Investment in 

Subsidiaries and Equities 

Comptroller's Licensing Manual

Washington, DC 

July 2008
Investment in 

Subsidiaries and Equities Table of Contents

Introduction.............................................................................................................1 

Key Policies.............................................................................................................1 

Applications and Notices..............................................................................1

 Special Conditions........................................................................................2 

 Undercapitalized Banks................................................................................2 

Publication ...................................................................................................3 

Consolidated Financial Statements................................................................3 

Multiple Transactions ...................................................................................3 

Mergers and Acquisitions..............................................................................3 

Offshore Subsidiaries....................................................................................4 

Examination and Supervision........................................................................5 

Operating Subsidiaries.............................................................................................5 

Ownership....................................................................................................6 

Partnership or Joint Venture..........................................................................6 

Noncontrolling Interest.................................................................................6 

Decision Criteria...........................................................................................7 

Filing Process................................................................................................7 

After-the-Fact Notice..........................................................................8 

Standard Review............................................................................. 10 

 Specific Requirements ............................................................................... 11 

 Insurance........................................................................................ 11 

 Electronic Activities ........................................................................ 12 

 Fiduciary Powers ............................................................................ 12 

Locations ................................................................................................... 13 

Annual Reporting Requirement.................................................................. 13 

Applicability of Law................................................................................... 13 

Holding Company Dissolution .................................................................. 14 

Financial Subsidiaries ........................................................................................... 14 

Qualifications ............................................................................................ 14 

Activities.................................................................................................... 15 

Exceptions ................................................................................................. 16 

Safeguards ................................................................................................. 16 

Filing Process............................................................................................. 17 

 Certification with Subsequent Notice.............................................. 17 

 Combined Certification and Notice................................................. 18 

Failure to Continue to Meet Qualifications ................................................ 18 

Bank Service Company......................................................................................... 19 

Filing Process............................................................................................. 20 

Decision Criteria........................................................................................ 20 

After-the-Fact Notice.................................................................................. 20 

No Filing Required .................................................................................... 21 

Other Equity Investments...................................................................................... 21 

Statutory Subsidiaries................................................................................. 22 

Noncontrolling Investments....................................................................... 23 

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Procedures............................................................................................................ 25 

 Operating Subsidiary and Bank Service Company – After-the-Fact 

 Notice ................................................................................................. 25 

Operating Subsidiary and Bank Service Company – Application ............... 27 

Financial Subsidiary – Certification............................................................ 32 

Financial Subsidiary – Notice .................................................................... 34 

Financial Subsidiary -- Combined Certification and Notice ........................ 36 

Noncontrolling Investments -- After-the-Fact Notice................................... 39 

Appendix A -- Operating Subsidiary Guidelines.................................................... 42 

Appendix B -- Noncontrolling Investment Guidelines........................................... 71 

Glossary .............................................................................................................. 83 

References............................................................................................................ 85 

 

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Investment in Subsidiaries and Equities 

Introduction 

Banks develop, and offer through various subsidiaries and other business entities, a 

wide range of products and services designed to increase profitability, improve 

service to customers, and respond to technological innovations and competition. 

These subsidiaries and other business entities include operating subsidiaries, 

financial subsidiaries, bank service companies, and noncontrolling interests in 

business entities performing bank permissible activities (subsidiaries or 

noncontrolling investments). This booklet describes various types of subsidiaries or 

noncontrolling investments that banks can establish and provides detailed guidance 

on permissible and incidental activities. 

The Comptroller of the Currency (OCC) has created procedures and conditions for 

the establishment and operations of subsidiaries or noncontrolling investments. 

This booklet outlines these procedures and conditions. 

To establish a subsidiary or make a noncontrolling investment, the OCC generally 

requires banks to submit an application and obtain prior approval. In some cases, 

banks can submit to the OCC an after-the-fact notice, when establishing or 

commencing new activities in subsidiaries or noncontrolling investments. This 

booklet contains policies and procedures to guide banks in filing these applications 

and notices and outlines exceptions to these requirements. It also provides 

information on the regulatory and statutory factors the OCC considers in making a 

decision; the application process (including the prefiling process, filing the 

application, and processing time frames); application issues; specific requirements 

for insurance, electronic, and fiduciary activities; and the post approval process. 

This booklet also provides a step-by-step procedures section for the applicant and 

the OCC to follow and a glossary of terms used. Throughout this booklet there are 

hyperlinks to filing samples and other booklets in the Comptroller’s Licensing 

Manual series, as well as other information applicants may use to file to establish 

various subsidiaries or noncontrolling investments. 

Key Policies 

Applications and Notices 

In most cases, a national bank is required to submit an application or notice and 

obtain OCC approval or “no objection” prior to establishing, acquiring, or investing 

in an operating or financial subsidiary, or performing a new activity in an existing 

operating or financial subsidiary. Banks must generally file a notice with the OCC 

to make an investment in a bank service company or a noncontrolling equity 

investment in an entity that performs bank permissible activities. 

A national bank that is “well capitalized” and “well managed” (see Glossary) may 

file an after-the-fact notice if it is planning to engage in certain qualifying activities. 

If the activity does not qualify, or if the bank is not eligible to file an after-the-fact 

notice, the bank must file an application. The qualifying criteria to establish a 

subsidiary and the pre-approved activities that subsidiaries may perform are 

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discussed in detail in this booklet. Applicants should contact the Director for 

District Licensing, to determine the eligibility of the bank and the activity for the 

after-the-fact notice, or to determine if the OCC will require an application. 

The OCC reviews a bank's filing to determine whether the proposed activities and 

location are legally permissible, the activities comply with OCC policy, and the 

activities will not endanger the safety and soundness of the bank. 

The OCC will conduct a detailed analysis of the new activity, taking into 

consideration the inherent risk characteristics of the activity, the condition of the 

institution seeking to conduct the activity, and the proposed volume of the new 

activity. The OCC will determine whether the proposed activity can be regulated 

and supervised appropriately to address safety and soundness risks and to otherwise 

serve the public interest. Protection of consumers and prevention of financial 

crimes are examples of how the public interest is served. 

The OCC will consider the applicant's efforts to identify, plan for, and manage 

systems risks for those activities heavily reliant upon technology. These risks could 

include software incompatibility, systems integration problems, or hardware system 

failures. These systems risks are present, for example, when a bank’s operating 

subsidiary performs data processing activities or provides electronic banking 

services, such as stored value, remote banking, or electronic authentication 

activities. 

Any application that does not adequately address these risks could require 

additional processing time, be subject to special enforceable conditions, or result in 

an OCC decision to deny. 

Special Conditions 

The OCC may conditionally approve an application after reviewing the filing and 

considering the relevant factors, and impose special conditions for the activities of 

subsidiaries or noncontrolling investments. Special conditions are considered 

“conditions imposed in writing” within the meaning of 12 USC 1818. The OCC 

uses special conditions to protect the safety and soundness of the bank, prevent 

conflicts of interest, provide customer protection, or provide for other supervisory or 

policy considerations. 

Undercapitalized Banks 

The OCC may approve an application from an undercapitalized bank to establish or 

invest in subsidiaries or noncontrolling investments, or approve the entity to engage 

in a new activity, if the OCC determines that: 

• The bank has submitted an acceptable capital restoration plan. 

• The bank is implementing the plan. 

• The proposed filing is consistent with and will further the plan’s achievement.

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Publication 

Generally, the OCC does not require public notice for filings covered by this 

booklet, unless the application presents significant and novel policy, supervisory, or 

legal issues and a public notice is beneficial. (See the “Public Notice and 

Comments” booklet, “Additional Public Notice by Applicant,” for more 

information.) 

Consolidated Financial Statements 

Consolidated financial statements combine the assets, liabilities, revenues, and 

expenses of the subsidiary with those of the reporting bank. Ownership interests 

should be accounted for in accordance with generally accepted accounting 

procedures (GAAP). Refer to Accounting, Related Organizations Handbook, for a 

specific discussion and additional guidance. 

The bank will combine pertinent financial data of the parent bank and its 

subsidiaries to conform to applicable statutory limitations, unless otherwise 

provided by statute or regulation. For example, the combined exposure of the 

parent bank and all of its operating subsidiaries to a single borrower may not exceed 

the bank’s lending limit. 

Multiple Transactions 

The OCC does not require a separate application for subsidiaries or noncontrolling 

investments when the entity is: 

• Retained in a merging or converting institution. 

• Established together with an application for a new national bank charter. (See 

the “Charters” booklet for additional information.) 

In these situations, the OCC will consider the subsidiaries or noncontrolling 

investments with the primary filing and, if appropriate, may request a legal opinion 

on the subsidiary's activities or the activities of the entity in which the bank has a 

noncontrolling investment. The review period will run concurrently with the OCC's 

processing and decision on the merger, conversion, or charter application. The 

OCC will include its decision on the filing and any appropriate conditions in the 

decision letter for the merger, conversion, or charter. 

Mergers and Acquisitions 

Generally, the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR) requires 

that prior notice of certain proposed mergers and acquisitions be provided to the 

Federal Trade Commission (FTC) and Department of Justice (DOJ). The HSR 

established pre-merger notification and waiting-period requirements for certain 

merger and acquisition transactions exceeding certain threshold tests. 

The threshold tests relate to the size of the parties to the transaction and to the size 

of the ownership interest being acquired. Exceptions exist for acquisitions subject 

to federal agency antitrust review and approval, such as applications under the Bank 

Merger Act (BMA) and sections 3 and 4 of the Bank Holding Company Act (BHCA). 

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Frequently, however, the acquisition of operating and financial subsidiaries will be 

done outside of the scope of the BMA or BHCA. In such cases, applicants should 

carefully consider the thresholds and waiting periods established under the HSR. 

Based on interpretations of the FTC and DOJ, transactions subject to the HSR 

include acquisitions of financial subsidiaries, whether on a stand-alone basis or as 

part of a BMA application. Transactions involving operating subsidiary acquisitions 

as part of a BMA application are exempt from the HSR provided the assets or 

subsidiaries acquired are held by the target of the BMA application. An acquisition 

of an operating subsidiary triggering the threshold tests will be subject to the HSR 

unless it is exempt under any of the relevant statutes specified in the HSR. The FTC 

will not grant an exception for any portion of a bank transaction that may fall 

outside of the BMA. The FTC refers to these types of acquisitions as “mixed 

transactions” and requires HSR filing for any part of the transaction not acquired 

pursuant to a BMA filing. 

The acquirer and the target must determine the applicability of HSR to the proposed 

transaction, and, if required, file a copy of the filing with the FTC and DOJ at least 

30 days before planned consummation. The HSR authorizes the assessment of civil 

money penalties for failure to comply with its provisions. 

Offshore Subsidiaries 

Foreign law may limit OCC supervisory authority over offshore subsidiaries of 

national banks. As a result, national banks that establish or acquire an offshore 

subsidiary either through the application process or an after-the-fact notice, must 

make certain representations to assure OCC access to the books and records of 

those subsidiaries and the authority to examine, supervise, and regulate those 

subsidiaries. An offshore subsidiary is a subsidiary that will maintain records 

offshore, or that is organized under laws other than those of the 50 United States, 

the District of Columbia, or any other Territory or possession of the United States. 

The representations are: 

 

• The books and records of the subsidiary (or duplicate copies of any books 

and records the originals of which are required to be maintained in [name of 

country] under applicable law) will be maintained at facilities of the bank in 

the United States, and the bank and the subsidiary will ensure prompt OCC 

access to all books and records; and 

• Should the OCC be unable to access the subsidiary’s books and records, or 

examine, supervise, or regulate the subsidiary to its satisfaction, resulting in 

an OCC bank directive to cease operations through the subsidiary, the bank 

will do so within the time period specified by the OCC. 

If the applicant is unable make any of the above representations, contact the 

Director for District Licensing for further guidance. 

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Examination and Supervision 

 Subsidiaries are subject to OCC examination and supervision exclusively, to the 

same extent as the parent national bank, except when federal law specifically 

provides otherwise, such as when the activity is subject to functional regulation 

limitations and requirements. The Gramm-Leach-Bliley Act (GLBA) codified the 

concept of “functional regulation,” which recognizes the roles of the Securities and 

Exchange Commission (SEC), the Commodities Futures Trading Commission (CFTC), 

and state insurance commissioners as the regulators of certain securities, 

commodities, and insurance activities, respectively. 

Bank service companies are subject to examination and supervision by the federal 

banking agency that supervises the insured depository institution that is the principal 

investor in the company. Additionally, its services are subject to examination and 

supervision to the same extent as if the depository institution itself performed the 

services on its own premises. The services may be subject to functional regulation 

limitations and requirements to the extent that the bank service company 

performing the services meets the GLBA definition of a functionally regulated 

affiliate or subsidiary. 

While the GLBA established new standards limiting the OCC’s ability to examine 

and seek reports on functionally regulated activities from the bank’s subsidiaries and 

affiliates, the activities may be subject to OCC supervision for bank safety and 

soundness reasons or based on separate statutory authority. The OCC may direct 

the bank or subsidiary to take appropriate remedial action if it determines that the 

creation or operation of the subsidiary violates a law, regulation, or written 

condition, or is unsafe or unsound, or threatens the safety and soundness of the 

bank. Such action may include disposing of, or liquidating all or part of, the 

subsidiary or discontinuing specific activities. Refer to Related Organizations 

Handbook for further discussion of the OCC’s examination and supervision of 

subsidiaries and other related organizations. 

Operating Subsidiaries 

An operating subsidiary is a corporation, limited liability company (LLC), or similar 

entity a bank owns or controls in which it may conduct activities that the bank 

could engage in directly, either as part of, or incidental to, the business of banking, 

as determined by the OCC. 

To determine if an activity is part of the business of banking, the OCC considers if it: 

• Is the functional equivalent to, or a logical out-growth of, a recognized banking 

activity. 

• Strengthens the bank by benefiting its customers or its business. 

• Involves risks similar in nature to those already assumed by banks. 

• Is authorized for state-chartered banks. 

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To determine if an activity is incidental to the business of banking, the OCC 

considers whether it is convenient or useful to the bank in conducting its banking 

business. 

Ownership 

A bank may invest in an operating subsidiary if the bank owns and maintains more 

than 50 percent of the operating subsidiary’s voting stock or similar interest, or 

otherwise controls the entity. 

A bank may own 50 percent or less of the voting interest of an operating subsidiary 

if it controls the subsidiary and no other party controls more than 50 percent (or a 

percentage greater than the bank's interest) of the voting interest in the subsidiary. 

A bank must file an application for OCC approval when proposing to own this type 

of interest in an operating subsidiary. 

The OCC will evaluate a bank’s control mechanisms in the review process to ensure 

the bank has effective control over the operating subsidiary. The OCC will review 

carefully the risks inherent in any proposal to ensure the bank is not exposed to 

undue risks. The OCC also will consider if generally accepted accounting 

principles or consolidated report of condition and income (Call Report) instructions 

require consolidated financial statements for the bank and its operating subsidiary. 

If the bank is required to consolidate its ownership of the subsidiary solely because 

of the Financial Accounting Standards Board’s Interpretation No. 46, Consolidation 

of Variable Interest Entities, the bank should contact the district accountant or 

Director for District Licensing to determine the filing and approval requirements 

prior to any filing. 

Partnership or Joint Venture 

A bank's operating subsidiary may be a general or limited partner in a partnership or 

a member of a joint venture. If a bank proposes to enter such an arrangement 

through an operating subsidiary, with the subsidiary being either a limited or a 

general partner or member, the bank must file with the OCC and receive approval 

for the subsidiary's activity. The operating subsidiary must be “adequately 

capitalized” (refer to Glossary for definition) and operated appropriately to minimize 

the risk of liability passing through the subsidiary to the bank. 

Whenever an operating subsidiary joins a partnership or joint venture, it must either 

control the conduct of the business, possess a veto power, or be able to withdraw 

from the transaction to ensure the partnership or joint venture will perform only 

activities that are part of, or incidental to, the business of banking, or are otherwise 

authorized for a national bank. 

Noncontrolling Interest 

A bank proposing to own less than 50 percent of the voting (or similar) interest of a 

business entity and not exercise control of it may be eligible to do so as an “other 

equity investment” (12 CFR 5.36). In addition, the OCC may determine that 

ownership of a noncontrolling interest in an entity (for example, an LLC) by an 

operating subsidiary is permissible. Additional information and guidance may be 

found in the “Other Equity Investments” section of this booklet. 

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Decision Criteria 

The OCC generally will grant approval for the investment in an operating 

subsidiary, provided that: 

• The subsidiary's proposed activity is legally permissible. 

• The activity of the bank and its subsidiary is consistent with safe and sound 

banking practices. 

• The bank's performance of the activity through the subsidiary is not in 

contravention of OCC policy. 

Filing Process 

The bank's condition and the subsidiary's activity will determine the way a bank 

files with the Director for District Licensing. Depending on these factors, the OCC 

will permit the bank to submit an after-the-fact notice (notice process), will require a 

standard application, or, in limited circumstances, will not require that an 

application be filed (see below for specifics or 12 CFR 5.34). 

Only “well capitalized” and “well managed” (see Glossary) banks may file under the 

notice process, and the subsidiary's activities must be among those listed in the 

regulation (12 CFR 5.34(e)(5)(v)). In addition to being listed in the regulation, the 

activity must be conducted in a manner that does not raise OCC policy issues or 

supervisory concerns. Making loans and other extensions of credit is an example of 

a well-established activity previously approved by the OCC for operating 

subsidiaries. This activity is listed in the regulation and is eligible for the notice 

process. However, when the activity is conducted on terms other than those 

considered standard by policy or guidelines, as in certain types of subprime lending, 

there is a potential to create a policy issue or supervisory concern, and the activity 

thereby becomes ineligible for the notice process. 

For banks that do not qualify, or when activities proposed are not among those 

eligible for the notice process, the bank must follow the standard filing process. 

The OCC does not require an application or notice for a bank to acquire or establish 

an operating subsidiary, provided that the bank is “adequately” or “well capitalized” 

(see Glossary) and all of the following requirements are met: 

• Activities of the new operating subsidiary are limited to those activities 

previously reported by the bank in connection with the prior establishment or 

acquisition of an operating subsidiary. 

• Establishment or acquisition of the prior operating subsidiary was deemed 

permissible by the OCC. 

• Activities in which the new subsidiary will engage continue to be legally 

permissible. 

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• Activities of the new operating subsidiary will be conducted in accordance with 

any conditions imposed by the OCC in approving the conduct of these activities 

for any prior operating subsidiary of the bank and according to the OCC's 

published guidelines for operating subsidiaries (see Appendix A). 

After-the-Fact Notice 

A bank meeting certain criteria may file an after-the-fact notice for specific activities 

listed in the “activities eligible for notice” section of 12 CFR 5.34(e)(5)(v). The afterthe-fact notice category contains commonly accepted banking-related activities the 

OCC has approved previously for operating subsidiaries. Under this process, a bank 

files a written notice with the OCC within 10 days after establishing or acquiring the 

operating subsidiary, or commencing a new activity in an existing operating 

subsidiary, and need not seek prior OCC approval. The OCC's Operating 

Subsidiary Guidelines (see Appendix A) describe the requirements or limitations for 

activities eligible for the notice process. 

To qualify for the notice process, the bank owning the subsidiary must be “well 

capitalized” and “well managed” (see Glossary). Any bank filing an after-the-fact 

notice under this section is deemed to have represented that the subsidiary will 

conduct the activity in a manner consistent with OCC's guidance and under the 

same terms and conditions as applicable if the activity were conducted directly by 

the bank. 

12 CFR 5.34 (e)(5)(v) lists those activities which qualify for the notice process. The 

list includes, but is not limited to: 

• Holding and managing assets acquired by the parent bank, including 

investment assets and property acquired by the bank through foreclosure or 

otherwise in good faith to compromise a doubtful claim, or in the ordinary 

course of collecting a debt previously contracted. 

• Providing services to or for the bank or its affiliates, including accounting, 

auditing, appraising, advertising and public relations, and financial advice and 

consulting. 

• Making loans or other extensions of credit, and selling money orders, savings 

bonds, and travelers checks. 

• Purchasing, selling, servicing, or warehousing loans or other extensions of 

credit, or interests therein. 

• Providing courier services between financial institutions. 

• Providing management consulting, operational advice, and services for other 

financial institutions. 

• Providing check guaranty, verification, and payment services. 

• Providing data processing, data warehousing and data transmission products, 

services, and related activities and facilities, including associated equipment 

and technology, for the bank or its affiliates. 

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• Acting as investment adviser (including an adviser with investment discretion) 

or financial adviser or counselor to governmental entities or instrumentalities, 

businesses, or individuals, including advising registered investment companies 

and mortgage or real estate investment trusts, furnishing economic forecasts or 

other economic information, providing investment advice related to futures and 

options on futures, and providing consumer financial counseling. 

• Providing tax planning and preparation services. 

• Providing financial and transactional advice and assistance, including advice 

and assistance for customers in structuring, arranging, and executing mergers 

and acquisitions, divestitures, joint ventures, leveraged buyouts, swaps, foreign 

exchange, derivative transactions, coin and bullion, and capital restructurings. 

• Underwriting and reinsuring credit related insurance to the extent permitted 

under section 302 of the GLBA. 

• Leasing of personal property and acting as an agent or adviser in leases for 

others. 

• Providing securities brokerage or acting as a futures commission merchant, and 

providing related credit and other related services. 

• Underwriting and dealing, including making a market, in bank permissible 

securities and purchasing and selling as principal, asset backed obligations. 

• Acting as an insurance agent or broker, including title insurance to the extent 

permitted under section 303 of the GLBA. 

• Reinsuring mortgage insurance on loans originated, purchased, or serviced by 

the bank, its subsidiaries, or its affiliates, provided that if the subsidiary enters 

into a quota share agreement, the subsidiary assumes less than 50 percent of 

the aggregate insured risk covered by the quota share agreement. A “quota 

share agreement” is an agreement under which the reinsurer is liable to the 

primary insurance underwriter for an agreed upon percentage of every claim 

arising out of the covered book of business ceded by the primary insurance 

underwriter to the reinsurer. 

• Acting as a finder to the extent permitted by published OCC precedent. 

• Offering correspondent services to the extent permitted by published OCC 

precedent. 

• Acting as agent or broker in the sale of fixed or variable annuities. 

• Offering debt cancellation or debt suspension agreements. 

• Providing real estate settlement, closing, escrow, and related services; and real 

estate appraisal services for the subsidiary, parent bank, or other financial 

institutions. 

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• Acting as a transfer or fiscal agent. 

• Acting as a digital certification authority to the extent permitted by published 

OCC precedent, subject to the terms and conditions contained in that 

precedent. 

• Providing or selling public transportation tickets, event and attraction tickets, 

gift certificates, prepaid phone cards, promotional and advertising material, 

postage stamps, and Electronic Benefits Transfer (EBT) script, and similar media, 

to the extent permitted by published OCC precedent, subject to the terms and 

conditions contained in that precedent. 

For published precedents, see OCC’s monthly publication “Interpretations and 

Actions,” annual publication “Activities Permissible for A National Bank,” or the 

Commerce Clearing House “Federal Banking Law Reporter.” 

When filing an after-the-fact notice, the bank must: 

• Certify the bank and activity or activities are eligible for the after-the-fact notice 

process. 

• Describe in detail the activity or activities to be conducted in the operating 

subsidiary. (Refer to Specific Requirements for Insurance if this represents the 

initial affiliation of the bank with a particular insurance company.) 

• Describe the investment amount and the percentage of the bank’s capital the 

investment represents. 

• Represent that the proposed activity is being conducted and will be conducted 

according to the OCC policies contained in the guidance issued for this activity 

and subject to all terms, conditions, and restrictions applicable to national 

banks. 

Standard Review 

The OCC’s standard review process is applicable when the activity of the operating 

subsidiary that the bank intends to acquire or establish (or a new activity in an 

existing operating subsidiary) does not qualify for an after-the-fact notice or when 

the bank is not eligible for an after-the fact notice. The OCC also will use the 

standard review process when the bank will control, but own 50 percent or less of, 

an operating subsidiary. A bank must submit an application to the OCC for the 

standard review process. 

The OCC also may require the applicant to submit a legal analysis if the proposal is 

novel, unusually complex, or raises substantial unresolved legal issues. In such 

cases, the OCC encourages applicants to arrange a pre-filing meeting with the 

Director for District Licensing. Additionally, any bank subject to supervisory 

concerns should provide financial information to support the proposed transaction 

(for example, capital or strategic plan, cost projections, or pro forma financial 

projections). 

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Any bank filing under the standard operating subsidiary process must receive OCC’s 

decision prior to establishing or acquiring the operating subsidiary or commencing 

any new activity in an existing operating subsidiary. 

In an application, the bank must: 

• Describe in detail the activity or activities to be conducted in the operating 

subsidiary. (Refer to Specific Requirements for Insurance if this represents the 

initial affiliation of the bank with a particular insurance company.) 

• Certify that the bank owns more than 50 percent of the voting (or similar) 

interest of the subsidiary or describe how the bank controls or will control the 

subsidiary and its activities. 

• Describe the investment amount and the percentage of the bank’s capital that 

the investment represents. 

• Represent that the proposed activity will be conducted according to the OCC 

policies contained in the guidance issued for this activity and subject to all 

terms, conditions, and restrictions applicable to national banks. 

Specific Requirements 

Insurance 

Banks may conduct certain insurance activities in the bank or through an operating 

subsidiary. They may engage in certain title insurance activities, sell credit related 

insurance as an agent, and provide as principal (underwrite or reinsure) credit 

related insurance. An operating subsidiary may reinsure private mortgage insurance 

on loans originated, purchased, or serviced by the bank or its affiliates. 

Additionally, an operating subsidiary may underwrite municipal bond insurance, as 

well as safe deposit box insurance and business risk insurance of the bank and its 

affiliates. (See Appendix A for further discussion). 

In addition, national banks located in a place with a population of less than 5,000 

inhabitants (as shown by the preceding decennial census) are authorized expressly 

under 12 USC 92 to act “as the agent for any fire, life, or other insurance company.” 

The OCC provided guidance on how bank insurance agents may conduct their 

insurance business under this authority in Interpretive Letter 753 (November 4, 

1996). 

Any subsidiary filing from a bank requesting to sell insurance from a “place of 

5,000” under 12 USC 92 should include a representation that the bank's proposal to 

sell insurance will be consistent with Section 92 and the OCC's interpretation in 

Interpretive Letter 753 (November 4, 1996). Insurance sales activities also should 

be conducted in accordance with the operational standards and customer 

safeguards described in OCC issuances (see the Insurance Activities Handbook). 

The applicant must describe the type of insurance activity in which the company is 

engaged and has plans to conduct, to the extent the application or notice relates to 

the initial affiliation of the bank with a particular company engaged in insurance 

activities (including a broker dealer selling annuities considered insurance products 

11 
under state law). The bank also must list for each state the lines of business for 

which the company holds, or will hold, an insurance license, indicating the state in 

which the company holds a resident license or charter, as applicable. 

Electronic Activities 

A bank or its subsidiary may conduct certain activities using electronic technologies, 

provided the activities are part of, or incidental to, the business of banking. To 

determine if an electronic activity is part of the business of banking, the OCC 

considers whether it: 

• Is the functional equivalent to, or a logical outgrowth of, a recognized banking 

activity. 

• Strengthens the bank by benefiting its customers or its business. 

• Involves the types of risk similar to those already assumed by banks. 

• Is authorized for state-chartered banks. 

To determine if an electronic activity is incidental to the business of banking, the 

OCC considers whether it: 

• 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. 

• 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. 

• Enables the bank to use capacity acquired for its banking operations or otherwise 

avoid economic waste or loss. 

The bank, or its subsidiary, must conduct these electronic activities in a manner 

consistent with safety and soundness standards and OCC guidance. In addition, the 

OCC may require the bank or its operating subsidiary to notify all potential 

technology-related vendors in writing of the OCC’s examination and regulatory 

authority. The OCC also may require that all final technology-related vendor 

contracts stipulate that the performance of services provided by the vendors to the 

operating subsidiary is subject to the OCC’s examination and regulatory authority. 

Fiduciary Powers 

If a subsidiary proposes to accept traditional fiduciary appointments for which 

fiduciary powers are needed, as in acting as a trustee or an executor, then both the 

bank and the subsidiary should have fiduciary powers. Fiduciary powers for the 

subsidiary generally are accomplished by using a national bank limited to the 

activities of a trust company or a state trust company as the subsidiary. If a limited 

purpose national bank is proposed, the OCC processes the charter application 

together with the operating subsidiary application. 

12 
If a subsidiary proposes only to exercise investment discretion on behalf of its 

customers or to provide investment advice for a fee, but not accept traditional 

fiduciary appointment, the subsidiary does not have to have fiduciary powers, but 

the bank must have OCC approval to exercise fiduciary powers, unless the 

subsidiary: 

• Is registered under the Investment Advisers Act of 1940, or 

• Is registered or has filed a notice under the applicable provisions of the 

Securities Exchange Act of 1934 as a broker, dealer, municipal securities dealer, 

government securities broker, or government securities dealer; and the 

subsidiary's performance of investment advisory services is solely incidental to 

the conduct of its business as broker or dealer, and no special compensation is 

made to the subsidiary for those advisory services. To determine whether the 

subsidiary's performance of investment advisory services is solely incidental to 

the conduct of its business as a broker or dealer, and no special compensation 

is made to the subsidiary for those advisory services, the OCC will consider the 

commission structure and other specific facts. See OCC Interpretive Letter 769 

(January 28, 1997). 

Locations 

A bank proposing to establish, acquire, or operate an operating subsidiary at a 

location at which it will perform branching functions (deposits received, checks 

paid, or money lent) will need approval for a branch office at that location, if it has 

not already been authorized as a branch. A separate application is not necessary, 

but a request for branch authorization should accompany the operating subsidiary 

application. There are no geographical restrictions for operating subsidiaries 

performing permissible activities other than core branching functions of receiving 

deposits, paying checks, or lending money. 

Annual Reporting Requirement 

The OCC requires that a bank file an annual report to identify its operating 

subsidiaries that do business directly with consumers in the United States and are 

not functionally regulated as defined in section 5(c)(5) of the BHCA, as amended 

(12 USC 1844(c)(5)). Specifically, an operating subsidiary does business directly 

with consumers if it provides products or services to individuals to be used primarily 

for personal, family, or household purposes. 

The bank submits an annual report on its operating subsidiaries to the OCC on or 

before January 31 each year, containing information as of December 31 for the prior 

year. This report may be filed electronically via the National BankNet secure 

mailbox or by attaching the report to an e-mail. For specific guidance on filing this 

report, refer to OCC Bulletin 2004-55. 

Applicability of Law 

All laws and regulations, including state laws, apply to national bank operating 

subsidiaries to the same extent that they apply to the parent national bank, unless 

otherwise addressed in federal law or OCC regulation. 

13 
Holding Company Dissolution 

A bank may elect to use a shell operating subsidiary to merge with a holding 

company to facilitate the liquidation or dissolution of the holding company. The 

application for the shell subsidiary formation must be filed along with the related 

business combination filing. 

Generally, when filing, the holding company must represent that it has no 

outstanding liabilities, including contingent liabilities. Prior to transferring its assets 

to the operating subsidiary, it must divest of all assets ineligible for investment by a 

national bank and assume the merger cost prior to its dissolution, including all 

necessary payments to dissenting shareholders. All other regulatory approvals must 

still be obtained (for example, FRB approval or waiver of the application). (See the 

“Business Combinations” booklet for further details.) 

Financial Subsidiaries 

As authorized by the GLBA, a financial subsidiary is a corporation, limited liability 

company, or similar entity, controlled by one or more insured depository 

institutions. A financial subsidiary may conduct activities that are permissible for 

national banks in addition to those that are “financial in nature” or incidental to 

financial activities. Financial subsidiaries are bank subsidiaries that are not 

operating subsidiaries (that is, operating subsidiaries engage only in activities the 

bank may engage in directly under the same terms and conditions applicable to 

national banks) or subsidiaries that national banks otherwise are specifically 

authorized to control by the express terms of a federal statute. For a bank to own an 

interest in a financial subsidiary, the bank and the subsidiary must meet certain 

requirements and comply with specified safeguards. 

Qualifications 

A bank may control, directly or indirectly, a financial subsidiary or hold an interest 

in a financial subsidiary only if: 

• The bank and each depository institution affiliate of the bank, which includes 

any uninsured national trust bank, are “well capitalized” and “well managed” 

(see Glossary for definitions). 

• The bank and each depository institution affiliate must have received a rating 

of “satisfactory” or better at its most recent Community Reinvestment Act 

(CRA) examination. A bank may not apply to commence any additional 

expanded financial activity, or to directly or indirectly acquire control of a 

company engaged in such activity, if it or any of its insured depository 

institution affiliates received a less than “satisfactory” CRA rating on its most 

recent CRA exam prior to when the bank would file its notice. 

Banks that have not yet received a CRA rating, or special purpose banks which 

are not CRA rated, may submit a notice if they meet all of the other 

qualifications and safeguards. 

14 
• The aggregate consolidated total assets of all financial subsidiaries of the bank 

do not exceed the lesser of 45 percent of the consolidated total assets of the 

parent bank or $50 billion [or such greater amount as is determined according 

to an indexing mechanism jointly established by regulation by the Secretary of 

the Treasury and the Federal Reserve Board (Federal Reserve)]. 

• The bank has at least one issue of outstanding eligible debt (see Glossary) 

currently rated in one of the three highest investment grade ratings categories 

by a nationally recognized statistical rating organization if the bank is one of 

the 100 largest insured banks, determined on the basis of the bank’s 

consolidated total assets at the end of the calendar year. 

If the national bank is one of the second 50 of the 100 largest insured banks, 

the bank may satisfy the eligible debt requirement either by having outstanding 

eligible debt or by satisfying alternative criteria the Secretary of the Treasury 

and the Federal Reserve may establish jointly by regulations. Refer to the 

discussion in Related Organizations Handbook or 12 CFR 1501.3. 

If the financial subsidiary is engaged solely in activities in an agency capacity, 

the eligible debt requirements do not apply. 

Activities 

A financial subsidiary may engage in: 

• Lending, exchanging, transferring, investing for others, or safeguarding money 

or securities. 

• Engaging as agent or broker in any state to insure, guarantee, or indemnify 

against loss, harm, damage, illness, disability, death, defects in title, or provide 

annuities as agent or broker. 

• Providing financial, investment, or economic advisory services, including 

advising an investment company as defined in section 3 of the Investment 

Company Act, 15 USC 80a-3. 

• Issuing or selling instruments representing interests in pools of assets 

permissible for a bank to hold directly. 

• Underwriting, dealing in, or making a market in securities. 

• Engaging in any activity the Federal Reserve has determined, by order or 

regulation in effect on November 12, 1999, to be so closely related to banking 

or managing or controlling banks as to be a proper incident thereto (subject to 

the same terms and conditions contained in the order or regulation, unless the 

order or regulation is modified by the Federal Reserve). 

• Engaging, in the United States, in any activity a bank holding company may 

engage in outside the United States and the Federal Reserve has determined, 

under regulations prescribed or interpretations issued pursuant to the BHCA as 

in effect on November 11, 1999, to be usual for the transaction of banking or 

other financial operations abroad. 

15 
Exceptions 

There are certain activities a financial subsidiary cannot engage in as principal: 

• Insuring, guaranteeing, or indemnifying against loss, harm, damage, illness, 

disability or death, or defects in title, except to the extent permitted under the 

GLBA (certain types of insurance underwriting and reinsurance the OCC 

permitted prior to January 1, 1999, are grandfathered) or providing or issuing 

annuities the income of which is subject to tax treatment under section 72 of 

the Internal Revenue Code. 

• Real estate development or real estate investment, unless otherwise expressly 

authorized by law. 

• Activities authorized for bank holding companies by section 4(k)(4)(H) or (I) of 

the BHCA (certain merchant banking investments), 12 USC 1843(k)(4)(H) or 

(I). 

Safeguards 

A bank is required to meet certain safety and soundness requirements when 

engaging in activities through a financial subsidiary. Specifically, a bank 

establishing a financial subsidiary must: 

• For regulatory capital purposes, deduct the aggregate amount of its 

outstanding equity investment, including retained earnings, in its financial 

subsidiaries from its total assets and tangible equity and deduct such 

investment from its total risk-based capital (this deduction must be made 

equally from Tier 1 and Tier 2 capital). 

• Not consolidate its assets and liabilities with those of its financial subsidiary or 

subsidiaries. 

• Ensure that any published financial statements of the bank, in addition to 

providing information prepared in accordance with generally accepted 

accounting principles, separately present financial information for the bank in 

a manner reflecting the capital adjustments previously described. 

• Have reasonable policies and procedures to preserve the separate corporate 

identity and limited liability of the bank and its financial subsidiaries. 

• Have procedures for identifying and managing operational and financial risk 

within the bank and the financial subsidiary that adequately protect the bank 

from those risks. 

• Apply sections 23A and 23B of the Federal Reserve Act, as implemented by 

Regulation W (12 CFR 223), to transactions with a financial subsidiary in the 

following manner: 

- A financial subsidiary shall be deemed to be an affiliate and shall not be 

deemed to be a subsidiary of the bank. A subsidiary that is a financial 

16 
subsidiary solely because it performs insurance or insurance brokerage 

activities is not an affiliate for purposes of Regulation W. 

- The quantitative limitations on covered transactions with any individual 

affiliate shall not apply to covered transactions between a bank and its 

financial subsidiary. 

- The bank’s investment in the financial subsidiary shall not include 

earnings retained or losses incurred by the financial subsidiary. 

- Any purchase of, or investment in, the securities of a financial subsidiary 

of a bank by an affiliate of the bank will be considered to be a purchase 

of, or investment in, such securities by the bank. 

- Any extension of credit by an affiliate of a bank to a financial subsidiary of 

the bank is considered an extension of credit by the bank to the financial 

subsidiary if the extension of credit is treated as capital of the financial 

subsidiary under applicable law. 

- Any other extension of credit by an affiliate of the bank to its financial 

subsidiary is considered an extension of credit by the bank to the financial 

subsidiary if the Federal Reserve determines that such treatment is 

necessary or appropriate to prevent evasions of the Federal Reserve Act or 

the GLBA. 

• Deem the financial subsidiary a subsidiary of a bank holding company and 

not a subsidiary of the bank for purposes of the anti-tying prohibitions. 

Filing Process 

The GLBA requires OCC approval of financial subsidiaries to be based only on 

specific statutory factors. The OCC considers financial subsidiary notices to be 

approved upon receipt of the bank’s submission of a notice with the appropriate 

certifications that it meets the required criteria. There are two options for filing a 

notice to acquire control of, or hold an interest in, a financial subsidiary, or to 

commence a new activity in an existing financial subsidiary. 

Under the first option, the bank files a “Financial Subsidiary Certification” at any 

time with the Director for District Licensing and files the subsequent notice for OCC 

approval whenever it is ready to acquire control of, or hold an interest in, a financial 

subsidiary, or to commence a new activity in an existing financial subsidiary. 

Under the second method, the bank files a combined “Certification and Notice” five 

business days before it acquires control of, or holds an interest in, a financial 

subsidiary, or commences a new activity in an existing financial subsidiary. 

Certification with Subsequent Notice 

When filing a “Financial Subsidiary Certification,” the bank must provide: 

• A list of the bank’s depository institution affiliates. 

17 
• Certification that the bank and each depository institution affiliate is “well 

capitalized,” “well managed,” and has not received a rating of less than 

“satisfactory” at its most recent CRA examination. 

After completing the formal certification, whenever the bank seeks OCC approval to 

acquire or hold an interest in any financial subsidiary, the bank must file a written 

“Financial Subsidiary Notice” with the Director for District Licensing when it 

commences operations. This notice must: 

• State that the bank’s certification remains valid. 

• Describe in detail the activity or activities to be conducted in the financial 

subsidiary. (Refer to Specific Requirements for Insurance if this represents the 

initial affiliation of the bank with a particular insurance company.) 

• Cite the specific authority permitting the activity to be conducted within a 

financial subsidiary. (Include a copy of the order or interpretation if the 

authority relied upon is an agency order or interpretation under Sections 

4(c)(8) or 4(c)(13) of the BHCA.) 

• Certify that the bank will remain “well capitalized” after deducting the 

aggregate amount of the bank’s outstanding equity investment, including 

retained earnings, in its financial subsidiaries from its assets and tangible equity 

and deducting such investment from its total risk-based capital (this deduction 

is made equally from Tier 1 and Tier 2 capital). 

• Demonstrate that the aggregate consolidated total assets of all the financial 

subsidiaries of the bank do not exceed the lesser of 45 percent of the bank’s 

consolidated total assets or $50 billion (or the increased level established by 

the Federal Reserve or the Secretary of Treasury). 

• Certify that the bank meets the eligible debt requirement, if applicable. If the 

financial subsidiary is acting solely as agent, this certification is not necessary. 

Combined Certification and Notice 

As a second option, a bank may file a combined “Financial Subsidiary Certification 

and Notice” with the Director for District Licensing at least five business days before 

acquiring control of, or an interest in, a financial subsidiary, or before starting a new 

activity in an existing financial subsidiary. This certification and notice must 

provide all the information and certifications as outlined previously for a 

certification with subsequent notice. 

Failure to Continue to Meet Qualifications 

The bank and its affiliated depository institutions must continue to satisfy the 

qualification requirements and safeguards following its acquisition of, control of, or 

an interest in, a financial subsidiary. A bank failing to continue to satisfy these 

requirements will be subject to the following procedures and requirements: 

18 
• The OCC must give written notice to the bank (and, in the case of an affiliated 

depository institution, to that depository institution’s appropriate federal 

banking agency) outlining how or why the bank or its affiliated depository 

institution does not continue to meet the qualification requirements. The bank 

shall be deemed to have received the notice three business days after the OCC 

mails the letter. 

• The bank must execute an agreement, no later than 45 days after the receipt of 

the notice, with the OCC to comply with the qualification requirements, unless 

the OCC grants the bank additional time. 

• The OCC may impose limitations on the conduct or activities of the bank or 

any subsidiary of the bank as the OCC determines appropriate under the 

circumstances. 

• The OCC may require the bank to divest control of a financial subsidiary if the 

bank does not correct the conditions within 180 days after receipt of the letter. 

A bank no longer meeting the eligible debt qualification, if applicable, may not 

directly or through a subsidiary purchase or acquire any additional equity capital of 

any financial subsidiary until the bank again meets the qualification.

Bank Service Company 

A bank service company is a corporation, whose capital stock is owned by one or 

more insured depository institutions, or a limited liability company, whose members 

are insured depository institutions. Banks and savings associations specifically are 

authorized to invest in bank service companies by the express terms of the Bank 

Service Company Act. If the bank service company has both national and statechartered insured depository institution shareholders or members, the activities 

conducted must be permissible for each institution. When two or more national 

banks wish to invest in the same bank service company, one filing on behalf of all 

of the individual investors may be made as long as the other national banks are 

identified. A bank may not invest more than 10 percent of its capital and surplus in 

any bank service company, and the bank’s total investment in all bank service 

companies may not exceed 5 percent of the bank’s total assets. 

A bank seeking to establish a bank service company may do so without giving 

notice to the OCC if it only provides certain clerical or data processing services to 

depository institutions. Otherwise, the bank will be required to provide an 

application or an after-the-fact notice, depending on the activity being performed. 

The bank will need to determine if the activity or geographic locations where 

services are provided would require a filing with the OCC. The OCC does not 

require a filing if a bank invests in the capital stock or equity of a bank service 

company performing any service (other than deposit taking) at any geographical 

location the Federal Reserve has determined by regulation to be permissible for a 

bank holding company. In such cases, however, the bank must obtain the approval 

of the Federal Reserve. 

19 
Filing Process 

A bank intending to make an investment in a bank service company, or to perform a 

new activity in a bank service company, generally must submit an application and 

receive prior approval from the OCC. The application must include: 

• The name and location of the bank service company. 

• A detailed description of the activity or activities to be conducted in the bank 

service company. (Refer to Specific Requirements for Insurance if this 

represents the initial affiliation of the bank with a particular insurance 

company.) 

• Information demonstrating that the bank will comply with investment 

limitations. 

• Information demonstrating that the bank service company will perform only 

those services that each insured depository institution shareholder or member is 

authorized to perform and will perform such services only at locations in a state 

in which each such shareholder or member is authorized to perform the 

activities directly, unless the Federal Reserve has approved an exception to this 

requirement under the authority of 12 USC 1865(b). 

If there is more than one investing bank, the bank with the largest dollar amount 

invested is deemed to be the principal investor (see Glossary). 

Decision Criteria 

The OCC generally will grant approval for the investment in a bank service 

company, provided that: 

• The proposed activity is legally permissible. 

• The activity is consistent with safe and sound banking practices. 

• The bank's performance of the activity is not in contravention of OCC policy. 

The OCC will consider a bank's request to invest in a bank service company and 

make a final decision within 60 days of the date it receives the filing. If the OCC 

fails to make a decision within that time, the investment is deemed to be approved, 

unless the OCC notifies the bank of significant supervisory or compliance concerns 

or legal or policy issues. 

After-the-Fact Notice 

No prior OCC approval is required if the bank service company engages only in 

those activities eligible for an after-the-fact notice under 12 CFR 5.34(e)(5)(v), and 

the bank is “well capitalized” as defined in 12 CFR 6.4(b) and “well managed” (see 

Glossary for definitions). A bank may invest in a bank service company, or perform 

a new activity in an existing bank service company, by providing the Director for 

20 
District Licensing written notice within 10 days of making the investment. The 

written notice must include: 

• A complete description of the bank’s investment in the bank service company. 

• A detailed description of the activity or activities to be conducted in the bank 

service company. (Refer to Specific Requirements for Insurance if this 

represents the initial affiliation of the bank with a particular insurance 

company.) 

• A representation and undertaking that the activity will be conducted in 

accordance with OCC published guidance. (Any bank filing a notice is deemed 

to have agreed the bank service company will conduct the activity in a manner 

consistent with published OCC guidance.) 

No Filing Required 

No filing is required for a bank service company that provides the following services 

only for depository institutions: 

• Check and deposit posting and sorting. 

• Computation and posting of interest and other credits and charges. 

• Preparation and mailing of checks, statements, notices, and similar items. 

• Any other clerical, bookkeeping, accounting, statistical, or similar function. 

Additionally, the OCC does not require a filing if a bank invests in the capital stock 

or equity of a bank service company performing any service (other than deposit 

taking) at any geographical location the Federal Reserve has determined by 

regulation to be permissible for a bank holding company. In such cases, however, 

the bank must obtain the approval of the Federal Reserve. 

Other Equity Investments 

A national bank is permitted to make equity investments in various types of 

corporations, partnerships, trusts, or similar types of entities pursuant to 12 USC 

24(Seventh) and other statutes. These investments may be in statutory subsidiaries 

or noncontrolling investments in entities, when the investment is part of or 

incidental to the business of banking. These investments are in addition to 

operating subsidiaries, financial subsidiaries, and bank service companies. 

Pursuant to 12 CFR 24, a national bank may create a subsidiary corporation to 

promote public welfare, including the welfare of low- and moderate-income 

communities and families, such as providing housing, services, or jobs (see 

Community Development Investments, Related Organizations Handbook for 

specific discussion). 

21 
Statutory Subsidiaries 

A bank may make a controlling and noncontrolling equity investment in the 

following statutory subsidiaries without prior approval of the OCC: 

• An agricultural credit corporation. A bank may purchase stock of a 

corporation organized to make loans to farmers and ranchers for agricultural 

purposes for its own account. Such equity investments in agricultural credit 

corporations are authorized under 12 USC 24(Seventh) and are limited to 20 

percent of the unimpaired capital and surplus of the bank, unless it owns at 

least 80 percent of the stock of the agricultural credit corporation. This 

requires an after-the-fact notice. 

• A banker’s bank. A bank may invest up to 10 percent of its capital and surplus 

in an insured banker’s bank or in the holding company of such a bank, 

provided that it does not own more than 5 percent of any class of voting 

securities. 

• A safe deposit corporation. Investment in a safe deposit corporation organized 

under state law may not exceed 15 percent of the bank’s unimpaired, paid-in 

capital and 15 percent of its unimpaired surplus. 

• A state housing corporation. A bank may make an equity investment in any 

state housing corporation incorporated in the state in which the bank is 

located, provided that its investments do not exceed 5 percent of its 

unimpaired, paid-in capital stock plus 5 percent of its unimpaired surplus fund. 

• A small business investment company (SBIC). A bank may purchase SBIC 

stock provided that the aggregate amount of such investments does not exceed 

5 percent of the bank’s capital and surplus. 

• A community development corporation. A bank may invest in or conduct 

activities in such an entity that primarily benefit low- and moderate-income 

individuals, low- and moderate-income areas, or other areas targeted by a 

governmental entity for redevelopment. If an eligible bank, this requires an 

after-the-fact notice to the Director, Community Development Division 

(12 CFR 24). 

• A savings association. A savings association will be eligible to be acquired 

because it is in default, experiencing severe financial difficulty, or is otherwise 

determined by the FDIC to need financial assistance, at a time when severe 

financial conditions threaten the stability of a significant number of savings 

associations, or of savings associations possessing significant financial 

resources. The OCC will consider a savings association acquired under this 

authority (12 USC 1823(k)) to be a “statutory subsidiary.” For a bank to 

otherwise own or control a federal savings association (FSA), the FSA must be 

a financial subsidiary unless the FSA undertakes to limit its activities to those 

permissible for a national bank. Additional information and guidance may be 

found in the “Financial Subsidiaries” section of this booklet. This requires an 

after-the-fact notice. 

22 
• A bank premises corporation. A bank may invest in its bank premises or in a 

corporation holding the bank's premises. Such equity investments in bank 

premises corporations have been characterized as statutory subsidiaries, and 

not operating subsidiaries. These equity investments do not require prior 

approval unless the investment exceeds the limitation for investing in bank 

premises. (See “Investment in Bank Premises” booklet). 

• Any other equity investment that may be authorized by statute after 

February 12, 1990, if not covered by other applicable OCC regulation. This 

requires an after-the-fact notice. 

Filing Process: Generally, a bank must provide a written notice to the Director for 

District Licensing within 10 days of making an equity investment in a statutory 

subsidiary. The written notice must include a description and the amount of the 

bank’s investment. The OCC reserves the right to require additional information as 

necessary. 

Noncontrolling Investments 

Banks also may make noncontrolling equity investments in certain types of entities 

when the investment is part of, or incidental to, the business of banking. 

Investments of this type are permitted under a national bank's powers under 

12 USC 24 (Seventh) and 12 CFR 5.36(e). Refer to Appendix B for a summary of 

noncontrolling investments. 

A noncontrolling investment may be made directly by the bank or through its 

operating subsidiary. The bank must satisfy the following standards to make such 

an investment: 

• The activities of the entity or enterprise in which the investment is made must 

be limited to activities that are part of, or incidental to, the business of 

banking, or are otherwise authorized for a national bank. 

• The bank must be able to prevent the enterprise from engaging in activities not 

meeting the foregoing standard or be able to withdraw its investment. 

• The bank's loss exposure must be limited, as a legal and accounting matter, 

and the bank must not have open-ended liability for the obligations of the 

enterprise. 

• The investment must be convenient or useful to the bank in carrying out its 

business and not a mere passive investment unrelated to the banking business. 

To use the after-the-fact notice, the investments must be in an enterprise whose 

activity is listed under 12 CFR 5.34(e)(5)(v) or in activities that are substantively the 

same as those contained in a published OCC precedent approving a noncontrolling 

investment, provided the activities will be conducted under the same terms and 

conditions as stated in the precedent. For published precedents, see OCC’s 

monthly publication “Interpretations and Actions,” “Activities Permissible For A 

National Bank,” or the Commerce Clearing House Federal Banking Law Reporter.

23 
If the bank is not eligible to file a notice or wishes to make other types of equity 

investments, it may request a legal opinion from the OCC about whether the 

proposed investment is permissible. 

Filing Process: A qualifying bank making a noncontrolling investment, directly or 

through an operating subsidiary, may file a written notice with the Director for 

District Licensing no later than 10 days after making the investment. The OCC 

considers these notices to be approved upon receipt of the bank’s submission. The 

bank must certify in the notice that it meets the required criteria. The written notice 

must: 

• Describe the structure of the investment and the activity or activities conducted 

by the enterprise in which the bank is investing. (Refer to Specific 

Requirements for Insurance if this represents the initial affiliation of the bank 

with a particular insurance company.) 

• State which paragraphs of 12 CFR 5.34(e)(5)(v) describe the activity or 

activities, or state and describe how the activity is substantially the same as that 

contained in a published OCC precedent approving a noncontrolling 

investment by a bank or its operating subsidiary. If the activity or activities are 

substantially the same as in a published OCC precedent, certify that the 

activity will be conducted in accordance with the same terms and conditions 

applicable to the activity covered by the precedent, and provide the citation to 

the applicable precedent. 

• Certify that the bank is “well capitalized” and “well managed” at the time of 

the investment (refer to Glossary for definitions). 

• Describe how the bank can prevent the enterprise from engaging in activities 

not included in 12 CFR 5.34(e)(5)(v) or in a published OCC precedent 

approving a noncontrolling investment by a bank or its operating subsidiary, or 

how the bank otherwise can withdraw its investment. 

• Certify that the bank will account for its investment under the equity or cost 

method of accounting. For investments that may be subject to the Financial 

Accounting Standards Board’s Interpretation No. 46, Consolidation of Variable 

Interest Entities, the bank should consult with its accountant to determine how 

the bank should account for its investment and contact the Director for District 

Licensing to determine how to comply with this certification. 

• Describe how the investment is convenient and useful to the bank in carrying 

out its business and not a mere passive investment unrelated to the banking 

business. 

• Certify that the bank’s loss exposure is limited, as a legal and accounting 

matter, and that the bank does not have open-ended liability for the obligations 

of the enterprise. 

• Certify that the enterprise in which the bank is investing agrees to be subject to 

OCC supervision and examination, subject to the limitations and requirements 

of 12 USC 1820a and 1831v. 

The OCC reserves the right to require additional information as necessary.

24 
Procedures: Operating Subsidiary and Bank Service 

 Company 

After-the-fact Notice 

Prefiling 

Licensing Staff

1. Refers a bank requesting instructions to the “General Policies and Procedures” 

booklet and this booklet of the Comptroller's Licensing Manual.

Filing the Notice 

Bank 

2. Submits a complete “after-the-fact notice“ (notice) to the Director for District 

Licensing. 

 The operating subsidiary or bank service company notice must provide: 

• A certification that the bank is “well capitalized” and “well managed,” 

(see Glossary) and that the bank and activity or activities are eligible for 

the notice process. 

• A complete description of the investment in the operating subsidiary or 

bank service company, including the amount of the investment and the 

percent of bank’s capital the investment represents. 

• A complete description of the activity, including the paragraph(s) of 

12 CFR 5.34(e)(5)(v) that are applicable. To the extent the notice relates 

to the initial affiliation of the bank with a particular company engaged in 

insurance activities (including a broker dealer selling annuities that are 

considered insurance products under state law), provide a description of 

the type of insurance activity in which the company is engaged and has 

present plans to conduct. The bank must also list for each state the lines 

of business for which the company holds, or will hold, an insurance 

license, indicating the state in which the company holds a resident 

license or charter, as applicable. 

• The date the activity commenced or the investment was made. 

• A representation and undertaking stating that the activity or activities are 

conducted and will continue to be conducted in a manner consistent 

with published OCC guidance and under the same terms and conditions 

as applicable if the activity were conducted directly by the bank. 

25 
Review 

Licensing Staff 

3. Initiates and enters information into the Corporate Activities Information System 

(CAIS). 

4. Establishes the official file to maintain all original documents. 

5. Reviews the notice and verifies that: 

• The bank is “well capitalized” and “well managed” (see Glossary). 

• The description of the activity meets the regulatory criteria under 

12 CFR 5.34(e)(5)(v) and the Operating Subsidiary Guidelines. 

• It contains the required notice criteria in step 2. 

6. If the notice is sufficient, sends an acknowledgment letter to the bank, 

providing a copy to the Assistant Deputy Comptroller (ADC) or large bank 

Examiner-in-Charge (EIC) and supervisory analyst. Proceeds to step 9. 

If the notice relates to an investment in a company engaged in insurance 

activities (including a broker dealer selling annuities that are considered 

insurance under state law), prepares a cover letter and forwards a copy of the 

notice to the insurance commissioner of the state in which the company holds a 

resident license or charter, as applicable. 

Proceeds to step 9. 

7. If the notice is insufficient or filed incorrectly, contacts the bank for clarification 

or the missing information. 

8. Reviews any additional information. If the notice is sufficient, sends an 

acknowledgment letter to the bank, providing a copy to the ADC or large bank 

EIC and supervisory analyst. 

If the notice relates to an investment in a company engaged in insurance 

activities (including a broker dealer selling annuities that are considered 

insurance under state law), prepares a cover letter and forwards a copy of the 

notice to the insurance commissioner of the state in which the company holds a 

resident license or charter, as applicable. 

Close Out 

9. Makes CAIS entries. 

10. Reviews the file for completeness and forwards the file to Central Records. 

26 
Procedures: Operating Subsidiary and Bank Service 

Company 

Application 

Prefiling 

Licensing Staff

1. Refers a bank that requests instructions to the “General Policies and 

Procedures” booklet and this booklet of the Comptroller's Licensing Manual.

2. Arranges a prefiling meeting with the applicant, if appropriate. Attendees 

should include the appropriate OCC staff (for example, headquarters Licensing 

(HQ LIC), legal, supervision, compliance, community development, 

economics). 

3. If any prefiling discussions or meetings reveal policy, legal, supervisory, or 

other novel issues, contacts HQ LIC to decide: 

• If the application should be filed with HQ LIC (broad policy or legal 

issues), 

• If specific issues should be separated from the application to be handled 

by HQ LIC, while the application continues to be processed by the district 

licensing staff, or 

• When the filing should be forwarded to HQ LIC. 

4. Prepares a summary memorandum of policy or legal issues identified and 

retains all pertinent information in the pending file. 

Filing the Application 

Bank 

5. Submits a complete operating subsidiary or bank service company application 

(filing) to the Director for District Licensing. 

Operating Subsidiary

The standard operating subsidiary filing must provide: 

• A complete description of: 

– The bank's investment in the subsidiary. 

27 
– The investment amount and the percentage of the bank’s capital the 

investment represents. 

– The proposed activities of the subsidiary. To the extent the notice 

relates to the initial affiliation of the bank with a particular company 

engaged in insurance activities (including a broker dealer selling 

annuities that are considered insurance products under state law), 

provide a description of the type of insurance activity in which the 

company is engaged and has present plans to conduct. The bank must 

also list for each state the lines of business for which the company 

holds, or will hold, an insurance license, indicating the state in which 

the company holds a resident license or charter, as applicable. 

– The organizational structure and management of the subsidiary. 

– The relationship between the bank and the subsidiary. 

– Any other information necessary to describe the proposal adequately. 

• The location(s) of the proposed activity, stating if any activity will be 

conducted at a location other than the main office or a previously 

approved branch of the bank. 

 

• A representation that the proposed activity will be conducted according 

to the OCC policies contained in guidance issued for this activity. 

For offshore operating subsidiaries, the bank further represents that: 

– The books and records of the subsidiary (or duplicate copies of any 

books and records the originals of which are required to be 

maintained in [name of country] under applicable law) will be 

maintained at facilities of the bank in the United States, and the bank 

and the subsidiary will ensure prompt OCC access to all books and 

records; and 

– Should the OCC be unable to access the subsidiary’s books and 

records, or examine, supervise, or regulate the subsidiary to its 

satisfaction, resulting in an OCC bank directive to cease operations 

through the subsidiary, the bank will do so within the time period 

specified by the OCC. 

• An opinion of counsel or a legal analysis supporting the proposal if it is 

novel, unusually complex, or raises substantial unresolved legal issues. 

• If the activity involves investment discretion: 

– Request approval to exercise fiduciary powers and include the 

additional information required by 12 CFR 5.26. 

– State that the bank has approval to exercise fiduciary powers. 

– State that the subsidiary is registered or will be registered as an 

investment adviser with the Securities and Exchange Commission 

28 
under the Investment Advisers Act of 1940 or as a broker dealer under 

the Securities Exchange Act of 1934. 

Bank Service Company 

The standard bank service company filing must provide: 

• The name and location of the bank service company. 

• A complete description of the activities that the bank service company 

will conduct. To the extent the notice relates to the initial affiliation of 

the bank with a particular company engaged in insurance activities 

(including a broker dealer selling annuities that are considered insurance 

products under state law), provide a description of the type of insurance 

activity in which the company is engaged and has present plans to 

conduct. The bank must also list for each state the lines of business for 

which the company holds, or will hold, an insurance license, indicating 

the state in which the company holds a resident license or charter, as 

applicable. 

• Information demonstrating that the bank will comply with the regulatory 

investment limitations. 

• Information demonstrating that the bank service company will perform 

only those services that each insured depository institution shareholder or 

member is authorized to perform and will perform such services only at 

locations in a state in which each such shareholder or member is 

authorized to perform the activities directly, unless the Federal Reserve 

has approved an exception to this requirement under the authority of 

12 USC 1865(b). 

Review 

Licensing Staff 

6. Initiates and enters information into the Corporate Activities Information 

System (CAIS). 

7. Establishes the official file to maintain all original documents. 

8. Sends a letter within five business days of receipt, notifying the bank that its 

filing will be processed under the standard review process and that the activity 

cannot begin until the OCC provides written approval for the operating 

subsidiary (or within 60 days of receipt for a bank service company). 

9. Reviews the filing and any other relevant information about the bank. If the 

filing presents novel, legal or policy issues, repeats step 3 and forwards a 

memo to HQ LIC. 

10. Within five business days of receipt, notifies the Assistant Deputy Comptroller 

(ADC) or large bank Examiner-in-Charge (EIC) and supervisory analyst of the 

filing and solicits comments, as appropriate, from district counsel, supervision, 

29 
and other OCC divisions with a preliminary response required by the 15th day 

after the filing date. For undercapitalized banks, contacts the supervisory 

office for capital plan status. 

11. Requires the bank to submit additional information or legal analysis, including 

a specific date for reply, if the activity of the proposed subsidiary or bank 

service company is unclear, the legality is in doubt, or if additional information 

is necessary to make a decision about the permissibility of the proposed 

investment. 

Decision

Licensing Staff

12. Prepares the confidential memorandum and decision letter, recommending a 

decision to the delegated official. 

13. Decides application under delegated authority or forwards the official file to 

HQ LIC for decision. If referred to HQ LIC, proceeds to step 17. 

14. Notifies the bank by telephone after the decision and sends the bank a 

decision letter, with a copy to the ADC or large bank EIC and supervisory 

analyst. (Decision letter, if applicable, will include any written conditions or 

supervisory concerns.) 

15. If the notice relates to an investment in a company engaging in insurance 

activities, including a broker or dealer selling annuities that are considered 

insurance under state law, forwards a copy of the notice with a brief cover 

letter to the insurance commissioner of the state in which the company holds a 

resident license or charter, as applicable. 

16. Makes CAIS entries. Proceeds to step 23. 

HQ LIC 

17. Reviews the file and solicits comments from other OCC divisions, as 

appropriate. 

18. Prepares and sends the confidential memorandum and decision letter, 

recommending a decision to the delegated official. 

19. After decision, notifies the licensing manager and the bank by telephone of the 

decision and sends the bank a decision letter, with a copy to the ADC or large 

bank EIC and supervisory analyst. (Decision letter, if applicable, will include 

any written conditions or supervisory concerns.) 

20. Makes CAIS entries. 

21. For approved and conditionally approved filings, returns the official file to the 

district for additional processing. 

30 
22. If denied, proceeds to step 23. 

Close Out 

Licensing Staff 

23. Makes CAIS entries to close filing 

24. Reviews the file for completeness and forwards it to Central Records 

31 
Procedures: Financial Subsidiary–Certification 

Prefiling 

Licensing Staff 

1. Refers a bank that requests instructions to the “General Policies and 

Procedures” booklet and this booklet of the Comptroller's Licensing Manual.

Filing the Certification 

Bank

2. Submits a Financial Subsidiary Certification to the Director for District 

Licensing. 

The financial subsidiary certification must: 

• Be labeled “Financial Subsidiary Certification.” 

• Provide a complete listing of the bank’s affiliated depository institutions. 

• Include a certification that the bank and each affiliated depository 

institution: 

− Is “well capitalized.” 

− Is “well managed.” 

− Has not received a less than “Satisfactory” CRA rating. 

 

Review 

Licensing Staff 

3. Makes CAIS entries. 

4. Establishes the official file to maintain all original documents. 

5. Determines that the financial subsidiary certification is complete. (To be 

complete the certification must include the items listed in step 2.) 

6. Verifies that the bank and each depository affiliate is “well capitalized,” “well 

managed,” and has not received less than a “satisfactory” CRA rating. 

7. If the financial subsidiary certification contains the required information, sends 

an acknowledgment letter to the bank, with a copy to the Assistant Deputy 

Comptroller (ADC) or large bank Examiner-in-Charge (EIC) and supervisory 

analyst. Proceeds to step 10. 

32 
8. If the financial subsidiary certification is not complete, contacts the bank for 

missing information. 

9. Reviews any additional information to determine completeness. Goes back to 

step 5. 

Close Out 

Licensing Staff 

10. Maintains a copy of the financial subsidiary certification in the district office 

files to be used as reference for subsequent notice filings. 

11. Makes CAIS entries. 

12. Reviews the file for completeness and forwards the file to Central Records. 

33 
Procedures: Financial Subsidiary–Notice 

Prefiling 

Licensing Staff 

1. Refers a bank that requests instructions to the “General Policies and 

Procedures” booklet and this booklet of the Comptroller's Licensing Manual.

Filing the Notice 

Bank

2. Submits a Financial Subsidiary Notice (notice) to the Director for District 

Licensing. 

The financial subsidiary notice must: 

• Be labeled “Financial Subsidiary Notice.” 

• Attest that the bank’s financial subsidiary certification remains valid. 

• Describe the activity or activities to be performed in the financial subsidiary. 

• If a notice relates to the initial affiliation of the bank with a particular 

company involved in insurance activities (including a broker or dealer 

selling annuities that are considered insurance products under state law), 

describe the type of insurance activity that the company is engaged in and 

has present plans to conduct and list for each state the lines of business for 

which the company holds, or will hold, an insurance license, indicating the 

state in which the company holds a resident license or charter, as 

applicable. 

• Cite the specific authority permitting the activity to be conducted within a 

financial subsidiary. Include a copy of the order or interpretation if the 

authority relied upon is an agency order or interpretation under sections 

4(c)(8) or 4(c)(13) of the Bank Holding Company Act, 12 USC 1843(c)(8) or 

(c)(13). 

• Certify that the bank will remain “well capitalized” after deducting the 

aggregate amount of its outstanding equity investment, including retained 

earnings, in its financial subsidiaries from the assets and tangible equity of 

the bank and deducting such investment from its total risk-based capital (this 

deduction shall be made equally from Tier I and Tier 2 capital). 

• Demonstrate that the aggregate consolidated total assets of all the financial 

subsidiaries of the national bank do not exceed the lesser of 45 percent of 

the bank’s consolidated total assets or $50 billion (this $50 billion limit is 

subject to adjustment according to an indexing mechanism established 

jointly by the Secretary of the Treasury and the Federal Reserve). 

34 
• Certify that the bank meets the eligible debt requirement of 12 CFR 

5.39(g)(3), if applicable. If the financial subsidiary is acting solely as agent, 

this certification is not necessary. 

Review 

Licensing Staff 

3. Initiates and enters information into CAIS. 

4. Establishes the official file to maintain all original documents. 

5. Forwards a copy of the Financial Subsidiary Notice and any CAIS comments to 

the Assistant Deputy Comptroller (ADC) or large bank Examiner-in-Charge (EIC) 

and supervisory analyst. 

6. Determines that a financial subsidiary certification is on file and that the 

information outlined in step 2 is included with the notice. 

7. If the notice relates to an investment in a company engaging in insurance 

activities, including a broker dealer selling annuities that are considered 

insurance under state law, forwards a copy of the notice with a brief cover 

letter to the insurance commissioner of the state in which the company holds a 

resident license or charter, as applicable. 

8. If the notice contains the information previously outlined, sends an 

acknowledgement letter to the bank with a copy to the ADC or large bank EIC 

and supervisory analyst. Proceeds to step 11. 

9. If the notice is not complete, contacts the bank for submission of missing 

information. 

10. Reviews any additional information to determine the notice is complete. Goes 

to step 8. 

Close Out 

Licensing Staff 

11. Makes CAIS entries. 

12. Reviews the file for completeness and forwards the file to Central Records.

35 
Procedures: Financial Subsidiary–Combined 

Certification and Notice 

Prefiling 

Licensing Staff 

1. Refers a bank that requests instructions to the “General Policies and 

Procedures” booklet and this booklet of the Comptroller's Licensing Manual.

Filing 

Bank

2. Submits a Financial Subsidiary Certification and Notice to the Director for 

District Licensing. 

The financial subsidiary certification and notice must: 

• Be labeled “Financial Subsidiary Certification and Notice.” 

• List each of the bank’s affiliated depository institutions. 

• Include a certification that the bank and each affiliated depository 

institution: 

− Is “well capitalized.” 

− Is “well managed.” 

− Has not received a less than “Satisfactory” CRA rating. 

• Describe the activity or activities to be performed in the financial subsidiary. 

• Cite the specific authority permitting the activity to be conducted within a 

financial subsidiary. Include a copy of the order or interpretation if the 

authority relied upon is an agency order or interpretation under Section 

4(c)(8) or 4(c)(13) of the Bank Holding Company Act, 12 USC 1843(c)(8), 

(c)(13). 

• If a notice relates to the initial affiliation of a bank with a particular company 

involved in insurance activities (including a broker dealer selling annuities 

that are considered insurance products under state law), describe the type of 

insurance activity that the company is engaged in and has present plans to 

conduct and list for each state the lines of business for which the company 

holds, or will hold, an insurance license, indicating the state in which the 

company holds a resident license or charter, as applicable. 

36 
• Certify that the bank will remain “well capitalized” after deducting the 

aggregate amount of its outstanding equity investment, including retained 

earnings, in its financial subsidiaries from the assets and tangible equity of 

the bank and deducting such investment from its total risk-based capital (this 

deduction shall be made equally from Tier I and Tier 2 capital). 

• Demonstrate that the aggregate consolidated total assets of all the financial 

subsidiaries of the national bank do not exceed the lesser of 45 percent of 

the bank’s consolidated total assets or $50 billion (this $50 billion limit is 

subject to adjustment according to an indexing mechanism established 

jointly by the Secretary of the Treasury and the Federal Reserve). 

• Certify that the bank meets the eligible debt requirement of 

12 CFR 5.39(g)(3), if applicable. If the financial subsidiary is acting solely as 

agent, this certification is not necessary. 

Review 

Licensing Staff 

3. Initiates and enters information into CAIS. 

4. Establishes the official file to maintain all original documents. 

5. Forwards a copy of the financial subsidiary certification and notice and any 

CAIS comments to the Assistant Deputy Comptroller (ADC) or large bank 

Examiner-in-Charge (EIC) and supervisory analyst. 

6. Determines the financial subsidiary certification and notice contains the 

information outlined in step 2. 

7. Determines the bank and each affiliated depository institution are “well 

capitalized,” “well managed,” and has not received less than a “Satisfactory” 

CRA rating. 

8. If the notice relates to an investment in a company engaging in insurance 

activities, including a broker dealer selling annuities that are considered 

insurance under state law, forwards a copy of the notice with a brief cover 

letter to the insurance commissioner of the state in which the company holds 

a resident license, or charter, as applicable. 

9. If the financial subsidiary certification and notice contains the information 

outlined in step 2, sends an acknowledgement letter to the bank with a copy 

to the ADC or large bank EIC and supervisory analyst. Proceed to step 12. 

10. If the financial subsidiary certification or notice is not complete, contacts the 

bank for submission of missing information. 

11. Reviews any additional information to determine that financial subsidiary 

certification and notice is complete. Proceed to step 9. 

37 
Close Out 

Licensing Staff 

12. Makes CAIS entries. 

13. Makes a copy of financial subsidiary certification and notice and retains it in 

the district office files for future reference. 

14. Reviews the file for completeness and forwards the file to Central Records. 

38 
Procedures: Noncontrolling Investments 

After-the-fact Notice 

Prefiling 

Licensing Staff 

1. Refers a bank requesting instructions to the “General Policies and Procedures” 

booklet and this booklet of the Comptroller's Licensing Manual.

Filing the Notice 

Bank 

2. Submits a complete after-the-fact notice (notice) to the Director for District 

Licensing. 

The noncontrolling investment notice must provide: 

• A certification that the bank is “well capitalized” and “well managed.” 

• A complete description of the investment in the enterprise, including the 

amount of the investment and the percent of the bank’s capital the 

investment represents. 

• A complete description of the activities conducted by the enterprise in 

which the bank is investing. To the extent the notice relates to the initial 

affiliation of the bank with a particular company engaged in insurance 

activities (including a broker dealer selling annuities that are considered 

insurance products under state law), provide a description of the type of 

insurance activity in which the company is engaged and has present 

plans to conduct. The bank must also list for each state the lines of 

business for which the company holds, or will hold, an insurance 

license, indicating the state in which the company holds a resident 

license or charter, as applicable. 

• A statement as to: 

– Which paragraph(s) of 12 CFR 5.34(e)(5)(v) describes the activities, or 

– How the activities are substantively the same as that contained in a 

published OCC precedent (with citations provided), approving a 

noncontrolling investment by a bank or its operating subsidiary, with 

a statement that such activity will be conducted under the same 

terms and conditions applicable to the activity covered by the 

precedent. 

39 
• A description of how the bank can prevent the enterprise from engaging 

in activities not contained in 12 CFR 5.34(e)(5)(v) or in a published OCC 

precedent approving a noncontrolling investment by a national bank or 

its operating subsidiary, or how the bank can withdraw its investment. 

• A description of how the investment is convenient and useful to the bank 

in carrying out its business and not merely a passive investment unrelated 

to the bank’s banking business. 

• A statement certifying that: 

- The bank will account for its investment under the equity or cost 

method of accounting. 

- The bank’s loss exposure is limited, as a legal and accounting matter, 

and the bank does not have open-ended liability for the obligations 

of the enterprise. 

- The enterprise in which the bank is investing agrees to be subject to 

OCC supervision and examination, subject to the limitations and 

requirements of 12 USC 1820a and 1831v. 

Review 

Licensing Staff 

3. Initiates and enters information into the Corporate Activities Information 

System (CAIS). 

4. Establishes the official file to maintain all original documents. 

5. Reviews the notice and verifies that: 

• The bank is at least “well capitalized” and “well managed.” 

• The description of the activity meets the regulatory criteria of 

12 CFR 5.34(e)(5)(v) and 5.36(e). 

• The notice contains all the required information as outlined in step 2. 

• Forwards copy of the notice to district counsel if the activity raises any 

questions of permissibility. 

6. If the notice is sufficient, sends an acknowledgment letter to the bank, 

providing a copy to the Assistant Deputy Comptroller (ADC) or large bank 

Examiner-in-Charge (EIC) and supervisory analyst. 

If the notice relates to an investment in a company engaged in insurance 

activities (including a broker dealer selling annuities that are considered 

insurance under state law), prepares a cover letter and forwards a copy of the 

40 
notice to the insurance commissioner of the state in which the company holds 

a resident license or charter, as applicable. 

Proceeds to step 9. 

7. If the notice is insufficient, contacts the bank for clarification or the missing 

information. 

 

8. Reviews any additional information. If the notice is sufficient, sends an 

acknowledgment letter to the bank, providing a copy to the ADC or large bank 

EIC and supervisory analyst. 

If the notice relates to an investment in a company engaged in insurance 

activities (including a broker dealer selling annuities that are considered 

insurance under state law), prepares a cover letter and forwards a copy of the 

notice to the insurance commissioner of the state in which the company holds 

a resident license or charter, as applicable. 

Close Out 

Licensing Staff 

9. Makes CAIS entries.

10. Reviews the file for completeness and forwards the file to Central Records.

41 
Appendix A: Operating Subsidiary Guidelines 

Introduction 

These guidelines describe those activities of national banks that the Comptroller of 

the Currency (OCC) has determined may be performed in an operating subsidiary 

under the after-the-fact notice procedure available in the OCC’s operating subsidiary 

regulation.1 The citations given in the guidelines for each of the activities listed 

provide examples of OCC approvals.2

Operating Subsidiary Activities [5.34(e)(5)(v)] 

(A) Holding and managing assets acquired by the parent bank, including 

investment assets and property acquired by the bank through foreclosure or 

otherwise in good faith to compromise a doubtful claim, or in the ordinary course 

of collecting a debt previously contracted. 

National banks and their operating subsidiaries may hold and manage assets 

acquired by the parent bank or the operating subsidiary, including investment assets 

and property acquired in satisfaction of debts previously contracted (DPC). 

Investment Assets 

National banks and their operating subsidiaries may own, hold, and manage all or 

part of the parent bank's investment securities portfolio in accordance with the 

bank's investment guidelines. Such activity is permissible as part of, or incidental to, 

the business of banking. Moreover, a national bank or its operating subsidiary “may 

purchase for its own account investment securities under such limitations and 

restrictions as the OCC may by regulation prescribe.”3

 The OCC's Investment 

Securities Regulations at 12 CFR 1 prescribe limitations and restrictions on the 

purchase of an investment security by a national bank for its own account. These 

restrictions similarly apply to a national bank's operating subsidiary. Limits on 

securities activities in Part 1 generally are applied to the bank and the operating 

subsidiary combined. 

DPC Property 

Title 12 USC 29 governs the treatment of real property taken DPC. Banks should 

consult 12 CFR 34, Subpart E, “Other Real Estate Owned,” for specific information 

on the treatment of DPC real estate. In addition, banks are authorized to take other 

property DPC under 12 USC 24 (Seventh), for sale to reduce the bank's losses on 

the underlying debts. A bank may take appropriate steps to preserve the property's 

value for sale. For example, if a national bank takes corporate stock DPC, it has the 

implied power to operate the corporation's business, particularly when the resale 

 

1

12 CFR 5.34(e)(5)(iv) and (v). 

2

 The narrative section of this Investment in Subsidiaries and Equities booklet (booklet) provides 

further information on the requirements governing the use of the after-the-fact notice procedure. In 

addition, with respect to offshore subsidiaries, see page 4 under “Key Policies, Offshore 

Subsidiaries.” 

3

 12 USC 24(Seventh). 

42 
value depends on its uninterrupted operation, provided that the purpose of 

operating the corporation's business is not to speculate on its future value. 

Generally, real property must be disposed of within five years and cannot be used 

for speculation. Transfer of the DPC assets to the operating subsidiary does not alter 

the limitations on the bank's holding period for that asset. The property need not 

have been collateral for the loan in question. The OCC may extend that period up 

to five additional years if the bank has made a good faith attempt to dispose of the 

real estate within the five-year period or its disposal within that period would be 

detrimental to the bank. 

A national bank also may hold securities in satisfaction of DPC for five years. This 

holding period also may be extended up to an additional five years upon a clearly 

convincing demonstration of why an additional holding period is needed.4

 An 

operating subsidiary that acquires stock of the parent bank must dispose of it within 

six months.5

Operating subsidiaries established by the notice procedure to engage in DPC 

activity also may enter into arrangements as a general or limited partner with 

depository or nondepository co-lenders to engage in the orderly acquisition, 

management, and disposition of DPC assets stemming from the parent bank's 

loans.6

 DPC partnership activity must be conducted as follows: (1) the partnership 

must be limited to the acquisition, management, and disposition of the DPC as

(2) partners will be limited to co-lenders and their agents; (3) the DPC assets must b

disposed of promptly within the previously described guidelines; and (4) the bank 

must maintain at its headquarters office and make available to OCC examiners 

current information on all DPC assets activities of its operating subsidiary, including 

the name and location of each operating subsidiary, each partnership and relevant 

agreement, and each DPC asset being held pending disposition. 

sets; 

e 

 

National banks establishing operating subsidiaries that will engage in debt-equity 

swap transactions7

 must follow the standard processing procedures in section 5.34. 

(B) Providing services to or for the bank or its affiliates, including accounting, 

auditing, appraising, advertising and public relations, and financial advice and 

consulting. 

National banks and their operating subsidiaries may provide internal operation 

services for the parent bank, its holding company, and their subsidiaries.8

 These 

services generally relate to the day-to-day operations of those entities.9

 Real estate 

appraisal services are covered at 12 CFR 5.34(e)(5)(v)(V). 

4

 12 CFR 1.7 clarifies how a bank must treat securities held in satisfaction of DPC and provides for 

the five-year holding period with limited extensions. It also requires banks to account for those 

holdings in accordance with GAAP and states that they may not be taken for speculative purposes. 

5

 12 USC 83. 

6

 Interpretive Letter No. 397 (September 15, 1987), reprinted in [1988-89 Transfer Binder] Fed. 

Banking L. Rep. (CCH) ¶ 85,621. 7

 No Objection Letter No. 87-10 (November 27, 1987), reprinted in [1988-89 Transfer Binder] Fed. 

Banking L. Rep. (CCH) ¶ 84,039; No Objection Letter No. 88-7 (May 20, 1988), reprinted in [1988-

89 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 84,047. 

8

 Interpretive Letter No. 811, supra; Interpretive Letter No. 513 (June 18, 1990), reprinted in [1990-

91 Transfer Binder] Federal Banking L. Rep. (CCH) ¶ 83,215. 

9

 Letter from Robert Bloom, Deputy Comptroller for Policy (August 26, 1975). 

43 
National banks and their operating subsidiaries may provide advice, opinions, 

research, analyses, reports and other information and opinion on any financial 

matter to any affiliate of the operating subsidiary. Banks typically develop financial 

information and analysis internally. 

(C) Making loans or other extensions of credit, and selling money orders, savings 

bonds, and travelers checks.

Making loans or other extensions of credit 

National banks and their operating subsidiaries possess broad authority to engage in 

lending and lending-related activities. Subject to safety and soundness guidelines, 

they may originate (including asset-based lending) loans or other extensions of 

credit for the bank’s or subsidiary’s account, or for the account of others. These 

activities are permitted for any type of loan, or interest therein, including, among 

other things, consumer loans, accounts receivable, credit card loans, commercial 

loans, residential mortgage loans, and commercial real estate loans. For purposes of 

this section, however, only lending activities that: (1) are well-established activities 

previously approved by the OCC; and (2) do not raise significant policy or 

supervisory issues, qualify for after-the-fact notice filings under 12 CFR Part 5. For 

example, derivatives transactions are not considered lending transactions for 

purposes of this section. Also, operating subsidiaries structured as real estate 

investment trusts do not qualify for after-the-fact notice filings if the size of the 

minority interest to be created is greater than the lesser of 1 percent of the bank's 

Tier 1 capital or $1 million. Any bank that considers establishing a REIT as an 

operating subsidiary is strongly encouraged to consult first with the OCC. 

Except for lending limit, affiliate-transaction, and insider-transaction restrictions, 

lending is generally permitted without a quantitative limit, but when performed for 

the bank's or subsidiary's own account, may be subject to geographic restrictions 

under the McFadden Act. 

Real estate loans and certain other types of loans are also subject to certain 

additional restrictions discussed as follows. 

Personal and Commercial Loans 

National banks and their operating subsidiaries are authorized expressly to lend 

money on personal security.10 They may also discount, purchase, and negotiate 

drafts, bills of exchange, and other evidences of debt. The general power to make 

personal and commercial loans essentially is unrestricted. 

Real Estate Loans and Related Activities 

A national bank may make real estate loans pursuant to 12 USC 371 and 12 USC 

24(Seventh). A national bank will find the standards for real estate-related lending 

and associated activities at 12 CFR 34. Real estate lending may be performed for 

the account of the bank, the operating subsidiary, or for third parties.11 National 

banks and their operating subsidiaries may make (or participate in), arrange, 

 

10 12 USC 24(Seventh). 11 Interpretive Letter No. 389 (July 7, 1987), reprinted in [1988-89 Transfer Binder] Fed. Banking L. 

Rep. (CCH) ¶ 85,613. 

44 
purchase, or sell loans or extensions of credit (or interests therein) secured by liens 

or interests in residential or commercial real estate (including acquisition, 

development, and construction loans) without any special quantitative limit aside 

from the general lending limit, but subject to applicable restrictions and 

requirements of the OCC's regulations in 12 CFR 34 and accompanying Interagency 

Guidelines for Real Estate Lending Policies. They may also perform various 

activities that are closely related to the lending function, such as gathering census 

tract information, auditing loan portfolios, preparing loan documentation, 

performing flood insurance services, and inspecting real property.12

The authority to make such loans includes structuring them as “participating loans,” 

when a portion of the interest, but not the principal, is contingent upon the success 

of the borrower's enterprise. However, the lender may not take an ownership 

interest in the underlying real estate.13

Certain permissible services (including lending, functions involved in loan 

brokerage, preparation of loan documentation, performing flood insurance services, 

inspecting real property, and others) qualify as “settlement services” under the Real 

Estate Settlement Procedures Act (RESPA). As such, referrals of these services 

among the bank and its lending affiliates are subject to the restrictions relating to 

“affiliated business arrangements” (ABAs) as defined in RESPA. For additional 

information and guidance, refer to (V) “Providing real estate settlement, closing, 

escrow, and related services; and real estate appraisal services for the subsidiary, 

parent bank, or other financial institutions” of this appendix. 

Other Lending-Related Activities 

In addition to direct lending activities, national banks and their operating 

subsidiaries also may engage in lending-related activities on behalf of third parties, 

that are part of or incidental to banking, such as conducting a general mortgage 

banking business and providing loan brokerage services. For example, national 

banks and their operating subsidiaries may provide real estate asset management 

and advisory services, furnish debt collection services, set fees, offer credit reporting 

services, arrange for the placement of equity interests in commercial real estate 

between borrowers and investors,14 market and sell mortgage loans in the secondary 

market, provide customer service support for a credit card business, negotiate and 

close loans for third-party lenders, arrange loan commitments from third parties, act 

as document custodians of residential mortgage loan documents for third parties, 

assist state and local governments in placing funds made available through 

mortgage revenue bonds, and engage in merchant processing activities.15

 

12 See, for example, Conditional Approval No. 322 (July 30, 1999); Conditional Approval No. 276 

(May 8, 1998). 

13 12 CFR 7.1006; Interpretive Letter No. 620 (July 15, 1992), reprinted in [1993-1994 Transfer 

Binder] Fed. Banking L. Rep. (CCH) ¶ 83,502; Interpretive Letter No. 389, supra; Interpretive Letter 

No. 244 (Jan. 26, 1982), reprinted in [1983-84 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 

85,408; and Interpretive Letter No. 204 (June 17, 1981), reprinted in [1981-82 Transfer Binder] Fed. 

Banking L. Rep. (CCH) ¶ 85,285. 

14 Subject to the conditions in Interpretive Letter No. 271, supra. 15 Interpretive Letter No. 389, supra; Interpretive Letter 387, supra; Interpretive Letter No. 271, supra; 

S. rep. No. 536, 97th Cong., 2d Sess. 60 (1982); Interpretive Letter No. 944 (Aug. 12, 2002) [Current 

Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81-469. See also Letter from J. Michael Shepherd, 

Senior Deputy Comptroller (Nov. 19, 1990); Letter from Karen J. Wilson, Deputy Comptroller (Mar. 

13, 1990); Letter from Karen J. Wilson, Deputy Comptroller (Nov. 29, 1989) and Letter from Emory 

W. Rushton, Acting Deputy Comptroller (Dec. 19, 1986). 

45 
Activities undertaken for third parties, such as brokerage or servicing activities, may 

be conducted at any location without regard to branching restrictions. 

Selling money orders, savings bonds, or travelers checks.

National banks and their operating subsidiaries generally may sell these instruments 

without regard to where the bank's branch offices are or could be located. In 

addition, the OCC's interpretive ruling, “Sale of money orders at nonbanking 

outlets,” 12 CFR 7.1014, allows bonded agents to sell money orders on behalf of 

the bank or its operating subsidiary at nonbanking locations. See section (Y) below. 

(D) Purchasing, selling, servicing, or warehousing loans or other extensions of 

credit, or interests therein. 

National banks and their operating subsidiaries may, subject to safety and 

soundness considerations, engage in purchasing (including factoring), selling, 

servicing, or warehousing loans or other extensions of credit for the bank’s or 

subsidiary’s account or for the account of others. These activities are permitted for 

any type of loan, or interest therein, including, among other things, consumer loans, 

accounts receivable, credit card loans, commercial loans, residential mortgage 

loans, and commercial real estate loans. Most such loans and activities are subject 

to the same general authorities and limitations as apply to the origination of loans 

(see section (C) above). 

The OCC interprets the general lending authority of section 24(Seventh) as 

permitting national banks and their operating subsidiaries to act as agent in selling, 

warehousing or servicing mortgage and other loans.16 Warehousing loans generally 

involves holding loans that are closed and awaiting sale or delivery to an investor. 

National banks and their operating subsidiaries may engage in mortgage collateral 

warehousing for third parties, which involves the receipt, verification, and storage of 

loan documentation for lenders.17 In addition, they may provide warehousing 

services to extend credit to the loan originator in exchange for an assignment of the 

loans. 

(E) Providing courier services between financial institutions. 

National banks and their operating subsidiaries may transport items pertaining to 

banking operations between the offices of the bank, the bank and its affiliated 

financial institutions; the bank and nonaffiliated financial institutions; offices of nonaffiliated financial institutions; offices of noncustomers of the bank; and between 

noncustomers of the bank and their financial institutions.18 National banks may 

provide courier services for financial institutions under the following circumstances: 

• For the bank itself: transportation of items related solely to the internal 

operations of the bank.19 This includes transportation of cash between bank 

offices or for the restocking of the bank’s ATMs.20

 

16 Conditional Approval No. 338 (Nov.10, 1999); Conditional Approval No. 264 (Dec.29, 1997); 

Conditional Approval No. 243 (May 9, 1997); Interpretive Letter No. l87, supra. 17 Letter from Michael Patriarca, Deputy Comptroller (May 28, 1986). 18 Corp. Dec. 2003-9 (June 25, 2003). 19 Letter from Peter Liebesman, Assistant Director, Legal Advisory Services Division (March 7, 1983). 20 12 CFR 5.34(e)(v)(E); Corp. Dec. 2003-9 (June 25, 2003); Interpretive Letter No. 513 (June 

18,1990), reprinted in [1990-91 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 83,215; No46 
• For the bank itself and for its affiliated financial institutions: transportation of 

items related to banking transactions, such as checks, data processing 

materials, and interoffice mail.21

• For the bank and affiliated and nonaffiliated financial institutions: 

transportation of cash and documents related to banking, such as checks, 

commercial paper, non-negotiable instruments, audit and accounting media, 

and other business records.22

A courier service performing the previously mentioned functions pursuant to the 

after-the-fact notice procedure must not constitute a branch of any bank—that is, the 

service must not constitute branching transactions (the receipt of deposits, payment 

of withdrawals, or disbursement of loan proceeds) with its customers. If the service 

does constitute a branch, branching approval must be sought under the procedures 

set forth in 12 CFR 5.30. 

(F) Providing management consulting, operational advice, and services for other 

financial institutions. 

National banks and their operating subsidiaries may gather information and provide 

advice to any unaffiliated depository institution, in the form of information or 

opinion about its management and operation, and provide other services tailored to 

the management and operational needs of a depository institution customer. Banks 

traditionally have performed those activities in their correspondent relationships, 

under which they act on behalf of other banks in conducting the banking business. 

See also subsection (S), infra, “Offering correspondent services to the extent 

permitted by published OCC precedent.” Operating subsidiaries may provide a 

broad range of services to other depository institutions under this authority.23 

Services offered pursuant to this authority must be those that reflect and incorporate 

the unique nature of the banking business.24

Any actions taken or decisions made by a depository institution customer, based on 

services provided by the operating subsidiary, must be a function of the 

management or board of directors of the customer, with the operating subsidiary 

refraining from engaging in a management role or exercising any form of operating 

control over the customer.25

 Objection No. 89-04 (July 11, 1989), reprinted in [1989-1990 Transfer Binder] Fed. Banking Law. 

Rep. (CCH) ¶ 83,061; Letter from Richard V. Fitzgerald, Director, Legal Advisory Services Division 

(May 22, 1981).

21 Letter from Thomas G. DeShazo, Deputy Comptroller (April 26, 1974). 22 Corp. Dec. 2003-9 (June 25, 2003); Interpretive Letter No. 513 (June 18, 1990), reprinted in 

[1990-91 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 83,215; No-Objection Letter No. 89-04 

(July 11, 1989), reprinted in [1989-1990 Transfer Binder] Fed. Banking Law. Rep. (CCH) ¶ 83,061; 

Letter from Richard V. Fitzgerald, Director, Legal Advisory Services Division (May 22, 1981). 

23 Interpretive Letter No. 811, supra; Letter from Emory Rushton, Deputy Comptroller (February 16, 

1988) Interpretive Letter No. 137 (December 27, 1979), reprinted in [1981-82 Transfer Binder] Fed. 

Banking L. Rep. (CCH) ¶ 85,218; Letter from John Shockey, Deputy Chief Counsel (April 12, 1976); 

Letter from H. Joe Shelby, Deputy Comptroller (October 2, 1975); Letter from Thomas G. DeShazo, 

Deputy Comptroller (August 22, 1975). 

24 Interpretive Letter No. 137, supra. 25 Letter from Emory Rushton, Deputy Comptroller (February 16, 1988). 

47 
(G) Providing check guaranty, verification, and payment services. 

National banks and their operating subsidiaries may agree to “guarantee” or “verify” 

the checks that will be drawn upon the bank by its customers.26 In essence, the 

bank or the operating subsidiary agrees with its customers to extend credit, if 

necessary, to honor the checks. They may also provide check-cashing services to 

the general public without regard to where the bank’s branch offices are or could be 

located. 

(H) For the bank or its affiliates, providing data processing, data warehousing and 

data transmission products, services, and related activities and facilities, including 

associated equipment and technology. 

National banks and their operating subsidiaries may collect, process, transcribe, 

analyze, and store banking, financial, and economic data for themselves and their 

customers as part of the business of banking.27 Permissible processing of eligible 

data includes provision of data processing services, data transmission services, 

facilities – including equipment, technology, and personnel – databases, and 

advice. It also includes providing access to such services, facilities, databases, and 

advice. Economic data includes anything of value in banking and financial 

decisions.28

In addition to the processing of banking, financial, or economic data, national banks 

and their subsidiaries may, as activities incidental to the business of banking, 

provide limited amounts of non-financial information processing to their customers 

to enhance marketability or use of a banking service.29 For example, a national 

bank selling home banking services can also provide customers with access to nonbanking services “to increase the customer base for and the usage of” the home 

banking service.30

Banks and their subsidiaries that engage in financial or non-financial data processing 

will be expected to comply with all applicable supervisory requirements and 

guidance.31

(I) Acting as investment adviser (including an adviser with investment discretion) 

or financial adviser or counselor to governmental entities or instrumentalities, 

businesses, or individuals, including advising registered investment companies and 

 

26 12 USC 24(Seventh). 27 12 CFR 7.5006; Interpretive Letter No. 928, (Dec. 24, 2001), reprinted in [Current Transfer Binder] 

Fed. Banking L. Rep. (CCH) ¶ 81-453; Corporate Decision No. 2000-08 (Jun. 1, 2000); Interpretive 

Letter No. 811, supra; Letter from Emory Rushton, Deputy Comptroller (February 16, 1988); 

Interpretive Letter No. 137, supra 28 Interpretive Letter No. 928, supra; Corporate Decision No. 2000-08, supra; Conditional Approval 

No. 361 (Mar. 3, 2000); Interpretive Letter No. 856 (Mar. 5, 1999), reprinted in [1998-1999 Transfer 

Binder] Fed. Banking L. Rep. (CCH) ¶81-313. 

29 Conditional Approval No. 369 (Feb. 25, 2000); Interpretive Letter No. 742, (Aug. 19, 1996). 

reprinted in [1996-1997 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81-106. 30 Interpretive Letter No. 611, (Nov. 23, 1992), reprinted in [1992-1993 Transfer Binder] Fed. 

Banking L. Rep. (CCH) ¶ 83,449. 

31 For example, OCC Alert No. 2001-04 (Apr. 24, 2001) (Network Security Vulnerabilities); OCC 

Advisory Letter No. 2000-12 (Nov. 28, 2000) (Risk Management of Outsourcing Technology); OCC 

Bulletin No. 2000-14 (May 15, 2000) (Infrastructure Threats-Intrusion Risks–Message to Bankers and 

Examiners); Federal Financial Institutions Examination Council, Information Systems Examination 

Handbook (1996 ed.), available at http://www.ncua.gov/ref/ffiec/ffiechandbook.html. 

48 
mortgage or real estate investment trusts, furnishing economic forecasts or other 

economic information, providing investment advice related to futures and options 

on futures, and providing consumer financial counseling. 

General Description 

National banks and their operating subsidiaries may provide investment and 

financial advisory services and financial counseling as part of banking powers 

authorized under 12 USC 24(Seventh), or, in the case of activities that are fiduciary 

in nature, pursuant to their fiduciary powers under 12 USC 92a.32

Advisory activities may be provided to individuals, corporations, institutional 

investors, correspondent financial institutions, pension and other retirement plans, 

and others.33 Those activities include individualized investment advice, business 

advisory services, financial advice, financial planning, investment 

recommendations, and analyses of economic trends.34 Various administrative and 

shareholder functions also are incidental to the provision of advisory services 

including, but not limited to, recordkeeping, accounting, and other services.35 

Operating subsidiaries seeking to engage in different advisory activities should 

consult other sections of these guidelines, as applicable, for the scope of permissible 

activities. Any bank with an operating subsidiary engaging in these activities must 

comply with applicable provisions of the Interagency Statement on Retail Sales of 

Nondeposit Investment Products, February 15, 1994. 

Depending on the advisory services offered, the operating subsidiary may need to 

register with the Securities and Exchange Commission (SEC) as an investment 

adviser under the Investment Advisers Act of 1940 (Advisers Act) and comply with 

any applicable state laws.36 Banks are excluded specifically from the definition of 

investment adviser under the Advisers Act, unless they advise registered investment 

companies. Bank operating subsidiaries are fully subject to the Advisers Act.37

Adviser with Investment Discretion 

Investment discretion means, with respect to an account, the sole or shared 

authority (whether or not that authority is exercised) to determine what securities or 

 

32 12 CFR 9.2(e); Interpretive Letter No. 769 (January 28, 1997), reprinted in [1996-97 Transfer 

Binder] Fed. Banking L. Rep. (CCH) ¶ 81-133; Interpretive Letter No. 648 (May 4, 1994), reprinted in

[1994 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 83,557; Interpretive Letter No. 367 (August 19, 

1986), reprinted in [1985-87 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 85,537; Interpretive 

Letter No. 329 (March 4, 1985), reprinted in [1985-87 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 

85,499; Decision of the Comptroller of the Currency Concerning an Application by American 

National Bank of Austin, Texas, to Establish an Operating Subsidiary to Provide Investment Advice 

(American National Decision) (September 23, 1983), reprinted in [1983-84 Transfer Binder] Fed. 

Banking L. Rep. (CCH) ¶ 99,732. 

33 Interpretive Letter No. 298 (July 23, 1984), reprinted in [1985-87 Transfer Binder] Fed. Banking L. 

Rep. (CCH) ¶ 85,468; American National Decision, supra. 34 Interpretive Letter No. 516 (July 12, 1990), reprinted in [1990-91 Transfer Binder] Fed. Banking L. 

Rep. (CCH) ¶ 83,220; Interpretive Letter No. 367, supra; Letter from Judith A. Walter, Senior Deputy 

Comptroller for National Operations, dated July 17, 1986; American National Decision, supra. 35 Interpretive Letter No. 647 (April 15, 1994), reprinted in [1994 Transfer Binder] Fed. Banking L. 

Rep. (CCH) ¶83,558; Interpretive Letter No. 386 (June 19, 1987), reprinted in [1988-89 Transfer 

Binder] Fed. Banking L. Rep. (CCH) ¶85,610. 

36 Interpretive Letter No. 403 (December 9, 1987), reprinted in [1988-89 Transfer Binder] Fed. 

Banking L. Rep. (CCH) ¶ 85,627; Interpretive Letter No. 367, supra. 37 15 USC 80b-2(a)(11). 

49 
other assets to purchase or sell on behalf of the account. A bank that delegates its 

authority over investments and a bank that receives delegated authority over 

investments are both deemed to have investment discretion.38 If an operating 

subsidiary proposes to exercise investment discretion on behalf of customers or 

provide investment advice for a fee, the national bank must have prior OCC 

approval to exercise fiduciary powers pursuant to 12 CFR 5.26, unless the 

subsidiary is required to be registered with the SEC. 12 CFR 5.34(e)(5)(vii). 

Financial adviser or counselor to governmental entities or instrumentalities, 

businesses or individuals 

to governmental entities or instrumentalities 

National banks and their operating subsidiaries may advise state, local, and foreign 

governments on financing projects and assist them in the marketing of their 

securities. National banks may provide such advice pursuant to their incidental 

powers.39

to businesses or individuals 

Banks may provide financial advice, financial planning, and counseling to 

businesses and consumers in a variety of contexts,40 including advice and 

counseling on employee benefits and human resources41 and financial planning.42

Financial planning services generally include collecting and analyzing a customer’s 

financial data; identifying a customer’s financial goals and objectives; preparing a 

comprehensive financial plan consisting of recommendations on how to achieve the 

identified financial goals and objectives; evaluating personal, banking, financial, 

and related economic data and implementation of the financial plan, that is, 

purchasing the relevant products or services.43 A comprehensive financial plan may 

contain tax planning and financial advice, and may recommend the purchase or sale 

of specific investments or securities.44 A national bank financial planner may also 

use financial plans to make other recommendations, such as the consolidation of 

loans and purchase of life insurance.45

 

38 12 CFR 9.2(i); Interpretive Letter No. 850 (January 27, 1999), reprinted in [1998-89 Transfer 

Binder] Fed. Banking L. Rep. (CCH) ¶ 81-307; Corporate Decision No. 2000-07 (May 10, 2000). 

39 12 USC 24(Seventh); Interpretive Letter No. 122 (August 1, 1979), reprinted in [1981 - 1982 

Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 85,203. See also The Bank of Tokyo, Ltd., 76 Fed. 

Reserve Bull. 654 (1990); The Bank of Nova Scotia, 74 Fed. Reserve Bull. 249 (1988). 40 Interpretive Letter No. 769, supra. 41 Conditional Approval No. 384 (April 25, 2000); Corporate Decision No. 99-43; Corporate 

Decision No. 98-51 (November 30, 1998); Corporate Decision 98-13 (February 9, 1998). 

42 Interpretive Letter No. 677 (June 28, 1995), reprinted in [1994-1995 Transfer Binder] Fed. Banking 

L. Rep. (CCH) ¶ 83,625; Interpretive Letter No. 611, supra; Interpretive Letter No. 403, supra ; 

Interpretive Letter No. 386, supra; No-Action Letter No. 85-1 (July 30, 1985), reprinted in [1988-

1989 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 84,001. 

43 See Interpretive Letter No. 653 (December 22, 1994), reprinted in [1994-1995 Transfer Binder] 

Fed. Banking L. Rep. (CCH) ¶ 83,601; Interpretive Letter No. 516, supra; No-Objection Letter No. 

90-1 (February 16 1990), reprinted in [1989-1990 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 

83,095; Interpretive Letter No. 386, supra; Letter from Justin T. Watson, Deputy Comptroller of the 

Currency (January 15, 1975). 

44 Interpretive Letter No. 367, supra; American National Decision, supra ; Letter from David H. 

Baris, Regional Counsel (February 11, 1980); Interpretive Letter No. 137, supra; Letter from Justin T. 

Watson, Deputy Comptroller of the Currency (January 15, 1975). 

45 See for example, Interpretive Letter No. 386, supra; Interpretive Letter No. 367, supra. 

50 
Advising Registered Investment Companies 

National banks and their operating subsidiaries may act as an investment adviser to 

an investment company as part of banking powers authorized under 12 

USC 24(Seventh), or pursuant to their fiduciary powers under 12 USC 92a.46 

Various administrative and shareholder functions may be provided in connection 

with the provision of investment advisory services, including, but not limited to, 

recordkeeping, accounting, and other services.47 Further, operating subsidiaries 

may sponsor, organize, manage, and act as investment advisers to closed-end 

investment companies.48 Banks and their operating subsidiaries advising registered 

investment companies must comply with the restrictions in sections 23A and 23B of 

the Federal Reserve Act, 12 USC 371c and 371c-1.49

 

The Investment Company Act of 1940 governs the formation, operation, and 

registration with the Securities and Exchange Commission (SEC) of investment 

companies.50 Serving as an investment adviser to an investment company is defined 

in section 2(a)(20) of the Investment Company Act of 1940 and includes furnishing 

advice to the investment company on the desirability of investing in, purchasing, or 

selling securities.51

Investment advisers to investment companies must register with the SEC under the 

Investment Advisers Act of 1940 (Advisers Act), unless an exemption is available.52 

Banks specifically are excluded from the definition of investment adviser under the 

Advisers Act, unless they advise registered investment companies. Bank operating 

subsidiaries are fully subject to the Advisers Act.53 Operating subsidiaries also must 

comply with any applicable state laws. 

Advising Mortgage or Real Estate Investment Trusts 

National banks and their operating subsidiaries may provide investment advice and 

manage a portfolio of real estate loans and equity investments held or proposed to 

be held by a mortgage or real estate investment trust. Furnishing real estate asset 

management and advisory services, including servicing, advice, and 

recommendations for loan participations and mortgages and for real estate held, 

falls under the financial and investment advisory authority of banks in 12 USC 

24(Seventh), and a national bank may act as an advisory company for a mortgage or 

real estate investment trust.54

46 Conditional Approval No. 270 (Jan 21, 1998); Conditional Approval Letter No. 164 (December 9, 

1994); Interpretive Letter No. 648, supra; Interpretive Letter No. 647, supra; Interpretive Letter No. 

622 (April 9, 1993), reprinted in [1993-94 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 83,504; 

Interpretive Letter No. 403, supra; Board of Governors of the Federal Reserve System v. Investment 

Company Institute, 450 U.S. 46 (1981); Securities Industry Association v. Board of Governors of the 

Federal Reserve System, 821 F.2d 810 (D.C. Cir. 1987), cert. denied, 484 U.S. 1005 (1988). 47 Interpretive Letter No. 647, supra; Interpretive Letter No. 386, supra; Interpretive Letter No. 332 

(March 8, 1985), reprinted in [1985-87 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 85,502. 48 Conditional Approval Letter No. 164 (December 9, 1994); 12 CFR 225.28(b)(6)(i). 49 12 CFR 223 ( 67 Fed. Reg. 76560) (Dec. 12, 2002) (Regulation W). See also FRS, Transactions 

Between Banks and their Affiliates, 66 Fed. Reg. 24186 (May 11, 2001) (proposed rule). 

50 15 USC 80a-1 et. seq. 51 15 USC 80a-2(a)(20). 52 15 USC 80b-1 et seq. 53 15 USC 80b-2(a)(11). 54 Interpretive Letter No. 389, supra. 

51 
Furnishing Economic Information

National banks and their operating subsidiaries may provide advisory services about 

financial and investment planning and advice on general economic, business, and 

financial outlooks, and general trends in the stock and bond markets.55

Providing Investment Advice Related to Futures and Options 

National banks and their operating subsidiaries may advise customers in 

transactions involving financial and commodity futures.56 Operating subsidiaries 

also may provide advice on futures and options on futures contracts as an 

introducing broker (IB) or a commodity-trading advisor (CTA). An operating 

subsidiary, acting as an IB, is engaged in soliciting or in accepting orders (in more 

than a clerical capacity) to purchase and sell any commodities futures or options. 

An IB does not extend credit or accept any money, securities, or property to margin, 

guarantee, or secure any trades or contracts that result or may result from the 

solicitation or acceptance of orders. Alternatively, an operating subsidiary, acting as 

a CTA, advises others, through publications, writings, electronic media, or other 

direct communication or by the regular issuance of analyses and reports, on the 

value or advisability of trading in any contract on commodities futures or options on 

commodities futures.57 An operating subsidiary, acting as a futures commission 

merchant (FCM), also may provide advice in connection with its FCM activities.

Providing Consumer Financial Counseling 

National banks and their operating subsidiaries may provide financial advice to 

individuals directly or through the use of written materials, computer programs, 

seminars, or other methods. Providing financial advice includes advising persons 

on financial matters and marketing by-products of the bank's financial advisory 

capabilities.58

(J) Providing tax planning and preparation services. 

National banks and their operating subsidiaries may assist customers in tax planning 

and preparing and filing their tax returns, including by electronic means, either 

gratuitously or for a reasonable fee.59 They are not restricted to serving only their 

 

55 Letter from Michael A. Mancusi, Senior Deputy Comptroller (May 30, 1985); Letter from David L. 

Chew, Senior Deputy Comptroller (August 7, 1984); American National Decision, supra. 56 “Financial futures” include those futures contracts and options on futures contracts relating to 

assets that a national bank may purchase for its own account; that is, United States securities and 

United States government agency securities; domestic and Eurodollar money market instruments; 

bank certificates of deposit, foreign currencies; and gold, silver, platinum and palladium. 

“Commodity futures” include futures contracts and options on futures contracts for all other financial 

equities and non-financial (agricultural, petroleum, and metals) assets. 

57 Interpretive Letter No. 507 (May 5, 1990), reprinted in [1990-1991 Transfer Binder] Fed. Banking 

L. Rep. (CCH) ¶ 83,205; Interpretive Letter No. 494 (December 20, 1989), reprinted in [1989-1990 

Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 83,083; Interpretive Letter No. 422 (April 11, 1988), 

reprinted in [1988-1989 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 85,646; Interpretive Letter 

No. 380 (December 29, 1986), reprinted in [1988-1989 Transfer Binder] Fed. Banking L. Rep. (CCH) 

¶ 85,604; Interpretive Letter No. 365 (August 11, 1986), reprinted in [1985-87 Transfer Binder] 

(CCH) ¶ 85,535. 

58 See “Activities Permissible For A National Bank, Consulting and Financial Advice, p. 3 (April 

2003); Letter from Wallace Nathan, District Counsel (June 11, 1985). 

59 12 CFR 5.34(e)(5)(v)(J); id. 7.1008; Interpretive Letter No. 545 (March 6, 1991), [1990-1991 

Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 83,257; Interpretive Letter No. 611, supra. 

52 
existing customers for other services.60 As a logical extension of these activities, 

national banks and their operating subsidiaries may refer customers to a service that 

represents taxpayers before the Internal Revenue Service.61 They may also provide 

tax-planning services to other banks as a correspondent service.62 However, they 

may not engage in the practice of law.63

(K) Providing financial and transactional advice and assistance, including advice 

and assistance for customers in structuring, arranging, and executing mergers and 

acquisitions, divestitures, joint ventures, leveraged buyouts, swaps, foreign 

exchange, derivative transactions, coin and bullion, and capital restructurings. 

Mergers, Acquisitions, Divestitures, Joint Ventures, Leveraged Buyouts, and Capital 

Restructurings 

National banks and their operating subsidiaries may furnish advice on financing the 

sale, acquisition, or capitalization of a business and other merchant banking 

transactions and the related activity of acting as an intermediary to arrange thirdparty financing through loans or the private placement of debt or equity interests. 

Acting as agent for a customer in the private placement of the customer's securities 

is permitted under 12 USC 24(Seventh). In conducting private placement activity, 

the subsidiary must comply with applicable securities laws.64 See Gramm-LeachBliley Act, P.L. 106-102, Section 201 (Nov. 12, 1999) (amending, effective May 

2001, the brokerage exemption in 15 USC 78c(a)(4) by limiting permissible private 

placement activities). 

Providing Advice and Assistance in Structuring, Arranging, and Executing Exchange, 

Coin and Bullion Transactions, and Derivatives 

(i) Exchange, Coin and Bullion Transactions 

National banks are expressly authorized to engage in the business of “buying 

and selling exchange, coin, and bullion.”65 Pursuant to this authority, a 

national bank and its operating subsidiary may buy and sell gold, silver, 

platinum, palladium, and copper, coins, and bullion.66 The express power to 

buy and sell exchange, coin, and bullion includes the authority to buy and 

sell foreign currency, because it is a form of exchange.67 National banks and 

their operating subsidiaries may also provide customers advice and 

 

60 Letter from Alan Priest, Senior Attorney, Legal Advisory Services Division (October 24, 1984). 61 Interpretive Letter No. 437 (July 27, 1988), [1988-1989 Transfer Binder] Fed. Banking L. Rep. 

(CCH) ¶ 85,661. 

62 Letter from David H. Baris, Regional Counsel (February 11, 1980). 63 Letter from David H. Baris, supra. 64 Corporate Decision No. 2000-02 (Feb. 25, 2000); Trust Interpretation No. 256 (July 9, 1990), 

reprinted in [1990-91 Transfer Binder] Fed. Banking L. Rep (CCH) ¶ 83,227; Letter from J. Michael 

Shepherd, Senior Deputy Comptroller (June 20, 1988); No-objection letter No. 87-4 (May 19, 1987), 

reprinted in [1988-89 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 84,033; Securities Industry 

Assn. v. Board of Governors of the Federal Reserve System, 807 F.2d 1052 (D.C. Cir 1987), cert. 

denied, 483 U.S. 1005 (1987). 65 12 U.S.C. 24(Seventh). 

66 Interpretive Letter No. 693 (Nov. 14, 1995), reprinted in [1995-1996 Transfer Binder] Fed. Banking 

L. Rep. (CCH) ¶ 81-008. 

67 Interpretive Letter No. 414 (Feb. 11, 1988), reprinted in [1988-1989 Transfer Binder] Fed. Banking 

L. Rep. (CCH) ¶ 85,638. 

53 
assistance in structuring, arranging, and executing exchange, coin, and 

bullion transactions.68

(ii) Derivatives 

National banks may engage in a wide variety of derivative transactions. 

However, the range of operating subsidiary derivative activities that are 

eligible for notice procedures (rather than application procedures) is limited 

to advisory and assistance activities, as explained below. 

Generally, national banks may trade, deal in, and purchase and sell for their own 

accounts derivative instruments whose reference rates, instruments, and 

commodities are themselves permissible investments for national banks.69 Bank 

permissible derivatives may reference, for example, interest rates, United States 

Treasury securities, mortgage-backed securities guaranteed by the United States 

government, domestic and Eurodollar money market instruments, bank certificates 

of deposit, foreign currencies, and various metals.

70

National banks may also engage in customer-driven derivative transactions (e.g., 

perfectly matched swaps) as part of a financial intermediation business provided 

they meet certain standards and the bank’s examiner-in-charge or supervisory office 

is satisfied the bank has adequate risk management and measurement systems to 

conduct the activity on a safe and sound basis.

71 

Under notice procedures, operating subsidiary Subsection (K) derivative activities 

are limited to providing advice and assistance to customers in connection with 

structuring, arranging, and executing such derivative transactions.

72 To conduct 

broader derivative activities in an operating subsidiary, a national bank generally 

must file an application under 5.34. However, national banks should consult with 

the OCC to determine whether a notice procedure may still be available when a 

proposed subsidiary will engage in derivative activities only as an incident to 

activities conducted by the proposed subsidiary that are eligible for notice 

procedures under 5.34 (e.g., hedging risk in connection with mortgage operations 

otherwise eligible for notice procedures). 

 

68 See, e.g., Interpretive Letter No. 494 (Dec. 20, 1989) reprinted in [1989-1990 Transfer Binder] Fed. 

Banking L. Rep. (CCH) ¶ 83,083.

69 See, e.g., Interpretive Letter No 693 (Nov. 14, 1995) reprinted in [1995-1996 Transfer Binder] Fed. 

Banking L. Rep. (CCH) ¶ 81-008; Interpretive Letter No. 494, supra. 

70 Id. 

71 See, e.g., Interpretive Letter No. 1081 (May 15, 2007) reprinted in [Current Transfer Binder] Fed. 

Banking L. Rep. (CCH) ¶ 81-613 (property indices); Interpretive Letter No. 1079 (Apr. 19, 2007) 

reprinted in [Current Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81-611 (inflation indices); 

Interpretive Letter No. 1073 (Oct. 19, 2006), reprinted in [2006 Transfer Binder] Fed. Banking L. 

Rep. (CCH) ¶ 81-605 (metals); Interpretive Letter No. 1065 (July 24, 2006), reprinted in [2005-2006 

Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81-594 (petroleum products, agricultural oils, grains 

and grain derivatives, seeds, fibers, foodstuffs, livestock and meat products, metals, wood products, 

plastics and fertilizer). 

72 See, e.g., Interpretive Letter No. 365 (Aug. 11, 1986), reprinted in [1985-1987 Transfer Binder] 

Fed. Banking L. Rep. (CCH) ¶ 85-535. 

54 
Arranging Commercial Real Estate Equity Financing 

National banks and their operating subsidiaries may act as an intermediary to 

arrange for the placement of equity interests in commercial or investment real 

estate, generally on behalf of owners and developers, to finance the development of 

the property under the lending and financing authority of national banks in 12 USC 

371 and 24(Seventh) and their authority to arrange for private placements of all 

types of investments pursuant to the incidental powers of a national bank to carry 

on the business of banking granted in 12 USC 24(Seventh).73

Neither the operating subsidiary nor any affiliate should expect to acquire an equity 

interest in any project financed by the private placement or to have a role in the 

development, management, or syndication of the project. The fee received by the 

subsidiary may not be based on the profits earned from the project. The subsidiary 

may not intend to become a general real estate broker, nor will it list or advertise 

properties for sale. The subsidiary should deal solely with sophisticated institutional 

investors. If the subsidiary or the parent bank engages in any lending for this 

activity, it should be limited to traditional debt financing, but may include taking 

interests as permitted by 12 CFR 7.1006. 

(L) Underwriting and reinsuring credit related insurance to the extent permitted 

under section 302 of the GLBA (15 USC 6712). 

National banks and their operating subsidiaries may continue to underwrite and 

reinsure any credit related insurance products being provided by national banks as 

of 1/1/99 or that were authorized in writing by the OCC as of that date.74

Credit-related insurance products guarantee or secure payment of an outstanding 

obligation in a credit transaction in the event that the borrower is unable to pay. 

Credit-related insurance products often are sold in conjunction with installment 

loans, automobile loans, credit cards, and residential mortgages. There are various 

types of credit-related products, including credit life insurance, credit disability 

insurance (also known as credit accident and health insurance), and mortgage life 

and disability insurance.75 For example, a credit life insurance product on a 

relatively small decreasing balance installment loan typically will pay off the 

balance due on the loan if the borrower should die before the loan is repaid. 

Similarly, if an insured debtor becomes disabled or is killed accidentally, a credit 

accident and health insurance product policy may pay the policy premiums during 

the period of disability or pay off the loan or both. The precise terms of creditrelated insurance products may vary based on the terms and conditions of a 

particular loan.76

Credit-related insurance products provide benefits for both the borrower and the 

lender by easing the financial burden on each in the event of unforeseen 

circumstances, such as death, disability, or unemployment. Credit-related insurance 

 

73 Interpretive Letter No. 271, supra; Interpretive Letter No. 387, supra. 74 See 15 USC 6712 (as added by section 302 of GLBA); Corporate Decision No. 2001-10 (April 

23,2001); Corporate Decision No. 2000-16 (August 29, 2000); Interpretive Letter 886 (March 27, 

2000), reprinted in [2000-01 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81-405. 75 See 12 CFR 2.2(b). 76 Certain other insurance arrangements could also be considered “credit-related” when the existence 

of the insurance is integral to the borrower’s ability to repay a loan in the event specified events 

occur. 

55 
exists as a unique kind of insurance product that is an integral part of certain credit 

transactions. Hence, underwriting credit-related insurance products serves as a risk 

management tool linked to the credit function of lending institutions. 

The OCC has established the authority of national banks and their subsidiaries to 

sell as agent and underwrite credit-related insurance products as part of, or 

incidental to, the business of banking through a long line of precedents.77 The OCC 

has concluded that national banks and their subsidiaries may underwrite creditrelated insurance products in connection with loans by the bank itself and by 

lenders other than the bank.78

Prior to January 1, 1999, the OCC had “determined in writing” that national banks 

and their subsidiaries may provide credit-related insurance products as principal in 

connection with loans made by a financial institution lender other than the bank 

itself.79

(M) Leasing of personal property and acting as an agent or adviser in leases for 

others. 

This activity includes: 

• Leases in which the bank may invest pursuant to 12 USC 24(Seventh). 

• Leases in which the bank may invest pursuant to 12 USC 24(Tenth). 

• Acting as agent, broker, or adviser in leases for others. The notice process for 

any leasing activity under this paragraph is not available, however, if the notice 

involves the direct or indirect acquisition by the bank of any low-quality asset 

from an affiliate in connection with a transaction subject to this section. For 

purposes of this paragraph (M), the terms “low-quality asset” and “affiliate” have 

the same meaning as provided in section 23A of the Federal Reserve Act, 12 

USC 371c. 

Pursuant to 12 USC 24(Seventh) and 24(Tenth), national banks and their 

operating subsidiaries may act as lessors and engage in the financing of fullpayout, net leases for personal property, subject to the requirements of 12 CFR 

23. Section 24(Seventh) leases have long been permitted on the ground that 

they are the functional equivalent of loans. Section 24(Seventh) leases are 

authorized for both tangible and intangible personal property and are subject 

to specific restrictions set forth in Subparts A and C of 12 CFR 23, including a 

 

77 See, for example, Corporate Decision No. 98-28 (May 11, 1998); Corporate Decision No. 97-92 

(Oct. 17, 1997); Interpretive Letter No. 283 (March 16, 1984), reprinted in [1983-1984 Transfer 

Binder] Fed. Banking L. Rep. (CCH) ¶ 85,447; Interpretive Letter No. 277 (Dec. 21, 1983), reprinted 

in [1983-1984 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 85,441; 12 CFR 2; IBAA v. Heimann, 

613 F.2d 1164 (D.C. Cir. 1979), cert. denied, 449 U.S. 823 (1980). See also, Interpretive Letter No. 

338 (May 2, 1985), reprinted in [1985-1987 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 85,508; 

American Insurance Association v. Clarke, 656 F. Supp. 404 (D.D.C. 1987), aff’d, 865 F.2d 278 

(D.C. Cir. 1989). 

78Corporate Decision No. 97-92 (Oct. 17, 1997). 79 Prior to January 1, 1999, the OCC had also determined in writing that national banks and their 

subsidiaries may provide as principal other insurance products, including safe deposit box liability 

insurance and self insurance of business risks. See Corporate Decision No. 97-92 (October 17, 

1997); Interpretive letter No. 845 (October 20, 1998), reprinted in [1998-1999 Transfer Binder Fed. 

Banking. L Rep. (CCH) ¶ 81-300. However underwriting and reinsuring credit-related insurance are 

the only insurance underwriting activities that qualify for the notice procedures under 12 CFR 

5.34(e)(5)(v)(L).

56 
limitation on reliance of residual value. Part 23 requires national banks and 

their subsidiaries to receive prior OCC approval for certain activities and 

should be consulted to determine whether a separate filing under that part is 

needed. 

Section 24(Tenth) leases are authorized pursuant to express statutory authority and 

are subject to specific restrictions set forth in Subparts A and B of 12 CFR 23, 

including a 10 percent-of-assets limitation on the aggregate book value of section 

24(Tenth) leases and a minimum lease term of 90 days. In addition, the authority 

conferred by section 24(Tenth) is limited to the leasing of tangible personal 

property. Tangible personal property includes such items as vehicles, manufactured 

homes, machinery, equipment, and furniture. Unlike section 24(Seventh) leases, 

section 24(Tenth) leases are not viewed as a form of lending. Whether property is 

considered “personal” property depends on state law. Both types of leases are also 

subject to lending limits and affiliate-transactions restrictions. 

National banks and their subsidiaries generally have not been authorized to engage 

in the lease financing of real property,80 but may do so when the real estate lease is 

incidental to a personal property leasing transaction.81 They may, however, engage 

in the “placement of real estate lease transactions, specifically, locating investors as 

potential lessors to a potential lessee and brokering the debt portion of any such 

lease.”82

To establish a leasing relationship with a lessee, banks and subsidiaries may acquire 

property to be leased by purchasing specific property based on a legally binding 

commitment to lease or a legally binding written agreement, indemnifying the bank 

against loss from the acquisition of the leased property. Banks and their subsidiaries 

may also acquire property to be leased in the absence of a commitment to lease or 

indemnification agreement if the bank satisfies certain conditions (set forth in 12 

CFR 23.4), demonstrating that the acquisition of property is not speculative. Finally, 

banks may acquire leases by purchasing them from another lessor, but in the case of 

section 24(Seventh) leases, the residual value requirement must be met at the time 

of the lease purchase(s). Thus, if a bank or its subsidiary purchases an existing 

section 24(Seventh) lease, that lease must be a “conforming lease” (as defined in 12 

CFR 23) at the time of its acquisition. 

Banks and their subsidiaries may also provide certain lease-related services to third 

parties to the extent that they are incidental to the business of banking. National 

banks are expressly authorized to act as finder or similar agent or broker.83 In 

addition, the OCC has opined that national banks and their operating subsidiaries 

may provide lease consulting services (including financial advice); management, 

brokerage, and finder services; and lease servicing for third parties.84

 

80 Interpretive Letter No. 556 (Aug. 6, 1991), reprinted in [1991-92 Transfer Binder] Fed. Banking L. 

Rep. (CCH) ¶ 83,306; Letter from Frank Maguire, Acting Senior Deputy Comptroller (May 20, 1993). 

81 12 CFR 23; see also Interpretive Letter No. 770 (Feb. 10, 1997), reprinted in [1996-97 Transfer 

Binder] Fed. Banking L. Rep. (CCH) ¶ 81-134; Conditional Approval No. 295 (Dec. 3, 1998); 

Corporate Decision No. 98-35 (June 10, 1998) 

82 Letter from Wallace S. Nathan, District Counsel (Oct. 28, 1985). 83 12 CFR 7.7200; see also Letter from Sue E. Auerbach, Senior Attorney (Aug. 19, 1996). 84 Interpretive Letter No. 567 (Oct. 29, 1991) reprinted in [1991-92 Transfer Binder] Fed. Banking L. 

Rep. (CCH) ¶ 83,337; Letter from Wallace Nathan, District Counsel (Oct. 28, 1985); Letter from 

Peter Liebesman, Assistant Director, Legal Advisory Services Division (June 15, 1981). 

57 
A special category of leasing activities is permitted by 12 CFR 7.3300. National 

banks and their operating subsidiaries may purchase or construct municipal 

buildings, such as schools or similar public facilities, for lease to a municipality or 

other public authority.85

Upon expiration of the lease, the lessee must become the owner of the building or 

facility. The bank lessor must be repaid entirely by the payments from the lessee. 

(N) Providing securities brokerage or acting as a futures commission merchant, 

and providing related credit and other related services. 

Providing securities brokerage 

National banks and their operating subsidiaries may provide brokerage services, 

related securities credit, advisory services, and administrative services as part of or 

incidental to the business of banking. The specific language of 12 USC 24(Seventh) 

recognizes that banks may purchase and sell “securities and stock without recourse, 

solely upon the order, and for the account of, customers, and in no case for its own 

account.” 

Securities brokerage services involve the buying and selling of a wide variety of 

financial investment products as agent upon the order and for the account of 

customers. Such investment products include annuities, shares of mutual funds, 

units in unit investment trusts, equity and fixed income securities, sold on an agency 

basis. In addition, an integral part of the brokerage business is advertising and 

marketing services and products to attract customers.86

Brokerage services include buying and selling securities in the secondary market as 

“riskless principal.” A riskless principal transaction involves the operating subsidiary 

purchasing or selling a security upon the order of a customer, while conducting a 

simultaneous offsetting sale or purchase of a security upon the order of another 

customer.87 Operating subsidiaries also may act as agent for a customer in the 

private placement of the customer's securities as described more fully under Section 

K of the notice procedures, supra.

Related securities credit offered by an operating subsidiary as part of its securities 

brokerage services involves the extension or maintenance of credit to customers for 

the purchase or carrying of securities. This activity must be consistent with 12 USC 

36 and 12 CFR 7.1004.88 The Federal Reserve Board's regulations on margin loans 

are applicable to banks under Regulation U89 and to brokers under Regulation T.90

 

85 Interpretive Letter No. 847 (Oct. 28, 1998), reprinted in [1998-99 Transfer Binder] Fed. Banking L. 

Rep. (CCH) ¶81-302. 

86 Conditional Approval Letter No. 164 (December 9, 1994); Interpretive Letter No. 648, supra; 

Interpretive Letter No. 647, supra; Interpretive Letter No. 622, supra; Securities Industry Association 

v. Board of Governors of the Federal Reserve System, 468 U.S. 207 (1984); Securities Industry 

Association v. Comptroller of the Currency, 577 F. Supp. 252 (D.D.C. 1983), aff'd per curiam, 758 

F.2d 739 (D.C. Cir. 1985), cert. denied, 474 U.S. 1054 (1986) (brokerage issue). 87 Interpretive Letter No. 626 (July 7, 1993), reprinted in [1993-94 Transfer Binder] Fed. Banking L. 

Rep. (CCH) ¶ 83,508; Interpretive Letter No. 371 (June 13, 1986), reprinted in [1985-87 Transfer 

Binder] ¶ 85,541. 

88 Clarke v. Securities Industry Assn., 479 U.S. 388 (1987) (branching issue); Interpretive Letter No. 

403, supra; American National Decision, supra. 89 12 CFR 221. 90 12 CFR 220. 

58 
Operating subsidiaries providing securities brokerage services may furnish other 

related activities, including investment advisory and administrative services. 

Various administrative and shareholder functions are incidental to the provision of 

the brokerage services, including but, not limited to, recordkeeping, accounting, 

and other services.91

Operating subsidiaries established to engage in these activities may conduct them in 

a partnership structure. For example, a subsidiary of a national bank may enter into 

a general partnership arrangement or joint venture with one or more subsidiaries or 

affiliates of an investment bank, provided that certain conditions relating to 

partnership issues are met.92

Banks with operating subsidiaries that engage in these activities must comply with 

applicable provisions of the Interagency Statement on Retail Sales of Nondeposit 

Investment Products, February 15, 1994, and 12 CFR Part 14. Banks and their 

operating subsidiaries advising registered investment companies must comply with 

the restrictions in sections 23A and 23B and Regulation W. 

Acting as futures commission merchant. 

National banks and their operating subsidiaries may act as futures commission 

merchants (FCM). A FCM operating subsidiary typically solicits or accepts orders to 

purchase or sell financial or agricultural futures contracts and options on such 

contracts on major exchanges. An FCM may extend credit or accept any money, 

securities, or property, to margin, guarantee, or secure any trades or contracts, 

resulting from the solicitation or acceptance of orders.93 An FCM may act as 

intermediary between a customer and exchange members that actually execute or 

clear trades. Alternatively, an FCM may be a member of an exchange and serve as a 

clearing member. Operating subsidiaries may also offer advisory services, including 

financial and market analysis, strategy development, research, and discretionary 

funds management in connection with its FCM activities.94

National bank operating subsidiaries that join futures exchanges and clearinghouses 

may file a notice to engage in these activities if they can comply with certain 

restrictions.95 A national bank's FCM may not join any exchange or clearing 

association that requires the bank or any other of its subsidiaries to guarantee or 

otherwise become liable for trades executed or cleared by the FCM other than those 

 

91 Interpretive Letter No. 647, supra; Interpretive Letter No. 386, supra; Interpretive Letter No. 332 

(March 8, 1985), reprinted in [1985-87 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 85,502. 92 Interpretive Letter No. 889 (April 24, 2000), reprinted in [2000-01 Transfer Binder] Fed. Banking L. 

Rep. (CCH) ¶ 81-408; Interpretive Letter No. 625 (July 1, 1993), reprinted in [1993-94 Transfer 

Binder] Fed. Banking L. Rep. (CCH) ¶ 83,507; Interpretive Letter No. 622, supra; Interpretive Letter 

No. 516, supra; Interpretive Letter No. 411 (January 20, 1988), reprinted in [1988-89 Transfer 

Binder] Fed. Banking L. Rep. (CCH) ¶ 85,635; Interpretive Letter No. 289 (May 15, 1984), reprinted 

in [1983-84 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 85,453. 93 “Financial futures” include those futures contracts and options on futures contracts relating to 

assets that a national bank may purchase for its own account; that is, United States securities and 

United States government agency securities; domestic and Eurodollar money market instruments; 

bank certificates of deposit, foreign currencies; and gold, silver, platinum and palladium. 

“Commodity futures” include futures contracts and options on futures contracts for all other financial 

equities and non-financial (agricultural, petroleum, and metals) assets. 

94 Interpretive Letter No. 507, supra ; Interpretive Letter No. 494, supra; Interpretive Letter No. 422, 

supra; Interpretive Letter No. 380, supra; Interpretive Letter No. 365, supra. 95 Interpretive Letter No. 929, supra. 

59 
trades executed or cleared by the bank and any of its affiliates or other operating 

subsidiaries. Moreover, a national bank's FCM may not become a clearing member 

of any exchange or clearing association that requires the bank to also become a 

member of that exchange or clearing association, unless the bank obtains a waiver 

of that requirement. Finally, a national bank may not guarantee or assume 

responsibility for any liability of its FCM other than those trades executed and/or 

cleared for and on behalf of the bank and any of its affiliates or other operating 

subsidiaries. 

A national bank establishing an operating subsidiary to engage in the activities 

described in this section may file a notice, only if its loans to, and investments in, its 

FCM (and its partnership interests) in the aggregate do not exceed its legal lending 

limit at the time of the loan or investment. A national bank may not make 

investments of equity capital in its FCM (or its partnership interest) that exceed the 

lending limit without the OCC's prior written consent. To calculate the lending 

limit according to this limitation, a national bank's investment in its FCM is deemed 

unsecured. A national bank may, however, lend its FCM (and its partnership 

interest) in the aggregate an additional 10 percent of its unimpaired capital and 

surplus, if secured by readily marketable collateral as provided in 12 USC 84. 

(O) Underwriting and dealing, including making a market, in bank permissible 

securities and purchasing and selling as principal, asset backed obligations. 

National banks and their operating subsidiaries may underwrite and deal in Type I 

and Type II securities.96

Specifically, they may underwrite and deal in Type I securities, which include: (1) 

obligations of the United States, a department or agency of the United States, 

general obligations of states and their political subdivisions; (2) obligations of 

certain quasi-governmental corporations, such as the Federal National Mortgage 

Association and the Government National Mortgage Association; (3) other 

obligations (such as qualified Canadian government obligations) specifically listed in 

12 USC 24(Seventh); and (4) other securities the OCC determines to be eligible 

Type I securities under 12 USC 24(Seventh). National banks may underwrite and 

deal in such obligations without limitation, subject to safety and soundness 

considerations.97 A well-capitalized national bank may underwrite and deal in 

municipal revenue bonds without limit.98

National banks and their operating subsidiaries also may underwrite and deal in 

Type II securities, which include: (1) obligations of certain international and 

multilateral development banks, such as the International Bank for Reconstruction 

and Development (World Bank); (2) obligations issued by any state or political 

subdivision for housing, university, or dormitory purposes; (3) other obligations 

listed specifically in 12 USC 24(Seventh); and (4) other securities the OCC 

determines to be eligible as Type II securities, subject to a limitation that the 

obligations of any single issuer may not exceed 10 percent of the bank's capital and 

surplus.99 A national bank’s ability to hold Type II securities is subject to a 

 

96 See 12 CFR 1. 97 12 USC 24 (Seventh); 12 CFR 1.2(l); and 12 CFR 1.3(a). 98 12 USC 24(Seventh). 

99 12 USC 24 (Seventh); 12 CFR 1.2(j); and 12 CFR 1.3(b). 

60 
limitation that the obligations of any single issuer may not exceed 10 percent of th

bank's capital and surplu 100

e 

s. 

ted 

ns to 

 

National banks and their operating subsidiary may securitize and sell assets that 

they hold as part of their banking business. The amount of securitized loans and 

obligations that may be sold is not limited to a specific percentage of the bank’s 

capital and surplus.101 

The operating subsidiary must provide the OCC with evidence that it has developed 

suitable policies and internal controls to ensure the safe and sound conduct of the 

proposed activity. The operating subsidiary also should coordinate its trading 

positions with those of the bank itself.102

(P) Acting as an insurance agent or broker, including title insurance to the extent 

permitted under section 303 of the GLBA (15 USC 6713). 

Sales Pursuant to Section 92 

National banks generally may sell insurance pursuant to section 92 in the same 

nationwide market as is generally available to licensed insurance agencies in the 

state where the bank agency operates.103 National banks may sell insurance to 

customers wherever the customers are located.104 National banks may sell 

insurance directly or through an operating subsidiary if the national bank is located 

and doing business in a place of 5,000 or less in population.105 Any area designa

by the Census Bureau as a place is a place for purposes of section 92.106 National 

banks and their subsidiaries with insurance agencies may rely on OCC opinio

establish satellite offices outside the place of 5,000 (including satellite offices in 

states outside the state where the insurance business is located) to solicit and sell 

insurance in the same manner generally permissible for state insurance agencies.107 

National trust companies may sell insurance from a trust office that is located in a 

place of 5,000 if the office performs core fiduciary functions (accepting fiduciary 

appointments, executing trust documents, and making decisions regarding the 

investment and distribution of fiduciary assets).108

100 12 CFR 1.3(b). 101 12 CFR 1.3(g). 102 Letter from Jimmy F. Barton, Deputy Comptroller (July 25, 1991). 103 Interpretive Letter No. 753 (November 4, 1996), reprinted in [1996-1997 Transfer Binder] Fed. 

Banking L. Rep. (CCH) ¶ 81,107. 

104 See NBD Bank, N.A. v. Bennett, 67 F.3d 629 (7th Cir. 1995); Independent Insurance Agents of 

America, Inc. v. Ludwig, 997 F.2d 958 (D.C. Cir. 1993); Shawmut Bank Connecticut v. Googins, 965 

F. Supp. 304 (D. Conn. 1997). 

105 12 USC 92; Conditional Approval No. 384 (April 25, 2000); Corporate Decision 99-44 (Sept. 10, 

1999); Corporate Decision No. 97-24 (April 15, 1997). See Interpretive Letter No. 819 (Jan. 20, 

1998), reprinted in [1997-1998 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81-268. 106 Interpretive Letter No. 823 (February 27, 1998), reprinted in [1997-98 Transfer Binder] Fed. 

Banking L. Rep. (CCH) ¶ 81-272. 

107 Interpretive Letter No. 882 (Feb. 22, 2000), reprinted in [2000-01 Transfer Binder] Fed. Banking L. 

Rep. (CCH) ¶ 81-401; Interpretive Letter No. 864 (May 19, 1999), reprinted in [1999-2000 Transfer 

Binder] Fed. Banking L. Rep. (CCH) ¶ 81-358; Interpretive Letter No. 873 (December 1, 1999), 

reprinted in [1999-2000 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81-367; Interpretive Letter 

No. 844 (October 20, 1998), reprinted in [1998-99 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 

81-299. 

108 Interpretive Letter No. 877 (December 13, 1999), reprinted in [1999-2000] Fed. Banking L. Rep. 

(CCH) ¶ 81-371. 

61 
Sales of Credit-related Insurance as Agent under 12 USC 24(Seventh)

National banks and their subsidiaries may engage in various credit-related insurance 

agency activities under 12 USC 24(Seventh). This law authorizes national banks to 

engage in the “business of banking,” and to exercise “all such incidental powers as 

shall be necessary to carry on the business of banking.” Although an insurance 

product sold under this authority could also be sold under 12 USC 92, there are no 

geographic “place of 5,000” limits under 12 USC 24 (Seventh). 

Pursuant to 12 USC 24(Seventh), national banks and their subsidiaries may sell 

credit-related insurance products, including: 

• Credit life insurance (as defined in 12 CFR 2.2(b));109 

• Involuntary unemployment insurance (protects the bank if the borrower 

becomes involuntarily unemployed);110

• Vendors single interest insurance111 and vendors double interest insurance112

(insures the bank or the bank and the borrower, respectively, against loss or 

damage to personal property pledged as loan collateral); 

• Mechanical breakdown insurance (protects a loan customer against most 

major mechanical failures of collateral securing a loan during the loan’s 

life);113 and, 

• Vehicle service contracts (protects the value of loan collateral from 

mechanical breakdown for the term of the contract).114

Title Insurance 

A national bank may not underwrite or sell title insurance unless the national bank 

falls within an exception: 

(1) National banks and their subsidiaries may sell title insurance as agents in a state 

to the same extent as permitted for state banks;115 or, 

(2) A national bank and its subsidiaries may continue to conduct title insurance 

activities, including underwriting, in which the national bank or subsidiary were 

lawfully engaged before November 12, 1999, subject to some exceptions if affiliates 

are providing insurance as principal.116 

 

109 See Interpretive Letter No. 283 (March 16, 1984), reprinted in [1983-1984 Transfer Binder] Fed. 

Banking L. Rep. (CCH) ¶ 85,447; 12 CFR Part 2; IBAA v Heimann, 613 F.2d 1164 (D.C. Cir. 1979), 

cert. denied, 449 U.S. 823 (1980). 110 See Interpretive Letter No. 283 (March 16, 1984), supra. 111 See interpretive Letter No. 283 (March 16, 1984), supra. 112 Letter from William B. Glidden, Assistant Director, Legal Advisory Services Division (June 3, 

1986).

113 Letter from William B. Glidden, Assistant Director, Legal Advisory Services Division (June 17, 

1993). 

114 Interpretive Letter 724 (April 22, 1996), reprinted in [1995-1996 Transfer binder] Fed. Banking L. 

Rep. (CCH) ¶ 81,039; Interpretive Letter No. 671 (July 10, 1995) reprinted in [1994-1995 Transfer 

Binder] Fed. Banking L. Rep. (CCH) ¶ 83,619.

115 15 USC 6713. 116 15 USC 6713. 

62 
However, if a state law in effect before November 12, 1999 prohibits all persons in 

a state from selling or underwriting title insurance, a national bank may not sell title 

insurance. 

(Q) Reinsuring mortgage insurance on loans originated, purchased, or serviced by 

the bank, its subsidiaries, or its affiliates, provided that if the subsidiary enters into 

a quota share agreement, the subsidiary assumes less than 50 percent of the 

aggregate insured risk covered by the quota share agreement. A "quota share 

agreement" is an agreement under which the reinsurer is liable to the primary 

insurance underwriter for an agreed upon percentage of every claim arising out of 

the covered book of business ceded by the primary insurance underwriter to the 

reinsurer. 

National banks may reinsure mortgage insurance on loans originated, purchased, or 

serviced by the bank, its subsidiaries, or its affiliates.117 Mortgage insurance protects 

an investor holding a mortgage loan against default by the mortgagor. 

Under an “excess loss” arrangement, the primary insurer pays, and is solely 

responsible for, claims arising out of a given book of business up to a predetermined 

percentage, after which the reinsurer is obligated to reimburse the primary insurer’s 

claims up to another predetermined percentage. Thereafter, the primary insurer is 

solely responsible for claims in excess of the reinsurer’s tier of losses on a given 

book. A "quota share agreement" is an agreement under which the reinsurer is 

liable to the primary insurance underwriter for an agreed upon percentage of every 

claim arising out of the covered book of business ceded by the primary insurance 

underwriter to the reinsurer. Quota share arrangements have involved the 

assumption of less than 50 percent of the aggregate insured risk covered by the 

quota share agreement. 

A national bank’s captive mortgage reinsurance subsidiary may enter a mortgage 

reinsurance agreement with a Cayman Island segregated portfolio company to 

reinsure private mortgage insurance on loans originated or purchased by the bank 

or one of its affiliates.118 National banks may participate in a mortgage reinsurance 

exchange where the exchange will provide for the reinsurance of private mortgage 

insurance on loans originated or purchased by participating lenders.119

(R) Acting as a finder pursuant to 12 CFR 7.1002 to the extent permitted by 

published OCC precedent. 

General 

The OCC has long recognized the finder function as a permissible banking activity 

that includes identifying potential parties, making inquiries as to interest, 

introducing or arranging contacts or meetings between interested parties, acting as 

an intermediary between interested parties, and bringing the parties together for 

 

117 12 CFR 5.34, Corporate Decision No. 99-37 (October 29, 1999); Corporate Decision No. 99-36 

(October 29, 1999); Corporate Decision No. 99-32 (Sept. 20, 1999); Corporate Decision No. 99-26 

(Sept. 2, 1999). 

118 Interpretive Letter No. 862 (June 7, 1999), reprinted in [1999-2000 Transfer Binder] Fed. Banking 

L. Rep. (CCH) ¶ 81-356. 

119 Interpretive Letter No. 828 (April 6, 1998), reprinted in [1997-1998 Transfer Binder] Fed. Banking 

L. Rep. (CCH) ¶ 81-277. 

63 
transactions that the parties themselves negotiate and consummate.120 As a finder, 

national banks and their operating subsidiaries may convey information about 

available products or services to potential markets for them, 121 arrange for third-party 

providers to offer reduced rates to those customers referred by the bank, 122

communicate to the seller an offer to purchase or a request for information,123

provide certain administrative, clerical, and recordkeeping functions,124 supply 

financial information to one party about the other, and act as a conduit in conveying 

information from one party to another.125

Acting as a Web Site Host 

The OCC has determined that Web site hosting is a form of finder activity. A 

national bank may establish, register, and host the commercially enabled Web site 

in the name of the retailer.126 The bank may store the data representing the retailer’s 

online catalog and provide periodic reports to the retailer of site-related activities.127 

The bank may also provide associated payments and deposit services resulting from 

Web-based transactions.128 A national bank also may host a Web site for a 

government agency, where the site will allow the public, consumers, and other 

agencies to access or purchase services, information forums, and products from the 

agency.129

A national bank, in the exercise of the finder authority, may establish hyperlinks 

between its home page and the Internet home pages of third-party providers so that 

bank customers will be able to access those nonbank Web sites from the bank 

site.130 The OCC also has permitted national banks, as a form of finder activity, to 

operate a “virtual mall.” A virtual mall provides a collection of links to Web sites of 

third-party vendors. The collection of links, organized by product type and made 

available to bank customers, enables the customers to shop for a range of financial 

and nonfinancial products and services via the links.131

In addition, the OCC has determined that, as a finder, a national bank may establish 

an Internet site that will function as an electronic central facility enabling businesses 

 

120 12 CFR 7.1002(b); Conditional Approval No. 221 (Dec. 4, 1996); Interpretive Letter No. 741, 

reprinted in [1996-1997 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81-105 (Aug. 19, 1996); 

Interpretive Letter No. 653, supra. 121 Interpretive Letter No. 741, supra; Interpretive Letter No. 630 (May 11, 1993) reprinted in [1993-

1994 Transfer Binder] Fed. Banking Law. Rep. (CCH) ¶ 83,513). 122 Conditional Approval No. 347 (Jan. 29, 2000). 123 Interpretive Letter No. 824, reprinted in [1997-1998 Transfer Binder] Fed. Banking L. Rep. (CCH) 

¶ 81-273 (Feb. 27, 1998); Letter from James M. Kane, District Counsel (Oct. 24, 1985); Letter from 

F.H. Ellis, Chief National Bank Examiner (Oct. 6, 1970). 

124 Interpretive Letter No. 850, supra; Corporate Decision No. 98-13 (Feb. 9, 1998); Interpretive 

Letter No. 607, reprinted in [1992-1993 Transfer Binder] Fed. Banking L. Rep. ¶ 83,445 (Aug. 24, 

1992). 

125 Letter from Elizabeth H. Corey, Attorney (May 18, 1989); Letter from John M. Miller, Acting 

Deputy Chief Counsel (Jul. 26, 1977). 

126 12 CFR 7.5002(a)(1)(i). 127 12 CFR 7.5002(a)(1)(iv)(A). 128 Interpretive Letter No. 875, supra. Interpretive Letter No. 856, supra. 129 Conditional Approval No. 361 (March 3, 2000); 12 CFR 7.5002(a)(1)(iv)(B). 130 12 CFR 7.5002(a)(1)(ii); Conditional Approval No. 347, supra.; Conditional Approval No. 221, 

supra. 131 12 CFR 7.5002(a)(1)(iii); Conditional Approval No. 369 (Feb. 25, 2000); Interpretive Letter No. 

875, supra. 

64 
to negotiate and organize among themselves aggregate buying, selling, or financing 

efforts, and for other collaborative efforts.132

Incidental to its offering of commercially engaged Web site hosting, a national bank 

may provide Web design services to its merchant customers.133

Acting as Finder for Insurance 

National banks may provide finder services in connection with insurance products 

and services. To identify permissible national bank finder arrangements in the 

insurance context (as an alternative to section 92 authority), the OCC considers: (1) 

the scope of the proposed activities; (2) the existence or absence of another 

insurance agent or broker in the arrangement; (3) whether the bank has a 

contractual relationship with an insurance company for selling its products, and if 

so, the nature of the relationship; and (4) the bank’s compensation arrangement for 

the proposed activities. For example, national banks may participate in sharing 

arrangements with other banks whereby they combine their efforts to use the 

services of a group of independent agencies that would solicit and sell insurance 

services to bank customers on site, sharing pro rata in referred business.134

Acting as Finder for Investment Advisory Services 

National banks may act as finder by referring bank customers to investment 

advisors.135

Acting as a Finder for Marketing of Trust Services 

National and state banks as well as other individuals and institutions, including 

registered investment advisors, savings associations, savings banks, credit unions, 

financial planners, benefit consultants, independent insurance agents and brokers, 

certified public accountants, and attorneys may refer trust business to a national 

bank pursuant to written agreements.136 

(S) Offering correspondent services to the extent permitted by published OCC 

precedent. 

National banks have traditionally performed for their affiliates and other financial 

institutions an array of activities called “correspondent services.” The OCC has long 

permitted national banks and their operating subsidiaries to offer these 

correspondent services as part of the business of banking.137 A national bank may 

perform as a correspondent service for its affiliates and other financial institutions 

any service it may perform for itself.138 Examples of correspondent services include 

 

132 Conditional Approval No. 369, supra. 133 Interpretive Letter No. 875, supra. 134 Interpretive Letter No. 824, supra; Conditional Approval No. 99-38 (Oct. 29, 1999). 135 Interpretive Letter No. 850, supra. 136 Interpretive Letter No. 607, supra. 137 Interpretive Letter No. 875, supra; Interpretive Letter No 811, supra; Corporate Decision No. 97-

79 (Jul. 11, 1997). 

138 12 CFR 7.5007; Interpretive Letter No. 868, (August 16, 1999), reprinted in [1999-2000 Transfer 

Binder] Fed. Banking L. Rep. (CCH) ¶ 81-362; Interpretive Letter No. 854, reprinted in [1998-1999 

Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81-311 (February 25, 1999); Interpretive Letter No. 

65 
providing: computer networking packages and related hardware; data processing 

services and the sale of software that performs data processing functions; document 

control and recordkeeping; financial and consulting services; flood hazard 

determinations; security consulting services; loan collection and repossession 

services; and vault cash.139

(T) Acting as agent or broker in the sale of fixed or variable annuities. 

National banks may sell fixed and variable annuities without regard to the place of 

5,000 restriction in 12 USC 92 on the sale of insurance products.140

(U) Offering debt cancellation or debt suspension agreements. 

National banks and their operating subsidiaries are authorized to enter into debt 

cancellation agreements under which a bank agrees to cancel all or part of a 

customer’s obligation to repay an extension of credit from that bank upon the 

occurrence of a specified event under the standards set forth in OCC’s 

regulations.141 Under those regulations, a national bank and its operating 

subsidiaries also are authorized to enter into debt suspension agreements under 

which a bank agrees to suspend all or part of a customer’s obligation to repay an 

extension of credit from that bank upon the occurrence of a specified event. The 

agreement may be separate from or part of other loan documents. Debt suspension 

agreements do not include loan payment deferral arrangements in which the 

triggering event is the borrower’s unilateral election to defer repayment or the 

bank’s unilateral decision to allow a deferral of repayment.142

 

(V) Providing real estate settlement, closing, escrow, and related services; and real 

estate appraisal services for the subsidiary, parent bank, or other financial 

institutions. 

Closing, escrow and related services 

National banks and their operating subsidiaries may conduct loan closing, 

settlement and escrow services for themselves and for other lenders.143 Such 

services may include receipt and assembly of real estate settlement and loan 

documents, obtaining signatures for such documents, receipt as escrow agent of 

loan funds, payoff of prior mortgages and liens, payment of prorated taxes and 

utility bills, disbursement of net loan proceeds to the seller, and recording of 

mortgage deeds and other documents. 

467, reprinted in [1988-1989 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 85,691 (January 24, 

1989). 

139 See 12 CFR 7.5007. 140 Texas Bankers Ass'n v. Bomer, 1997 U.S. Dist. LEXIS 13422 (W.D. Tex. Aug. 7, 1997); 

Nationsbank v. Variable Annuity Life Insurance Co., 513 U.S. 251 (1995). See Conditional Approval 

311 (April 29, 1999); Interpretive Letter No. 749 (Sept. 13, 1996), reprinted in [1996-1997 Transfer 

Binder] Fed. Banking L. Rep. (CCH) ¶ 81-119. 

141 12 CFR 37, 67 Fed. Reg. 58962 (Sept. 19, 2002) (Part 37); Interpretive Letter No. 640 (Jan. 7, 

1994), reprinted in [1993-94 Transfer Binder] Fed. Banking. L. Rep. (CCH) ¶ 83,527. 142 Part 37; Interpretive Letter No. 827 (April 3, 1998), reprinted in [1997-98 Transfer Binder] Fed. 

Banking L. Rep. (CCH) ¶ 81-276. 

143 See, for example, Conditional Approval No. 322, supra; Corporate Decision No. 99-06 (January 

29, 1999); Conditional Approval No. 276, supra; Interpretive Letter No. 776, (March 18, 1997), 

reprinted in [1997 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81-203. 

66 
Closing and escrow services for loans made by the bank and its subsidiaries should 

be conducted in accordance with OCC rules regarding the origination and making 

of loans at banking and other than banking offices.144 In particular, where services 

include the disbursement of loan proceeds, closings should occur either at a main 

or branch office of the bank or at the office of an unaffiliated entity, such as a 

lawyer’s office or other location, that is not owned by the bank or any of its 

affiliates. 

Appraisal and evaluation services 

National banks and their operating subsidiaries may offer appraisal and evaluation 

services. These services may be performed for the subsidiary, parent bank, or other 

financial institutions.145 Federally regulated institutions must obtain appraisals 

prepared by a certified or licensed appraiser in connection with federally related 

transactions. A federally related transaction is any real estate-related financial 

transaction made on or after August 9, 1990 by a regulated institution that requires 

the services of an appraiser. 

Title 12 CFR 34, Subpart C sets forth the occasions upon which appraisals are 

required and the standards that appraisals must meet. Certain real estate-related 

financial transactions are exempt from the requirements of 12 CFR 34 but require an 

evaluation to be prepared in accordance with the Interagency Appraisal and 

Evaluation Guidelines.146 Banks and operating subsidiaries should consult the 

guidelines for specific information about the regulatory standards for appraisals and 

evaluations. If appraisal or evaluation services are offered to other financial 

institutions, the proper controls must be in place to ensure confidentiality. 

Affiliated business arrangements (ABAs) and compliance with RESPA 

Some permissible services qualify as "settlement services" under the Real Estate 

Settlement Procedures Act (RESPA), which prohibits persons from giving or 

receiving any fee or other compensation for the referral of real estate settlement 

services. RESPA, however, permits persons or entities to invest in settlement service 

providers and share in the income of those providers in proportion to their 

ownership interest in the provider, in addition to receiving bona fide compensation 

for goods and services rendered by the investor. These providers are referred to as 

ABAs and include operating subsidiaries that provide such services. Banks and 

these subsidiaries should ensure compliance with the requirements of RESPA. No 

lender may require a consumer to purchase settlement services from a particular 

provider as a condition of obtaining a loan, unless expressly authorized by RESPA; 

the party making the referral must make certain disclosures, and the compensation 

restrictions must be followed. 

In addition, the Department of Housing and Urban Development (HUD) has issued 

guidelines for determining whether an ABA is a "bona fide" provider of settlement 

services and thus is not a sham or shell entity organized to circumvent RESPA's 

restrictions on payment of fees or other compensation for the referral of real estate 

settlement services business. These guidelines list a variety of factors that are to be 

 

144 12 CFR 7.1003, 7.1004, and 7.1005. 145 Interpretive Letter No. 467, supra. 146 Comptroller’s Handbook, Commercial Real Estate and Construction Lending, Appendix E 

(November 1995), “Transactions That Require Evaluations,” p. 118. 

67 
taken into account in determining whether an ABA is bona fide, though conformance 

to the guidelines does not necessarily require conformance to each of the factors. The 

factors include, among others: the adequacy of the entity's initial capital and net 

worth; whether the entity is staffed by its own employees; whether the entity manages 

its own business affairs; whether it has its own office separate from an office of one of 

its parents or, if not, whether it pays a general market value rent for the facility; 

whether it provides substantial services and incurs the risks and rewards of any 

comparable enterprise, or whether it contracts work out; whether it competes in the 

market place for business; and whether it sends business exclusively to one of the 

settlement service providers that created it, or to a number of entities. A full 

discussion and explanation of these guidelines is in the Department of Housing and 

Urban Development’s RESPA Statement of Policy 1996-2 Regarding Sham Controlled 

Business Arrangements, 61 Federal Register 29258 (June 7, 1996). See also OCC 

Bulletin 2005-27.

(W) Acting as a transfer or fiscal agent. 

National banks may act as transfer agents. A transfer agent acts on behalf of an 

issuer of securities or on behalf of itself as an issuer of securities and performs the 

following functions: (1) countersigning securities upon issuance, (2) monitoring the 

issuance of securities to prevent unauthorized issuance, (3) registering the transfer of 

securities, (4) exchanging or converting securities, and/or (5) transferring record 

ownership of securities by bookkeeping entry without physical issuance of securities 

certificates. A national bank or national bank subsidiary must register with the OCC 

if it performs transfer agent functions for any security registered under Section 12 of 

the Exchange Act or any security that would be required to be registered, except for 

the exemption for registered investment company exemption and certain insurance 

company securities.147 National banks without trust powers may perform transfer 

agent functions only for their own securities or for securities of affiliates.148

National banks may act as fiscal agents as the collection and remittance of funds are 

part of the business of banking.149

(X) Acting as a digital certification authority to the extent permitted by published 

OCC precedent, subject to the terms and conditions contained in that precedent. 

National banks and their operating subsidiaries may act as a digital certification 

authority, issuing digital certificates and acting as a repository of public keys and 

certificate information.150 In addition, they may hold in escrow keys that are used 

for encryption.151 Such certification and escrow activities do not require trust 

powers under 12 USC 92a. National banks and their operating subsidiaries 

engaging in these activities may also provide connected data processing services 

and may sell or rent equipment, including specialized, limited purpose software and 

hardware to be used in connection with the certification authority and repository 

services and other digital signature or data security systems. They may also provide 

 

147 OCC, National Bank Transfer Agents’ Guide (August 1995). See Securities Exchange Act 17A(c); 

12 CFR 9.20(a). 

148 OCC, National Bank Transfer Agents’ Guide (August 1995)(relying on 12 USC § 92a). 149 See Interpretive Letter No. 731 (July 1, 1996), reprinted in [1995-96 Transfer Binder] Fed. 

Banking L. Rep. (CCH) ¶ 81-048; Conditional Approval No. 361 (March 3, 2000); Conditional 

Approval No. 324 (August 17, 1999). 

150 Conditional Approval Letter No. 267 (Jan. 12, 1998). 151 Id.

68 
and sell software generating public/private key pairs for subscribers and software 

enabling subscribers to create or receive messages with digital signatures, verify 

digital signatures with public keys, and confirm that the messages were properly 

signed. They may also provide consulting or advisory services to help customers, 

including other banks, to implement digital signature systems. 

National banks and their subsidiaries also may establish and operate a system for 

participant organizations to use in order to create and issue digital certificates, 

acting as the root certification authority (CA) of such a system. In addition to acting 

as the root CA, the national bank or operating subsidiary may establish business 

rules so that a customer of the participant organizations can quickly and easily 

obtain verification of a certificate issued by another CA in the system.152

Certification authority activities must be undertaken in conformity with OCC 

precedent153 and OCC guidance as issued from time to time.154

(Y) Providing or selling public transportation tickets, event and attraction tickets, 

gift certificates, prepaid phone cards, promotional and advertising material, 

postage stamps, and Electronic Benefits Transfer (EBT) script, and similar media, to 

the extent permitted by published OCC precedent, subject to the terms and 

conditions contained in that precedent. 

National banks and their operating subsidiaries may provide or sell a variety of 

“alternate media,” including public transportation tickets or passes, event and 

attraction tickets, merchant gift certificates, prepaid telephone cards, and EBT 

script.155 Because they have also long been permitted to provide or sell through 

 

152 Conditional Approval Letter No. 339 (Nov. 16, 1999). 153 To date, OCC precedent has addressed the use of digital certificates in “closed” systems only. 154 See OCC Bulletin 99-20 (May 4, 1999). 155 12 CFR 5.34(e)(5)(v)(Y); Interpretive Letter No. 718 (March 14, 1996), reprinted in [1995-1996 

Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81-033; Conditional Approval No. 285 (August 14, 

1998); Interpretive Letter No. 854, supra; Interpretive Letter No. 890 (May 15, 2000), reprinted in

[2000-2001 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81-409. 

69 
traditional means advertising and promotional material,156 postage stamps,157

travelers’ checks,158 money orders,159 and credit and debit cards,160 these items may 

also be provided electronically, such as through ATMs.161 For any items that are 

sold through an ATM, a printed receipt complying with the requirements of Federal 

Reserve Board Regulation E, 12 CFR 205, must be provided.162

 

156 Interpretive Letter No. 316 (December 4, 1984), reprinted in [1985-1987 Transfer Binder] Fed. 

Banking L. Rep. (CCH) ¶ 85,486. 

157 12 CFR 5.34(e)(5)(v)(Y); 12 CFR § 7.1010; Interpretive Letter No. 890, supra. 158 12 CFR 5.34(e)(5)(v)(C); letter of John G. Heimann, Comptroller of the Currency (November 10, 

1977), reprinted in [1978-1979 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 85,067; Interpretive 

Letter No. 890, supra; see No-Objection Letter No. 89-02 (April 17, 1989), reprinted in [1989-1990 

Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 83,014; Arnold Tours, Inc. v. Camp, 472 F.2d 427, 

438 (1st Cir. 1972). [See also section(C) in these guidelines.] 

159 12 CFR 5.34(e)(5)(v)(C); Interpretive Letter No. 890, supra; see 12 CFR 7.1014. [See also section 

(C) in these guidelines.] 

160 Former Interpretive Ruling 7.7378, 12 CFR 7.7378 (removed 1996 because the ability to issue 

credit cards “is well established and a specific interpretive ruling is not needed”); see No-Objection 

Letter No. 89-02, supra. 161 Interpretive Letter No. 718, supra. 162 Id.

70 
Appendix B: Noncontrolling Investment Guidelines 

Introduction 

National banks and their operating subsidiaries are permitted to make a noncontrolling 

investment, or hold a minority interest, in certain enterprises. The OCC regulation 

provides for an after-the-fact notice process if the enterprise is engaged in an activity 

permissible for after-the-fact notice under the OCC’s operating subsidiary regulation or if 

the activity is substantively the same as that contained in published OCC precedent on 

noncontrolling investments.163 

The following is a summary of noncontrolling investments or minority interests approved 

by published OCC precedent.164 

Noncontrolling Investment Activities 

Lending 

• Appraisal Services. Providing appraisals of the value of collateral before creditors 

make a mortgage loan.165 

• Automobile Loans. Providing automobile loans. Loan customers are persons who 

purchase cars over the Internet from other, nonbank investors in the LLC.166

• Commercial Real Estate Loans. Originating and selling commercial real estate 

loans.167

• Credit Card Banking. Making, purchasing, selling, servicing, or warehousing credit 

card accounts.168

• Credit Reporting. Engaging in credit reporting activities, including operation of a 

credit-reporting bureau.169

• Credit Reporting Services. Providing credit reporting services in connection with 

the origination of loans.170

• Data Processing Mortgage Rights. Providing data processing services that facilitate 

the transfer of mortgage servicing rights, mortgage ownership, and the release of 

 

163 12 CFR 5.36(e). 164 The narrative section of this booklet provides further information on the requirements governing the 

use of the after-the-fact notice procedure. The Operating Subsidiary Guidelines (Appendix A to the 

booklet) provides information on activities permissible for after-the-fact notice under the operating 

subsidiary regulation. 12 CFR 5.34(e)(5)(v).

165 Conditional Approval No. 276 (May 8, 1998). 166 Conditional Approval No. 321 (July 28, 1999). 167 Conditional Approval No. 215 (September 11, 1996). 168 Interpretive Letter No. 852 (Dec. 11, 1998), reprinted in [1998-99 Transfer Binder] Fed. Banking L. 

Rep.¶ 81-309. See also Conditional Approval No. 269 (January 13, 1998). 169 Conditional Approval No. 322 (July 30, 1999) 170 Conditional Approval No. 336 (November 2, 1999) 

71 
mortgage rights through an electronic “book-entry” system to register and track 

mortgage rights.171

• Escrow Services. Engaging in escrow services.172

• Home Equity Lines of Credit (Loans for Personal, Family, or Household Purposes 

(for example Consumer Loans)). Lending to customers through home equity lines 

of credit, such as home improvement loans secured by second liens on family 

homes.173

• Loan Closing Services. 

− Conducting loan closing services for both themselves and for other lenders. 

Loan closing services may include the disbursement of loan proceeds.174

− Conducting loan closing services as an affiliated business arrangement (ABA) 

as defined by, and in accordance with, the Real Estate Settlement Procedures 

Act.175

• Loan Document Preparation. Preparing loan documents that describe the rights 

and duties of the creditor and the borrower.176

• Loan Origination and Servicing Activities. 

− Engaging in loan origination and servicing activities, as well as commercial 

mortgage loan brokerage services.177

− Engaging in loan origination and servicing activities that qualify the bank to 

receive a share of the New Markets Tax Credits awarded the entity in which 

the bank is investing.178

• Loans Secured by Residential Real Estate. Originating and selling residential real 

estate mortgage loans.179

• Mortgage Banking Activities. Buying, selling, and otherwise dealing in 

mortgages.180

 

171 Conditional Approval No. 333 (October 19, 1999) 172 Conditional Approval No. 308 (April 8, 1999) 173 Interpretive Letter No. 694 (Dec. 13, 1995), reprinted in [1995-1996 Transfer Binder] Fed. Banking L. 

Rep , (CCH) ¶ 81-009. See also Conditional Approval No. 264 (December 29, 1997). 174 Conditional Approval No. 322 (July 30, 1999) 175 Conditional Approval No. 243 (May 9, 1997). The ABA’s structure, operating agreement and activities 

must be consistent with guidelines of the Department of Housing and Urban Development. See also (V) 

“Providing real estate settlement, closing, escrow, and related services; and real estate appraisal services 

for the subsidiary, parent bank, or other financial institutions” of Appendix A. 176 Conditional approval No. 276 (May 8, 1998). See also Conditional Approval No. 322 (July 30, 1999). 177 Conditional Approval No. 293 (November 24, 1998). 178 Interpretive Letter No. 996 (July 7, 2004) (to be published in CCH). 179 Interpretive Letter No. 853 (February 16, 1999), reprinted in [1998-1999 Transfer Binder] Fed. Banking 

L. Rep. (CCH) ¶ 81-310. See also Conditional Approval No. 225 (November 25, 1996). 180 Interpretive Letter No. 889 (April 24, 2000), reprinted in [2000-2001 Transfer Binder] Fed. Banking L. 

Rep. (CCH) ¶ 81-408. See also Interpretive Letter No. 711 (Feb. 23, 1996), reprinted in [1995-1996 

Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81-026; Conditional Approval No. 338 (November 10, 

72
• Real Estate Tax Services. Providing complete real estate tax services, including, for 

example, procuring state and local tax bills, reporting such information to the 

servicers in time for establishing escrow accounts and paying tax bills, and data 

processing and administration services for escrows, taxes, and delinquencies.181

• Real Property Conveyed as Security for DPC. Acquiring, managing, and selling 

real property conveyed to the bank as security for or in satisfaction of debt 

previously contracted (DPC).182 

• Student Loans. Originating and marketing student loans.183

Leasing 

• Equipment and Personal Property Leasing. Engaging in leasing, specifically, aircraft 

leasing.184

• Leasing/Selling Excess Capacity. Providing back-up call answering for a hotline to 

persons who are not bank customers if there is good faith excess capacity.185

• Point-of-Sale Terminals. Leasing point-of-sale terminals.186

• Prime Auto Leasing. Engaging in the origination, purchase, and securitization of 

prime auto leases.187

Payment Services 

• Cash Management. Providing cash management services.188

• Check Cashing and Processing. Engaging in check cashing through sales and 

leases of check cashing machines to third parties.189

• Check Certification. Providing check guarantee and verification services.190

 1999); Conditional Approval No. 243 (May 9, 1997); Conditional Approval No. 241 (May 1, 1997); 

Conditional Approval No. 318 (July 21, 1999). 

181 Conditional Approval No. 276 (May 8, 1998). 182 Interpretive Letter No. 735 (July 15, 1996), reprinted in [1995-1996 Transfer Binder] Fed. Banking L. 

Rep. (CCH) ¶ 81-052; Interpretive Letter No. 657 (March 31, 1995), reprinted in [1994-1995 Transfer 

Binder] Fed. Banking L. Rep. (CCH) ¶ 83,605; and Conditional Approval No. 210 (July 15, 1996). 

183 Conditional Approval No. 216 (September 11, 1996). See also Interpretive Letter No. 692, supra. 184 Interpretive Letter No. 887 (April 30, 2000), reprinted in [2000-2001 Transfer Binder] Fed. Banking L. 

Rep. (CCH) ¶ 81-406. See also Conditional Approval 316 (June 30, 1999); M&M Leasing Corp. v. Seattle 

First Nat’l Bank, 563 F.2d 1377, 1382-83 (9th Cir. 1977), cert. denied, 436 U.S. 956 (1978); OCC 

Corporate Decision No. 97-54 (June 26, 1997); Conditional Approval No. 281 (July 30, 1998); 

Conditional Approval No. 295 (December 3, 1998) 

185 Conditional Approval No. 361 (March 3, 2000). 186 Conditional Approval Letter No. 269 (January 13, 1998). 187 Interpretive Letter No. 898 (July 14, 1998). 188 Interpretive Letter No. 756 (Nov. 5, 1996), reprinted in [1996-97 Transfer Binder] Fed. Banking L. Rep. 

(CCH)¶ 81-120. See also Conditional Approval No. 324 (Aug. 17, 1999). 189 Conditional Approval No. 307 (March 19, 1999). 190 Conditional Approval No. 287 (September 4, 1998). 

73
Data Processing and Correspondent Services 

• Analyzing Customer Information. Analyzing customer information to determine 

potential needs and including brochures in statements about the availability of 

nonbanking products from venders.191

• Electronic Imaging Services. Providing electronic imaging services to financial 

institutions. Electronic imaging systems use digital technology to capture, index, 

store, and retrieve electronic images of paper documents.192

• Internet Merchant Hosting Services. Providing Internet merchant hosting services 

to other financial institutions for resale to their merchants.193

• Medical Claims Processing. Engaging in medical claims processing, including 

using electronic data interchange facilities, billing, and facilitating payment through 

funds transfer and credit card processing.194

• Merchant Processing Services. Providing merchant credit and debit card 

processing services. Merchant processing generally involves verifying credit and 

debit card authorizations at the time of purchase, processing card transactions, 

settlement of card transactions, and depositing funds in merchants’ accounts.195

• Payment and Information Processing Services. Providing payment and information 

processing services. The entity may provide electronic data processing and data 

interchange facilities to assist health care providers in communicating billing and 

payment-related information to insurance carriers responsible for providing medical 

benefits. Noncontrolling investments also may provide lockbox services. In 

addition, noncontrolling investments may provide ATM and POS-related services to 

depository institutions.196

• Payroll Processing Services. Offering payroll processing services by traditional as 

well as electronic means to commercial customers. Payroll processing services 

may include payroll computations, deductions and tax escrow account 

 

191 Conditional Approval No. 265 (December 29, 1997). 192 Interpretive Letter No. 805 (October 9, 1997), reprinted in [1997-1998 Transfer Binder] Fed. Banking L. 

Rep. (CCH) ¶ 81-252). See also OCC Bulletin 94-8 (January 27, 1994); Conditional Approval No. 658 

(October 13, 2004).

193 Interpretive Letter No. 875 (October 31, 1999), reprinted in [1999-2000 Transfer Binder] Fed. Banking 

L. Rep. (CCH) ¶ 81-369). 

194 Interpretive Letter No. 836 (March 12, 1996), reprinted in [1998-1999 Transfer Binder] Fed. Banking L. 

Rep. (CCH) ¶ 81-290. 

195 Interpretive Letter No. 813 (October 14, 1997), reprinted in [1997-1998 Transfer Binder] Fed. Banking 

L. Rep. (CCH) ¶81-261. See also Conditional Approval No. 289 (October 2, 1998); Conditional Approval 

No. 248 (June 27, 1997); Interpretive Letter No. 720 (January 26, 1996), reprinted in [1995-1996 Transfer 

Binder] Fed. Banking L. Rep. (CCH) ¶ 81,035); Interpretive Letter No. 731 (July 1, 1996), reprinted in

[1995-1996 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81-048; Interpretive Letter No. 689 (August 9, 

1995), reprinted in [1995-1996 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81-004; and Banking 

Bulletin 92-94, Merchant Processing (May 5, 1992); Conditional Approval No. 265 (December 29, 1997); 

Conditional Approval No. 255 (September 25, 1997). 

196 Conditional Approval No. 282 (July 31, 1998); Letter to Wells Fargo Bank, NA (December 30, 1996); 

Interpretive Letter No. 705 (October 25, 1995), reprinted in [1995-1996 Transfer Binder] Fed. Banking L. 

Rep. (CCH) ¶ 81-020. 

74
management, and processing salary payments to employees either by direct deposit 

or by check preparation.197

• Processing of Banking, Financial, or Economic Data. Collecting, transcribing, 

processing, analyzing, and storing banking, financial, or related economic data 

for customers as part of the business of banking.198

Consulting and Financial Advice 

• Consumer Financial Advice. Providing financial advice to bank consumers, 

including advice regarding acquisitions and dispositions of businesses.199

• Investment Advice. Providing investment advice as part of or incidental to the 

business of banking.200

Finder Activities 

• Acting as Finder for Government Agencies. Hosting Web sites for government 

agencies and providing an electronic communications pathway for product 

ordering and payment as a finder activity.201

• Acting as Finder for Insurance Activities. Bringing together a potential purchaser 

of insurance and the seller of insurance by making inquiries as to interest, 

introducing or arranging meetings of interested parties, and otherwise bringing 

parties together for a transaction that the parties themselves negotiate and 

consummate.202

• Acting as Finder for Internet Vendors. Providing bank customers links to 

nonbanking, third-party vendors’ Internet Web sites.203

• Acting as Finder for Like-Kind Exchanges. Providing finder services for the 

owners of investment property.204

 

197 Interpretive Letter No. 771 (February 24, 1997), reprinted in [1996-1997 Transfer Binder] Fed. Banking 

L. Rep. (CCH) ¶ 81-135. 

198 Conditional Approval No. 361 (March 3, 2000); Interpretive Letter No. 516 (July 12 1990), reprinted in

[1990-1991 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 83,220. 

199 Interpretive Letter No. 871 (October 14, 1999), reprinted in [1999-2000 Transfer Binder] Fed. Banking 

L. Rep. (CCH) ¶ 81-365. 

200 Interpretive Letter No. 871, supra. See also Interpretive Letter No. 851 (December 8, 1998), reprinted 

in [1998-1999 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81-308; Letter to Premier Bank, NA (March 

16, 1995); Conditional Approval No. 241 (May 1, 1997); Conditional Approval No. 270 (January 21, 

1998); Conditional Approval No. 300 (January 13, 1999). 

201 Interpretive Letter No. 883 (March 3, 2000), reprinted in [2000-2001 Transfer Binder] Fed. Banking L. 

Rep. (CCH) ¶ 81-402. 

202 Interpretive Letter No. 889, supra.; Interpretive Letter No. 824 (February 27, 1998); reprinted in [1997-

1998 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81-273 (Feb. 27, 1998); Conditional Approval No. 

221 (December 4, 1996). 

203 Conditional Approval No. 221 (December 4, 1996). See also Conditional Approval No. 361 (March 3, 

2000); Conditional Approval No. 369 (February 25, 2000) and Interpretive Letter No. 611 (November 23, 

1992), reprinted in [1992-1993 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 83,449. 204 Conditional Approval 322 (July 30, 1999). 

75
• Acting as Finder for Merchants through the Internet. Hosting merchants’ 

commercial Web sites, bringing potential customers and merchants together for a 

transaction that the parties’ themselves negotiate and consummate.205

• Acting as Finder for Real Estate Transactions. Acting as a finder and bringing 

together parties wishing to finance the purchase, construction, development, or 

placement of real estate equity interests, and securities related to real estate.206

Real Estate Related Activities

• Appraisal Services. Performing real estate appraisals for the bank and for other 

lenders.207

• Property for Bank Premises. Acquiring property for bank premises if (1) the 

aggregate amount of the investment is less than or equal to the national bank’s 

capital stock; or (2) the aggregate amount of the investment is less than or equal 

to 150 percent of the national bank’s capital and surplus, and the national bank is 

“well capitalized” and has a CAMEL rating of 1 or 2, provided that the bank 

provides the OCC with notice 30 days after this investment. Prior OCC approval 

is required for investments in bank premises that do not meet the above 208 criteria.

. Engaging in property inspections in connection with 

nding activities.209

es real estate tax services that assure that real estate taxes are 

aid on time.210

rpretations, conclusions, or expressions of 

opinion as to the validity of title.211

g title insurance and 

engaging in loan closing management activities.212

upport Services 

 

• Property Inspections

le

• Real Estate Tax and Management Service. Engaging in real estate reporting and

management services in connection with certain loans made by the bank or its 

lending affiliates. A national bank also may hold a noncontrolling interest in an

entity that provid

p

• Title Abstracting Services. Engaging in residential and commercial title 

abstracting services; that is, the preparation of reports of chains of title drawn 

from public record, but without inte

• Title Insurance and Loan Closing Services. Providin

S

205 Interpretive Letter No. 875, supra. 206 Conditional Approval No. 241 (May 1, 1997); Conditional Approval No. 284 (August 14, 1998). 207 Conditional Approval No. 322 (July 30, 1999). 208 Conditional Approval No. 298 (December 15, 1998). 209 Conditional Approval No. 322 (July 30, 1999). 210 Conditional Approval No. 317 (July 19, 1999); Conditional Approval No. 276 (May 8, 1998). 211 Conditional Approval 308 (April 8, 1999). 212 Conditional Approval No. 327 (September 14, 1999); Interpretive Letter No. 842 (September 28, 

1998), reprinted in [1998-1999 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81-297; Conditional 

Approval No. 276 (May 8, 1998). 

76
• Agent for Deposit Placement. Acting as agent and placing customers’ funds in 

Employee Benefit and Payroll Services. Providing employee benefit services and 

Professional Employer Organization. Marketing human resource and employeeve services to small and medium-sized customers.215

sts in trust banks.216 

securities to hedge, on a dollar-for-dollar basis, 

the subsidiary's obligations to make payments to employees under nonqualified 

Marketing and Consulting Services to Insurance Agencies. Providing marketing 

 noncontrolling investment 

may sell insurance through satellite offices, in addition to the investment’s “place 

ket. Holding an interest in a LLC that does business as an insurance 

agency or broker, including acting as agent in the sale of disability and life 

• Title Insurance. Selling title insurance as agent.221

 

foreign currency time deposits with foreign banks.213

•

payroll services to financial institutions and nonfinancial companies.214

•

related administrati

Fiduciary Activities 

• Trust Bank Stock. Holding intere

Insurance and Annuities Activities 

• Insurance Company Products and Investment Funds Hedging. Holding interests 

through subsidiaries in various insurance company products and investment 

funds containing bank-ineligible 

deferred compensation plans.217

•

and consulting services to insurance agencies.218

• Place of 5000 Satellite Offices. In an entity located in a “place of 5,000,” 

soliciting and selling insurance in the same manner permissible in New York for

New York licensed insurance agencies generally and as authorized by the 

investment’s state insurance license. In particular, a

of 5,000” location, as permitted under state law.219

• Scope of Mar

insurance.220

213 Interpretive Letter No. 778 (March 20, 1997), reprinted in [1997 Transfer Binder] Fed. Banking L. Rep. 

(CCH) ¶81-205. 

214 Interpretive Letter No. 909 (May 2, 2001), reprinted in [Current Transfer Binder] Fed. Banking Law. 

Rep. (CCH) ¶ 81-433; Interpretive Letter No. 994 (June 14, 2004). 

215 Conditional Approval No. 456 (March 10, 2001). 216 Interpretive Letter No. 697 (November 15, 1995), reprinted in [1995-1996 Transfer Binder] Fed. 

Banking L. Rep. (CCH) ¶ 81-016. See also Interpretive Letter No. 815 (December 2, 1997), reprinted in 

[1997-1998 Transfer Binder] (CCH) 81-263; Interpretive Letter No. 831 (June 8, 1998), reprinted in [1997-

1998 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81-285. 

217 Interpretive Letter No. 878 (December 22, 1999), reprinted in [1999-2000 Transfer Binder] Fed. 

Banking L. Rep. (CCH) ¶ 81-375. 

218 Conditional Approval No. 302 (January 21, 1999). 219 Interpretive Letter No. 873 (December 1, 1999), reprinted in [1999-2000 Transfer Binder] Fed. Banking 

L. Rep. (CCH) ¶ 81-367. See also Interpretive Letter No. 819 (January 20, 1998), reprinted in [1997-1998 

Transfer Binder] (CCH) ¶ 81-268; Conditional Approval No. 236 (April 3, 1997). 

220 Conditional Approval No. 242 (May 7, 1997). See also Conditional Approval No. 303 (February 16, 

1999). 

221 Conditional Approval No. 371 (March 20, 2000). 

77
• Title Insurance and Annuity Sales. Acting as insurance agent, own 222

ing interest in 

title insurance agency, and engaging in annuity sales as agent.

ans originated by lenders with an ownership interest in 

the investment entity.223

ed, or serviced by lenders with an ownership interest in 

the investment entity.224

nk of an 

f the securities is necessary to obtain 

professional liability insurance.

ecurities Activities 

trusts 

anage a substantial portion of the bank’s investment 

securities portfolio.226

 enable 

participation in permissible exchange and clearinghouse activities.227

in 

tment funds for which a national bank serves as investment 

manager.228

olio Management. Providing investment portfolio 

management.229

ugh a 

imited equity interests in investment funds to which it 

provides services.230

ible Securities. Investing and trading as principal in bank 

eligible securities.231

• Reinsurance of Credit Life, Credit Accidental Death, and Credit Disability 

Insurance. Reinsuring mortgage life, mortgage accidental death, and mortgage 

disability insurance on lo

• Reinsurance of Private Mortgage Insurance. Reinsuring mortgage insurance on 

loans originated, purchas

• Professional Liability Insurance. Incidental purchase of securities by a ba

insurance carrier where purchase o 225

S

• Business Trusts. Having interests in certificates of participation in business 

created to hold and m

• Clearinghouse Membership. Purchasing a share in a clearinghouse to

• Investment Funds Management. Holding limited equity interests in certa

private inves

• Investment Portf

• Investment Advisory Company. Providing investment advisory services thro

company that owns l

• Principal in Bank Elig

 

222 Conditional Approval No. 574 (January 27, 2003). 

printed in [Current Transfer Binder] Fed. Banking L. 

. 965 (February 24, 2003) 

rinted in [1996-1997 Transfer Binder] Fed. Banking L. 

l No. 289 (October 2, 1998). 

aw. 

223 Interpretive Letter No. 835 (July 31, 1998), reprinted in [1998-1999 Transfer Binder] Fed. Banking L. 

Rep. (CCH) ¶ 81-289. 

224 Interpretive Letter No. 985 (January 14, 2004), re

Rep. (CCH) ¶ 81-511. 

225 Interpretive Letter No 226 Interpretive Letter No. 745 (August 27, 1996), rep

Rep. (CCH) ¶ 81-110). 

227 Interpretive Letter No. 929 (February 11, 2002). 228 Interpretive Letter No. 940 (May 24, 2002). 229 Conditional Approva 230 Interpretive Letter No. 897 (Oct. 23, 2000), reprinted in [2000-2001 Transfer Binder] Fed.Banking L

Rep. (CCH) ¶ 81-416. 

78
• Private Placement of Securities. Arranging private placements of debt and equity 

securities for bank customers. 232

• Riskless Principal. Buying and selling securities on an agency or riskless 

principal basis.233

• Securities Brokerage. Providing full service securities brokerage services 

(investment advisory services and brokerage services) to the bank’s customers.234

• Small Business Investment Companies. Having an interest in, and making loans 

to, a small business investment company that will make loans and invest in 

securities permissible under the SBIC Act.235

• Warrants for Common Stock. Having an interest in a subsidiary that holds 

warrants of acquired shares of common stock.236

Technology and Electronic Activities 

• Internet Banking Powers. Offering Internet home banking services.237

• Commercial Web Site Hosting Services. Providing a package of Internet-based 

services that include hosting merchants’ Web sites on its server; providing an 

electronic pathway for product ordering and payment; maintaining merchants’ 

data associated with the Web sites on its server; providing reports on transactions, 

Web site hits, and sales data; and payment processing.238

• Hyperlinks between Bank Web Sites and Third-Party Sites. Establishing 

hyperlinks between its home pages and the Internet pages of third-party providers 

so that bank customers will be able to access those nonbank sites from the bank 

site.239

• Research and Development. Engaging in research and development to establish 

identity certification services.240

 231 Interpretive Letter No. 889, supra.; Interpretive Letter No. 652 (Sept. 13, 1994), reprinted in [1994 

Transfer Binder] Fed. Banking L. Reg. (CCH) ¶ 83,600. 

232 Interpretive Letter No. 871, supra. 233 Interpretive Letter No. 889, supra.; Interpretive Letter No. 622 (April 9, 1993), reprinted in [1993-1994 

Transfer Binder] Fed. Banking L. Reg. (CCH) ¶ 83,504; Interpretive Letter No. 626 (July 7, 1993), reprinted 

in [1993-1994 Transfer Binder] Fed. Banking L. Reg. (CCH) 83,508; Interpretive Letter No. 371 (June 13, 

1986), reprinted in [1984-1987 Transfer Binder] Fed. Banking L. Reg. (CCH) ¶ 85,541. 234 Interpretive Letter No. 871, supra.; Securities Industry Association v. Comptroller of the Currency, 577 

F. Supp. 252 (D.D.C. 1983), aff’d. 758 F.2d 739 (D.C. Cir. 1985), cert. denied, 474 U.S. 1054 (1986); 

Securities Industry Association v. Board of Governors of the Federal Reserve System, 468 U.S. 207 (1984). 

See also Conditional Approval No. 303 (February 16, 1999). 235 Conditional Approval No. 305 (March 15, 1999). See also Interpretive Letter No. 832 (June 18, 1998), 

reprinted in [1998-1999 Transfer Binder] Fed. L. Banking Reg. (CCH) ¶ 81-286. 236 Conditional Approval No. 319 (July 26, 1999). 237 Conditional Approval No. 289 (October 2, 1998). 238 Conditional Approval No. 361 (March 3, 2000). 239 Conditional Approval No. 221 (December 4, 1996). 240 Conditional Approval No. 301 (January 15, 1999). 

79
• Trade Finance. Facilitating trade financing between United States exporters and 

Latin American importers by arranging financing, obtaining credit insurance, and 

acting as escrow agent.241

• Virtual Malls. Operating a “virtual mall,” where a bank-hosted set of Web pages 

with a collection of links to third-party Web sites that allow customers to shop for 

a range of financial and non-financial products and services via links to sites of 

third-party vendors and merchants, can electronically confirm payment 

authorization before shipping goods.242

• Web Design and Development Services. Providing Web design and 

development services to the bank’s merchant customers.243

Electronic Bill Payments 

• Electronic Bill Payment and Presentment Services through the Internet. Offering 

electronic bill payment and presentment services over the Internet.244

• Electronic Interbank Switch. Holding an interest in a switch to support electronic 

bill presentment services over the Internet.245

• Electronic Bill Payment, Money Transfer, and Related Data Processing. Holding 

an interest in an LLC that offers electronic bill payment, transfer of money, and 

related data processing for these services.246

Stored Value 

• Closed Stored Value Card Systems. Designing, installing, and supporting 

“closed” stored value card systems at universities and other institutions.247

• Creation, Sale, and Redemption of Stored Value Cards. Providing “open” stored 

value card systems and engaging in the development, marketing, delivery, and 

maintenance of stored value and information systems.248

• Stored Value System. Providing an electronic payments system that enables nondepositor customers to store pre-paid value on a card, but that is maintained in a 

central database.249

Electronic Data Interchange (EDI) Services 

 

241 Conditional Approval No. 436 (December 19, 2000). 242 Interpretive Letter No. 875, supra. 243 Interpretive Letter No. 875, supra. See also Interpretive Letter No. 883, supra. 244 Conditional Approval No. 304 (March 5, 1999). See also Conditional Approval No. 289 (October 2, 

1998). 

245 Conditional Approval No. 332 (October 18, 1999). 246 Conditional Approval No. 389 (May 19, 2000). 247 Interpretive Letter No. 737 (August 19, 1996), reprinted in [1996-1997 Transfer Binder] Fed. Banking L. 

Rep. (CCH) ¶ 81-101. 

248 Interpretive Letter No. 855 (March 1, 1999), reprinted in [1998-1999 Transfer Binder] Fed. Banking L. 

Rep. (CCH) ¶ 81-312. See also Conditional Approval No. 220 (December 2, 1996); Corporate Decision 

No. 98-39 (March 27, 1998). 

249 Conditional Approval No. 568 (December 31, 2002). 

80
• EDI Services. Holding interests in companies that allow businesses to send and 

receive payments, invoices, and orders worldwide. Specifically, these companies 

may design and develop a network for electronic transfer of funds and financial 

information, along with the development and marketing of related software.250

• Electronic Funds Transfer Network. Engaging in a broad range of EFT-related 

activities, including operating the networks, data processing, and providing 

consulting services to depository institutions.251

• Operation of an Electronic Toll Collection System. Using modern technology in 

serving as a government fiscal agent.252

• Dispensing Prepaid Alternative Media. Dispensing “alternative media” through 

ATMs, including event tickets, vouchers, and gift certificates.253

Digital Certification 

• Digital Certification. Acting as a certification authority to enable subscribers to 

generate digital signatures that verify the identity of a sender of an electronic 

message.254

• Multiple Bank Certification Authority (CA) Network System. Establishing an 

entity that will support a multiple bank CA network system. The central entity 

will act as the root CA for the sub-CA banks and will establish business rules so 

that customers of any sub-CAs can quickly and easily obtain verification of a 

certificate issued by any other CA bank in the system.255

Internet Access Service 

• Internet Access Service. Establishing and operating an electronic distribution 

channel for providing electronic financial services to customers of participating 

financial institutions.256

• Internet Access and Sale of Excess Capacity. Providing back-up call answering 

for a hotline to persons who are not bank customers if there is good faith excess 

capacity.257

Software Development and Production 

• Software Development, Distribution and Support. Providing services and 

technology to facilitate secure electronic payments over the Internet.258

 

250 Interpretive Letter No. 732 (May 10, 1996), reprinted in [1995-1996 Transfer Binder] Fed. Banking L. 

Rep. (CCH) ¶ 81-049. 

251 Interpretive Letter No. 854 (February 25, 1999), reprinted in [1998-1999 Transfer Binder] Fed. Banking 

L. Rep. (CCH) ¶ 81-311; Interpretive Letter No. 890 (May 15, 2000); Interpretive Letter No. 993 (May 16, 

1997); CRA Decision Letter No. 122 (June 23, 2004). 

252 Conditional Approval No. 361 (March 3, 2000) 253 Conditional Approval No. 285 (August 14, 1998). 254 Conditional Approval No. 339 (November 16, 1999); Conditional Approval No. 301 (January 15, 

1999); CRA Decision Letter No. 122 (June 23, 2004); Corporate Decision No. 2002-4 (February 18, 2002). 

255 Conditional Approval No. 339 (November 16, 1999). 256 Conditional Approval No. 221 (December 4, 1996). 257 Conditional Approval No. 361 (March 3, 2000). 

81
Other 

• Interest in Airplane. Owning a noncontrolling interest in a LLC that will own and 

operate a single small airplane to use in the conduct of the bank’s business.259

• ATM Sales/Leases to Third Parties. Selling and leasing ATMs, as well as their 

proprietary software and hardware, to enable check cashing services.260

• Interest in a Banker’s Bank. Owning a noncontrolling interest in an institution 

organized as a banker’s bank, not otherwise authorized under 12 USC 27(b).261

 258 Interpretive Letter No. 868 (August 16, 1999), reprinted in [1999-2000 Transfer Binder] Fed. Banking L. 

Rep. (CCH) ¶ 81-362; Interpretive Letter No. 677 (June 28, 1995), reprinted in [1994-1995 Transfer 

Binder] Fed. Banking L. Rep. (CCH) ¶ 83,625. See also Interpretive Letter No. 756, supra.; Conditional 

Approval No. 254 (August 21, 1997); Conditional Approval No. 289 (October 2, 1998). 

259 Interpretive Letter No. 943 (July 24, 2002), reprinted in [Current Transfer Binder] Fed. Banking Law. 

Rep. (CCH) ¶ 81-468. 

260 Conditional Approval No. 307 (March 19, 1999). 261 Interpretive Letter No. 970 (June 25, 2003) 

82
Glossary

An adequately capitalized bank means the capital level is as described in 

12 CFR 6.4(b)(2). 

A bank service company is a corporation, a limited liability company (LLC), or similar 

entity organized to provide services authorized by the Bank Service Company Act, 12 

USC 1861 through 1867, all of whose capital stock is owned by one or more insured 

depository institutions in the case of a corporation, or all of the members of which are 

one or more insured depository institutions in the case of an LLC. 

A depository institution is any bank or savings association. For bank service company 

purposes, a depository institution is defined as an insured bank, a financial institution 

subject to examination by the Office of Thrift Supervision or the National Credit Union 

Administration (NCUA) Board, or a financial institution whose accounts or deposits are 

insured or guaranteed under state law and eligible to be insured by the Federal Deposit 

Insurance Corporation or the NCUA Board. 

A depository institution affiliate, for purposes of investing in a financial subsidiary, is 

any bank or savings association that qualifies as an affiliate under Section 2 of the Bank 

Holding Company Act of 1956, 12 USC 1841. 

Eligible debt means unsecured long-term debt that is: 

• Not supported by any form of credit enhancement, including a guaranty or 

standby letter of credit; and 

• Not held in whole or in any significant part by any affiliate, officer, director, 

principal shareholder, or employee of the bank or any other person acting on 

behalf of or with funds from the bank or an affiliate of the bank. 

A financial subsidiary is a corporation, LLC, or similar entity, controlled by one or more 

insured depository institutions, conducting activities that are financial in nature or 

incidental to financial activities. Financial subsidiaries do not include operating 

subsidiaries, bank service companies, or statutory subsidiaries. 

A functionally regulated affiliate (FRA) is a bank affiliate, including a bank subsidiary, 

whose primary regulator is the Securities and Exchange Commission (SEC), state 

insurance commissioners, or the Commodities Futures Trading Commission (CFTC). An 

FRA does not include a depository institution’s holding company. FRAs include SECregistered securities broker dealers, SEC- or state-registered investment advisers, SECregistered investment companies, state-supervised insurance companies and agencies, 

and entities subject to CFTC regulation. 

An insured depository institution is any bank or savings association, the deposits of 

which are insured by the Federal Deposit Insurance Corporation. 

Investing in a bank service company includes making any advance of funds to a bank 

service company, whether by the purchase of stock, the making of a loan, or otherwise, 

except a payment for rent earned, goods sold and delivered, or services rendered before 

the payment was made. 

83
A limited liability company (LLC) or a similar entity is an unincorporated business entity 

organized under state law, providing its members limited liability. It does not include a 

limited partnership. 

Long-term debt for a financial subsidiary means any debt obligation with an initial 

maturity of 360 days or more. 

Offshore subsidiary is a subsidiary that will maintain records offshore, or that is 

organized under laws other than those of the 50 United States, the District of Columbia, 

or any other Territory or possession of the United States. 

An operating subsidiary is a separate corporation, LLC, or similar entity, in which a 

national bank maintains more than a 50 percent voting or similar type of controlling 

interest, or otherwise controls the subsidiary and no other party controls more than 50 

percent of the voting (or similar type of controlling) interest of the subsidiary. An 

operating subsidiary may engage in activities that are part of, or incidental to, the 

business of banking, or are otherwise authorized for a national bank, under 12 USC 

24(Seventh), or in other activities authorized for national banks or their subsidiaries 

under other statutes. (An operating subsidiary does not include statutory subsidiaries or 

a subsidiary in which the bank acquired shares, in good faith, through foreclosure on 

collateral, by compromise of a doubtful claim, or to avoid a loss in connection with a 

debt previously contracted.) 

A principal investor is the insured depository institution that has the largest amount 

invested in the equity of a bank service company. When two or more insured 

depository institutions have equal amounts invested, the bank service company must 

designate one of them as its principal investor. 

An undercapitalized bank means the capital level is as described in 12 CFR 6.4(b)(3). 

A well-capitalized bank means the capital level is as described in 12 CFR 6.4(b)(1). 

A well-managed bank means that, unless otherwise determined in writing by the OCC: 

• The bank has a composite CAMELS rating of 1 or 2; and for financial 

subsidiaries at least a management rating of 2; or 

• If the bank has not been examined, the existence and use of managerial 

resources that OCC Bank Supervision determines satisfactory. 

84
References

Affiliate Transactions, Sections 23A and 23B of the Federal Reserve Act 

Laws 12 USC 371c, 371c-1 

 Regulation 12 CFR 223 

Agricultural Credit Corporations

 Law 12 USC 24(Seventh) 

Annuities

 Law 12 USC 24(Seventh) 

Bank Holding Company Act of 1956 

 Laws 12 USC 1841 - 1850 

Bank Ownership of Property 

 Law 12 USC 29 

 Regulation 12 CFR 7.1000 

Bank Service Company

 Laws 12 USC 1843(c)(8), 1861-1867 

 Regulation 12 CFR 5.35 

Branches

 Law 12 USC 36 

 Regulation 12 CFR 5.30 

Business of Banking 

 Law 12 USC 24 (Seventh) 

Capital

 Laws 12 USC 51a-60, 3907 

 Regulations 12 CFR 3, 6 

Community Development Corporation or Entity 

Laws 12 USC 24(Eleventh) 

 Regulation 12 CFR 24 

Data Processing

 Laws 12 USC 24(Seventh), 1863 

 Regulation 12 CFR 7.5006 

Decisions

 Regulation 12 CFR 5.13 

Electronic Banking Activities 

Regulations 12 CFR 7.5000 - 7.5010 

 Issuance FFIEC IT Handbook Series 

Eligible Activities—Notice Procedures

 Regulation 12 CFR 5.34(e)(5)(v) 

85
Examination Authority 

 Laws 12 USC 481, 484,1820a, 1831v 

12 USC 1867(c) 

 Regulation 12 CFR 7.400 

Federal Deposit Insurance Act

 Law 12 USC 1831v 

Fees

 Regulation 12 CFR 8.8 

Fiduciary Powers

 Law 12 USC 92a 

 Regulations 12 CFR 5.26, 9 

Financial Activities 

 Law 12 USC 24a 

 Regulation 12 CFR 5.39 

Financial Statements, Statutory Limits 

 Law 12 USC 32, 56, 60, 84, 371d 

Financial Subsidiaries 

 Law 12 USC 24a 

 Regulation 12 CFR 5.39 

Finder

 Regulation 12 CFR 7.1002 

Freedom of Information Act Request 

 Issuance PPM 2100-15, January 2006 

Gramm-Leach-Bliley Act 

Laws 12 USC 24a (Section 121) 

 12 USC 1820a (Section 115) 

 15 USC 6712 (Section 302) 

 15 USC 6713 (Section 303) 

 15 USC 6801 (Section 501) 

Hart-Scott-Rodino Antitrust Improvements Act of 1976 

 Law 15 USC 18a 

Insurance

 Laws 12 USC 24(Seventh), 92 

 15 USC 6712, 6713 

 Regulations 12 CFR 2, 14 

 Issuance Comptroller’s Handbook for Insurance 

Activities 

86
Investment Advisors Act of 1940 

 Laws 15 USC 80b-1 - 21 

Investment Company Act 

 Laws 15 USC 80a-1 - 64 

Investment Discretion 

 Regulation 12 CFR 9.2(i) 

Investment in Bank Premises

 Law 12 USC 371d 

 Regulations 12 CFR 5.37, 7.1000 

Leasing 

 Law 12 USC 24(Tenth) 

 Regulation 12 CFR 23 

Legal Lending Limit 

Law 12 USC 84 

 Regulation 12 CFR 32 

Limited Liability Company

 Law 12 USC 1861 

 Regulations 12 CFR 5.34, 5.35, 5.36 

Operating Subsidiaries 

 Law 12 USC 24(Seventh) 

 Regulation 12 CFR 5.34 

 Issuance Bulletin 2004-55 

Other Equity Investments

 Law 12 USC 24(Seventh) 

 Regulation 12 CFR 5.36 

Nonconforming Assets

 Law 12 USC 35 

Privacy 

 Law 15 USC 6801-6827 

Related Organizations 

Issuance Comptroller’s Handbook for 

 Related Organizations 

Safe Deposit Subsidiary 

Law 12 USC 24(Seventh) 

Savings Association Eligible to be Acquired 

Law 12 USC 1823 

 Regulation 12 CFR 5.36 

Securities Exchange Act of 1934 

87
 Laws 15 USC 78a – 78mm 

Self-Dealing

 Laws 12 USC 375, 375a, 375b, 376 

 Regulations 12 CFR 9, 31, 215 

Issuance Comptroller’s Handbook on Insider Activities 

Small Business Investment Company 

 Law 12 USC 682(b) 

 Regulation 12 CFR 7.1015 

State Law 

Regulation 12 CFR 7.4006 

Transactions with Affiliates, Sections 23A and 23B of the Federal Reserve Act 

Laws 12 USC 371c, 371c-1 

 Regulation 12 CFR 223 

88