TO: Deputy Comptrollers; District Administrators; Department Heads;
Division Directors; and Examining Personnel

##### PURPOSE

This circular establishes the supervisory policy for national banks in
chain banking organizations. The policy provides for a monitoring system
and establishes a strategic framework for coordinating examinations of
chain banks. Implementation of this policy is intended to enhance OCC\'s
ability to supervise chain banks by systematically identifying such
relationships and coordinating examinations of those chain banks that
possess characteristics warranting a higher degree of supervisory
concern. This will facilitate detection and control of the conditions
that could expose those institutions to undesirable systemic risks that
may occur throughout the chain group.

##### BACKGROUND

Generally, the term \"chain banking\" describes the form of banking
structure in which two or more independently chartered banks are
controlled either directly or indirectly by the same individual, family,
or group of individuals closely associated in their business dealings. A
registered multibank holding company and its subsidiary banks are not
ordinarily considered a chain banking organization unless the holding
company is linked to other banking organizations through common control.

While chain banking can be an effective and efficient form of banking
structure, providing many of the benefits common to multibank holding
company systems, it also provides the potential for unsafe and unsound
banking practices to impact more than one institution in the chain
group.

The linkage of several banks or holding companies into a chain creates a
concentration of banking resources vulnerable to mutual risk. Mutually
shared risks that occasionally can arise in chain banking relationships
may result from poor loan participation practices; common deficiencies
in lending, investment or other policies; domineering or absentee
ownership: insider lending abuses or other self-serving practices.
Detection and correction of these problems is often complicated when the
chain is composed of institutions subject to multiple supervisory
jurisdiction.

##### POLICY

OCC will supervise national banks that are part of a chain banking
organization in a manner that fully considers the consolidated chain\'s
impact on the safety and soundness of the subject national bank(s). This
supervisory strategy is intended to ensure that OCC resources are
efficiently and effectively deployed.

Therefore, supervision will be coordinated to address the risk posed by
the entire chain. OCC will initiate contacts with and cooperate with
other federal or state financial institution supervisory authorities to
ensure an effective evaluation of the condition and prospects of the
chain group and its member institutions.

##### PROCEDURES

Management Information System of Records:

Deputy Comptrollers (District) are responsible for implementing and
maintaining a system of records designated as the \"Chain Banking
Organizations System.\" The System will consist of word processing or
microprocessing programs which detail two types of data:

-   Name of an individual (or group of individuals acting in concert)
    that owns or controls two or more banks or financial institutions
    (including at least one national bank); and

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-   Information concerning individual chain banks, such as: name and
    location, charter number, charter type, date of last examination,
    percentage of outstanding stock owned by controlling individual or
    group and, if applicable, name of intermediate holding entity and
    percentage of it held by controlling individual or group.

For purposes of this issuance, a presumption of effective control should
be made if the common owner has the ability, directly or indirectly, to
control the vote of 25% or more of any class of voting securities or to
direct the management or policies of the bank. However, the record
should also identify any known or suspected chain relationship
regardless of the percentage of voting control.

The system of records should adhere to the data format set forth in
Attachment A. The system should also comply with the policies and
practices for storage, retrieval, access, retention and disposal set
forth in Attachment B.

In addition, since the system is subject to the provisions of the
Privacy Act of 1974, procedures should be implemented by District
Counsel to process any Privacy Act access requests made regarding
records in the system, as set forth in Attachment B.

Scheduling Coordinated Examinations:

District Administrators are responsible for setting the overall
supervisory strategies for each chain organization. As part of the
overall supervisory strategy, on-site examinations should be coordinated
with other regulatory agencies. District Administrators or their
designees are responsible for initiating interagency planning sessions
and making the final decision regarding which chain banks will be
examined in coordination with other supervisory authorities. Decisions
regarding supervisory strategies and action plans for chain
organizations should be documented in the files of the affected banks.

Periodic examination planning sessions held with the Federal Deposit
Insurance Corporation regional offices and Federal Reserve System
district banks pursuant to the provisions of PPM 5400-2, should
incorporate consideration of concurrent or coordinated examinations of
chain banking groups. As appropriate, other affected regulatory
authorities such as the Federal Home Loan Bank Board or State officials
should be invited to participate.

District Administrators or their designees are responsible for seeing
that chains which operate on an inter-District basis are coordinated
with their counterparts. For those chains operating on an intra-District
basis, District Administrators or their designees should see that
strategies and examinations are coordinated with each affected Field
Office.

In devising an appropriate supervisory action plan including deciding
whether to conduct concurrent or coordinated examinations the following
factors should be considered:

-   The degree and nature of control or influence being exerted over
    individual banks in the chain. The managerial style and extent of
    direct control or influence at each institution in the chain.

-   The relative complexity and sophistication of the chain\'s
    organizational structure including the degree of centralization of
    operations.

-   The degree of interdependence among the individual institutions in
    the group with specific emphasis on the volume and frequency of
    interbank transactions such as: loan participations or sales;
    insider and related interests loans or transactions; BHC or bank
    stock loans; correspondent or interbank transfers; contractual
    obligations for services or other matters: purchases or sale of
    securities or other assets.

-   The relative strengths and weaknesses of the individual institutions
    in the group including comparative size, overall condition and
    historical performance. The existence or suspicion of instability or
    weaknesses should be given particular weight.

Supervisory Follow-up and Monitoring:

District Administrators or their designees should ensure that the
condition of chain organizations are monitored on an ongoing basis. This
would include periodic on-site, as well as off-site monitoring of
information, including collection of information directly from the chain
and from other regulators.

Procedures should be established to assure the timely exchange of
significant information between the participating examining personnel
and other supervisory authorities. For guidance refer to the \"Joint
Statement of Policy on Interagency Exchange of Supervisory Information\"
dated August 23, 1984.

Periodically, but at least annually, the examiner-in-charge of the
principal national bank in the group or other staff designated by the
District Administrator should review the results of off-site and on-site
analysis, including the examination of each entity in the group, and
render a summary analysis of the consolidated chain group.

The reviewer should prepare a written summary analysis of the
consolidated chain group\'s condition and include a brief description of
the scope of its operations, earnings and capital adequacy. Adverse
comments common to several institutions in the group should be discussed
in detail. See Attachment C for guidelines in preparing the written
analysis. A copy of the completed review should be retained in each
affected bank\'s file. If the chain contains one or more nondelegated
banks, a copy of the written analysis should be forwarded to the
appropriate division in Washington.

The summary analysis may serve as a basis for updating individual
supervisory strategies and for deciding the frequency of future
coordinated examinations by the District. In any event, the analysis of
the chain should be updated at least annually. The District
Administrator or designee should also determine the need for more
frequent updates of the analysis depending on the overall condition of
the chain.

##### ORIGINATING OFFICE

Chief National Bank Examiner\'s Office, Commercial Examinations
Division, (202) 447-1165.

Michael Patriarca

Deputy Comptroller of the Currency

Attachments