may present a different risk
profile. For example, many community banks have more direct ``hands-
on'' oversight by senior management and smaller spans of operations and
controls such that less complex risk-management or compliance systems
may be appropriate. Differences between community banks and larger
banks in operational structure and focus may result in inefficient or
uneven application of regulatory requirements. Therefore, we believe
that it is appropriate to take a fresh look at our regulations with the
community bank perspective in mind.1
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\1\ The OCC already recognizes and incorporates into its
supervisory approach the distinctions between large banks and
community banks. The OCC has, for example, developed approaches to
examination and supervision that are appropriate to each charter
type. See, e.g., Comptroller's Handbook, Community Bank Supervision
(August 1998), Large Bank Supervision (July 1998). See also id.,
Community Bank Fiduciary Activities Supervision (December 1998).
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Specifically, the OCC is considering further changes to our
regulations that would take into account the impact the rules have on
community banks' resources, as well as other factors that bear on
community banks' operations. For example, community banks typically
have smaller, less specialized staffs than larger banks, so the burden
of complying with complex regulations is proportionately higher. The
purpose of our community bank-focused regulation review is to eliminate
or modify regulatory requirements that impose unnecessary burden. In
addition, we are seeking to identify regulations as to which it may be
appropriate to develop alternative, differential regulatory approaches
that will achieve the OCC's goals while minimizing burden on community
banks.
This advance notice describes four areas of regulation that the OCC
is already reviewing. In those areas, commenters are invited to make
specific suggestions for change. Depending on the results of the OCC's
own review and the suggestions made by commenters, we will then
consider proposing specific revisions to our rules for comment. In
addition, commenters on this advance notice are invited to suggest
other regulations that could be modified in ways helpful to community
banks.
A few of the OCC's regulations distinguish among banks based on
asset-size categories and apply different requirements to smaller
banks. For example, 12 CFR part 25, the regulation implementing the
Community Reinvestment Act (CRA), provides for alternative means of
compliance for banks with less than $250 million in assets. The OCC
does not have a standard, generally applicable definition of
``community bank,'' however. We invite comment on whether to adopt such
a definition for purposes of this regulation review. If so, should the
definition be based primarily on asset size, and what should the asset
threshold be? Should the OCC consider factors other than asset size,
such as whether the bank is the sole provider of banking services in a
community, regardless of asset size?
Areas Currently Under Review
Part 5--Corporate Activities and Transactions
Community banks, like larger national banks, routinely seek OCC
approval for different types of corporate transactions. Recent
amendments to the OCC's operating subsidiary rule reduced burden by
grouping procedures for OCC approval of operating subsidiary activities
into different categories based upon the novelty of the activity and
level of risk it presents. The required approval procedures vary
depending upon the group in which the activity is placed. For example,
qualifying national banks need only file a simple after-the-fact notice
for certain, so-called ``plain vanilla'' activities (e.g., providing
accounting, data processing, and other business services for the bank
or its affiliates). A 30-day review under an expedited filing procedure
may be available for more complex operating subsidiary activities. See
12 CFR 5.34(e).
We invite comment on whether and how we could improve the current
rule to further reduce application burden for community banks seeking
to engage in certain routine bank-permissible activities. Specifically:
(1) Should the OCC expand the list of activities eligible for
after-the-fact notice or expedited filing to include more activities
that do not present significant safety and soundness concerns?
(2) What types of activities should the OCC include in such an
expanded list?
Banks that have experience with the OCC's applications process are
also invited to make suggestions about how that process could be
streamlined or improved for community banks. For example, could the OCC
modify the process to reduce the need for, and therefore the costs of,
community bank reliance on outside expertise to help them comply with
filing requirements?
Branching is an area in which community banks are especially
active. In 1998, national banks with assets of less than $250 million
filed approximately 358 branching applications. National banks with
assets of between $250 million and $1 billion filed 213 branching
applications. OCC intrastate branch application procedures generally
require a 30-day public comment period and a decision no later than 15
days after the close of the public comment period or 45 days after the
filing, whichever is later, for applications qualifying for expedited
processing, and no later than 30 days after the close of the comment
period for applications subject to standard processing. (The comment
period for applications to engage in a short-distance branch relocation
is 15 days.) OCC rules also require an applicant to publish notice of
its filing in a newspaper of general circulation in the community in
which the applicant proposes to engage in business.
We are requesting comment on whether there are alternative time
frames or methods of providing public notice that would reduce burden
for community banks while preserving the ability of the public to
provide meaningful comment pursuant to the CRA or otherwise. For
example:
(1) Would posting a conspicuous notice at the main office and all
existing branches of the bank in lieu of newspaper publication reduce
unnecessary burden but still provide adequately for public
participation?
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(2) Are there other reasonable regulatory alternatives that would
be less burdensome for community banks but that are consistent with
statutory requirements and the OCC's supervisory goals?
Part 32--Lending limits
Federal law (12 U.S.C. 84) limits the amount of loans and
extensions of credit a national bank can make to any one borrower to 15
percent of a national bank's unimpaired capital and surplus. A bank may
lend an additional 10 percent if the credit is secured by readily
marketable collateral. Section 84 also provides exceptions to these
limits for various types of loans or extensions of credit, such as
loans secured by certain obligations of the United States or fully
guaranteed by the United States, loans secured by a segregated deposit
account, and loans arising from the discount of certain types of
commercial paper. The OCC is authorized to issue rules to carry out the
purposes of Section 84 and to establish limits or requirements other
than those specified in this section for particular classes or
categories of loans or extensions of credit. The OCC's rule
implementing section 84 is set forth at 12 CFR part 32.
Community banks in a number of states have represented to the OCC
that disparities in the lending limits applicable to national banks
impair their ability to provide effective and competitively priced
services in many cases. We are interested in obtaining further
information about the extent to which these limits may constrain
community banks from prudently extending credit, especially as compared
with other financial services providers in the markets in which they
compete. Commenters are invited to provide specific information about
such disparities in particular states, and to address the following
questions:
(1) Does the national bank lending limit create competitive
disadvantages for community banks?
(2) Are community banks operating under national charters losing
significant business to competitors, as a result of the constraints
imposed by the national bank lending limits? If so, which types of
lending are most heavily affected?
(3) Are there factors in addition to the lending limits that could
be contributing to this business loss?
Because the lending limit promotes diversification of credit risk,
which is fundamental to the safe and sound operation of banks, the OCC
must undertake any revisions to the national bank lending limit rules
with great care. Commenters who recommend changes to the OCC's lending
limit rule therefore are asked to:
(1) Identify specific categories of loans or borrowers that might
be addressed;
(2) Identify prudential conditions that the OCC might impose, to
ensure that any change is implemented consistent with safety and
soundness; and
(3) Discuss whether any changes to the lending limits should
include safeguards, such as collateralization or margin requirements,
similar to those imposed by some states with lending limits that exceed
those in 12 CFR part 32.
Commenters are also invited to evaluate the effect of the lending
limit rules on structures, such as loan participations, that are
commonly used to diversify credit risk and to recommend any changes to
these provisions that would facilitate community banks' use of these
structures, consistent with safety and soundness.
Part 7--Corporate Governance
The OCC recently revised some of its rules to enhance a national
bank's flexibility to use the corporate governance procedures that are
best suited to a particular bank's operations. For example, part 7 of
our regulations now permits national banks to adopt the corporate
governance provisions in the law of the state where the main office of
the bank is located, the state where the holding company of the bank is
incorporated, the Delaware General Corporation Law, or the Model
Business Corporation Act, to the extent that these standards are not
inconsistent with applicable federal banking statutes or regulations,
or bank safety and soundness.
Community bank operations and management may present unique
concerns from a corporate governance perspective, and we invite comment
on whether there are additional ways to enhance the flexibility of
existing procedures. For example, are there specific state law
provisions that we should consider including in the regulation as
appropriate for adoption by community banks?
Part 3--Capital Adequacy
The OCC, and the other federal banking agencies,2
measure banks' capital adequacy according to a detailed set of uniform
standards based on an international agreement, commonly referred to as
the Basle Accord, which was concluded in 1988 by the Basle Committee on
Banking Regulations and Supervisory Practices (the Basle
Committee).3 The 1988 Accord applies to internationally
active banks.4 The OCC's capital adequacy standards,
however, apply to all national banks, and the other agencies' standards
similarly apply to all of the institutions they supervise.
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\2\ The OCC's capital adequacy standards appear at 12 CFR part
3. The Board of Governors of the Federal Reserve System (FRB), the
Federal Deposit Insurance Corporation (FDIC), and the Office of
Thrift Supervision (OTS) each have regulations containing similar
standards.
\3\ This Committee is now known as the Basle Committee on
Banking Supervision. The Basle Committee was established in 1975 by
the central bank Governors of the Group of Ten Countries. It
consists of senior representatives of bank supervisory authorities
and central banks from Belgium, Canada, France, Germany, Italy,
Japan, Luxembourg, the Netherlands, Sweden, Switzerland, the United
Kingdom, and the United States. It usually meets at the Bank for
International Settlements in Basle, where its permanent Secretariat
is located.
\4\ The Basle Committee is currently considering revisions to
the 1998 Accord. Any changes would be subject to a consultative
process and are expected also to apply to internationally active
banks.
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The OCC is interested in learning commenters' views about whether
the differences in activities and levels and types of risks between
large and community banks warrant a differential approach to
supervising capital adequacy. Commenters addressing this issue are
invited to:
(1) Suggest a different, simpler overall approach to measuring
capital adequacy for community banks; and
(2) Identify specific aspects of the OCC's part 3 standards that
could be revised or applied differently to community banks.
The part 3 capital adequacy standards are linked directly to the
prompt corrective action (PCA) provisions in 12 CFR part 6 of the OCC's
rules. The capital categories used for PCA purposes (e.g., well
capitalized, adequately capitalized, etc.) are defined by reference to
the standards and definitions in part 3. The PCA framework, which
derives from statute,5 is a crucial component of safety and
soundness supervision. Like the capital adequacy standards, it has been
implemented jointly by the OCC and the other federal banking agencies.
Accordingly, commenters favoring a differential approach to capital
adequacy supervision for community banks are encouraged to address how
such an approach could be implemented consistent with the PCA
requirements.
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\5\ See 12 U.S.C. 1831o (PCA statute); 12 CFR part 6 (OCC PCA
regulation).
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We expect to use the information that commenters provide on this
issue to inform our discussions with the other agencies about
alternative approaches to
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evaluating capital adequacy for small institutions. After receiving
comments in response to this ANPR, the OCC will consult with the other
agencies to determine if modifications to the capital regulations are
appropriate.
Comment Solicitation
The OCC invites comment generally on each of the areas identified
in this advance notice, as well as specifically on the questions asked
in each area. For each of these areas, we are interested in:
(1) Whether existing rules are requiring inefficient allocation of
the bank's existing resources or imposing undue burdens on in-house
staff.
(2) What community bank lines of business or community bank
operations are affected by the rule and what specific requirements
require the bank to obtain expertise from outside sources?
(3) Could we change or modify specific provisions to reduce burdens
on community banks without compromising safety and soundness standards?
(4) Are there reasonable regulatory alternatives that would be less
burdensome for community banks?
In addition, commenters on this notice are invited to suggest other
regulations that could be modified in ways helpful to community banks.
Dated: May 4, 1999.
John D. Hawke, Jr.,
Comptroller of the Currency.
[FR Doc. 99-12011 Filed 5-11-99; 8:45 am]
BILLING CODE 4810-33-P