[Federal Register Volume 65, Number 13 (Thursday, January 20, 2000)]
[Proposed Rules]
[Pages 3157-3165]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-1330]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 5

[Docket No. 00-03]
RIN 1557-AB80


Financial Subsidiaries and Operating Subsidiaries

AGENCY:  Office of the Comptroller of the Currency, Treasury.

ACTION:  Proposed rule.

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SUMMARY:  The Office of the Comptroller of the Currency (OCC) is 
proposing to amend its regulations to implement section 121 of the 
Gramm-Leach-Bliley Act, which authorizes national banks to conduct 
expanded financial activities through financial subsidiaries. The OCC 
also is revising its operating subsidiary rule to make conforming 
changes and streamline procedures for banks that engage in activities 
through operating subsidiaries.
DATES:  Comments must be received by February 14, 2000.

ADDRESSES:  Please direct comments to: Docket No. 00-03, Communications 
Division, Third Floor, Office of the Comptroller of the Currency, 250 E 
Street, SW, Washington, DC, 20219. Comments are available for 
inspection and photocopying at that address. In addition, comments may 
be sent by facsimile transmission to FAX number (202) 874-5274, or by 
electronic mail to <a href="/cdn-cgi/l/email-protection#9dcfd8daceb3ded2d0d0d8d3c9ceddd2dedeb3c9cfd8dcceb3dad2cb"><span class="__cf_email__" data-cfemail="8edccbc9dda0cdc1c3c3cbc0daddcec1cdcda0dadccbcfdda0c9c1d8">[email protected]</span></a>.

FOR FURTHER INFORMATION CONTACT:  Stuart Feldstein, Assistant Director, 
Legislative and Regulatory Activities or Mitchell Plave, Senior 
Attorney, Legislative and Regulatory Activities Division, (202) 874-
5090.

SUPPLEMENTARY INFORMATION:

Background

    Prior to the enactment of the Gramm-Leach-Bliley Act, Public Law 
106-102, (GLBA or the Act), national banks generally conducted 
activities in the bank itself, in an operating subsidiary, or in a 
subsidiary authorized for national banks to own pursuant to a specific 
statute (e.g., a bank service company authorized under 12 U.S.C. 1861 
et seq.). Section 5.34 of the OCC's regulations governs national bank 
operating subsidiaries. Under Sec. 5.34, an operating subsidiary may 
engage in activities that are part of, or incidental to, the business 
of banking as determined by the OCC. A national bank may acquire or 
establish an operating subsidiary, or commence a new activity in an 
existing operating subsidiary, by following specific filing procedures 
that vary depending upon the nature of the activity and whether the 
bank meets certain eligibility standards.
    Section 5.34(f) also permits national banks to engage through a 
special type of operating subsidiary in activities that are part of, or 
incidental to, the business of banking but that are not permissible for 
the national bank to conduct directly, if the bank satisfies certain 
safety and soundness conditions. In addition, the bank must meet the 
definition of ``eligible bank'' in Sec. 5.3(g) if the subsidiary is to 
engage in those activities as principal.
    On November 12, 1999, the President signed the GLBA, which 
comprehensively restructures the statutory framework that governs the 
financial services industry. Section 121 of the Act adds a new section 
5136A to the Revised Statutes that authorizes a national bank to 
acquire control of, or hold an interest in, a new type of subsidiary 
called a ``financial subsidiary.'' The GLBA defines a financial 
subsidiary as a company that is controlled by one or more insured 
depository institutions, other than a subsidiary that engages solely in 
activities that national banks may engage in directly (under the same 
terms and conditions that govern the conduct of these activities by 
national banks) or a subsidiary that a national bank is specifically 
authorized to control by the express terms of a Federal statute. A 
financial subsidiary may engage in specified activities that are 
financial in nature and in activities that are incidental to financial 
activities if the bank and the subsidiary meet certain requirements and 
comply with stated safeguards. A financial subsidiary also may combine 
these newly authorized activities with activities that are permissible 
for national banks to engage in directly.
    The GLBA does not affect a national bank's authority to own and 
control an operating subsidiary that engages in activities that are 
part of, or incidental to, the business of banking and that are 
permissible for national banks to engage in directly. Thus, once the 
financial subsidiary provisions of the GLBA take

[[Page 3158]]

effect, a national bank may continue to own or establish these 
operating subsidiaries and also may have financial subsidiaries that 
engage in new activities that the GLBA authorizes.

Description of the Proposal

Financial Subsidiaries (New Sec. 5.39)

    The OCC is issuing this proposal to implement section 121 of the 
GLBA by establishing a process under which a national bank may obtain 
OCC approval to engage in activities authorized pursuant to section 
5136A of the Revised Statutes through a financial subsidiary by filing 
a written notice with the OCC. The following is a description of the 
provisions contained in proposed new Sec. 5.39.
Definitions
    Section 5.39(d) defines key terms that are used in the proposal. As 
the GLBA requires, a number of these terms, such as ``affiliate,'' 
``company,'' ``control,'' and ``subsidiary,'' have the same meaning 
that is set forth in section 2 of the Bank Holding Company Act of 1956 
(12 U.S.C. 1841). Other terms, such as ``well managed,'' ``equity 
capital,'' ``eligible debt,'' and ``financial subsidiary'' have the 
same definitions that are contained in the GLBA. The term ``eligible 
debt,'' is defined, in part, as unsecured ``long term debt'' meeting 
certain requirements. The proposal defines ``long term debt'' as any 
debt obligation with an initial maturity of 360 days or more.
Permissible Activities for Financial Subsidiaries
    Sections 5.39(e) and (f) provide a simple format describing the 
types of activities permissible and impermissible for a financial 
subsidiary. Under Sec. 5.39(e), a financial subsidiary may engage in 
activities that are financial in nature or incidental to a financial 
activity that are not permissible for a national bank to conduct 
directly (expanded financial activities), as well as activities that 
may be conducted by an operating subsidiary pursuant to Sec. 5.34 (that 
is, generally activities that are part of, or incidental to, the 
business of banking that national banks may conduct directly.) There is 
no requirement, however, that a financial subsidiary also conduct bank-
permissible activities.
    Section 5.39(e) also lists the activities that are defined in the 
Act as ``financial in nature.'' Among other things, this list includes 
activities that the Board of Governors of the Federal Reserve System 
(Board) has determined under section 4(c)(8) of the Bank Holding 
Company Act (12 U.S.C. 1843(c)(8)) to be so closely related to banking 
or controlling or managing banks as to be a proper incident thereto, 
and activities that the Board has found under section 4(c)(13) of the 
BHCA (12 U.S.C. 1843(c)(13)) to be usual in connection with the 
transaction of banking or other financial operations abroad.
    The proposal also recognizes that the Secretary of the Treasury (in 
consultation with the Board) may determine that additional activities 
are financial in nature or incidental to a financial activity and 
therefore are permissible for a financial subsidiary. The Act provides 
specific procedures, not detailed in this proposal, for coordination 
between the Secretary of the Treasury and the Board in defining 
financial and incidental activities under this provision.
    Section 5.39(f) sets forth activities that the Act specifically 
denotes as impermissible for financial subsidiaries. These activities 
include providing annuities and certain types of insurance as 
principal, real estate development or real estate investment (unless 
otherwise expressly authorized by law), and certain activities 
described in new sections 4(k)(4)(H) and (I) of the Bank Holding 
Company Act of 1956 (BHCA) as added by the GLBA. At the end of the 
five-year period beginning on November 12, 1999, however, the Board and 
the Secretary of the Treasury may find by regulation that the 
activities described in section 4(k)(4)(H) of the BHCA are permissible 
for financial subsidiaries.
Qualifications
    Section 5.39(g) contains three conditions that a national bank must 
satisfy to acquire control of, or hold an interest in, a financial 
subsidiary. First, the national bank and each of its depository 
institution affiliates must be ``well capitalized'' and ``well 
managed.'' Those terms are defined in proposed Sec. 5.39(d) consistent 
with their definitions in the GLBA. Second, the aggregate consolidated 
total assets of all financial subsidiaries of the bank may not exceed 
the lesser of 45 percent of the consolidated total assets of the parent 
bank or $50 billion. The $50 billion limit is to be adjusted according 
to an indexing mechanism established jointly by the Secretary of the 
Treasury and the Board. Third, a bank that is one of the 100 largest 
insured banks, as determined by the bank's consolidated total assets at 
the end of the calendar year, must have at least one issue of 
outstanding ``eligible debt'' that is rated in one of the three highest 
investment grade rating categories by a nationally recognized 
statistical rating organization (eligible debt requirement). If a 
national bank is one of the second 50 of the 100 largest insured banks, 
the proposal permits the bank to satisfy the eligible debt requirement 
if it meets alternative criteria to be set jointly through regulation 
by the Secretary of the Treasury and the Board. The eligible debt 
requirement does not apply to a bank that intends to acquire control 
of, or hold an interest in, a financial subsidiary that engages solely 
in activities in an agency capacity.
    Consistent with the GLBA, the OCC also prohibits a national bank 
from commencing any expanded financial activity pursuant to section 
5136A(a) of the Revised Statutes, or directly or indirectly acquiring 
control of a company engaged in any expanded financial activity under 
section 5136A(a) of the Revised Statutes, if the bank or any of its 
insured depository institution affiliates received a Community 
Reinvestment Act (CRA) rating of less than ``satisfactory record of 
meeting community credit needs'' on its most recent CRA examination 
prior to when the bank files a notice under Sec. 5.39.
Safeguards
    A national bank that establishes or maintains a financial 
subsidiary must comply with six conditions. First, for purposes of 
determining regulatory capital, the bank must deduct the aggregate 
amount of its outstanding equity investment, including retained 
earnings, in its financial subsidiaries from the assets and tangible 
equity of the bank. The term ``tangible equity'' is defined in 
Sec. 5.39(d) by reference to the definition of that term in 12 CFR 
6.2(g). The bank also may not consolidate its assets and liabilities 
with those of the financial subsidiary for purposes of determining 
compliance with regulatory capital requirements.
    Second, any published financial statement of the national bank 
must, in addition to providing information prepared in accordance with 
generally accepted accounting principles, separately present financial 
information for the bank in a manner that reflects these capital 
adjustments. The third and fourth conditions require the bank to 
establish reasonable policies and procedures to preserve the separate 
corporate identity and limited liability of the bank and its financial 
subsidiaries, and to establish procedures to identify and manage 
financial and operational risks within the bank and the financial 
subsidiary that adequately protect the bank from these risks.
    The fifth condition provides that a financial subsidiary is deemed 
a

[[Page 3159]]

subsidiary of a bank holding company and not a subsidiary of the bank 
for purposes of the anti-tying prohibitions set forth in 12 U.S.C. 1971 
et seq.
    Finally, consistent with the Act, Sec. 5.39(h)(5) provides that 
sections 23A and 23B of the Federal Reserve Act (FRA) (12 U.S.C. 371c 
and 371c-1) apply to certain transactions between a bank and its 
financial subsidiary. The Act effected this coverage by deeming a 
financial subsidiary to be an affiliate of the bank and not a 
subsidiary of the bank for FRA section 23A and 23B purposes. The GLBA 
exempts from the 10 percent quantitative limit of FRA section 
23A(a)(1)(A), however, covered transactions between a bank and any 
individual financial subsidiary of the bank. Thus, covered transactions 
between a bank and any one financial subsidiary may exceed 10 percent 
of the bank's capital and surplus, but are subject to the 20 percent 
aggregate limit on transactions with all affiliates found in FRA 
section 23A(a)(1)(B). The proposal also provides that, for purposes of 
FRA sections 23A and 23B, the bank's investment in a financial 
subsidiary does not include retained earnings of the financial 
subsidiary. However, investment in the securities of a financial 
subsidiary of a bank by an affiliate of the bank are considered to be 
an investment in those securities by the bank; and any extension of 
credit by an affiliate of a bank to a financial subsidiary of the bank 
may be considered an extension of credit by the bank to the financial 
subsidiary if the Board determines that this treatment is necessary or 
appropriate to prevent evasions of the FRA or the GLBA.
Procedures
    The proposal provides a streamlined process for national banks 
seeking OCC approval to acquire control of, or hold an interest in, a 
financial subsidiary, or to commence an expanded financial activity in 
an existing financial subsidiary. This process is intended to 
accommodate individual bank preferences by permitting two alternative 
procedures for obtaining OCC approval.
    Under the first option, a national bank may file a ``Financial 
Subsidiary Certification'' with the OCC listing the bank's depository 
institution affiliates and certifying that the bank and each of those 
affiliates is well capitalized and well managed. Thereafter, at such 
time as the bank seeks OCC approval to acquire control of, or hold an 
interest in, a new financial subsidiary, or commence a new expanded 
financial activity authorized under section 5136A in a financial 
subsidiary, the bank may file a written notice with the appropriate 
district office at the time of acquiring control of, or holding an 
interest in, a financial subsidiary, or commencing a new expanded 
financial activity authorized pursuant to section 5136A of the Revised 
Statutes in an existing financial subsidiary. The written notice must 
be labeled ``Financial Subsidiary Notice,'' must state that the bank's 
certification remains valid, and describe the activity or activities to 
be performed in the financial subsidiary as well as cite to the 
specific authority permitting the expanded financial activity to be 
conducted by a financial subsidiary. (Where the authority relied on is 
an agency order or interpretation under section 4(c)(8) or 4(c)(13), 
respectively, of the Bank Holding Company Act of 1956, a copy of the 
order or interpretation should be attached.) The written notice also 
must demonstrate that the aggregate consolidated total assets of all 
financial subsidiaries of the national bank do not exceed the lesser of 
45% of the bank's consolidated total assets or $50 billion, that the 
bank will remain well capitalized after making the necessary capital 
adjustments, and, if applicable, that the bank meets the eligible debt 
requirement.
    Alternatively, a bank may choose to seek approval by filing a 
combined certification and notification with the appropriate OCC 
district office at least five business days prior to acquiring control 
of, or an interest in, a financial subsidiary, or commencing a new 
expanded financial activity authorized pursuant to section 5136A of the 
Revised Statutes in an existing financial subsidiary. This type of 
notice would combine the information from the certification and notice 
described above, and should be labeled ``Financial Subsidiary 
Certification and Notice.''
    Because the GLBA specifically states that OCC approval shall be 
based solely upon specific statutory factors, the OCC believes its 
approval may occur upon a bank's submission of information 
demonstrating satisfaction of these statutory criteria. Thus, under 
both of the proposed alternatives, OCC approval occurs upon filing the 
requisite information within the time frames provided. Appropriate 
remedies exist under current law and OCC regulations to address any 
situations where a certification or notification is inaccurate, e.g., 
Sec. 5.13(h) and 18 U.S.C. 1001.
Failure To Continue To Meet Certain Requirements
    A national bank and its affiliated depository institutions must 
continue to satisfy the qualification requirements in Sec. 5.39(g)(1) 
and (2) (well managed, well capitalized, and asset size requirements 
applicable to its financial subsidiaries) and the conditions in 
Sec. 5.39(h)(1), (2), (3), and (4) after the bank acquires control of, 
or an interest in, a financial subsidiary. A national bank that fails 
to continue to satisfy these requirements is subject to several 
procedural requirements and OCC remedies. For example, the OCC must 
give notice to the bank promptly upon determining that the bank does 
not continue to meet these requirements. Under the proposal, the bank 
is deemed to have received this notice three days after mailing of the 
letter by the OCC. Not later than 45 days after receipt of this notice, 
or any additional time as the OCC may permit, the bank must execute an 
agreement with the OCC to comply with these requirements.
    At any time until the conditions described in the notice are 
corrected, the OCC may impose limitations on the conduct or activities 
of the national bank or any subsidiary of the national bank that the 
OCC determines appropriate under the circumstances and consistent with 
the purposes of section 5136A of the Revised Statutes. The OCC may 
require the bank to divest control of a financial subsidiary if the 
bank does not correct the conditions giving rise to the notice within 
180 days after its receipt of the notice.
    A national bank that does not meet the eligible debt requirement 
may not purchase, directly or through a subsidiary, any additional 
equity capital of any financial subsidiary. The term ``equity capital'' 
is defined in Sec. 5.39(j)(2), consistent with the GLBA, to include, in 
addition to any equity investment, any debt instrument issued by a 
financial subsidiary if the instrument qualifies as capital of the 
subsidiary under Federal or State law, regulation, or interpretation 
applicable to the subsidiary.
    Finally, as required by the GLBA, the OCC will prohibit a national 
bank from commencing an expanded financial activity pursuant to section 
5136A of the Revised Statutes, or directly or indirectly acquiring 
control of a company engaged in such activities, if the national bank 
or any of its insured depository institution affiliates received a CRA 
rating of less than ``satisfactory record of meeting community credit 
needs'' on its most recent CRA examination.

Operating subsidiaries (Revised Sec. 5.34)

    Section 5.34 authorizes national banks to engage through operating 
subsidiaries in activities that are part of,

[[Page 3160]]

or incidental to, the business of banking. The proposal changes 
Sec. 5.34 to be more consistent with the procedural requirements of new 
Sec. 5.39, to remove unnecessary regulatory burden, and to make other 
adjustments that are necessary in light of the GLBA.
    Current Sec. 5.34 groups permissible operating subsidiary 
activities into three categories based on the novelty and risk of the 
activity and prescribes a different approval process depending on the 
category in which the activity is placed. For example, an adequately 
capitalized or well capitalized bank that is not in ``troubled 
condition,'' as defined in Sec. 5.51, may establish or acquire an 
operating subsidiary to engage in certain activities listed in 
Sec. 5.34, by providing the OCC a written notice within 10 days after 
commencing the activity. In addition, a bank that qualifies as an 
``eligible bank'' may obtain expedited approval of an application to 
establish or acquire an operating subsidiary that will engage in 
certain additional activities listed in Sec. 5.34.
    This proposal changes several of the procedural requirements for 
national banks that wish to conduct activities through an operating 
subsidiary. First, the proposal consolidates and moves activities 
formerly listed in the expedited processing list into the notice 
category. Second, the proposal expands the list of notice activities to 
include other activities that the OCC has found to be part of, or 
incidental to, the business of banking \1\ and has approved on a 
regular basis for national bank operating subsidiaries. Finally, given 
the expansion of the notice category, a national bank using the notice 
procedure must be well capitalized and well managed; the requirement 
that the bank not be in a ``troubled condition'' within the meaning of 
Sec. 5.51 is removed to conform more closely to the financial 
subsidiary requirements in the GLBA.
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    \1\ This is not a complete list of activities that are part of, 
or incidental to, the business of banking. The OCC will review new 
proposals for activities that may be permissible under this section 
pursuant to the application procedures contained in Sec. 5.34.
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    The proposal also clarifies that ``authorized products'' referenced 
in the GLBA are activities permissible for operating subsidiaries under 
Sec. 5.34. The term ``authorized product'' is defined at 
Sec. 5.34(d)(1) to include certain insurance products that national 
banks may provide as principal pursuant to the GLBA because, as of 
January 1, 1999, either the OCC had determined that national banks 
could provide the product as principal or national banks were lawfully 
providing the product as principal, and as of that date no court had 
issued a final judgment overturning the OCC's determination that 
national banks could provide the product as principal. The term 
``authorized product'' does not include title insurance or an annuity 
the income of which is subject to treatment under section 72 of the 
Internal Revenue Code of 1986 (26 U.S.C. 72). However, providing title 
insurance as principal is a permissible activity for an operating 
subsidiary if the national bank or subsidiary thereof was actively and 
lawfully underwriting title insurance before November 12, 1999, and no 
affiliate of the national bank (other than a subsidiary) provides 
insurance as principal.
    The proposal also revises Sec. 5.34 to conform to other changes 
made by the GLBA. First, the OCC has removed former Sec. 5.34(f) from 
the rule because the GLBA makes clear that an operating subsidiary may 
engage only in activities that are permissible for the parent bank to 
engage in directly, and that an operating subsidiary conducts its 
activities subject to the same terms and conditions that apply to the 
conduct of those activities by its parent bank. Second, the proposal 
removes the former statement that ``each operating subsidiary is 
subject to examination and supervision by the OCC'' and clarifies that 
the OCC's authority to examine and take action against certain 
subsidiaries is subject to the limitations and requirements of new 
section 45 of the Federal Deposit Insurance Act and section 115 of the 
GLBA. The purpose of this change is to recognize the provisions in the 
GLBA relating to functional regulation of certain types of bank 
subsidiaries and affiliates.

Comment Solicitation

    The OCC requests comment on all aspects of this proposal, including 
the specific issues that follow.
    The OCC seeks comment on the impact of this proposal on community 
banks. The OCC recognizes that community banks operate with more 
limited resources than larger institutions and may present a different 
risk profile. Thus, the OCC specifically requests comment on the impact 
of the proposal on community banks' current resources and available 
personnel with the requisite expertise, and whether the goals of the 
proposal could be achieved, for community banks, through an alternative 
approach.
    Second, while as a matter of corporate law a subsidiary of a branch 
or agency of a foreign bank would technically be a subsidiary of the 
parent bank, for regulatory purposes the company could be treated as if 
it were a subsidiary of the branch or agency itself, provided the 
company is in fact operated in that manner. Thus, the OCC also seeks 
comment on whether national treatment principles would be furthered if 
Federal branches and agencies of foreign banks are authorized (as are 
national banks) to invest in financial and operating subsidiaries, and, 
if so, how the applicable qualification standards would be applied.
    Finally, the OCC requests comment on whether the proposal is 
written clearly and is easy to understand. On June 1, 1998, the 
President issued a Memorandum directing each agency in the Executive 
branch to write its rules in plain language. This directive applies to 
all new proposed and final rulemaking documents issued on or after 
January 1, 1999. In addition, Public Law 106-102 requires each federal 
agency to use plain language in all proposed and final rules published 
after January 1, 2000. The OCC invites comment on how to make this rule 
clearer. For example, you may wish to discuss:
    (1) Whether we have organized the material to suit your needs;
    (2) Whether the requirements of the rule are clear; or
    (3) Whether there is something else we could do to make the rule 
easier to understand.

Regulatory Flexibility Act Analysis

    Pursuant to section 605(b) of the Regulatory Flexibility Act, the 
Comptroller of the Currency certifies that this proposal will not have 
a significant economic impact on a substantial number of small 
entities. The principal effect of the rule is to provide procedures for 
implementing section 121 of the GLBA for national banks that wish to 
engage in activities through financial subsidiaries. The proposal also 
would reduce regulatory burden by increasing the number of activities 
that are subject to notice requirements rather than application 
requirements where a national bank intends to engage in activities 
through an operating subsidiary.

Unfunded Mandates Reform Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 
104-4 (Unfunded Mandates Act) requires that an agency prepare a 
budgetary impact statement before promulgating a rule that includes a 
Federal mandate that may result in expenditure by State, local, and 
tribal governments, in the aggregate, or by the private sector, of $100 
million or more in any one year. If a budgetary impact statement is 
required, section 205 of the

[[Page 3161]]

Unfunded Mandates Act also requires an agency to identify and consider 
a reasonable number of regulatory alternatives before promulgating a 
rule. The OCC has determined that the proposal will not result in 
expenditures by State, local, or tribal governments or by the private 
sector of $100 million or more. Accordingly, the OCC has not prepared a 
budgetary impact statement or specifically addressed the regulatory 
alternatives considered.

Executive Order 12866 Determination

    The Comptroller of the Currency has determined that this rule does 
not constitute a ``significant regulatory action'' for the purposes of 
Executive Order 12866.

Paperwork Reduction Act

    The collection of information requirements in this proposal are 
found in 12 CFR 5.34(b) and (e) and 12 CFR 5.39(b) and (i). These 
collection of information requirements have been reviewed and approved 
by the Office of Management and Budget in accordance with the emergency 
review procedures of the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507(j)) under OMB Control Number 1557-0215.

List of Subjects in 12 CFR Part 5

    Administrative practice and procedure, National banks, Reporting 
and recordkeeping requirements, Securities.

Authority and Issuance

    For the reasons set forth in the preamble, the OCC proposes to 
amend Chapter I of Title 12 as follows:

PART 5--RULES, POLICIES, AND PROCEDURES FOR CORPORATE ACTIVITIES

    1. The authority citation for Part 5 is revised to read as follows:

    Authority:  12 U.S.C. 1 et seq., 93a; and section 5136A of the 
Revised Statutes (12 U.S.C. 24a).

    2. Section 5.34 is revised to read as follows:


Sec. 5.34  Operating subsidiaries.

    (a) Authority. 12 U.S.C. 24(Seventh), 93a, and section 5136A of the 
Revised Statutes (12 U.S.C. 24a).
    (b) Licensing requirements. A national bank must file a notice or 
application as prescribed in this section to acquire or establish an 
operating subsidiary, or to commence a new activity in an existing 
operating subsidiary.
    (c) Scope. This section sets forth authorized activities and 
application or notice procedures for national banks engaging in 
activities through an operating subsidiary. This section does not apply 
to financial subsidiaries authorized under Sec. 5.39.
    (d) Definitions. For purposes of this Sec. 5.34:
    (1) Authorized product means a product that would be defined as 
insurance under section 302(c) of the Gramm-Leach-Bliley Act (Public 
Law 106-102, 113 Stat. 1338, 1407) (GLBA) that, as of January 1, 1999, 
the OCC had determined in writing that national banks may provide as 
principal or national banks were in fact lawfully providing the product 
as principal, and as of that date no court of relevant jurisdiction 
had, by final judgment, overturned a determination by the OCC that 
national banks may provide the product as principal. An authorized 
product does not include title insurance, or an annuity contract the 
income of which is subject to treatment under section 72 of the 
Internal Revenue Code of 1986 (26 U.S.C. 72).
    (2) Well capitalized means the capital level described in 12 CFR 
6.4(b)(1).
    (3) Well managed means, unless otherwise determined in writing by 
the OCC:
    (i) The national bank has received a composite rating of 1 or 2 
under the Uniform Financial Institutions Rating System in connection 
with its most recent examination; or
    (ii) In the case of any national bank that has not been examined, 
the existence and use of managerial resources that the OCC determines 
are satisfactory.
    (e) Standards and requirements--(1) Authorized activities. A 
national bank may conduct in an operating subsidiary activities that 
are permissible for a national bank to engage in directly either as 
part of, or incidental to, the business of banking, as determined by 
the OCC, or otherwise under other statutory authority, including:
    (i) Providing authorized products as principal; or
    (ii) Providing title insurance as principal if the national bank or 
subsidiary thereof was actively and lawfully underwriting title 
insurance before November 12, 1999, and no affiliate of the national 
bank (other than a subsidiary) provides insurance as principal. A 
subsidiary may not provide title insurance as principal if the state 
had in effect before November 12, 1999, a law which prohibits any 
person from underwriting title insurance with respect to real property 
in that state.
    (2) Qualifying subsidiaries. An operating subsidiary in which a 
national bank may invest includes a corporation, limited liability 
company, or similar entity if the parent bank owns more than 50 percent 
of the voting (or similar type of controlling) interest of the 
operating subsidiary; or the parent bank otherwise controls the 
operating subsidiary and no other party controls more than 50 percent 
of the voting (or similar type of controlling) interest of the 
operating subsidiary. However, the following subsidiaries are not 
operating subsidiaries subject to this section:
    (i) A subsidiary in which the bank's investment is made pursuant to 
specific authorization in a statute or OCC regulation (e.g., a bank 
service company under 12 U.S.C. 1861 et seq. or a financial subsidiary 
under section 5136A of the Revised Statutes); and
    (ii) A subsidiary in which the bank has acquired, in good faith, 
shares through foreclosure on collateral, by way of compromise of a 
doubtful claim, or to avoid a loss in connection with a debt previously 
contracted.
    (3) Examination and supervision. An operating subsidiary conducts 
activities authorized under this section subject to the same terms and 
conditions that apply to the conduct of such activities by its parent 
national bank. If, upon examination, the OCC determines that the 
operating subsidiary is operating in violation of law, regulation, or 
written condition, or in an unsafe or unsound manner or otherwise 
threatens the safety and soundness of the bank, the OCC will direct the 
bank or operating subsidiary to take appropriate remedial action, which 
may include requiring the bank to divest or liquidate the operating 
subsidiary, or discontinue specified activities. OCC authority under 
this paragraph is subject to the limitations and requirements of 
section 45 of the Federal Deposit Insurance Act and section 115 of the 
Gramm-Leach-Bliley Act.
    (4) Consolidation of figures. Pertinent book figures of the parent 
bank and its operating subsidiary shall be combined for the purpose of 
applying statutory limitations when combination is needed to effect the 
intent of the statute, e.g., for purposes of 12 U.S.C. 56, 60, 84, and 
371d.
    (5) Procedures--(i) Application required. (A) Except as provided in 
paragraph (e)(5)(iv) or (e)(5)(vi) of this section, a national bank 
that intends to acquire or establish an operating subsidiary, or to 
perform a new activity in an existing operating subsidiary, must first 
submit an application to, and receive approval from, the OCC. The 
application must include a complete description of the bank's 
investment in the subsidiary, the proposed activities of the 
subsidiary, the organizational structure and management of the

[[Page 3162]]

subsidiary, the relations between the bank and the subsidiary, and 
other information necessary to adequately describe the proposal. It 
also must state whether the bank intends to conduct any activity of the 
operating subsidiary at a location other than the main office or a 
previously approved branch of the bank. The OCC may require the 
applicant to submit a legal analysis if the proposal is novel, 
unusually complex, or raises substantial unresolved legal issues. In 
these cases, the OCC encourages applicants to have a pre-filing meeting 
with the OCC.
    (B) A national bank must file an application and obtain prior 
approval before acquiring or establishing an operating subsidiary, or 
performing a new activity in an existing subsidiary, if the bank 
controls the subsidiary but owns 50 percent or less of the voting (or 
similar type of controlling) interest of the subsidiary. These 
applications are not subject to the filing exemption in paragraph 
(e)(5)(vi) of this section and are not eligible for the notice 
procedures in paragraph (e)(5)(iv) of this section.
    (ii) Exceptions to rules of general applicability. Sections 5.8, 
5.10, and 5.11 do not apply to this section. However, if the OCC 
concludes that an application presents significant and novel policy, 
supervisory, or legal issues, the OCC may determine that some or all 
provisions in Secs. 5.8, 5.10, and 5.11 apply.
    (iii) OCC review and approval. The OCC reviews a national bank's 
application to determine whether the proposed activities are legally 
permissible and to ensure that the proposal is consistent with safe and 
sound banking practices and OCC policy and does not endanger the safety 
or soundness of the parent national bank. As part of this process, the 
OCC may request additional information and analysis from the applicant.
    (iv) Notice process for certain activities. A national bank that is 
``well capitalized'' and ``well managed'' may acquire or establish an 
operating subsidiary, or perform a new activity in an existing 
operating subsidiary, by providing the appropriate district office 
written notice within 10 days after acquiring or establishing the 
subsidiary, or commencing the activity, if the activity is listed in 
paragraph (e)(5)(v) of this section. The written notice must include a 
complete description of the bank's investment in the subsidiary and of 
the activity conducted and a representation and undertaking that the 
activity will be conducted in accordance with OCC policies contained in 
guidance issued by the OCC regarding the activity. Any bank receiving 
approval under this paragraph is deemed to have agreed that the 
subsidiary will conduct the activity in a manner consistent with 
published OCC guidance.
    (v) Activities eligible for notice. The following activities 
qualify for the notice procedures, provided the activity is conducted 
pursuant to the same terms and conditions as would be applicable if the 
activity was being conducted directly by a national bank:
    (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;
    (B) Providing services to or for the bank or its affiliates, 
including accounting, auditing, appraising, advertising and public 
relations, and financial advice and consulting;
    (C) Making loans or other extensions of credit, and selling money 
orders, savings bonds, and travelers checks;
    (D) Purchasing, selling, servicing, or warehousing loans or other 
extensions of credit, or interests therein;
    (E) Providing courier services between financial institutions;
    (F) Providing management consulting, operational advice, and 
services for other financial institutions;
    (G) Providing check guaranty and verification services;
    (H) 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;
    (I) Acting as investment adviser 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;
    (J) Providing tax planning and preparation services;
    (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;
    (L) Underwriting credit life insurance;
    (M) Leasing of personal property and acting as an agent or adviser 
in leases for others;
    (N) Providing securities brokerage or acting as a futures 
commission merchant, and providing related credit and other related 
services;
    (O) Underwriting, dealing, and making a market in bank permissible 
securities including asset backed securities;
    (P) Acting as an insurance agent or broker, including title 
insurance to the extent permitted under section 303 of the GLBA;
    (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 arrangement, the 
subsidiary assumes less than 50% of the aggregate insured risk covered 
by the 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;
    (R) Acting as a finder pursuant to 12 CFR 7.1002 to the extent 
permitted by published OCC precedents \1\;
---------------------------------------------------------------------------

    \1\ See, e.g., the OCC's monthly publication ``Interpretations 
and Actions.'' Beginning with the May 1996 issue, the OCC's web site 
provides access to electronic versions of Interpretations and 
Actions (www.occ.treas.gov).
---------------------------------------------------------------------------

    (S) Offering bank permissible correspondent services to others to 
the extent permitted by published OCC precedents;
    (T) Acting as agent or broker in the sale of fixed or variable 
annuities;
    (U) Offering debt cancellation agreements or debt suspension 
agreements;
    (V) Providing real estate settlement, closing, escrow and related 
services; or
    (W) Acting as a transfer or fiscal agent.
    (vi) No application or notice required. A national bank may acquire 
or establish an operating subsidiary without filing an application or 
providing notice to the OCC, if the bank is adequately capitalized or 
well capitalized and the:
    (A) Activities of the new subsidiary are limited to those 
activities previously reported by the bank in connection with the 
establishment or acquisition of a prior operating subsidiary;
    (B) Activities in which the new subsidiary will engage continue to 
be legally permissible for the subsidiary; and
    (C) Activities of the new subsidiary will be conducted in 
accordance with

[[Page 3163]]

any conditions imposed by the OCC in approving the conduct of these 
activities for any prior operating subsidiary of the bank.
    (vii) Fiduciary powers. 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 Sec. 5.26.
    3. A new Sec. 5.39 is added to subpart C to read as follows:


Sec. 5.39  Financial subsidiaries.

    (a) Authority. 12 U.S.C. 93a and section 121 of Public Law 106-102, 
113 Stat. 1338, 1373.
    (b) Approval requirements. A national bank must file a notice as 
prescribed in this section prior to acquiring a financial subsidiary or 
engaging in activities authorized pursuant to section 5136A(a)(2)(A)(i) 
of the Revised Statutes (12 U.S.C. 24a) through a financial subsidiary. 
When a financial subsidiary proposes to conduct a new activity 
permitted under Sec. 5.34, the bank shall follow the procedures in 
Sec. 5.34(e)(5) instead of paragraph (i) of this section.
    (c) Scope. This section sets forth authorized activities, approval 
procedures, and, where applicable, conditions for national banks 
engaging in activities through a financial subsidiary.
    (d) Definitions. For purposes of this Sec. 5.39:
    (1) Affiliate has the meaning set forth in section 2 of the Bank 
Holding Company Act of 1956 (12 U.S.C. 1841), except that the term 
``affiliate'' for purposes of paragraph (h)(5) of this section shall 
have the meaning set forth in sections 23A or 23B of the Federal 
Reserve Act (12 U.S.C. 371c and 371c-1), as applicable.
    (2) Appropriate Federal banking agency has the meaning set forth in 
section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813).
    (3) Company has the meaning set forth in section 2 of the Bank 
Holding Company Act of 1956 (12 U.S.C. 1841), and includes a limited 
liability company (LLC).
    (4) Control has the meaning set forth in section 2 of the Bank 
Holding Company Act of 1956 (12 U.S.C. 1841).
    (5) Eligible debt means unsecured long-term debt that is:
    (i) Not supported by any form of credit enhancement, including a 
guaranty or standby letter of credit; and
    (ii) 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.
    (6) Financial subsidiary means any company that is controlled by 
one or more insured depository institutions, other than a subsidiary 
that:
    (i) Engages solely in activities that national banks may engage in 
directly and that are conducted subject to the same terms and 
conditions that govern the conduct of these activities by national 
banks; or
    (ii) A national bank is specifically authorized to control by the 
express terms of a Federal statute (other than section 5136A of the 
Revised Statutes), and not by implication or interpretation, such as by 
section 25 of the Federal Reserve Act (12 U.S.C. 601-604a), section 25A 
of the Federal Reserve Act (12 U.S.C. 611-631), or the Bank Service 
Company Act (12 U.S.C. 1861 et seq.)
    (7) Insured depository institution has the meaning set forth in 
section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813).
    (8) Long term debt means any debt obligation with an initial 
maturity of 360 days or more.
    (9) Subsidiary has the meaning set forth in section 2 of the Bank 
Holding Company Act of 1956 (12 U.S.C. 1841).
    (10) Tangible equity has the meaning set forth in 12 CFR 6.2(g).
    (11) Well capitalized with respect to a depository institution 
means the capital level designated as ``well capitalized'' by the 
institution's appropriate Federal banking agency pursuant to section 38 
of the Federal Deposit Insurance Act (12 U.S.C. 1831o).
    (12) Well managed means:
    (i) Unless otherwise determined in writing by the appropriate 
Federal banking agency, the institution has received a composite rating 
of 1 or 2 under the Uniform Financial Institutions Rating System (or an 
equivalent rating under an equivalent rating system) in connection with 
the most recent examination or subsequent review of the depository 
institution and, at least a rating of 2 for management, if such a 
rating is given; or
    (ii) In the case of any depository institution that has not been 
examined by its appropriate Federal banking agency, the existence and 
use of managerial resources that the appropriate Federal banking agency 
determines are satisfactory.
    (e) Authorized activities. A financial subsidiary may engage in the 
following activities:
    (1) Activities that are financial in nature and activities 
incidental to a financial activity, authorized pursuant to 
5136A(a)(2)(A)(i) of the Revised Statutes (to the extent not otherwise 
permitted under paragraph (e)(2) of this section), including:
    (i) Lending, exchanging, transferring, investing for others, or 
safeguarding money or securities;
    (ii) Engaging as agent or broker in any state for purposes of 
insuring, guaranteeing, or indemnifying against loss, harm, damage, 
illness, disability, death, defects in title, or providing annuities as 
agent or broker;
    (iii) Providing financial, investment, or economic advisory 
services, including advising an investment company as defined in 
section 3 of the Investment Company Act (15 U.S.C. 80a-3);
    (iv) Issuing or selling instruments representing interests in pools 
of assets permissible for a bank to hold directly;
    (v) Underwriting, dealing in, or making a market in securities;
    (vi) Engaging in any activity that the Board of Governors of the 
Federal Reserve System 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 Board of Governors of the 
Federal Reserve System);
    (vii) Engaging, in the United States, in any activity that a bank 
holding company may engage in outside the United States and the Board 
of Governors of the Federal Reserve System has determined, under 
regulations prescribed or interpretations issued pursuant to section 
4(c)(13) of the Bank Holding Company Act of 1956 (BHCA) (12 U.S.C. 
1843(c)(13)) as in effect on November 11, 1999, to be usual in 
connection with the transaction of banking or other financial 
operations abroad; and
    (viii) Activities that the Secretary of the Treasury in 
consultation with the Board of Governors of the Federal Reserve System, 
as provided in section 5136A of the Revised Statutes, determines to be 
financial in nature or incidental to a financial activity; and
    (2) Activities that may be conducted by an operating subsidiary 
pursuant to Sec. 5.34.
    (f) Impermissible activities. A financial subsidiary may not engage 
as principal in the following activities:
    (1) Insuring, guaranteeing, or indemnifying against loss, harm, 
damage, illness, disability or death (except to the extent permitted 
under sections 302 or 303(c) of the Gramm-Leach-Bliley Act (GLBA), 113 
Stat. 1407-1409) or providing or issuing

[[Page 3164]]

annuities the income of which is subject to tax treatment under section 
72 of the Internal Revenue Code (26 U.S.C. 72);
    (2) Real estate development or real estate investment, unless 
otherwise expressly authorized by law; and
    (3) Activities authorized for bank holding companies by virtue of 
section 4(k)(4)(H) or (I) of the Bank Holding Company Act, except 
activities described in section 4(k)(4)(H) that may be permitted in 
accordance with section 122 of the GLBA, 113 Stat. 1381.
    (g) Qualifications. A national bank may control a financial 
subsidiary or hold an interest in a financial subsidiary if:
    (1) The national bank and each depository institution affiliate of 
the national bank are well capitalized and well managed;
    (2) The aggregate consolidated total assets of all financial 
subsidiaries of the national 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 Board of Governors of the Federal Reserve 
System); and
    (3) A national bank that 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, has at least one issue of outstanding 
eligible debt that is currently rated in one of the three highest 
investment grade rating categories by a nationally recognized 
statistical rating organization. If the national bank is one of the 
second 50 largest insured banks, it may either satisfy this requirement 
or satisfy alternative criteria the Secretary of the Treasury and the 
Board of Governors of the Federal Reserve System establish jointly by 
regulation. This paragraph (g)(3) does not apply if the financial 
subsidiary is engaged solely in activities in an agency capacity.
    (h) Safeguards. The following safeguards apply to a national bank 
that establishes or maintains a financial subsidiary:
    (1) For purposes of determining regulatory capital:
    (i) The national bank must deduct 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
    (ii) The national bank may not consolidate the assets and 
liabilities of a financial subsidiary with those of the bank;
    (2) Any published financial statement of the national bank shall, 
in addition to providing information prepared in accordance with 
generally accepted accounting principles, separately present financial 
information for the bank in the manner provided in paragraph (1) of 
this section;
    (3) The national bank must have reasonable policies and procedures 
to preserve the separate corporate identity and limited liability of 
the bank and the financial subsidiaries of the bank;
    (4) The national bank must have procedures for identifying and 
managing financial and operational risks within the bank and the 
financial subsidiary that adequately protect the national bank from 
such risks;
    (5) Sections 23A and 23B of the Federal Reserve Act (12 U.S.C. 371c 
and 371c-1) apply to transactions involving a financial subsidiary in 
the following manner:
    (i) A financial subsidiary shall be deemed to be an affiliate of 
the bank and shall not be deemed to be a subsidiary of the bank;
    (ii) The restrictions contained in section 23A(a)(1)(A) of the 
Federal Reserve Act shall not apply with respect to covered 
transactions between a bank and any individual financial subsidiary of 
the bank;
    (iii) The bank's investment in the financial subsidiary shall not 
include retained earnings of the financial subsidiary;
    (iv) 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; and
    (v) Any extension of credit by an affiliate of a bank to a 
financial subsidiary of the bank may be considered an extension of 
credit by the bank to the financial subsidiary if the Board of 
Governors of the Federal Reserve System determines that such treatment 
is necessary or appropriate to prevent evasions of the Federal Reserve 
Act or the Gramm-Leach-Bliley Act.
    (6) A financial subsidiary shall be deemed a subsidiary of a bank 
holding company and not a subsidiary of the bank for purposes of the 
anti-tying prohibitions set forth in 12 U.S.C. 1971 et seq.
    (i) Procedures to engage in activities through a financial 
subsidiary. A national bank that intends to acquire control of, or hold 
an interest in, a financial subsidiary, or to commence a new activity 
in an existing financial subsidiary, may obtain OCC approval through 
the procedures set forth in paragraph (i)(1) or (i)(2) of this section.
    (1) Certification with subsequent notice. (i) At any time, a 
national bank may file a ``Financial Subsidiary Certification'' with 
the appropriate district office listing the bank's depository 
institution affiliates and certifying that the bank and each of those 
affiliates is well capitalized and well managed.
    (ii) Thereafter, at such time as the bank seeks OCC approval to 
acquire control of, or hold an interest in, a new financial subsidiary, 
or commence a new activity authorized under section 5136A(a)(2)(A)(i) 
of the Revised Statutes in an existing subsidiary, the bank may file a 
written notice with the appropriate district office at the time of 
acquiring control of, or holding an interest in, a financial 
subsidiary, or commencing such activity in an existing subsidiary. The 
written notice must be labeled ``Financial Subsidiary Notice'' and 
must:
    (A) State that the bank's Certification remains valid;
    (B) Describe the activity or activities conducted by the financial 
subsidiary;
    (C) Cite the specific authority permitting the activity to be 
conducted by the financial subsidiary. (Where the authority relied on 
is an agency order or interpretation under section 4(c)(8) or 4(c)(13), 
respectively, of the Bank Holding Company Act of 1956, respectively, a 
copy of the order or interpretation should be attached);
    (D) Certify that the bank will be well capitalized after making 
adjustments required by paragraph (h)(1) of this section;
    (E) Demonstrate the aggregate consolidated total assets of all 
financial subsidiaries of the national bank do not exceed the lesser of 
45% of the bank's consolidated total assets or $50 billion; and
    (F) If applicable, certify that the bank meets the eligible debt 
requirement in paragraph (g)(3) of this section.
    (2) Combined certification and notice. A national bank may file a 
combined certification and notice with the appropriate district office 
at least five business days prior to acquiring control of, or holding 
an interest in, a financial subsidiary, or commencing a new activity 
authorized pursuant to section 5136A(a)(2)(A)(i) of the Revised 
Statutes in an existing subsidiary. The written notice must be labeled 
``Financial Subsidiary Certification and Notice'' and must:
    (A) List the bank's depository institution affiliates and certify 
that the bank and each depository institution affiliate of the bank is 
well capitalized and well managed;

[[Page 3165]]

    (B) Describe the activity or activities to be conducted in the 
financial subsidiary;
    (C) Cite the specific authority permitting the activity to be 
conducted by the financial subsidiary. (Where the authority relied on 
is an agency order or interpretation under section 4(c)(8) or 4(c)(13), 
respectively, of the Bank Holding Company Act of 1956, respectively, a 
copy of the order or interpretation should be attached);
    (D) Certify that the bank will remain well capitalized after making 
the adjustments required by paragraph (h)(1) of this section;
    (E) Demonstrate the aggregate consolidated total assets of all 
financial subsidiaries of the national bank do not exceed the lesser of 
45% of the bank's consolidated total assets or $50 billion; and
    (F) If applicable, certify that the bank meets the eligible debt 
requirement in paragraph (g)(3) of this section
    (3) Exceptions to rules of general applicability. Section 5.8, 
5.10, 5.11, and 5.13 do not apply to activities authorized under this 
section.
    (4) Community Reinvestment Act (CRA). A national bank may not apply 
under this paragraph (i) to commence a new activity authorized under 
section 5136A(a)(2)(A)(i) of the Revised Statutes, or directly or 
indirectly acquire control of a company engaged in any such activity, 
if the bank or any of its insured depository institution affiliates 
received a CRA rating of less than ``satisfactory record of meeting 
community credit needs'' on its most recent CRA examination prior to 
when the bank would file a notice under this section.
    (j) Failure to continue to meet certain qualification 
requirements--(1) Qualifications and safeguards. A national bank, or, 
as applicable, its affiliated depository institutions, must continue to 
satisfy the qualification requirements set forth in paragraphs (g)(1) 
and (2) of this section and the safeguards in paragraphs (h)(1), (2), 
(3) and (4) of this section following its acquisition of control of, or 
an interest in, a financial subsidiary. A national bank that fails to 
continue to satisfy these requirements will be subject to the following 
procedures and requirements:
    (i) The OCC shall give notice to the national bank promptly upon 
determining that the national bank does not continue to meet the 
requirements in paragraphs (g)(1) or (2) of this section or the 
safeguards in paragraphs (h)(1), (2), (3), or (4) of this section. The 
bank shall be deemed to have received such notice three business days 
after mailing of the letter by the OCC;
    (ii) Not later than 45 days after receipt of the notice under 
paragraph (j)(1)(i) of this section, or any additional time as the OCC 
may permit, the national bank shall execute an agreement with the OCC 
to comply with the requirements in paragraphs (g)(1) and (2) and 
(h)(1), (2), (3), and (4) of this section;
    (iii) The OCC may impose limitations on the conduct or activities 
of the national bank or any subsidiary of the national bank as the OCC 
determines appropriate under the circumstances and consistent with the 
purposes of section 5136A of the Revised Statutes; and
    (iv) The OCC may require a national bank to divest control of a 
financial subsidiary if the national bank does not correct the 
conditions giving rise to the notice within 180 days after receipt of 
the notice provided under paragraph (j)(1)(i) of this section.
    (2) Eligible debt rating requirement. A national bank that does not 
continue to meet the qualification requirement set forth in paragraph 
(g)(3) of this section may not directly or through a subsidiary, 
purchase or acquire any additional equity capital of any financial 
subsidiary until the bank meets the requirement in paragraph (g)(3) of 
this section. For purposes of this paragraph (j)(2), the term ``equity 
capital'' includes, in addition to any equity investment, any debt 
instrument issued by the financial subsidiary if the instrument 
qualifies as capital of the subsidiary under federal or state law, 
regulation, or interpretation applicable to the subsidiary.

    Dated: January 14, 2000.
John D. Hawke, Jr.,
Comptroller of the Currency.
[FR Doc. 00-1330 Filed 1-19-00; 8:45 am]
BILLIING CODE 4810-33-P


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