83686 Federal Register / Vol. 85, No. 246 / Tuesday, December 22, 2020 / Rules and Regulations 

1For example, the OCC recently issued a final 

rule relating to policies and procedures for 

corporate activities and transactions involving 

national banks and Federal savings associations, 12 

CFR part 5, that updates and clarifies these policies 

and procedures and eliminate unnecessary 

requirements consistent with safety and soundness. 

See 85 FR 80404 (Dec. 11, 2020). 

2Public Law 104–208 (1996), codified at 12 

U.S.C. 3311(b). Section 2222 of EGRPRA requires 

that, at least once every 10 years, the OCC along 

with the other Federal banking agencies and the 

Federal Financial Institutions Examination Council 

(FFIEC) conduct a review of their regulations to 

identify outdated or otherwise unnecessary 

regulatory requirements imposed on insured 

depository institutions. Specifically, EGRPRA 

requires the agencies to categorize and publish their 

regulations for comment, eliminate unnecessary 

regulations to the extent that such action is 

appropriate, and submit a report to Congress 

summarizing their review. The agencies completed 

their second EGRPRA review on March 2017 and 

published their report in the Federal Register. 82 

FR 15900 (March 30, 2017). 

3Public Law 111–203, 124 Stat. 1376 (2010) 

(transferring to the OCC all functions of the former 

OTS relating to Federal savings associations). 

4 85 FR 40794 (July 7, 2020). 

5The OCC has separately issued a final rule that 

amends 12 CFR 7.4001. See 84 FR 33530 (June 2, 

2020) (Permissible Interest on Loans That Are Sold, 

Assigned, or Otherwise Transferred). The OCC also 

issued an interim final rule that amends 12 CFR 

7.1001 and 7.1003, which this rulemaking finalizes. 

See 85 FR 31943 (May 28, 2020) (Director, 

Shareholder, and Member Meetings). Further, the 

OCC has issued a final rule that adds a new 

§ 7.1031, National Banks and Federal Savings 

Associations as Lenders). See 85 FR 68742 (October 

30, 2020). 

6See 85 FR 40827 (July 7, 2020) (National Bank 

and Federal Savings Association Digital Activities). 

7 12 U.S.C. 3101 et seq. (Pub. L. 95–369). 

8 12 U.S.C. 3102(b) (Pub. L. 95–369). See also 12 

CFR 28.13. 

DEPARTMENT OF THE TREASURY 

Office of the Comptroller of the 

Currency 

12 CFR Parts 4, 5, 7, 145, and 160 

[Docket ID OCC–2020–0003] 

RIN 1557–AE74 

Activities and Operations of National 

Banks and Federal Savings 

Associations 

AGENCY: Office of the Comptroller of the 

Currency, Treasury. 

ACTION: Final rule. 

SUMMARY: The Office of the Comptroller 

of the Currency is issuing a final rule to 

revise and reorganize its regulations 

relating to the activities and operations 

of national banks and Federal savings 

associations and to amend its rules 

relating Federal savings association 

corporate governance. This rule clarifies 

and codifies recent OCC interpretations, 

integrates certain regulations for 

national banks and Federal savings 

associations, and updates or eliminates 

outdated regulatory requirements that 

no longer reflect the modern financial 

system. Additionally, this rule includes 

related technical changes throughout 

these and other OCC regulations. 

DATES: The rule is effective April 1, 

2021. 

FOR FURTHER INFORMATION CONTACT: Beth 

Kirby, Assistant Director, Valerie Song, 

Assistant Director, Heidi M. Thomas, 

Special Counsel, or Chris Rafferty, 

Attorney, Chief Counsel’s Office, (202) 

649–5490, Office of the Comptroller of 

the Currency, 400 7th Street SW, 

Washington, DC 20219. 

SUPPLEMENTARY INFORMATION: 

I. Background 

The Office of the Comptroller of the 

Currency (OCC) periodically reviews its 

regulations to eliminate outdated or 

otherwise unnecessary regulatory 

provisions and, where possible, to 

clarify or revise requirements imposed 

on national banks and Federal savings 

associations.1 The elimination of 

unnecessary regulatory impediments 

together with efforts to revise 

regulations to reflect changes in the 

financial industry help to promote 

economic growth for consumers, 

businesses and communities. 

These reviews are in addition to the 

OCC’s decennial review of its 

regulations as required by the Economic 

Growth and Regulatory Paperwork 

Reduction Act (EGRPRA).2 These 

reviews also consider, where 

appropriate, opportunities to integrate 

rules that apply to national banks with 

similar rules that apply to Federal 

savings associations in light of the 

transfer to the OCC of all functions of 

the former Office of Thrift Supervision 

(OTS) relating to Federal savings 

association by Title III of the DoddFrank Wall Street Reform and Consumer 

Protection Act (Dodd-Frank Act).3

As part of this process, the Office of 

the Comptroller of the Currency (OCC) 

published a notice of proposed 

rulemaking (proposal or proposed rule) 

on July 7, 2020 to revise and reorganize 

subparts A through D of 12 CFR part 7, 

Activities and Operations.4 The OCC 

proposed to update part 7 to address 

developing issues and industry 

practices, to clarify OCC interpretive 

positions, and to integrate certain 

national bank rules by adding Federal 

savings associations. As examples, the 

proposed revisions to subpart A 

included new regulations covering tax 

equity finance transactions, derivatives 

activities, and payment system 

memberships. The proposed revisions to 

subpart B addressed corporate 

governance issues, such as expanding 

the ability of national banks to choose 

corporate governance provisions under 

State or other law, clarifying permissible 

anti-takeover provisions, and adding 

provisions relating to capital stockrelated activities of national banks. The 

OCC also proposed to update and 

integrate rules relating to bank hours 

and closings in subpart C and to update 

rules relating to loan production and 

deposit production offices and remote 

service units in subpart D and to move 

these sections to subpart A to improve 

the organization of part 7.5 As a 

companion to the proposed rule, the 

OCC also issued an Advance Notice of 

Proposed Rulemaking (ANPR) inviting 

ideas for revisions on the OCC’s rules on 

electronic banking activities located at 

subpart E of 12 CFR part 7 and 12 CFR 

part 155.6

The OCC also proposed more general 

changes throughout part 7 including 

removing outdated or superfluous 

regulations; consolidating related 

regulations into one section; and making 

various technical changes throughout 

part 7. In addition, the OCC proposed to 

integrate a number of rules in part 7 to 

include Federal savings associations. 

The OCC notes that pursuant to 

section 4(b) of the International Banking 

Act,7 many of the provisions in part 7 

apply to Federal branches and agencies. 

This act provides that, subject to certain 

exceptions, the operations of a foreign 

bank at a Federal branch or agency shall 

be conducted with the same rights and 

privileges as a national bank at the same 

location and shall be subject to all the 

same duties, restrictions, penalties, 

liabilities, conditions, and limitations 

that would apply under the National 

Bank Act to a national bank doing 

business at the same location.8 This 

final rule amends some of the 

provisions in part 7 to include Federal 

branches and agencies for ease of 

reference. However, the lack of 

inclusion of Federal branches and 

agencies in a particular provision does 

not necessarily indicate that the 

provisions is inapplicable to Federal 

branches and agencies. 

The OCC received 16 comment letters 

on the proposal from banking 

organizations and other interested 

parties. These comments and the OCC’s 

response are discussed in the next 

section of this SUPPLEMENTARY

INFORMATION. As described in more 

detail below, the OCC is adopting the 

proposal as a final rule with 

accompanying modifications where 

noted. The final rule becomes effective 

on April 1, 2021. 


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9The Supreme Court has held that the business 

of banking is not limited to the enumerated powers 

listed in 12 U.S.C. 24(Seventh) but encompasses 

more broadly activities that are part of or incidental 

to the business of banking. NationsBank of N.C., 

N.A. v. Variable Annuity Life Ins. Co., 513 U.S. 251, 

258–60 (1995). 

10See 85 FR 40827. 

11See, e.g., OCC Interpretive Letter No. 607 (Aug. 

24, 1992). 

12See, e.g., OCC Interpretive Letter No. 824 (Feb. 

27, 1998). 

13See 85 FR 40827, at 40830. 

14 12 CFR 7.1002(b)(3). 

15See, e.g., OCC Interpretive Letter No. 504 (May 

18, 1990) (describing how ‘‘finder’s fees [paid by a 

bank] must be high enough to be attractive to 

potential sources of referrals, yet not so high as to 

be financially detrimental to the Bank or create an 

appearance of profit sharing, which could lead to 

the inference of a joint venture or partnership’’). 

II. Description of the Proposed Rule 

Subpart A—National Banks and Federal 

Savings Association Powers 

Activities That Are Part of, or Incidental 

to, the Business of Banking (New 

§ 7.1000) 

Section 7.5001 identifies the criteria 

the OCC uses to determine whether an 

electronic activity is authorized for 

national banks as part of, or incidental 

to, the business of banking under 12 

U.S.C. 24(Seventh) or other statutory 

authority. While this section details 

those criteria in the context of electronic 

activities, the OCC uses these same 

criteria to determine whether any 

activity is part of, or incidental to, the 

business of banking. To confirm the 

broader applicability of the criteria 

listed in § 7.5001, the OCC proposed to 

remove the word ‘‘electronic’’ from this 

section and move § 7.5001 to subpart A 

of part 7 as new § 7.1000. As part of this 

move, the proposal redesignated current 

§ 7.1000 as § 7.1024. These changes 

better organize OCC rules and clarify 

that the criteria of this new § 7.1000 

apply to any potential national bank 

activity and not just those that are 

electronic in nature. Further, the OCC 

believes that new § 7.1000 belongs at the 

beginning of part 7 because it provides 

the framework for all national bank 

powers that follow in subpart A. 

The OCC also proposed a technical 

change to redesignated § 7.1000(c)(1). 

The current rule provides a four factor 

test to determine whether an activity is 

part of the business of banking. 

However, this four-factor test is not 

necessary for activities that are 

specifically included in 12 U.S.C. 

24(Seventh) or other statutory authority 

because they are by express statutory 

language within the business of 

banking. Therefore, the proposed rule 

added language to clarify that this fourfactor test applies to activities not 

specifically included in 12 U.S.C. 

24(Seventh) or other statutory authority. 

This clarification reflects the OCC’s 

long-standing use of the four-factor test 

to determine whether an activity not 

expressly included in a statute is within 

the business of banking.9

The OCC received one comment that 

supported new § 7.1000. Therefore, the 

OCC is adopting § 7.1000 as proposed. 

The final rule also corrects a technical 

error in the proposed rule. Current 

§ 7.5001(d)(3) contains an illustrative 

list of electronic activities that are 

incidental to the business of banking. 

The proposed rule inadvertently 

removed this list and the final rule 

restores it as § 7.5001, with conforming 

changes to the cross-reference to new 

§ 7.1000. The OCC notes that it is 

reviewing this list in the broader context 

of potential changes to all of subpart E 

pursuant to the ANPR on National Bank 

and Federal Savings Association Digital 

Activities and may make further 

changes in the future.10

National Bank and Federal Savings 

Association Acting as Finder (§ 7.1002) 

The OCC proposed a technical change 

to its regulation at § 7.1002 relating to 

when a national bank acts as a finder 

and invited comment on the inclusion 

of Federal savings association finder 

activities in part 7. For the reasons 

discussed below, the OCC is adopting 

this technical change and also is 

amending § 7.1002 to include Federal 

savings association finder activities. 

The OCC has long permitted a 

national bank to act as a finder to bring 

together buyers and sellers of financial 

and nonfinancial products and 

services.11 The OCC’s regulations 

include two separate rules relating to 

permissible national bank finder 

activities. Section 7.1002, which 

codifies OCC interpretive letters, 

provides that finder activities are part of 

the business of banking.12 This section 

also describes permissible finder 

activities; provides an illustrative, nonexclusive list of permissible finder 

activities; clarifies that a national bank’s 

finder authority does not allow it to 

engage in brokerage activities that have 

not been found to be permissible for 

national banks; and authorizes a 

national bank to advertise and accept 

fees for finder services unless otherwise 

prohibited by Federal law. Section 

7.5002 provides that a national bank 

generally may perform, provide, or 

deliver through electronic means and 

facilities any activity, function, product, 

or service that is otherwise permissible. 

Section 7.5002(a)(1) clarifies that a 

national bank may act as an electronic 

finder and includes a list of permissible 

electronic finder activities. 

The OCC proposed amending its 

regulations by adding a new 

§ 7.1002(b)(8) that would cross-reference 

the permissible electronic finder 

activities listed in § 7.5002(a)(1). This 

change would reference all examples of 

permissible finder activities for national 

banks in one rule. 

The OCC received one comment letter 

on § 7.1002. The commenter 

recommended revising the list of 

examples to reflect how finder authority 

is exercised in the modern financial 

system. The commenter specifically 

suggested that the OCC consider 

consolidating the finder authority in 

§§ 7.1002 and 7.5002. The OCC 

disagrees with this recommendation. 

The cross-reference sufficiently clarifies 

that additional finder activities are 

listed in that section. Further, the OCC’s 

ANPR on National Bank and Federal 

Savings Association Digital Activities 

requested comment on the electronic 

finder activities list in 12 CFR 

7.5002(a)(1).13 Through that rulemaking 

process, the OCC will consider further 

revisions related to electronic finder 

activities. A cross-reference will capture 

these possible revisions without again 

having to revise § 7.1002. The OCC also 

may consider consolidating the finder 

authority in §§ 7.1002 and 7.5002 

during the subpart E revision process. 

The commenter further suggested that 

the final rule add to the list in 

§ 7.1002(b) the making or receiving of a 

referral to or from a third party for a fee, 

and more generally suggested that the 

rule permit banks to accept reasonable 

finder fees. The OCC notes that § 7.1002 

contemplates making referrals for a fee, 

and the list of examples in § 7.1002 

includes ‘‘[a]rranging for third-party 

providers to offer reduced rates to those 

customers referred by the bank.’’ 14 The 

OCC also believes that continuing to 

limit fees to those permitted by Federal 

law is appropriate. Therefore, the final 

rule does not add a reasonableness 

requirement. However, the OCC notes 

that the reasonableness of fees received 

may raise other concerns and that 

§ 7.4002(b) provides considerations for 

national banks in setting non-interest 

charges and fees. 

The commenter’s recommendation to 

add receiving a referral for a fee also 

involves adding a bank receiving and 

paying for finder services from a third 

party. Longstanding OCC interpretations 

confirm that banks may pay for finder 

services, subject to fact-specific 

considerations.15 However, § 7.1002 

covers banks acting as finders, and the 

proposal did not address the authority 


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16See, e.g., id.; OCC Interpretive Letter No. 824. 

17See, e.g., OCC Interpretive Letter No. 504 

(‘‘National banks are not permitted to be members 

of general partnerships or, by extension, joint 

ventures.’’); Merchants’ Nat. Bank of Cincinnati v. 

Wehrmann, 202 U.S. 295, 301 (1906) (describing the 

assumption of unlimited personal liability as 

‘‘precisely what a national bank has no authority to 

do’’); OCC Interpretive Letter No. 1022 (Feb. 15, 

2005). 

18See, e.g., OCC Interpretive Letter No. 850 (Jan. 

27, 1999) (citing OCC precedent on disclosure of 

finder fees in connection with the marketing of trust 

services); OCC Corporate Decision No. 2002–11 

(June 28, 2002) (describing potential conflicts of 

interest from receiving finder fees and the OCC’s 

expectation that the bank’s ‘‘interest in promoting 

specific’’ products and services be disclosed). 

19The OCC and the predecessor agencies 

previously responsible for the supervision of 

Federal savings associations ‘‘have long recognized 

that federal savings associations possess ‘incidental’ 

powers, i.e., powers that are incident to the express 

powers of federal savings associations as set forth 

in the Home Owners’ Loan Act.’’ OTS Op. Acting 

Ch. Couns. at 3 (Mar. 25, 1994). 

20OTS Op. Ch. Couns. (May 5, 2000). 

21OTS Op. Ch. Couns. (Aug. 5, 2008). 

22OCC, Comptroller’s Handbook: Retail 

Nondeposit Investment Products Booklet at 9 (Jan. 

2015). 

23See OTS Op. Ch. Couns. (May 5, 2000). All 

precedents (orders, resolutions, determinations, 

agreements, regulations, interpretive rules, 

interpretations, guidelines, procedures, and other 

advisory materials) made, prescribed, or allowed to 

become effective by the former OTS or its Director 

that apply to Federal savings associations remain 

effective until the OCC modifies, terminates, sets 

aside, or supersedes those precedents. 12 U.S.C. 

5414(b). 

24See OTS Op. Ch. Couns. (May 5, 2000). 

25See id. 

26OTS Op. Ch. Couns. (Aug. 5, 2008). 

of banks to be finder clients. 

Accordingly, the OCC does not believe 

that the final rule should add provisions 

on banks receiving and paying for finder 

services. 

The same commenter recommended 

the OCC confirm that payment or 

collection of finder fees as a share of 

revenue is permitted. Section 7.1002(d) 

permits finder fees that do not violate 

Federal law and does not expressly 

prohibit specific fee arrangements. The 

OCC has permitted collection and 

payment of finder fees as a share of 

revenue in certain contexts.16 However, 

revenue sharing arrangements may raise 

supervisory and legal concerns, 

including whether they result in a joint 

venture and unlimited liability, which 

national banks do not have the power to 

assume.17 Rather than codify the 

permissibility of any specific fee 

arrangement, the OCC believes that 

continuing to permit banks to accept 

fees except as otherwise prohibited by 

Federal law is appropriate. As described 

above, the final rule does not add 

provisions on banks paying finder 

services, whether those fees are based 

on revenue or not. 

The commenter further recommended 

that the final rule codify prior OCC 

interpretations finding that the sharing 

of revenue or profit alone in a referral 

relationship would not constitute a joint 

venture under State law if the parties 

express an intent not to create a joint 

venture. The proposal did not address 

joint ventures, and we are not inclined 

to address it in this rulemaking. 

The commenter also recommended 

that the OCC confirm that a bank is not 

required to disclose finder fees paid or 

collected. The proposal did not address 

fee disclosure, and the OCC is not 

inclined to adopt this recommendation. 

We also note that OCC precedent 

requires disclosure of finder fees in 

certain contexts and inadequate 

disclosure may raise supervisory and 

legal concerns.18

While finder activities are part of the 

business of banking for a national bank, 

a Federal savings association may 

engage in finder activities only to the 

extent that the activities are incidental 

to Federal savings association powers 

authorized under the Home Owners’ 

Loan Act (HOLA) (12 U.S.C. 1461 et 

seq).19 The former OTS determined that, 

if certain factors are met, a Federal 

savings association may collect fees for 

referring customers to third parties 20

and may provide services and products 

to customers indirectly through a thirdparty discount program 21 as activities 

incidental to their statutorily 

enumerated powers. The OCC also has 

recognized Federal savings association 

finder authority in its Retail Nondeposit 

Investment Products Booklet of the 

Comptroller’s Handbook.22

As noted above, the OCC did not 

propose amendments to § 7.1002 related 

to Federal savings associations but 

invited comment on whether it should 

add a separate provision to § 7.1002 to 

set forth Federal savings association 

finder authority. In the preamble to the 

proposed rule, the OCC offered options 

to integrate Federal savings associations 

into § 7.1002. It described a provision 

for a Federal savings association to 

engage in finder activities to the extent 

that those activities are incidental to 

Federal savings association powers 

expressly authorized under the HOLA. 

The OCC also suggested a list of Federal 

savings association finder activities that 

the former OTS or the OCC have 

determined are permissible, such as 

collecting fees for referring customers to 

third parties and providing services and 

products indirectly to customers 

through a third-party discount program. 

The OCC specifically requested 

comment on what other Federal savings 

association finder activities the OCC 

could add to this list. 

No commenters directly responded to 

the request for input on Federal savings 

association finder activities. However, 

one commenter recommended that the 

rule include new examples of how 

national banks and Federal savings 

associations have exercised finder 

authority. Because the current rule is 

limited to national banks, the OCC 

interprets this comment as a 

recommendation to incorporate Federal 

savings associations in § 7.1002. 

The OCC agrees that the authority of 

Federal savings associations to act as 

finders should be codified in the OCC’s 

regulations. Therefore, the final rule 

clarifies that Federal savings 

associations may act as finders to the 

extent those activities are incidental to 

their expressly authorized powers under 

HOLA. In determining whether an 

activity is incidental, the OCC considers 

whether (1) the activity facilitates or is 

similar to the conduct of an activity that 

Congress expressly authorized, (2) the 

activity relates to Federal savings 

associations’ intended role as financial 

intermediaries, (3) the activity is 

necessary to enable the Federal savings 

association to remain competitive and 

relevant in the modern economy, and 

(4) the activity is consistent with the 

purpose and function Congress 

envisioned for Federal savings 

associations.23 Each factor need not 

support the permissibility of an activity, 

and the relative weights of each factor 

may vary.24

The source of finder authority for 

Federal savings associations is more 

limited and fact-specific than for 

national banks. The former OTS’ 

approval of referral fees dealt with 

referrals to registered investment 

advisors and considered how those 

services related to a Federal savings 

association’s expressly authorized 

powers.25 Similarly, the former OTS’s 

approval of the third-party discount 

program considered how the product 

offerings would facilitate expressly 

authorized activities of Federal savings 

associations.26 The final rule includes 

both referrals and third-party discount 

programs as illustrative examples of the 

types of finder services that a Federal 

savings association may provide. 

However, certain referral and discount 

programs may not be within the 

incidental powers of Federal savings 

associations. Therefore, the final rule 

clarifies that the examples are 

permissible if they are incidental to a 

Federal savings association’s express 

powers. It also states that the OCC may 


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27See Interpretive Letter No. 814 (Nov. 3, 1997). 

28 In First National Bank in Plant City v. 

Dickinson, the Supreme Court explained that 

because the purpose of 12 U.S.C. 36 is to maintain 

competitive equality, it is relevant in construing the 

term ‘‘branch’’ to consider whether the facility gives 

the bank an advantage in its competition for 

customers. First National Bank in Plant City v. 

Dickinson, 396 U.S. 122, 136–137 (1969). 

29See OCC Interpretive Letter No. 635 (July 23, 

1993). See also 61 FR 60342, at 60347 (Nov. 27, 

1996). 

30See OCC Interpretive Letter No. 814 (Nov. 3, 

1997). 

determine that other activities are 

permissible. 

Consistent with the current rule’s 

treatment of national banks, the final 

rule permits Federal savings 

associations to advertise the availability 

of and accept a fee for finder services, 

unless otherwise prohibited by Federal 

law, and does not enable a Federal 

savings association to engage in 

brokerage activities that have not been 

found to be permissible for Federal 

savings associations. 

As a result of adding Federal savings 

associations to § 7.1002, the final rule 

revises paragraph (a) to include the 

general description of finder activity 

currently included in paragraph (b) and 

the statement of authority for both 

national bank and Federal savings 

association finder activity. Paragraph 

(b)(1) includes the nonexclusive list of 

permissible finder activities for national 

banks. Paragraph (b)(2) includes the 

nonexclusive list of permissible finder 

activities for Federal savings 

associations. Paragraphs (c) and (d) 

remain unchanged except for the 

addition of Federal savings associations. 

Money Lent by a National Bank at 

Banking Offices or at Facilities Other 

Than Banking Offices (§ 7.1003) 

Twelve U.S.C. 81 provides that a 

national bank must transact business in 

the place specified in its organization 

certificate and in any branches 

established or maintained in accordance 

with 12 U.S.C. 36. The OCC interprets 

12 U.S.C. 81 to mean that money is 

deemed to be lent at a bank’s main 

office unless there is a sufficient nexus 

tying the transaction to another location, 

in which case that location must be 

licensed as a branch office. 

Twelve U.S.C. 36 and 12 CFR 5.30 

define ‘‘branch’’ as a place of business 

established by the national bank where 

‘‘deposits are received, or checks paid, 

or money lent.’’ Section 7.1003 provides 

that for purposes of what constitutes a 

branch within the meaning of 12 U.S.C. 

36 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 

either (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. Section 

7.1003(b) further provides that a 

borrower may receive loan proceeds 

directly from bank funds 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. This 

paragraph defines a third party to 

include a person who satisfies the 

requirements of § 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. 

The OCC proposed amending § 7.1003 

to incorporate an OCC interpretation 

that further clarifies when the OCC 

considers money to be lent at a location 

other than the main office. Specifically, 

proposed paragraph (c) provided that a 

national bank operating subsidiary may 

distribute loan proceeds from its own 

funds or bank funds directly to the 

borrower in person at offices the 

operating subsidiary established 

without violating 12 U.S.C. 36, 12 

U.S.C. 81, and 12 CFR 5.30 if the 

operating subsidiary provides similar 

services on substantially similar terms 

and conditions to customers of 

unaffiliated entities, including 

unaffiliated banks.27 Based on Supreme 

Court precedent,28 OCC interpretations 

have recognized that a facility must 

provide a convenience to bank 

customers that gives the bank a 

competitive advantage in obtaining 

customers for the facility to be 

considered a branch for purposes of 12 

U.S.C. 36 and 12 CFR 5.30.29 The OCC 

has found that a facility where members 

of the public, customers, and 

noncustomers alike receive substantially 

similar services on substantially similar 

terms is not a facility created to attract 

bank customers and thus the 

establishment of this type of facility 

offers no competitive advantage to the 

national bank.30 Proposed paragraph (c) 

reflects this OCC precedent. 

The OCC received two comments on 

this proposed change. One commenter 

stated that if the distribution of loan 

proceeds by national bank operating 

subsidiaries does not constitute lending 

money then, consistent with OCC 

precedent, the rule should also require 

that the operating subsidiary actively 

solicit and service noncustomers and 

that providing services to noncustomers 

comprise the predominate share of the 

subsidiary’s business. Otherwise, the 

commenter stated, the proposed rule 

will result in competitive inequality and 

thus be detrimental to the dual banking 

system. The OCC disagrees with this 

commenter and does not believe it 

needs to alter proposed paragraph (c) to 

be consistent with OCC precedent. The 

provision in the proposed regulation 

that the operating subsidiary ‘‘provides 

similar services on substantially similar 

terms and conditions to customers of 

unaffiliated entities including 

unaffiliated banks’’ should be 

understood to include the requirement 

that the bank act substantially similarly 

in soliciting business from customers 

and noncustomers. Therefore, the 

proposed change adequately reflects 

OCC precedent. 

The second commenter supported the 

proposed changes but suggested that 

§ 7.1003 be broadened to apply equally 

to facilities of either the national bank 

or its operating subsidiary. The OCC 

believes that even if a facility of the 

national bank itself attempted to 

provide services to both customers and 

noncustomers on substantially similar 

terms and conditions, the public would 

still perceive it as favoring bank 

customers and would associate it with 

the bank, thus giving it a competitive 

advantage in attracting bank customers. 

Thus, the OCC declines to extend this 

provision to include national bank 

facilities. 

For the reasons discussed above, the 

OCC is adopting § 7.1003 as proposed, 

with a clarifying change to the section 

heading, clarifying changes throughout 

to reference ‘‘national banks’’ instead of 

‘‘banks,’’ and the removal of an 

unnecessary comma in paragraph (c). 

Establishment of a Loan Production 

Office by a National Bank (§ 7.1004) 

Credit Decisions at Other Than Banking 

Offices of a National Bank (§ 7.1005) 

Section 7.1004 provides that a 

national bank may use the services of 

persons not employed by the bank for 

originating loans. It also provides that 

an employee or agent of a national bank 

or its subsidiary may originate a loan at 

a site other than the main office or a 

branch office of the bank without 

violating the branching and place of 

business requirements of 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 an 

operating subsidiary located on the 

premises of, or contiguous to, the main 

office or branch office of the bank. 

Section 7.1005 provides that a national 

bank and its operating subsidiary may 

make a credit decision regarding a loan 


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31OCC Interpretive Letter No. 634 (July 23, 1993). 

32OCC Interpretive Letter No. 667 (Oct. 12, 1994). 

33 61 FR 4849, at 4851 (Feb. 9, 1996). 

34OCC Interpretive Letter No. 667 (Oct. 12, 1994); 

OCC Interpretive Letter No. 902 (Nov. 16 2000); 61 

FR 4849, at 4851 (Feb. 9, 1996); 60 FR 11924, at 

11926 (March 3, 1995). 

35See Indep. Bankers Ass’n of America v. 

Heimann, 627 F.2d 486, 487 (D.C. Cir. 1980), as 

discussed in 61 FR 4849, at 4851 (Feb. 9, 1996). 

36 12 CFR 25.09; 85 FR 34734, at 34798 (June 5, 

2020). 

37 12 U.S.C. 1464(c)(2). 

38Unpublished letter from Jordan Luke, Gen. 

Couns., Federal Home Loan Bank Board (Dec. 19, 

1988), available on Westlaw: OTS, 1988 WL 

1022319. 

application at a site other than the main 

office or a branch office of the bank 

provided that ‘‘money’’ is not ‘‘lent’’ at 

those other sites within the meaning of 

§ 7.1003. 

Section 7.1004 is not intended to 

prescribe where a bank must perform 

certain activities but rather to help 

avoid violations of the branching laws 

by defining a ‘‘safe harbor’’ for loan 

origination activities that will not 

constitute branching.31 Section 7.1005, 

in turn, which addresses credit 

decisions made at a site other than 

offices of the bank, is based on OCC 

precedent finding that it is permissible 

for loans originated at an LPO to be 

approved at separate back office 

facilities not located on the premises of, 

or contiguous to, a main or branch office 

of the bank.32 When the OCC adopted 

§ 7.1005, it noted that it was retaining 

§ 7.1004 despite the potential tension 

between the two sections because 

§ 7.1004 is a judicially recognized safe 

harbor and that it did not view a lending 

related activity that falls outside the 

scope of § 7.1004, as with § 7.1005, as 

necessarily violating branching 

statutes.33

The OCC proposed amending § 7.1004 

to describe the permitted activities as 

‘‘loan production activities,’’ and to 

remove § 7.1005 to simplify and 

streamline its rules. As proposed, 

paragraph (a) of § 7.1004 provided that 

a national bank or its operating 

subsidiary may engage in loan 

production activities at a site other than 

the main office or a branch office of the 

bank. Proposed paragraph (a) permitted 

a national bank or its operating 

subsidiary to solicit loan customers, 

market loan products, assist persons in 

completing application forms and 

related documents to obtain a loan, 

originate and approve loans, make 

credit decisions regarding a loan 

application, and offer other lendingrelated services such as loan 

information and applications at a loan 

production office without violating 12 

U.S.C. 36 and 12 U.S.C. 81, provided 

that ‘‘money’’ is not deemed to be ‘‘lent’’ 

at that site within the meaning of 

§ 7.1003 and the site does not accept 

deposits or pay withdrawals. This 

description of activities is not intended 

to alter the description of ‘‘money lent’’ 

in § 7.1003 nor affect the scope of 

activities that are permissible for a 

national bank to perform at a nonbranch location. Rather, the OCC 

proposed this description to clarify the 

activities a national bank may conduct 

at a loan production office. The OCC 

proposed to redesignate former 

paragraph (a) as paragraph (b) and 

amend it to reference loan production 

activities instead of originating loans. 

One commenter opposed combining 

§§ 7.1004 and 7.1005, stating this would 

allow national bank LPOs to conduct 

both loan origination and loan approval 

at an office accessible to the public 

without causing that LPO to be a branch 

because under the rule it would not be 

engaged in lending money. This 

commenter contends that OCC 

interpretive rulings and regulations 

have consistently maintained that 

money is lent at an office that conducts 

both loan origination and loan approval 

because the combination or aggregation 

of these activities constitutes the 

substantial equivalent of lending money 

for purposes of the definition of branch 

(‘‘aggregation theory’’). The commenter 

therefore claims that although the OCC 

stated that proposed § 7.1004 was not 

intended to ‘‘affect the scope of 

activities that are permissible for a 

national bank to perform at a nonbranch location,’’ this revision does 

expand the scope of permissible LPO 

activities and thereby narrows the scope 

of activities subject to branching 

restrictions. 

The OCC disagrees with this 

commenter. The proposed revisions to 

§§ 7.1004 and 7.1005 are consistent with 

the OCC’s precedent and practice for the 

last two decades. 

The OCC abandoned in the 1990s the 

aggregation theory relied upon by the 

commenter.34 Current § 7.1004 is a safe 

harbor based on specific judicial 

precedent.35 The proposed revisions 

remove the § 7.1004 safe harbor because 

it is redundant with the broader 

permissibility standard in § 7.1005. 

Because proposed § 7.1004 is 

consistent with the OCC precedent 

discussed, no changes are needed in 

response to this comment. 

This commenter also stated that the 

proposed ‘‘non-branch’’ rules conflict 

with the limits on National Bank Act 

preemption prescribed by Congress that 

provide that National Bank Act 

preemption does not apply to agents, 

affiliates or subsidiaries of national 

banks. The OCC disagrees with this 

comment. The Dodd-Frank Act’s limits 

on preemption for agents, affiliates, or 

subsidiaries of national banks are not 

implicated by this rulemaking. The 

proposal incorporated OCC 

interpretations of what constitutes a 

branch and a non-branch office and 

does not raise new preemption issues. 

Lastly, this commenter stated that the 

proposed rule enables banks to avoid 

Community Reinvestment Act (CRA) 

obligations associated with licensed 

branches by expanding what can occur 

at non-branch national bank offices. 

However, the new CRA regulation 

provides that ‘‘[a] bank must delineate 

an assessment area encompassing each 

location where the bank maintains a 

main office, a branch, or a non-branch 

deposit-taking facility that is not an 

ATM . . . .’’ 36 Thus, national banks 

cannot use non-branch locations to 

avoid complying with the CRA. 

For the reasons discussed above, the 

OCC adopts § 7.1004 as proposed. 

Loan Agreement Providing for a 

National Bank Share in Profits, Income, 

or Earnings or for Stock Warrants 

(§ 7.1006) 

Section 7.1006 permits a national 

bank to take as consideration for a loan: 

(1) A share in the profit, income, or 

earnings from a business enterprise of a 

borrower or (2) a stock warrant issued 

by the business enterprise of a borrower 

provided the bank does not exercise the 

warrant. This arrangement is known as 

an ‘‘equity kicker.’’ Section 7.1006 

further provides that the national bank 

may take the share or stock warrant in 

addition to, or in lieu of, interest. 

However, the national bank may not 

condition the borrower’s ability to repay 

principal on the value of the profit, 

income, earnings of the business 

enterprise or upon the value of the 

warrant received. 

The former OTS and its predecessor, 

the Federal Home Loan Bank Board, 

permitted a Federal savings association 

to take a share of profit, income, or 

earnings as consideration for a loan. 

OTS found this to be not inconsistent 

with Federal savings association lending 

authority under HOLA 37 to maintain 

parity with the commercial lending 

practices of national banks.38 In 

addition, the former OTS permitted a 

Federal savings association to acquire 

warrants as an incidental power of its 

authority to make secured loans for 

commercial, corporate, or business 

purposes under HOLA and applied the 


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39 Id. 

40See 12 U.S.C. 24(Seventh). 

41See OCC, Comptroller’s Handbook: Asset-Based 

Lending at 21–22 (2017). 

42Primarily Articles 8 and 9, which have been 

substantively adopted by all U.S. jurisdictions. See 

https://www.uniformlaws.org/acts/ucc. 

43See OCC, Comptroller’s Handbook: Asset-Based 

Lending at 21–22 (2017). 

44The former OTS previously concluded that 

Federal savings associations are authorized to 

operate a postal substation on premises. See OTS 

Op. Acting Ch. Couns. (Mar. 25, 1994). 

45National banks also may invest in SBICs 

pursuant to their community development 

investment authority See 12 U.S.C. 24(Eleventh); 12 

CFR part 24. 

46As with national banks, Federal savings 

associations also may invest in SBICs pursuant to 

their community development investment 

authority. See 12 U.S.C. 1464(c)(4)(B) and 12 CFR 

5.59 (Service corporations of Federal savings 

associations). 

47See OCC Interpretive Letter No. 832 (June 18, 

1998). 

same restrictions on exercising those 

warrants as applied to national banks.39

The OCC proposed to amend § 7.1006 

to include Federal savings associations 

and to codify these interpretations to 

clarify this authority and to better 

provide parity with national banks. The 

OCC received no comments on the 

proposed change and adopts it in the 

final rule as proposed. 

National Bank Holding Collateral Stock 

as Nominee (§ 7.1009) 

Section 7.1009 states that a national 

bank may transfer stock it has received 

as collateral for a loan into the bank’s 

name as nominee.40 The OCC proposed 

to delete this provision as unnecessary. 

The OCC permits a bank to perfect its 

security interests in collateral under 

applicable State laws consistent with 

the Uniform Commercial Code.41 In 

situations where a bank holds stock as 

collateral, one method to perfect that 

interest under State law is to list the 

bank as nominee on the stock certificate. 

However, recent versions of the Uniform 

Commercial Code 42 provide other 

potentially less burdensome methods to 

perfect an interest in securities 

collateral, for example, by obtaining 

control over a brokerage account 

holding the stock. Therefore, the OCC 

believes that § 7.1009 is not necessary. 

Removing this provision streamlines the 

rule while not substantively changing 

the methods national banks may use to 

perfect their interests in stock or other 

securities obtained as collateral for 

loans, which continue to include being 

listed as nominee if permitted under 

State law. 

The OCC received one comment on 

this provision. The commenter argued 

that removing the provision may cause 

national banks to believe the OCC is 

now requiring the use of the least 

burdensome method for perfecting stock 

collateral and it is now impermissible to 

hold collateral stock as nominee. The 

commenter requested that the OCC 

retain the provision in the rule. 

The OCC disagrees with the 

commenter’s suggestion. Nothing in the 

former provision or in removing the 

provision requires a national bank to 

use the least burdensome method for 

perfecting its interest in stock collateral 

or prohibits other methods of perfection. 

As explained above, the OCC permits a 

bank to use any legally acceptable 

method to perfect its security interests 

in stock collateral under applicable 

State laws,43 including by being listed 

as nominee. In contrast, specifically 

identifying only a single method to 

perfect an interest in stock collateral as 

in § 7.1009 could lead a bank to believe 

that being listed as nominee is the only 

acceptable method for perfection. 

Therefore, the OCC is removing § 7.1009 

as proposed. 

Postal Services by National Banks and 

Federal Savings Associations (§ 7.1010) 

Section 7.1010 provides that a 

national bank may operate and receive 

income from a postal substation on 

banking premises. It describes 

permissible services and states that a 

national bank may advertise to attract 

customers to the bank. It also requires 

the bank to operate the substation in 

accordance with the rules and 

regulations of the United States Postal 

Service (USPS) and to keep books and 

records on the substation, which are 

subject to inspection by the USPS, 

separate from those of other banking 

operations. 

The OCC proposed to amend § 7.1010 

to also apply to Federal savings 

associations. This would be consistent 

with the position taken in agency 

guidance.44 The OCC also proposed to 

replace the phrase ‘‘operate a postal 

substation’’ with ‘‘provide postal 

services’’ because the term ‘‘postal 

substation’’ is no longer used in USPS 

regulations. This change in terminology 

clarifies that national banks and Federal 

savings associations may offer a limited 

menu of postal services and are not 

required to operate full-service post 

offices. 

The OCC received no comments on 

these proposed amendments and adopts 

§ 7.1010 as proposed. 

National Bank and Federal Savings 

Association Investments in Small 

Business Investment Companies 

(§ 7.1015) 

Fifteen U.S.C. 682(b)(1) permits a 

national bank to invest in one or more 

small business investment companies 

(SBICs) or in any entity established 

solely to invest in SBICs, provided that 

the total amount of all SBIC investments 

does not exceed five percent of the 

bank’s capital and surplus.45 Section 

7.1015 provides that a national bank 

may purchase stock of a SBIC and 

receive benefits of the stock ownership. 

This section further provides that the 

receipt and retention of a dividend from 

a 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). 

The OCC proposed to amend § 7.1015 

to provide that a national bank may 

invest in a SBIC or in any entity 

established solely to invest in SBICs, 

and that purchasing stock in a SBIC is 

one example of this type of investment. 

This amendment more closely aligns 

§ 7.1015 to 15 U.S.C. 682(b). In addition, 

the OCC proposed to amend § 7.1015 to 

provide that a national bank’s SBIC 

investments are subject to appropriate 

capital limitations. 

Fifteen U.S.C. 682(b)(2) provides a 

Federal savings association with similar 

authority to invest in SBICs.46 This 

authority is codified in OCC regulations 

at 12 CFR 160.30. To clarify this 

authority, the OCC proposed to add a 

reference to Federal savings association 

SBIC authority in § 7.1015 and crossreference to 12 CFR 160.30. 

The OCC also proposed to amend 

§ 7.1015 to clarify that a national bank 

or Federal savings association may 

invest in a SBIC that is either (1) already 

organized and has obtained a license 

from the Small Business Administration 

or (2) in the process of being organized. 

The OCC has previously interpreted this 

authority to permit a national bank to 

invest in a SBIC that is in the process 

of being organized.47

The OCC did not receive any 

comments on the proposed amendments 

to this section. Therefore, the OCC 

adopts these changes as proposed. 

However, the OCC received one 

comment requesting that the OCC 

clarify that a national bank may retain 

an investment in a SBIC that has 

surrendered its license to operate as a 

SBIC during its wind-down period so 

long as it does not make new 

investments (other than investments in 

cash equivalents). The commenter 

further noted that this change would 

align with the Volcker Rule 

implementing regulations, which 

exclude SBICs from the definition of 

‘‘covered fund,’’ and which were 

recently revised to make clear that this 

exclusion would continue to apply 

where a SBIC issuer has voluntarily 


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48See 61 FR 50951, at 50958 (Sept. 30, 1996). 

49 Id. 

50 Id. 

51Section 4(b) of the International Banking Act, 

12 U.S.C. 3102(b) (Pub. L. 95–369) provides that the 

operations of a foreign bank at a Federal branch or 

agency shall be conducted with the same rights and 

privileges as a national bank at the same location 

and shall be subject to all the same duties, 

restrictions, penalties, liabilities, conditions, and 

limitations that would apply under the National 

Bank Act to a national bank doing business at the 

same location. See also 12 CFR 28.13. 

52As indicated below, the final rule adds Federal 

branches and agencies to § 7.3000, National bank 

and Federal savings association hours. Because of 

the difference in corporate structure of these 

entities as compared to national branches and 

Federal savings associations, it is necessary to have 

separate language for Federal branches and agencies 

in this provision. 

surrendered its license to operate as a 

SBIC in accordance with 13 CFR 

107.1900 and does not make new 

investments (other than investments in 

cash equivalents) after such voluntary 

surrender. Further, the commenter 

suggested that introducing similar 

clarity into part 7 would provide 

certainty to banks wanting to invest in 

SBICs and would increase investment in 

small businesses. 

The OCC agrees with the commenter 

that it would be helpful to clarify that 

a bank may retain an interest in a SBIC 

during its wind-down period. This 

change would align with the Volcker 

Rule implementing regulations, and it 

would provide certainty to banks 

planning to invest in SBICs. Therefore, 

the OCC is revising its final rule to 

clarify that a national bank may retain 

an investment in a SBIC that has 

surrendered its license to operate as a 

SBIC during its wind-down period so 

long as it does not make new 

investments in a SBIC that is winding 

down (other than investments in cash 

equivalents). 

Independent Undertakings Issued by a 

National Bank or Federal Savings 

Association To Pay Against Documents 

(§ 7.1016) 

Pursuant to 12 CFR 7.1016, a national 

bank may issue letters of credit and 

other independent undertakings within 

the scope of the applicable laws or rules 

of practice. Section 7.1016(b) provides 

that a national bank entering into an 

independent undertaking should not 

expose itself to undue risk and also 

outlines certain safety and soundness 

considerations for these activities. 

Section 7.1016 also describes specific 

required or recommended protections 

for certain undertakings, provides that a 

national bank should possess 

operational expertise that is 

commensurate with the sophistication 

of its independent undertaking 

activities, and requires a bank to 

accurately reflect its undertakings in its 

records. 

Pursuant to § 160.50, a Federal 

savings association may issue letters of 

credit and may issue other independent 

undertakings as are approved by the 

OCC, subject to the restrictions in 

§ 160.120. Section 160.120 contains 

provisions that are largely similar to the 

provisions applicable to national banks 

in § 7.1016.48 However, §§ 160.50 and 

160.120 provide that, unless it is a letter 

of credit, a Federal savings association 

only may issue independent 

undertakings that have been approved 

by the OCC. The OTS explained when 

it updated its regulation that Federal 

savings associations were not 

traditionally involved in international 

banking transactions, which utilized 

these independent undertakings, as 

were national banks.49 The OTS stated 

that the approval requirement provided 

‘‘the appropriate balance between giving 

thrifts greater flexibility to potentially 

engage in new types of transactions 

while at the same time ensuring that 

thrifts have properly evaluated the risks 

posed by a particular transaction 

consistent with prudent banking 

practice.’’ 50

The OCC proposed to apply § 7.1016 

to Federal savings associations and to 

remove §§ 160.50 and 160.120 because 

of the similarities between the national 

bank and Federal savings association 

independent undertaking regulations. 

The OCC also proposed technical 

changes to the footnote to § 7.1016 to 

reflect updates to the laws and rules of 

practice cited. The OCC did not receive 

any comments on these amendments 

and adopts them as proposed. 

The OCC also proposed to clarify that 

Federal branches and agencies of foreign 

banks may issue letters of credit and 

other independent undertakings, 

consistent with the conditions outlined 

in § 7.1016.51 Two commenters 

requested clarification as to whether the 

proposed reference to Federal branches 

and agencies in § 7.1016 implies that 

other sections in part 7 are not intended 

to apply to Federal branches and 

agencies. One commenter recommended 

that the final rule clarify that nothing in 

proposed § 7.1016 is meant to imply 

that other sections of part 7 do not apply 

equally to Federal branches and 

agencies as to national banks and 

Federal savings associations, consistent 

with the International Banking Act. 

After considering these comments, the 

OCC has decided to remove the 

language regarding Federal branches 

and agencies. Although the OCC did not 

intend the clarification that Federal 

branches and agencies of foreign banks 

may issue letters of credit and other 

independent undertakings, consistent 

with the conditions outlined in 

§ 7.1016, to affect the applicability of 

the International Banking Act and 12 

CFR 28.13 to other sections of part 7, it 

understands that the inclusion of this 

language in § 7.1016 regarding Federal 

branches and agencies and not in other 

sections in part 7 may introduce 

confusion. Instead, the OCC expects to 

add this language to § 7.1016 and other 

provisions of part 7, as appropriate, in 

a future rulemaking.52

One commenter recommended that 

the OCC reinforce that the risk 

management considerations outlined for 

letters of credit and independent 

undertakings in § 7.1016 are not 

mandatory safety and soundness 

conditions by removing them from the 

text of the rule. The OCC disagrees. 

Section 7.1016(b) provides safety and 

soundness considerations for banks that 

issue independent undertakings. 

Section 7.1016(b)(1) states that, as a 

matter of safety and soundness, banks 

that issue independent undertakings 

should not be exposed to undue risk 

and should, at a minimum, consider the 

following before issuing independent 

undertakings: (1) Whether the terms 

make clear the independence of the 

undertaking; (2) whether the amount of 

the undertaking is limited; (3) whether 

the undertaking is limited in duration 

or, if not, whether the bank has an 

ability to end the undertaking or 

demand cash collateral from the 

applicant; and (4) whether the 

undertaking will be collateralized or 

include a reimbursement right. Section 

7.1016(b) provides additional 

considerations in special circumstances 

to protect against credit, operational, 

and market risk. Section 7.1016(b)(3) 

states that the national bank or Federal 

savings association should possess 

operational expertise that is 

commensurate with the sophistication 

of its independent undertaking 

activities. By using the word ‘‘should,’’ 

these provisions clearly indicate that the 

listed safety and soundness 

considerations are not mandatory. 

Furthermore, the OCC finds that it is 

helpful to include these recommended 

considerations in the rule text so that 

national banks and Federal savings 

associations understand what the OCC 

may consider to be undue risk. 

Financial Literacy Programs Not 

Branches of National Banks (§ 7.1021) 

Twelve CFR 7.1021 provides that a 

national bank may participate in a 

financial literacy program on the 


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53See First Nat’l Bank of Plant City v. Dickinson, 

396 U.S. 122 (1969); Brown v. Clarke, 878 F.2d 627 

(2d Cir. 1989). 

premises of, or at a facility used by, a 

school. Section 7.1021 also provides 

that the school premises or facility will 

not be considered a branch of the bank 

if: (1) The bank does not establish and 

operate the school premises or facility 

on which the financial literacy program 

is conducted; and (2) the principal 

purpose of the program is educational. 

Facilities or premises are only 

considered to be branches of a national 

bank if they are established and 

operated by the national bank. The 

proposal provided that the OCC would 

consider establishment and operation in 

this context on a case by case basis, 

considering the facts and circumstances. 

However, the proposal stated that the 

premises or facility would not be a 

branch of the national bank if the bank 

met the safe harbor test in 12 CFR 

7.1012(c)(2) applicable to messenger 

services established by third parties. 

The proposal also stated that the factor 

discussed in § 7.1012(c)(2)(i) could be 

met if bank employee participation in 

the financial literacy program consisted 

of managing the program or conducting 

or engaging in financial education 

activities provided the school or other 

organization retained control over the 

program and over the premises or 

facilities at which the program is held. 

Further, the OCC proposed expanding 

the scope of financial literacy programs 

beyond schools to encompass other 

community-based organizations, such as 

non-profit organizations, that provide 

financial literacy programs. Finally, the 

proposal moved the definition of 

financial literacy program to the 

beginning of the section to clarify that, 

while a financial literacy program is a 

program for which the primary purpose 

is educational, this is not a factor in 

determining whether the premises or 

facility is a branch for purposes of 

section 36. 

One commenter provided 

recommendations for simplifying the 

requirements for operating financial 

literacy programs. This commenter 

suggested incorporating the relevant 

standards for operating a financial 

literacy program within the messenger 

service safe harbor directly into the rule, 

without cross-referencing the messenger 

service rule. This commenter also 

suggested that § 7.1021 directly state, as 

a stand-alone provision, that a bank 

employee may manage the financial 

literacy program or engage in other 

financial education activities, provided 

the organization retains control over the 

program and premises at which the 

program is held. Along the same lines, 

this commenter recommended expressly 

permitting a bank employee to accept 

checks at a financial literacy program 

event, subject to certain safeguards to 

prevent operation of the program as a 

branch—such as having a school official 

accept the checks and deposit them in 

a portable lockbox which the branch 

employee could then be responsible for 

bringing to the branch. Further, this 

commenter recommended removing 

language from the proposal indicating 

that the OCC would consider the facts 

and circumstances on a case-by-case 

basis in determining whether other 

financial literacy programs outside of 

the safe harbor constitute a branch. 

Additionally, this commenter suggested 

not referring to the messenger service 

safe harbor as a ‘‘test’’ in order to avoid 

the implication of additional 

compliance and audit requirements for 

the operation of financial literacy 

programs. 

The OCC disagrees with this 

commenter’s recommendations for the 

reasons set forth below and thus adopts 

§ 7.1021 as proposed. First, the OCC 

believes that cross referencing the 

messenger service regulation at § 7.1012 

is the best approach for § 7.1021 because 

the safe harbor for a messenger service 

may evolve through regulatory changes, 

statutory changes, new judicial 

decisions, or new OCC interpretations. 

By using a cross reference, the OCC 

automatically incorporates into the 

financial literacy regulation all 

evolutions of the messenger service 

precedent. 

Second, the OCC disagrees with the 

commenter’s suggestion that a bank 

employee may manage the financial 

literacy program or engage in other 

financial education activities without 

the facility being considered a branch so 

long as the school or organization 

retains control over the program and 

over the premises or facilities at which 

the program is held. Whether a third 

party other than a national bank owns 

or rents the facility involved is only one 

factor in the safe harbor described in 

§ 7.1012(c)(2) for a messenger service to 

be clearly ‘‘established’’ by a thirdparty. The OCC does not believe it is 

appropriate to disregard all the other 

factors necessary to qualify for the safe 

harbor when considering school literacy 

programs as analysis of other factors in 

§ 7.1012 may be determinative under 

some circumstances. However, it will 

continue to evaluate programs that do 

not fulfill all the factors of the safe 

harbor on an individual basis. 

Third, the OCC disagrees with the 

commenter’s recommendation of setting 

forth a provision that expressly permits 

a bank employee to accept checks at a 

financial literacy program event, subject 

to certain safeguards to prevent 

operation of the program as a branch. A 

person transporting items related to 

branching functions to the bank would 

be a messenger service, and messenger 

services are considered branches unless 

they are established by a third-party.53

If the service is being performed by a 

bank employee as part of his duties, it 

is not established by a third party. 

Fourth, the OCC is retaining the 

language regarding the agency’s 

commitment on a case-by-case basis to 

evaluate situations outside of the safe 

harbor. This language is meant to clarify 

that premises and facilities in such 

situations will not automatically be 

found to be branches. This language is 

not meant to impose an obligation on 

banks to always submit a request to the 

OCC for a determination before 

implementing a financial literacy 

program outside of the scope of the safe 

harbor. Banks may forgo asking for an 

OCC interpretation if they are 

comfortable with how their program 

would fit into the OCC’s expectations 

and precedent. 

Finally, the OCC clarifies that, by use 

of the term ‘‘test,’’ it does not mean to 

impose any extra audit or other 

compliance requirements on these 

programs or to suggest that these 

programs must be subjected to 

measurement, ratings, or other 

performance measures. The OCC has 

routinely referred to safe harbors as 

‘‘tests’’ in interpretive letters, guidance, 

and regulations without the implication 

of additional obligations. 

For the reasons explained above, the 

OCC is adopting § 7.1021 as proposed. 

National Banks’ Authority To Buy and 

Sell Exchange, Coin, and Bullion 

(§ 7.1022) Federal Savings Associations, 

Prohibition on Industrial or Commercial 

Metal Dealing or Investing (§ 7.1023) 

The OCC proposed a technical change 

to §§ 7.1022 and 7.1023. Section 7.1022 

prohibits a national bank from acquiring 

or selling industrial or commercial 

metal for purposes of dealing or 

investing. Section 7.1022 excludes 

industrial and commercial metals from 

the national bank authority to ‘‘buy and 

sell exchange, coin, and bullion.’’ 

Section 7.1023 similarly prohibits a 

Federal savings association from dealing 

or investing in industrial or commercial 

metal. Both sections require a national 

bank and a Federal savings association 

to dispose of any industrial or 

commercial metal held as a result of 

dealing or investing in that metal as 

soon as practicable, but not later than 

one year from the effective date of the 


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83694 Federal Register / Vol. 85, No. 246 / Tuesday, December 22, 2020 / Rules and Regulations 

54For a discussion of existing precedent on such 

authority, see 85 FR 40794 (July 7, 2020). 

regulation. The OCC may grant up to 

four separate one-year extensions if the 

bank makes a good faith effort to 

dispose of the metal and the retention 

of the metal for an additional year is not 

inconsistent with the safe and sound 

operation of the bank. The OCC 

proposed to replace the phrase ‘‘one 

year from the effective date of this 

regulation’’ with the actual effective 

date of that final rule, April 1, 2018 in 

each section. The OCC received no 

comments on this technical change and 

adopts it as proposed. 

Tax Equity Finance Transactions by 

National Banks and Federal Savings 

Associations (New § 7.1025) 

The OCC proposed a new § 7.1025 

that codifies the authority of national 

banks and Federal savings associations 

to engage in tax equity finance (TEF) 

transactions under 12 U.S.C. 

24(Seventh) and 1464 lending authority, 

respectively.54 As defined in proposed 

paragraph (b)(1), a TEF transaction is a 

transaction in which a national bank or 

Federal savings association provides 

equity financing to fund a project that 

generates tax credits and other tax 

benefits and the use of an equity-based 

structure allows the transfer of those tax 

credits and other tax benefits to the 

bank or savings association. 

Specifically, the OCC proposed in 

paragraph (a) of § 7.1025 that a national 

bank and Federal savings association 

may engage in a TEF transaction 

pursuant to 12 U.S.C. 24(Seventh) and 

1464, respectively, if the transaction is 

the functional equivalent of a loan, as 

provided in proposed paragraph (c), and 

if the TEF transaction satisfies the 

applicable conditions of proposed 

paragraph (d). Paragraphs (c) and (d) are 

described below in the context of the 

comments received. 

The OCC received eight comments on 

this section. One commenter stated that 

the proposed rule would increase 

administrative compliance burden and 

suggested the OCC should not codify a 

rule that addresses the underwriting 

process but rather should generally 

require the institutions it regulates to 

establish safety and soundness 

standards consistent with other 

extensions of credit. The OCC disagrees 

with this comment. Proposed § 7.1025 

distills current precedent and standards. 

Rather than attempt to prescribe the 

underwriting process for national banks 

and Federal savings associations, the 

proposal required national banks and 

Federal savings associations to use 

underwriting and credit approval 

criteria and standards that are 

substantially equivalent to the 

underwriting and credit approval 

criteria and standards used for 

traditional loans. This is consistent with 

the notion that a permissible TEF 

transaction is the functional equivalent 

of a loan. 

One commenter stated that there is an 

existing rental affordability crisis and 

therefore the OCC should not impose 

burdensome requirements and 

restrictions on tax equity finance 

transactions that might reduce low 

income housing tax credit investment. 

The OCC believes the clarity and safety 

and soundness benefits of § 7.1025 

outweigh any potential burden. 

Moreover, § 7.1025 provides an 

additional authority for national banks 

and Federal savings associations to 

make TEF transactions. It does not limit 

or impede a national bank or Federal 

savings association from participating in 

transactions under other existing 

authorities. Therefore, if a national bank 

or Federal savings association wishes to 

engage in a low income housing tax 

credit investment under existing public 

welfare investment or community 

development authority, it could do so as 

long as it meets the requirements of 

those existing authorities. 

Relatedly, the OCC received eight 

comments requesting that the OCC 

confirm that TEF authority is separate 

and apart from the public welfare 

investment authority and community 

development investment authority. As 

indicated above, the authority granted 

under § 7.1025 operates in addition to 

the existing public welfare investment 

authority and community development 

investment authority under 12 U.S.C. 

24(Eleventh), 12 U.S.C. 1464(c)(3)(A), 12 

CFR part 24, 12 CFR 160.30, and 12 CFR 

160.36, and will not be a replacement 

authority. To the extent an investment 

would qualify under multiple 

authorities, the national bank or Federal 

savings association may determine 

which authority it is using to engage in 

the transaction. To eliminate any 

confusion on this point, the final rule 

adds a sentence to § 7.1025(a) indicating 

that the authority under § 7.1025 is 

pursuant to 12 U.S.C. 24(Seventh) and 

1464 lending authority and is separate 

from, and does not limit, other 

investment authorities available to 

national banks and Federal savings 

associations. 

One commenter supported the intent 

of the proposed rule but suggested the 

OCC needs to familiarize itself with, and 

contemplate the impact of, certain 

Internal Revenue Service (IRS) rules and 

standards relating to TEF transactions 

and structures, including sections 49 

and 50 of the Internal Revenue Code, 

Revenue Procedure 2007–65 and 

Revenue Procedure 2014–12, and 

whether the proposed rule would make 

renewable energy TEF transactions noncompliant with these laws and IRS 

Procedures. The OCC is familiar with 

sections 49 and 50 of the Internal 

Revenue Code, Revenue Procedures 

2007–65 and 2014–12, as well as other 

IRS rules and guidance on tax credits, 

and believes the TEF provision would 

not prevent a national bank or Federal 

savings association from complying 

with IRS rules, procedures, and 

standards. Therefore, OCC is finalizing 

§ 7.1025(a) as proposed. 

The OCC proposed to define a ‘‘tax 

equity finance transaction’’ in 

§ 7.1025(b)(1) as a transaction in which 

a national bank or Federal savings 

association provides equity financing to 

fund a project that generates tax credits 

and other tax benefits and the use of an 

equity-based structure allows the 

transfer of those credits to the bank or 

savings association. The OCC received 

two comments on this provision. One 

commenter suggested that the OCC 

should review current draft legislation 

for impacts on the terms ‘‘generation’’ 

and ‘‘renewable’’ if energy storage is 

added to section 48 of the Internal 

Revenue Code. Proposed § 7.1025(b)(1) 

defines a tax equity finance transaction 

in part to mean a transaction that 

generates tax credits and other benefits. 

In response, the OCC notes that, because 

the definition does not limit tax equity 

finance transactions to only those that 

relate to energy generation, if section 48 

were amended to add energy storage, 

national banks and Federal savings 

associations would be able to engage in 

transactions involving energy storage 

that met the requirements of § 7.1025. 

Another commenter noted that a TEF 

structure may involve other tax benefits 

in addition to tax credits, such as 

deductions and other items that fall 

under the category of tax equity. The 

OCC acknowledges that tax benefits may 

take many forms and is revising 

proposed § 7.1025(b)(1), redesignated as 

§ 7.1025(b)(3) in the final rule, to change 

‘‘generates tax credits and other tax 

benefits’’ to ‘‘generates tax credits or 

other tax benefits.’’ 

The OCC also requested comment on 

whether national banks and Federal 

savings associations are currently 

participating in TEF transactions 

through fund-based structures and, if 

not, whether national banks and Federal 

savings associations would want to 

participate in TEF transactions through 

fund-based structures. A fund-based 

structure is a structure in which a 

national bank or Federal savings 


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Federal Register / Vol. 85, No. 246 / Tuesday, December 22, 2020 / Rules and Regulations 83695 

55The OCC recently amended the definition of 

‘‘capital and surplus’’ in 12 CFR 32.2 in its recent 

community bank leverage ratio rule. See 84 FR 

61776 (November 13, 2019). 

association invests in a fund that is 

invested or will invest in multiple TEF 

transactions. Seven commenters 

responded to this question and 

suggested that the final rule should 

allow TEF investments through 

investment funds or other funds-based 

structures. For the reasons discussed by 

commenters, including diversifying risk, 

enabling smaller investments, and 

permitting less experienced national 

banks and Federal savings associations 

to participate alongside more 

experienced TEF investors, the OCC 

will permit TEF investments through 

investment funds as long as the 

investment meets all of the 

requirements and conditions of 

§ 7.1025. The OCC is revising proposed 

§ 7.1025(b)(1), redesignated as 

§ 7.1025(b)(3) in the final rule, to change 

‘‘. . . to fund a project that generates tax 

credits . . .’’ to ‘‘. . . to fund a project 

or projects that generate tax credits 

. . . .’’ 

The OCC is adopting the proposed 

definition of ‘‘tax equity finance 

transaction’’ with these two changes 

discussed above. 

The proposed rule included an 

aggregate total dollar limitation on TEF 

transactions that a national bank or 

Federal savings association could 

engage in based on a percentage of a 

national bank or Federal savings 

association’s capital and surplus. The 

OCC proposed to define ‘‘capital and 

surplus’’ in § 7.1025(b)(2) by crossreferencing to its definition in the OCC’s 

lending limit rule at 12 CFR part 32.55

As defined in the lending limit rule, for 

qualifying community banking 

organizations that have elected to use 

the community bank leverage ratio 

framework as set forth under the OCC’s 

Capital Adequacy Standards at 12 CFR 

part 3, ‘‘capital and surplus’’ means a 

qualifying community banking 

organization’s tier 1 capital, as used 

under 12 CFR 3.12, plus a qualifying 

community banking organization’s 

allowance for loan and lease losses or 

adjusted allowances for credit losses, as 

applicable, as reported in the 

Consolidated Reports of Condition and 

Income (Call Report). For all other 

national banks and Federal savings 

associations, ‘‘capital and surplus’’ 

means a national bank’s or savings 

association’s tier 1 and tier 2 capital, 

calculated under the risk-based capital 

standards applicable to the institution 

as reported in the Call Report, plus the 

balance of a national bank’s or Federal 

savings association’s allowance for loan 

and lease losses or adjusted allowances 

for credit losses, as applicable, not 

included in the bank’s or savings 

association’s tier 2 capital, for purposes 

of the calculation of risk-based capital, 

as reported in the national bank’s or 

savings association’s Call Report. The 

OCC received no comments on 

proposed § 7.1025(b)(2) and is finalizing 

it as proposed. 

Under proposed § 7.1025(c), a TEF 

transaction would qualify as the 

functional equivalent of a loan if it 

meets seven requirements that derive 

from OCC interpretations. First, 

paragraph (c)(1) provides that the TEF 

transaction structure must be necessary 

for making the tax credits and other tax 

benefits available to the national bank or 

Federal savings association. One 

commenter suggested that the OCC 

should clarify that the tax equity finance 

transaction structure may be necessary 

for making the tax credits or other tax 

benefits available. The OCC 

acknowledges that tax benefits may take 

many forms and is revising proposed 

§ 7.1025(c)(1) to change ‘‘making the tax 

credits and other tax benefits available’’ 

to ‘‘making the tax credits or other tax 

benefits available.’’ With this revision, 

the OCC is finalizing § 7.1025(c)(1). 

Second, paragraph (c)(2) provides that 

the TEF transaction must be of limited 

tenure and not indefinite. Under this 

requirement, a national bank or Federal 

savings association would need to be 

able to achieve its targeted return in a 

reasonable time, and the TEF 

transaction would need to have a 

defined termination point. A national 

bank or Federal savings association 

could satisfy this requirement if the TEF 

transaction will terminate within a 

reasonable time of the transaction’s 

initiation or if a project sponsor has an 

option to purchase a national bank’s or 

Federal savings association’s interest at 

or near fair market value. The national 

bank or Federal savings association 

cannot control whether it retains the 

interest indefinitely. The proposed rule 

permitted a national bank or Federal 

savings association to retain a limited 

investment interest if that interest is 

required by law to obtain continuing tax 

benefits from the TEF transaction. The 

OCC received five comments on this 

requirement. 

Three commenters requested 

clarification that the 15-year holding 

period for LIHTC investments would 

not violate the limited tenure 

requirement. The OCC confirms that 

under § 7.1025(c)(2), a national bank or 

Federal savings association may hold an 

investment in order to obtain and retain 

tax benefits as required by law, 

including holding the investment to 

comply with the 15-year recapture 

period for LIHTC investments. 

Three commenters suggested that a 

requirement that the sponsor have a call 

option would have adverse tax 

consequences in certain TEF 

transactions and suggested removing 

that requirement. However, proposed 

§ 7.1025(c)(2) does not require that a 

sponsor must have a call option in order 

to comply with § 7.1025; it requires only 

that the transaction is of limited tenure 

and is not indefinite, such as a limited 

investment interest requirement by law 

to obtain continuing tax benefits. The 

OCC used a call option as an example 

in the preamble to the proposed rule as 

one way a national bank or Federal 

savings association could comply with 

the limited tenure requirement. The 

OCC did not intend this to be an 

exhaustive list. 

One commenter suggested the OCC 

clarify in the final rule that TEF 

investments may be retained for the 

duration needed to obtain the expected 

rate of return consistent with market 

practices for such an investment. The 

OCC agrees with the commenter and is 

revising § 7.1025(c)(2) to require that the 

transaction is of limited time and is not 

indefinite, including retaining a limited 

investment interest that is (1) required 

by law to obtain continuing tax benefits 

or (2) needed to obtain the expected rate 

of return. 

One commenter suggested proposed 

§ 7.1025 could result in the sale of an 

investment at a price lower than the 

bank could otherwise obtain. Although 

a national bank or Federal savings 

association may exit a TEF transaction 

through a sale to a third party, the OCC 

does not expect that sale to be 

immediate if it would result in fire sale 

pricing. One commenter suggested the 

OCC should clarify that it is permissible 

to have a purchase option price that 

includes an amount necessary for a 

national bank or Federal savings 

association to achieve its expected rate 

of return. The OCC notes that an option 

to purchase may include an amount 

necessary for a national bank or Federal 

savings association to achieve its 

expected rate of return, and the OCC 

believes this would be consistent with 

the requirements and conditions of 

§ 7.1025. 

One commenter requested the OCC 

explicitly permit other structures that 

are required by law to obtain tax 

benefits. This commenter cited to 

Internal Revenue Service Revenue 

Procedure 2014–12, which the 

commenter stated provides a safe harbor 

for an exit structure in which the 

investor ‘‘puts’’ its interest back to the 


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83696 Federal Register / Vol. 85, No. 246 / Tuesday, December 22, 2020 / Rules and Regulations 

56Sacks v. Commissioner, Internal Review 

Service, 69 F.3d 982, 991 (9th Cir. 1995). 57See 69 F.3d at 991. 

project instead of the sponsor having an 

option to purchase the interest at or near 

fair market value. The OCC agrees with 

the commenter that transaction 

structures that provide different exit 

options may satisfy § 7.1025(c) as long 

as the national bank or Federal savings 

association does not control whether it 

retains the interest indefinitely. 

However, the safe harbor provided in 

IRS Revenue Procedure 2014–12, in 

which the national bank or Federal 

savings association would have a put 

option that it could have the sponsor 

purchase the interest at or near market 

value, would not satisfy, by itself, the 

requirements of § 7.1025(c)(2) because a 

put option alone would allow the 

national bank or Federal savings 

association to decide whether it would 

hold the investment indefinitely (i.e., let 

the put expire). The national bank or 

Federal savings association could 

couple the put option with another exit 

mechanism in which both the IRS safe 

harbor and the requirements of the TEF 

provision are met, such as a put option 

coupled with a contract provision 

providing that after a certain amount of 

time has passed or a certain rate of 

return has been reached, the interest 

will revert from the national bank or 

Federal savings association to the 

sponsor. With the change described 

above, the OCC is finalizing 

§ 7.1025(c)(2). 

Third, paragraph (c)(3) provides that 

the tax benefits and other payments 

received by the national bank or Federal 

savings association from the TEF 

transaction must repay the investment 

and provide an implied rate of return. 

As a result of this proposed 

requirement, the national bank’s or 

Federal savings association’s 

underwriting could not place undue 

reliance on the value of any residual 

stake in the project and the proceeds of 

disposition following the expiration of 

the tax credits’ compliance period. The 

OCC received two comments on 

proposed § 7.1025(c)(3). One commenter 

suggested that the OCC should clarify in 

the final rule that the calculation of the 

rate of return is the expected rate of 

return at the time the investment is 

initially made and revise § 7.1025(c)(3) 

to refer to the expected rate of return at 

original underwriting. The OCC agrees 

with the commenter and is revising 

§ 7.1025(c)(3) to refer to the expected 

rate of return at the time of 

underwriting. 

One commenter suggested that the 

OCC consider Sacks v. Commissioner, 

Internal Revenue Service 56 and its use 

of ‘‘implied rate of return’’ so that the 

final rule does not render moot the 

decision in this case that recognized the 

congressional purposes underlying 

Federal tax credits and held that a 

pretax profit was not required for 

economic substance purposes. The OCC 

does not believe that § 7.1025(c)(3) 

renders this case moot. Consistent with 

Sacks,57 § 7.1025(c)(3) does not require 

a pretax profit, rather, it simply requires 

an expected rate of return that 

contemplates the tax credit and other 

benefits. 

One commenter suggested that in 

matters concerning any residual stake in 

the project, the IRS true lease authority 

must be understood, and the OCC 

should not force or cause a renewable 

energy project sponsor to violate IRS 

requirements. Proposed § 7.1025(c)(3) 

does not contain residual stake 

language. Rather, as the preamble to the 

proposed rule explained, a national 

bank’s or Federal savings association’s 

underwriting should not place undue 

reliance on the value of any residual 

stake in the project. The OCC does not 

believe that this language in any way 

would cause or force a project sponsor 

to violate IRS requirements. With the 

revision discussed above, the OCC is 

finalizing § 7.1025(c)(3). 

Fourth, paragraph (c)(4) provides that 

the national bank or Federal savings 

association must not rely on 

appreciation of value in the project or 

property rights underlying the project 

for repayment. As discussed in OCC 

Interpretive Letter No. 1139 (November 

13, 2013), wind turbines, solar panels, 

and other ancillary equipment are not 

considered real property under 12 

U.S.C. 29, and acquisition of interests in 

real estate incidental to the provision of 

financing is not inconsistent with 12 

U.S.C. 29. The OCC received no 

comments on this requirement and is 

finalizing § 7.1025(c)(4) as proposed. 

Fifth, paragraph (c)(5) provides that 

the national bank or Federal savings 

association must use underwriting and 

credit approval criteria and standards 

that are substantially equivalent to the 

underwriting and credit approval 

criteria and standards used for a 

traditional commercial loan. To comply 

with this requirement, the documents 

governing the TEF transaction should 

contain terms and conditions equivalent 

to those found in documents governing 

typical lending relationships and 

transactions. The OCC received no 

comments on this requirement and is 

finalizing § 7.1025(c)(5) as proposed. 

Sixth, paragraph (c)(6) provides that 

the national bank or Federal savings 

association must be a passive investor in 

the transaction and must not be able to 

direct the affairs of the project company. 

This means that the national bank or 

Federal savings association is not able to 

direct day-to-day operations of the 

project. However, the OCC does not 

consider temporary management 

activities in the context of foreclosure or 

similar proceedings as violating this 

requirement. One commenter suggested 

that the OCC should clarify in the final 

rule that customary protective rights 

and covenants are permitted and do not 

violate the ‘‘passive investor’’ 

requirement of § 7.1025(c)(6). The OCC 

agrees that customary protective rights 

and covenants are permitted and do not 

violate § 7.1025(c)(6). However, the OCC 

does not believe changing the proposed 

rule text is necessary. TEF transactions 

are the functional equivalent of loans 

and many of the same terms, conditions, 

and covenants found in lending and 

lease financing transactions are 

permissible for TEF transactions. In 

some cases, these terms, conditions, and 

covenants may be necessary to comply 

with the requirement in § 7.1025(c)(5) 

that underwriting and credit approval 

criteria and standards must be 

substantially the same as those used for 

traditional commercial loans. The OCC 

is finalizing § 7.1025(c)(6) as proposed. 

Seventh, paragraph (c)(7) provides 

that the national bank or Federal savings 

association must appropriately account 

for the transaction initially and on an 

ongoing basis and document 

contemporaneously its accounting 

assessment and conclusion. Although 

TEF transactions can be the functional 

equivalent of loans pursuant to a 

national bank’s or Federal savings 

association’s lending authority, the 

accounting treatment of tax equity 

investments may differ from the 

treatment of a loan. Two commenters 

noted that investments in housing credit 

transactions are structured as equity 

investments and requested that those 

investments be treated as equity 

investments and not loans for Federal 

income purposes. The OCC 

acknowledges that although a 

transaction may be the functional 

equivalent of a loan for permissibility 

purposes, it may be treated as an equity 

investment for accounting or tax 

purposes. Section 7.1025(c) provides 

that a national bank or Federal savings 

association must appropriately account 

for the transaction initially and on an 

ongoing basis and document its 

accounting assessment and conclusion. 

The OCC is finalizing § 7.1025(c)(7) as 

proposed. 

Proposed paragraph (d) provides that 

a national bank or Federal savings 


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58 12 U.S.C. 24(Eleventh); 12 CFR 24.4(a). 

association only may engage in TEF 

transactions if it meets the following 

four additional requirements. First, 

proposed paragraph (d)(1) provides that 

the national bank or Federal savings 

association cannot control the sale of 

energy, if any, from the project. To 

satisfy this requirement, a national bank 

or Federal savings association could 

enter into a long-term contract with 

creditworthy counterparties to sell 

energy from the project, as articulated in 

OCC Interpretive Letter 1139, or have 

the project sponsor bear responsibility 

for selling generated power into the 

energy market so long as those sales are 

stabilized by a hedge contract that 

provides reasonable price and cash flow 

certainty, as articulated in OCC 

Interpretive Letter No. 1141 (April 22, 

2014). One commenter suggested that 

the final rule should clarify that 

national banks and Federal savings 

associations have appropriate flexibility 

in satisfying this requirement and that 

the OCC should not require a long-term 

contract or hedge if the national bank or 

Federal savings association has 

otherwise determined that exposure to 

cash flow certainty has been adequately 

mitigated. The OCC confirms that 

national banks and Federal savings 

associations have flexibility to satisfy 

this requirement. Proposed 

§ 7.1025(d)(1) requires that national 

banks and Federal savings associations 

cannot control the sale of energy from 

a project, but the provision does not 

prescribe that certain agreements or 

arrangements must be used. Although, 

the preamble for proposed § 7.1025(d)(1) 

lists two examples of ways a national 

bank or Federal savings association 

could comply with the requirement, 

these examples are not the only ways a 

national bank or Federal savings 

association could satisfy this 

requirement. 

One commenter suggested the OCC 

should confirm that contracts for the 

sale of energy can be entered into with 

affiliates of the national bank or Federal 

savings association participating in the 

TEF transaction, so long as such 

contracts are consistent with the TEF 

requirements and do not create negative 

tax consequences. The OCC confirms 

that a national bank or Federal savings 

association may enter into energy sale 

contracts with affiliates as long as the 

requirements of § 7.1025 are met and 

any transaction with an affiliate 

complies with 12 U.S.C. 371c, 12 U.S.C. 

371c–1, 12 CFR part 223, and any other 

applicable laws and regulations 

regarding affiliate transactions. 

Similarly, one commenter requested 

that the OCC explicitly confirm that the 

project company’s hedging counterparty 

does not need to be an unaffiliated third 

party and may be the national bank or 

Federal savings association itself or an 

affiliate of the national bank or Federal 

savings association. The OCC confirms 

that a project company’s hedging 

counterparty need not be an unaffiliated 

third party and may be an affiliate of the 

national bank or Federal savings 

association so long as the sale meets the 

requirements of § 7.1025 and any 

applicable affiliate transactions laws 

and regulations, including 12 U.S.C. 

371c and 371c–1, and 12 CFR part 223, 

and is conducted in a safe and sound 

manner (e.g., the counterparty is 

creditworthy). However, a national bank 

or Federal savings association itself may 

not be the hedging counterparty for one 

of its TEF investments. 

One commenter requested the OCC 

clarify that the right of a national bank 

or Federal savings association to 

prohibit certain sales does not constitute 

inappropriate control of the right to sell 

power. The OCC confirms a national 

bank or Federal savings association may 

prohibit certain sales or institute certain 

credit or other requirements for third 

party purchasers of the energy if done 

pursuant to prudent underwriting to 

ensure the project’s success and not in 

an attempt to control, influence, or 

manipulate the energy market. One 

commenter requested the OCC recognize 

that a TEF project may sell a portion of 

the electricity that it generates into the 

merchant market, and not pursuant to a 

power purchase agreement or a hedge 

contract, and permit a national bank or 

Federal savings association to invest in 

such projects as long as it has 

reasonably determined that any 

merchant sales by the project company 

contribute favorably to the overall 

financial health of the project company. 

The OCC confirms a TEF project may 

sell energy into a merchant market as 

long as the national bank or Federal 

savings association is not controlling the 

sale of the energy and the TEF 

transaction otherwise complies with the 

requirements and conditions of 

§ 7.1025. 

One commenter suggested that certain 

terms, such as ‘‘long term,’’ 

‘‘creditworthy,’’ and ‘‘sell’’ make the 

provision unworkable given market 

realities. The OCC recognizes that there 

may be changes in market practice and 

standards in the evolving space of TEF 

transactions, and renewable energy 

transactions in particular. For that 

reason, § 7.1025(d)(1) does not prescribe 

how a national bank or Federal savings 

association must comply with the 

requirement not to control energy from 

the sale of the project. Rather, 

§ 7.1025(d)(1) simply requires that a 

national bank or Federal savings 

association must not control the sale of 

energy from the project. In the preamble 

to the proposed rule, the OCC provided 

a couple of examples of how a national 

bank or Federal savings association may 

satisfy the requirement, but these 

examples are illustrative only. The 

terms ‘‘creditworthy’’ and ‘‘sell’’ do not 

appear in the proposed rule text and 

instead are used in the proposed rule’s 

preamble to describe examples of how 

a national bank or Federal savings 

association may satisfy the requirement 

in § 7.1025(d)(1). The OCC is finalizing 

§ 7.1025(d)(1) as proposed. 

Second, proposed paragraph (d)(2) 

provides that the national bank or 

Federal savings association must limit 

the total dollar amount of TEF 

transactions to no more than five 

percent of its capital and surplus unless 

the OCC determines, by written 

approval of a written request by the 

national bank or Federal savings 

association to exceed the five percent 

limit, that a higher aggregate limit will 

not pose an unreasonable risk to the 

national bank or Federal savings 

association and that the TEF 

transactions in the national bank’s or 

Federal savings association’s portfolio 

will not be conducted in an unsafe or 

unsound manner. In no case may a 

bank’s or Federal savings association’s 

total dollar amount of TEF transactions 

exceed fifteen percent of its capital and 

surplus. As provided for public welfare 

investments under 12 U.S.C. 

24(Eleventh) and 12 CFR part 24, a 

national bank is generally subject to a 

five percent aggregate investment limit 

and this limit encourages a national 

bank to maintain appropriate risk 

diversification.58 The OCC specifically 

requested comment on whether the OCC 

should use an alternate measure when 

calculating the aggregate investment 

limit and whether the proposed five 

percent aggregate investment limit is 

appropriate. One commenter suggested 

that the final rule should not impose a 

cap on TEF transactions and instead 

should continue to be subject to the 

limits set forth in 12 CFR part 32 and 

other concentration risk limits, which 

are appropriate and adequate to any 

concentration or similar risks presented 

by TEF transactions. One commenter 

also suggested that only a small number 

of national banks and Federal savings 

associations are able to participate in 

TEF transactions and that these banks 

would quickly hit this arbitrary five 

percent limit. The OCC is retaining the 

proposed five percent aggregate limit, 


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83698 Federal Register / Vol. 85, No. 246 / Tuesday, December 22, 2020 / Rules and Regulations 

59OCC Interpretive Letter 1139 (Nov. 13, 2013); 

OCC Interpretive Letter 1141 (Apr. 22, 2014). 

60 12 CFR 24.5(a). 

61This final rule also makes technical changes to 

part 4, subpart A. See the ‘‘Technical Changes’’ 

section of this SUPPLEMENTARY INFORMATION. 

which can be increased up to 15 percent 

with written approval from the OCC. 

The OCC interpretations that this 

provision is codifying include a three 

percent cap on TEF transactions.59 The 

OCC believes that a limit is necessary 

but that the limit can be safely increased 

to five percent. Although TEF 

transactions will be subject to the legal 

lending limits on loans to one borrower 

as the commenter correctly pointed out, 

the OCC believes maintaining the 

aggregate transaction limitation will 

allow the OCC to assess how the 

authority is implemented and any safety 

and soundness concerns that may arise. 

The OCC is finalizing § 7.1025(d)(2) as 

proposed. 

Third, proposed paragraph (d)(3) 

provides that the national bank or 

Federal savings association must have 

provided written notification to the OCC 

prior to engaging in each TEF 

transaction that includes its evaluation 

of the risks posed by the transaction. 

The OCC received four comments on 

this requirement. The commenters 

suggested that the OCC should not 

require national banks and Federal 

savings associations to provide prior 

written notification and instead should 

be allowed to provide after-the-fact 

notification or follow the postnotification procedures available under 

the public welfare investment 

authority.60 One commenter also 

suggested that prior notice for each 

transaction is overly burdensome and of 

little value to examiners, and, if 

necessary, the OCC should limit it to 

when a bank first engages in TEF 

activity and not require it for each 

subsequent transaction. The OCC 

disagrees with these comments. A 

national bank or Federal savings 

association may use the appropriate 

post-investment notification procedures 

for investments made pursuant to the 

public welfare investment authority or 

other applicable existing authorities, but 

to the extent that a national bank or 

Federal savings association is using TEF 

authority under § 7.1025, it must 

comply with the requirements and 

conditions contained in the provision, 

including prior written notification, 

before engaging in each transaction. 

Examiner-in-Charge (EIC) non-objection 

was required under the OCC’s existing 

interpretations for TEF transactions. The 

OCC is not creating a new requirement 

but, rather, is modifying the nonobjection requirement to a less onerous 

notice requirement. The OCC may 

assess over time whether prior notices 

are necessary for subsequent 

transactions or whether after-the-fact 

notices would be sufficient, and may 

revise § 7.1025 as appropriate at that 

time. A well-managed national bank or 

Federal savings association engaging in 

TEF transactions under § 7.1025 

authority must provide prior notice as 

required by § 7.1025 whether engaging 

in the activity at the bank or savings 

association-level or through an 

operating subsidiary. The OCC is 

finalizing § 7.1025(d)(3) as proposed, 

with one clarifying change. The final 

rule clarifies that the notice is to be 

provided to the appropriate OCC 

supervisory office, and adds a definition 

of this term at § 7.1025(b)(1) to mean the 

OCC office that is responsible for the 

supervision of a national bank or 

Federal savings association, as 

described in subpart A of 12 CFR part 

4.61

Fourth, proposed paragraph (d)(4) 

provides that the national bank or 

Federal savings association must be able 

to identify, measure, monitor, and 

control the associated risks of its tax 

equity finance transaction activities 

individually and as a whole on an 

ongoing basis to ensure that it conducts 

such activities in a safe and sound 

manner. The OCC received one 

comment related to this provision 

regarding the use of the word ‘‘control.’’ 

The commenter suggested that the final 

rule should eliminate the word 

‘‘control’’ or otherwise acknowledge 

that it is not meant to suggest that 

national banks and Federal savings 

associations should have more than the 

limited control over TEF transaction 

activities that is consistent with the 

passive nature of these investments. The 

OCC clarifies that use of the word 

‘‘control’’ in relation to risk 

management of TEF activities is 

consistent with the passive nature of 

these transactions and a national bank 

or Federal savings association satisfying 

this condition would not be in conflict 

with the passivity requirement of 

§ 7.1025(c)(6). Similar to how a national 

bank or Federal savings association 

identifies, measures, monitors, and 

controls risks related to loans and other 

extensions of credit but does not 

exercise control over the business of the 

borrower, a national bank or Federal 

savings association would identify, 

measure, monitor and control risks 

related to the transaction but would not 

be exercising control over the operations 

of the project or projects underlying the 

TEF transaction. The OCC is finalizing 

§ 7.1025(d)(4) as proposed. 

The OCC requested comment on 

whether national banks or Federal 

savings associations routinely obtain 

legal opinions regarding the availability 

of tax credits in connection with these 

types of finance transactions. One 

commenter suggested that a national 

bank or Federal savings association 

should not be required to obtain a legal 

opinion on the tax benefits of a TEF 

transaction, but rather the OCC should 

require a good faith, reasoned basis for 

making that determination. The 

commenter suggested that it is not 

market practice to obtain a legal opinion 

that says a TEF structure is ‘‘necessary’’ 

in order for the tax benefits to be 

available. Instead, the commenter 

suggested the OCC should recognize 

that national banks and Federal savings 

associations employ a range of 

approaches to evaluating the tax 

benefits of TEF transactions. 

The OCC agrees with the commenter 

that there should be flexibility related to 

the legal analysis underlying the tax 

availability determination. However, the 

OCC believes that the final rule should 

require the national bank or Federal 

savings association to have a reasonable 

basis for determining the availability of 

tax credits in connection with TEF 

transactions. Therefore, the OCC is 

including in the final rule a more 

flexible provision. Specifically, new 

§ 7.1025(d)(5) requires a national bank 

or Federal savings association to obtain 

a legal opinion, or to have other good 

faith, reasoned bases for making the 

determination that tax credits or other 

tax benefits are available before 

engaging in a TEF transaction. A legal 

opinion includes either an outside 

counsel opinion or an opinion provided 

by a national bank or Federal savings 

association’s internal or in-house 

counsel. Although a legal opinion is not 

the only means to fulfill this 

requirement, a good faith, reasoned 

basis requires more than simply 

accepting a statement from a person or 

entity promoting an investment. A 

national bank or Federal savings 

association may not rely solely on the 

assurances of a person or entity 

promoting a TEF transaction that tax 

credits will be available. 

Proposed paragraph (e) provides that 

the TEF transaction must be subject to 

the substantive legal requirements of a 

loan, including the lending limits 

prescribed by 12 U.S.C. 84, as 

implemented by 12 CFR part 32, and, if 

the active investor or project sponsor of 

the transaction is an affiliate of the 

national bank or Federal savings 

association, the restrictions on 


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62See, e.g., OCC Conditional Approval Letter No. 

220 (Dec. 2, 1996); OCC Interpretive Letter No. 993 

(May 16, 1997); OCC Interpretive Letter No. 1140 

(Jan. 13, 2014); OCC Interpretive Letter No. 1157 

(Nov. 12, 2017). 

63See, e.g., 12 CFR 145.17; OTS Op. Ch. Couns. 

(Sept. 15, 1995); OTS Op. Ch. Couns. (Dec. 22, 

1995). 

transactions with affiliates prescribed by 

12 U.S.C. 371c and 371c-1, as 

implemented by 12 CFR part 223. If a 

national bank or Federal savings 

association is relying on its lending 

authority to participate in a TEF 

transaction, the TEF transaction would 

be subject to regulatory requirements 

applicable to loans, including any 

applicable legal lending limits and 

affiliate transaction restrictions to the 

extent applicable. However, the 

regulatory capital treatment of a 

national bank or Federal savings 

association’s participation in a TEF 

transaction would be determined 

according to the regulatory capital rule 

(12 CFR part 3). The OCC received no 

comments on § 7.1025(e) and is 

finalizing this provision as proposed. 

The OCC specifically requested 

comment on whether the final rule 

should prohibit a national bank or 

Federal savings association from 

entering into TEF transactions for 

projects involving residential 

installation TEF transactions not 

involving utility-scale standalone 

power-generation facilities. One 

commenter suggested that the final rule 

should not prohibit these transactions 

so as not to arbitrarily reserve it for only 

one segment of the market. The OCC 

concurs with this comment and will not 

limit TEF transactions to only those 

involving standalone utility-scale power 

generation facilities in the final rule. A 

national bank or Federal savings 

association may participate in a TEF 

transaction if it meets the requirements 

and conditions of § 7.1025 and the OCC 

has not raised safety and soundness 

concerns related to the particular 

transaction. 

The OCC also requested comment on 

whether the final rule should permit 

national banks or Federal savings 

associations to invest in TEF 

transactions involving detached singlefamily residences, multi-family 

residences, or non-utility commercial 

buildings. Five commenters suggested 

that the OCC should permit national 

banks and Federal savings associations 

from entering into these transactions, 

with one commenter suggesting the OCC 

should affirm longstanding OCC 

precedent that the legal permissibility of 

a TEF transaction is agnostic as to enduser segment and underlying asset. The 

OCC confirms that it will not prohibit a 

national bank or Federal savings 

association from entering into TEF 

projects involving detached singlefamily residences, multi-family 

residences, or non-utility-scale 

commercial buildings. As is the case 

with loans and leases, the legal 

permissibility of a TEF transaction is 

not dependent on the end-user segment 

and underlying asset. Therefore, the 

OCC is finalizing § 7.1025 without a 

prohibition on residential TEF 

transactions. 

One commenter also requested that 

the OCC confirm there is no prohibition 

on, and that tax credit availability 

would not be affected by, national banks 

funding a portion of their TEF 

investment during late stage 

construction if required to qualify for 

the tax benefits and adequate 

protections are in place. The OCC 

confirms that there is no prohibition on 

national banks or Federal savings 

associations funding a portion of their 

TEF investment during late stage 

construction if required to qualify for 

the tax benefits and adequate 

protections are in place. However, the 

OCC cannot opine on whether late stage 

investment would affect the availability 

of the tax credit and such inquiries 

should be directed to the IRS. 

Further, the OCC requested comment 

on whether national banks and Federal 

savings associations should have other 

contractual remedies available before 

entering into a TEF transaction. Two 

commenters suggested that the final rule 

should not prescribe any particular 

contractual remedies for TEF 

transactions, including guarantees or 

indemnities, but rather, should allow 

national banks and Federal savings 

associations the flexibility to choose the 

most appropriate remedies for a given 

transaction. Another commenter 

suggested that requiring certain 

contractual provisions is not necessary, 

noting that it is common for national 

banks and Federal savings association to 

require such remedies as a business 

practice when making other investments 

even though the OCC does not require 

them and that such remedies are best 

left up to national banks and Federal 

savings associations. The OCC agrees 

with these commenters that national 

banks and Federal savings associations 

should be afforded the flexibility to 

choose contractual remedies as 

appropriate. Therefore, the OCC is 

finalizing § 7.1025 without requiring 

specific contractual remedies. 

National Bank and Federal Savings 

Association Payment System 

Memberships (New § 7.1026) 

Section 7.1026 Payment System 

Memberships. National banks may join 

payment systems.62 OTS precedent also 

permits Federal savings associations to 

join payment systems.63 The OCC 

proposed a new rule that would codify 

OCC interpretations regarding national 

bank membership in payment systems 

and apply this new provision to Federal 

savings associations. Specifically, 

proposed § 7.1026 required a national 

bank or Federal savings association to 

provide 30-day prior notice to the OCC 

before joining a payment system if the 

bank or savings association would be 

exposed to open-ended liability. The 

national bank or Federal savings 

association would need to provide the 

OCC with a 30-day after-the-fact notice 

before joining any other payment system 

where the bank or savings association is 

not exposed to open-ended liability. 

These notices must contain 

representations that the national bank or 

Federal savings association has 

identified and evaluated the risks posed 

by membership in the payment system 

and will measure, monitor, and control 

those risks after membership. The 

proposal permitted a national bank or 

Federal savings association to consider 

its liability to a particular payment 

system to be limited if the bank or 

savings association obtains an 

independent legal opinion confirming 

this limited liability prior to joining the 

payment system. Finally, the proposal 

required a national bank or Federal 

savings association to notify its 

appropriate OCC supervisory office if its 

ongoing review identifies a safety and 

soundness concern as soon as that 

concern is identified and to take 

appropriate actions to remediate the 

risk. Several commenters expressed 

general support for the proposed 

approach for joining payment systems 

and, as explained further below, the 

OCC is adopting the proposal largely as 

proposed. 

Definitions. In proposed § 7.1026(b), 

the OCC defined several terms used 

throughout the new section. First, the 

proposal defined ‘‘appropriate OCC 

supervisory office’’ as the OCC office 

that is responsible for the supervision of 

a national bank or Federal savings 

association, as described in subpart A of 

12 CFR part 4. The OCC received no 

comments on this definition and is 

adopting it as proposed. 

Second, because different payment 

systems may use different terminology, 

the OCC defined ‘‘member’’ to include 

a national bank or Federal savings 

association designated as a ‘‘member,’’ a 

‘‘participant,’’ or other similar role by a 

payment system, including by a 

payment system that requires the 


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83700 Federal Register / Vol. 85, No. 246 / Tuesday, December 22, 2020 / Rules and Regulations 

64OCC Interpretive Letter No. 1157 (Nov. 12, 

2017). 

65OCC Interpretive Letter No. 1140 (Jan. 13, 

2014). 

66Financial market utility ‘‘does not include: 

designated contract markets, registered futures 

associations, swap data repositories, and swap 

execution facilities registered under the Commodity 

Exchange Act, or national securities exchanges, 

national securities associations, alternative trading 

systems, security-based swap data repositories, and 

swap execution facilities registered under the 

Securities Exchange Act of 1934, solely by reason 

of their providing facilities for comparison of data 

respecting the terms of settlement of securities or 

futures transactions effected on such exchange or by 

means of any electronic system operated or 

controlled by such entities, provided that the 

exclusions in this clause apply only with respect to 

the activities that require the entity to be so 

registered’’ nor ‘‘any broker, dealer, transfer agent, 

or investment company, or any futures commission 

merchant, introducing broker, commodity trading 

advisor, or commodity pool operator, solely by 

reason of functions performed by such institution 

as part of brokerage, dealing, transfer agency, or 

investment company activities, or solely by reason 

of acting on behalf of a financial market utility or 

a participant therein in connection with the 

furnishing by the financial market utility of services 

to its participants or the use of services of the 

financial market utility by its participants, provided 

that services performed by such institution do not 

constitute critical risk management or processing 

functions of the financial market utility.’’ 12 U.S.C. 

5462(6)(B). 

67 7 U.S.C. 1 et seq. 

68 15 U.S.C. 78a et seq. 

69The OCC maintains separate precedent relevant 

to memberships in these organizations. See, e.g., 

OCC Interpretive Letter No. 929 (Feb. 11, 2002); 

OCC Interpretive Letter No. 1102 (Oct. 14, 2008). 

70 Id. 

national bank or Federal savings 

association to share in operational 

losses or maintain a reserve with the 

payment system to offset potential 

liability for operational losses. The OCC 

received one comment that indirect 

members of payment systems should 

not be included in the definition of 

‘‘member’’ unless they are bound by the 

rules of the payment system and such 

rules, including any open-ended 

liabilities imposed, purport to extend to 

such indirect members. The OCC agrees 

with this commenter that it would be 

appropriate to include indirect members 

only in these specific circumstances 

and, thus, is amending the definition of 

‘‘member’’ in the final rule to reflect this 

comment. 

Third, the OCC defined ‘‘open-ended 

liability’’ as liability for operational 

losses that is not capped under the rules 

of the payment system and includes 

indemnifications provided to third 

parties as a condition of membership in 

the payment system. For example, as a 

condition of membership in particular 

payment systems, national banks and 

Federal savings associations may 

provide open-ended indemnifications to 

Federal Reserve Banks that act as 

service providers for the payment 

systems.64 This definition is consistent 

with the definition of open-ended 

liability in OCC Interpretive Letter 1140. 

The OCC received one comment on 

this definition expressing concern that it 

did not clearly include a situation in 

which the indemnification giving rise to 

an open-ended liability is imposed 

directly upon the participant by the 

Federal Reserve Bank, which is acting as 

a service provider to payment system 

participants. The OCC agrees with this 

commenter that the participant would 

be exposed to open-ended liability in 

that case and is modifying the definition 

of ‘‘open-ended liability’’ to reflect the 

situation described by the commenter. 

As a result, open-ended liability in the 

final rule means liability for operational 

losses that is not capped under the rules 

of the payment system, and includes 

indemnifications of third parties 

provided as a condition of membership 

in the payment system. 

Fourth, although memberships in 

payment systems expose national banks 

and Federal savings associations to a 

variety of risks, OCC legal precedent 

only has addressed whether a national 

bank may assume open-ended liability 

for operational losses at the payment 

system. The OCC defined ‘‘operational 

loss’’ as a charge resulting from sources 

other than defaults by other members of 

the payment system. The OCC pointed 

to examples listed in OCC Interpretive 

Letter 1140 65 and requested comment 

on whether these examples should be 

included in the definition of 

‘‘operational loss.’’ The OCC also asked 

whether other examples should be 

included in that list. One commenter 

supported including the examples in the 

text of the regulation and recommended 

adding cybersecurity breaches. A 

second comment letter also supported 

adding cybersecurity breaches but did 

not believe the list of examples should 

be included in the definition of 

‘‘operational loss’’ in the regulatory text. 

The OCC believes that adding the nonexhaustive list of examples to the body 

of the regulation will provide greater 

clarity. The OCC also agrees that it is 

appropriate to add cybersecurity 

breaches to the list. Thus, the final rule 

defines operational loss to mean a 

charge resulting from sources other than 

defaults by other members of the 

payment system. The final rule also 

adds examples of these operational 

losses. This nonexclusive list cites 

losses due to: employee misconduct, 

fraud, misjudgment, or human error; 

management failure; information 

systems failures; disruptions from 

internal or external events that result in 

the degradation or failure of services 

provided by the payment system; 

security breaches or cybersecurity 

events; or payment or settlement delays, 

constrained liquidity, contagious 

disruptions, and resulting litigation. 

Finally, the OCC defined ‘‘payment 

system’’ in § 7.1026 to mean a ‘‘financial 

market utility’’ as defined in 12 U.S.C. 

5462(6), wherever operating, and that 

includes both retail and wholesale 

payment systems. Section 5462(6) 

provides that ‘‘a financial market 

utility’’ means ‘‘any person that 

manages or operates a multilateral 

system for the purpose of transferring, 

clearing, or settling payments, 

securities, or other financial 

transactions among financial 

institutions or between financial 

institutions and the person’’ with 

certain exclusions.66 This definition 

excluded derivatives clearing 

organizations registered under the 

Commodity Exchange Act 67 and 

clearing agencies registered under the 

Securities Exchange Act of 1934,68 and 

foreign organizations that would be 

considered a derivatives clearing 

organization or clearing agency were it 

operating in the United States.69 This 

definition therefore includes payment 

systems that operate either in the U.S. 

or in a foreign jurisdiction. The OCC 

requested comment on whether this 

definition appropriately encompasses 

both foreign and domestic payment 

systems that national banks and Federal 

savings associations may join. One 

commenter requested that the OCC 

provide guidance for banks and savings 

associations applying this definition to 

international clearing organizations or 

agencies that may not meet the technical 

requirements necessary to register under 

the Commodity Exchange Act or 

Securities Exchange Act of 1934. The 

OCC notes that the carve-out for clearing 

organizations and clearing agencies 

reflects that OCC precedent 

distinguishes between companies and 

organizations performing payments, 

clearing, and settlement functions.70

While the proposed rule would codify 

OCC precedent related to payment 

system memberships, it would not affect 

OCC precedent applicable to 

memberships in clearing and settlement 

organizations. For example, a national 

bank or Federal savings association 

wishing to join a foreign organization 

subject to OCC Interpretive Letter Nos. 

929 or 1102 would continue to follow 

the process outlined in that precedent 

rather than the process outlined in 

§ 7.1026. The OCC believes this is 

sufficiently clear in the proposed rule 


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71The proposed notice requirement would not 

apply to existing payment system memberships. 

However, as explained below, the proposed rule 

required national banks and Federal savings 

associations to continuously inform the OCC of 

changes to bank or savings association operations 

that would affect the institution’s risk profile. Thus, 

the OCC would be made aware of any payment 

system membership at a bank or savings association 

even though the specific timing and information 

required by this proposed rule would not apply to 

existing payment systems memberships. 

72See, e.g., FFIEC IT Examination Handbook on 

Retail Payment Systems (Apr. 2016); FFIEC IT 

Examination Handbook on Wholesale Payment 

Systems (July 2004); Comptroller’s Handbook: 

Payment Systems and Funds Transfer Activities 

(March 1990); OCC Banking Circular 235 (May 10, 

1989). 

73For example, OCC Banking Circular 235 states 

‘‘Management of each national bank is responsible 

for assessing risk in each payment, clearing, and 

settlement system in which the bank participates. 

Management must adopt adequate policies, 

procedures, and controls with respect to these 

activities.’’ The OCC applied this Banking Circular 

to Federal savings associations on Oct. 1, 2014. 

and, therefore, finalizes this definition 

as proposed. 

Notice requirements. Proposed 

§ 7.1026(c) required a national bank or 

Federal savings association to provide 

written notice to the appropriate OCC 

supervisory office at least 30 days prior 

to joining a payment system that would 

expose it to open-ended liability. If the 

payment system does not expose the 

national bank or Federal savings 

association to open-ended liability, the 

proposed rule required the national 

bank or Federal savings association to 

provide after-the-fact written notice 

within 30 days of joining a payment 

system. The OCC believes membership 

in a payment system that exposes 

members to open-ended liability creates 

additional risks for national banks and 

Federal savings associations. Thus, the 

OCC believes prior notice to the OCC is 

appropriate in these situations.71

One comment letter supported this 

process. A second commenter, however, 

argued that the proposal may make it 

more difficult for a national bank or 

Federal savings association to join a 

new payment system because it would 

impose an additional regulatory burden 

not required for non-OCC regulated 

institutions. The OCC does not agree 

with this commenter. As explained 

above and in the preamble to the 

proposed rule, the notice requirement 

for payment system memberships 

codifies existing requirements from a 

series of interpretive letters governing 

national bank payment system 

memberships. Since the publication of 

these interpretive letters, OCC-regulated 

institutions have continued to join new 

payment systems. The OCC believes that 

this clarity facilitates payment systems 

memberships by OCC-regulated 

institutions rather than hindering them 

and therefore the OCC adopts paragraph 

(c) as proposed. 

Content of notice. Proposed 

§ 7.1026(d) provided that all notices 

filed under § 7.1026(c) must include 

representations that the national bank or 

Federal savings association has 

complied with the safety and soundness 

review required by proposed 

§ 7.1026(e)(1) before joining the 

payment system and will comply with 

the safety and soundness review and the 

notification requirements in proposed 

§ 7.1026(e)(2) and (3) after joining the 

system. For after-the-fact notices 

pursuant to paragraph (c)(2), the 

proposed rule required a national bank 

or Federal savings association to include 

a representation that either the rules of 

the payment system do not impose 

liability for operational losses on 

members or that the national bank’s or 

Federal savings association’s liability for 

operational losses is limited by the rules 

of the payment system to specific and 

appropriate limits that do not exceed 

the lower of the legal lending limit 

specified by 12 CFR part 32 or a limit 

established for the national bank or 

Federal savings association by the OCC. 

One comment letter noted that the 

proposed notice requires that national 

banks and Federal saving associations 

complete their risk assessment of the 

payment system before joining. 

However, this commenter explained 

that some aspects of a national bank’s or 

Federal savings association’s risk 

management processes may occur after 

joining. Specifically, the commenter 

cited integration with a payment 

system’s IT functions. The OCC 

recognizes that full access to the 

payment system’s IT infrastructure may 

be necessary to analyze fully its 

potential risks. However, the OCC still 

expects banks and savings associations 

to identify in advance these limitations. 

Thus, the OCC is finalizing paragraph 

(d) as proposed, with a minor change in 

wording of the section heading in 

paragraph (d)(2). 

Safety and soundness procedures. 

The OCC relies upon a number of 

resources to communicate in detail its 

safety and soundness guidance for 

national bank and Federal savings 

association memberships in payment 

systems.72 At a minimum, the OCC 

believes a national bank or Federal 

savings association must be able to 

identify, evaluate, and control its risks 

from membership in a particular 

payment system before joining the 

system and on an ongoing basis.73 As a 

prerequisite to joining a payment system 

and on a continual basis after joining, 

proposed § 7.1026(e) required the 

national bank or Federal savings 

association to (1) identify and evaluate 

the risks posed by membership in the 

payment system, taking into account 

whether the liability of the bank or 

savings association is limited, and (2) 

measure, monitor, and control those 

risks. The preamble to the proposal 

explained that national banks and 

Federal savings associations should 

review the standards outlined in OCC 

Interpretive Letter 1140 and OCC 

Banking Circular 235 to assist with the 

requirements in paragraph (e). The 

proposal also required a national bank 

or Federal savings association to notify 

the appropriate OCC supervisory office 

if its ongoing risk management 

identifies a safety and soundness 

concern, such as a material change to 

the bank’s or savings association’s 

liability or indemnification 

responsibilities, as soon as that concern 

is identified and to take appropriate 

actions to remediate the risk. The OCC 

received several comments related to 

this section. 

First, several commenters responded 

favorably to the OCC’s question about 

whether the characteristics from 

Interpretive Letter 1140 should be 

included in the final rule. In 

Interpretive Letter 1140, the OCC 

identified key components of a payment 

system that appropriately mitigates risk 

and indicated it would expect a national 

bank to consider these characteristics 

when analyzing the payment system. 

The OCC also explained in Interpretive 

Letter 1140 the characteristics of an 

effective risk management program at a 

national bank. These commenters 

thought doing so would provide greater 

certainty about the OCC’s expectations. 

Although not an exhaustive list, the 

OCC agrees that listing the risk 

management program criteria from 

Interpretive Letter 1140 in the 

regulatory text would assist banks and 

savings associations as they conduct 

reviews of payment system 

memberships. The OCC is including in 

the final rule a new paragraph (f) that 

recites the criteria it previously outlined 

in Interpretive Letter 1140. 

One commenter also asked the OCC to 

provide additional guidance about 

which of these criteria are most 

important and the circumstances under 

which each component should be 

considered in the analysis of a bank or 

savings association. The OCC does not 

believe it would be appropriate to 

identify further individual scenarios in 

which specific factors would apply 

because national banks and Federal 

savings associations are best positioned 

to evaluate the applicability and 


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83702 Federal Register / Vol. 85, No. 246 / Tuesday, December 22, 2020 / Rules and Regulations 

importance of each factor given the 

wide variety of global payment systems 

as well as the varied complexity of and 

risk tolerances at individual banks and 

savings associations. The OCC expects 

banks and savings associations to 

review the standards and identify the 

components that are applicable to the 

payment system and financial 

institution at issue. Thus, the OCC is not 

including this information in the final 

rule. 

Finally, a commenter asked that 

where the open-ended liability derives 

from a Federal Reserve Bank acting as 

a service provider to the payment 

system participant, the OCC clarify that 

due diligence and risk management 

activities should be related to the entity 

providing the service for which the 

indemnity or open-ended liability is 

imposed. The OCC agrees that national 

banks and Federal savings associations 

should evaluate the risks that derive 

from all aspects of the payment system 

membership, including the risks from 

service providers to whom the payment 

system member must indemnify or 

provide open-ended liability as a 

condition of membership. However, the 

OCC expects the due diligence and risk 

management analysis to apply whether 

the payment system membership 

introduces open-ended liability or not. 

The OCC believes that the language in 

paragraph (e) of the proposal is 

sufficiently clear and is adopting this 

section as proposed. 

The OCC noted in the preamble to the 

proposed rule that a national bank’s or 

Federal savings association’s liability 

will vary from payment system to 

payment system. The rules of some 

payment systems may expose members 

to open-ended liability for operational 

losses but, in reality, the national bank’s 

or Federal savings association’s liability 

may be capped in some other way. For 

example, a jurisdiction could have a law 

that prohibits open-ended liability or 

restricts the amount of liability to the 

assets of the entity located in that 

jurisdiction. If that law applies to the 

payment system, it could effectively cap 

a member’s operational liability. In 

other situations, a member may 

negotiate a separate agreement with a 

payment system that allows the member 

to limit its potential liability and, as a 

result, the risks of membership in that 

payment system. In recognition of these 

situations, the proposed rule permitted 

a national bank or Federal savings 

association to consider its open-ended 

liability to a particular payment system 

to be limited for purposes of the review 

required by proposed § 7.1026(e)(1) and 

(2) if the bank or savings association 

obtains an independent legal opinion 

prior to joining the payment system. 

That legal opinion must describe how 

the payment system allocates liability 

for operational losses and conclude the 

potential liability for the national bank 

or Federal savings association is limited 

to specific and appropriate limits that 

do not exceed the legal lending limit 

specified by 12 CFR part 32 or a lower 

limit established for the national bank 

or Federal savings association by the 

OCC. This legal opinion would enable 

the OCC to verify that the liability of the 

national bank or Federal savings 

association is limited even though the 

rules of the payment system do not 

provide any limits. 

Two commenters objected to the 

independent legal opinion requirement. 

These commenters argued that the OCC 

should instead require national banks 

and Federal savings associations to 

follow a lower standard and provide just 

a reasonable basis for concluding that its 

liability is limited. These commenters 

also suggested that an opinion from inhouse counsel should suffice. The OCC 

does not agree that lowering the 

standard would be appropriate. 

However, the OCC believes it is 

important to make clear that the legal 

opinion is not required to join any 

payment system; it is only required for 

the bank or savings association to treat 

its liability as limited when the payment 

systems rules indicate open-ended 

liability. The OCC, however, is 

persuaded by the commenters’ view that 

an in-house legal opinion is sufficient. 

Thus, the OCC is amending the final 

rule to remove the requirement that the 

legal opinion be independent of the 

bank or savings association. The final 

rule does, however, specifically provide 

for a written opinion. Even with this 

change, the OCC expects that this option 

will be exercised rarely. In fact, the OCC 

believes that this option will be 

available only in unusual 

circumstances, typically for a payment 

system that operates in a foreign 

jurisdiction where the laws of that 

jurisdiction effectively limit the liability 

of the national bank or Federal savings 

association. The OCC is offering the 

written legal opinion as an additional 

option for institutions wishing to join a 

payment system in which the rules do 

not limit the liability of members, but 

the national bank or Federal savings 

association believes another factor 

effectively limits its potential liability. If 

a payment system’s rules impose openended liability, national banks and 

Federal savings associations still may 

join the payment system even if they do 

not elect—or are unable to obtain—a 

written legal opinion provided that they 

conduct the appropriate safety and 

soundness analysis and provide the 

appropriate OCC supervisory office with 

the 30-day prior notice required by 

§ 7.1026(c)(1). As the OCC explained in 

the preamble to the proposed rule, a 

national bank or Federal savings 

association that obtains a legal opinion 

may consider its open-ended liability to 

be limited so long as there were no 

material changes to the liability or 

indemnification requirements of the 

national bank or Federal savings 

association after the bank or savings 

association joined the payment system. 

If there is a material change, the 

national bank or Federal savings 

association may no longer rely on that 

written legal opinion to demonstrate 

that its liability is limited and must 

notify the appropriate OCC supervisory 

office and remediate its risks as 

described in § 7.1026(e)(3). 

One commenter asked for clarification 

that, once a bank or savings association 

has joined a payment system and 

obtained a legal opinion, it does not 

need to undertake that process again 

unless there is a material change to the 

liability or indemnification provisions 

applicable to the bank or savings 

association. The OCC intended this 

result and, thus, is modifying the final 

rule to clarify that, so long as there are 

no material changes to the liability or 

indemnification requirements 

applicable to the bank or savings 

association since the issuance of the 

written legal opinion, the bank or 

savings association may consider its 

open-ended liability to be limited. 

Establishment and Operation of a 

Remote Service Unit by a National Bank 

(New § 7.1027/Former § 7.4003) 

Section 7.4003 provides that a 

national bank can establish and operate 

a remote service unit (RSU) pursuant to 

12 U.S.C. 24(Seventh). This section also 

states that an RSU does not constitute a 

branch under 12 U.S.C. 36(j) and is not 

subject to State geographic or 

operational restrictions or licensing 

laws. Section 7.4003 defines an RSU as 

an automated facility, operated by a 

customer of a bank, that conducts 

banking functions, such as receiving 

deposits, paying withdrawals, or 

lending money. This section provides 

examples of an RSU, specifically listing 

an automated teller machine (ATM), 

automated loan machine, automated 

device for receiving deposits, personal 

computer, telephone, and other similar 

electronic devices. Finally, this section 

provides that an RSU may be equipped 

with a telephone or tele-video device 

that allows contact with bank personnel. 


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74EGRPRA, Section 2204 (1996). 

75See First National Bank in Plant City, Florida 

v. Dickinson, 396 U.S. 122, 133–34 (1969) (rejecting 

the contention by amicus curiae National 

Association of Supervisors of State Banks that State 

law definitions of what constitutes ‘‘branch 

banking’’ must control the content of the Federal 

definition of ‘‘branch.’’). 

76See Chevron U.S.A., Inc. v. Nat. Res. Def. 

Council, Inc., 467 U.S. 837, 843 (1984) (‘‘[I]f the 

statute is silent or ambiguous with respect to the 

specific issue, the question for the court is whether 

the agency’s answer is based on a permissible 

construction of the statute.’’); see also Robinson v. 

Shell Oil Co., 519 U.S. 337, 341 (1997) (‘‘The 

plainness or ambiguity of statutory language is 

determined by reference to the language itself, the 

specific context in which that language is used, and 

the broader context of the statute as a whole.’’). 

The OCC proposed to amend § 7.4003 

to expand the definition of an RSU to 

include either an automated or 

unstaffed facility and to add drop boxes 

to the list of RSU examples. Although 

the OCC has historically treated drop 

boxes as branches, the OCC believes that 

interpreting both the terms ATM and 

RSU to require automation leads to 

incongruous results where a nonautomated facility such as a drop box is 

considered a branch but an automated 

facility such as an ATM is not, despite 

a drop box functioning less like a full 

branch than an ATM. The OCC also 

proposed to move § 7.4003 to subpart A 

of part 7 as new § 7.1027 so that it 

would be in the same subpart as other 

branching provisions of part 7. 

The OCC received one comment on 

the proposed amendments to § 7.4003. 

The commenter opposes the changes to 

§ 7.4003 and states that excluding drop 

boxes from the definition of branch by 

including them in the definition of RSU 

is inconsistent with Supreme Court 

precedent. The commenter states that 

the change is inconsistent with OCC 

precedent and the OCC does not have 

the authority to include drop boxes and 

other unstaffed facilities within the 

RSU/ATM exclusion. The commenter 

also states that when Congress amended 

12 U.S.C. 36(j) to exclude ATMs and 

RSUs from the definition of branch, it 

chose to only exclude automated 

facilities and purposefully chose not to 

exclude drop boxes or other unstaffed 

facilities that lack automation. Finally, 

the commenter states that regardless of 

where the RSU regulations are placed, 

to the extent that the OCC maintains 

that State operational and licensing 

restrictions are preempted with respect 

to non-branch offices, then, in 

expanding the scope of permissible nonbranch office activities, the OCC is 

making a ‘‘preemption determination’’ 

under the National Bank Act that must 

comply with the procedural and 

substantive requirements applicable to 

such determinations. 

These comments misunderstand the 

interaction between judicial precedent 

and the insertion of the term ‘‘remote 

service unit’’ into 12 U.S.C. 36(j) and 

ignore the plain language of 12 U.S.C. 

36(j). The Supreme Court decision in 

First National Bank in Plant City, 

Florida v. Dickinson, 396 U.S. 122 

(1969) (Plant City), which held that a 

drop box constituted a branch, was 

decided before Congress amended 12 

U.S.C. 36(j) to exclude RSUs and ATMs 

from the definition of branch.74

Therefore, the Plant City decision did 

not address whether drop boxes fit 

within the definition of an RSU and 

thus are exempted from the 12 U.S.C. 36 

branching restrictions. 

Interpreting 12 U.S.C. 36(j) in a way 

that defines ATMs and RSUs in a 

distinct manner is a better reading of the 

plain language of 12 U.S.C. 36(j) and 

leads to the logical conclusion that nonautomated, unstaffed facilities such as 

drop boxes should be included in the 

definition of RSU. Specifically, 

interpreting ‘‘automated teller machine’’ 

and ‘‘remote service unit’’ to be 

synonymous (i.e., automated, unstaffed 

facilities) would construe two different 

phrases to have the same meaning and 

renders the second phrase useless. 

Congress included the term 

‘‘automated’’ in the phrase ‘‘automated 

teller machine’’ but did not include the 

term ‘‘automated’’ in the phrase ‘‘remote 

service unit,’’ suggesting that Congress 

did not necessarily intend for the term 

‘‘remote service unit’’ to only apply to 

automated facilities. Though the OCC 

has historically treated drop boxes as 

branches based on the fact that drop 

boxes are not automated, the agency is 

now adopting a new position based on 

a reading of the plain language of the 

statute that avoids rendering statutory 

language superfluous and producing 

illogical results whereby drop boxes are 

considered branches despite having less 

branch-like functionality than ATMs. 

The OCC also disagrees with the 

commenter’s statement that the 

proposed amendments to § 7.4003 

constitute a ‘‘preemption 

determination’’ under the National Bank 

Act. Case law is clear that it is Federal 

law, not State law, that determines what 

is considered a ‘‘branch’’ of a national 

bank for the purposes of 12 U.S.C. 

36(j).75 The OCC is merely clarifying 

how it interprets the ambiguous 

language in 12 U.S.C. 36(j). As noted 

above, Congress did not define 

‘‘automated teller machine’’ or ‘‘remote 

service unit’’ in 12 U.S.C. 36(j), so the 

OCC must interpret these phrases to 

resolve this silence.76 This is not a 

‘‘preemption determination’’ pursuant 

to the National Bank Act. Accordingly, 

the OCC adopts these changes as 

proposed. 

Establishment and Operation of a 

Deposit Production Office by a National 

Bank (New § 7.1028/Former § 7.4004) 

Section 7.4004 provides that 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, and 

further provides that 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. Section 7.4004 specifically 

states that a DPO is not a branch so long 

as the site does not receive deposits, pay 

withdrawals, or make loans. It further 

states that 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. Finally, this section 

states that a national bank may use the 

services of, and compensate, persons 

not employed by the bank in its deposit 

production activities. As with § 7.4003, 

the OCC proposed to move § 7.4004 to 

subpart A of part 7 as new § 7.1028 to 

place it in the same subpart as other 

interpretations regarding branching and 

non-branching functions. This change 

improves the organization of part 7. The 

OCC proposed no other changes to this 

section except for a non-substantive 

change to its wording. The OCC 

received no comments on new § 7.1028 

and adopts it as proposed. 

Combination of National Bank Loan 

Production Office, Deposit Production 

Office, and Remote Service Unit (New 

§ 7.1029/Former § 7.4005) 

Section 7.4005 provides that a 

location at which a national bank 

operates a loan production office (LPO), 

a DPO, and an RSU is not a ‘‘branch’’ 

within the meaning of 12 U.S.C. 36(j) by 

virtue of that combination of operations 

because none of these locations 

individually constitutes a branch. The 

OCC proposed to add language 

regarding the extent of the permissible 

interaction between bank personnel and 

the RSU at a facility that combines an 

LPO or a deposit production office with 

an RSU. Specifically, the OCC proposed 

to add language that provides that an 

RSU at a combined location must be 

primarily operated by the customer with 

at most delimited assistance from bank 


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83704 Federal Register / Vol. 85, No. 246 / Tuesday, December 22, 2020 / Rules and Regulations 

77This language is based on published OCC 

precedent. See OCC Interpretive Letter No. 1165 

(June 28, 2019). 

78Permissible financial derivatives transactions 

for Federal savings associations are addressed 

separately in 12 CFR 163.172. 

79OCC legal interpretations have confirmed 

certain derivatives activities are permissible for 

national banks under 12 U.S.C. 24(Seventh). 

Congress has recognized national banks’ authority 

to engage in derivatives activities in various 

statutes. See, e.g., 12 U.S.C. 84 (incorporating credit 

exposure from derivatives into the legal lending 

limit); Gramm-Leach-Bliley Act, Public Law 106– 

102, 113 Stat. 1338, section 206(a)(6) (defining 

‘‘identified banking product’’ to include any swap 

agreement except an equity swap with a retail 

customer); 12 U.S.C. 371c (defining ‘‘covered 

transaction’’ between a bank and its affiliates to 

include a derivative transaction); Dodd-Frank Act 

section 716 (15 U.S.C. 8305); Dodd-Frank Act 

section 731 (7 U.S.C. 6s); Dodd-Frank Act section 

764 (15 U.S.C. 78o–10). 

80 85 FR 40794, at 40804. 

81E.g., OCC Interpretive Letter No. 1160 (Aug. 22, 

2018). 

82OCC interpretations have specified that 

customer-driven derivatives transactions do not 

include transactions entered into by the bank for 

the purpose of speculating in the underlying 

commodity or security prices. See e.g., OCC 

Interpretive Letter No. 1033 (Jun. 14, 2005); OCC 

Interpretive Letter No. 892 (Sept. 13, 2000); OCC 

Interpretive Letter No. 684 (Aug. 4, 1995); OCC NoObjection Letter 90–1 (Feb. 16, 1990). 

83 Interpretive Letter 1018 specified that the bank 

would only mirror derivative transactions with 

subsidiaries and affiliates that are customer-driven 

and bank permissible. OCC Interpretive Letter No. 

1018 (Feb. 10, 2005). 

84See also Margin and Capital Requirements for 

Covered Swap Entities, 85 FR 39754, at 39764 (July 

1, 2020) (discussing the views of the Board of 

Governors of the Federal Reserve System (Federal 

Reserve Board) on the application of sections 23A 

and 23B to swaps between a bank and its affiliate). 

85See, e.g., OCC Interpretive Letter No. 1090 (Oct. 

25, 2007). 

personnel.77 The OCC also proposed to 

move § 7.4005 to subpart A of part 7, as 

new § 7.1029. The OCC received no 

comments on these changes and adopts 

them as proposed. 

Permissible Derivatives Activities for 

National Banks (New § 7.1030) 

The proposal included a new § 7.1030 

addressing derivatives activities 

permissible for national banks.78 This 

new section incorporated and 

streamlined the framework in OCC 

interpretive letters discussing bankpermissible derivatives activities.79 The 

proposed rule addressed five functional 

categories of permissible derivatives 

activities: (1) Derivatives referencing 

underlyings a national bank may 

purchase directly as an investment; (2) 

derivatives with any underlying to 

hedge the risks arising from bankpermissible activities; (3) derivatives 

with any underlying that are customerdriven, cash-settled and either perfectlymatched or portfolio-hedged; (4) 

derivatives with any underlying that are 

customer-driven and physically-settled 

by transitory title transfer; and (5) 

derivatives with any underlying that are 

customer-driven, physically-settled 

(other than by transitory title transfer), 

and physically-hedged. The OCC is 

adopting § 7.1030 with the substantive 

and technical changes described below. 

Authority. Under the proposal, 

paragraph (a) of new § 7.1030 specified 

that the section is issued pursuant to 12 

U.S.C. 24(Seventh). Paragraph (a) 

further specified that a national bank 

may only engage in derivatives 

transactions in accordance with the 

requirements of this section. The OCC 

did not receive any comments on this 

paragraph and is adopting paragraph (a) 

as proposed. 

Definitions. In paragraph (b), the 

proposed rule incorporated several 

terms that are commonly used in OCC 

derivatives interpretive letters. The 

proposed rule also defined certain terms 

for the first time to promote 

transparency and consistency among 

institutions. For the reasons described 

below, the OCC is adopting these 

definitions as proposed. 

• Customer-driven. The proposed rule 

defined ‘‘customer-driven’’ to mean a 

transaction entered into for a customer’s 

valid and independent business 

purpose. As explained in the preamble 

to the proposed rule,80 this approach is 

consistent with the definition used in 

OCC interpretive letters.81 The preamble 

explained that this focus on the 

customer recognizes that a number of 

derivatives activities are permissible for 

a national bank because the bank is 

acting as a financial intermediary for the 

customer. A customer-driven 

transaction would not include a 

transaction entered into for the purpose 

of speculating in derivative, currency, 

commodity, or security prices.82

Similarly, a customer-driven transaction 

would not include a transaction the 

principal purpose of which is to deliver 

to a national bank assets that the 

national bank could not invest in 

directly. 

The OCC received one comment on 

this proposed definition. The 

commenter said that the final rule 

should clarify that ‘‘customer-driven’’ 

derivatives activities continue to 

include the types of permissible 

derivatives transactions described in 

Interpretive Letter 1018. The commenter 

also said the final rule should make 

clear that, while speculation cannot be 

the purpose for which the national bank 

enters into the transaction, no such 

limitation is imposed as to the purpose 

for which the customer enters into the 

transaction and that the OCC should 

confirm that an otherwise bankpermissible derivative transaction 

entered into by a national bank as a 

financial intermediary would be viewed 

as ‘‘customer-driven,’’ so long as the 

national bank and its customer have 

bilaterally negotiated and agreed to the 

terms of the transaction, regardless of 

the execution mechanism selected by 

the bank and its customer. Finally, the 

commenter said that the limitation in 

the proposed definition specifying that 

a customer-driven transaction does not 

include ‘‘a transaction the principal 

purpose of which is to deliver to a 

national bank assets that the national 

bank could not invest in directly’’ does 

not prohibit physically settled 

derivatives. 

The OCC intended the proposed 

definition to reflect the term ‘‘customerdriven’’ as it has been used in prior OCC 

interpretations, and the OCC does not 

believe any changes to the definition are 

necessary in response to the commenter. 

First, the definition does not prohibit 

customer-driven mirror trades through 

affiliates as described in Interpretive 

Letter 1018.83 National banks should be 

aware that these activities are subject to 

sections 23A and 23B of the Federal 

Reserve Act and 12 CFR part 32.84

Second, the OCC does not believe any 

changes to the definition of ‘‘customerdriven’’ are necessary to confirm that a 

national bank, rather than its customer, 

may not have a speculative purpose. 

The proposed definition applies to a 

transaction entered into for a customer’s 

‘‘valid and independent business 

purpose.’’ The OCC recognizes that bank 

customers’ valid and independent 

business purposes may include the 

customer obtaining directional exposure 

to an underlying, for example, as part of 

the customer’s investment strategy.85

The requirement that a transaction be 

‘‘customer-driven’’ applies only to the 

national bank; it does not apply to the 

bank’s customer. Therefore, the OCC 

does not believe that any changes to the 

definition of ‘‘customer-driven’’ are 

necessary to confirm that the rule does 

not limit a national bank’s customer’s 

valid and independent business 

purpose. 

Third, the OCC declines to adopt the 

commenter’s proposed interpretation 

that a derivative transaction entered into 

by a national bank as a financial 

intermediary would be viewed as 

‘‘customer-driven,’’ so long as the 

national bank and its customer have 

bilaterally negotiated and agreed to the 

terms of the transaction, regardless of 

the execution mechanism selected by 

the bank and its customer. A national 

bank may use both over-the-counter 

trades or trading platforms to execute 


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Federal Register / Vol. 85, No. 246 / Tuesday, December 22, 2020 / Rules and Regulations 83705 

86OCC Interpretive Letter No. 1110 (Jan. 30, 

2009). 

87The commenter also raised the example of 

hedging an equity derivative by holding physical 

equity positions. This example is discussed below 

in the section addressing physical hedging 

activities. 

88The commenter also discussed physicallyhedged transactions that are hedged on a 

transaction-by-transaction basis. This example is 

discussed below in relation to the permitted 

physical hedging activities under § 7.1030(c)(5). As 

discussed below, such transactions are not 

considered perfectly-matched under the final rule 

but are addressed in § 7.1030(c)(5). 

customer-driven transactions. However, 

the fact that a trade is bilaterally 

negotiated does not, on its own, mean 

that the trade is customer-driven (i.e., is 

entered into for a customer’s valid and 

independent business purpose and does 

not have the principal purpose of 

delivering to a national bank assets that 

the national bank could not invest in 

directly). For example, a bilaterally 

negotiated transaction between a 

national bank and a third party that, 

under the facts and circumstances, has 

the purpose of giving the national bank 

speculative exposure to underlying 

commodity or security prices would not 

be considered customer-driven under 

this definition. 

Finally, the OCC confirms that the 

language in the definition of ‘‘customerdriven’’ stating that the principal 

purpose of the transaction cannot be to 

deliver to a national bank assets that the 

national bank could not invest in 

directly does not preclude a bank from 

engaging in permissible physicallysettled derivatives activities. Paragraphs 

(c)(4) and (5) of the final rule explicitly 

permit national banks to engage in 

customer-driven physically-settled 

derivatives financial intermediation 

transactions. For the foregoing reasons, 

the OCC is adopting the definition of 

‘‘customer-driven’’ as proposed. 

• Perfectly-matched. The proposal 

included a definition of ‘‘perfectlymatched’’ that was substantially similar 

to prior OCC interpretive letters. 

Specifically, the proposal defined 

perfectly-matched to mean two back-toback derivative transactions that offset 

risk with respect to all economic terms 

(e.g., amount, maturity, duration, and 

underlying). The preamble to the 

proposal specified that, consistent with 

OCC interpretive letters, this definition 

would allow transactions to be 

considered ‘‘perfectly-matched’’ despite 

a difference in price between two 

derivatives when that difference reflects 

the bank’s intermediation fee (in the 

form of a spread).86

The OCC received one comment on 

this proposed definition. First, this 

commenter said the OCC should adopt 

a broader concept of ‘‘appropriately 

hedged’’ rather than distinguishing 

between the definitions of ‘‘perfectlymatched’’ and ‘‘portfolio-hedged,’’ 

which the commenter viewed as 

unnecessary. This commenter argued 

that a bifurcated definitional approach 

could potentially create ambiguity as to 

whether there may be certain types of 

derivative transactions that, while 

appropriately hedged in some manner 

so as to offset the market risk of such 

transactions, may not fall within either 

technical definition, and thus would not 

be bank-permissible. This commenter 

further argued that, if the final rule 

maintains the distinction between 

‘‘perfectly-matched’’ and ‘‘portfoliohedged,’’ it should expressly confirm 

that any derivative transaction the risks 

of which are appropriately offset, 

whatever the technique, will fall under 

one of these two definitions. The 

commenter argued that, if a permissible 

hedging technique does not fall within 

the definition of ‘‘perfectly-matched,’’ 

then it should be assumed to fall within 

the definition of ‘‘portfolio-hedged.’’ 

The OCC disagrees with the 

commenter’s view that these definitions 

are unnecessary and that they create 

ambiguity. OCC interpretations have 

long used the terms ‘‘portfolio-hedged’’ 

and ‘‘perfectly-matched’’ in analyzing 

the permissibility of national bank 

derivatives activities, and the 

distinction between these two activities 

is well-established and useful to the 

OCC’s supervisory activities. The 

commenter describes certain types of 

transactions that they believe may not 

fall into the definition of either 

perfectly-matched or portfolio-hedged, 

such as using two or more derivatives to 

hedge a single customer transaction.87

The OCC agrees these transactions 

generally would not fall into the 

definition of perfectly-matched, as OCC 

interpretive letters have used this 

definition consistently to describe 

mirror transactions with matching 

economic terms. Customer-driven 

intermediation transactions that are not 

perfectly-matched are still permissible if 

they are conducted as part of a portfoliohedged derivatives program. As 

described further below, national banks 

may permissibly conduct such 

transactions as part of a portfoliohedged derivatives program if the 

portfolio of transactions is hedged based 

on net unmatched positions or 

exposures in the portfolio. In response 

to the commenter’s example of hedging 

a single derivative with multiple 

offsetting derivatives, the OCC confirms 

that a national bank would not be 

precluded from managing derivatives 

within a portfolio-hedged program on 

such a basis. The transactions may be 

permissible as portfolio-hedged 

derivatives transactions as long as the 

bank appropriately hedges net residual 

risks resulting from the offsetting 

derivatives transactions. 

The commenter also proposed that the 

OCC adopt a unified term such as 

‘‘appropriately hedged’’ in lieu of 

‘‘perfectly-matched’’ and ‘‘portfoliohedged.’’ The commenter suggested that 

such a definition should permit 

‘‘appropriate and effective’’ hedging but 

does not specifically propose how this 

term should be defined. The definitions 

‘‘perfectly-matched’’ and ‘‘portfoliohedged’’ encompass the methods of 

hedging a national bank’s market risk 

arising from permissible derivatives 

financial intermediation activities— 

whether at the individual transaction 

level through back-to-back transactions 

or at the level of net risks within a 

derivatives portfolio. The OCC believes 

that incorporating and defining these 

longstanding hedging approaches 

reflecting the OCC’s interpretive letters 

will not cast doubt on the permissibility 

of currently-recognized national bank 

derivatives activities; furthermore, it 

reflects the OCC’s established 

expectation that, for derivatives 

activities relying on portfolio hedging 

for their permissibility, the national 

bank should have the appropriate 

hedging skills and sophistication to 

manage the net risks of its derivatives 

portfolio. Accordingly, the final rule 

retains the definitions for ‘‘perfectlymatched’’ and ‘‘portfolio-hedged’’ as 

proposed. 

The commenter further said that, if 

the distinction between perfectlymatched and portfolio hedged is 

retained, the definition of ‘‘perfectlymatched’’ should be revised to treat 

corresponding transactions as perfectlymatched hedges so long as they 

substantially offset risk with respect to 

all material terms, so as to make clear 

that differences between the transaction 

with little or no effect on market risk 

(e.g., different maturity dates between 

the customer derivative and the 

offsetting future, or different margin 

arrangements) do not bar the 

transactions from being treated as 

perfectly-matched.88 The OCC disagrees 

with this proposed interpretation. OCC 

precedents have long defined perfectlymatched transactions as transactions 

that offset risk with respect to all 

economic terms (e.g., amount, maturity, 

duration, and underlying). The OCC has 

described a perfectly-matched 


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89See, e.g., OCC Interpretive Letter No. 1060 

(Apr. 26, 2006). 

90See e.g., OCC Interpretive Letter No. 1073 (Oct. 

19, 2006); OCC Interpretive Letter No. 1060. 

91 Id. 

92See, e.g., OCC Interpretive Letter No. 962 (Apr. 

21, 2003). 

93See, e.g., OCC Interpretive Letter No. 1073; 

OCC Interpretive Letter No. 1060; OCC Interpretive 

Letter No. 1025 (Apr. 25, 2005); OCC Interpretive 

Letter No. 962; OCC Interpretive Letter No. 684. See 

also 81 FR 96353, at 96355 (Dec. 30, 2016) 

(explaining ‘‘transitory title transfer typically does 

not entail physical possession of a commodity; the 

ownership occurs solely to facilitate the underlying 

transaction and lasts only for a moment in time.’’). 

transaction as one that does not expose 

the national bank to price risk 

associated with the underlying so that 

the main risk to the bank is credit risk.89

Two transactions with different 

economic terms could expose the 

national bank to other risks. For 

example, two transactions with different 

maturity dates could expose the 

national bank to price risk in the time 

period between the two maturity dates. 

Accordingly, the OCC is not expanding 

the definition of ‘‘perfectly-matched’’ to 

incorporate such transactions. However, 

as described above, such transactions 

may be permissible as part of a 

portfolio-hedged derivatives program if 

the national bank appropriately 

manages net unmatched exposures in 

the derivatives portfolio. 

• Portfolio-hedged. The proposal 

included a definition of portfoliohedged that was substantially similar to 

prior OCC interpretive letters. 

Specifically, the OCC proposes to define 

‘‘portfolio-hedged’’ to mean that a 

portfolio of derivatives transactions is 

hedged based on net unmatched 

positions or exposures in the portfolio. 

The proposed definition refers to 

unmatched ‘‘positions or exposures’’ to 

clarify that hedging on a portfolio basis 

may involve hedging based on various 

risk exposures with different 

instruments in accordance with 

applicable policies and procedures and 

risk limits of the national bank. This 

definition is consistent with OCC 

interpretations that have typically used 

‘‘portfolio-hedged’’ to describe the 

practice of hedging based on net 

residual risk position in a portfolio of 

positions.90 The OCC has explained that 

this method of hedging can reduce 

transactional costs and operational risks 

because fewer transactions need to be 

executed relative to the number of 

transactions executed under perfectlymatched hedging (in which the national 

bank must offset each transaction on an 

individual basis).91 As described above, 

a national bank would not be precluded 

from managing derivatives within a 

portfolio-hedged program on a more 

specific basis (for example, by managing 

the risk of a particular derivative 

transaction by entering into two or more 

offsetting transactions). The OCC did 

not receive any additional comments on 

the definition of portfolio-hedged and is 

adopting the definition as proposed. 

• Physical hedging or physicallyhedged. The proposal defined ‘‘physical 

hedging’’ and ‘‘physically-hedged’’ to 

mean holding title to or acquiring 

ownership of an asset (for example, by 

warehouse receipt or book entry) to 

solely manage the risks arising out of 

permissible customer-driven derivatives 

transactions. The OCC intended this 

definition to be consistent with the 

description of commodities physical 

hedging activities that the OCC has 

identified as permissible in prior 

interpretive letters and in OCC Bulletin 

2015–35 (Aug. 4, 2015). Under the 

proposal, this definition also applies to 

physical hedging of customer-driven 

derivatives referencing securities. The 

OCC did not receive any comments on 

the definition of ‘‘physically-hedged’’ 

and is adopting the definition as 

proposed. 

• Physical settlement or physicallysettled. The proposal defined ‘‘physical 

settlement’’ or ‘‘physically settled’’ to 

mean accepting title to or acquiring 

ownership of an asset. The preamble to 

the proposal explained that physical 

settlement stands in contrast to cashsettled transactions, in which 

counterparties do not exchange the 

underlying assets. The preamble to the 

proposal also explained that physical 

settlement includes transitory title 

transfer, which is discussed below. The 

OCC did not receive any comments on 

the definition of ‘‘physical settlement’’ 

or ‘‘physically-settled’’ and is adopting 

the definition as proposed. 

• Transitory title transfer. The 

proposal defined ‘‘transitory title 

transfer’’ to mean a transaction that is 

settled by accepting and immediately 

relinquishing title to an asset. The 

proposal explained that this definition 

is intended to be consistent with prior 

OCC interpretive letters, which explain 

that transitory title transfer is a means 

of physical settlement in which a 

counterparty only briefly holds title to 

the underlying asset.92 The preamble 

explained that, consistent with prior 

OCC interpretations, transitory title 

transfer does not entail a national bank 

taking physical possession of a 

commodity.93 The OCC did not receive 

any comments on the definition of 

transitory title transfer and is adopting 

the definition as proposed. 

• Underlying. The proposal defined 

the term ‘‘underlying’’ to mean the 

reference asset, rate, obligation, or index 

on which the payment obligation(s) 

between counterparties to a derivatives 

transaction is based. The OCC included 

‘‘underlying’’ as a defined term because 

the notice requirement in paragraph 

7.1030(d) is triggered when a national 

bank expands its derivatives activities to 

include additional types of underlyings. 

The OCC received one comment on this 

definition. The commenter said the OCC 

should clarify that the definition of 

‘‘underlying’’ should be construed 

broadly and flexibly over time, so as not 

to inadvertently introduce ambiguity 

with respect to whether a particular 

asset or quantitative measure may 

constitute an underlying of a 

permissible derivative transaction. 

However, the commenter did not 

provide examples of any particular asset 

or quantitative measure that would not 

be encompassed within the proposed 

definition. The OCC does not believe 

any changes to the definition of 

underlying are necessary to provide 

appropriate flexibility over time. The 

proposed definition encompasses any 

‘‘asset, rate, obligation, or index,’’ which 

the OCC believes sufficiently 

encompasses the underlyings used by 

national banks as part of their 

permissible derivatives financial 

intermediation activities, and that these 

categories are in and of themselves 

sufficiently flexible. Accordingly, the 

final rule adopts the definition of 

underlying as proposed. 

The OCC requested comment on 

whether the final rule should include a 

definition of the term ‘‘derivative’’ and 

whether a definition of this term would 

be necessary to appropriately scope the 

proposed provision and whether any 

definition would be workable in 

practice. The OCC received one 

comment that did not support defining 

‘‘derivative’’ in the final rule. This 

commenter said that there is no need for 

the rule to define ‘‘derivative,’’ as there 

is generally a common understanding of 

the term, as reflected in existing 

precedent. The OCC agrees that there is 

a common understanding of the term 

‘‘derivative’’ and notes that prior OCC 

interpretations generally have not 

defined the term. Accordingly, the final 

rule does not include a specific 

definition of the term ‘‘derivative.’’ The 

OCC intends to implement the rule 

based on the common industry and 

supervisory understanding regarding the 

type of transactions that constitute 

derivatives. 

Permissible Derivatives Activities 

Generally. The proposal addressed five 

categories of permissible derivatives 

activities. For the reasons described 

below the final rule retains these five 


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94See, e.g., OCC Interpretive Letter No. 494 (Dec. 

20, 1989); OCC Interpretive Letter No. 422 (Apr. 11, 

1988); OCC No Objection Letter No. 86–13 (Aug. 8, 

1986). See also, ‘‘Report to Congress and the 

Financial Stability Oversight Council Pursuant to 

Section 620 of the Dodd-Frank Act’’ at 86–90 

(September 2016), available at https://

www.occ.treas.gov/publications-and-resources/ 

publications/banker-education/files/pub-report-tocongress-sec-620-dodd-frank.pdf (Section 620 

Report). 

95 In contrast, if a national bank engaged in 

hedging using derivatives on underlyings in which 

a national bank could invest directly, the bank 

would not need to provide notice because this 

activity could be conducted under § 7.1030(c)(1) of 

the rule. 

96The OCC has also long recognized that a 

national bank may hedge its risk using derivatives 

on underlyings that a national bank would be 

permitted to invest in directly. For example, a 

national bank may use futures contracts on 

exchange, coin, or bullion to hedge activities 

conducted pursuant to a national bank’s statutory 

authority to buy and sell exchange, coin, or bullion. 

Similarly, a national bank may use futures to hedge 

against the risk of loss due to the interest rate 

fluctuations inherent in bank loan operations, U.S. 

Treasury Bills, and certificates of deposit. These 

activities may be conducted under § 7.1030(c)(1) of 

the final rule. 

97A ‘‘customer-driven’’ transaction is one entered 

into for a customer’s valid and independent 

business purposes. See, e.g., OCC Interpretive Letter 

No. 1160; OCC Interpretive Letter No. 892. This 

definition is addressed in § 7.1030(b) of the rule. 

98See, e.g., OCC Interpretive Letter No. 937 (Jun. 

27, 2002); OCC Interpretive Letter No. 892; NoObjection Letter 87–5 (Jul. 20, 1987). 

99See, e.g., OCC Interpretive Letter No. 1110 

(longevity indexes); OCC Interpretive Letter No. 

1101 (Jul. 7, 2008) (certain risk indexes); OCC 

Interpretive Letter No. 1089 (Oct. 15, 2007); 

(specific property indexes); OCC Interpretive Letter 

No. 1081 (May 15, 2007) (specific property 

indexes); OCC Interpretive Letter No. 1079 (Apr. 19, 

2007) (inflation indexes); OCC Interpretive Letter 

No. 1065 (Jul. 24, 2006) (petroleum products, 

agricultural oils, grains and grain derivatives, seeds, 

fibers, foodstuffs, livestock/meat products, metals, 

wood products, plastics and fertilizer); OCC 

Interpretive Letter No. 1063 (Jun. 1, 2006) (hogs, 

lean hogs, pork bellies, lumber, corrugated 

cardboard, and polystyrene); OCC Interpretive 

Letter No. 1059 (Apr. 13, 2006) (old corrugated 

cardboard #11, polypropylene: injection molding 

(copoly), polypropylene: All grades, Dow Jones AIG 

Commodity Index); OCC Interpretive Letter No. 

1056 (Mar. 29, 2006) (frozen concentrate orange 

juice, polypropylene); OCC Interpretive Letter No. 

1039 (Sept. 13, 2005) (crude oil, natural gas, heating 

oil, natural gasoline, gasoline, unleaded gas, gasoil, 

diesel, jet fuel, jet-kerosene, residual fuel oil, 

naphtha, ethane, propane, butane, isobutane, crack 

spreads, lightends, liquefied petroleum gases, 

natural gas liquids, distillates, oil products, coal, 

emissions allowances, benzene, dairy, cattle, wheat, 

corn, soybeans, soybean meal, soybean oil, cocoa, 

coffee, cotton, orange juice, sugar, paper, rubber, 

steel, aluminum, zinc, lead, nickel, tin, cobalt, 

iridium, rhodium, freight, high density 

polyethylene (plastic), ethanol, methanol, 

newsprint, paper (linerboard), pulp (kraft), and 

recovered paper (newsprint)). 

100See, e.g., OCC Interpretive Letter No. 1073 

(aluminum, nickel, lead, zinc, and tin); OCC 

Interpretive Letter No. 1060 (coal); OCC Interpretive 

Letter No. 1040 (emissions allowances); OCC 

Interpretive Letter No. 937 (electricity). 

101See OCC Interpretive Letter No. 1073 

(aluminum, nickel, lead, zinc, and tin); OCC 

Interpretive Letter No. 1060 (coal); OCC Interpretive 

Letter No. 1025 (electricity); Interpretive Letter No. 

962 (electricity). The term ‘‘transitory title transfer’’ 

means accepting and instantaneously relinquishing 

title to the commodity, as a party in a ‘‘chain of 

title’’ transfer. OCC Interpretive Letter No. 1025. 

102See, e.g., OCC Interpretive Letter No. 1040; 

OCC Interpretive Letter No. 892; OCC Interpretive 

Letter No. 684. OCC interpretive letters have 

explained that physical delivery can help to reduce 

the risk in customer-driven commodity derivatives 

transactions if the activity is conducted in 

accordance with safe and sound banking practices 

and would achieve a more accurate and precise 

hedge than a cash-settled transaction. 

103See OCC Interpretive Letter No. 1040 (‘‘The 

Bank may conduct the proposed customer-driven, 

physically settled emissions derivative business 

and hedge risks arising from these permissible 

banking activities as an extension of its existing 

energy-related commodities derivatives business 

. . . .’’); OCC Interpretive Letter No. 684 (‘‘the OCC 

concludes that it is legally permissible for a 

national bank to hedge the financial exposure 

arising from otherwise permissible banking 

activities in markets that involve physical delivery 

of commodities and, in connection with such 

hedging activities, to make or take physical delivery 

of commodities . . . .); OCC Bulletin 2015–35, 

Quantitative Limits on Physical Commodity 

Transactions (Aug. 4, 2015). 

categories as proposed. These categories 

are discussed below. 

• Derivatives Referencing 

Underlyings in which a National Bank 

May Invest Directly. Section 7.1030(c)(1) 

of the proposed rule specified that a 

national bank may engage in derivatives 

transactions with payments based on 

underlyings that a national bank is 

permitted to purchase directly as an 

investment. The OCC intended this 

provision to reflect OCC interpretive 

letters that have recognized that 

national banks may engage in 

derivatives activities where the 

derivative references assets that a 

national bank could purchase directly as 

an investment.94 The OCC did not 

receive any comments on paragraph 

(c)(1) and is adopting this paragraph as 

proposed. As specified in the preamble 

to the proposal, paragraph (c)(1) 

addresses only derivatives on 

underlyings that a national bank would 

be permitted to purchase directly as 

principal. For example, an underlying 

that a national bank could hold only as 

a nonconforming investment under 12 

CFR part 1 or only in satisfaction of 

debts previously contracted would not 

be a permissible underlying under this 

paragraph. 

• Hedging Bank-Permissible 

Activities with Derivatives. Section 

7.1030(c)(2) of the proposed rule 

provided that a national bank may 

engage in derivatives transactions with 

any underlying to hedge the risks 

arising from bank-permissible activities 

after providing notice to its EIC.95 The 

preamble to the proposal explained that 

the OCC has recognized that a national 

bank may hedge the risks of bankpermissible activities using derivatives 

on underlyings in which a national bank 

may not invest directly.96 The OCC did 

not receive any comments on this 

section and is adopting it as proposed. 

• Derivatives Financial 

Intermediation for Customers. Sections 

7.1030(c)(3) through (5) of the proposal 

addressed derivatives financial 

intermediation activities. These sections 

of the proposal were intended to reflect 

the conclusions of OCC interpretive 

letters that have recognized that a 

national bank may act as a financial 

intermediary in customer-driven 97

derivatives transactions on a variety of 

reference assets as part of the business 

of banking.98 These letters have 

recognized national banks’ authority to 

enter into cash-settled, customer-driven 

derivatives transactions both on a 

perfectly-matched 99 and portfoliohedged basis.100 These letters have also 

recognized in this context the 

permissibility of physical settlement by 

transitory title transfer.101 Additionally, 

these letters have recognized that a 

national bank may engage in customerdriven financial intermediation 

derivatives activities that are physicallysettled (other than by transitory title 

transfer) and to physically hedge those 

derivatives in certain circumstances.102

The OCC proposed to incorporate and 

streamline the framework contained in 

its interpretive letters addressing 

derivatives financial intermediation 

activities in paragraphs 7.1030(c)(3) 

through (5). These paragraphs are 

adopted largely as proposed but with 

the targeted changes discussed below. 

The OCC received one comment 

addressing these sections. This 

commenter recommended revising 

§ 7.1030(c) to allow national banks to 

physically hedge cash-settled 

derivatives, in addition to physicallysettled derivatives. This commenter also 

said, to the extent the final rule 

continues to differentiate between cashand physically-settled trades, the final 

rule should also confirm that, where a 

national bank has a physically-settled 

trade, the settlement of which it directs 

to an affiliate, the trade would be 

deemed to be cash-settled. The final rule 

incorporates one change in response to 

this comment to clarify the rule’s 

application to physical hedging 

involving transactions other than 

commodity derivatives. OCC 

interpretive letters and guidance 

addressing physical hedges of 

commodity derivatives are typically 

limited to hedges of physically-settled 

transactions.103 The OCC therefore 

disagrees with the commenter’s 

suggestion that OCC interpretations 

generally permit physical hedging for 


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104See OCC Interpretive Letter No. 892; OCC 

Interpretive Letter No. 1090. 

105OCC Interpretive Letter No. 949 provides that 

the equity derivatives transactions under 

consideration in that letter would be cash settled 

with respect to the national bank and ‘‘[i]f under the 

terms of certain contracts the customer is permitted 

to elect physical settlement, an affiliate of the bank 

will make or receive physical delivery.’’ OCC 

Interpretive Letter No. 949 (Sept. 19, 2002). 

106OCC Interpretive Letter No. 1040 (‘‘The Bank 

also proposes to hedge the market risk associated 

with the proposed emissions derivatives 

transactions on a transaction-by-transaction or 

portfolio basis, primarily with physical emissions 

allowances.’’). 

107As discussed below, the final rule includes 

new paragraph (f), which explicitly provides that a 

national bank must adhere to safe and sound 

banking practices in conducting the activities 

described in § 7.1030. 

108For example, OCC Interpretive Letter No. 1160 

contemplates that a bank would provide written 

notification to its EIC prior to commencing a 

derivatives financial intermediation business for a 

reference asset addressed in prior OCC interpretive 

letters. This process replaced the no-objection 

process that was typically included in prior OCC 

interpretive letters. See, e.g., OCC Interpretive 

Letter No. 1065. The notice provision of the final 

rule also replaces the no-objection process 

contemplated in OCC interpretive letters addressing 

hedging activities using derivatives on underlyings 

in which a national bank could not invest directly. 

See OCC Interpretive Letter No. 896 (Aug. 21, 2000). 

cash-settled derivatives. However, the 

OCC recognizes that interpretive letters 

addressing physical hedges of equity 

derivatives do not always include the 

same condition.104 In light of prior 

interpretations’ treatment of equity 

derivatives transactions, the final rule 

removes the condition that a physical 

hedge of a derivative other than a 

commodity derivative must hedge a 

physically-settled transaction. The final 

rule effects this change by removing 

‘‘physically-settled (other than by 

transitory title transfer)’’ from 

§ 7.1030(c)(5) and including physical 

settlement as a requirement for physical 

hedging involving commodities in new 

§ 7.1030(e)(5)(iii). These changes clarify 

that physical hedging involving 

securities is permissible for cash-settled 

transactions, but physical hedging 

involving commodities is permissible 

only to hedge physically-settled 

transactions. In response to the 

comment regarding physically-settled 

transactions where physical settlement 

is directed to an affiliate, the OCC 

confirms that the type of transactions 

described in Interpretive Letter 949 are 

permissible under the final rule as long 

as the transactions are cash-settled with 

respect to the national bank.105

Additionally, this commenter 

recommended that the OCC clarify the 

application of the definitions ‘‘perfectlymatched’’ and ‘‘portfolio-hedged’’ to 

physically-hedged derivatives 

transactions. The commenter described 

that a derivative transaction that is 

physically hedged on an individual 

basis, such as a total return swap that is 

hedged via holding the underlying 

equity position would not necessarily be 

covered by the definition of ‘‘perfectlymatched’’ which is limited to two backto-back derivatives transactions. As 

discussed above, the OCC believes it is 

preferable to retain the definition of 

‘‘perfectly-matched’’ as used in prior 

OCC interpretations. However, to 

address the commenter’s concern that 

the activities described in § 7.1030(c)(5) 

will not be perfectly matched under this 

definition, the final rule replaces the 

term ‘‘perfectly-matched’’ with ‘‘hedged 

on a transaction-by-transaction basis.’’ 

This change is consistent with prior 

interpretations that describe physical 

hedging on a transaction-by-transaction 

basis rather than on a ‘‘perfectlymatched’’ basis.106

Relative to prior OCC interpretations, 

the final rule makes fewer distinctions 

based on the particular underlying or 

how the national bank hedges its 

derivatives financial intermediation 

activity. While prior interpretations 

typically analyzed both the underlying 

and the bank’s method for hedging the 

customer-driven derivative (i.e., 

perfectly-matched versus portfoliohedged), the final rule permits 

customer-driven, cash-settled 

derivatives transactions on any 

underlying, whether perfectly-matched 

or portfolio-hedged. The OCC 

recognizes that financial intermediation 

in derivatives continues to evolve and 

that the markets for derivatives on 

underlyings that the OCC has not 

previously addressed through 

interpretations may have sufficient 

liquidity and depth to allow a bank to 

conduct the activity as a financial 

intermediary. Similarly, the OCC 

recognizes that these same factors may 

allow a national bank to hedge its 

customer-driven derivatives activities in 

evolving ways—whether by portfolio 

hedging or physical hedging—consistent 

with conducting the activity as a 

financial intermediary. Accordingly, the 

OCC is adopting these provisions with 

the targeted changes described above. 

The proposal requested comment on 

whether the rule should reflect any 

additional safety and soundness 

standards regarding the underlyings that 

are permissible for financial 

intermediation in derivatives and how 

national banks may hedge these 

activities. The proposal specifically 

requested comment on whether the 

regulation should include additional 

language relating to the liquidity of the 

market for permissible customer-driven 

derivatives activities. The OCC did not 

receive any comments on this request 

and is not adopting any additional 

safety and soundness standards or 

language related to the underlyings that 

are permissible for derivatives financial 

intermediation activities. As with any 

national bank permissible activity, 

general safety and soundness standards 

apply to these activities.107 In addition, 

the final rule adopts specific 

requirements for physical hedging 

activities in § 7.1030(e) and (c)(5) 

(prohibiting a national bank from taking 

physical delivery of any commodity by 

receipt of physical quantities of the 

commodity on bank premises). 

Notice requirement. Section 7.1030(d) 

of the proposal required a national bank 

to provide written notice to its EIC prior 

to engaging in activity using derivatives 

referencing assets that a national bank 

could not invest in directly. The OCC 

intended this provision to be consistent 

with OCC interpretations that included 

a process in which the national bank 

provides notice to its EIC about the 

business and management practices the 

bank will employ in performing the 

derivatives activity as financial 

intermediation.108 The OCC received 

one comment addressing the notice 

process. This commenter said that the 

notice requirements should be revised 

to ensure consistency in supervisory 

standards and to clarify that the proper 

role of supervisors in evaluating 

derivatives activities relates to 

consistently applying safety and 

soundness standards, not evaluating 

legal permissibility. Specifically, this 

commenter said the final rule should 

clearly distinguish between the legal 

permissibility of derivatives 

transactions (to be governed by § 7.1030 

and the OCC’s legal interpretations 

thereof) from firm-specific prudential 

concerns, to be reviewed by the EIC and 

supervisory team; require an EIC to 

consult with OCC leadership before 

raising any categorical safety and 

soundness concerns about an activity; 

and provide for consistent and uniform 

standards with respect to evaluating the 

safety and soundness of certain types of 

derivatives activities as a categorical 

matter, with the EIC and supervisory 

team focusing only on idiosyncratic, 

bank-specific aspects of the relevant 

activity. 

First, the OCC believes the rule 

appropriately identifies safety and 

soundness and legal permissibility 

considerations. For example, paragraph 

(c) identifies the legally permissible 

categories of derivatives activities, while 

paragraphs (d) and (e) establish the 

supervisory notice requirement and 


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109 12 CFR part 30. 

110See, e.g., the Examination Process Series of the 

Comptroller’s Handbook (June 2018). 

111The notice requirement is expected to enhance 

supervision by providing OCC supervisors with 

comprehensive, up-to-date information on the 

activities in which the national bank is engaged. 

This information will assist OCC supervisors by 

ensuring they have an opportunity to assess a 

bank’s ability to engage in derivatives activities in 

a safe and sound manner prior to the bank 

commencing the activity and provide them ongoing 

information as those activities expand to new 

categories. 

additional safety and soundness 

requirements, respectively. For further 

clarity, however, the final rule adds a 

new paragraph (f) confirming that a 

national bank must adhere to safe and 

sound banking practices in conducting 

the activities described in § 7.1030. The 

provision specifically requires a bank to 

have a risk management system 

(policies, processes, personnel, and 

control system) that effectively manages 

(i.e., identifies, measures, monitors, and 

controls) these activities’ interest rate, 

credit, liquidity, price, operational, 

compliance, and strategic risks. This 

provision clarifies that, in addition to 

being within a national bank’s legal 

authority, derivatives activities must 

also be conducted in a safe and sound 

manner. As part of their regular 

supervisory activities, OCC supervisors 

consider both whether activities are safe 

and sound, as well as if they are 

conducted in compliance with 

applicable law. 

The final rule does not require 

supervisory staff to consult with OCC 

leadership before raising ‘‘categorical 

safety and soundness concerns’’ about a 

derivatives activity as the commenter 

suggested. Nor does the final rule 

prescribe uniform regulatory standards 

specific to evaluating the safety and 

soundness of certain types of derivatives 

activities. Making assessments with 

respect to the safety and soundness of 

an activity is the key function of OCC 

supervisors. The OCC has established 

generally applicable safety and 

soundness standards by regulation 109

and has issued extensive guidance on 

the examination process.110 Requiring 

additional internal processes before an 

examiner may raise concerns regarding 

an activity could interfere with this 

important function. Accordingly, OCC 

supervisors will examine national bank 

derivatives activities as part of their 

regular and ongoing examination and 

supervision activities. 

The OCC expects the notice 

requirement in the final rule to enhance 

prudential supervision of national bank 

derivatives activities by ensuring that 

banks evaluate the risks of the activities 

both at inception and on an ongoing 

basis. In addition, the OCC expects that 

incorporating notice as a regulatory 

requirement will ensure consistency in 

notice practices across OCC-supervised 

institutions. Like the proposal, the final 

rule requires the written notice to 

include information that is substantially 

similar to the information that is 

discussed in Interpretive Letter 1160. 

Specifically, the written notice must 

include a detailed description of the 

proposed activity, including the 

relevant underlying(s); the anticipated 

start date of activity; and a detailed 

description of the national bank’s risk 

management system (policies, 

processes, personnel, and control 

systems) for identifying, measuring, 

monitoring, and controlling the risks of 

the activity. 

The notice requirement does not 

impose a prior approval requirement. 

Rather, the notice is designed to make 

OCC supervisors aware of a national 

bank’s derivatives activities so that such 

activities can be appropriately scoped 

into OCC’s ongoing supervision and 

oversight of the bank’s safety and 

soundness. In addition, having 

awareness of a bank’s derivatives 

activities will enable the OCC to raise 

questions as to whether the derivatives 

activity can be conducted in a safe and 

sound manner, or whether the 

derivatives activity is within the scope 

of those legally authorized for a national 

bank, before the bank activities 

commence or at any time, as is the case 

with any other permissible bank 

activities. 

Like the proposal, § 7.1030(d)(1) of 

the final rule requires a national bank to 

provide its EIC notice prior to engaging 

in any of the derivatives hedging or 

financial intermediation activities 

described in § 7.1030(c)(2) through (5) 

for the first time. This notice 

requirement applies, for example, if a 

bank has previously engaged in cashsettled derivatives with respect to a 

particular underlying as described in 

§ 7.1030(c)(3) but seeks to begin 

physically settling transactions as 

described in § 7.1030(c)(4) or (5). 

Likewise, a national bank must provide 

notice prior to first engaging in 

derivatives hedging activities pursuant 

to § 7.1030(c)(2) or expanding the bank’s 

derivatives hedging activities to include 

a new category of underlying. Also like 

the proposal, under § 7.1030(d)(2) of the 

final rule, the bank must submit written 

notice at least 30 days before the 

national bank commences the 

derivatives activity. 

The OCC requested comment on 

whether it was sufficiently clear when 

a notice would be required and what 

would constitute a ‘‘new category of 

underlying.’’ The OCC specifically 

requested comments on whether the 

regulation text should list these 

categories and, if so, whether the 

regulation should specify that any new 

derivatives activities not falling within 

one of the specified categories also 

requires notice. The OCC received one 

comment in response to this request. 

This commenter said that the final rule 

should not define categories of 

‘‘underlying’’ by regulation, but rather 

should take a substantially more 

principles-based approach to 

determining when prior notice is 

required that looks primarily to the risk 

management implications and 

challenges of any potential new 

derivatives activity. Specifically, this 

commenter said the final rule should 

make clear that prior notice is required 

only when a national bank commences 

a new activity or modifies an existing 

activity that would expose the bank to, 

and require the bank to manage and 

control, a material and substantially 

new type of market risk. The commenter 

also said that no notice should be 

required under the final rule where a 

national bank engages in permissible 

derivatives activity that is hedged either 

(1) using mirrored transactions that 

involve no market risk or (2) on a nearly 

perfectly-matched basis that involve 

only de minimis residual market risk. In 

contrast, this commenter argued, where 

a national bank is engaged in derivatives 

activities that are hedged on a portfolio 

basis pursuant to which the bank is 

actively managing an inventory of 

market risks, imposing a notice 

requirement is appropriate as it would 

facilitate supervisory review of a bank’s 

risk management and internal controls 

in implementing that hedging strategy. 

The OCC disagrees and finds that, 

even when a national bank believes it is 

not exposed to a materially new type of 

market risk, there is supervisory value 

in receiving notice of the new activities. 

The considerations identified by the 

commenter—facilitating supervisory 

review of a bank’s risk management and 

internal controls in implementing its 

hedging strategy—are relevant whether 

the activity is hedged on a perfectlymatched or portfolio-hedged basis.111

Receiving a notice will allow 

supervisors to incorporate the activities 

into their overall supervisory strategy. 

The OCC disagrees that notice should 

not be required for derivatives 

transactions that the national bank 

determines involve de minimis market 

risk. Receiving notices in such 

circumstances is particularly important 

for banks that are engaging in 

derivatives activities for the first time or 


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112See OCC Bulletin 2015–35; OCC Interpretive 

Letter No. 935 (May 14, 2002); OCC Interpretive 

Letter No. 892; OCC Interpretive Letter No. 684. 

113Certain of the practices described in prior OCC 

interpretive letters were not included in the 

proposed rule text because they are generally 

applicable safety and soundness standards that can 

be evaluated and addressed under other existing 

sources of law, including, as applicable, 12 U.S.C. 

1818. For example, several interpretive letters 

discuss that a national bank should have 

appropriate risk management policies and 

procedures for its physical hedging activities. In 

addition, several interpretive letters have also 

specified that a bank may not engage in physical 

hedging activities for the purpose of speculating in 

security or commodity prices. As described above, 

customer-driven financial intermediation as defined 

in the proposal (and adopted in the final rule) 

would not include activities entered into for the 

purpose of speculation. 

114See OCC Bulletin 2015–35; OCC Interpretive 

Letter No. 684. 

115Consistent with OCC Interpretive Letter No. 

1040, this five percent limit would not apply to 

physical hedging using emissions allowances. 

116See OCC Interpretive Letter No. 684; OCC 

Interpretive Letter No. 632 (Jun. 30, 1993). 

117See 85 at 40809. See also Section 620 Report 

(describing the price risks and operational risks 

specific to physical commodities activities). 

118See OCC Interpretive Letter No. 684; OCC 

Interpretive Letter No. 632. 

119See generally OCC Interpretive Letter No. 

1039; OCC Interpretive Letter No. 632; No-Objection 

Letter 87–5. 

expanding a limited derivatives 

business to incorporate additional 

derivatives products. The OCC believes 

that the notice process is a reasonable 

requirement in light of its value to 

supervisors. The notice process requires 

a limited amount of information that 

should be readily available to the bank 

and does not require that the bank 

receive approval prior to conducting the 

activity. Accordingly, the OCC 

continues to believe the notice process 

will provide an efficient notice standard 

for national banks engaging in 

derivatives activities. For the foregoing 

reasons, the OCC is adopting the notice 

requirement as proposed. 

One commenter said that the final 

rule should make clear that national 

banks may continue to rely on guidance 

that they have previously received 

regarding the permissibility of 

derivatives activities and need not 

provide notice under proposed new 

§ 7.1030 to continue to engage in 

activities that were commenced under 

the prior interpretive and supervisory 

framework before the final rule became 

effective. As described in the proposal, 

national banks that have provided 

notice to or received statements of noobjection from their EICs for particular 

derivatives activities consistent with the 

process in prior OCC interpretive letters 

would not be required to submit new 

notices for those activities. 

Additional requirements for physical 

hedging activities. Section 7.1030(e) of 

the proposal incorporated the practices 

from prior interpretive letters and 

guidance related to physical hedging 

with securities and commodities.112 The 

proposal included certain modifications 

to these practices to promote 

consistency in the practices national 

banks employ with respect to physical 

hedging activities. Specifically, the 

proposal applied the framework in 

interpretive letters addressing physical 

hedging using securities to all physical 

hedging activities involving underlyings 

in which a national bank could not 

invest directly. Under the proposed 

rule, a national bank could engage in 

physical hedging only if: (1) The 

national bank holds the underlying 

solely to hedge risks arising from 

derivatives transactions originated by 

customers for the customers’ valid and 

independent business purposes; (2) the 

physical hedging activities offer a costeffective means to hedge risks arising 

from permissible banking activities; (3) 

the national bank does not take 

anticipatory or maintain residual 

positions in the underlying except as 

necessary for the orderly establishment 

or unwinding of a hedging position; and 

(4) the national bank does not acquire 

equity securities for hedging purposes 

that constitute more than five percent of 

a class of voting securities of any 

issuer.113 The OCC did not receive any 

comments on these proposed 

requirements for physical hedging 

activities. Because these requirements 

continue to accurately reflect OCC 

supervisory expectations for physical 

hedging activities, the OCC is adopting 

the requirements as proposed. 

Consistent with OCC interpretive 

letters and guidance concerning 

physical hedging with commodities in 

which a national bank could not invest 

directly,114 the proposed rule imposed 

additional requirements on physical 

hedging with commodities. Under the 

proposed rule, a national bank would be 

permitted to engage in physical hedging 

with commodities only if the national 

bank’s physical position in a particular 

physical commodity (including, as 

applicable, delivery point, purity, grade, 

chemical composition, weight, and size) 

is no more than five percent of the gross 

notional value of the national bank’s 

derivatives that (1) are in that same 

particular commodity and (2) allow for 

physical settlement within 30 days. 

Title to commodities acquired and 

immediately sold in a transitory title 

transaction would not count against this 

five percent limit.115 Consistent with 

OCC interpretive letters,116 the 

proposed rule permitted physical 

hedging involving commodities only if 

the physical position more effectively 

reduces risk than a cash-settled hedge 

involving the same commodity. The 

proposal also specified that a national 

bank may not take physical delivery of 

any commodity by receipt of physical 

quantities of the commodity on bank 

premises. The OCC explained in the 

preamble to the proposal that these 

requirements apply to physical hedging 

activities involving commodities due to 

the unique risks of physical commodity 

activities.117

The OCC received one comment 

addressing these requirements. First, 

this commenter said the final rule 

should require that any physical hedge 

be ‘‘at least as effective as,’’ not more 

effective than, a cash-settled hedge. 

Second, this commenter said, to better 

align the five percent limit with 

financial risk management practices, 

this limit should be calculated based on 

the type of market risk (i.e., the 

denominator with respect to a given 

transaction should include all 

transactions that implicate substantially 

equivalent market risk). Third, the 

commenter said the OCC should 

expressly confirm that the five percent 

limit is intended to be calculated in the 

same manner described in OCC Bulletin 

2015–35 and that the OCC should 

provide greater clarity and specificity 

regarding the derivatives that are 

included in the five percent test’s 

denominator because they ‘‘allow for 

physical settlement within 30 days.’’ 

The OCC disagrees with the first two 

comments. The purpose of § 7.1030(e) of 

the proposal was to incorporate the 

OCC’s existing interpretations and 

supervisory guidance into regulation. 

Under existing interpretations, a 

physical hedge should be more effective 

than a cash-settled hedge involving the 

same commodity in light of the 

additional risks associated with 

physical hedging.118 In other words, if 

a national bank has a choice between 

hedging with a cash-settled derivative or 

a physical commodity, all else being 

equal, the bank should choose the cashsettled derivative that involves less risk 

to the bank. This general principle is 

consistent with OCC interpretations that 

have found cash-settled transactions 

raise fewer supervisory concerns 

compared to physically-settled 

transactions.119 Accordingly, the final 

rule continues to require a national bank 

to utilize cash-settled transactions when 

such transactions are equally effective 

as physical hedges. 

Under existing OCC guidance, the five 

percent limit on physical hedging 

activities applies to a particular 


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120OCC Bulletin 2015–35. 

121 Id. 

122 Id. 

123See e.g., OCC Conditional Approval No. 859 

(June 13, 2008); OCC Conditional Approval No. 696 

(June 9, 2005). 

124 61 FR 4849, at 4854 (Feb. 9, 1996). 

125Non-substantive amendments to § 7.2000 

changed the address and telephone number of the 

OCC Communications Office. See 79 FR 15641 

(March 21, 2014); 80 FR 28345 (May 18, 2015). 

commodity, as defined by the 

commodity’s delivery point, purity, 

grade, chemical composition, weight, 

and size (as applicable).120 This 

condition is intended to ensure a bank’s 

physical hedging activities remain a 

nominal portion of the national bank’s 

risk management activities.121 Further, 

applying the limit based on a particular 

commodity ensures that the national 

bank keeps physical inventory of a 

particular commodity to levels 

commensurate with its need to make or 

take physical delivery of that 

commodity.122 It remains important that 

a national bank’s physical hedging 

activities amount to no more than a 

nominal portion of a bank’s risk 

management activities and that the 

inventory of a particular commodity is 

limited to levels commensurate with the 

bank’s need to make or take physical 

delivery of that commodity. 

Accordingly, the final rule continues to 

apply the limit to each particular 

physical commodity (including, as 

applicable, delivery point, purity, grade, 

chemical composition, weight, and 

size). The OCC believes that applying 

the limit based on a broader category, 

such as all transactions that implicate 

substantially equivalent market risk, 

would not be administrable and could 

lead to inconsistent calculation of the 

limit. 

In response to the commenter’s third 

comment on the five percent limit, the 

OCC confirms that the limit is meant to 

align with OCC Bulletin 2015–35. In 

particular, a national bank’s physical 

position in a particular physical 

commodity (including, as applicable, 

delivery point, purity, grade, chemical 

composition, weight, and size) must not 

be more than five percent of the gross 

notional value of the bank’s derivatives 

that are in that particular physical 

commodity and allow for physical 

settlement within 30 days. Like OCC 

Bulletin 2015–35, this limit applies to 

transactions that contemplate physical 

delivery within 30 days, i.e., the 

denominator includes derivatives that 

can or will physically settle within 30 

days. 

Subpart B—National Bank Corporate 

Practices 

National Bank Corporate Governance 

(§ 7.2000) 

As noted, the OCC continually seeks 

to update its regulations to stay current 

with industry changes and technological 

advances, subject to Federal law and 

consistent with the safe and sound 

operation of the banking system. As part 

of this process, the OCC proposed 

updating and modernizing § 7.2000, 

which provides a regulatory framework 

for national bank corporate governance. 

As described by the OCC in various 

conditional approvals,123 ‘‘corporate 

governance procedures’’ generally refer 

to requirements involving the operation 

and mechanics of the internal 

organization of a national bank, 

including relations among ownersinvestors, directors, and officers, and do 

not include requirements that relate to 

the banking powers or activities of a 

national bank or relationships between 

a national bank and customers or third 

parties. Examples of corporate 

governance procedures include, but are 

not limited to, share exchanges, antitakeover provisions, and the use of 

blank check procedures in issuing 

preferred stock. The OCC issued 

§ 7.2000 in 1996 to provide national 

banks with increased flexibility to 

structure their corporate governance 

procedures consistent with the 

particular needs of the bank while 

providing shareholders and others with 

adequate notice of the corporate 

standards on which a bank will rely.124

The OCC has not substantively changed 

§ 7.2000 since its adoption.125

Section 7.2000 currently provides that 

a national bank proposing to engage in 

a corporate governance procedure must 

comply with applicable Federal banking 

statutes and regulations and safe and 

sound banking practices. In addition, 

§ 7.2000 provides that 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, Delaware General 

Corporation Law, or the Model Business 

Corporation Act. Further, § 7.2000 

requires that a national bank designate 

in its bylaws the body of law selected 

for its corporate governance procedures. 

Finally, § 7.2000 describes the process 

for obtaining OCC staff positions on the 

ability of a national bank to engage in 

a particular corporate governance 

procedure. 

The OCC proposed to amend § 7.2000 

to reduce burden, provide greater 

clarity, and modernize the national bank 

charter with respect to corporate 

governance provisions. The proposed 

amendments also would address 

anomalous results that may arise when 

a national bank eliminates its holding 

company. As a general matter, the OCC 

proposed changing the term ‘‘corporate 

governance procedure’’ used in § 7.2000 

to ‘‘corporate governance provisions’’ 

and to revise paragraph (a) of § 7.2000 

accordingly. As discussed in the 

proposal, the OCC believes that 

‘‘corporate governance procedure’’ may 

be construed more narrowly than 

intended and omit corporate governance 

practices that are not procedural in 

nature. The OCC proposed revising 

paragraph (a) to provide the corporate 

governance provisions in a national 

bank’s articles of association and bylaws 

and the bank’s conduct of its corporate 

governance affairs must comply with 

applicable Federal banking statutes and 

regulations and safe and sound banking 

practices. The OCC received no 

comments on proposed paragraph (a) 

and adopts it as proposed. As discussed 

in the proposal, the OCC does not 

intend this change to affect the 

application of prior OCC interpretations 

of corporate governance procedures to 

§ 7.2000. 

The OCC also proposed increasing a 

national bank’s flexibility in choice of 

corporate governance provisions in 

three ways. First, the OCC proposed 

revising paragraph (b) of § 7.2000 to 

authorize a national bank to elect the 

corporate governance provisions of the 

law of any State in which any branch of 

the bank is located in addition to the 

law of the State in which the bank’s 

main office is located, to the extent not 

inconsistent with applicable Federal 

banking statutes or regulations or safety 

and soundness. The OCC received no 

comments on this change and adopts it 

as proposed. Accordingly, a national 

bank is no longer limited to using the 

corporate governance provisions of the 

State where its main office is located. 

For example, a national bank with its 

main office in State A and branches in 

State B and State C may elect to use the 

corporate governance provisions of the 

law of one of State A, State B, or State 

C. 

Second, the OCC proposed revising 

paragraph (b) to authorize the national 

bank to use the law of the State where 

one holding company of the bank is 

incorporated. The current rule indicates 

that a national bank may use the law of 

the State where the holding company of 

the bank is incorporated. This 

amendment expressly recognizes the 


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possibility that a national bank may be 

controlled by more than one holding 

company and that those holding 

companies may be incorporated by 

different States. Under this amendment, 

the bank is able to pick the law of the 

State of any one of its holding 

companies. The OCC received no 

comments on this change and adopts it 

as proposed, with a technical change for 

consistency within paragraph (b). 

Third, the OCC proposed adding a 

new paragraph (c) that would allow a 

national bank to continue to use the 

corporate governance provisions of the 

law of the State where its holding 

company is incorporated even if the 

holding company is later eliminated or 

no longer controls the bank, and the 

national bank is not located in that 

State. This amendment removes an 

impediment to a national bank that may 

choose to eliminate its holding company 

or is no longer controlled by that 

holding company but wishes to retain 

longstanding and familiar corporate 

governance provisions. The OCC 

received one comment supporting 

proposed paragraph (c) and adopts it as 

proposed. 

The OCC also proposed revising 

current paragraph (c) of § 7.2000 

(proposed to be redesignated as 

§ 7.2000(d)). Current paragraph (c) 

provides that the OCC considers 

requests for the OCC staff’s position on 

the ability of a national bank to engage 

in a particular State corporate 

governance procedure in accordance 

with the no-objection procedures set 

forth in OCC Banking Circular 205 or 

any subsequently published agency 

procedures, and that requests should 

demonstrate how the proposed practice 

is not inconsistent with applicable 

Federal statutes or regulations and is 

consistent with bank safety and 

soundness. The OCC issued Banking 

Circular 205 on July 26, 1985 and has 

not modified it since. However, a 

national bank also may request the 

views of the OCC on an interpretation 

of national banking statutes and 

regulations independent of the process 

in Banking Circular 205, which has been 

the more common approach since 1985. 

In order to update paragraph (c), the 

OCC proposed removing the 

requirement that banks requesting the 

OCC’s views on State corporate 

governance law use the no-objection 

procedure. The proposal also listed the 

information that a request must contain. 

Similar to what is set forth in OCC 

Banking Circular 205, this information, 

includes: (1) The name of the bank; (2) 

citations to the State statutes or 

regulations involved; (3) a discussion as 

to whether a similarly situated State 

bank is subject to or may adopt the 

corporate governance provision; (4) 

identification of all Federal banking 

statutes or regulations that are on the 

same subject as, or otherwise have a 

bearing on, the subject of the proposed 

State corporate governance provision; 

and (5) an analysis of how the proposed 

corporate governance provision is not 

inconsistent with applicable Federal 

statutes or regulations nor with bank 

safety and soundness. The OCC received 

no comments on proposed paragraph (d) 

and adopts it as proposed. The OCC 

notes that this provision does not 

preclude a national bank from seeking 

informal consultation with OCC staff. 

However, if the bank wants to receive a 

written response from OCC staff, it must 

follow the procedure in this proposed 

paragraph (d). 

The final rule revises the heading of 

§ 7.2000 to reflect the change in 

terminology from corporate governance 

procedures to corporate governance 

provisions. The final rule also makes a 

technical change to the heading not 

previously proposed to clarify that this 

provision applies to national banks. As 

a result, the heading now reads 

‘‘National bank corporate governance.’’ 

The OCC requested comment on 

whether a national bank also should be 

able to adopt a combination of corporate 

governance provisions from the laws of 

several different States where the 

national bank and any holding 

companies are located, thus potentially 

resulting in a national bank following 

corporate governance provisions that 

derive from a combination of States’ 

laws, or whether a national bank should 

be limited to electing and using the 

corporate governance provisions of a 

single State. The OCC received one 

comment on this request. The 

commenter raised potential litigation 

issues with adopting a combination of 

corporate governance provisions, 

questioning whether courts will respect 

combined elections of law where there 

are minimal contacts with a State whose 

law has been elected, and citing a trend 

in court decisions on the validity of 

choice of law as part of contractual 

agreements. Given this concern and the 

lack of positive comments regarding this 

change, as well as the possible 

confusion for the bank, shareholders, 

the OCC, and others that may arise with 

the use of multiple States’ corporate 

governance laws, the OCC is not 

amending the final rule at this time to 

permit the adoption of corporate 

governance provisions from the laws of 

several different States. 

Further, the OCC requested comment 

on whether it should make, to the extent 

appropriate, similar revisions to the 

regulations pertaining to corporate 

governance provisions for Federal 

savings associations in 12 CFR 5.21 and 

5.22. Under current law, all Federal 

savings associations may elect to use the 

corporate governance provisions of the 

laws of the State where the home office 

of the association is located. Federal 

stock savings associations also may elect 

the laws of the State where any holding 

company of the association is 

incorporated or chartered; Delaware 

General Corporation law; or the Model 

Business Corporation Act, provided that 

such procedures may be elected to the 

extent not inconsistent with applicable 

Federal statutes and regulations and 

safety and soundness, and such 

procedures are not prohibited by part 5. 

One commenter stated that Federal 

mutual savings associations should have 

the same leeway in making a choice of 

law as national banks. Accordingly, the 

OCC is revising §§ 5.21 and 5.22 to 

permit additional flexibility for Federal 

savings associations to allow parity with 

national banks, as applicable and 

pursuant to permissible law. As a result 

of this final rule, Federal savings 

associations also may elect to use the 

corporate governance provisions of any 

State in which a branch of the 

association is located and, in the case of 

Federal stock savings associations, the 

law of any State in which any current 

or former holding company of the 

association is incorporated or chartered. 

The final rule also changes ‘‘institution’’ 

to ‘‘association’’ in § 5.21 for 

consistency. 

In addition, the OCC requested 

comment on whether the final rule 

should change the term ‘‘corporate 

governance procedures’’ to ‘‘corporate 

governance provisions’’ in §§ 5.21 and 

5.22 to be consistent with the change in 

terminology proposed for § 7.2000. The 

OCC did not receive any comments on 

this request. For clarity and conformity, 

the OCC is making this technical change 

to §§ 5.21 and 5.22. 

The OCC received two additional 

comments regarding § 7.2000. One 

commenter requested that the OCC 

review the form articles of association 

and bylaws to confirm that they are 

consistent with applicable Federal 

banking statutes and regulations. The 

commenter asserted that these forms 

contain requirements that are not 

mandated by Federal banking statutes 

and regulations. As the commenter’s 

request does not specifically request any 

specific revisions to § 7.2000, the OCC 

is adopting the amendments as 

proposed. However, the OCC notes that 

it periodically reviews its model articles 

of association and bylaws in the 

ordinary course of business. 


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126OCC regulations currently include provisions 

addressing adoption of anti-takeover provisions by 

stock Federal savings associations. See 12 CFR 

5.22(g)(7), (h) and (j)(2)(i)(A). The OCC did not 

propose to amend those provisions. 

127The final rule changes this terminology in 

§ 7.2000 to ‘‘corporate governance provisions.’’ 

128See 85 FR 40794, at 40810, note 108. 

129Permitting the use of staggered boards is 

another anti-takeover provision. New § 7.2001 does 

not include staggered boards because they are now 

expressly permitted under the National Bank Act. 

12 U.S.C. 71; 12 CFR 7.2024. 

130See 12 U.S.C 215, 215a, 215a–1, 215a–3, and 

215c. 

131However, shareholders, including the hostile 

acquiror, should consider the implications under 

the Change in Bank Control Act or Bank Holding 

Company Act if a shareholder, or shareholders 

acting in concert, acquire sufficient shares to 

constitute ‘‘control.’’ 

132See 12 U.S.C. 71, 214a, 215, 215a, and 215a– 

2. 

133See 12 U.S.C. 30, 51a, 57, and 59. However, 

12 U.S.C. 21a provides that any action requiring 

approval of the stockholders be obtained by 

approval by a majority vote of the voting shares at 

a meeting, unless the statutory provision addressing 

the action requires greater level of approval. 

Another commenter recommended 

that the OCC add a provision to part 7 

recognizing the authority of a national 

bank to adopt exculpatory clauses in 

their articles and/or bylaws under 

applicable State law or the Model Code. 

The commenter’s request for a provision 

on national bank authority to adopt 

exculpatory clauses raises an issue that 

the OCC did not specifically address in 

the proposal. The proposed revisions 

were not intended to address or 

sanction specific substantive provisions 

of State corporate law. As the OCC did 

not contemplate the commenter’s 

requested provision in the proposed 

rule, the OCC declines to further revise 

§ 7.200 at this time. However, the 

agency may consider this and similar 

issues in future rulemakings. 

National Bank Adoption of AntiTakeover Provisions (§ 7.2001) 

The OCC proposed to add a new 

§ 7.2001 to address the extent to which 

a national bank may include antitakeover provisions in its articles of 

association or bylaws.126 Anti-takeover 

provisions are examples of corporate 

governance provisions 127 covered by 12 

CFR 7.2000. As discussed above, under 

§ 7.2000(b) a national bank may elect to 

follow the corporate governance 

provisions of specified State law to the 

extent it is (1) not inconsistent with 

applicable Federal banking statutes or 

regulations and (2) not inconsistent with 

bank safety and soundness. 

The OCC received one comment 

related to proposed § 7.2001. The 

commenter raised several concerns 

about how the provision would apply to 

mutual institutions. The OCC notes that 

proposed § 7.2001 applies only to 

national banks, not Federal mutual 

savings associations. Further, national 

banks may only be organized as 

corporations and not as banks in the 

mutual form of organization. The 

proposal noted it did not apply to 

Federal savings associations and that 

existing provisions on this subject 

applicable to stock Federal savings 

associations were not affected by the 

proposal.128 Therefore, the OCC adopts 

§ 7.2001 as proposed, with one 

clarifying change to paragraph (d). 

As noted in the proposed rule, the 

purpose of § 7.2001 is to provide the 

OCC’s views about the permissibility of 

several types of anti-takeover 

provisions. Specifically, paragraph (a) of 

§ 7.2001 provides that a national bank 

may, pursuant to 12 CFR 7.2000(b), 

adopt anti-takeover provisions included 

in State corporate governance law if the 

provisions are not inconsistent with 

Federal banking statutes or regulations 

and not inconsistent with bank safety 

and soundness. 

Paragraph (b) of § 7.2001 sets forth the 

type of anti-takeover provisions in State 

corporate governance provisions that 

the OCC specifically has determined are 

not inconsistent with Federal banking 

statutes or regulations.129 This list is not 

exclusive and the OCC may find that 

other State anti-takeover laws are not 

inconsistent with Federal banking 

statutes or regulations. A national bank 

may elect to follow these provisions, 

subject to the bank safety and soundness 

limitation discussed below. 

Restrictions on business combinations 

with interested shareholders. These 

State provisions prohibit, or permit the 

corporation to prohibit in its certificate 

of incorporation or other governing 

document, the corporation from 

engaging in a business combination 

with an interested shareholder or any 

related entity for a specified period of 

time (e.g., three years) from the date on 

which the shareholder first becomes an 

interested shareholder (subject to 

certain exceptions, such as board 

approval). An interested shareholder is 

one that owns an amount of stock 

specified in the State statute, e.g., at 

least fifteen percent. Federal banking 

statutes and regulations do not address, 

directly or indirectly, this type of 

restriction for national banks. Although 

Federal banking statutes authorize 

national banks to engage in specified 

consolidations and mergers,130 this 

authorization does not preclude a bank’s 

shareholders from adopting a provision 

that limits the consolidations and 

mergers into which the bank would 

enter. Therefore, State restrictions on 

business combinations with interested 

shareholders are not inconsistent with 

Federal law. 

Poison pill. A ‘‘poison pill’’ is a State 

statutory provision that provides, or that 

permits the corporation to provide in its 

certificate of incorporation or other 

governing document, that all 

shareholders, other than the hostile 

acquiror, have the right to purchase 

additional stock at a substantial 

discount upon the occurrence of a 

triggering event. Because no Federal 

banking statutes or regulations directly 

or indirectly address these shareholder 

purchase rights, State poison pill laws 

are not inconsistent with Federal law.131

Requiring all shareholder actions to 

be taken at a meeting. These State 

provisions provide, or permit the 

corporation to provide in its certificate 

of incorporation or other governing 

document, that all actions to be taken by 

shareholders must occur at a meeting 

and prohibit shareholders from taking 

action by written consent. Certain 

Federal banking statutes require 

shareholder approval to be taken at a 

meeting 132 while other sections require 

shareholder approval but do not specify 

a meeting.133 There is no provision in 

Federal law authorizing national bank 

shareholders to take action by written 

consent in lieu of a meeting. 

Furthermore, nothing in Federal law 

precludes a national bank’s articles of 

association from requiring a meeting for 

any action. Therefore, this type of State 

provision is not inconsistent with 

Federal law. 

Limits on shareholders’ authority to 

call special meetings. These State 

provisions provide, or permit the 

corporation to provide in its certificate 

of incorporation or other governing 

document, that only the board of 

directors, and not shareholders, have 

the right to call special meetings of the 

shareholders or, if shareholders have the 

right, require a high percentage of 

shareholders to call the meeting. 

Because Federal banking statutes or 

regulations do not address, directly or 

indirectly, the right of shareholders of a 

national bank to call special meetings, 

these type of State laws are not 

inconsistent with Federal law. 

Shareholder removal of a director 

only for cause. These State provisions 

provide, or permit the corporation to 

provide in its certificate of 

incorporation or other governing 

document, that shareholders may 

remove a director only for cause, rather 

than both for cause and without cause. 

The National Bank Act and OCC 

regulations do not have a specific 

provision addressing director removal 


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83714 Federal Register / Vol. 85, No. 246 / Tuesday, December 22, 2020 / Rules and Regulations 

134See Articles of Association, Charters, and 

Bylaw Amendments (Forms), Comptroller’s 

Licensing Manual (June 19, 2017) (Model Articles 

of Association, Article Fourth, last paragraph). 

135See 12 U.S.C. 30, 57, 59, 181, 214a, 215, 215a, 

and 215a–2. 

136See 12 U.S.C. 21a and 51a. 137 12 U.S.C. 61. 

by shareholders. Removal only for cause 

is consistent with the OCC’s model 

national bank Articles of Association, 

which provide for removal for cause and 

for failure to meet statutory director 

qualifications.134 Therefore, State 

provisions requiring shareholder 

removal of a director only for cause are 

not inconsistent with Federal law. 

Paragraph (c) of § 7.2001 sets forth the 

type of anti-takeover provisions in State 

corporate governance provisions that 

the OCC has determined are 

inconsistent with Federal banking 

statutes or regulations. A national bank 

may not elect to follow these provisions. 

These provisions are set forth below. 

Supermajority voting requirements. 

These State statutory provisions require, 

or permit the corporation to require in 

its certificate of incorporation or other 

governing document, that a 

supermajority of the shareholders 

approve specified matters. A 

requirement that a supermajority vote of 

shareholders must approve some 

transactions is inconsistent with Federal 

law when applied to transactions for 

which a Federal statute or regulation 

includes an express specific shareholder 

approval level. Certain provisions of the 

National Bank Act specify shareholder 

approval by a two-thirds vote 135 and 

other provisions require majority 

shareholder approval.136 When a 

provision in the National Bank Act 

specifies the level of shareholder vote 

required for approval, it is inconsistent 

with Federal law to follow a State 

corporate governance provision that 

permits or requires a different level or 

an additional shareholder approval 

requirement for a subset of 

shareholders. 

Restrictions on a shareholder’s right 

to vote all the shares it owns. These 

State statutory provisions prohibit, or 

permit the corporation in its certificate 

of incorporation or other governing 

document to prohibit, a person from 

voting shares acquired that increase 

their percentage of ownership of the 

company’s stock above a certain level. 

This type of provision is inconsistent 

with the National Bank Act, which 

expressly provides that each 

shareholder is entitled to one vote on 

each share of stock held by the 

shareholder on all matters other than 

elections for directors, where 

cumulative voting may be allowed if so 

provided in the articles of 

association.137 A State corporate 

governance provision that interferes 

with this express right to vote is 

inconsistent with Federal law. 

As indicated above, § 7.2000(b) 

permits a national bank to elect to 

follow a State corporate governance 

provision only if it is not inconsistent 

with Federal law and bank safety and 

soundness. Paragraph (d) of § 7.2001 

addresses the impact of bank safety and 

soundness on adoption of anti-takeover 

provisions. 

Anti-takeover provisions may make it 

harder for a bank to be acquired by 

another bank or by investors or to raise 

capital by discouraging share purchases 

by a potential acquiror. Thus, when a 

bank is in a weak condition, antitakeover provisions the OCC has 

determined are not inconsistent with 

Federal law nevertheless would be 

inconsistent with bank safety and 

soundness if they would impair the 

possibility of restoring the bank to 

sound condition. These provisions 

would then be impermissible. 

Accordingly, paragraph (d) provides 

that any State corporate governance 

provision, including anti-takeover 

provisions, that would render more 

difficult or discourage an injection of 

capital by purchase of bank stock, a 

merger, the acquisition of the bank, a 

tender offer, a proxy contest, the 

assumption of control by a holder of a 

large block of the bank’s stock, or the 

removal of the incumbent board of 

directors or management is inconsistent 

with bank safety and soundness if: (1) 

The bank is less than adequately 

capitalized (as defined in 12 CFR part 

6); (2) the bank is in troubled condition 

(as defined in 12 CFR 5.51(c)(7)); (3) 

grounds for the appointment of a 

receiver under 12 U.S.C. 191 are 

present, as determined by the OCC; or 

(4) the bank is otherwise in less than 

satisfactory condition, as determined by 

the OCC. The OCC notes that the final 

rule adds ‘‘as determined by the OCC’’ 

to paragraph (d)(3) to clarify for a bank 

when this condition would be present. 

However, paragraph (d) also provides 

that an anti-takeover provision is not 

inconsistent with bank safety and 

soundness if, at the time it adopts the 

provision, the national bank: (1) Is not 

subject to any of the foregoing 

conditions and (2) includes along with 

the provision a limitation that the 

provision is not effective if one or more 

of the foregoing conditions occur or if 

the OCC otherwise directs the bank not 

to follow the provision for supervisory 

reasons. 

Paragraph (e) provides for OCC caseby-case review of anti-takeover 

provisions. The OCC reviewed each 

type of State anti-takeover provision 

described in paragraph (b) for 

consistency with Federal banking 

statutes and regulations only at a 

general level, without reviewing the 

specific terms of a proposed provision 

to be adopted by a particular bank. 

While the OCC has concluded that the 

types of provisions set out in paragraph 

(b) are not inconsistent with Federal 

banking statutes and regulations in 

general, the specific provision a 

particular bank adopts may contain 

features that could change the result of 

the OCC’s review. Similarly, some antitakeover provisions may be inconsistent 

with bank safety and soundness for a 

particular national bank because of its 

individual circumstances, even if it is 

not subject to the conditions listed in 

paragraph (d). 

In order to address the need for 

individual determinations when 

appropriate, paragraph (e) provides that 

the OCC may determine that a State 

anti-takeover provision, as proposed or 

adopted by an individual national bank, 

is (1) inconsistent with Federal banking 

statutes or regulations, even if it is of a 

type included in paragraph (b) or (2) 

inconsistent with bank safety and 

soundness other than as provided in 

paragraph (d). The OCC may begin a 

case-by-case review on its own 

initiative. In addition, a bank that 

wishes the OCC to review the 

permissibility of the specific State antitakeover provisions it has adopted or 

proposes to adopt may request the 

OCC’s review, under the procedures set 

forth at 12 CFR 7.2000(d). 

Finally, paragraph (f) addresses the 

method a national bank, its 

shareholders, and its directors must use 

to adopt each anti-takeover provision. In 

general, the bank must follow the 

requirements for board of director and 

shareholder approval set out in the State 

corporate governance statute it is 

electing to follow. However, if the 

provision is included in the bank’s 

articles of association, the bank’s 

shareholders must approve the 

amendment of the articles pursuant to 

12 U.S.C. 21a, even if the State law does 

not require approval by the 

shareholders. Further, if the State 

corporate governance law requires the 

provision to be in the company’s articles 

of incorporation, certificate of 

incorporation, or similar document, the 

national bank must include the 

provision in its articles of association. If 

the State corporate governance law does 

not require the provision to be in the 

company’s articles of incorporation, 


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Federal Register / Vol. 85, No. 246 / Tuesday, December 22, 2020 / Rules and Regulations 83715 

138 85 FR 31943 (May 28, 2020). This rule was 

effective May 28, 2020. 

139The OCC finalized amendments made by this 

interim final rule to part 5 in its recent Licensing 

Amendments final rule. See 85 FR 80404 (Dec. 11, 

2020). 140OCC Interpretive Letter No. 860 (Apr. 5, 1999). 

141See ‘‘General Instructions—Oath of Bank 

Directors’’ at www.occ.gov/static/licensing/ 

Instructions-Oaths-NB.pdf. 

certificate of incorporation, or similar 

document but allows it to be in the 

bylaws, then the national bank must 

include the provision in either its 

articles of association or in its bylaws. 

However, if the State corporate 

governance law requires shareholder 

approval for changes to the 

corporation’s bylaws, then the national 

bank must include the provision in its 

articles of association. 

National Bank Director or Attorney as 

Proxy (§ 7.2002) 

Twelve U.S.C. 61 prohibits an officer, 

clerk, teller, or bookkeeper of the 

national bank from acting as proxy for 

shareholder voting. Section 7.2002 

codifies this prohibition in OCC 

regulations and provides that any 

person or group of persons, except the 

bank’s officers, clerks, tellers, or 

bookkeepers, may be designated to act 

as proxy. The OCC proposed to amend 

this section to clarify that the proxy 

referenced in the section is for 

shareholder voting, as provided in the 

statute. The OCC received no comments 

on this clarification and adopts it as 

proposed with technical changes. The 

final rule revises the section heading 

and rule text to clarify that this 

provision applies to national banks. The 

OCC intends no substantive changes to 

§ 7.2002. 

National Bank Shareholder Meetings; 

Board of Directors Meetings (§ 7.2003) 

The OCC is finalizing changes it made 

to part 7 in an interim final rule entitled 

Director, Shareholder, and Member 

Meetings, published in the Federal 

Register on May 28, 2020.138 Among 

other things, this interim final rule 

amended § 7.2003 to permit national 

banks to provide for telephonic or 

electronic participation at shareholder 

and board of directors meetings.139 To 

accomplish this, the OCC combined 

former 12 CFR 7.2001, which provided 

for procedures for notifying 

shareholders of shareholder meetings, 

into former § 7.2003, which provided 

the rule for annual shareholder meetings 

that fall on a holiday; added new 

telephonic and electronic participation 

language to 12 CFR 7.2003 as new 

paragraphs (c) and (d); and retitled 

§ 7.2003 as ‘‘Shareholder meetings; 

Board of directors meetings.’’ Former 

§ 7.2001 became § 7.2003(a). Former 

§ 7.2003 become § 7.2003(b). Combining 

§§ 7.2001 and 7.2003 put all 

amendments related to shareholder 

meetings in one section. 

The OCC received one substantive 

comment letter that supported these 

amendments. In response to a request 

for comment included in the preamble 

to this interim final rule, this 

commenter opposed any new risk 

management standards to mitigate any 

security risks arising from telephonic or 

electronic meetings, noting that new 

standards would be unnecessary given 

current safeguards and regulatory 

requirements. The OCC is finalizing the 

amendments made by the interim final 

rule to §§ 7.2001 and 7.2003 with 

conforming and technical changes. The 

final rule replaces references in § 7.2003 

to ‘‘corporate governance procedures’’ to 

‘‘corporate governance provisions,’’ to 

conform to the change in this 

terminology made by § 7.2000 of this 

final rule. The final rule also makes a 

technical change to the heading to add 

national banks. The OCC notes that it is 

not imposing any new risk management 

standards for telephonic or electronic 

meetings though this final rule. 

Specifically, § 7.2003(c) permits a 

national bank to provide for telephonic 

or electronic participation at 

shareholder meetings. Further, 

paragraph (c) requires a national bank to 

have procedures for telephonic or 

electronic participation in shareholder 

meetings. A national bank may choose 

these procedures from several sources: 

(1) The corporate governance provisions 

it has elected to follow pursuant to 

§ 7.2000(b), if those elected procedures 

include telephonic or electronic 

participation procedures; (2) the 

Delaware General Corporation Law; or 

(3) the Model Business Corporation Act. 

However, these procedures must not be 

inconsistent with applicable Federal 

statutes and regulations and safety and 

soundness. This provision ensures that 

a national bank has procedures in place 

for remote participation at shareholder 

meetings even if the corporate 

governance law it has elected to follow 

does not contain procedures for remote 

participation at shareholder meetings or 

if it has not elected to follow any 

particular corporate governance law 

pursuant to § 7.2000(b). To inform 

shareholders of its choice of procedures, 

this paragraph requires the national 

bank to indicate the use of these 

procedures in its bylaws. 

Paragraph (d) of § 7.2003 provides 

that a national bank may provide for 

telephonic or electronic participation at 

a meeting of its board of directors. This 

provision codifies OCC Interpretive 

Letter No. 860 140 and makes the 

national bank rule consistent with rules 

for Federal savings associations. 

Oath of National Bank Directors 

(§ 7.2008) 

The OCC is making technical changes 

to § 7.2008 in this final rule not 

included in the proposed rule. 

Currently, § 7.2008 provides that a 

notary public, including one who is a 

director but not an officer of the 

national bank, may administer the oath 

of directors, and that any person, other 

than an officer of the bank, having an 

official seal and authorized by the State 

to administer oaths, also may administer 

the oath. However, the statute governing 

the oath of bank directors, 12 U.S.C. 73, 

requires that the oath be taken before a 

notary public or any other State 

authorized officer other than an officer 

of the director’s bank. Further, OCC 

instructions conform to the statute by 

requiring the director to take the oath 

before a notary public or other 

authorized State official.141 The final 

rule corrects the regulation to require 

that this oath be administered by a 

notary public or any person having an 

official seal and authorized by the State 

to administer oaths, other than an 

officer of the national bank, thereby 

conforming this rule to the statute. 

Further, the final rule clarifies that the 

State-authorized officer not a notary 

may be a director of the bank, as may 

the notary public under the current rule, 

as long as that person is not also an 

officer of the bank. 

Quorum of a National Bank Board of 

Directors; Proxies Not Permissible 

(§ 7.2009) 

Section 7.2009 requires a national 

bank to provide in its articles of 

association or bylaws that a quorum of 

the board of directors is at least a 

majority of the entire board then in 

office. Section 7.2009 also prohibits 

bank officers from voting by proxy. The 

OCC did not propose any substantive 

changes to this section. However, the 

OCC received one comment on § 7.2009 

requesting that the OCC revise it to 

allow national banks to adopt the 

quorum requirements of the law of the 

relevant State, the Delaware General 

Corporate Law, or the Model Business 

Corporation Act. Both the Model 

Business Corporation Act and Delaware 

General Corporate Law permit corporate 

boards to deem one third of all members 

sufficient to establish a quorum. 

The OCC disagrees with this 

comment. The current requirement in 


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83716 Federal Register / Vol. 85, No. 246 / Tuesday, December 22, 2020 / Rules and Regulations 

142 Interagency Statement Clarifying the Role of 

Supervisory Guidance, https://www.occ.gov/newsissuances/news-releases/2018/nr-ia-2018-97a.pdf 

(Sept. 11, 2018). The OCC, Federal Deposit 

Corporation (FDIC), and Federal Reserve Board 

issued a proposed rule codifying this statement on 

November 5, 2020. 85 FR 70512. 

143 60 FR 11924 (March 3, 1995). This rule was 

finalized in 1996. 61 FR 4849 (Feb. 9, 1996). 

144See OCC, ‘‘The Director’s Book: Role of 

Directors for National Banks and Federal Savings 

Associations’’ (November 2020) available at 

www.OCC.gov. 

§ 7.2009 that at least a majority of the 

Board meet to constitute a quorum is 

designed to ensure the safety and 

soundness of bank operations. Any 

lesser quorum requirement could result 

in greater absenteeism in managing the 

affairs of the bank and enable a smaller 

minority of directors to dictate the 

direction of corporate affairs, which 

would heighten risks to safety and 

soundness. The OCC did not propose an 

amendment to the quorum requirements 

of § 7.2009 and declines to do so in this 

final rule. 

National Bank Directors’ 

Responsibilities (§ 7.2010) 

Twelve CFR 7.2010 provides that the 

business and affairs of a bank shall be 

managed by or under the direction of 

the board of directors and that boards of 

directors should refer to published OCC 

guidance for additional information 

regarding responsibilities of directors. 

The OCC did not propose substantive 

changes to § 7.2010. 

Two commenters discussed the 

second sentence of § 7.2010, which 

states that the board of directors should 

refer to OCC published guidance for 

additional information regarding 

responsibilities of directors. One 

commenter stated that the sentence 

might be read as codifying guidance and 

suggested that the referenced guidance 

may be incorrect, inconsistent, or omit 

information that is germane to the 

duties and responsibilities of bank 

directors. Another commenter stated 

that the reference to guidance in 

§ 7.2010 should be revised to avoid 

suggesting that guidance has the force of 

law. This commenter recommended that 

the OCC revise § 7.2010 to delete the 

second sentence and establish any 

specific legal standards regarding 

director responsibilities through the 

rulemaking process. The OCC notes that 

§ 7.2010 only refers boards of directors 

to OCC guidance for additional 

information and does not suggest that 

guidance has the force of law nor that 

the guidance contains all pertinent 

information. This guidance may be 

helpful to boards of directors by 

discussing existing legal requirements 

applicable to directors and, consistent 

with the Interagency Statement 

Clarifying the Role of Supervisory 

Guidance,142 outlining the OCC’s 

supervisory expectations. 

One commenter also suggested that 

the OCC repeal § 7.2010 in its entirety 

or revise it to replace the current text 

with a statement that the standards of 

conduct applicable to directors are 

governed by the law of the State elected 

by the bank or the Model Business 

Corporation Act. The OCC is not 

including this suggested revision in the 

final rule. The OCC has not previously 

interpreted directors to be subject only 

to the standards of conduct established 

by the law of the State elected by the 

bank or the Model Business Corporation 

Act and doing so may conflict with 

other statutory or regulatory standards 

applicable to bank directors. 

President as Director of a National Bank 

(§ 7.2012) 

Twelve U.S.C. 76 provides that the 

president of the bank must be a member 

of the board and be chairman thereof, 

but that the board may designate a 

director in lieu of the president to be 

chairman, who must perform duties as 

assigned by the board. Section 7.2012 

codifies this statutory requirement in 

the OCC’s rules by providing that 

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. This section 

further provides that a person other than 

the president may serve as the chief 

executive officer, and that this person is 

not required to be a director of the bank. 

When first proposing this rule, the OCC 

acknowledged that it was adding this 

second sentence to provide that a 

person other than the president or a 

director may serve as chief executive 

officer of a bank.143

The OCC proposed two changes to 

this section and did not receive any 

comments. As a result, the OCC is 

adopting these changes to § 7.2012 as 

proposed. First, the final rule provides 

that the person serving as, or in the 

function of, president of a national 

bank, regardless of title, must be a 

member of the board of directors. This 

change aligns the regulation with the 

OCC’s view that the bank officer 

positions in 12 U.S.C. 76 and other 

provisions of the National Bank Act 

refer to functions rather than required 

titles. If a national bank does not have 

an individual serving in the position of 

president but does have another officer 

serving the function of president, the 

individual serving in the function of 

president must be a member of the 

board of directors. The person serving 

the function of president is generally the 

individual appointed to oversee the 

national bank’s day-to-day activities.144

This change provides national banks 

with flexibility in employee titles and 

management organization. The OCC 

notes that 12 U.S.C. 24(Fifth) provides 

national banks with the authority to set 

the duties of their officers. National 

banks should ensure that their employee 

titles do not create unnecessary 

confusion. 

Second, the final rule removes the 

provision in § 7.2012 that states that 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. This provision is 

unnecessary. The position of chief 

executive officer is not referenced in 

statute and, as indicated above, national 

banks have discretion to set the duties 

of their officers. Further, this provision 

would conflict with the first revision to 

this section. Because function rather 

than title govern under this amendment, 

the final rule requires a chief executive 

officer that serves the function of 

president to be a member of the board. 

The OCC also is making a technical 

change to the section heading not 

included in the proposed rule to reflect 

that fact that § 7.2012 applies only to 

national banks. 

Indemnification of National Bank and 

Federal Savings Association-Affiliated 

Parties (§§ 7.2014, 145.121) 

The OCC proposed amending and 

reorganizing § 7.2014, Indemnification 

of institution-affiliate parties (by 

national banks), applying revised 

§ 7.2014 to Federal savings associations, 

and removing § 145.121, 

Indemnification of directors, officers 

and employees (by Federal savings 

associations). As discussed below, the 

OCC is adopting § 7.2014 as proposed, 

with a technical change to the section 

heading. 

Section 7.2014 addresses 

indemnification of institution-affiliated 

parties (IAPs) by national banks in cases 

involving an administrative proceeding 

or civil action initiated by a Federal 

banking agency, as well as cases that do 

not involve a Federal banking agency. 

Under § 7.2014(a), a national bank only 

may make or agree to make 

indemnification payments to an IAP 

with respect to an administrative 

proceeding or civil action initiated by a 

Federal banking agency if those 

payments are reasonable and consistent 

with the requirements of 12 U.S.C. 


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Federal Register / Vol. 85, No. 246 / Tuesday, December 22, 2020 / Rules and Regulations 83717 

145 In prohibiting such payments, the FDIC may 

take into account several factors listed in the 

statute, such as whether there is a reasonable basis 

to believe the IAP has committed fraud, breached 

a fiduciary duty, or committed insider abuse; is 

substantially responsible for the insolvency of the 

depository institution; has violated any Federal or 

State banking law or regulation that has had a 

material effect on the financial condition of the 

institution; or was in a position of managerial or 

fiduciary responsibility. See 12 U.S.C. 1828(k)(2). 

The FDIC has forbidden certain indemnification 

payments by regulation. See 12 CFR 359.1(l)(1) 

(definition of ‘‘prohibited indemnification 

payment’’); 12 CFR 359.3 (forbidding prohibited 

indemnification payments, except as provided in 

part 359). 

146See 12 U.S.C. 1828(k)(5)(A); see also 12 U.S.C. 

1818(b)(6) (defining affirmative actions that an IAP 

may be required to take in regard to insured 

depository institutions for purposes of section 

1828(k)(5)(A)). 

1828(k) and the implementing 

regulations thereunder. Pursuant to 

section 1828(k), the FDIC may prohibit, 

by regulation or order, any 

indemnification payment made with 

regard to an administrative proceeding 

or civil action instituted by the 

appropriate Federal banking agency that 

results in a final order under which the 

IAP: (1) Is assessed a civil money 

penalty; (2) is removed or prohibited 

from participating in conduct of the 

affairs of the insured depository 

institution; or (3) is required to take 

certain affirmative actions in regards to 

an insured depository institution.145

Section 1828(k) defines 

‘‘indemnification payment’’ to mean any 

payment (or any agreement to make any 

payment) by any insured depository 

institution to pay or reimburse an IAP 

for any liability or legal expense with 

regard to any administrative proceeding 

or civil action instituted by the 

appropriate Federal banking agency that 

results in a final order under which the 

IAP: (1) Is assessed a civil money 

penalty; (2) is removed or prohibited 

from participating in conduct of the 

affairs of the insured depository 

institution; or (3) is required to take 

certain affirmative actions in regards to 

an insured depository institution.146

Section 7.2014(a) defines ‘‘institutionaffiliated party’’ by reference to 12 

U.S.C. 1813(u). 

Section 7.2014(b)(1) permits a 

national bank to indemnify IAPs for 

damages and expenses, including the 

advancement of legal fees and expenses, 

in cases involving an administrative 

proceeding or civil action that is not 

initiated by a Federal banking agency 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 

or Delaware General Corporation Law, 

provided such payments are consistent 

with safe and sound banking practices. 

Additionally, pursuant to 

§ 7.2014(b)(2), a national bank may 

provide for the payment of reasonable 

premiums for insurance covering the 

expenses, legal fees, and liability of 

IAPs to the extent that these costs could 

be indemnified under administrative 

proceedings or civil actions not initiated 

by a Federal banking agency, as 

provided in § 7.2014(b)(1). 

Twelve CFR 145.121 addresses 

indemnification of directors, officers 

and employees by Federal savings 

associations. Section 145.121(b) requires 

a Federal savings association to 

indemnify any person against whom an 

action is brought or threatened because 

that person is or was a director, officer, 

or employee of the association. This 

indemnification is subject to the 

requirements of § 145.121(c) and (g). 

Section 145.121(c) provides that 

indemnification only may be made 

available to the IAP if (1) there is a final 

judgment on the merits in the IAP’s 

favor; or (2) in the case of settlement, 

final judgment against the IAP, or final 

judgment in the IAP’s favor other than 

on the merits, if a majority of the 

disinterested directors of the Federal 

savings association determine that the 

IAP was acting in good faith. It also 

provides that the association give the 

OCC at least 60 days’ notice of its 

intention to indemnify an IAP and 

provides that the association may not 

indemnify the IAP if the OCC advises 

the savings association in writing that 

the OCC objects. Section 145.121(g) 

makes the indemnification subject to 12 

U.S.C. 1821(k). 

Pursuant to § 145.121(d), a Federal 

savings association may obtain 

insurance to protect it and its directors, 

officers, and employees from potential 

losses arising from claims for acts 

committed in their capacity as directors, 

officers, or employees. However, a 

Federal savings association may not 

obtain insurance that provides for 

payment of losses incurred as a 

consequence of willful or criminal 

misconduct. 

Pursuant to § 145.121(e), if a majority 

of the directors of a Federal savings 

association conclude that, in connection 

with an action, a person may become 

entitled to indemnification, the 

directors may authorize payment of 

reasonable costs and expenses arising 

from the defense or settlement of the 

action. Before making advance payment 

of expenses, the savings association is 

required to obtain an agreement that the 

savings association will be repaid if the 

person on whose behalf payment is 

made is later determined not to be 

entitled to the indemnification. 

Pursuant to § 145.121(f), an 

association that has a bylaw in effect 

relating to indemnification of its 

personnel must be governed solely by 

that bylaw, except that its authority to 

obtain insurance must be governed by 

§ 145.121(d), which, as described above, 

authorizes the purchase of 

indemnification insurance unless the 

insurance pays for losses created by 

willful or criminal misconduct. Section 

145.121(g) states that the 

indemnification provided for in 

§ 145.121 for Federal savings 

associations is subject to and qualified 

by 12 U.S.C. 1821(k), which addresses 

personal liability for directors and 

officers in certain civil actions. 

The OCC proposed adding Federal 

savings associations to § 7.2014 so that 

both charters would be required to 

comply with § 7.2014 and removing 

§ 145.121. Because § 7.2014 applies to 

IAPs as well as officers, directors, and 

employees, and § 145.121 applies only 

to officers, directors and employees, this 

amendment enlarges the scope of 

indemnification rules for Federal 

savings associations. As a result, the 

OCC’s indemnification rules also would 

apply to certain Federal savings 

association controlling shareholders, 

independent contractors, consultants, 

and other persons identified in 12 

U.S.C. 1813(u). The OCC received no 

comments on this integration of Federal 

savings associations into § 7.2014 and 

therefore adopts this integration as 

proposed. 

The OCC also proposed other 

amendments to § 7.2014. First, the OCC 

proposed amending current 

§ 7.2014(b)(1), redesignated as 

§ 7.2014(a) and retitled, to provide that 

State law on indemnification may apply 

to all administrative proceedings or civil 

actions for which an IAP can be 

indemnified, not just actions that are 

initiated by a person or entity not a 

Federal banking agency as under the 

current rule. This revision clarifies the 

application of State law on 

indemnification to actions initiated by 

Federal banking agencies. However, 

current § 7.2014(a), redesignated as 

§ 7.2014(b), would still apply. 

Specifically, under redesignated 

§ 7.2014(b), with respect to proceedings 

or civil actions initiated by a Federal 

banking agency, a national bank or 

Federal savings association only may 

make or agree to make indemnification 

payments to an IAP that are reasonable 

and consistent with the requirements of 


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147The OCC also proposed to move the crossreference to the definition of IAP in redesignated 

§ 7.2014(b) to redesignated paragraph (a) and to 

make stylistic changes to the wording of 

redesignated § 7.2014(b). 

148As explained supra, the OCC is amending 

§ 7.2000 to also allow national banks to follow the 

corporate governance provisions of the law of any 

State in which any branch of the bank is located 

or where a holding company of the bank is 

incorporated even if the holding company is later 

eliminated or no longer controls the bank and the 

national bank is not located in that State. The final 

rule makes this same change to §§ 5.21 and 5.22 for 

Federal savings associations. 

149 Information about the OCC’s Bank Appeals 

Process is available at occ.gov. 

150The FDIC’s implementing regulations under 

section 1828(k), 12 CFR part 359, explicitly allow 

the payment of insurance premiums in anticipation 

of actions brought by a Federal banking agency, 

provided the insurance is not used to reimburse the 

cost of a judgment or civil monetary penalty. See 

12 CFR 359.1(l)(2). 

151National banks are required to purchase 

fidelity coverage by 12 CFR 7.2013. 

152See 12 CFR 359.5(a)(4). 

153See, e.g., 8 Del. C. section 145(e); Utah Code 

section 16–10a–904; 805 Ill. Comp. Stat. 5/8.75(e); 

see also N.Y. Bus. Corp. Law section 725(a) 

(requiring repayment, but not explicitly requiring a 

written agreement). 

154See Model Bus. Corp. Act section 8.53(a). 

155Federal savings associations are also subject to 

the FDIC’s indemnification regulations. 

section 1828(k) and implementing 

regulations thereunder.147

The OCC also proposed a technical 

change to redesignated § 7.2014(a). As 

indicated above, the current rule states 

that in cases involving an administrative 

proceeding or civil action not initiated 

by a Federal banking agency, a national 

bank may indemnify an IAP 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 

or Delaware General Corporation Law, 

provided such payments are consistent 

with safe and sound banking practices. 

Because these sources of law are 

identical to the law a national bank may 

elect to follow pursuant to current 

§ 7.2000(b) or the law a Federal savings 

association may elect to follow pursuant 

to current § 5.21 or § 5.22, the OCC 

proposed to replace the language on 

sources of State law in this provision 

with a statement that the bank or 

savings association may indemnify an 

IAP for damages and expenses in 

accordance with the law of the State the 

bank or savings association has 

designated for its corporate governance 

under the provisions of § 7.2000, § 5.21, 

or § 5.22, as applicable. Because the 

OCC is enlarging the choice of law for 

both national banks and Federal savings 

associations in this final rule, this crossreference incorporates these new State 

law options.148

One commenter suggested that the 

OCC clarify in the final rule under 

redesignated § 7.2014(a) how the OCC 

would evaluate whether 

indemnification payments to IAPs are 

‘‘consistent with safety and soundness.’’ 

For example, the commenter suggested 

that the OCC confirm that the types of 

indemnification permissible under 

Delaware General Corporation Law 

generally would be permissible for 

national banks and Federal savings 

associations, except where such 

payment would introduce safety and 

soundness risk by measurably reducing 

bank capital and/or liquidity levels. The 

OCC disagrees with this comment. OCC 

determinations of whether 

indemnification payments to IAPs are 

‘‘consistent with safety and soundness’’ 

are made on a case-by-case basis based 

on the specific facts and circumstances 

of a particular case, and do not depend 

on State law. In the absence of specific 

facts and circumstances, the OCC 

declines to expound in the final rule 

upon how the OCC would evaluate the 

safety and soundness of indemnification 

payments to IAPs. 

The commenter also suggested that 

the OCC include in the final rule under 

redesignated § 7.2014(a) a process for 

appealing the OCC’s invalidation of 

indemnification payments or an 

indemnification agreement on safety 

and soundness grounds. The OCC did 

not propose an appeals process, and 

therefore is not including one in the 

final rule. If a national bank or Federal 

savings association disputes an OCC 

invalidation of an indemnification 

payment or agreement, it may file an 

appeal with the OCC pursuant to the 

OCC’s Bank Appeals Process.149

For the reasons discussed above, the 

OCC adopts redesignated § 7.2014(a) as 

proposed. 

Second, the OCC proposed amending 

§ 7.2014(b)(2), redesignated as 

§ 7.2014(d), to allow a national bank or 

Federal savings association to provide 

for the payment of reasonable insurance 

premiums in connection with all actions 

involving an IAP that could be 

indemnified under § 7.2014, whether or 

not initiated by a Federal banking 

agency. The OCC received no comments 

on this change and adopts it as 

proposed. The OCC believes this change 

will resolve confusion regarding how 

current § 7.2014(b)(2) is applied. This 

change also will better align OCC 

regulations on the payment of insurance 

premiums with the FDIC’s regulations 

and 12 U.S.C. 1828(k).150

Third, the OCC proposed adding a 

new paragraph (c) to require a national 

bank or Federal savings association, 

before advancing funds to an IAP under 

§ 7.2014, to obtain a written agreement 

that the IAP will reimburse the bank or 

savings association for any portion of 

indemnification that the IAP is 

ultimately found not to be entitled to 

under 12 U.S.C. 1828(k) and 

implementing regulations, except to the 

extent the bank’s or savings 

association’s expenses have been 

reimbursed by an insurance policy or 

fidelity bond.151 This requirement is 

similar to the requirement in 

§ 145.121(e) currently applicable to 

Federal savings associations and 

therefore will not impose any additional 

burdens on Federal savings associations. 

Further, FDIC regulations,152 State 

law,153 and the Model Business 

Corporation Act 154 contain similar 

requirements for IAPs to reimburse 

institutions for funds to which they are 

later found not to be entitled. As most 

national banks are subject to the FDIC’s 

indemnification regulations 155 or have 

elected under 12 CFR 7.2000(b) to 

follow State corporate law imposing 

reimbursement requirements for 

advancement of funds, the OCC believes 

that this change will not impose any 

additional burden on national banks 

and will merely codify existing 

practices. This change also will ensure 

that national banks, and Federal savings 

associations, do not provide 

indemnification to IAPs that is 

ultimately in contravention of the 

statutory limits of section 1828(k). 

One commenter suggested that the 

OCC confirm in the final rule that the 

written agreement required under 

§ 7.2014(c) may provide for the 

reimbursement of expenses, in addition 

to damages and other costs. The 

commenter noted that proposed 

§ 7.2014(c) implies that expenses may 

be covered by a written agreement, 

because it notes that the written 

agreement may cover any portion of the 

indemnification payment ‘‘except to the 

extent that the bank’s or savings 

association’s expenses have been 

reimbursed by an insurance policy or 

fidelity bond.’’ The OCC does not 

believe that the final rule creates any 

uncertainty regarding whether the 

written agreement may provide for the 

reimbursement of expenses, in addition 

to damages and other costs. As the 

commenter notes, and the OCC agrees, 

the written agreement may cover any 

portion of the indemnification payment 

‘‘except to the extent that the bank’s or 

savings association’s expenses have 

been reimbursed by an insurance policy 


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156Section 145.121(g) subjects and qualifies the 

indemnification provided for by current § 145.121 

to 12 U.S.C. 1821(k). In contrast, current § 7.2014 

explicitly subjects national bank indemnification to 

the restrictions of 12 U.S.C. 1828(k). Section 

1828(k) directly addresses indemnification and is 

applicable to any insured depository institution. 

See 12 U.S.C. 1828(k)(5)(A). Section 1821(k) 

addresses personal liability for directors and 

officers and is also applicable to any insured 

depository institution. Both of these statutes apply, 

and will continue to apply to national banks and 

Federal savings associations but proposed § 7.2014 

retains the citation to section 1828(k) as the more 

relevant citation for indemnification purposes. 

157See § 145.121(b). 

158See § 145.121(c)(1)(ii)(C). 

159See, e.g., 8 Del. C. 145(c); New York BCL 

section 723(a); 805 ILCS 5/8.75(c); Model Bus. Corp. 

Act, section 8.52 (2016). 

160See, e.g., 8 Del. C. 145(d); New York BCL 

section 723(b); 805 ILCS 5/8.75(d); Model Bus. 

Corp. Act, sections 8.53(c), 8.55 (2016). 161See § 145.121(c)(2). 

or fidelity bond.’’ The OCC therefore 

adopts § 7.2014(c) as proposed. 

One commenter suggested that rather 

than amending § 7.2014, the OCC 

should repeal the entire regulation and 

the comparable regulation for Federal 

savings associations, § 145.121. The 

commenter noted that 12 CFR part 359 

and 12 U.S.C. 1828(k) already govern 

indemnification to IAPs in 

administrative and court proceedings 

brought by a Federal banking agency; 

and the proposed language in 12 CFR 

7.2000 makes the separate 

indemnification provisions relating to 

non-part 359 proceedings unnecessary. 

The OCC disagrees with the 

commenter’s suggestion. The OCC 

believes that having OCC-specific 

regulations provides clarity for OCCsupervised banks and savings 

associations. The OCC therefore has not 

made any changes to the final rule in 

response to this comment. 

The commenter also suggested that, if 

the OCC does not repeal § 7.2014, the 

OCC should delete language in § 7.2014 

that reserves the power of the OCC to 

overturn any bank board decision on 

indemnification and advancement of 

expenses. The OCC disagrees with this 

comment. The OCC must retain 

supervisory authority to object to 

indemnification payments if they 

threaten the safety and soundness of the 

institution. The OCC notes that it would 

only exercise this authority under those 

circumstances. The OCC therefore has 

not made any changes to the final rule 

in response to this comment. 

This commenter also suggested that, if 

the OCC does not repeal § 7.2014, the 

OCC should include the right to 

advance expenses in both matters 

subject to 12 CFR part 359 and those 

that are not. The commenter further 

suggested that the OCC should expand 

coverage for indemnification unrelated 

to part 359-type matters to those who 

may not fall under the definition of 

IAPs, noting that State statutes typically 

cover potentially other individuals. The 

OCC also disagrees with these 

comments. Section 7.2014 already 

includes the right to advance expenses 

in both matters subject to 12 CFR part 

359, which implements 12 U.S.C. 

1828(k), and those that are not. As noted 

above, § 7.2014 addresses 

indemnification of IAPs by national 

banks in cases involving an 

administrative proceeding or civil 

action initiated by a Federal banking 

agency, as well as cases that do not 

involve a Federal banking agency. 

Further, the OCC believes the scope of 

the coverage for indemnification to IAPs 

is appropriate and sufficiently broad. 

‘‘IAP’’ has the same meaning as set forth 

at 12 U.S.C. 1813(u), and thus § 7.2014 

applies not only to officers, directors, 

and employees of the bank, but also to 

controlling shareholders, independent 

contractors, consultants, and other 

persons identified in 12 U.S.C. 1813(u). 

The OCC therefore has not made any 

changes to the final rule in response to 

these comments. 

The OCC believes that revised 

§ 7.2014 incorporates the provisions of 

current § 145.121 that should be 

applicable to both national banks and 

Federal savings associations, while 

maintaining appropriate flexibility for 

both types of institutions. As noted 

above, revised § 7.2014 will apply to 

actions brought by a Federal banking 

agency and actions not brought by a 

Federal banking agency, as in § 145.121, 

while retaining the statutory limits of 

section 1828(k).156 Revised § 7.2014 also 

includes the reimbursement agreement 

requirement, as in § 145.121(e). 

However, the OCC did not propose to 

include in § 7.2014 the provision in 

§ 145.121 that requires Federal savings 

associations to indemnify persons 

against whom an action is brought 

under certain circumstances, such as if 

they are successful on the merits of the 

action,157 nor the provision requiring a 

board vote to authorize indemnification 

under certain circumstances.158 In place 

of these requirements, revised § 7.2014 

permits Federal savings associations to 

incorporate State law on 

indemnification. Because State law 

governing indemnification generally 

incorporates these aspects of current 

§ 145.121, the OCC expects that Federal 

savings associations will continue to be 

subject to similar provisions governing 

indemnification as before. For example, 

State law generally requires mandatory 

indemnification if an employee is 

successful on the merits,159 as well as a 

board vote authorizing indemnification 

in almost all circumstances.160 Because 

national banks also may incorporate 

State indemnification law, they will be 

subject to these State indemnification 

provisions as well. The OCC specifically 

requested comment on whether, instead 

of relying on State law, the final rule 

should include the requirement from 

§ 145.121 that, in the case of settlement, 

final judgment against the IAP, or final 

judgment in the IAP’s favor other than 

on the merits, a majority of the 

disinterested directors determine that 

the IAP was acting in good faith before 

the institution may indemnify the IAP. 

One commenter replied to the OCC’s 

request for comment, and did not 

support including this requirement in 

the final rule. The commenter argued 

that this requirement is generally more 

restrictive than typical State law and 

may discourage qualified candidates 

from serving on the board of a national 

bank or Federal savings association, and 

that there is no compelling public 

interest served by subjecting national 

bank or Federal savings association 

directors to greater risk of personal 

liability than directors of other 

corporations. The OCC agrees with the 

commenter, and therefore, the OCC is 

not including the requirement in the 

final rule. 

The OCC also did not propose to 

include in § 7.2014 the provision in 

§ 145.121 that requires a 60-day prior 

notice to the OCC before making an 

indemnification because it believes this 

provision is burdensome and 

unnecessary.161 However, the OCC 

requested comment on whether the final 

rule should include this prior notice 

requirement and, if so, what benefits 

prior approval would provide that 

would outweigh any additional 

regulatory burden. One commenter 

replied to the OCC’s request for 

comment and did not support including 

this prior-notice requirement. The 

commenter argued, and the OCC agrees, 

that the regulatory burden of such a 

notice would outweigh any benefit. 

Therefore, the OCC is not including this 

requirement in the final rule. 

Restricting Transfer of National Bank 

Stock and Record Dates; Stock 

Certificates (§ 7.2016) 

Facsimile Signatures on Bank Stock 

Certificates (§ 7.2017) 

Lost Stock Certificates (§ 7.2018) 

Sections 12 CFR 7.2016, 7.2017, and 

7.2018 contain specific requirements 

related to national bank stock transfers 

and stock certificates. Many of these 

requirements are mandated by 12 U.S.C. 

52. However, some of these 


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162See 12 U.S.C. 52, first paragraph. 

163The proposed rule changed this terminology 

in § 7.2000 to ‘‘corporate governance provisions.’’ 164Public Law 106–569, Title XII, section 1207(a), 

114 Stat. 3034 (American Homeownership and 

Economic Opportunity Act of 2000). 

165See generally 12 U.S.C. 51a, (preferred stock 

issuance), 57 (increase in capital), and 59 (reduction 

of capital). 

166See, e.g., Articles of Association, Charter, and 

Bylaw Amendments, Comptroller’s Licensing 

Manual (June 2017), p. 3 (indicating that two-thirds 

of a national bank’s shareholders must vote to 

increase or decrease the authorized number of 

common shares in the articles of association). 

requirements are outdated because 

national banks today rarely issue 

physical stock certificates. 

Section 7.2016(a) states that, pursuant 

section 52, a national bank may impose 

conditions on 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 the bank against fraudulent 

transfers. Consistent with the statute, 

§ 7.2016(b) allows a national bank to 

close its stock records for a reasonable 

period to ascertain shareholders for 

voting purposes. The board also may fix 

record dates, which should be 

reasonable in proximity to the date 

notice is given to shareholders of the 

meeting. Section 7.2017 states that the 

president and cashier of the bank, or 

other officers authorized by the bank’s 

bylaws, shall sign each stock certificate. 

These signatures may be manual or 

facsimile and may be electronic. Each 

certificate also must be sealed with the 

seal of the bank. 

To streamline OCC rules, the OCC 

proposed combining §§ 7.2016 and 

7.2017 into one section, § 7.2016, that 

would apply to both stock transfers and 

stock certificate requirements. The OCC 

also proposed making OCC rules on 

stock certificates more flexible. As noted 

above, section 12 U.S.C. 52 requires 

certain officers of the association to sign 

every bank stock certificate and for it to 

be sealed with the seal of the 

association. However, banks now 

generally hold stock in ‘‘book-entry’’ 

form, which is not a format that 

supports signatures or stamps. Although 

section 52 places requirements on 

physical stock certificates, the OCC does 

not believe that the language of that 

section requires banks to actually issue 

stock in certificated form. Notably, 

section 52 also states that ‘‘[t]he capital 

stock of each association shall be . . . 

transferable on the books of the 

association in such manner as may be 

prescribed in the by-laws or articles of 

association.’’ 162 This language allows 

banks to provide for book-entry transfer 

in their by-laws or articles of 

association, even if this type of transfer 

is incompatible with the use of 

signatures and seals. Therefore, the OCC 

proposed stating that a national bank 

may prescribe the manner in which its 

stock must be transferred in its by-laws 

or articles of association. The OCC also 

proposed specifying that a national bank 

that does issue stock in certificate form 

must comply with the requirements of 

section 52, including: (1) The name and 

location of the bank; (2) name and 

holder of record of the stock; (3) the 

number and class of shares which the 

certificate represents; (4) if the bank 

issues more than one class of stock, the 

respective rights, preferences, 

privileges, voting rights, powers, 

restrictions, limitations, and 

qualifications of each class of stock 

issued (unless incorporated by reference 

to the articles of association); (5) 

signatures of the president and cashier 

of the bank, or such other officers as the 

bylaws of the bank provide; and (6) the 

seal of the bank. The OCC proposed to 

continue allowing banks to meet the 

signature requirements of section 52 

through the use of electronic means or 

by facsimiles, as is permitted by current 

§ 7.2017. 

Finally, the OCC proposed to remove 

§ 7.2018 as unnecessary. Section 7.2018 

states that if the bank’s articles of 

association or bylaws do not provide for 

replacing lost, stolen, or destroyed stock 

certificates, the bank may adopt 

procedures under 12 CFR 7.2000. 

Section 7.2000 generally permits 

national banks to adopt corporate 

governance procedures 163 in 

accordance with State law, to the extent 

not inconsistent with applicable Federal 

laws and regulations or with bank safety 

and soundness. Therefore, this 

provision is unnecessary. 

The OCC received no comments on 

these changes to §§ 7.2016 and the 

removal of §§ 7.2017 and 7.2018. 

Therefore, the OCC adopts these 

changes to § 7.2016 and removes 

§§ 7.2017 and 7.2018 as proposed. The 

OCC also is making a technical change 

to the section heading not included in 

the proposed rule to reflect that fact that 

§ 7.2016 applies only to national banks. 

Acquisition and Holding of Shares as 

Treasury Stock (§ 7.2020) 

The OCC proposed to remove 12 CFR 

7.2020. Section 7.2020 provides that a 

national bank may repurchase its 

outstanding shares and hold them as 

treasury stock as a capital reduction 

under 12 U.S.C. 59 if the repurchase and 

retention is for a ‘‘legitimate corporate 

purpose’’ and not for speculative 

purposes. The OCC issued § 7.2020 in 

1996 as an exception to the provision in 

12 U.S.C. 83 that prohibited a national 

bank from being the ‘‘purchaser or 

holder’’ of its own shares. However, in 

2000, Congress amended section 83 to 

remove this prohibition.164 Therefore, 

§ 7.2020 is unnecessary. The OCC 

received no comments on this change 

and the final rule removes § 7.2020 as 

proposed. The OCC notes that removing 

§ 7.2020 would not limit the OCC’s 

authority over share repurchases. Share 

repurchases are considered reductions 

in capital and would continue to be 

subject to OCC and shareholder 

approval under 12 U.S.C. 59 and 12 CFR 

5.46. 

Capital Stock-Related Activities of a 

National Bank (new § 7.2025) 

The OCC proposed new § 7.2025 to 

codify various OCC interpretations of 

the National Bank Act involving capital 

stock issuances and repurchases. The 

OCC received no comment on this new 

section and adopts it as proposed. 

Section 7.2025 explains the 

shareholder approval requirements for 

the issuance of authorized common 

stock; the issuance, repurchase, and 

redemption of preferred stock pursuant 

to blank check procedures; and share 

repurchase programs. Generally, an 

increase or decrease in the amount of a 

national bank’s common or preferred 

stock is a change in permanent capital 

subject to the notice and approval 

requirements of 12 CFR 5.46 and 

applicable law.165 Section 7.2025(a) sets 

forth the general requirements for 

changes in permanent capital. 

Paragraphs (b) through (d) of § 7.2025 

provide more specific requirements for 

shareholder approval of various types of 

issuances and repurchases. Section 

7.2025(e) identifies certain permissible 

features for preferred stock. 

Issuance of previously approved and 

authorized common stock. The issuance 

of common stock is governed by 12 

U.S.C. 57, which provides that a 

national bank may, with the approval of 

the OCC, and by a vote of shareholders 

owning two-thirds of the stock of the 

bank, increase its capital stock to any 

sum. The OCC has interpreted 12 U.S.C. 

57 to require a two-thirds shareholder 

vote to amend the articles of association 

to increase the number of authorized 

shares.166 The OCC also has long 

interpreted section 57 to permit a 

national bank’s board of directors to 

issue common stock without obtaining 

additional shareholder approval at the 

time of the issuance so long as the 

issuance does not exceed the amount of 

common stock previously approved and 


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167A previous version of § 5.46 (1981) provided 

that shareholder approval would not be required to 

increase common stock through the issuance of a 

class of common up to an amount previously 

approved by shareholders. Subsequent amendments 

to § 5.46, which the OCC intended to simplify 12 

CFR part 5, omitted this language but did not 

change this interpretation. 

168OCC Interpretive Letter No. 921 (Dec. 13, 

2001). 

169The final rule changes this terminology in 

§ 7.2000 to ‘‘corporate governance provisions.’’ 

170OCC Interpretive Letter No. 1162 (July 6, 

2018). 

171 In part, section 51b provides that preferred 

shareholders ‘‘shall be entitled to receive such 

cumulative dividends . . . as may be provided in 

the articles of association . . . and no dividends 

shall be declared or paid on common stock until 

cumulative dividends on preferred stock have been 

paid in full . . . .’’ The OCC has previously 

interpreted section 51a as providing national banks 

with broad authority to issue preferred stock, 

including preferred stock bearing noncumulative 

dividends, notwithstanding the language of section 

51b. See OCC Letter from Martin Goodman, OCC 

Assoc. Ch. Couns. (Oct. 3, 1977). 

authorized by shareholders.167 Section 

7.2025(b) codifies this interpretation. 

Specifically, paragraph (b) provides 

that, in compliance with 12 U.S.C. 57, 

a national bank may issue common 

stock up to an amount previously 

approved and authorized in the national 

bank’s articles of association by holders 

of two-thirds of the national bank’s 

shares without obtaining additional 

shareholder approval for each 

subsequent issuance within the 

authorized amount. 

Issuance, repurchase, and redemption 

of preferred stock pursuant to certain 

procedures. Twelve U.S.C. 51a requires 

a majority of shareholders vote to 

approve a national bank’s issuance of 

preferred stock. However, the statute 

does not specify when in the process the 

bank must obtain shareholder approval. 

In OCC Interpretive Letter 921, the OCC 

determined that a national bank could 

adopt, subject to required shareholder 

approval, a provision in its articles of 

association or an amendment to its 

articles authorizing the bank’s board of 

directors to issue preferred stock using 

blank check procedures (‘‘blank check 

preferred stock’’).168 Blank check 

preferred stock refers to preferred stock 

for which the board is empowered to 

issue and determine the terms of 

authorized and unissued preferred 

stock. To be permissible, blank check 

preferred stock must be permitted by the 

corporate governance procedures 

adopted by the bank under § 7.2000.169

The OCC also determined that 

shareholders’ adoption or approval of a 

blank check preferred stock article 

constitutes the shareholder action 

required by 12 U.S.C. 51a and 51b to 

issue and establish the terms of 

preferred stock. The subsequent 

issuance of the preferred stock within 

the authorized limits would not require 

additional shareholder approval. 

Interpretive Letter 921 did not 

specifically address blank check 

preferred procedures that include the 

authority, and the shareholder action 

required, to repurchase and redeem 

blank check preferred stock. 

The redemption or repurchase of 

preferred stock is a reduction in capital. 

Twelve U.S.C. 59 requires the approval 

of two-thirds of shareholders for a 

national bank to reduce capital, but it 

does not specify when in the process the 

bank must obtain shareholder approval. 

In Interpretive Letter 1162, the OCC 

determined that the holders of twothirds of a national bank’s shares may 

approve in advance redemptions of 

blank check preferred stock by voting to 

amend the articles of association to 

authorize the issuance and redemption 

of blank check preferred shares.170

Section 7.2025(c) codifies these 

interpretations and permits blank check 

procedures, if approved in advance by 

the bank’s shareholders, that authorize 

the issuance, repurchase, and 

redemption of preferred stock without 

additional shareholder approval at the 

time of issuance, repurchase, or 

redemption, if certain conditions are 

met. Paragraph (c) provides that, subject 

to the requirements of 12 U.S.C. 51a, 

51b, and 59, a national bank may adopt 

procedures to authorize the board of 

directors to issue, determine the terms 

of, repurchase, or redeem one or more 

series of preferred stock, if permitted by 

the corporate governance provisions 

adopted by the bank under 12 CFR 

7.2000. This provision further provides 

that, to satisfy the shareholder approval 

requirements of 12 U.S.C. 51a and 59, 

shareholders must approve the adoption 

of these procedures in advance through 

an amendment to the national bank’s 

articles of association, and that any 

amendment that authorizes both the 

issuance and the repurchase and 

redemption of shares must be approved 

by holders of two-thirds of the national 

bank’s shares. 

Share repurchase programs. In 

Interpretive Letter 1162, the OCC 

determined that the shareholder 

approval requirement in 12 U.S.C. 59 

may be satisfied by a two-thirds 

shareholder vote approving an 

amendment to the bank’s articles of 

association authorizing the board of 

directors to implement share repurchase 

programs. A share repurchase program 

authorizes the board of directors to 

repurchase the national bank’s common 

or preferred stock from time to time 

under board-determined parameters that 

can limit the frequency, type, aggregate 

limit, or purchase price of repurchases, 

without obtaining additional 

shareholder approval at the time the 

shares are repurchased. Section 

7.2025(d) codified this interpretation by 

providing that, subject to the 

requirements of 12 U.S.C. 59, a national 

bank may establish a program for the 

repurchase, from time to time, of the 

national bank’s common or preferred 

stock, if permitted by the corporate 

governance provisions adopted by the 

bank under 12 CFR 7.2000. Paragraph 

(d) also provides that, to satisfy the 

shareholder approval requirement of 12 

U.S.C. 59, the repurchase program must 

be approved in advance by the holders 

of two-thirds of the national bank’s 

shares, including through an 

amendment to the national bank’s 

articles of association that authorizes 

the board of directors to implement 

share repurchase programs from time to 

time under board-determined 

parameters that can limit the frequency, 

type, aggregate limit, or purchase price 

of repurchases. 

Preferred stock features. Section 

7.2025(e) clarifies that a national bank 

may issue and maintain noncumulative 

preferred stock. This provision codifies 

a longstanding OCC interpretation that 

12 U.S.C. 51b, by its terms, describes 

limitations on the portion of the 

preferred stock dividend which may be 

cumulative. It does not require that 

preferred stock dividends must always 

be cumulative.171 Specifically, 

§ 7.2025(e) provides that a national 

bank’s preferred stock may be 

cumulative or non-cumulative and may 

or may not have voting rights on one or 

more series. 

Subpart C—National Bank and Federal 

Savings Association Operations 

National Bank and Federal Savings 

Association Operating Hours and 

Closings (§ 7.3000) 

The OCC proposed to amend § 7.3000, 

National bank hours and closings, to 

include Federal savings associations, to 

update it, and to make technical and 

clarifying changes. The OCC received 

one comment on § 7.3000, in support of 

the proposed updates to the types of 

emergency conditions that may result in 

the declaration of a legal holiday. 

Therefore, the OCC adopts the 

amendments to § 7.3000 as proposed, 

with technical changes to the section 

and paragraph (a) headings. 

Twelve U.S.C. 95(b)(1) specifically 

authorizes the Comptroller to designate 

a legal holiday because of emergency 

conditions occurring in any State or part 

of a State for national banks located in 


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83722 Federal Register / Vol. 85, No. 246 / Tuesday, December 22, 2020 / Rules and Regulations 

172We note that the Comptroller is directed under 

section 4 of the HOLA (12 U.S.C. 1463(a)(1)(A)) to 

provide for the ‘‘safe and sound operation’’ of 

Federal savings associations. The OTS relied on this 

HOLA authority when it issued § 510.2(b) (see 54 

FR 49411, at 49456 (Nov. 30, 1989) and this final 

rule furthers that objective. See also 12 U.S.C. 1(a) 

(charging the OCC with assuring the safety and 

soundness of institutions subject to its jurisdiction). 

173As indicated previously in this preamble, 

section 4(b) of the International Banking Act, 12 

U.S.C. 3102(b), provides that the operations of a 

foreign bank at a Federal branch or agency shall be 

conducted with the same rights and privileges as a 

national bank at the same location and shall be 

subject to all the same duties, restrictions, penalties, 

liabilities, conditions, and limitations that would 

apply under the National Bank Act to a national 

bank doing business at the same location. See also 

12 CFR 28.13. 

174See Comptroller’s Licensing Manual, Branch 

Closings (June 2017). 

that State or affected area. Section 

95(b)(1) also provides that when a State 

or State official authorized by law 

designates any day as a legal holiday for 

ceremonial or emergency reasons, that 

day is a legal holiday and a national 

bank located in that State or affected 

part of the State may close or remain 

open unless the Comptroller directs 

otherwise by written order. Section 

7.3000 implements this statutory 

provision. Specifically, current 

§ 7.3000(b) provides that when the 

Comptroller, a State, or a legally 

authorized State official declares a day 

a legal holiday due to emergency 

conditions, a national bank may 

temporarily limit or suspend its 

operations at its affected offices. 

Alternatively, the bank may continue its 

operations, unless the Comptroller 

directs otherwise by written order. This 

rule provides that emergency conditions 

include natural disasters and civil and 

municipal emergencies, such as severe 

flooding or a power emergency declared 

by a local power company or 

government requesting that businesses 

in the affected area close. Section 

7.3000(c) states that a State or a legally 

authorized State official may declare a 

day a legal holiday for ceremonial 

reasons and provides that when a State 

legal holiday is declared for ceremonial 

reasons, a national bank may choose to 

remain open or to close. Section 

7.3000(d) provides that a national bank 

should assure that all liabilities or other 

obligations under the applicable law 

due to the bank’s closing are satisfied, 

e.g., notice to depositors about funds 

availability pursuant to 12 CFR 

229.13(g)(4). 

There is no equivalent statute or 

corresponding regulation for Federal 

savings associations. However, a former 

OTS regulation at 12 CFR 510.2(b) 

permitted the OTS to waive or relax any 

limitations pertaining to the operations 

of a Federal savings associations in any 

area affected by a determination by the 

President of the United States that a 

major disaster or emergency had 

occurred. Amending § 7.300 to include 

Federal savings associations clarifies for 

these institutions how a legal holiday is 

declared and the implications of a legal 

holiday declaration, as well as provide 

consistency between national bank and 

Federal savings association operations 

on legal holidays.172

As proposed, in addition to adding 

Federal savings associations, the final 

rule clarifies and updates the emergency 

closing provisions of § 7.3000. First, the 

final rule clarifies that § 7.3000 also 

applies to Federal branches and 

agencies of foreign banks. Although 

current § 7.3000 applies to Federal 

branches and agencies pursuant to 

section 4(b) of the International Banking 

Act, 12 U.S.C. 3102(b), the OCC believes 

it is appropriate to specify this 

application in the rule.173

Second, the final rule clarifies that the 

Comptroller may declare ‘‘any day’’ a 

legal holiday, instead of ‘‘a day,’’ to 

more accurately reflect the statutory 

language and to clarify that the 

Comptroller may declare more than one 

day due to the emergency condition as 

a legal holiday. 

Third, the final rule amends 

§ 7.3000(b) to state that emergency 

conditions may be ‘‘caused by acts of 

nature or of man.’’ This amendment 

mirrors the language in 12 U.S.C. 

95(b)(1) and clarifies the broad scope of 

possible emergency conditions that 

could justify a legal holiday. 

Fourth, the final rule updates the 

types of emergency conditions listed in 

the rule to include disasters other than 

natural disasters, public health or safety 

emergencies, and cyber threats or other 

unauthorized intrusions, and updates 

the list of examples to include 

pandemics, terrorist attacks, and cyberattacks on bank systems. 

Fifth, the final rule provides that the 

Comptroller may issue a declaration of 

a legal holiday in anticipation of the 

emergency condition, in addition to at 

the time of the emergency or soon 

thereafter. This codifies the current 

practice of the Comptroller in most 

cases, which permits national banks, 

Federal savings associations, and 

Federal branches and agencies to better 

plan for the possible closing. 

Sixth, the final rule provides that in 

the absence of a Comptroller declaration 

of a bank holiday, a national bank, 

Federal savings associations, or Federal 

branch or agency may choose to 

temporarily close offices in response to 

an emergency condition. If a bank, 

savings association, or branch or agency 

temporarily closes pursuant to this 

provision, it should notify the OCC of 

such temporary closure as soon as 

feasible. This provision provides 

additional flexibility to OCC-regulated 

institutions during emergency 

conditions and codifies similar language 

currently included in the OCC’s 

Licensing Manual.174

Seventh, the final rule clarifies in 

§ 7.3000(c) that a State legal holiday 

may be for the entire State or part of the 

State, as indicated in 12 U.S.C. 95(b)(1). 

Eighth, as provided in the statute, the 

final rule provides in § 7.3000(c) that 

the Comptroller may by written order 

direct the affected institution to close or 

remain open during a State legal holiday 

declared for ceremonial reasons, as with 

a State legal holiday declared due to an 

emergency. 

Finally, the final rule adds a new 

paragraph, § 7.3000(e), to provide a 

definition of ‘‘State’’ that is consistent 

with the definition in 12 U.S.C. 95(b)(2). 

Also as proposed, the final rule also 

makes a number of technical changes to 

§ 7.3000. The final rule replaces the 

word ‘‘country’’ with ‘‘United States’’ in 

the phrase describing affected 

geographic area to make this phrase 

more precise; deletes the superfluous 

citation to 12 U.S.C. 95 in § 7.3000(b); 

and deletes the superfluous first 

sentence of current § 7.3000(c), which 

states that a State or a legally authorized 

State official may declare a day a legal 

holiday for ceremonial reasons. 

In making these changes, the OCC is 

reorganizing § 7.3000(b) and (c) so that 

all provisions relating to Comptroller 

declared legal holidays for emergency 

conditions are in § 7.3000(b) and all 

provisions related to State declared legal 

holidays for emergency and ceremonial 

reasons are in § 7.3000(c). This 

reorganization more clearly sets forth 

the standards for Comptroller and State 

declared legal holidays and corresponds 

better with the statutory text. 

Section 7.3000 also provides, in 

paragraph (a), that a national bank’s 

board of directors should review its 

banking hours and, independently of 

any other bank, take appropriate actions 

to establishing a schedule of its banking 

hours. As proposed, the final rule 

updates this provision by replacing 

‘‘banking hours’’ with ‘‘hours of 

operations for customers.’’ The final 

rule also makes technical corrections to 

the section and paragraph heading to 

reflect this change in terminology. 

Furthermore, the final rule includes 

Federal savings associations and Federal 

branches and agencies in this provision. 


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Federal Register / Vol. 85, No. 246 / Tuesday, December 22, 2020 / Rules and Regulations 83723 

175 12 CFR part 239. 

176Federal savings association mutual members 

have certain statutory and regulatory voting rights. 

See 12 U.S.C. 1464; 12 CFR 5.21. 

177 12 CFR 5.22(h). 

178See Articles of Association, Charters, and 

Bylaw Amendments (Forms), Comptroller’s 

Licensing Manual (June 19, 2017), Anti-Takeover 

Provisions, p. 11. 

Because Federal branches and agencies 

typically do not have a board of 

directors, § 7.3000(a) provides that an 

equivalent person or committee for a 

Federal branch or agency should review 

that entity’s operating hours and take 

appropriate action to establish a 

schedule of operating hours for 

customers. 

Sharing National Bank or Federal 

Savings Association Space and 

Employees (§ 7.3001) 

Section 7.3001 permits national banks 

and Federal savings associations to lease 

excess space on bank or savings 

association premises to other 

businesses, share space jointly held 

with other businesses, offer its services 

in space owned by or leased to other 

businesses, and share employees when 

sharing space. The OCC proposed to add 

a cross-reference to redesignated 

§ 7.1024, National bank or Federal 

savings association ownership of 

property, in § 7.3001(a)(1) to clarify that 

the requirements of § 7.1024 apply to 

the sharing of office space and 

employees pursuant to § 7.3001. The 

OCC did not receive any comments on 

this change and adopts it as proposed. 

Additional Issues and General 

Comments 

Application to Federal savings 

associations generally. The OCC 

received several comments on the 

applicability of the proposed revisions 

in the proposed rule to Federal savings 

associations and, in particular, mutual 

savings associations. One commenter 

stated that national banks and Federal 

savings associations have different 

enabling acts, and it is not clear that 

applying national bank rules to Federal 

savings associations is a good fit. The 

OCC is cognizant of the fact that 

national banks and Federal savings 

associations have different enabling 

statutes and takes those differences into 

account when determining whether, and 

when, to integrate the rules applicable 

to national banks and Federal savings 

associations. In other areas, the OCC has 

retained different regulations for 

national banks and Federal savings 

associations, as dictated by provisions 

of the National Bank Act and the HOLA, 

respectively. 

The same commenter noted that 

mutual associations are a distinct and 

very different entity from a governance 

perspective and requested that mutual 

savings associations have the same 

leeway in making a choice of law as 

national banks. This commenter also 

stated that mutual savings associations 

should not be denied the benefit of State 

law simply because national banks are 

denied those provisions by their 

enabling act. The OCC notes that the 

proposal as well as the final rule do not 

deny Federal mutual savings 

associations the benefit of State law. In 

fact, as noted above in the preamble 

discussion of § 7.2000, the final rule 

permits additional flexibility for Federal 

savings associations with respect to a 

choice of corporate governance law to 

allow parity with national banks. In 

suggesting and adopting these changes, 

the OCC recognized the distinction 

between Federal savings associations 

and national banks by considering 

choice of law issues for these different 

charters separately. 

Another commenter suggested the 

OCC should explore further ways to 

harmonize national bank and Federal 

savings association regulations, 

including potential Federal savings 

association use of 12 U.S.C. 24 and 12 

CFR part 24, to invest directly in public 

welfare investments. The OCC regularly 

reviews its regulations to determine 

opportunities to harmonize Federal 

savings associations and national bank 

regulations, where appropriate. The 

OCC staff notes that 12 CFR 160.36 

already permits Federal savings 

associations to make de minimis 

investments in community development 

investments of the type permitted by 12 

CFR part 24 for a national bank, and 12 

U.S.C. 1464(c)(3)(A) and 12 CFR 160.30 

authorize community development 

investments by Federal savings 

associations. 

A commenter suggested that any 

attempt to revise the corporate 

governance documents of a subsidiary 

Federal stock savings association of a 

mutual holding company (MHC) should 

be harmonized with the Federal Reserve 

Board’s regulation on mutual holding 

companies, Regulation MM.175 The 

same commenter suggested that one of 

the principal problems with governance 

for mutual savings associations is a 

faulty assumption that depositor 

members have an active interest in 

participating in the association’s 

corporate affairs.176 While the OCC 

considered and is amending for Federal 

savings associations only the choice of 

State law for the corporate governance 

provisions, the OCC is not considering 

a general overhaul of all the Federal 

mutual savings association governance 

regulations in this rulemaking. The OCC 

may consider revising other governance 

provisions relating to Federal mutual 

savings associations in a separate 

rulemaking and, if practical, in 

conjunction with a Federal Reserve 

Board review of Regulation MM. 

The same commenter indicated that, 

while the right to vote shares above a 

certain percentage limit and 

supermajority voting provisions may be 

prohibited for national banks, these 

provisions normally are permitted for 

Federal savings associations. The 

commenter suggested that the OCC 

explicitly state these provisions are 

permissible for Federal savings 

associations. In response, the OCC notes 

that it has permitted certain antitakeover and supermajority vote 

provisions for Federal savings 

associations, either specifically 

provided by regulation or authorized by 

the applicable State law, provided that 

any supermajority vote provisions are 

adopted by a percentage of the 

shareholder vote at least equal to the 

highest percentage that would be 

required to take any action under such 

provision.177 Also, the OCC generally 

does not approve supermajority 

provisions that require approval of more 

than 80 percent of the voting shares.178

Electronic filings and procedures. One 

commenter encouraged the OCC to 

permit digital and remote filing 

procedures, such as electronic 

fingerprinting, digital signatures, and 

virtual notarization. Specifically, the 

commenter suggested that the 

requirements for filing oaths of directors 

should be modernized by permitting 

submissions in electronic form instead 

of the original hard copy; allowing the 

notary to be a bank officer; and as an 

alternative to notarization, allowing 

certification of oaths by the Secretary or 

an Assistant Secretary of the financial 

institution. The OCC notes that has 

already updated its licensing regulation 

to encourage the use of electronic 

filings, including permitting digital 

signatures in the OCC’s Central 

Application Tracking System (CATS). 

Further, the OCC is unable to update to 

virtual notarization because notarization 

is governed by State law. 

Technical Changes 

In addition to the technical changes 

discussed above, the OCC proposed 

numerous technical changes throughout 

12 CFR part 7. The OCC received no 

comments on these changes and adopts 

them as proposed. Specifically, the final 

rule: 

• Replaces the word ‘‘shall’’ with 

‘‘must,’’ ‘‘will,’’ or other appropriate 


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83724 Federal Register / Vol. 85, No. 246 / Tuesday, December 22, 2020 / Rules and Regulations 

179Consistent with the General Principles of 

Affiliation 13 CFR 121.103(a), the OCC counts the 

assets of affiliated financial institutions when 

determining if it should classify an institution as a 

small entity. The OCC used December 31, 2019, to 

determine size because a ‘‘financial institution’s 

assets are determined by averaging the assets 

reported on its four quarterly financial statements 

for the preceding year.’’ See footnote 8 of the U.S. 

Small Business Administration’s Table of Size 

Standards. 

language, which is the more current rule 

writing convention for imposing an 

obligation and is the recommended 

drafting style of the Federal Register; 

• Uniformly capitalizes the words 

‘‘State’’ and ‘‘Federal’’ in conformance 

with Federal Register drafting style; 

• Replaces the term ‘‘bank’’ and 

‘‘savings association’’ with ‘‘national 

bank’’ or ‘‘Federal savings association,’’ 

respectively, where appropriate; 

• Clarifies punctuation and update or 

conform spelling of various terms; and 

• Conforms paragraph heading style. 

The OCC also is making technical 

changes to 12 CFR 5.30 to reflect 

changes made by the final rule. 

Specifically, the final rule removes drop 

boxes from the definition of branch in 

§ 5.30(d)(1)(i), pursuant to the change 

made by § 7.1027, and replaces the 

cross-reference to § 7.4003 in 

§ 5.30(d)(i)(iii) with § 7.1027, as 

redesignated by this final rule. 

In addition, the OCC is making a 

conforming change to the heading of 

subpart B and technical changes to 

various section headings in subpart B to 

better identify their application only to 

national banks. 

Finally, the OCC is making technical 

changes to 12 CFR 4.5 to replace 

outdated information on office locations 

and responsibilities. The OCC crossreferences 12 CFR part 4, subpart A, 

when using the term ‘‘appropriate OCC 

supervisory office’’ in 12 CFR 7.1025 

and 7.1026. Twelve CFR part 4, subpart 

A, sets forth the physical addresses of 

OCC offices, including supervisory 

offices. The OCC is updating one 

address in 12 CFR 4.5, Other OCC 

Supervisory Offices, to provide the 

correct location of Midsize Bank 

Supervision (MBS) headquarters in 12 

CFR 4.5(a). The OCC also is amending 

the description of MBS duties in 12 CFR 

4.5(a) to better reflect its current 

responsibilities. 

IV. Regulatory Analyses 

A. Paperwork Reduction Act 

Certain provisions of the final rule 

contain ‘‘collection of information’’ 

requirements within the meaning of the 

Paperwork Reduction Act (PRA) of 1995 

(44 U.S.C. 3501–3521). In accordance 

with the requirements of the PRA, the 

OCC may not conduct or sponsor, and 

a respondent is not required to respond 

to, an information collection unless it 

displays a currently valid Office of 

Management and Budget (OMB) control 

number. 

The OCC reviewed the final rule and 

determined that it revises certain 

information collection requirements 

previously cleared by OMB under OMB 

Control No. 1557–0204. The OCC has 

submitted the revised information 

collection to OMB for review under 

section 3507(d) of the PRA (44 U.S.C. 

3507(d)) and section 1320.11 of the 

OMB’s implementing regulations (5 CFR 

part 1320). 

Current Actions 

The information collection 

requirements are as follows: 

• Tax Equity Finance Transactions— 

Written requests are required to increase 

the aggregate limit on tax equity finance 

transactions. Prior written notification 

to OCC is required for each tax equity 

finance transaction. § 7.1025. 

• Payment Systems—Thirty (30) days 

advance written notice is required 

before joining a payment system that 

would expose the institution to openend liability. An after-the-fact written 

notice must be filed within 30 days of 

becoming a member of a payment 

system that does not expose the 

institution to open-end liabilities with 

certain representations. Both notices 

must include safety and soundness 

representations. § 7.1026. 

• Derivatives Activities—Thirty (30) 

days prior written notice is required 

before engaging in certain derivatives 

hedging activities, expanding 

derivatives hedging activities to include 

a new category of underlying, engaging 

in certain customer-driven financial 

intermediation derivatives activities, 

and expanding customer-driven 

financial intermediation derivatives 

activities to include a new category of 

underlying. § 7.1030. 

• State Corporate Governance— 

Requests for OCC’s staff position on the 

ability of national bank to engage in 

particular State corporate governance 

provision must include name, citations, 

discussion of similarly suited State 

banks, identification of Federal banking 

statutes and regulations, and analysis of 

consistency with statutes, regulations, 

and safety and soundness. § 7.2000. 

• Indemnification of institutionaffiliated parties—Administrative 

proceeding or civil actions not initiated 

by a Federal banking agency—A written 

agreement that an IAP will reimburse 

the institution for any portion of nonreimbursed indemnification that the IAP 

is found not entitled to is required 

before advancing funds to an IAP. 

Federal savings associations no longer 

required to provide OCC prior notice of 

indemnification. § 7.2014. 

• Issuing Stock in Certificate Form— 

National banks must include certain 

information, signatures and seal when 

issuing stock in certificate form. 

§ 7.2016. 

Title of Information Collection: Bank 

Activities and Operations. 

Frequency: Event generated. 

Affected Public: Businesses or other 

for-profit. 

Estimated number of respondents: 

213. 

Total estimated annual burden: 586 

hours. 

B. Regulatory Flexibility Act 

In general, the Regulatory Flexibility 

Act (RFA) (5 U.S.C. 601 et seq.) requires 

an agency, in connection with a final 

rule, to prepare a Final Regulatory 

Flexibility Analysis describing the 

impact of the rule on small entities 

(defined by the Small Business 

Administration for purposes of the RFA 

to include commercial banks and 

savings institutions with total assets of 

$600 million or less and trust 

companies with total assets of $41.5 

million or less). However, under section 

605(b) of the RFA, this analysis is not 

required if an agency certifies that the 

rule would not have a significant 

economic impact on a substantial 

number of small entities and publishes 

its certification and a short explanatory 

statement in the Federal Register along 

with its rule. 

The OCC currently supervises 

approximately 1,156 institutions 

(commercial banks, trust companies, 

Federal savings associations, and 

branches or agencies of foreign banks, 

collectively banks), of which 745 are 

small entities.179 Because the rule 

applies to all OCC-supervised 

depository institutions, the rule will 

affect all small OCC-supervised entities 

and thus, a substantial number of them. 

However, almost all of the provisions in 

the final rule clarify or codify existing 

requirements, provide relief from 

existing requirements, increase 

flexibility, or reduce burden. One 

provision in the final rule, § 7.2012, 

which will require a person serving as, 

or in the function of, bank president, 

regardless of title, to be a member of the 

bank’s board of directors, could impose 

a new requirement on banks subject to 

the prior notice requirement for any 

change in directors pursuant to 12 CFR 

5.51. However, the number of banks that 

are subject to this prior notice 

requirement that do not currently have 


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Federal Register / Vol. 85, No. 246 / Tuesday, December 22, 2020 / Rules and Regulations 83725 

180 5 U.S.C. 801 et seq. 

181 5 U.S.C. 801(a)(3). 

182 5 U.S.C. 804(2). 

183Codified at 5 U.S.C. 551 et seq. 

184 5 U.S.C. 553(d). 

185For purposes of RCDRIA, ‘‘Federal banking 

agency’’ means the OCC, FDIC, and Board. See 12 

U.S.C. 4801. 

186 12 U.S.C. 4802(b). 

187 12 U.S.C. 4802(b)(2). 

188 5 U.S.C. 553(b). 

a president serving on the board of 

directors is limited. As a result, the final 

rule will not impose new mandates on 

more than a limited number of banks. 

Therefore, the OCC believes the costs 

associated with the final rule, if any, 

would be minimal and thus the final 

rule would not have a significant 

economic impact on any small OCCsupervised entities. For these reasons, 

the OCC certifies that the final rule will 

not have a significant economic impact 

on a substantial number of small entities 

supervised by the OCC. Accordingly, a 

Final Regulatory Flexibility Analysis is 

not required. 

C. Unfunded Mandates Reform Act of 

1995 

The OCC has analyzed the final rule 

under the factors in the Unfunded 

Mandates Reform Act of 1995 (UMRA), 

2 U.S.C. 1501 et seq. Under this analysis 

the OCC considered whether the final 

rule includes a Federal mandate that 

may result in the expenditure by State, 

local, and tribal governments, in the 

aggregate, or by the private sector, of 

$100 million or more in any one year 

($157 million as adjusted annually for 

inflation). The UMRA does not apply to 

regulations that incorporate 

requirements specifically set forth in 

law. 

As discussed above, the final rule 

would not impose new mandates on 

more than a limited number of banks. 

Therefore, the OCC concludes that the 

final rule would not result in an 

expenditure of $157 million or more 

annually by State, local, and tribal 

governments, or by the private sector. 

As a result, the OCC finds that the final 

rule does not trigger the UMRA cost 

threshold. Accordingly, the OCC has not 

prepared the written statement 

described in section 202 of the UMRA. 

D. Riegle Community Development and 

Regulatory Improvement Act of 1994 

Pursuant to section 302(a) of the 

Riegle Community Development and 

Regulatory Improvement Act of 1994 

(RCDRIA), 12 U.S.C. 4802(a), in 

determining the effective date and 

administrative compliance requirements 

for new regulations that impose 

additional reporting, disclosure, or other 

requirements on insured depository 

institutions, the OCC must consider, 

consistent with principles of safety and 

soundness and the public interest (1) 

any administrative burdens that the 

final rule would place on depository 

institutions, including small depository 

institutions and customers of depository 

institutions and (2) the benefits of the 

final rule. The has considered the 

changes made by this final rule and 

believes that the overall effective date of 

April 1, 2021 will provide OCCregulated institutions with adequate 

time to comply with the rule. With 

respect to administrative compliance 

requirements, the OCC has considered 

the administrative burdens and the 

benefits of this final rule and believes 

that any burdens are necessary for safety 

and soundness and proper OCC 

supervision. As examples, the final rule, 

requires a person serving as, or in the 

function of, a bank president, regardless 

of title to be a member of the bank’s 

board of directors (§ 7.2012) and 

contains notice requirements with 

respect to payment system membership 

and derivatives activities. The final 

rule’s benefits include clarifying 

existing requirements, codifying 

existing OCC interpretations and 

guidance, removing unnecessary 

provisions, and updating and 

modernizing certain provisions. Further 

discussion of the consideration by the 

OCC of these administrative compliance 

requirements is found in other sections 

of the final rule’s SUPPLEMENTARY

INFORMATION section. 

E. The Congressional Review Act 

For purposes of Congressional Review 

Act, the Office of Management and 

Budget (OMB) makes a determination as 

to whether a final rule constitutes a 

‘‘major’’ rule.180 If a rule is deemed a 

‘‘major rule’’ by OMB, the Congressional 

Review Act generally provides that the 

rule may not take effect until at least 60 

days following its publication.181 The 

Congressional Review Act defines a 

‘‘major rule’’ as any rule that the 

Administrator of the Office of 

Information and Regulatory Affairs of 

the OMB finds has resulted in or is 

likely to result in (1) an annual effect on 

the economy of $100,000,000 or more; 

(2) a major increase in costs or prices for 

consumers, individual industries, 

Federal, State, or local government 

agencies or geographic regions, or (3) a 

significant adverse effects on 

competition, employment, investment, 

productivity, innovation, or on the 

ability of United States-based 

enterprises to compete with foreignbased enterprises in domestic and 

export markets.182

OMB has determined that this final 

rule is not a major rule. As required by 

the Congressional Review Act, the OCC 

will submit the final rule and other 

appropriate reports to Congress and the 

Government Accountability Office for 

review. 

F. Effective Date 

The APA 183 requires that a 

substantive rule must be published not 

less than 30 days before its effective 

date, except for: (1) Substantive rules 

which grant or recognize an exemption 

or relieve a restriction; (2) interpretative 

rules and statements of policy; or (3) as 

otherwise provided by the agency for 

good cause.184 Section 302(b) of the 

Riegle Community Development and 

Regulatory Improvement Act of 1994 

(RCDRIA) requires that regulations 

issued by a Federal banking agency 185

imposing additional reporting, 

disclosure, or other requirements on 

insured depository institutions take 

effect on the first day of a calendar 

quarter that begins on or after the date 

of publication of the final rule, unless, 

among other things, the agency 

determines for good cause that the 

regulations should become effective 

before such time.186 The April 1, 2021, 

effective date of this final rule meets 

both the APA and RCDRIA effective 

date requirements as it will take effect 

at least 30 days after its publication date 

of December 22, 2020 and on the first 

day of a calendar quarter following 

publication, April 1, 2021. However, the 

OCC notes that RCDRIA provides that 

insured depository institutions may 

comply with regulations that impose 

additional reporting, disclosure, or other 

requirements before the regulation’s 

effective date.187

Pursuant to section 553(b)(B) of the 

APA, general notice and the opportunity 

for public comment are not required 

with respect to a rulemaking when an 

‘‘agency for good cause finds (and 

incorporates the finding and a brief 

statement of reasons therefor in the 

rules issued) that notice and public 

procedure thereon are impracticable, 

unnecessary, or contrary to the public 

interest.’’ 188 As described in the final 

rule’s SUPPLEMENTARY INFORMATION

section, the final rule includes a number 

of technical, clarifying, or conforming 

amendments that the OCC did not 

include in its proposed rule. Because 

these amendments are not substantive 

and merely correct or clarify the rule, 

update the rule to reflect current law, or 

fix citation and regulatory text format, 

the OCC believes that public notice of 

these changes is unnecessary and 

therefore that it has good cause to adopt 


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189 Id. 

these changes without notice and 

comment. Furthermore, the final rule’s 

amendment to 12 CFR part 4, subpart A, 

relates to the organization of the OCC. 

Rules related to agency organization are 

not subject to APA notice and 

comment.189

List of Subjects 

12 CFR Part 4 

Administrative practice and 

procedure, Freedom of Information, 

Individuals with disabilities, Minority 

businesses, Organization and functions 

(Government agencies), Reporting and 

recordkeeping requirements, Women. 

12 CFR Part 5 

Administrative practice and 

procedure, Federal savings associations, 

National banks, Reporting and 

recordkeeping requirements, Securities. 

12 CFR Part 7 

Computer technology, Credit, 

Derivatives, Federal savings 

associations, Insurance, Investments, 

Metals, National banks, Reporting and 

recordkeeping requirements, Securities, 

Security bonds. 

12 CFR Part 145 

Electronic funds transfers, Public 

deposits, Federal savings associations. 

12 CFR Part 160 

Consumer protection, Investments, 

Manufactured homes, Mortgages, 

Reporting and recordkeeping 

requirements, Savings associations, 

Securities. 

For the reasons set out in the 

preamble, the OCC amends 12 CFR 

chapter I as follows: 

PART 4—ORGANIZATION AND 

FUNCTIONS, AVAILABILITY AND 

RELEASE OF INFORMATION, 

CONTRACTING OUTREACH 

PROGRAM, POST-EMPLOYMENT 

RESTRICTIONS FOR SENIOR 

EXAMINERS 

■ 1. The authority citation for part 4 

continues to read as follows: 

Authority: 5 U.S.C. 301, 552; 12 U.S.C. 1, 

93a, 161, 481, 482, 484(a), 1442, 1462a, 1463, 

1464 1817(a), 1818, 1820, 1821, 1831m, 

1831p–1, 1831o, 1833e, 1867, 1951 et seq., 

2601 et seq., 2801 et seq., 2901 et seq., 3101 

et seq., 3401 et seq., 5321, 5412, 5414; 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. 

5318(g)(2), 9701; 42 U.S.C. 3601; 44 U.S.C. 

3506, 3510; E.O. 12600 (3 CFR, 1987 Comp., 

p. 235). 

§ 4.5 [Amended] 

■ 2. Amend § 4.5(a) by: 

■ a. Removing the second sentence; and 

■ b. Removing the phrase ‘‘1 South 

Wacker Drive, Suite 2000, Chicago, IL 

60606’’ and adding in its place the 

phrase ‘‘425 South Financial Place, 

Suite 1700, Chicago, IL 60605’’. 

PART 5—RULES, POLICIES, AND 

PROCEDURES FOR CORPORATE 

ACTIVITIES 

■ 3. The authority citation for part 5 

continues to read as follows: 

Authority: 12 U.S.C. 1 et seq., 24a, 35, 93a, 

214a, 215, 215a, 215a–1, 215a–2, 215a–3, 

215c, 371d, 481, 1462a, 1463, 1464, 1817(j), 

1831i, 1831u, 2901 et seq., 3101 et seq., 3907, 

and 5412(b)(2)(B). 

§ 5.21 [Amended] 

■ 4. Amend § 5.21 by: 

■ a. In paragraphs (j)(2)(i)(C) and 

(j)(3)(ii), removing the phrase ‘‘corporate 

governance procedures’’ wherever it 

appears and adding in its place the 

phrase ‘‘corporate governance 

provisions’’; 

■ b. In paragraph (j)(3)(ii): 

■ i. Removing the phrase ‘‘the State 

where the home office of the 

institution’’ and adding in its place ‘‘any 

State in which the home office or any 

branch of the association’’; and 

■ ii. Removing the phrase ‘‘such 

procedures’’ wherever it appears and 

adding in its place the phrase ‘‘such 

provisions’’. 

■ 5. Amend § 5.22 by: 

■ a. Revising paragraph (j)(2)(ii); and 

■ b. In paragraph (k)(1)(ii)(B), removing 

the phrase ‘‘corporate governance 

procedures’’ and adding in its place the 

phrase ‘‘corporate governance 

provisions’’. 

The revision reads as follows: 

§ 5.22 Federal stock savings association 

charter and bylaws. 

* * * * * 

(j) * * * 

(2) * * * 

(ii) Corporate governance election and 

notice requirement. A Federal stock 

association may elect to follow the 

corporate governance provisions of: The 

laws of any State in which the home 

office or any branch of the association 

is located; the laws of any State in 

which a holding company of the 

association is incorporated or chartered; 

Delaware General Corporation law; or 

the Model Business Corporation Act, 

provided that such provisions may be 

elected to the extent not inconsistent 

with applicable Federal statutes and 

regulations and safety and soundness, 

and such provisions are not of the type 

described in paragraph (j)(2)(i)(B) of this 

section. If this election is selected, a 

Federal stock association must designate 

in its bylaws the provision or provisions 

from the body or bodies of law selected 

for its corporate governance provisions, 

and must file a notice containing a copy 

of such bylaws, within 30 days after 

adoption. The notice must indicate, 

where not obvious, why the bylaw 

provisions meet the requirements stated 

in paragraph (j)(2)(i)(B) of this section. 

A Federal stock savings association that 

has elected to follow the corporate 

governance provisions of the law of the 

State in which its holding company is 

incorporated may continue to use those 

provisions even if the association is no 

longer controlled by that holding 

company. 

* * * * * 

§ 5.30 [Amended] 

■ 6. Amend § 5.30 by: 

■ a. In paragraph (d)(1)(i), adding the 

word ‘‘or’’ after the phrase ‘‘temporary 

facility,’’ and removing the phrase ‘‘, or 

a drop box’’; and 

■ b. In paragraph (d)(1)(iii), removing 

the citation ‘‘12 CFR 7.4003’’ and 

adding in its place the citation ‘‘12 CFR 

7.1027’’. 

PART 7—ACTIVITIES AND 

OPERATIONS 

■ 7. The authority citation for part 7 is 

revised to read as follows: 

Authority: 12 U.S.C. 1 et seq., 25b, 29, 71, 

71a, 92, 92a, 93, 93a, 95(b)(1), 371, 371d, 481, 

484, 1462a, 1463, 1464, 1465, 1818, 1828, 

3102(b), and 5412(b)(2)(B). 

§ 7.1000 [Redesignated] 

■ 8. Redesignate § 7.1000 as § 7.1024. 

■ 9. Add a new § 7.1000 to read as 

follows: 

§ 7.1000 Activities that are part of, or 

incidental to, the business of banking. 

(a) Purpose. This section identifies the 

criteria that the Office of the 

Comptroller of the Currency (OCC) uses 

to determine whether an 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 

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. 


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(c) Activities that are part of the 

business of banking. (1) An activity is 

permissible for national banks as part of 

the business of banking if the activity is 

authorized under 12 U.S.C. 24(Seventh) 

or other statutory authority. In 

determining whether an activity that is 

not specifically included in 12 U.S.C. 

24(Seventh) or other statutory authority 

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 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. 

■ 10. Revise § 7.1002 to read as follows: 

§ 7.1002 National bank and Federal 

savings association acting as finder. 

(a) In general. 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. It is part of 

the business of banking under 12 U.S.C. 

24(Seventh) for a national bank to act as 

a finder. A Federal savings association 

may act as a finder to the extent those 

activities are incidental to the powers 

expressly authorized by the Home 

Owners’ Loan Act (HOLA) (12 U.S.C. 

1461 et seq). 

(b) Permissible finder activities—(1) 

National banks. The following list 

provides examples of permissible finder 

activities for national banks. 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: 

(i) Communicating information about 

providers of products and services, and 

proposed offering prices and terms to 

potential markets for these products and 

services; 

(ii) 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; 

(iii) Arranging for third-party 

providers to offer reduced rates to those 

customers referred by the national bank; 

(iv) Providing administrative, clerical, 

and record keeping functions related to 

the national 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; 

(v) Conveying between interested 

parties expressions of interest, bids, 

offers, orders, and confirmations 

relating to a transaction; 

(vi) Conveying other types of 

information between potential buyers, 

sellers, and other interested parties; 

(vii) Establishing rules of general 

applicability governing the use and 

operation of the finder service, 

including rules that: 

(A) 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 

(B) Govern the manner in which 

buyers, sellers, and other interested 

parties may bind themselves to the 

terms of a specific transaction; and 

(viii) Acting as an electronic finder 

pursuant to § 7.5002(a)(1). 

(2) Federal savings associations. The 

following list provides examples of 

finder activities that are permissible for 

Federal savings associations. This list is 

illustrative and not exclusive; the OCC 

may determine that other activities are 

permissible pursuant to a Federal 

savings association’s incidental powers: 

(i) Referring customers to a third 

party; and 

(ii) Providing services and products to 

customers indirectly through a thirdparty discount program. 

(c) Limitation. The authority to act as 

a finder does not enable a national bank 

or a Federal savings association to 

engage in brokerage activities that have 

not been found to be permissible for 

national banks or Federal savings 

associations, respectively. 

(d) Advertisement and fee. Unless 

otherwise prohibited by Federal law, a 

national bank or Federal savings 

association may advertise the 

availability of, and accept a fee for, the 

services provided pursuant to this 

section. 

■ 11. Amend § 7.1003 by: 

■ a. In paragraph (a): 

■ i. Revising the paragraph heading; 

■ ii. Adding the word ‘‘national’’ before 

the word ‘‘bank’’ wherever it appears; 

■ b. In paragraph (b): 

■ i. Adding the word ‘‘national’’ before 

the word ‘‘bank’’ in the paragraph 

heading; 

■ ii. Adding the word ‘‘national’’ before 

the word ‘‘bank’’ wherever it appears; 

and 

■ iii. Adding the word ‘‘national’’ before 

the word ‘‘bank’s’’; and 

■ c. Adding paragraph (c). 

The revisions and addition read as 

follows: 

§ 7.1003 Money lent by a national bank at 

banking offices or at facilities other than 

banking offices. 

(a) In general. * * * 

(c) Services on equivalent terms to 

those offered customers of unrelated 

banks. An operating subsidiary owned 

by a national bank may distribute loan 

proceeds from its own funds or bank 

funds directly to the borrower in person 

at offices the operating subsidiary has 

established without violating 12 U.S.C. 

36, 12 U.S.C. 81 and 12 CFR 5.30 

provided that the operating subsidiary 

provides similar services on 

substantially similar terms and 

conditions to customers of unaffiliated 

entities including unaffiliated banks. 

■ 12. Revise § 7.1004 to read as follows: 

§ 7.1004 Establishment of a loan 

production office by a national bank. 

(a) In general. A national bank or its 

operating subsidiary may engage in loan 

production activities at a site other than 

the main office or a branch of the bank. 

A national bank or its operating 

subsidiary may solicit loan customers, 


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1Examples 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); the Uniform Customs and Practice 

for Documentary Credits (International Chamber of 

Commerce (ICC) Publication No. 600 or any 

applicable prior version); the Supplements to UCP 

500 & 600 for Electronic Presentation (eUCP v. 1.0, 

1.1, & 2.0) (Supplements to the Uniform Customs 

and Practices for Documentary Credits for 

Electronic Presentation); International Standby 

Practices (ISP98) (ICC Publication No. 590); 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); and the Uniform Rules for 

Bank-to-Bank Reimbursements Under Documentary 

Credits (ICC Publication No. 725). 

market loan products, assist persons in 

completing application forms and 

related documents to obtain a loan, 

originate and approve loans, make 

credit decisions regarding a loan 

application, and offer other lendingrelated services such as loan 

information and applications at a loan 

production office without violating 12 

U.S.C. 36 and 12 U.S.C. 81, provided 

that ‘‘money’’ is not deemed to be ‘‘lent’’ 

at that site within the meaning of 

§ 7.1003 and the site does not accept 

deposits or pay withdrawals. 

(b) Services of other persons. A 

national bank may use the services of, 

and compensate, persons not employed 

by the bank in its loan production 

activities. 

§ 7.1005 [Removed and Reserved] 

■ 13. Remove and reserve § 7.1005. 

§ 7.1006 [Amended] 

■ 14. Amend § 7.1006 by: 

■ a. In the section heading, adding the 

phrase ‘‘or Federal savings association’’ 

after the phrase ‘‘national bank’’; 

■ b. Adding the phrase ‘‘or Federal 

savings association’’ after the phrase 

‘‘national bank’’ wherever it appears in 

the first and second sentences; and 

■ c. Adding the phrase ‘‘or savings 

association’’ after the phrase ‘‘provided 

that the bank’’ in the second sentence. 

§ 7.1009 [Removed and Reserved] 

■ 15. Remove and reserve § 7.1009. 

■ 16. Revise § 7.1010 to read as follows: 

§ 7.1010 Postal services by national banks 

and Federal savings associations. 

(a) In general. A national bank or 

Federal savings association may provide 

postal services and receive income from 

those services. The services performed 

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 national bank or 

Federal savings association may 

advertise, develop, and extend the 

services to attract customers to the 

institution. 

(b) Postal regulations. A national bank 

or Federal savings association providing 

postal services must do so in accordance 

with the rules and regulations of the 

United States Postal Service. The 

national bank or Federal savings 

association must keep the books and 

records of the postal services separate 

from those of other banking operations. 

Under 39 U.S.C. 404 and regulations 

issued under that statute (see 39 CFR 

chapter I), the United States Postal 

Service may inspect the books and 

records pertaining to the postal services. 

§ 7.1012 [Amended] 

■ 17. Amend § 7.1012 by: 

■ a. In paragraph (c)(1), removing the 

phrase ‘‘pick up from, and deliver’’ and 

adding in its place the phrase ‘‘pick up 

from and deliver’’; and 

■ b. In paragraph (c)(2)(vi), removing 

the words ‘‘back office’’ and adding in 

its place the word ‘‘back-office’’. 

■ 18. Revise § 7.1015 to read as follows: 

§ 7.1015 National bank and Federal 

savings association investments in small 

business investment companies. 

(a) National banks. A national bank 

may invest in a small business 

investment company (SBIC) or in any 

entity established solely to invest in 

SBICs, including purchasing the stock of 

a SBIC, subject to appropriate capital 

limitations (see e.g., 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 a 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). 

(b) Federal savings associations. 

Federal savings associations may invest 

in a SBIC or in any entity established 

solely to invest in SBICs as provided in 

12 CFR 160.30. 

(c) Qualifying SBIC. A national bank 

or Federal savings association may 

invest in a SBIC that is either: 

(1) Already organized and has 

obtained a license from the Small 

Business Administration; or 

(2) In the process of being organized. 

(d) SBIC wind-down. A national bank 

or Federal savings association may 

retain an interest in a SBIC that has 

voluntarily surrendered its license to 

operate as a SBIC in accordance with 13 

CFR 107.1900 and does not make any 

new investments (other than 

investments in cash equivalents, which, 

for the purposes of this paragraph (d), 

means high quality, highly liquid 

investments whose maturity 

corresponds to the issuer’s expected or 

potential need for funds and whose 

currency corresponds to the issuer’s 

assets) after such voluntary surrender. 

■ 19. Amend § 7.1016 by: 

■ a. Revising the section heading and 

paragraphs (a) and (b)(1) introductory 

text; 

■ b. In paragraphs (b)(1)(iii)(B) and (C), 

(b)(2)(iii), and (b)(3) and (4), removing 

the word ‘‘bank’’ and adding in its place 

the phrase ‘‘national bank or Federal 

savings association’’; 

■ c. In paragraphs (b)(1)(iii)(B), 

(b)(2)(iii), and (b)(4), adding the phrase 

‘‘or savings association’s’’ after the word 

‘‘bank’s’’; 

■ d. Revising paragraphs (b)(1)(iv) and 

(b)(2)(i); and 

■ e. In paragraph (b)(2)(ii), removing the 

word ‘‘bank’s’’ and adding in its place 

the phrase ‘‘national bank’s or Federal 

savings association’s’’. 

The revisions read as follows: 

§ 7.1016 Independent undertakings issued 

by a national bank or Federal savings 

association to pay against documents. 

(a) In general. A national bank or 

Federal savings association may issue 

and commit to issue letters of credit and 

other independent undertakings within 

the scope of applicable laws or rules of 

practice recognized by law.1 Under such 

independent undertakings, the national 

bank’s or Federal savings association’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 or Federal 

savings association also may 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. 

(b) * * * (1) Terms. As a matter of 

safe and sound banking practice, 

national banks and Federal savings 

associations that issue independent 

undertakings should not be exposed to 

undue risk. At a minimum, national 

banks and Federal savings associations 

should consider the following: 

* * * * * 

(iv) The national bank or Federal 

savings association 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 national bank’s or Federal savings 

association’s undertaking is to purchase 

documents of title, securities, or other 

valuable documents, the bank or savings 

association should obtain a first priority 

right to realize on the documents if the 


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bank or savings association is not 

otherwise to be reimbursed. 

(2) * * * 

(i) In the event that the undertaking is 

to honor by delivery of an item of value 

other than money, the national bank or 

Federal savings association should 

ensure that market fluctuations that 

affect the value of the item will not 

cause the bank or savings association to 

assume undue market risk; 

* * * * * 

■ 20. Revise § 7.1021 to read as follows: 

§ 7.1021 Financial literacy programs not 

branches of national banks. 

A financial literacy program is a 

program the principal purpose of which 

is to be educational for members of the 

community. The premises of, or a 

facility used by, a school or other 

organization at which a national bank 

participates in a financial literacy 

program is not a branch for purposes of 

12 U.S.C. 36 provided the bank does not 

establish and operate the premises or 

facility. The OCC considers 

establishment and operation in this 

context on a case by case basis, 

considering the facts and circumstances. 

However, the premises or facility is not 

a branch of the national bank if the safe 

harbor test in § 7.1012(c)(2) applicable 

to messenger services established by 

third parties is satisfied. The factor 

discussed in § 7.1012(c)(2)(i) can be met 

if bank employee participation in the 

financial literacy program consists of 

managing the program or conducting or 

engaging in financial education 

activities provided the school or other 

organization retains control over the 

program and over the premises or 

facilities at which the program is held. 

§ 7.1022 [Amended] 

■ 21. Amend § 7.1022 by: 

■ a. In paragraph (d), removing the word 

‘‘shall’’ and adding in its place the word 

‘‘may’’ wherever it appears; and 

■ b. In paragraph (e), in the first 

sentence, removing the word ‘‘shall’’ 

and adding in its place the word ‘‘must’’ 

and removing the phrase ‘‘the effective 

date of this regulation’’ and adding in its 

place the phrase ‘‘April 1, 2018’’. 

§ 7.1023 [Amended] 

■ 22. Amend § 7.1023 by: 

■ a. In paragraph (c), removing the word 

‘‘shall’’ and adding in its place the word 

‘‘may’’ and removing the words ‘‘federal 

savings association’’ and adding in its 

place the words ‘‘Federal savings 

association’’; and 

■ b. In paragraph (d): 

■ i. In the first sentence: 

■ A. Removing the word ‘‘shall’’ and 

adding in its place the word ‘‘must’’; 

■ B. Removing the phrase ‘‘the effective 

date of this regulation’’ and adding in its 

place the phrase ‘‘April 1, 2018’’; and 

■ ii. Removing, in the second sentence, 

the phrase ‘‘federal savings association’’ 

and adding in its place the phrase 

‘‘Federal savings association’’. 

§ 7.1024 [Amended] 

■ 23. Amend newly redesignated 

§ 7.1024 by: 

■ a. In paragraphs (c)(2)(i) and (ii) and 

(d), removing the word ‘‘shall’’ and 

adding in its place the word ‘‘must’’; 

and 

■ b. In paragraph (e), removing the word 

‘‘shall’’ and adding in its place the word 

‘‘may’’. 

■ 24. Add § 7.1025 to read as follows: 

§ 7.1025 Tax equity finance transactions 

by national banks and Federal savings 

associations. 

(a) Tax equity finance transactions. A 

national bank or Federal savings 

association may engage in a tax equity 

finance transaction pursuant to 12 

U.S.C. 24(Seventh) and 1464 only if the 

transaction is the functional equivalent 

of a loan, as provided in paragraph (c) 

of this section, and the transaction 

satisfies applicable conditions in 

paragraph (d) of this section. The 

authority to engage in tax equity finance 

transactions under this section is 

pursuant to 12 U.S.C. 24(Seventh) and 

1464 lending authority and is separate 

from, and does not limit, other 

investment authorities available to 

national banks and Federal savings 

associations. 

(b) Definitions. For purposes of this 

section: 

(1) Appropriate OCC supervisory 

office means the OCC office that is 

responsible for the supervision of a 

national bank or Federal savings 

association, as described in subpart A of 

12 CFR part 4; 

(2) Capital and surplus has the same 

meaning that this term has in 12 CFR 

32.2. 

(3) Tax equity finance transaction 

means a transaction in which a national 

bank or Federal savings association 

provides equity financing to fund a 

project or projects that generate tax 

credits or other tax benefits and the use 

of an equity-based structure allows the 

transfer of those credits and other tax 

benefits to the national bank or Federal 

savings association. 

(c) Functional equivalent of a loan. A 

tax equity finance transaction is the 

functional equivalent of a loan if: 

(1) The structure of the transaction is 

necessary for making the tax credits or 

other tax benefits available to the 

national bank or Federal savings 

association; 

(2) The transaction is of limited 

tenure and is not indefinite, including 

retaining a limited investment interest 

that is required by law to obtain 

continuing tax benefits or needed to 

obtain the expected rate of return; 

(3) The tax benefits and other 

payments received by the national bank 

or Federal savings association from the 

transaction repay the investment and 

provide the expected rate of return at 

the time of underwriting; 

(4) Consistent with paragraph (c)(3) of 

this section, the national bank or 

Federal savings association does not 

rely on appreciation of value in the 

project or property rights underlying the 

project for repayment; 

(5) The national bank or Federal 

savings association uses underwriting 

and credit approval criteria and 

standards that are substantially 

equivalent to the underwriting and 

credit approval criteria and standards 

used for a traditional commercial loan; 

(6) The national bank or Federal 

savings association is a passive investor 

in the transaction and is unable to direct 

the affairs of the project company; and 

(7) The national bank or Federal 

savings association appropriately 

accounts for the transaction initially and 

on an ongoing basis and has 

documented contemporaneously its 

accounting assessment and conclusion. 

(d) Conditions on tax equity finance 

transactions. A national bank or Federal 

savings association may engage in tax 

equity finance transactions only if: 

(1) The national bank or Federal 

savings association cannot control the 

sale of energy, if any, from the project; 

(2) The national bank or Federal 

savings association limits the total 

dollar amount of tax equity finance 

transactions undertaken pursuant to this 

section to no more than five percent of 

its capital and surplus, unless the OCC 

determines, by written approval of a 

written request by the national bank or 

Federal savings association to exceed 

the five percent limit, that a higher 

aggregate limit will not pose an 

unreasonable risk to the national bank 

or Federal savings association and that 

the tax equity finance transactions in 

the national bank’s or Federal savings 

association’s portfolio will not be 

conducted in an unsafe or unsound 

manner; provided, however, that in no 

case may a national bank or Federal 

savings association’s total dollar amount 

of tax equity finance transactions 

undertaken pursuant to this section 

exceed 15 percent of its capital and 

surplus; 


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(3) The national bank or Federal 

savings association has provided written 

notification to the appropriate OCC 

supervisory office, prior to engaging in 

each tax equity finance transaction that 

includes its evaluation of the risks 

posed by the transaction; 

(4) The national bank or Federal 

savings association can identify, 

measure, monitor, and control the 

associated risks of its tax equity finance 

transaction activities individually and 

as a whole on an ongoing basis to ensure 

that such activities are conducted in a 

safe and sound manner; and 

(5) The national bank or Federal 

savings association obtains a legal 

opinion or has other good faith, 

reasoned bases for making a 

determination that tax credits or other 

tax benefits are available before 

engaging in a tax equity finance 

transaction. 

(e) Applicable legal requirements. The 

transaction is subject to the substantive 

legal requirements of a loan, including 

the lending limits prescribed by 12 

U.S.C. 84 and 12 U.S.C. 1464(u), as 

appropriate, as implemented by 12 CFR 

part 32, and if the active investor or 

project sponsor of the transaction is an 

affiliate of the bank, to the restrictions 

on transactions with affiliates 

prescribed by 12 U.S.C. 371c and 371c– 

1, as implemented by 12 CFR part 223. 

■ 25. Add § 7.1026 to read as follows: 

§ 7.1026 National bank and Federal 

savings association payment system 

memberships. 

(a) In general. National banks and 

Federal savings associations may 

become members of payment systems, 

subject to the requirements of this 

section. 

(b) Definitions. As used in this 

section: 

(1) Appropriate OCC supervisory 

office means the OCC office that is 

responsible for the supervision of a 

national bank or Federal savings 

association, as described in subpart A of 

12 CFR part 4; 

(2) Member includes a national bank 

or Federal savings association 

designated as a ‘‘member,’’ or 

‘‘participant,’’ or other similar role by a 

payment system, including by a 

payment system that requires the 

national bank or Federal savings 

association to share in operational 

losses or maintain a reserve with the 

payment system to offset potential 

liability for operational losses. This 

definition includes indirect members 

only if they agree to be bound by the 

rules of the payment system and the 

rules of the payment system indicate 

indirect members are covered; 

(3) Open-ended liability refers to 

liability for operational losses that is not 

capped under the rules of the payment 

system and includes indemnifications of 

third parties provided as a condition of 

membership in the payment system; 

(4) Operational loss means a charge 

resulting from sources other than 

defaults by other members of the 

payment system. Examples of 

operational losses include losses that 

are due to: Employee misconduct, fraud, 

misjudgment, or human error; 

management failure; information 

systems failures; disruptions from 

internal or external events that result in 

the degradation or failure of services 

provided by the payment system; 

security breaches or cybersecurity 

events; or payment or settlement delays, 

constrained liquidity, contagious 

disruptions, and resulting litigation; and 

(5) Payment system means ‘‘financial 

market utility’’ as defined in 12 U.S.C. 

5462(6), wherever operating, and 

includes both retail and wholesale 

payment systems. Payment system does 

not include a derivatives clearing 

organization registered under the 

Commodity Exchange Act, a clearing 

agency registered under the Securities 

Exchange Act of 1934, or foreign 

organization that would be considered a 

derivatives clearing organization or 

clearing agency were it operating in the 

United States. 

(c) Notice requirements—(1) Prior 

notice required. A national bank or 

Federal savings association must 

provide written notice to its appropriate 

OCC supervisory office at least 30 days 

prior to joining a payment system that 

exposes it to open-ended liability. 

(2) After-the-fact notice. A national 

bank or Federal savings association 

must provide written notice to its 

appropriate OCC supervisory office 

within 30 days of joining a payment 

system that does not expose it to openended liability. 

(d) Content of notice—(1) In general. 

A notice required by paragraph (c) of 

this section must include 

representations that the national bank or 

Federal savings association: 

(i) Has complied with the safety and 

soundness review requirements in 

paragraph (e)(1) of this section; and 

(ii) Will comply with the safety and 

soundness review and notification 

requirements in paragraphs (e)(2) and 

(3) of this section. 

(2) Payment system with limits on 

liability or no liability. A notice filed 

under paragraph (c)(2) of this section 

also must include a representation that 

either: 

(i) The rules of the payment system do 

not impose liability for operational 

losses on members; or 

(ii) The national bank’s or Federal 

savings association’s liability for 

operational losses is limited by the rules 

of the payment system to specific and 

appropriate limits that do not exceed 

the lower of: 

(A) The legal lending limit under 12 

CFR part 32; or 

(B) The limit set for the bank or 

savings association by the OCC. 

(e) Safety and soundness procedures. 

(1) Prior to joining a payment system, a 

national bank or Federal savings 

association must: 

(i) Identify and evaluate the risks 

posed by membership in the payment 

system, taking into account whether the 

liability of the bank or savings 

association is limited; and 

(ii) Ensure that it can measure, 

monitor, and control the risks identified 

pursuant to paragraph (e)(1)(i) of this 

section. 

(2) After joining a payment system, a 

national bank or Federal savings 

association must manage the risks of the 

payment system on an ongoing basis. 

This ongoing risk management must: 

(i) Identify and evaluate the risks 

posed by membership in the payment 

system, taking into account whether the 

liability of the bank or savings 

association is limited; and 

(ii) Measure, monitor, and control the 

risks identified pursuant to paragraph 

(e)(2)(i) of this section. 

(3) If the national bank or Federal 

savings association identifies risks 

during the ongoing risk management 

required by paragraph (e)(2) of this 

section that raise safety and soundness 

concerns, such as a material change to 

the bank’s or savings association’s 

liability or indemnification 

responsibilities, the national bank or 

Federal savings association must: 

(i) Notify the appropriate OCC 

supervisory office as soon as the safety 

and soundness concern is identified; 

and 

(ii) Take appropriate actions to 

remediate the risk. 

(4) A national bank or Federal savings 

association that believes its open-ended 

liability is otherwise limited (e.g., by 

negotiated agreements or laws of an 

appropriate jurisdiction) may consider 

its liability to be limited for purposes of 

the reviews required by paragraphs 

(e)(1) and (2) of this section so long as: 

(i) Prior to joining the payment 

system, the bank or savings association 

obtains a written legal opinion that: 

(A) Describes how the payment 

system allocates liability for operational 

losses; and 


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(B) Concludes the potential liability 

for operational losses for the national 

bank or Federal savings association is in 

fact limited to specific and appropriate 

limits that do not exceed the lower of: 

(1) The legal lending limit under 12 

CFR part 32; or 

(2) The limit set for the bank or 

savings association by the OCC; and 

(ii) There are no material changes to 

the liability or indemnification 

requirements applicable to the bank or 

savings association since the issuance of 

the written legal opinion. 

(f) Safety and soundness 

considerations. (1) A national bank or 

Federal savings association should 

evaluate, at a minimum, the following 

payment system characteristics when 

conducting an analysis required by 

paragraph (e) of this section: 

(i) Does the processing occur on a 

real-time gross settlement basis or 

provide reasonable assurance (e.g., 

prefunding, etc.) that members will 

meet settlement obligations? 

(ii) How does the payment system’s 

rules limit its liability to members? 

(iii) Does the payment system have 

insurance coverage and/or selfinsurance arrangements to cover 

operational losses? 

(iv) Do the payment system’s rules 

provide an unambiguous pro-rata loss 

allocation methodology under its 

indemnity provisions and does the 

methodology provide members the 

opportunity to reduce or eliminate 

liability exposure by decreasing or 

ceasing use of the payment system? 

(v) Do the payment system’s rules 

provide for unambiguous membership 

withdrawal procedures that do not 

require the prior approval of the system? 

(vi) Does the payment system have 

appropriate admission and continuing 

participation requirements for system 

participants? Such requirements should 

address, among other things: 

(A) The participants’ access to 

sufficient financial resources to meet 

obligations arising from participation; 

(B) The adequacy of participants’ 

operational capacities to meet 

obligations arising from participation; 

and 

(C) The adequacy of the participants’ 

own risk management processes. 

(vii) Does the payment system have 

processes and controls in place to verify 

and monitor on an ongoing basis the 

compliance of each participant with 

admission and participation 

requirements? 

(viii) Does the payment system have 

written policies and procedures for 

addressing participant failures to meet 

ongoing participation requirements? 

(ix) Are the payment system’s rules 

relating to the system’s emergency 

authorities unambiguous and may they 

be amended or otherwise altered 

without prior notification to all 

members and an opportunity to 

withdraw? 

(x) Is the payment system governed by 

uniform, comprehensive and clear legal 

standards in its operating jurisdiction 

that address payment and/or settlement 

activities? 

(xi) Is the payment system subject to 

and in compliance (or observance) with 

the Committee on Payment and 

Settlement Systems and the Technical 

Committee of the International 

Organization of Securities Commissions 

(CPSS—IOSCO) Principles for Financial 

Market Infrastructures? 

(xii) Is the payment system designated 

as a systemically important financial 

market utility (SIFMU) by the Financial 

Stability Oversight Counsel (FSOC) or is 

it the international or foreign 

equivalent? 

(xiii) Does the payment system 

provide members with information 

relevant to governance, risk 

management practices, and operations 

in a timely manner and with sufficient 

transparency and particularity for the 

bank to ascertain with reasonable 

certainty the bank’s level of risk 

exposure to the system? 

(xiv) Is the payment system operated 

by or subject to oversight of a central 

bank or regulatory authority? 

(xv) Is the payment system legally 

organized as a not-for-profit enterprise 

or is it owned and operated by a 

government entity? 

(xvi) Does the payment system have 

appropriate systems and controls for 

communicating to members in a timely 

manner about material events that relate 

to or could result in potential 

operational losses, e.g. fraud, system 

failures, natural disasters, etc.? 

(xvii) Has the payment system ever 

exercised its authority under 

indemnification provisions? 

(2) A national bank or Federal savings 

association should consider, at a 

minimum, the following characteristics 

of its risk management program when 

conducting an analysis required by 

paragraph (e) of this section: 

(i) Does the bank or savings 

association have appropriate board 

supervision and managerial and staff 

expertise? 

(ii) Does the bank or savings 

association have comprehensive 

policies and operating procedures with 

respect to its risk identification, 

measurement and management 

information systems that are routinely 

reviewed? 

(iii) Does the bank or savings 

association have effective risk controls 

and processes to oversee and ensure the 

continuing effectiveness of the risk 

management process? The program 

should include a formal process for 

approval of payment system 

memberships as well as ongoing 

monitoring and measurement of activity 

against predetermined risk limits. 

(iv) Does the bank or savings 

association’s membership evaluation 

process include assessments and 

analyses of: 

(A) The credit quality of the entity; 

(B) The entity’s risk management 

practices; 

(C) Settlement and default procedures 

of the entity; 

(D) Any default or loss-sharing 

precedents and any other applicable 

limits or restrictions of the entity; 

(E) Key risks associated with joining 

the entity; and 

(F) The incremental effect of 

additional memberships in aggregate 

exposure to payment system risk? 

(v) Does the bank or savings 

association’s risk management program 

include policies and procedures that 

identify and estimate the level of 

potential operational risks, at both 

inception of membership and on an ongoing basis? 

(vi) Does the bank or savings 

association have auditing procedures to 

ensure the integrity of risk 

measurement, control and reporting 

systems? 

(vii) Does the program include 

mechanisms to monitor, estimate, and 

maintain control over the bank or 

savings association’s potential liabilities 

for operational losses on an ongoing 

basis. This should include: 

(A) Limits and other controls with 

respect to each identified risk factor; 

(B) Reports generated throughout the 

processes that accurately present the 

nature and level(s) of risk taken and 

demonstrate compliance with approved 

polices and limits; and 

(C) Identification of the business unit 

and/or individuals responsible for 

measuring and monitoring risk 

exposures, as well as those individuals 

responsible for monitoring compliance 

with policies and risk exposure limits. 

(viii) Does a bank or savings 

association with memberships in 

multiple payment systems have the 

ability to monitor and report aggregate 

risk exposures and measurement against 

risk limits both at the sponsoring 

business line level and the total 

exposure organizationally? 

■ 26. Add § 7.1027 to read as follows: 

§ 7.1027 Establishment and operation of a 

remote service unit by a national bank. 

A remote service unit (RSU) is an 

automated or unstaffed facility, operated 


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by a customer of a bank with at most 

delimited assistance from bank 

personnel, 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, automated device for 

receiving deposits, personal computer, 

telephone, other similar electronic 

devices, and drop boxes. 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. 

■ 27. Add § 7.1028 to read as follows: 

§ 7.1028 Establishment and operation of a 

deposit production office by a national 

bank. 

(a) In general. 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 national bank or its 

operating subsidiary may solicit 

deposits, provide information about 

deposit products, and assist persons in 

completing application forms and 

related documents to open a deposit 

account at a deposit production office 

(DPO). 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. 

■ 28. Add § 7.1029 to read as follows: 

§ 7.1029 Combination of national bank 

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. The RSU at such a 

combined location must be primarily 

operated by the customer with at most 

delimited assistance from bank 

personnel. 

■ 29. Add § 7.1030 to read as follows: 

§ 7.1030 Permissible derivatives activities 

for national banks. 

(a) Authority. This section is issued 

pursuant to 12 U.S.C. 24(Seventh). A 

national bank may only engage in 

derivatives transactions in accordance 

with the requirements of this section. 

(b) Definitions. For purposes of this 

section: 

(1) Customer-driven means a 

transaction is entered into for a 

customer’s valid and independent 

business purpose (and a customerdriven transaction does not include a 

transaction the principal purpose of 

which is to deliver to a national bank 

assets that the national bank could not 

invest in directly); 

(2) Perfectly-matched means two 

back-to-back derivatives transactions 

that offset risk with respect to all 

economic terms (e.g., amount, maturity, 

duration, and underlying); 

(3) Portfolio-hedged means a portfolio 

of derivatives transactions that are 

hedged based on net unmatched 

positions or exposures in the portfolio; 

(4) Physical hedging or physicallyhedged means holding title to or 

acquiring ownership of an asset (for 

example, by warehouse receipt or bookentry) solely to manage the risks arising 

out of permissible customer-driven 

derivatives transactions; 

(5) Physical settlement or physicallysettled means accepting title to or 

acquiring ownership of an asset; 

(6) Transitory title transfer means 

accepting and immediately 

relinquishing title to an asset; and 

(7) Underlying means the reference 

asset, rate, obligation, or index on which 

the payment obligation(s) between 

counterparties to a derivative 

transaction is based. 

(c) In general. A national bank may 

engage in the following derivatives 

transactions after notice in accordance 

with paragraph (d) of this section, as 

applicable: 

(1) Derivatives transactions with 

payments based on underlyings a 

national bank is permitted to purchase 

directly as an investment; 

(2) Derivatives transactions with any 

underlying to hedge the risks arising 

from bank-permissible activities; 

(3) Derivatives transactions as a 

financial intermediary with any 

underlying that are customer-driven, 

cash-settled, and either perfectlymatched or portfolio-hedged; 

(4) Derivatives transactions as a 

financial intermediary with any 

underlying that are customer-driven, 

physically-settled by transitory title 

transfer, and either perfectly-matched or 

portfolio-hedged; and 

(5) Derivatives transactions as a 

financial intermediary with any 

underlying that are customer-driven, 

physically-hedged, and either portfoliohedged or hedged on a transaction-bytransaction basis, and provided that: 

(i) The national bank does not take 

physical delivery of any commodity by 

receipt of physical quantities of the 

commodity on bank premises; and 

(ii) Physical hedging activities meet 

the requirements of paragraph (e) of this 

section. 

(d) Notice procedure. (1) A national 

bank must provide notice to its 

Examiner-in-Charge prior to engaging in 

any of the following with respect to 

derivatives transactions with payments 

based on underlyings that a national 

bank is not permitted to purchase 

directly as an investment: 

(i) Engaging in derivatives hedging 

activities pursuant to paragraph (c)(2) of 

this section; 

(ii) Expanding the bank’s derivatives 

hedging activities pursuant to paragraph 

(c)(2) of this section to include a new 

category of underlying for derivatives 

transactions; 

(iii) Engaging in customer-driven 

financial intermediation derivatives 

activities pursuant to paragraph (c)(3), 

(4), or (5) of this section; and 

(iv) Expanding the bank’s customerdriven financial intermediation 

derivatives activities pursuant to 

paragraph (c)(3), (4), or (5) of this 

section to include any new category of 

underlyings. 

(2) The notice pursuant to paragraph 

(d)(1) of this section must be submitted 

in writing at least 30 days before the 

national bank commences the activity 

and include the following information: 

(i) A detailed description of the 

proposed activity, including the 

relevant underlyings; 

(ii) The anticipated start date of the 

activity; and 

(iii) A detailed description of the 

bank’s risk management system 

(policies, processes, personnel, and 

control systems) for identifying, 

measuring, monitoring, and controlling 

the risks of the activity. 

(e) Additional requirements for 

physical hedging activities. (1) A 

national bank engaging in physical 

hedging activities pursuant to paragraph 

(c)(5) of this section must hold the 

underlying solely to hedge risks arising 

from derivatives transactions originated 

by customers for the customers’ valid 

and independent business purposes. 


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(2) The physical hedging activities 

must offer a cost-effective means to 

hedge risks arising from permissible 

banking activities. 

(3) The national bank must not take 

anticipatory or maintain residual 

positions in the underlying except as 

necessary for the orderly establishment 

or unwinding of a hedging position. 

(4) The national bank must not 

acquire equity securities for hedging 

purposes that constitute more than 5 

percent of a class of voting securities of 

any issuer. 

(5) With respect to physical hedging 

involving commodities: 

(i) A national bank’s physical position 

in a particular physical commodity 

(including, as applicable, delivery point, 

purity, grade, chemical composition, 

weight, and size) must not be more than 

5 percent of the gross notional value of 

the bank’s derivatives that are in that 

particular physical commodity and 

allow for physical settlement within 30 

days. Title to commodities acquired and 

immediately sold by a transitory title 

transfer does not count against the 5 

percent limit; 

(ii) The physical position must more 

effectively reduce risk than a cashsettled hedge referencing the same 

commodity; and 

(iii) The physical position hedges a 

physically-settled customer-driven 

commodity derivative transaction(s). 

(f) Safe and sound banking practices. 

A national bank must adhere to safe and 

sound banking practices in conducting 

the activities described in this section. 

The bank must have a risk management 

system (policies, processes, personnel, 

and control system) that effectively 

manages (identifies, measures, monitors, 

and controls) these activities’ interest 

rate, credit, liquidity, price, operational, 

compliance, and strategic risks. 

■ 30. Revise the heading for subpart B 

to read as follows: 

Subpart B—Corporate Practices 

■ 31. Amend § 7.2000 by: 

■ a. Revising the section heading and 

paragraph (a); 

■ b. In paragraph (b): 

■ i. Removing the word ‘‘procedures’’ 

wherever it appears and adding in its 

place the word ‘‘provisions’’; 

■ ii. Removing the phrase ‘‘the state in 

which the main office of the bank’’ and 

adding in its place the phrase ‘‘any State 

in which the main office or any branch 

of the bank’’; 

■ iii. Removing the phrase ‘‘the state in 

which the holding company of the 

bank’’ and adding in its place the phrase 

‘‘any State in which a holding company 

of the bank’’; and 

■ iv. Removing the word ‘‘shall’’ and 

adding in its place the word ‘‘must’’; 

■ d. Redesignating paragraph (c) as 

paragraph (d) and revising it; and 

■ e. Adding a new paragraph (c). 

The addition and revisions are as 

follows: 

§ 7.2000 National bank corporate 

governance. 

(a) In general. The corporate 

governance provisions in a national 

bank’s articles of association and bylaws 

and the bank’s conduct of its corporate 

governance affairs must comply with 

applicable Federal banking statutes and 

regulations and safe and sound banking 

practices. 

* * * * * 

(c) Continued use of former holding 

company State. A national bank that has 

elected to follow the corporate 

governance provisions of the law of the 

State in which its holding company is 

incorporated may continue to use those 

provisions even if the bank is no longer 

controlled by that holding company. 

(d) Request for OCC staff position. A 

national bank may request the views of 

OCC staff on the permissibility of a 

national bank’s adoption of a particular 

State corporate governance provision. 

Requests must include the following 

information: 

(1) The name of the national bank; 

(2) Citation to the State statutes or 

regulations involved; 

(3) A discussion as to whether a 

similarly situated State bank is subject 

to or may adopt the corporate 

governance provision; 

(4) Identification of all Federal 

banking statutes or regulations that are 

on the same subject as, or otherwise 

have a bearing on, the subject of the 

proposed State corporate governance 

provision; and 

(5) An analysis of how the proposed 

practice is not inconsistent with 

applicable Federal statutes or 

regulations and is not inconsistent with 

bank safety and soundness. 

■ 32. Add § 7.2001 to read as follows: 

§ 7.2001 National bank adoption of antitakeover provisions. 

(a) In general. Pursuant to § 7.2000(b), 

a national bank may adopt anti-takeover 

provisions included in State corporate 

governance law if the provisions are not 

inconsistent with Federal banking 

statutes or regulations and not 

inconsistent with bank safety and 

soundness. 

(b) State anti-takeover provisions that 

are not inconsistent with Federal 

banking statutes or regulations. State 

anti-takeover provisions that are not 

inconsistent with Federal banking 

statutes or regulations include the 

following: 

(1) Restrictions on business 

combinations with interested 

shareholders. State provisions that 

prohibit, or that permit the corporation 

to prohibit in its certificate of 

incorporation or other governing 

document, the corporation from 

engaging in a business combination 

with an interested shareholder or any 

related entity for a specified period of 

time from the date on which the 

shareholder first becomes an interested 

shareholder, subject to certain 

exceptions such as board approval. An 

interested shareholder is one that owns 

an amount of stock specified in the State 

provision. 

(2) Poison pill. State provisions that 

provide, or that permit the corporation 

to provide in its certificate of 

incorporation or other governing 

document, that all the shareholders, 

other than the hostile acquiror, have the 

right to purchase additional stock at a 

substantial discount upon the 

occurrence of a triggering event. 

(3) Requiring all shareholder actions 

to be taken at a meeting. State 

provisions that provide, or that permit 

the corporation to provide in its 

certificate of incorporation or other 

governing document, that all actions to 

be taken by shareholders must occur at 

a meeting and that shareholders may not 

take action by written consent. 

(4) Limits on shareholders’ authority 

to call special meetings. State provisions 

that provide, or that permit the 

corporation to provide in its certificate 

of incorporation or other governing 

document, that: 

(i) Only the board of directors, and 

not the shareholders, have the right to 

call special meetings of the 

shareholders; or 

(ii) If shareholders have the right to 

call special meetings, a high percentage 

of shareholders is needed to call the 

meeting. 

(5) Shareholder removal of a director 

only for cause. State provisions that 

provide, or that permit the corporation 

to provide in its certificate of 

incorporation or other governing 

document, that shareholders may 

remove a director only for cause, and 

not both for cause and without cause. 

(c) State anti-takeover provisions that 

are inconsistent with Federal banking 

statutes or regulations. The following 

State anti-takeover provisions are 

inconsistent with Federal banking 

statutes or regulations: 

(1) Supermajority voting 

requirements. State provisions that 

require, or that permit the corporation to 

require in its certificate of incorporation 


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or other governing document, a 

supermajority of the shareholders to 

approve specified matters are 

inconsistent when applied to matters for 

which Federal banking statutes or 

regulations specify the required level of 

shareholder approval. 

(2) Restrictions on a shareholder’s 

right to vote all the shares it owns. State 

provisions that prohibit, or that permit 

the corporation in its certificate of 

incorporation or other governing 

document to prohibit, a person from 

voting shares acquired that increase 

their percentage of ownership of the 

company’s stock above a certain level 

are inconsistent when applied to 

shareholder votes governed by 12 U.S.C. 

61. 

(d) Bank safety and soundness—(1) In 

general. Except as provided in 

paragraph (d)(2) of this section, any 

State corporate governance provision, 

including anti-takeover provisions, that 

would render more difficult or 

discourage an injection of capital by 

purchase of bank stock, a merger, the 

acquisition of the bank, a tender offer, 

a proxy contest, the assumption of 

control by a holder of a large block of 

the bank’s stock, or the removal of the 

incumbent board of directors or 

management is inconsistent with bank 

safety and soundness if: 

(i) The bank is less than adequately 

capitalized (as defined in 12 CFR part 

6); 

(ii) The bank is in troubled condition 

(as defined in 12 CFR 5.51(c)(7)); 

(iii) Grounds for the appointment of a 

receiver under 12 U.S.C. 191, as 

determined by the OCC, are present; or 

(iv) The bank is otherwise in less than 

satisfactory condition, as determined by 

the OCC. 

(2) Exception. Anti-takeover 

provisions are not inconsistent with 

bank safety and soundness if, at the time 

the bank adopts the provisions: 

(i) The bank is not subject to any of 

the conditions in paragraph (d)(1) of this 

section; and 

(ii) The bank includes, in its articles 

of association or its bylaws, as 

applicable pursuant to paragraph (f) of 

this section, a limitation that would 

make the provisions ineffective if: 

(A) The conditions in paragraph (d)(1) 

of this section exist; or 

(B) The OCC otherwise directs the 

bank not to follow the provision for 

supervisory reasons. 

(e) Case-by-case review—(1) OCC 

determination. Based on the substance 

of the provision or the individual 

circumstances of a national bank, the 

OCC may determine that a State antitakeover provision, as proposed or 

adopted by a bank, is: 

(i) Inconsistent with Federal banking 

statutes or regulations, notwithstanding 

paragraph (b) of this section; or 

(ii) Inconsistent with bank safety and 

soundness other than as provided in 

paragraph (d) of this section. 

(2) Review. The OCC may initiate a 

review, or a bank may request OCC 

review pursuant to § 7.2000(d), of a 

State anti-takeover provision. 

(f) Method of adoption for antitakeover provisions—(1) Board and 

shareholder approval. A national bank 

must follow the provisions for approval 

by the board of directors and approval 

of shareholders for the adoption of an 

anti-takeover provision in the State 

corporate governance law it has elected 

to follow. However, if the provision is 

included in the bank’s articles of 

association, the bank’s shareholders 

must approve the amendment of the 

articles pursuant to 12 U.S.C. 21a, even 

if the State law does not require 

approval by the shareholders. 

(2) Documentation. If the State 

corporate governance law requires the 

anti-takeover provision to be in the 

company’s articles of incorporation, 

certificate of incorporation, or similar 

document, the national bank must 

include the provision in its articles of 

association. If the State corporate 

governance law does not require the 

provision to be in the company’s articles 

of incorporation, certificate of 

incorporation, or similar document, but 

allows it to be in the bylaws, then the 

national bank must include the 

provision in either its articles of 

association or in its bylaws, provided, 

however, that if the State corporate 

governance law requires shareholder 

approval for changes to the 

corporation’s bylaws, then the national 

bank must include the provision in its 

articles of association. 

■ 33. Amend § 7.2002 by: 

■ a. Revising the section heading; 

■ b. Removing the word ‘‘bank’s’’ and 

adding in its place the phrase ‘‘national 

bank’s’’ wherever it appears; and 

■ c. Adding the phrase ‘‘for shareholder 

voting’’ after the word ‘‘proxy’’ 

wherever it appears. 

The revision reads as follows: 

§ 7.2002 National bank director or attorney 

as proxy. 

* * * * * 

■ 34. Revise § 7.2003 to read as follows: 

§ 7.2003 National bank shareholder 

meetings; Board of directors meetings. 

(a) 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 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. 

(b) 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 must be held, 

and the directors elected, on the next 

following banking day. 

(c) Virtual participation at 

shareholder meetings—(1) In general. A 

national bank may provide for 

telephonic or electronic participation at 

shareholder meetings. 

(2) Procedures. A national bank must 

follow the procedures for telephonic or 

electronic participation in a shareholder 

meeting of the corporate governance 

provisions it has elected to follow 

pursuant to § 7.2000(b), if those elected 

provisions include telephonic or 

electronic participation procedures; the 

Delaware General Corporation Law, Del. 

Code Ann. Tit. 8 (1991, as amended 

1994, and as amended thereafter); or the 

Model Business Corporation Act, 

provided, however, that such 

procedures are not inconsistent with 

applicable Federal statutes and 

regulations and safety and soundness. 

The national bank must indicate the use 

of these procedures in its bylaws. 

(d) Virtual participation at board of 

directors meetings. A national bank may 

provide for telephonic or electronic 

participation at a meeting of its board of 

directors. 

■ 35. Revise the heading for § 7.2004 to 

read as follows: 

§ 7.2004 Honorary national bank directors 

or advisory boards. 

* * * * * 

■ 36. Amend § 7.2005 by: 

■ a. Revising the section heading and 

the heading in paragraph (a); and 

■ b. Removing in paragraph (c)(3)(ii), 

the word ‘‘shall’’ and adding in its place 

the word ‘‘must’’. 

The revision reads as follows: 

§ 7.2005 Ownership of stock necessary to 

qualify as director of a national bank. 

(a) In general. * * * 

* * * * * 

■ 37. Amend § 7.2006 by: 

■ a. Revising the section heading; and 

■ b. In the first sentence, removing the 

phrase ‘‘When electing directors, a 

shareholder shall’’ and adding in its 


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place the phrase ‘‘When electing 

national bank directors, a shareholder 

must’’. 

The revision reads as follows: 

§ 7.2006 Cumulative voting in election of 

national bank directors. 

* * * * * 

■ 38. Amend § 7.2007 by: 

■ a. Revising the section heading; 

■ b. In paragraph (a), adding the word 

‘‘national’’ before the phrase ‘‘bank’s 

articles of association’’ in the first 

sentence; and 

■ c. In paragraph (b), removing the 

phrase ‘‘If a vacancy occurs on the board 

of directors,’’ and adding in its place the 

phrase ‘‘If a vacancy occurs on the 

national bank’s board of directors,’’. 

The revision reads as follows: 

§ 7.2007 Filling vacancies and increasing 

board of directors of a national bank other 

than by shareholder action. 

* * * * * 

■ 39. Amend § 7.2008 by: 

■ a. Revising the section heading and 

paragraph (a); and 

■ b. In paragraph (b): 

■ i. Removing the phrase ‘‘Each director 

shall execute’’ and adding in its place 

the phrase ‘‘Each national bank director 

must execute’’ in the first sentence; and 

■ ii. Removing the phrase ‘‘A director 

shall take’’ and adding in its place the 

phrase ‘‘A national bank director must 

take’’ in the second sentence. 

The revision reads as follows: 

§ 7.2008 Oath of national bank directors. 

(a) Administration of the oath. The 

oath of directors must be administered 

by: 

(1) A notary public, including one 

who is a director but not an officer of 

the national bank; or 

(2) Any person, including one who is 

a director but not an officer of the 

national bank, having an official seal 

and authorized by the State to 

administer oaths. 

* * * * * 

■ 40. Amend § 7.2009 by: 

■ a. Revising the section heading; and 

■ b. Removing the word ‘‘shall’’ and 

adding in its place the word ‘‘must’’. 

The revision reads as follows: 

§ 7.2009 Quorum of a national bank board 

of directors; proxies not permissible. 

* * * * * 

■ 41. Amend § 7.2010 by: 

■ a. Revising the section heading; and 

■ b. Removing the phrase ‘‘affairs of the 

bank shall’’ and adding in its place the 

phrase ‘‘affairs of a national bank must’’ 

in the first sentence. 

The revision reads as follows: 

§ 7.2010 National bank directors’ 

responsibilities. 

* * * * * 

■ 42. Revise the heading of § 7.2011 to 

read as follows: 

§ 7.2011 National bank compensation 

plans. 

* * * * * 

■ 43. Revise § 7.2012 to read as follows: 

§ 7.2012 President as director of a national 

bank. 

Pursuant to 12 U.S.C. 76, the person 

serving as, or in the function of, 

president of a national bank, regardless 

of title, must be a member of the board 

of directors. A director other than the 

person serving as, or in the function of, 

president may be elected chairman of 

the board. 

■ 44. Revise the heading of § 7.2013 to 

read as follows: 

§ 7.2013 Fidelity bonds covering national 

bank officers and employees. 

* * * * * 

■ 45. Revise § 7.2014 to read as follows: 

§ 7.2014 Indemnification of national bank 

and Federal savings association institutionaffiliated parties. 

(a) Indemnification under State law. 

Subject to the limitations of paragraph 

(b) of this section, a national bank or 

Federal savings association 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 

the bank or savings association has 

designated for its corporate governance 

pursuant to § 7.2000(b) (for national 

banks), 12 CFR 5.21(j)(3)(ii) (for Federal 

mutual savings associations), or 12 CFR 

5.22(j)(2)(ii) (for Federal stock savings 

associations), provided such payments 

are consistent with safe and sound 

banking practices. The term 

‘‘institution-affiliated party’’ has the 

same meaning as set forth at 12 U.S.C. 

1813(u). 

(b) Administrative proceedings or civil 

actions initiated by Federal banking 

agencies. With respect to an 

administrative proceeding or civil 

action initiated by any Federal banking 

agency, a national bank or Federal 

savings association may only make or 

agree to make indemnification payments 

to an institution-affiliated party that are 

reasonable and consistent with the 

requirements of 12 U.S.C. 1828(k) and 

12 CFR chapter III. 

(c) Written agreement required for 

advancement. Before advancing funds 

to an institutional-affiliated party under 

this section, a national bank or Federal 

savings association must obtain a 

written agreement that the institutionaffiliated party will reimburse the bank 

or savings association, as appropriate, 

for any portion of that indemnification 

that the institution-affiliated party is 

ultimately found not to be entitled to 

under 12 U.S.C. 1828(k) and 12 CFR 

chapter III, except to the extent that the 

bank’s or savings association’s expenses 

have been reimbursed by an insurance 

policy or fidelity bond. 

(d) Insurance premiums. A national 

bank or Federal savings association 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 this section. 

■ 46. Revise the heading of § 7.2015 to 

read as follows: 

§ 7.2015 National bank cashier. 

* * * * * 

■ 47. Amend § 7.2016 by: 

■ a. Revising the section heading; 

■ b. Redesignating paragraphs (a) and 

(b) as paragraphs (a)(1) and (2), 

respectively, and adding a heading for 

paragraph (a); and 

■ c. Adding a new paragraph (b). 

The revision and additions read as 

follows: 

§ 7.2016 Restricting transfer of national 

bank stock and record dates; stock 

certificates. 

(a) Restricting transfer of stock and 

record dates—* * * 

(b) Bank stock certificates. (1) A 

national bank may prescribe the manner 

in which its stock must be transferred in 

its bylaws or articles of association. A 

bank issuing stock in certificated form 

must comply with the requirements of 

12 U.S.C. 52, including as to: 

(i) The name and location of the bank; 

(ii) The name of the holder of record 

of the stock represented thereby; 

(iii) The number and class of shares 

which the certificate represents; 

(iv) If the bank issues more than one 

class of stock, the respective rights, 

preferences, privileges, voting rights, 

powers, restrictions, limitations, and 

qualifications of each class of stock 

issued (unless incorporated by reference 

to the articles of association); 

(v) Signatures of the president and 

cashier of the bank, or such other 

officers as the bylaws of the bank 

provide; and 

(vi) The seal of the bank. 

(2) The requirements of paragraph 

(b)(1)(v) of this section may be met 

through the use of electronic means or 

by facsimile. 

§§ 7.2017 and 7.2018 [Removed] 

■ 48. Remove §§ 7.2017 and 7.2018. 


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■ 49. Revise the heading of § 7.2019 to 

read as follows: 

§ 7.2019 Loans secured by a national 

bank’s own shares. 

* * * * * 

§ 7.2020 [Removed] 

■ 50. Remove § 7.2020. 

■ 51. Revise the heading of § 7.2021 to 

read as follows: 

§ 7.2021 National bank preemptive rights. 

* * * * * 

■ 52. Amend § 7.2022 by: 

■ a. Revising the section heading; and 

■ b. Removing the word ‘‘state’’ and 

adding in its place the word ‘‘State’’. 

The revision reads as follows: 

§ 7.2022 National bank voting trusts. 

* * * * * 

■ 53. Revise the heading of § 7.2023 to 

read as follows: 

§ 7.2023 National bank reverse stock 

splits. 

* * * * * 

§ 7.2024 [Amended] 

■ 54. Amend § 7.2024(a) and (c) by 

removing the word ‘‘shall’’ and adding 

in its place the word ‘‘must’’ wherever 

it appears. 

■ 55. Add § 7.2025 to read as follows: 

§ 7.2025 Capital stock-related activities of 

a national bank. 

(a) In general. A national bank must 

obtain the necessary shareholder 

approval required by 12 U.S.C. 51a, 57, 

or 59 for any change in its permanent 

capital. An increase or decrease in the 

amount of a national bank’s common or 

preferred stock is a change in permanent 

capital subject to the notice and 

approval requirements of 12 CFR 5.46 

and applicable law. A national bank 

may obtain the required shareholder 

approval of changes in permanent 

capital, as provided in paragraphs (b), 

(c), and (d) of this section. 

(b) Issuance of previously approved 

and authorized common stock. In 

compliance with 12 U.S.C. 57, a 

national bank may issue common stock 

up to an amount previously approved 

and authorized in the national bank’s 

articles of association by holders of twothirds of the national bank’s shares 

without obtaining additional 

shareholder approval for each 

subsequent issuance within the 

authorized amount. 

(c) Issuance, repurchase, and 

redemption of preferred stock pursuant 

to certain procedures. Subject to the 

requirements of 12 U.S.C. 51a and 59, a 

national bank may adopt procedures to 

authorize the board of directors to issue, 

determine the terms of, repurchase, and 

redeem one or more series of preferred 

stock, if permitted by the corporate 

governance provisions adopted by the 

bank under § 7.2000. To satisfy the 

shareholder approval requirements of 12 

U.S.C. 51a and 59, the adoption of such 

procedures must be approved by 

shareholders in advance through an 

amendment to the national bank’s 

articles of association. Any amendment 

to a national bank’s articles of 

association that authorizes both the 

issuance and the repurchase and 

redemption of shares must be approved 

by holders of two-thirds of the national 

bank’s shares. 

(d) Share repurchase programs. 

Subject to the requirements of 12 U.S.C. 

59, a national bank may establish a 

program for the repurchase, from time to 

time, of the national bank’s common or 

preferred stock, if permitted by the 

corporate governance provisions 

adopted by the bank under § 7.2000. To 

satisfy the shareholder approval 

requirement of 12 U.S.C. 59, the 

repurchase program must be approved 

in advance by the holders of two-thirds 

of the national bank’s shares, including 

through an amendment to the national 

bank’s articles of association that 

authorizes the board of directors to 

repurchase the national bank’s common 

or preferred stock from time to time 

under board-determined parameters that 

can limit the frequency, type, aggregate 

limit, or purchase price of repurchases. 

(e) Preferred Stock Features. A 

national bank’s preferred stock may be 

cumulative or non-cumulative and may 

or may not have voting rights on one or 

more series. 

■ 56. Revise the heading for subpart C 

to read as follows: 

Subpart C—National Bank and Federal 

Savings Association Operations 

■ 57. Revise § 7.3000 to read as follows: 

§ 7.3000 National bank and Federal 

savings association operating hours and 

closings. 

(a) Operating hours. The board of 

directors of a national bank or Federal 

savings association, or an equivalent 

person or committee of a Federal branch 

or agency, should review its hours of 

operations for customers and, 

independently of any other bank, 

savings association, or Federal branch or 

agency, take appropriate action to 

establish a schedule of operating hours 

for customers. 

(b) Emergency closings declared by 

the Comptroller. Pursuant to 12 U.S.C. 

95(b)(1) and 1463(a)(1)(A), the 

Comptroller of the Currency 

(Comptroller), may declare any day a 

legal holiday if emergency conditions 

exist. That day is a legal holiday for 

national banks, Federal savings 

associations, and Federal branches or 

agencies in the affected geographic area 

(i.e., throughout the United States, in a 

State, or in part of a State), and national 

banks, Federal savings associations, and 

Federal branches and agencies may 

temporarily limit or suspend operations 

at their affected offices, unless the 

Comptroller by written order directs 

otherwise. Emergency conditions may 

be caused by acts of nature or of man 

and may include natural and other 

disasters, public health or safety 

emergencies, civil and municipal 

emergencies, and cyber threats or other 

unauthorized intrusions (e.g., severe 

flooding, a pandemic, terrorism, a cyberattack on bank systems, or a power 

emergency declared by a local power 

company or government requesting that 

businesses in the affected area close). 

The Comptroller may issue a 

proclamation authorizing the emergency 

closing in anticipation of the emergency 

condition, at the time of the emergency 

condition, or soon thereafter. In the 

absence of a Comptroller declaration of 

a bank holiday, a national bank, Federal 

savings associations, or Federal branch 

or agency may choose to temporarily 

close offices in response to an 

emergency condition. The national 

bank, Federal savings associations, or 

Federal branch or agency should notify 

the OCC of such temporary closure as 

soon as feasible. 

(c) Emergency and ceremonial 

closings declared by a State or State 

official. In the event a State or a legally 

authorized State official declares any 

day to be a legal holiday for emergency 

or ceremonial reasons in that State or 

part of the State, that same day is a legal 

holiday for national banks, Federal 

savings associations, and Federal 

branches or agencies or their offices in 

the affected geographic area. National 

banks, Federal savings associations, and 

Federal branches or agencies or their 

affected offices may close their affected 

offices or remain open on such a Statedesignated holiday, unless the 

Comptroller by written order directs 

otherwise. 

(d) Liability. A national bank, Federal 

savings association, or Federal branch or 

agency should assure that all liabilities 

or other obligations under the 

applicable law due to its closing are 

satisfied. 

(e) Definition. For the purpose of this 

subpart, the term ‘‘State’’ means any of 

the several States, the District of 

Columbia, the Commonwealth of Puerto 


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Rico, the Northern Mariana Islands, 

Guam, the Virgin Islands, American 

Samoa, the Trust Territory of the Pacific 

Islands, or any other territory or 

possession of the United States. 

§ 7.3001 [Amended] 

■ 58. Amend § 7.3001 by: 

■ a. In paragraph (a)(1), removing the 

phrase ‘‘Lease excess space’’ and adding 

in its place the phrase ‘‘Consistent with 

§ 7.1024, lease excess space’’; 

■ b. In paragraph (c) introductory text, 

removing the word ‘‘shall’’ and adding 

in its place the word ‘‘must’’; and 

■ c. In paragraph (c)(3), removing the 

word ‘‘state’’ and adding in its place the 

word ‘‘State’’. 

§ § 7.4003 through 7.4005 [Removed] 

■ 59. Remove §§ 7.4003 through 7.4005. 

■ 60. Revise § 7.5001 to read as follows: 

§ 7.5001 Electronic activities that are 

incidental to the business of banking. 

In addition to the electronic activities 

specifically permitted in § 7.5004 (sale 

of excess electronic capacity and byproducts) and § 7.5006 (incidental nonfinancial data processing), the OCC has 

determined that the following electronic 

activities are incidental to the business 

of banking, pursuant to § 7.1000. This 

list of activities is illustrative and not 

exclusive; the OCC may determine that 

other activities are permissible pursuant 

to this authority. 

(a) Website development where 

incidental to other banking services; 

(b) Internet access and email provided 

on a non-profit basis as a promotional 

activity; 

(c) Advisory and consulting services 

on electronic activities where the 

services are incidental to customer use 

of electronic banking services; and 

(d) Sale of equipment that is 

convenient or useful to customer’s use 

of related electronic banking services, 

such as specialized terminals for 

scanning checks that will be deposited 

electronically by wholesale customers of 

banks under the Check Clearing for the 

21st Century Act, Public Law 108–100 

(12 U.S.C. 5001–5018) (the Check 21 

Act). 

PART 145—FEDERAL SAVINGS 

ASSOCIATIONS—OPERATIONS 

■ 61. The authority citation for part 145 

continues to read as follows: 

Authority: 12 U.S.C. 1462a, 1463, 1464, 

1828, 5412(b)(2)(B). 

§ 145.121 [Removed] 

■ 62. Remove § 145.121. 

PART 160—LENDING AND 

INVESTMENT 

■ 63. The authority citation for part 160 

continues to read as follows: 

Authority: 12 U.S.C. 1462a, 1463, 1464, 

1467a, 1701j–3, 1828, 3803, 3806, 

5412(b)(2)(B); 42 U.S.C. 4106. 

§ 160.50 [Removed] 

■ 64. Remove § 160.50. 

§ 160.120 [Removed] 

■ 65. Remove § 160.120. 

Brian P. Brooks, 

Acting Comptroller of the Currency. 

[FR Doc. 2020–26225 Filed 12–21–20; 8:45 am] 

BILLING CODE 4810–33–P 


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