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

**Interpretive Letter #1063**

**July 2006**

June 1, 2006

Subject: Authority of a National Bank to Engage in Financial
Intermediation Transactions

Dear **\[ \]**:

This responds to your request that the Office of the Comptroller of the
Currency ("OCC") confirm that it is permissible for **\[ \]** ("Bank"),
to engage in customer-driven,[^1] perfectly matched, cash-settled
derivative transactions (such as swaps, options, forwards, caps, floors,
collars and futures) in which payments are based on prices of four
reference assets: (i) hogs (including lean hogs and pork bellies); (ii)
lumber; (iii) corrugated cardboard (including new and recycled); and
(iv) polystyrene. As discussed below, we conclude that the Bank may
engage in these transactions. Before doing so, however, the Bank's
examiner-in-charge ("EIC") must be satisfied that the Bank has
established adequate risk measurement and management systems and
controls to ensure that the Bank effectuates the transactions on a safe
and sound basis.

In OCC Interpretive Letter No. 1039 (September 13, 2005), we determined
that a national bank may engage in customer-driven, perfectly matched,
cash-settled derivative transactions on the reference assets identified
in the letter as part of a permissible financial intermediation
business.[^2] The permissibility of the activity was subject to the
national bank in question having established, to the satisfaction of its
EIC, an appropriate risk measurement and management process for the
activities.

On the basis of the analysis and subject to the conditions set forth in
detail in OCC Interpretive Letter No. 1039, we conclude that the Bank
may similarly act as a financial intermediary in customer-driven,
perfectly matched, cash-settled derivative transactions on the reference
assets described above. Before doing so, however, the Bank's EIC must be
satisfied that the Bank has adequate risk management systems and
controls to conduct the activities on a safe and sound basis. Our
conclusions herein are specifically based on the Bank's representations
and written submissions describing the facts and circumstances of the
subject transactions. Any change in the facts or circumstances could
result in different conclusions. If you have any questions concerning
this letter, please contact Jamey Basham, Counsel, Securities and
Corporate Practices Division, at (202) 874-5210.

Sincerely,

signed

Julie L. Williams

First Senior Deputy Comptroller

and Chief Counsel

[^1]: A "customer-driven" transaction is one entered into for a
    customer's valid and independent business purpose. *See* OCC
    Interpretive Letter No. 892 (September 13, 2000).

[^2]: In addition to the four reference assets enumerated above, your
    request includes other reference assets we previously approved for
    customer-driven, perfectly matched, cash-settled derivative
    transactions in OCC Interpretive Letter No. 1039 and OCC
    Interpretive Letter No. 1056 (March 29, 2006). We note in connection
    with your request that our approval of dairy as a reference asset in
    OCC Interpretive Letter No. 1039 encompasses your request for butter
    and class I milk as a reference asset.