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| ## Comptroller of the Currency                                        |
|                                                                       |
| > Administrator of National Banks                                     |
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Washington, DC 20219

December 18, 2002 **Interpretive Letter #950**

**12USC 29B**

**12 USC 84(a)(1)**

**12 USC 371D**

> Re: Loans made by a national bank to an entity used as part of the
> bank's like-kind exchange of bank premises

Dear **\[ \]**:

This letter is in response to your October 18, 2002, letter addressed to
Julie L. Williams, First Senior Deputy Comptroller and Chief Counsel. In
your letter, you ask how the OCC would apply the legal lending limit
statute, 12 U.S.C. § 84, to a national bank ("Bank") using the
tax-deferred exchange provisions under section 1031 of the Internal
Revenue Code of 1986 to effect a like-kind exchange of bank premises.

Briefly, the Bank enters into a contract to purchase a piece of new
property upon which will be constructed its new office building, assigns
the contract to an unrelated entity ("Newco"), and extends credit to
Newco to purchase the new property. Newco will be responsible for
constructing the new office building. At the same time, the Bank enters
into a lease with Newco, with the lease payments being large enough to
cover debt service on the loan to Newco plus Newco's fee for
participating in the transaction. Ultimately, the Bank's existing main
office is sold, the sales contract is assigned to an affiliate of Newco,
and the affiliate sells the old office building. The affiliate then uses
the proceeds to buy the new building from Newco and transfers the new
building to the Bank. At that time, any amount due on the loan to Newco
is repaid.

It is my opinion that the Bank's loan to Newco would be an extension
credit for purposes of 12 U.S.C. § 84. Section 84(b)(1) defines "loans
and extensions of credit" to "include all direct or indirect advances of
funds to a person made on the basis of any obligation of that person to
repay the funds or repayable from specific property pledged by or on
behalf of the person ...". Based upon your fact pattern, the loan by the
Bank to Newco meets this definition. Therefore, under section 84(a)(1),
the total outstanding loans made by the Bank to Newco would be limited
to 15 percent of the Bank's unimpaired capital and surplus.

However, because Newco would hold bank premises,[^1] the Bank may take
advantage of 12 U.S.C. § 371d. Section 371d provides in part that:

> No national bank or State member bank shall invest in bank premises,
> or in the stock, bonds, debentures, or other such obligations of any
> corporation holding the premises of such bank, or make loans to or
> upon the security of any such corporation-- ... (2) unless the
> aggregate of all such investments and loans, together with the amount
> of any indebtedness incurred by any such corporation that is an
> affiliate of the bank, is less than or equal to the amount of the
> capital stock of such bank; ...

Under this section, a national bank must aggregate its direct
investments in bank premises and corporations that hold bank premises,
its loans to such corporations, and any indebtedness incurred by such
corporations which are affiliates of the national bank.[^2] This total
may not exceed an amount equal to the bank's capital stock (unless
certain other requirements are satisfied).

If a national bank has no other "investments" in bank premises, then
section 371d would authorize the national bank to lend money to an
unaffiliated corporation holding bank premises in an amount equal to the
bank's capital stock.[^3] Therefore, if section 371d's aggregate limits
are otherwise satisfied, it is my opinion that the Bank could loan Newco
an amount which would exceed the limitations contained in 12 U.S.C. §
84. Rules of statutory interpretation strongly presume that "\[w\]here
there is no clear intention otherwise, a specific statute will not be
controlled or nullified by a general one."[^4] For example, with respect
to extensions of credit made by national banks to their affiliates, the
OCC has determined that the more specific affiliate transaction statute,
12 U.S.C. § 371c, takes precedence over the general lending limits in
section 84.[^5]

While the section 84 lending limits would not apply, any extension of
credit by the Bank to Newco must conform with safe and sound banking
practices. If you have any questions, please contact me at (202)
874-5300.

Sincerely,

**/s/ Steven V. Key**

Steven V. Key

Senior Attorney

[^1]: Under 12 U.S.C. § 29(First), a national bank may invest in real
    estate that is necessary for the transaction of its business. Twelve
    C.F.R. § 7.1000(a)(2)(i) provides that this real estate includes
    "\[p\]remises that are owned and occupied *(or to be occupied, if
    under construction)* by the bank ..." (emphasis added). Section
    7.1000(a)(3) further provides that national banks may acquire and
    hold such real estate by means of a leasehold estate. Therefore, the
    new property that the Bank is leasing and upon which the Bank's new
    building is being constructed by Newco is bank premises.

[^2]: Section 371d does not require that corporations holding bank
    premises be affiliates of the national bank. *See* Letter from James
    J. Saxon, Comptroller of the Currency (Mar. 26, 1964) (unpublished).
    Rather, this section requires only that the national bank include in
    its aggregate investment in bank premises any indebtedness incurred
    by corporations that are affiliates of the bank.

[^3]: In this case, the Bank would have two such "investments" -- the
    investment in its current office building and the loan to Newco --
    that must be aggregated.

[^4]: *AT&T Corp. v. Iowa Utilities Bd.*, 525 U.S. 366, 410 (1999),
    (*quoting Crawford Fitting Co. v. J.T. Gibbons, Inc.*, 482 U.S. 437,
    445 (1987)). *Accord Morton v. Marconi*, 417 U.S. 535, 550-51
    (1974).

[^5]: *See* 12 C.F.R. § 32.1(c); Letter from Rosemarie Oda, Senior
    Attorney, Legal Advisory Services Division (Jan. 25, 1985)
    (unpublished).