[Federal Register Volume 72, Number 127 (Tuesday, July 3, 2007)]
[Proposed Rules]
[Pages 36550-36584]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 07-3206]



[[Page 36549]]

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Part II





Department of the Treasury





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Office of the Comptroller of the Currency



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12 CFR Parts 1, 2, et al.



 Regulatory Review Amendments; Proposed Rule

Federal Register / Vol. 72 , No. 127 / Tuesday, July 3, 2007 / 
Proposed Rules

[[Page 36550]]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Parts 1, 2, 3, 4, 5, 7, 9, 10, 11, 12, 16, 19, 21, 22, 23, 
24, 26, 27, 28, 31, 32, 34, 37, and 40

[Docket ID OCC-2007-0008]
RIN 1557-AC79


Regulatory Review Amendments

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

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Office of the Comptroller of the Currency (OCC) is 
proposing to revise its rules in order to reduce unnecessary regulatory 
burden, to update certain rules, and to make certain technical, 
clarifying, and conforming changes to its regulations. This proposal 
results from the OCC's most recent review of its regulations to ensure 
that they effectively advance our mission to promote the safety and 
soundness of the national banking system, ensure that national banks 
can compete effectively in the financial services marketplace, and 
foster fairness and integrity in national banks' dealings with their 
customers, without imposing regulatory burden unnecessary to the 
achievement of those objectives. The proposal also furthers the 
purposes of the Economic Growth and Regulatory Paperwork Reduction Act 
of 1996, which, among other provisions, directs the OCC, to identify 
and, if appropriate, eliminate regulations that are outdated, 
unnecessary, or unduly burdensome.

DATES: Comments must be received by September 4, 2007.

ADDRESSES: You may submit comments by any of the following methods:
    <bullet> Federal eRulemaking Portal--``Regulations.gov'': Go to 
http://www.regulations.gov, select ``Comptroller of the Currency'' from 
the agency drop-down menu, then click ``Submit.'' In the ``Docket ID'' 
column, select ``OCC-2007-0008'' to submit or view public comments and 
to view supporting and related materials for this notice of proposed 
rulemaking. The ``User Tips'' link at the top of the Regulations.gov 
home page provides information on using Regulations.gov, including 
instructions for submitting or viewing public comments, viewing other 
supporting and related materials, and viewing the docket after the 
close of the comment period.
    <bullet> E-mail: <a href="/cdn-cgi/l/email-protection#6c1e090b1f420f0301010902181f2c030f0f42181e090d1f420b031a"><span class="__cf_email__" data-cfemail="0c7e696b7f226f6361616962787f4c636f6f22787e696d7f226b637a">[email protected]</span></a>.
    <bullet> Fax: (202) 874-4448.
    <bullet> Mail: Office of the Comptroller of the Currency, 250 E 
Street, SW., Mail Stop 1-5, Washington, DC 20219.
    <bullet> Hand Delivery/Courier: 250 E Street, SW., Attn: Public 
Information Room, Mail Stop 1-5, Washington, DC 20219.
    Instructions: You must include ``OCC'' as the agency name and 
``Docket Number OCC-2007-0008'' in your comment. In general, OCC will 
enter all comments received into the docket and publish them on 
Regulations.gov without change, including any business or personal 
information that you provide such as name and address information, e-
mail addresses, or phone numbers. Comments, including attachments and 
other supporting materials, received are part of the public record and 
subject to public disclosure. Do not enclose any information in your 
comment or supporting materials that you consider confidential or 
inappropriate for public disclosure.
    You may review comments and other related materials by any of the 
following methods:
    <bullet> Viewing Comments Electronically: Go to http://www.regulations.gov, select ``Comptroller of the Currency'' from the 
agency drop-down menu, then click ``Submit.'' In the ``Docket ID'' 
column, select ``OCC-2007-0008'' to view public comments for this 
notice of proposed rulemaking.
    <bullet> Viewing Comments Personally: You may personally inspect 
and photocopy comments at the OCC's Public Information Room, 250 E 
Street, SW., Washington, DC. You can make an appointment to inspect 
comments by calling (202) 874-5043.
    <bullet> Docket: You may also view or request available background 
documents and project summaries using the methods described above.

FOR FURTHER INFORMATION CONTACT: Stuart E. Feldstein, Assistant 
Director, Legislative and Regulatory Activities, (202) 874-5090 and 
Heidi Thomas, Special Counsel, Legislative and Regulatory Activities, 
(202) 874-5090, Office of the Comptroller of the Currency, 250 E Street 
SW., Washington, DC 20219. In addition, you may also contact the 
following OCC staff for further information regarding specific 
amendments: licensing/corporate applications-related amendments: 
Colleen Coughlin, Senior Licensing Analyst, Licensing Activities 
Division, (202) 874-4465, Jan Kalmus, NBE-Senior Licensing Analyst, 
202-874-4608, and Yoo Jin Na, Licensing Analyst, Licensing Activities 
Division, 202-874-4604; electronic banking-related amendments: Aida 
Plaza Carter, Director, Bank Information Technology, (202) 874-4593, 
Office of the Comptroller of the Currency, 250 E Street SW., 
Washington, DC 20219.

SUPPLEMENTARY INFORMATION:

Introduction

    The OCC seeks to ensure that our regulations effectively advance 
our mission to promote the safety and soundness of the national banking 
system, ensure that national banks can compete effectively in the 
financial services marketplace, and foster fairness and integrity in 
national banks' dealings with their customers, without imposing 
regulatory burden unnecessary to the achievement of those objectives. 
Unnecessary regulatory burden not only imposes costs on banks that may 
translate into higher prices for consumers, but also can hamper 
competition and lead to inefficient use of resources.
    The OCC regularly reviews its regulations to identify opportunities 
to streamline regulations or regulatory processes. This proposal 
results from our most recent review. Moreover, the proposal furthers 
the purposes of section 2222 of the Economic Growth and Regulatory 
Paperwork Reduction Act of 1996 (EGRPRA),\1\ which directs the OCC, 
along with the other agencies that are members of the Federal Financial 
Institutions Examination Council, to identify regulations that are 
outdated, unnecessary, or unduly burdensome, and to eliminate them if 
appropriate.\2\ Finally, the proposal revises certain of our 
regulations to conform with the statutory changes made by the Financial 
Services Regulatory Relief Act of 2006 (FSRRA), which was enacted on 
October 13, 2006.\3\
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    \1\ See EGRPRA, Pub. L. 104-208, Sec.  2222, 110 Stat. 3009-394, 
3009-314-315 (Sept. 30, 1996), codified at 12 U.S.C. 3311.
    \2\ Pursuant to EGRPRA's regulatory review requirement, the OCC, 
together with the Board of Governors of the Federal Reserve System 
(Federal Reserve Board), the Federal Deposit Insurance Corporation 
(FDIC), and the Office of Thrift Supervision (OTS), has published 
six notices seeking comment on ways to reduce unnecessary regulatory 
burden and has conducted outreach meetings with bankers and consumer 
groups. For additional information about the agencies' EGRPRA 
review, see http://www.EGRPRA.gov.
    \3\ Pub. L. 109-351, 120 Stat. 1966 (Oct. 13, 2006).
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    To reduce or eliminate unnecessary regulatory burden, the OCC is 
proposing amendments to a variety of regulations that would: (1) 
Provide additional flexibility with respect to certain aspects of 
national banks' structure and activities; (2) streamline procedures 
required in connection with particular types of changes in structure 
and the

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conduct of certain activities; (3) incorporate into our rules 
interpretive opinions that the OCC has previously published; (4) 
harmonize the OCC's rules with rules issued by other Federal agencies 
that apply to national banks; (5) eliminate inconsistencies in certain 
of our rules; (6) update our rules to reflect recent statutory changes; 
and (7) make technical and conforming amendments to our rules to 
improve their clarity and consistency.
    The most significant of these amendments include the following:
    <bullet> Amendments to part 1, which pertain to investment 
securities, to provide the OCC with additional flexibility in 
administering part 1 as investment products evolve, codify existing 
precedent, and clarify applicable standards.
    <bullet> Amendments to part 5, which governs national banks' 
corporate activities, to:
    [cir] Codify prior OCC interpretive opinions recognizing that 
national bank operating subsidiaries may take the form of limited 
partnerships;
    [cir] Update the standards the OCC uses to determine that a 
national bank exercises control over its operating subsidiary to 
address changes in relevant accounting principles;
    [cir] Clarify when a national bank may file an after-the-fact 
notice to establish or acquire an operating subsidiary and when the 
bank must file an application; and
    [cir] Expand the list of operating subsidiary activities eligible 
for after-the-fact notice.
    <bullet> Amendments to part 5 to eliminate multiple, repetitive 
applications when a national bank opens an intermittent branch to 
provide branch banking services for one or more limited periods of time 
each year at a specified site during a specified recurring event, such 
as during a college registration period or a State fair.
    <bullet> Amendments to part 7, which pertains to national banks' 
activities and operations, to provide national banks greater 
flexibility to facilitate customers' financial transactions by issuing 
financial guarantees, provided the guarantees are reasonably 
ascertainable in amount and comply with applicable law.
    <bullet> Amendments to part 7, to codify OCC electronic banking 
precedent and adapt the OCC's rules to certain current developments.
    <bullet> Amendments to part 16, the OCC's securities offering 
disclosure rules, to eliminate unnecessary filing requirements and 
clarify the exemptions to the OCC's registration requirements for 
certain transactions.
    <bullet> Amendments to part 34, which pertains to real estate 
lending and appraisals, to provide national banks with additional 
flexibility in selecting indices from which adjustments to interest 
rates in adjustable rate mortgages (ARMs) are derived.
    We also propose to make certain technical and conforming amendments 
to our rules, including:
    <bullet> Changes to part 4 (the OCC's organizational rules) and 
part 5 (corporate application requirements for national banks) to 
reflect the OCC's most current organizational structure.
    <bullet> Changes to conform the OCC's regulations--at parts 5 
(corporate activities), 23 (leasing), 31 (extensions of credit to 
insiders and transactions with affiliates), and 32 (lending limits)--to 
Regulation W issued by the Board of Governors of the Federal Reserve 
System (Federal Reserve Board),\4\ which governs transactions between 
Federal Reserve member banks and their affiliates and implements 
sections 23A and 23B of the Federal Reserve Act.\5\
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    \4\ 12 CFR part 223.
    \5\ 12 U.S.C. 371c and 371c-1.
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    <bullet> Amendments to part 9 (fiduciary activities of national 
banks) and part 12 (Securities Exchange Act disclosure rules) to 
reflect changes in certain regulations adopted by the Securities and 
Exchange Commission (SEC).
    <bullet> Amendments to part 31 to remove an obsolete interpretation 
relating to loans to third parties secured by both affiliate-issued 
securities and nonaffiliate collateral.
    <bullet> Amendments to parts 1, 2, 3, 5, 10, 11, 16, 19, 21, 22, 
26, 27, 28, and 40 to implement section 8 of the 2004 District of 
Columbia Omnibus Authorization Act,\6\ which removed the OCC as the 
appropriate Federal banking agency for financial institutions 
established under the Code of Law for the District of Columbia (DC 
banks) and substituted the FDIC or the Federal Reserve Board, as 
appropriate to the bank's charter type.\7\
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    \6\ Pub. L. 108-386, 118 Stat. 2228 (2004) (the DC Bank Act). 
The DC Bank Act took effect on October 30, 2004.
    \7\ Under the DC Bank Act, the FDIC is the appropriate Federal 
banking agency for an insured bank chartered under District of 
Columbia law that is not a member of the Federal Reserve System, and 
the Federal Reserve Board is the appropriate Federal banking agency 
for a bank chartered under District of Columbia law that is a member 
of the Federal Reserve System, whether or not insured. Thus, while 
DC banks are no longer covered by these OCC regulations, they are 
subject to comparable regulatory regimes administered by the FDIC or 
the Federal Reserve Board.
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    <bullet> Amendments to conform our regulations to the changes made 
by the FSRRA, including:
    [cir] Amendments to part 5 that simplify a national bank's 
authority to pay a dividend and that remove the geographic limits with 
respect to bank service companies;
    [cir] Amendments to the OCC's Change in Bank Control Act (CBCA) 
regulation, Sec.  5.50, that (1) Provide that a CBCA notice must 
include information on the future prospects of the national bank to be 
acquired, (2) permit the OCC to consider the future prospects of the 
bank as a basis to issue a notice of disapproval, and (3) permit the 
OCC to impose conditions on its action not to disapprove a CBCA notice;
    [cir] Amendments to part 7 that permit national banks to choose 
whether to provide for cumulative voting in the election of their 
directors;
    [cir] Amendments to part 19 that reflect changes to the OCC's 
enforcement authority with respect to institution-affiliated parties; 
and
    [cir] Amendments to part 24 (community development investments) 
that implement section 305 of the FSRRA.
    Set forth below is a detailed section-by-section description of the 
proposed changes. For ease of reference, the changes are presented in 
the numerical order of the parts of the OCC's rules that we propose to 
amend.

Section-by-Section Description of Proposed Changes

Part 1--Investment Securities

    Part 1 of our regulations (12 CFR part 1) prescribes the standards 
under which national banks may purchase, sell, deal in, underwrite, and 
hold securities, consistent with the National Bank Act (12 U.S.C. 24 
(Seventh)) and safe and sound banking practices. The proposed 
amendments to this part clarify the applicable standards by codifying 
existing precedent and provide the OCC with additional flexibility to 
administer part 1 as investment products evolve.

Authority, Purpose, and Scope (Sec.  1.1)

    National banking law explicitly authorizes the OCC to determine the 
types of investment securities a national bank may purchase.\8\ Part 1 
currently provides a general definition of the term ``investment 
security,'' describes several categories, or types, of permissible 
investment securities, and prescribes such limitations as apply to a 
national bank's investment in each type. The proposal complements these 
specifics by adding a provision recognizing that the OCC also may 
determine, on a case-by-case basis, that a national bank may

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acquire an investment security that is not set out as one of the 
generic types of securities listed in the regulation, provided the 
bank's investment is consistent with section 24 (Seventh) and with safe 
and sound banking practices. In making that determination, the OCC will 
consider all relevant factors, including an evaluation of the risk 
characteristics of the particular instrument in comparison with the 
risk characteristics of investments that the OCC has previously 
authorized, as well as the bank's ability effectively to manage such 
risks. In approving such an investment, the OCC may impose limits or 
conditions as appropriate under the circumstances for safety and 
soundness considerations.
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    \8\ 12 U.S.C. 24 (Seventh).
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    In addition, this proposal removes the now-obsolete reference to DC 
banks from the scope of part 1 (Sec.  1.1(c)), thus eliminating the 
applicability of part 1 to DC banks.

Pooled Investments (Sec.  1.3(h))

    Current Sec.  1.3(h) allows a national bank to purchase and sell 
shares in an investment company provided that the portfolio of the 
investment company is limited to investment securities authorized in 
part 1. However, markets increasingly are offering securitized, pooled 
investment vehicles that hold bank-permissible assets not limited to 
investment securities. For example, a bank may seek to purchase 
investment grade shares in an investment company where the underlying 
assets are loans. In that case, the bank's risk exposure is comparable 
to, or lower than, its exposure when it purchases shares of identically 
rated and marketable pooled vehicles composed of part 1 investment 
securities.
    Recent OCC precedents permit a national bank to purchase shares in 
investment vehicles where the underlying assets are not limited to 
permissible investment securities so long as the underlying assets 
otherwise are bank permissible.\9\ This proposal codifies the 
precedents by amending Sec.  1.3(h) to clarify that banks have the 
authority to invest in entities holding pooled assets, provided that 
the underlying assets are those that a national bank may purchase and 
sell for its own account. Specifically, this proposal deletes the 
phrase ``under this part'' both times it appears in Sec.  1.3(h) and 
revises the heading to read ``Pooled investments.'' Investments made 
under the proposed Sec.  1.3(h) must meet certain credit quality and 
marketability standards generally applicable to investment securities.
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    \9\ See, e.g., Interpretive Letter No. 911 (June 4, 2001) 
(national bank may purchase interests in loan fund either pursuant 
to lending authority or as securities on the basis of reliable 
estimates of the issuer).
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Securities Held Based on Estimates of Obligor's Performance (Sec.  
1.3(i))

    Part 1 defines an investment security in terms of both asset 
quality and marketability.\10\ Section 1.2(f) further defines a 
``marketable'' security as one that is: (1) Registered under the 
Securities Act of 1933 (Securities Act),\11\ (2) a municipal revenue 
bond exempt from registration under the Securities Act, (3) offered or 
sold pursuant to Securities and Exchange Commission (SEC) Rule 144A 
\12\ and rated investment grade or the credit equivalent, or (4) ``can 
be sold with reasonable promptness at a price that corresponds 
reasonably to its fair value.'' \13\
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    \10\ 12 CFR 1.2(e).
    \11\ 15 U.S.C. 77a, et seq.
    \12\ 17 CFR 230.144A.
    \13\ 12 CFR 1.2(f).
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    Section 1.3(i), in contrast, articulates different asset quality 
and marketability standards. That section permits a national bank to 
treat a debt security as an investment security ``if the bank 
concludes, on the basis of estimates that the bank reasonably believes 
are reliable, that the obligor will be able to satisfy its obligations 
under that security,'' and the bank believes that the security may be 
sold with reasonable promptness at a price that corresponds reasonably 
to its fair value.\14\ The standard of marketability in the ``reliable 
estimates'' provision differs from, and is more restrictive than, the 
marketability definition in Sec.  1.2(f), in that it does not contain 
all of the elements of the definition in Sec.  1.2(f). This proposal 
harmonizes these marketability standards by amending Sec.  1.3 to 
reflect the same standard as in Sec.  1.2.
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    \14\ See 12 CFR 1.3(i)(1).
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Part 2--Sales of Credit Life Insurance

    Part 2 sets forth the principles and standards that apply to a 
national bank's provision of credit life insurance and the limitations 
that apply to the receipt of income from those sales by certain 
individuals and entities associated with the bank. This proposed rule 
removes DC banks from the definition of ``bank'' set forth in Sec.  
2.2(a).

Part 3--Minimum Capital Ratios; Issuance of Directives

    Part 3 establishes the minimum capital ratios that apply to 
national banks, sets out in appendices the rules governing the 
computation of those ratios, and provides procedures for the issuance 
of individual minimum capital requirements and capital directives. The 
current rule provides that local currency claims on, or unconditionally 
guaranteed by, non-OECD central governments receive a zero percent risk 
weight to the extent the bank has local currency liabilities in that 
country. We propose to remove the current restriction on the location 
of the offsetting liability. Thus, the proposal would provide a zero 
percent risk weight to the extent the bank has liabilities in that 
currency. This would align the rule more closely with foreign exchange 
risk.
    This proposal also removes DC banks from the definition of ``bank'' 
in Sec.  3.2(b). Pursuant to the DC Bank Act, DC banks will be subject 
to the regulatory capital requirements prescribed either by the FDIC or 
the Federal Reserve Board, depending on whether the bank is a member of 
the Federal Reserve System.

Part 4--Organization and Functions, Availability and Release of 
Information, Contracting Outreach Program, Post-Employment Restrictions 
for Senior Examiners

    The proposal updates Sec.  4.4 to reflect the fact that, under the 
OCC's current organizational structure, the Large Bank Supervision 
Department supervises the largest national banks. It also amends Sec.  
4.5 by updating OCC district office addresses and the geographical 
coverage of those offices resulting from the OCC's district office 
reorganization.

Part 5--Rules, Policies, and Procedures for Corporate Activities

    Part 5 establishes rules, policies, and procedures for national 
banks' corporate activities and corporate structure. It also contains 
procedural requirements for the filing of corporate applications, 
including the circumstances under which applications or notices are 
required, and the required content of the filing. A description of our 
amendments to part 5 is set forth below, with substantive amendments 
presented first, followed by technical or conforming amendments.

Fiduciary Powers (Sec.  5.26)

    The OCC's current rule requires a national bank filing an 
application for approval to offer fiduciary services to provide an 
opinion of counsel that the proposed fiduciary activities do not 
violate applicable Federal or State law. Our experience has been, 
however, that an opinion of counsel often is not necessary to enable 
the OCC to conclude that the proposed fiduciary activities are 
permissible. Moreover, an opinion of counsel currently is not required 
for

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expedited applications filed by ``eligible banks.''\15\ Accordingly, 
the proposal eliminates the requirement for an opinion of counsel with 
respect to all applications to exercise fiduciary activities, unless 
the OCC specifically requests an opinion. We note that the removal of 
the requirement to provide the OCC with an opinion of counsel does not 
relieve the bank of its responsibility to ensure that its fiduciary 
activities comport with applicable Federal and State law.
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    \15\ An ``eligible bank'' is a national bank that is well 
capitalized, has a composite rating of 1 or 2 under the Uniform 
Financial Institutions Rating System, has a CRA rating of 
``Outstanding'' or ``Satisfactory,'' and is not subject to a cease 
and desist order, consent order, formal written agreement, or prompt 
corrective action directive. 12 CFR 5.3(g).
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Establishment, Acquisition, and Relocation of a Branch--Intermittent 
Branches (Sec.  5.30)

    Section 5.30 describes the procedures and standards governing OCC 
review and approval of a national bank's application to establish a new 
branch or to relocate a branch. It is unclear under the current 
regulation whether a bank must refile an application under Sec.  5.30 
each year to operate branches on a recurring basis at the same location 
or event (such as an annual State fair or at a specific college campus 
during registration periods) even where all of the facts relevant to 
the branch application remain the same as those previously approved. As 
a result, some banks have filed for approval of such branches each time 
the bank seeks to operate the branch.
    We therefore propose to eliminate these subsequent applications for 
recurring, temporary branches that serve the same site at regular 
intervals.\16\ Accordingly, the proposal adds to Sec.  5.30 the new 
term, ``intermittent branch,'' which is defined to mean a branch that 
provides branch banking services, where legally permissible under the 
national bank branching statute,\17\ for one or more limited periods of 
time each year at a specified site during a specified recurring event. 
Under the proposal, if the OCC grants a national bank approval to 
operate an intermittent branch, no further application or notice to the 
OCC is required. This proposal does not affect the legal requirements 
prescribing the conditions under which a national bank may establish or 
retain branches pursuant to the national bank branching statute at 12 
U.S.C. 36.
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    \16\ The definition of ``mobile branch'' in current Sec.  5.30 
specifies that such a branch may provide services at irregular times 
and locations, such as at county fairs, sporting events or during 
school registration periods. However, a mobile branch may not have a 
single permanent site and travels to various public locations. 
Therefore, this type of branch differs from the intermittent branch 
recognized in this proposal, which would have only one recurring 
temporary location.
    \17\ 12 U.S.C. 36.
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Operating Subsidiaries (Sec.  5.34)

    Section 5.34 of the OCC's rules authorizes national banks to 
establish or acquire operating subsidiaries as a vehicle to exercise 
their powers to conduct the business of banking.\18\
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    \18\ The statutory authority underlying Sec.  5.34 is 12 U.S.C. 
24(Seventh), which authorizes national banks to exercise ``all such 
incidental powers as shall be necessary to carry on the business of 
banking.'' See NationsBank of North Carolina, N.A. v. Variable 
Annuity Life Insurance Co., 513 U.S. 251, 258 n.2 (1995) (VALIC) 
(the Comptroller may exercise reasonable discretion to determine 
what activities are part of the ``business of banking'' authorized 
pursuant to 12 U.S.C. 24 (Seventh)). Congress has recognized the 
operating subsidiary as a means through which national banks conduct 
the business of banking. See 12 U.S.C. 24a(g); see also Watters v. 
Wachovia Bank, N.A., No. 05-13542 at 11-13, 15n.12, 2007 WL 1119539 
at *11 and 12, 13n.12 (U.S. Apr. 17, 2007) (discussing national 
banks' authority to conduct their banking business through operating 
subsidiaries and noting ``Congress' formal recognition that national 
banks have the incidental power to do business through operating 
subsidiaries.'').
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    We propose to make several changes to Sec.  5.34 to update the 
standards for determining whether a subsidiary is controlled by the 
parent bank in light of changes in accounting standards, to clarify the 
type of entity that may qualify as an operating subsidiary, and to 
modify the standards under which transactions to establish or acquire 
operating subsidiaries qualify for after-the-fact notice procedures 
rather than the filing of an application. None of the proposed 
revisions alters the fundamental characteristics of an operating 
subsidiary, that is, that an operating subsidiary may conduct only 
bank-permissible activities and conducts those activities pursuant to 
the same ``authorization, terms and conditions'' as apply to the parent 
bank. Moreover, while the proposal revises the standards applicable to 
the use of after-the-fact notice procedures, it does not materially 
alter the licensing framework currently in place for operating 
subsidiaries. These changes will enhance OCC's ability to conduct 
appropriate review of proposed operating subsidiaries.
    Qualifying standards. Under current Sec.  5.34(e)(2), an entity 
qualifies as an operating subsidiary only if the parent bank 
``controls'' the subsidiary. The rule provides for two alternative 
means of establishing control. First, a national bank controls an 
operating subsidiary if the bank owns more than 50 percent of the 
voting interest (or similar type of controlling interest) in the 
subsidiary. Second, control may be established if the parent bank 
``otherwise controls'' the operating subsidiary and no other party 
controls more than 50 percent of the voting interest (or similar type 
of controlling interest) in the subsidiary.
    The proposal revises the current standard to provide that a 
national bank may invest in an operating subsidiary if it satisfies the 
following two requirements: (1) The bank has the ability to control the 
management and operations of the subsidiary by owning more than 50 
percent of the voting interest in the subsidiary, or otherwise; and (2) 
the operating subsidiary is consolidated with the bank under Generally 
Accepted Accounting Principles (GAAP).
    The first requirement relating to the ability to control the 
subsidiary refines the current standard by tying qualification as an 
operating subsidiary more closely to the bank's control of the business 
activities of the subsidiary, a factor that better reflects the status 
of the operating subsidiary as a vehicle used by the bank to exercise 
its powers to engage in the business of banking. The proposed revision 
would not affect a national bank's ability to control a subsidiary by 
holding a majority of voting interests in the subsidiary.
    The second element of the proposed qualification standard would 
reflect recent changes to GAAP that change the test for determining 
whether consolidation is appropriate as an accounting matter. The OCC 
historically has considered whether an entity is consolidated with the 
parent bank for accounting and other purposes as an element in 
determining whether that entity is an operating subsidiary under OCC 
regulations and has long provided for that result in the application of 
regulatory standards. Since as early as 1971, the OCC has directed 
national banks to consolidate their book figures with those of the 
operating subsidiary for the ``purpose of applying applicable statutory 
or regulatory limitations * * *'' \19\ In addition, at the time we 
adopted current Sec.  5.34(e)(2), GAAP generally required a parent 
company to consolidate the financial statements of a subsidiary entity 
(that is, the parent company was deemed under GAAP to have a 
``controlling financial interest'' in the subsidiary) if the parent 
held a majority of the voting interests in the subsidiary entity. This 
GAAP standard for consolidation influenced the OCC's adoption of the 
majority of voting (or similar controlling) interests standard as one 
of the measures of control in the current rule. The control standard

[[Page 36554]]

assured consolidation under the prior GAAP standard.
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    \19\ 36 FR 17015 (August 26, 1971).
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    Since our adoption of the regulatory control standards in Sec.  
5.34(e)(2), the GAAP standard for consolidation has changed. In 
December 2003, the Financial Accounting Standards Board (FASB) issued 
an accounting interpretation that revised the criteria for determining 
when an entity must consolidate another entity for financial reporting 
purposes.\20\ In issuing FIN 46R, FASB recognized that the application 
of the voting interest requirement to certain types of entities may not 
identify the party with a controlling financial interest because the 
controlling financial interest may be achieved through arrangements 
that do not involve voting interests. FIN 46R addresses this issue by 
providing, generally, that the party that holds the majority of the 
entity's risks or rewards, rather than voting interests, is the primary 
beneficiary and must consolidate the entity. FIN 46R became effective 
at different times, ranging from December, 2003 to January 1, 2005, 
depending on the type of entity and the date it was created. To assure 
conformance with these new GAAP standards, the OCC proposes to preclude 
a national bank from treating as an operating subsidiary an entity that 
it controls through majority ownership, but which is held under an 
arrangement where another party reaps most of the financial rewards 
from the subsidiary's operations.
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    \20\ FASB Interpretation No. 46 (revised), Consolidation of 
Variable Interest Entities (December 2003) (FIN 46R).
---------------------------------------------------------------------------

    Form of operating subsidiary. Current Sec.  5.34(e)(2) permits 
national banks to conduct activities through operating subsidiaries 
organized in a variety of forms, including as a corporation or limited 
liability company. In recent years, national banks have sought to hold 
limited partnerships as operating subsidiaries as states have amended 
their limited liability company and limited partnership laws to provide 
more structural flexibility. The OCC has recognized this and previously 
permitted a limited partnership to qualify as an operating subsidiary 
where the parent bank exercised ``all economic and management control 
over the activities'' of the partnership.\21\
---------------------------------------------------------------------------

    \21\ See Corporate Decision No. 2004-16 (Sept. 10, 2004).
---------------------------------------------------------------------------

    Nothing about the limited partnership structure should necessarily 
disqualify such an entity as an operating subsidiary, provided the 
other requirements of the rule are satisfied. These requirements 
include the limitation of the subsidiary's activities to those that are 
bank-permissible, the application to the subsidiary of the same 
substantive standards and requirements as apply to the parent bank, and 
the requirement that the bank ``control'' the subsidiary.
    In order to clarify that a limited partnership is a permissible 
form of operating subsidiary, the proposal expressly recognizes that a 
bank may invest in an operating subsidiary organized as a limited 
partnership, provided it satisfies the other requirements of Sec.  
5.34.
    After-the-fact notice procedures. Current Sec.  5.34(e)(5) provides 
that a well capitalized and well managed national bank may establish or 
acquire an operating subsidiary, or conduct a new activity in an 
existing operating subsidiary, by providing the OCC written notice 
within 10 days after doing so if the activity to be conducted in the 
subsidiary is specified in the rule as eligible for notice processing. 
The proposal revises this after-the-fact notice procedure to take 
account of the proposed changes to Sec.  5.34(e)(2) discussed above. 
Thus, a national bank seeking to hold a limited partnership as an 
operating subsidiary would qualify for the after-the-fact notice 
procedure only in the limited circumstance where the bank controls, 
directly or indirectly, all of the ownership interests in the limited 
partnership (and the other requirements of Sec.  5.34 are satisfied). 
This change would allow the OCC to review through the full application 
process more complex arrangements involving limited partnerships.
    The proposal also would revise the notice procedure criteria for 
control when the subsidiary is a corporation or a limited liability 
company. In those cases, the proposal would permit the bank to use the 
after-the-fact notice procedure when it meets all the requirements for 
a notice not relevant to control, the financial statements of the bank 
and subsidiary are consolidated under GAAP, and the bank has the 
ability to control the management and operations of the subsidiary by 
holding: (i) More than 50% of the voting interests in the subsidiary; 
or (ii) voting interests sufficient to select the number of directors 
needed to control the subsidiary's board and to select and terminate 
senior management. These control arrangements are the most suitable for 
the after-the-fact notice procedures because the OCC generally is 
familiar with these structural arrangements and they do not ordinarily 
present unusual safety and soundness concerns. Other arrangements will 
be reviewed under the full application process.
    The proposal also adds to the list of activities eligible for 
after-the-fact notice activities that the OCC has approved since part 5 
was comprehensively revised in 1996. These activities are:
    <bullet> Providing data processing, and data transmission services, 
facilities (including equipment, technology, and personnel), data 
bases, advice and access to such services, facilities, data bases and 
advice, for the parent bank and for others, pursuant to 12 CFR 7.5006, 
to the extent permitted by published OCC precedent. Currently, only 
data processing activity provided to the bank itself or its affiliates 
qualifies for after-the-fact notice treatment under Sec.  
5.34(e)(5)(v)(H).
    <bullet> Providing bill presentment, billing, collection, and 
claims-processing services.\22\
---------------------------------------------------------------------------

    \22\ See OCC Interpretive Letter No. 712 (Feb. 29, 1996).
---------------------------------------------------------------------------

    <bullet> Providing safekeeping for personal information or valuable 
confidential trade or business information, such as encryption keys, to 
the extent permitted by published OCC precedent.\23\
---------------------------------------------------------------------------

    \23\ See 12 CFR 7.5002(a)(4).
---------------------------------------------------------------------------

    <bullet> Payroll processing.\24\
---------------------------------------------------------------------------

    \24\ See Conditional Approval No. 384 (April 25, 2000) and 
Corporate Decision No. 2002-2 (Jan. 9, 2002).
---------------------------------------------------------------------------

    <bullet> Branch management services.\25\
---------------------------------------------------------------------------

    \25\ See Conditional Approval No. 612 (Dec. 21, 2003).
---------------------------------------------------------------------------

    <bullet> Merchant processing except when the activity involves the 
use of third parties to solicit or underwrite merchants.\26\
---------------------------------------------------------------------------

    \26\ See Conditional Approvals Nos. 582 (March 12, 2003) and 583 
(March 12, 2003).
---------------------------------------------------------------------------

    <bullet> Administrative tasks involved in benefits 
administration.\27\
---------------------------------------------------------------------------

    \27\ See Corporate Decision No. 98-13 (Feb. 9, 1998).
---------------------------------------------------------------------------

    Because the OCC has previously found these activities to be 
permissible for a national bank and its subsidiaries, and that they 
generally pose low safety and soundness risks, we are proposing that 
after-the-fact notices be permissible when operating subsidiaries 
undertake to engage in these activities.
    In addition to these activities, the proposal provides that an 
activity is eligible for the after-the-fact notice if it has been 
approved for a non-controlling investment by a national bank or its 
operating subsidiary pursuant to 12 CFR 5.36(e)(2). The after-the-fact 
procedure is only available if the activity will be conducted in 
accordance with the same terms and conditions applicable to the 
activity covered by the precedent as well as with any other 
restrictions that would be imposed due to its status as an operating 
subsidiary.

[[Page 36555]]

    Application procedures. Current Sec.  5.34(e)(5)(i) sets forth the 
rules for when a national bank must file an operating subsidiary 
application. The OCC is proposing to modify these rules to make them 
consistent with the proposed changes to the qualifying subsidiary and 
after-the-fact notice provisions of Sec.  5.34 discussed previously. In 
particular, the proposal would require the bank to describe in full 
detail structural arrangements where control is based on a factor other 
than bank ownership of more than 50 percent of the voting interest of 
the subsidiary. Finally, the proposal makes conforming changes to Sec.  
5.34(e)(5)(vi), which sets forth the circumstances under which an 
application or notice is waived, to reflect the changes discussed 
above. The OCC specifically requests comment on how it should treat 
operating subsidiaries that were lawfully established prior to the date 
of the proposal.

Bank Service Companies (Sec.  5.35)

    Section 602 of the FSRRA amends the Bank Service Company Act \28\ 
to repeal the geographic limits that prohibited a bank service company 
from performing services for persons other than depository institutions 
in any State except the State where its shareholders and members are 
located. Section 602 retains the requirements that the services and the 
location at which these services are provided must be otherwise 
permissible for all depository institution shareholders or members and 
that Federal Reserve Board approval be obtained before a bank service 
company engages in activities that are only authorized under the Bank 
Holding Company Act. Section 602 also permits savings associations to 
invest in bank service companies under the same rules that apply to 
banks.
---------------------------------------------------------------------------

    \28\ 12 U.S.C. 1861 et seq.
---------------------------------------------------------------------------

    The proposal amends 12 CFR 5.35 to reflect this change in the 
statutory geographic restrictions on the operations of bank service 
companies. It also changes ``insured bank'' to ``insured institution'' 
throughout the section, where relevant, to reflect the fact that 
savings associations now may invest in bank service companies.

Other Equity Investments (Sec.  5.36)

    Section 5.36(e) provides an expedited process for OCC review of a 
non-controlling investment by a national bank. Under this section, a 
national bank may make, directly or through an operating subsidiary, 
certain non-controlling investments in entities by filing an after-the-
fact written notice in which the bank certifies, among other things, 
that it is well capitalized and well managed and will account for its 
investment under the equity or cost method of accounting.\29\ This 
section currently does not, however, provide a procedure for a national 
bank to follow when it cannot provide the certifications needed for 
after-the-fact notice.
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    \29\ Under the equity method, the carrying value of the bank's 
investment is originally recorded at cost but subsequently adjusted 
periodically to reflect the bank's proportionate share of the 
entity's earnings and losses and decreased by the amount of any cash 
dividends or similar distributions received from the entity.
---------------------------------------------------------------------------

    Representations concerning accounting treatment. Current Sec.  
5.36(e)(5) requires a national bank to certify in its notice that it 
will account for its non-controlling investment under the equity or 
cost method of accounting. The OCC had adopted this requirement because 
an investment accounted for in this manner was not previously 
considered under then current GAAP standards to be controlled by the 
parent bank and, accordingly, the parent bank did not consolidate the 
investment on its books. Thus, the unconsolidated entity could be 
considered a non-controlling investment and not an operating 
subsidiary. However, as we have noted, under FIN 46R this assumption is 
no longer valid in all cases, and an investment previously accounted 
for using the equity or cost method today may in some instances result 
in consolidation of the investment with the bank, depending on which 
party holds the majority of risks or rewards.
    To address this issue, the proposal removes the requirement that a 
bank certify in its notice that it will account for its non-controlling 
investment under the equity or cost method of accounting. The proposal 
also removes as unnecessary the requirement in current Sec.  5.36(e)(7) 
that a bank certify that its loss exposure related to the non-
controlling investment is limited as an accounting matter. The proposal 
retains the requirement in paragraph (e)(7) that the bank certify that 
as a legal matter its loss exposure is limited and that it does not 
have open-ended liability for the obligations of the enterprise.
    Application procedure. Current Sec.  5.36 permits use of the after-
the-fact notice procedure only when the bank can make the 
representations and certifications required by that section.\30\ The 
rule provides no procedure for a national bank to follow when it cannot 
provide all of the required representations and certifications. We 
propose to revise Sec.  5.36(f) to establish an application procedure 
that a national bank may use to seek approval for non-controlling 
investments that do not qualify for after-the-fact notice either 
because the bank is not well capitalized or well managed or because the 
proposed activity does not qualify for after-the-fact notice under the 
standards set forth in the rule. However, a national bank would not be 
required to file either an application or notice under this section if 
the investment is authorized by a separate provision of the OCC 
regulations, such as 12 CFR part 1 (investment securities) or part 24 
(public welfare investments). In these cases, a national bank would 
follow the procedures required by these provisions.
---------------------------------------------------------------------------

    \30\ Section 5.36(e) currently requires that a written after-
the-fact notice contain the following 8 elements, set out in 
numbered paragraphs, as follows: (1) A description of the proposed 
investment; (2) identification of the regulatory provision or prior 
precedent that has authorized an activity that is substantively the 
same as the proposed activity; (3) certification that the bank is 
well capitalized and well managed; (4) a statement of how the bank 
can control the activities of the enterprise in which it is 
investing or ensure its ability to withdraw its investment; (5) the 
accounting certification, described in text, that this rule proposes 
to remove; (6) a description of how the investment relates to the 
bank's business; (7) certification that the bank's loss exposure is 
limited as a legal and accounting matter (the certification 
pertaining to accounting is proposed to be removed); and (8) 
certification that the enterprise in which the bank is investing 
agrees to be subject to OCC examination and supervision, subject to 
limits provided elsewhere in Federal law.
---------------------------------------------------------------------------

    If the bank is unable to make the representation in paragraph 
(e)(2), the bank's application must explain why the activity is a 
permissible activity for a national bank and why the bank should be 
permitted to hold a non-controlling investment in an enterprise engaged 
in that activity. In addition, the application must provide the 
representations and certifications required pursuant to the after-the-
fact notice procedure, to the extent possible. A bank may not make a 
non-controlling investment in an entity if the bank cannot provide the 
representations or information that the rule requires (other than those 
in paragraphs (e)(2) or (e)(3) pertaining to the bank's level of 
capital, its rating for management, or to the OCC's prior determination 
that the investment is permissible).
    This application requirement would fill the gap in the current rule 
for investments where a national bank cannot meet all of the after-the-
fact notice requirements. The use of an application procedure provides 
certainty to the applicant and also permits the OCC to ensure that all 
non-controlling investments comport with appropriate supervisory 
requirements.

[[Page 36556]]

    This proposal also makes two conforming changes to Sec.  5.36(b), 
scope. First, it amends the scope section to provide that Sec.  5.36 
governs the procedures for applications in addition to notices. 
Currently, the scope section only applies to notices. Second, it 
removes the last sentence of Sec.  5.36(b), which currently states that 
other investments authorized under Sec.  5.36 may be reviewed on a 
case-by-case basis. Because the proposal amends Sec.  5.36 to include 
an application process, this sentence is unnecessary and could create 
confusion once the proposal is finalized.
    DPC assets. The proposal also makes two changes to expedite non-
controlling investments involving assets acquired through foreclosure 
or otherwise in good faith to compromise a doubtful claim or in the 
ordinary course of collecting a debt previously contracted (DPC 
assets). Under the current rule, a national bank making a non-
controlling investment in an entity that holds or manages DPC assets 
for the bank must meet all of the requirements in Sec.  5.36, including 
the required certifications. However, under the current operating 
subsidiary rules, a national bank investing in an operating subsidiary 
engaged in the same activity need only file a written notice within 10 
days after acquiring or establishing the subsidiary or commencing the 
activity. These procedural differences can be disruptive in workouts 
involving a jointly-held entity to resolve loans with multiple lenders 
where each lender will hold minority interests in the joint venture. 
The proposal harmonizes these provisions by providing that a national 
bank making a non-controlling investment in an entity that holds or 
manages DPC assets for the bank need only file a simplified written 
notice with the appropriate district office \31\ no later than 10 days 
after making the non-controlling investment. The notice must contain a 
complete description of the bank's investment in the enterprise and the 
activities conducted, a description of how the bank plans to divest the 
non-controlling investment or the DPC assets within the statutory time 
frames, and a representation and undertaking that the bank will conduct 
the activities in accordance with OCC policies contained in guidance 
issued by the OCC regarding the activities.
---------------------------------------------------------------------------

    \31\ Part 5 defines ``appropriate district office'' as the 
Licensing Department for all national bank subsidiaries of those 
holding companies assigned to the Washington, DC, licensing unit; 
the appropriate OCC district office for all national bank 
subsidiaries of certain holding companies assigned to a district 
office licensing unit; the OCC's district office where the national 
bank's supervisory office is located for all other banks; or the 
licensing unit in the Northeastern District Office for Federal 
branches and agencies of foreign banks. 12 CFR 5.3.
---------------------------------------------------------------------------

    The proposal also would amend Sec.  5.36 to clarify that an 
application or notice is not required when a national bank acquires a 
non-controlling investment in shares of a company through foreclosure 
or otherwise in good faith to compromise a doubtful claim, or in the 
ordinary course of collecting a debt previously contracted. This change 
would conform this section with Sec.  5.34, which provides that 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 is not an operating subsidiary for purposes of Sec.  5.34 
and, therefore, no application or notice is required.

Changes in Permanent Capital (Sec.  5.46)

    The proposal streamlines the application process for a national 
bank seeking OCC approval of a change in its permanent capital. The 
OCC's rules at Sec.  5.46(i)(1) and (2) currently require a national 
bank to submit an application and obtain prior approval for a change in 
permanent capital. Under the expedited review procedures in Sec.  
5.46(i)(2), the application of an eligible bank is deemed approved 
within 30 days of receipt, unless the OCC notifies the applicant 
otherwise. The proposal amends Sec.  5.46(i)(2) to change the expedited 
review period from 30 days to 15 days.
    The proposal also simplifies the certification process for a 
national bank that increases its permanent capital. Section 5.46 
currently requires a national bank that increases permanent capital to 
submit a letter of notification to the OCC in order to receive a 
certification of the increase as required by 12 U.S.C. 57.\32\ Under 
the proposal, a national bank seeking to increase permanent capital 
continues to be required to send a notice to the OCC, but the bank 
would no longer receive a paper certification from the OCC. The OCC 
would deem the transaction approved and certified by operation of law 
seven days after our receipt of the bank's notice. If this proposal is 
adopted in final form, the OCC will provide updated notification and 
certification procedures for increases in permanent capital in the 
Capital and Dividends Booklet of the Comptroller's Licensing Manual and 
on E-Corp (the OCC's electronic filing system).
---------------------------------------------------------------------------

    \32\ Section 57 provides that increases to permanent capital are 
not effective until the bank provides notice to the OCC and the OCC 
certifies the amount of the increase and approves it. The precise 
terms of the bank's notification and the OCC's approval vary 
slightly depending on whether the increase to permanent capital 
occurs through the declaration of a stock dividend or otherwise. See 
12 U.S.C. 57.
---------------------------------------------------------------------------

Change in Bank Control (Sec.  5.50)

    Section 5.50 sets forth the OCC's procedures for change in bank 
control transactions. Under this rule, any person seeking to acquire 
control of a national bank, i.e., acquire the power, directly or 
indirectly, to direct the management or policies, or to vote 25 percent 
or more of a class of voting securities of a national bank, must 
provide 60 days prior written notice of the proposed acquisition to the 
OCC, with certain exceptions. Currently, the OCC has the burden of 
proof in establishing that a group of persons are acting in concert and 
will control, as a group, the bank after the acquisition of shares. 
When a member of a family acquires stock in a national bank in which 
other family members own or control substantial interests, the OCC 
frequently will review potential control issues by requesting 
additional documentation from, and making additional inquiries of, the 
family members. These additional steps can delay the notice process and 
increase the burden associated with the transaction for these 
individuals.
    The proposal amends Sec.  5.50(f)(2) to establish a rebuttable 
presumption that immediate family members are acting in concert when 
acquiring shares of a bank. The proposal also amends Sec.  5.50(d) to 
define immediate family as a person's spouse, father, mother, 
stepfather, stepmother, brother, sister, stepbrother, stepsister, 
children, stepchildren, grandparent, grandchildren, father-in-law, 
mother-in-law, brother-in-law, sister-in-law, son-in-law, daughter-in-
law, and the spouse of any of the foregoing. Establishing a clear, but 
rebuttable, presumption provides notice to prospective investors of 
their filing obligations and reduces delays in processing the notice 
associated with repeat requests for information. In addition, this 
amendment would conform our regulations to the procedures regarding 
control by family members in these transactions set forth in OTS and 
Federal Reserve Board regulations. If the proposal is adopted in final 
form, we would amend the Comptroller's Licensing Manual to address the 
process by which an applicant can rebut this presumption.\33\
---------------------------------------------------------------------------

    \33\ See 12 CFR 574.4 (OTS) and 12 CFR 225.41(b)(3) and 
225.41(d) (Federal Reserve Board).

---------------------------------------------------------------------------

[[Page 36557]]

    Section 705 of the FSRRA amends the CBCA to allow the OCC, and the 
other Federal banking agencies, to extend the time period for 
considering a CBCA notice so that the agency may consider the acquiring 
party's business plans and the future prospects of the institution and 
use that information in determining whether to disapprove the notice. 
The proposal amends Sec.  5.50(f) of our regulations to implement this 
amendment by providing that the CBCA notice must include information on 
the future prospects of the institution and that the OCC may consider 
the future prospects of the institution as a basis to issue a notice of 
disapproval.
    Sections 702 and 716 of the FSRRA amend the Federal Deposit 
Insurance Act (FDI Act) to provide that the OCC, and the other Federal 
banking agencies, may enforce under 12 U.S.C. 1818 the terms of: (1) 
Conditions imposed in writing by the agency on a depository 
institution, including a national bank, or an institution-affiliated 
party in connection with an application, notice, or other request, and 
(2) written agreements between the agency and the institution or the 
institution-affiliated party. The amendment also clarifies that a 
condition imposed by a banking agency in connection with the 
nondisapproval of a notice, e.g., a notice under the CBCA, can be 
enforced under the FDI Act. Accordingly, the proposal amends Sec.  
5.50(f) to provide that the OCC may impose conditions on its 
nondisapproval of a CBCA notice to assure satisfaction of the relevant 
statutory criteria for nondisapproval of the notice.
Technical and Conforming Amendments to Part 5
    The proposal makes the following conforming and technical changes 
to part 5.
    Definition of national bank (Sec.  5.3(j)). This proposed change 
removes the reference to DC banks from the definition of ``national 
bank'' found in Sec.  5.3(j). DC banks are no longer subject to the 
OCC's rules, policies, and procedures for corporate activities and 
transactions, including the OCC's filing requirements.
    Filing required (Sec.  5.4). The proposal replaces the terms 
``Licensing Manager'' with ``Director for District Licensing'' and 
replaces ``Bank Organization and Structure'' with the term ``Licensing 
Department.'' This reflects the OCC's current organizational structure.
    Decisions (Sec.  5.13). Section 5.13 sets forth the procedures for 
OCC decisions on corporate filings. Paragraph (c) of Sec.  5.13 
requires a filing with the OCC to contain all required information. The 
OCC may require additional information if necessary to evaluate the 
application, and may deem a filing abandoned if the information 
required or requested is not furnished within the time period specified 
by the OCC. The OCC also may return an application that it deems 
materially deficient when filed, and the proposal amends Sec.  5.13(c) 
to specifically define ``materially deficient'' to mean filings that 
lack sufficient information for the OCC to make a determination under 
the applicable statutory or regulatory criteria. Examples of material 
deficiencies that could cause the OCC to return a filing include 
failure to provide answers to all questions or failure to provide 
required financial information.
    Paragraph (f) of this section provides that an applicant may appeal 
an OCC decision to the Deputy Comptroller for Licensing or to the OCC 
Ombudsman. In some cases, however, the Deputy Comptroller for Licensing 
is the deciding official for OCC licensing decisions or has personal 
and substantial involvement in the decision-making process. 
Accordingly, we are amending this paragraph to provide that an appeal 
may be referred instead to the Chief Counsel when the Deputy 
Comptroller for Licensing was the deciding official of the matter 
appealed, or was involved personally and substantially in the matter.
    In addition, the proposal replaces the title ``Deputy Comptroller 
for Bank Organization and Structure'' with the title ``Deputy 
Comptroller for Licensing.'' This reflects the OCC's current 
organizational structure.
    Organizing a bank (Sec.  5.20). Section 5.20 sets forth the 
procedures and requirements governing OCC review and approval of an 
application to establish a national bank. Paragraph (i)(5) of this 
section requires a proposed national bank to be established as a legal 
entity before the OCC grants final approval. As currently drafted, our 
regulations may be read to imply that organizers must receive OCC 
preliminary approval before they may raise capital, which is not OCC 
policy.\34\
---------------------------------------------------------------------------

    \34\ The Comptroller's Licensing Manual permits organizers of a 
national bank to raise capital prior to preliminary OCC approval. 
See Comptroller's Licensing Manual, Charters, pgs. 20-21, March 
2007.
---------------------------------------------------------------------------

    Therefore, this proposal amends Sec.  5.20(i)(5) to make clear that 
OCC preliminary approval is not required prior to a securities offering 
by a proposed national bank, provided that the proposed national bank 
has filed articles of association, an organization certificate and a 
charter application that is completed and the bank complies with the 
OCC's securities offering regulations set forth in Part 16. These 
requirements are explained in greater detail in the Comptroller's 
Licensing Manual.
    This proposal also makes a change to paragraph (i)(3) of section 
5.20, which requires the organizing group to designate a spokesperson 
to represent the group in its contacts with the OCC. The proposal would 
amend this section by replacing the term ``spokesperson'' with the term 
``contact person'' each time that term appears in order to align the 
wording of this section with the terminology used on the Interagency 
Charter and Deposit Application and in the ``Charters'' booklet of the 
Comptroller's Licensing Manual.
    Business combinations (Sec.  5.33). Section 5.33 contains the 
provisions governing business combinations involving national banks. 
Section 5.33(e)(1) sets forth factors used by the OCC in evaluating 
applications for ``business combinations,'' including factors required 
pursuant to the Bank Merger Act (BMA) \35\ and the Community 
Reinvestment Act of 1977 (CRA).\36\ As currently worded, this section 
could be read incorrectly to imply that the BMA and CRA apply to all 
business combinations even though these laws do not apply to certain 
business combinations, such as the merger of two uninsured national 
banks. The proposal revises the wording of Sec.  5.33(e)(1) to make it 
clear that the OCC considers the factors under the BMA and the CRA for 
transactions that are subject to those laws. The factors as set out in 
the current rule are substantively unchanged.
---------------------------------------------------------------------------

    \35\ 12 U.S.C. 1828(c).
    \36\ 12 U.S.C. 2901 et seq.
---------------------------------------------------------------------------

    Section 5.33 also requires a national bank with one or more classes 
of securities subject to the registration provisions of sections 12(b) 
or 12(g) of the Securities Exchange Act of 1934 (the Exchange Act) \37\ 
to file preliminary proxy materials or information statements with both 
the OCC's Director of Securities and Corporate Practices Division in 
Washington, DC and the appropriate district office. The proposal 
streamlines the OCC's filing process by eliminating the requirement in 
Sec.  5.33(e)(8)(ii) that a registered national bank also file proxy 
materials with the district office. This change is consistent with the 
instructions in the OCC's Business Combinations Booklet of the 
Comptroller's Licensing Manual.
---------------------------------------------------------------------------

    \37\ 15 U.S.C. 78l(b) or 78l(g).
---------------------------------------------------------------------------

    Section 5.33(g)(2)(ii) provides the rules for a national bank 
consolidation and merger with a Federal savings association when the 
resulting

[[Page 36558]]

institution is a national bank. This proposal removes the reference to 
merger transactions in paragraph (g)(2)(ii), which provides for 
appraisal or reappraisal of dissenters' shares, because there are no 
dissenters' rights for national bank shareholders in a merger between a 
national bank and a Federal savings association when the resulting 
institution is a national bank. In addition, the proposal corrects a 
statutory citation in paragraph (g)(3)(i).
    The proposal also makes clarifying changes to Sec.  5.33(h), which 
sets forth the standards, requirements, and procedures that apply to 
mergers between insured banks with different home States pursuant to 12 
U.S.C. 1831u. Although this paragraph references the standards, 
requirements, and procedures applicable to transactions that result in 
a national bank, it currently does not do so for transactions that 
result in a State bank. The proposal adds a reference in this paragraph 
to 12 U.S.C. 214a, 214b, and 214c to cover these transactions. The 
proposal also amends Sec.  5.33(h) to include a reference to 12 U.S.C. 
1831u to clarify that an interstate, single-branch acquisition is 
treated as the acquisition of a bank only for purposes of determining 
compliance with the Riegle-Neal Act.\38\ This change would eliminate 
any implication in this paragraph that the procedures of 12 U.S.C. 215 
or 215a were intended to apply to branch acquisitions.
---------------------------------------------------------------------------

    \38\ Pub. L. 103-328, 108 Stat. 2338 (Sept. 29, 1994).
---------------------------------------------------------------------------

    Finally the proposal specifies that the definitions set forth in 
Sec.  5.33(d) are only applicable to Sec.  5.33, and revises the 
headings of paragraphs (g), (g)(1) and (g)(3) to conform to the heading 
format used in other paragraphs in the regulation.
    Financial subsidiaries (Sec.  5.39). Section 5.39 sets forth 
authorized activities, approval procedures, and conditions for a 
national bank engaging in activities through a financial subsidiary. 
The proposal would make a number of technical changes to Sec.  5.39 to 
conform this section to the Federal Reserve Board's Regulation W, which 
governs transactions between Federal Reserve member banks and their 
affiliates and implements sections 23A and 23B of the Federal Reserve 
Act.\39\
---------------------------------------------------------------------------

    \39\ 12 U.S.C. 371c and 371c-1.
---------------------------------------------------------------------------

    In general, under sections 23A and 23B and Regulation W, a 
financial subsidiary of a national bank is treated as an affiliate of 
the bank. Regulation W, however, excepts from its definition of a 
financial subsidiary a subsidiary that would be a financial subsidiary 
only because it is engaged in insurance sales as agent or broker in a 
manner not permitted to a national bank. Such a financial subsidiary is 
not an affiliate for Regulation W purposes (unless it falls into 
another category of affiliate). This proposal would add a cross-
reference to Regulation W in the definition of ``affiliate'' at Sec.  
5.39(d)(1) and amend Sec.  5.39(h)(5) to reflect this exception in 
Regulation W's definition of financial subsidiary.
    In addition, this proposal updates Sec.  5.39(h)(5), which 
describes how sections 23A and 23B apply to financial subsidiaries, by 
conforming these provisions to Regulation W. Specifically, in addition 
to adding a cross-reference to Regulation W in Sec.  5.39(h)(5), the 
proposal amends Sec.  5.39(h)(5)(iii) to state that a bank's purchase 
of, or investment in, a security issued by a financial subsidiary of 
the bank must be valued at the greater of: (a) The total amount of 
consideration given (including liabilities assumed) by the bank, 
reduced to reflect amortization of the security to the extent 
consistent with GAAP, or (b) the carrying value of the security 
(adjusted so as not to reflect the bank's pro rata portion of any 
earnings retained or losses incurred by the financial subsidiary after 
the bank's acquisition of the security). This proposal also adds a new 
reference to the requirement in Regulation W that any extension of 
credit to a financial subsidiary of a bank by an affiliate of the bank 
is treated as 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 any Federal or State law, regulation, or 
interpretation applicable to the subsidiary.
    Change in bank control (Sec.  5.50). Twelve U.S.C. 1817(j) provides 
the standards and procedures for a change in control of insured 
depository institutions. As we have discussed, Sec.  5.50 of our rules 
implements section 1817(j) in the case of a change in control of a 
national bank.\40\ Section 5.50, however, does not include one of the 
procedures required by section 1817(j) relating to changes in 
management officials following a change in control. This omission may 
be misleading to banks that consult our rule to ascertain what change 
in control procedures apply. Specifically, section 1817(j)(12) provides 
that whenever a change in control occurs, the bank will promptly report 
to the appropriate Federal banking agency any changes or replacements 
of its chief executive officer or of any director occurring in the next 
12-month period, including in this report a statement of the past and 
current business and professional affiliations of the new chief 
executive officer or director. This proposal would add a new paragraph 
to Sec.  5.50(h) to codify this statutory requirement in order to 
provide clearer notice for national banks of their reporting obligation 
under section 1817(j)(12).
---------------------------------------------------------------------------

    \40\ Section 5.50 covers uninsured national banks as well as 
insured national banks.
---------------------------------------------------------------------------

    Earnings limitations under 12 U.S.C. 60 (Sec.  5.64). Section 302 
of the FSRRA amends 12 U.S.C. 60 to simplify dividend calculations and 
provide a national bank more flexibility to pay dividends as deemed 
appropriate by its board of directors. The proposal amends Sec.  5.46 
(governing changes in permanent capital) and Sec.  5.64 (governing 
dividend earnings limitations) to conform to the new language of 
section 60. In addition, the OCC is codifying and clarifying the 
interpretation of 12 U.S.C. 60 contained in Interpretive Letter No. 
816, issued December 22, 1997.
    Prior to its amendment by FSRRA, section 60 provided that a 
national bank could only declare a dividend if its surplus fund was at 
least equal to its common capital or, in accordance with a computation 
prescribed by the statute, it transferred 10 percent of its net income 
to surplus. Historically, stock was assigned a par value equivalent to 
its estimated market value and the purpose of the transfer requirement 
was to provide an additional cushion. This requirement is obsolete 
under modern securities underwriting practices because stock is issued 
with a nominal par value and most of the proceeds received are credited 
to the issuer's surplus account. Section 302 of the FSRRA eliminates 
this requirement and makes other minor changes to clarify and simplify 
dividend calculations.
    The proposal makes conforming changes to Sec.  5.64 (earnings 
limitation under 12 U.S.C. 60) and Sec.  5.46 (changes in permanent 
capital) by eliminating references to the surplus fund requirement. The 
proposal also reorganizes and renumbers Sec.  5.64 and adds new 
paragraphs (a) and (c)(2). New paragraph (a) adds several defined terms 
to make the description of the national bank dividend calculation 
clearer. The terms are: current year, current year minus one, current 
year minus two, current year minus three, and current year minus four. 
New paragraph (c)(2) codifies Interpretive Letter No. 816, which 
discussed the treatment of dividends in excess of a single year's 
current net income and concluded that a national bank may offset 
certain excess dividends against retained net income from each of the 
prior two years.

[[Page 36559]]

The proposal also clarifies how to calculate permissible dividends 
applying the carry-back interpretation described in Interpretive Letter 
No. 816. The proposal is intended to eliminate confusion by providing 
that excess dividends may be offset by retained net income in the two 
years immediately preceding the year in which the excess occurred.
    Specifically, paragraph (c)(2)(i) describes how to calculate 
permissible dividends for the current year if a bank has declared a 
dividend in excess of net income in the first or second years 
immediately preceding the current year. For example, when the excess 
dividend occurs in current year minus one, the excess is offset by 
retained net income first in current year minus three and then in 
current year minus two. When the excess dividend occurs in current year 
minus two, the excess is offset by retained net income first in current 
year minus four and then in current year minus three. This paragraph 
limits the availability of offsets to a maximum of four years prior to 
the current year, consistent with the carry-back concept in 
Interpretive Letter No. 816. The Interpretive Letter was not intended 
to permit a bank to restate retroactively its dividend paying capacity 
beyond the four-year period prior to the current year.
    Paragraph (c)(2)(ii) clarifies that if a bank still has excess 
dividends remaining even after permissible offsets have been applied in 
accordance with paragraph (c)(2)(i), the bank must use the remaining 
excess dividend amount in calculating its dividend paying capacity. 
Paragraph (c)(2)(iii) also clarifies that the carry-back applies only 
to retained net loss that results from dividends declared in excess of 
a single year's net income, not any other type of current earnings 
deficit. As part of the reorganization of Sec.  5.64, information on 
how to request a waiver of the dividend limitation was moved to new 
paragraph (c)(3) to make it easier to locate.
    The proposal also makes a technical amendment to 12 CFR 5.46, 
governing changes in permanent capital, to reflect that, as amended by 
the FSRRA, section 60 no longer requires transfers to the surplus fund 
as a condition of declaring a dividend.

Part 7--Bank Activities and Operations

National Bank as Guarantor or Surety (Sec.  7.1017)

    Section 7.1017 of the OCC's rules currently provides that a 
national bank may act as guarantor or surety when it has a substantial 
interest in the performance of the transaction or when the transaction 
is for the benefit of a customer and the bank obtains from that 
customer a segregated deposit account sufficient to cover the amount of 
the bank's potential liability. The proposed rule adds a new subsection 
authorizing national banks to issue guarantees under additional 
circumstances, provided the guaranty is financial in nature, reasonably 
ascertainable in amount, and complies with applicable law.
    A financial guaranty or suretyship is essentially a promise to pay 
if the primary obligor defaults on its obligation. A guarantor or 
surety that makes good on its promise is entitled to reimbursement by 
the primary obligor. National banks have authority to ``promise to 
pay'' or ``guarantee'' the obligations of their customers through 
bankers' acceptances and letters of credit. In these transactions, the 
bank substitutes its credit for that of its customer and participates 
in exchanges of payments as a financial intermediary. These activities 
involve the core banking powers of both lending and acting as financial 
intermediary.\41\
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    \41\ See OCC Interpretive Letter No. 937 (June 27, 2002).
---------------------------------------------------------------------------

    In approving various types of guarantees in the past, and in 
approving a number of arrangements that are functionally similar to 
guarantees, the OCC has emphasized that banks must be able to respond 
to the evolving needs of their customers, provided always that such 
guarantees be issued and managed in a safe and sound manner.\42\ Most 
recently, the OCC approved a national bank's membership in a Group Self 
Insurance Plan (GSIP) organized by a consortium of banks to provide 
workers' compensation insurance in which each member was required to 
become joint and severally liable for the group's obligations.\43\ 
Permitting national banks to exercise their broad authority to act as 
guarantor or surety benefits customers by giving banks greater ability 
to facilitate customers' financial transactions and by providing banks 
with greater flexibility to provide financial services in evolving 
markets.\44\
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    \42\ See, e.g., OCC Interpretive Letter No. 177 (Jan. 14, 1981) 
(national bank guaranty/reimbursement of third-party payors in 
connection with direct deposit pension fund program was permissible; 
a contrary holding ``would directly inhibit the growth and 
development of direct deposit programs.''); OCC Interpretive Letter 
No. 1010 (Sept. 7, 2004) (national bank may issue financial 
warranties on the investment advice and asset allocation services 
provided by the bank in the creation and operation of a mutual 
fund).
    \43\ The OCC determined that the GSIP's cross-liability aspect 
could be viewed as a guaranty. Noting that membership in the GSIP 
would benefit the bank, the OCC determined the guaranty was not 
solely for another party's benefit. Therefore, the bank had a 
substantial interest of its own in the transaction. OCC Interpretive 
Letter No. 1022 (Feb. 15, 2005).
    \44\ See VALIC, 513 U.S. 251 (1995).
---------------------------------------------------------------------------

    For all of these reasons, the OCC concludes that acting as a 
guarantor or surety is permissible for a national bank, provided the 
customer's obligation, and the guaranty or surety are financial in 
nature, reasonably ascertainable in amount, and otherwise consistent 
with applicable law.
    The proposed requirement that the guaranty or surety be 
``reasonably ascertainable'' is intended to ensure that the issuing 
bank can determine the extent of its exposure and engage in the 
activity in a safe and sound manner. Similarly, the statement that the 
guaranty or surety must be ``consistent with applicable law'' simply 
recognizes that other provisions of law may be applicable to particular 
transactions. These other provisions of law include, among others, 
limitations on the amount of loans and extensions of credit a national 
bank may lend to a borrower (12 CFR part 32), limitations on 
transactions between a bank and its affiliates (sections 23A and 23B of 
the Federal Reserve Act), and limitations on transactions that would 
constitute ``insurance'' as principal pursuant to section 302 of Gramm-
Leach-Bliley Act.\45\
---------------------------------------------------------------------------

    \45\ Pub. L. 106-102, 113 Stat. 1338, 1407 (Nov. 12, 1999), 
codified at 15 U.S.C. 6712.
---------------------------------------------------------------------------

    The OCC is considering whether to provide guidance on risks and 
risk management in connection with the issuance of guarantees by 
national banks. For example, one of the primary distinctions between 
guarantees and letters of credit is that letters of credit are 
structured in such a way that the bank does not face any uncertainty on 
its obligation to pay on the letter of credit despite the possibility 
of defenses and disputes between the primary parties to the underlying 
transaction. Guarantees, on the other hand, may be subject to different 
transactional and legal risks than letters of credit. We invite comment 
on the nature and extent of those differences.
Cumulative Voting in Election of Directors
    Prior to FSRRA, national banking law imposed mandatory cumulative 
voting requirements on all national banks. Section 301 of the FSRRA 
amends section 5144 of the Revised Statutes of the United States (12 
U.S.C. 61) to provide that a national bank may state in its articles of 
association whether to provide for cumulative voting in the election of 
its directors. Section 301 is consistent with the Model Business

[[Page 36560]]

Corporation Act and most States' corporate codes, which provide that 
cumulative voting is optional. Our proposal amends 12 CFR 7.2006 to 
incorporate this change.
Electronic Banking-Related Amendments
    Twelve CFR part 7, Subpart E contains OCC regulations relating to 
various electronic activities. In 2002, the OCC undertook revisions to 
part 7 to address the ways in which technological developments were 
affecting the business of banking. The proposal includes several 
additions to this regulation.
    Electronic Letters of Credit. Section 7.1016 permits national banks 
to issue letters of credit within the scope of applicable laws or rules 
of practice recognized by law, and includes an illustrative footnote 
that cites examples of these laws and practices. Section 7.5002 permits 
a national bank to perform, provide or deliver through electronic means 
and facilities any activity, function, product, or service that a bank 
is otherwise authorized to perform, provide, or deliver, if the 
electronic activity is subject to standards or conditions designed to 
provide that the activity functions as intended, is conducted safely 
and soundly, and accords with other applicable statutes, regulations, 
or supervisory policies and guidance of the OCC. Section 7.5002 
includes a list of permissible electronic activities that currently 
does not include electronic letters of credit. Because the OCC has 
determined that a national bank may issue an electronic letter of 
credit in a safe and sound manner in accordance with applicable laws 
and OCC guidance and policies, the OCC is proposing to amend Sec.  
7.5002 by adding the issuance of electronic letters of credit within 
the scope of Sec.  7.1016 to the list of banking activities that a 
national bank can conduct by electronic means and facilities. The OCC 
also is proposing to amend the footnote in Sec.  7.1016 to include a 
reference to the International Chamber of Commerce supplement to UCP 
500 for Electronic Presentation (eUCP) (the uniform customs and 
practices for documentary credits for electronic presentations) as a 
law that supports electronic letters of credits.
    Incidental Electronic Activities. Currently, 12 CFR 7.5001(d) sets 
forth the standards that the OCC uses to determine whether an 
electronic activity is incidental to, though not part of, the business 
of banking because the activity is convenient or useful to the conduct 
of the business of banking. The OCC has already codified in its 
regulations two incidental electronic activities: the sale of excess 
electronic capacity and by-products (Sec.  7.5004) and incidental non-
financial data processing (Sec.  7.5006). We propose to amend Sec.  
7.5001(d) to add other examples of electronic incidental activities 
that we have since approved for national banks. These activities are: 
web site development where incidental to other electronic banking 
services; \46\ Internet access and e-mail provided on a non-profit 
basis as a promotional activity; \47\ advisory and consulting services 
on electronic activities where the services are incidental to customer 
use of electronic banking services; \48\ and the sale of equipment that 
is convenient or useful to customers' use of related electronic banking 
services, such as specialized terminals for scanning checks that will 
be deposited electronically by wholesale customers of banks under the 
Check Clearing for the 21st Century Act, Pub. L. 108-100 (12 U.S.C. 
5001-5018).\49\ This list is illustrative and not exclusive, and the 
OCC may determine in the future that activities not on this list are 
permissible pursuant to this authority.
---------------------------------------------------------------------------

    \46\ See OCC Corporate Decision No. 2002-13, July 31, 2002.
    \47\ See OCC Conditional Approval No. 612, Nov. 21, 2003.
    \48\ See OCC Corporate Decision No. 2002-11, June 28, 2002.
    \49\ See OCC Interpretive Letter No. 1036, Aug. 10, 2005.
---------------------------------------------------------------------------

    Software That Is Part of the Business of Banking. Currently, OCC 
regulations list software acquired or developed by the bank for banking 
purposes or to support its banking business as an example of an 
electronic by-product that a national bank can sell to others as a 
permissible ``incidental'' activity.\50\ This proposal also expands 
Sec.  7.5006 to address, as ``part of the business of banking,'' the 
sale of software that performs services or functions that a national 
bank can perform directly, thereby codifying previous OCC 
interpretations.\51\ We note that software that is part of the business 
of banking can be sold without regard to any other banking product or 
service, whereas software that is incidental must be shown to be 
convenient or useful to another activity that is authorized for 
national banks.\52\
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    \50\ 12 CFR 7.5004.
    \51\ See, e.g., Corporate Decision 2003-6, March 17, 2003.
    \52\ See 12 CFR 7.5001(c) and 7.5001(d).
---------------------------------------------------------------------------

    The OCC also recognizes that national banks' use of technology is 
constantly evolving and therefore we regularly review our regulations 
with the goal of revising them in ways that facilitate the use of that 
technology consistent with safety and soundness. Commenters are invited 
to identify any other areas of subpart E that should be revised to 
recognize the evolving role of technology.

Part 9--Fiduciary Activities of National Banks

    In response to recent amendments made by the SEC to its rules and 
forms under section 17A of the Exchange Act, the OCC is proposing to 
amend its transfer agent rule at Sec.  9.20 to clarify the procedures 
applicable to national bank transfer agents. Under the SEC's amended 
rules, all transfer agents, including national bank transfer agents, 
are required to file annual reports electronically with the SEC through 
the SEC's Electronic Data Gathering, Analysis, and Retrieval 
(``EDGAR'') system. In addition, nonbank transfer agents now must file 
registration and withdrawal forms electronically with the SEC through 
the EDGAR system. The SEC's amended rules do not require national bank 
transfer agents to file registration or withdrawal forms with the SEC 
electronically or otherwise. The OCC is revising its transfer agent 
rules to make this clear.
    Currently, Sec.  9.20(a) of the OCC's rules cross-references to the 
SEC's rules with respect to registration. This cross-reference may make 
it appear that national bank transfer agents also are subject to the 
requirement to file registration and withdrawal forms through the SEC's 
EDGAR system. To avoid confusion regarding electronic filing, the 
proposal replaces the cross-reference in Sec.  9.20(a) to the SEC's 
transfer agent registration and withdrawal rules with specific 
procedures for filing applications for registration, amending 
registrations, and withdrawals from registration. This amendment will 
not result in any substantive changes for national bank transfer 
agents. National bank transfer agents will continue to file 
applications for registration, amendments to registration and 
withdrawals from registration as previously required.
    The proposed rule also would make conforming changes to Sec.  
9.20(b) to reflect the SEC's revision and renumbering of its transfer 
agent rules. Specifically, we are removing the specific citations to 
the SEC's rules in favor of a more general reference. The proposed 
amendment makes no substantive changes to Sec.  9.20(b). This change 
will, however, avoid the need for the OCC to revise our regulation each 
time the SEC makes changes to its transfer agent rules.

[[Page 36561]]

Part 10--Municipal Securities Dealers

    This proposal amends Sec.  10.1(a) to eliminate the application of 
part 10 to DC banks.

Part 11--Securities Exchange Act Disclosure Rules

    Part 11 addresses the rules, regulations, and filing requirements 
that apply to national banks with one or more classes of securities 
subject to the registration provisions of sections 12(b) and (g) of the 
Exchange Act (15 U.S.C. 78l(b) & (g)). This proposal amends Sec.  
11.1(a) to remove DC banks from the scope of part 11, consistent with 
the DC Bank Act.

Part 12--Recordkeeping and Confirmation Requirements for Securities 
Transactions

    Section 12.7(a)(4) requires bank officers and employees who make 
investment recommendations or decisions for customers to report their 
personal transactions in securities to the bank within ten business 
days after the end of the calendar quarter. The OCC modeled this 
reporting requirement on SEC Rule 17j-1 (17 CFR 270.17j-1), issued 
pursuant to the Investment Company Act of 1940, which, at the time of 
the most recent revision to this OCC requirement in 1996, required 
``access persons'' to report their personal transactions in securities 
within ten days after the end of the calendar quarter.\53\ However, in 
July 2004 the SEC amended Rule 17j-1 to expand this ten-day deadline to 
30 days.\54\
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    \53\ See 61 FR 63958 (Dec. 2, 1996). The OCC's reporting 
requirement under 12 CFR 12.7(a)(4) is a separate requirement from 
any applicable requirements under SEC Rule 17j-1. However, an 
``access person'' required to file a report with a national bank 
pursuant to SEC Rule 17j-1 need not file a separate report under the 
OCC's reporting requirement if the required information is the same. 
See 12 CFR 12.7(d). The SEC rule defines ``access person'' as 
including directors, officers, and certain employees of the 
investment adviser. 17 CFR 270.17j-1(a)(1).
    \54\ See 69 FR 41696 (July 9, 2004).
---------------------------------------------------------------------------

    To conform part 12 with the current SEC filing deadline in SEC Rule 
17j-1, this proposal amends Sec.  12.7(a)(4) by replacing the 10-
business day filing deadline for reporting personal transactions in 
securities with the deadline specified in SEC rule 17j-1. This will 
enable bank employees that are subject to SEC Rule 17j-1 and to the 
OCC's securities recordkeeping and confirmation regulation to file by 
the same deadline, thereby eliminating employee confusion as well as 
the regulatory burden associated with complying with two separate 
filing deadlines.

Part 16--Securities Offering Disclosure Rules

    Part 16 governs offers and sales of bank securities by issuers, 
underwriters, and dealers.

Definitions (Sec.  16.2)

    The proposal eliminates DC banks from the definition of ``bank'' in 
Sec.  16.2(b).

Sales of Nonconvertible Debt (Sec.  16.6)

    Section 16.6(a)(3) requires bank debt issued under Sec.  16.6 to be 
in a minimum denomination of $250,000 and requires that each note or 
debenture to show on its face that it cannot be exchanged for notes or 
debentures in smaller denominations. However, this legend requirement 
cannot be satisfied `` and would serve no purpose `` if the bank is 
using a paperless book entry form, which has become the more current 
form of issuance used by banks and other securities issuers. This 
proposal would amend Sec.  16.6(a)(3) to provide that this legend 
requirement only applies to debt issued in certificate form. All other 
requirements of Sec.  16.6, including the requirement of minimum 
denominations of $250,000, will continue to apply to all bank sales of 
nonconvertible debt, whether issued in certificate or book entry form.

Nonpublic Offerings (Sec.  16.7)

    Part 16 provides that, absent an available exemption, no person may 
offer and sell a security issued by a national bank without meeting the 
registration and prospectus delivery requirements of part 16. Part 16 
generally incorporates by reference the definitions, registration and 
prospectus delivery requirements of the Securities Act and SEC 
implementing rules, including Regulation D under the Securities 
Act.\55\ Section 16.7(a) of the OCC's nonpublic offering regulation 
provides that the OCC will deem offers and sales of bank-issued 
securities to be exempt from the registration and prospectus 
requirements of part 16 if they meet certain requirements, including 
filing with the OCC a notice on Form D that meets the requirements of 
Regulation D.\56\
---------------------------------------------------------------------------

    \55\ 17 CFR 230.501 et seq.
    \56\ 17 CFR 230.503.
---------------------------------------------------------------------------

    Form D requires the issuer to disclose basic information concerning 
the identity of the issuer and the offering, including the exemption 
being claimed and information regarding the offering price, number of 
investors, expenses, and use of proceeds. However, the OCC does not use 
the information in the Form D for any supervisory or other particular 
purpose, and the OCC does not treat the requirement to file a Form D as 
a condition to the availability of an exemption under part 16. 
Furthermore, the SEC adopted Form D for reasons that do not directly 
apply to the OCC.\57\ Therefore, we propose to eliminate the 
requirement to file a Form D.
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    \57\ Specifically, Form D serves a useful purpose for the SEC in 
creating a uniform State notification form for purposes of the 
States' Uniform Limited Offering Exemption, which is inapplicable to 
national banks. In addition, the SEC uses the information in the 
forms to conduct economic and other analyses of the private 
placement market in general. The OCC does not use the information in 
the Form D for this purpose. See Sec. Act. Release No. 33-6339, 46 
FR 41,791 (Aug. 18, 1981).
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Securities Offered and Sold in Bank Holding Company Dissolution (New 
Sec.  16.9)

    The OCC's current securities offering disclosure rules, at part 16, 
have resulted in some confusion as to whether offers and sales of bank-
issued securities in connection with the dissolution of the bank's 
holding company are exempt from the Sec.  16.3 registration statement 
and prospectus requirements. The proposal would resolve the uncertainty 
by codifying specific requirements that apply in order for the offer 
and sale of bank securities in a bank holding company dissolution to be 
exempt from the Sec.  16.3 registration statement and prospectus 
requirements.
    Specifically, the proposal adds a new Sec.  16.9 that would 
expressly exempt from the Sec.  16.3 registration statement and 
prospectus requirements offers and sales of bank-issued securities in 
connection with the dissolution of the holding company of the bank if 
those transactions satisfy the following requirements: (1) The offer 
and sale of bank-issued securities occurs solely as part of a 
dissolution in which the security holders exchange their shares of 
stock in a holding company that had no significant assets other than 
securities of the bank, for bank stock; (2) the security holders 
receive, after the dissolution, substantially the same proportional 
share of interests in the bank as they held in the holding company; (3) 
the rights and interests of the security holders in the bank are 
substantially the same as those in the holding company prior to the 
transaction; and (4) the bank has substantially the same assets and 
liabilities as the holding company had on a consolidated basis prior to 
the transaction.
    These proposed requirements parallel the conditions that must be 
satisfied in order for securities issued in connection with an 
acquisition by a holding

[[Page 36562]]

company of a bank (pursuant Sec.  3(a) of the Bank Holding Company Act 
of 1956) to be eligible for exemption from the registration 
requirements of Sec.  3(a)(12) of the Securities Act, and are equally 
appropriate in the reverse context where bank-issued securities are 
offered and sold in connection with the dissolution of the bank's 
holding company.
    From a shareholder protection standpoint, the rationale for not 
requiring a registration statement for the formation of a shell holding 
company--that the interests of the bank and company shareholders are 
essentially the same--would apply equally to dissolution of a shell 
holding company. The business rationale--reduction of costs of 
dissolution of a holding company if a bank decides it does not need the 
flexibility of a holding company structure--also is similar.
    The proposal also makes conforming amendments to part 16 by 
deleting the current cross-reference in Sec.  16.5(a) to section 
3(a)(12) of the Exchange Act and adding a reference to new Sec.  16.9 
in the listing of exempt securities under Sec.  16.5.

Removal of Current and Periodic Report Filing (Sec.  16.20)

    State banks and national banks are both subject to the Exchange 
Act's periodic and current reporting requirements if they have one or 
more classes of securities subject to the registration provisions of 
section 12(g) of the Exchange Act.\58\ Pursuant to that statute, banks 
having a class of equity securities held by 500 or more owners of 
record are required to register that class of securities under Sec.  
12(g) of the Exchange Act.\59\ Once registered, a bank becomes subject 
to the periodic and current reporting requirements of the Exchange Act.
---------------------------------------------------------------------------

    \58\ See Exchange Act Section 12(i), 15 U.S.C. 78l(i), 12 CFR 
part 335, and 12 CFR part 11.
    \59\ Section 12(g) of the Exchange Act also requires a bank to 
have more than $ 1 million of assets.
---------------------------------------------------------------------------

    Section 16.20 of the OCC's regulations imposes periodic and current 
reporting requirements for national banks that file registration 
statements with the OCC for the public offering of their securities. 
Pursuant to Sec.  16.20, a national bank must file periodic and current 
reports after the registration statement becomes effective, even if the 
bank is not otherwise required to register its securities under the 
Exchange Act. This periodic and current reporting requirement was based 
on that imposed by section 15(d) of the Exchange Act on other entities 
filing Securities Act registration statements with the SEC.\60\ The OCC 
adopted this periodic and current reporting requirement to ensure that 
potential purchasers in a bank's public offering had access to updated 
information necessary for their investment decisions, in the same 
manner as investors in other companies.
---------------------------------------------------------------------------

    \60\ 59 FR 54789 (Nov. 2, 1994).
---------------------------------------------------------------------------

    The periodic and current reporting requirements of Sec.  16.20 
applies to national banks until the securities to which the national 
bank's registration statement relates are held of record by fewer than 
300 persons. The FDIC and the Federal Reserve Board have not imposed a 
comparable obligation on State banks. Instead, a State bank that 
conducts public offerings of their securities are subject to Exchange 
Act periodic and current reporting requirements only if the bank has 
more than 500 shareholders.
    We propose to eliminate Sec.  16.20 in order to reduce regulatory 
burden with respect to small national banks that file registration 
statements with the OCC for the public offering of their securities. 
Thus, only a national bank that has 500 or more shareholders of record 
would be subject to the Exchange Act periodic and current reporting 
requirements.\61\ We also make a conforming change to Sec.  16.6, by 
deleting the reference to Sec.  16.20 in that section.
---------------------------------------------------------------------------

    \61\ See Exchange Act Section 12(i), 15 U.S.C. 78l(i) and 12 CFR 
part 11.
---------------------------------------------------------------------------

    This proposal would not significantly diminish financial 
information about the banks that will be available to investors, since 
updated financial information, including the bank's most recent balance 
sheet and statement of income filed with the OCC as part of the bank's 
most recent Consolidated Report of Condition (Call Report), will still 
be publicly available to investors. This proposal also will have no 
effect on the requirement under the OCC's Exchange Act disclosure rule 
at 12 CFR part 11 that a national bank whose securities are registered 
under section 12(b) or 12(g) of the Exchange Act must file current and 
periodic reports that conform to section 13 of the Exchange Act.

Part 19--Rules of Practice and Procedure

    The FSRRA made several changes affecting the OCC's exercise of its 
enforcement authority pursuant to section 8 of the FDI Act.\62\ Section 
303 of the FSRRA changes the procedures for issuing orders of 
suspension, removal or prohibition against institution-affiliated 
parties (IAPs) of national banks. Previously, section 8(e)(4) of the 
FDI Act required that, following proceedings before an administrative 
law judge, the determination whether to issue such orders would be made 
by the Federal Reserve Board. Section 303 of the FSRRA repeals that 
requirement, so that the OCC now has the authority to issue such 
orders, as it does with respect to other types of orders resulting from 
an OCC-initiated enforcement action. The proposal amends Sec.  19.100 
of the OCC's rules, pertaining to OCC adjudications, to reflect the 
change in the law.
---------------------------------------------------------------------------

    \62\ 12 U.S.C. 1818.
---------------------------------------------------------------------------

    Section 8(g) of the FDI Act pertains to the suspension, removal, or 
prohibition of an IAP when the IAP is the subject of an information, 
indictment, or complaint involving certain crimes set forth in the 
statute or when the IAP has been convicted of such a crime.\63\ Section 
708 of the FSRRA revises the statutory grounds that warrant suspension, 
removal or prohibition of an IAP from further participation in the 
conduct of the affairs of a depository institution, including a 
national bank, in such a case. Section 708 also clarifies that, if 
grounds exist, an appropriate Federal banking agency, including the 
OCC, may suspend or prohibit the IAP from participating in the affairs 
of any depository institution, and not only the institution with which 
the party is, or was last, affiliated. The amendment further clarifies 
that this authority applies even if the IAP is no longer associated 
with the depository institution at which the offense allegedly occurred 
or if the depository institution with which the IAP was affiliated no 
longer exists. The proposal amends Sec. Sec.  19.110 and 19.111 of our 
rules to conform to these amendments. The proposal also updates the 
titles of OCC officials referenced in Sec. Sec.  19.111 and 19.112.
---------------------------------------------------------------------------

    \63\ Id. at 1818(g).
---------------------------------------------------------------------------

    Finally, the proposed rule eliminates the applicability of part 19 
to DC banks by deleting a reference to DC banks in the definition of 
``institution'' in Sec.  19.3(g). The proposal also deletes a reference 
to DC banks in the scope section (Sec.  19.241) of subpart P, which 
relates to the removal, suspension, and debarment of accountants from 
performing audit services.

Part 21--Minimum Security Devices and Procedures, Reports of Suspicious 
Activities, and Bank Secrecy Act Compliance Program

    Part 21 consists of three subparts. Subpart A requires each bank to 
adopt appropriate security procedures to discourage robberies, 
burglaries, and larcenies and to assist in identifying and apprehending 
persons who such acts. Subpart B ensures that national banks file a 
Suspicious Activity Report when

[[Page 36563]]

they detect a known or suspected violation of Federal law or a 
suspicious transaction related to a money laundering activity or a 
violation of the Bank Secrecy Act. Subpart C requires that all national 
banks establish and maintain procedures reasonably designed to assure 
and monitor their compliance with the requirements of the Bank Secrecy 
Act and its implementing regulations.
    This proposed rule removes references to DC banks in the scope 
section of part 21 to clarify that part 21 no longer applies to DC 
banks.

Part 22--Loans in Areas Having Special Flood Hazards

    Part 22 applies to loans secured by buildings or mobile homes 
located or to be located in areas subject to special flood hazards. It 
implements the requirements of the National Flood Insurance Act of 1968 
and the Flood Disaster Protection Act of 1973. This proposal eliminates 
the applicability of part 22 to DC banks by removing DC banks from the 
definition of ``bank'' in Sec.  22.2(b).

Part 23--Leasing

    Part 23 contains the standards for personal property lease 
financing transactions authorized for national banks. Section 23.6 
applies the lending limits of 12 U.S.C. 84 or, if the lessee is an 
affiliate of the bank, the restrictions on transactions with affiliates 
prescribed by 12 U.S.C. 371c and 371c-1 to these lease transactions. 
This proposal would add to Sec.  23.6 cross-references to the Federal 
Reserve Board's Regulation W, 12 CFR part 223, which implements 12 
U.S.C. 371c and 371c-1. This is necessary because Regulation W contains 
new provisions that do not appear in 12 U.S.C. 371c and 371c-1. In 
addition Regulation W contains a definition of the term ``affiliate'' 
that is broader than the definition that appears in Sec.  371c and 
Sec.  371c-1. With these cross-references to Regulation W, these rules 
will more clearly reflect whether the requirements of 12 U.S.C. 84 or 
of Regulation W apply to a particular lease transaction.

Part 24--Community Development Investments

    Prior to its amendment by the FSRRA, 12 U.S.C. 24(Eleventh) 
authorized a national bank to ``make investments designed primarily to 
promote the public welfare, including the welfare of low- and moderate-
income communities or families (such as by providing housing, services, 
or jobs)'' (the public welfare test). A national bank could ``make such 
investments directly or by purchasing interests in an entity primarily 
engaged in making such investments.''
    The FSRRA narrowed the grant of authority in section 24(Eleventh) 
by providing that a national bank may ``make investments, directly or 
indirectly, each of which promotes the public welfare by benefiting 
primarily low- and moderate-income communities or families (such as by 
providing housing, services, or jobs).'' \64\ The FSRRA also revised 
section 24(Eleventh) to state explicitly that the authority to make 
public welfare investments applies to investments made by a national 
bank directly and by its subsidiaries.\65\
---------------------------------------------------------------------------

    \64\ We note that on February 27, 2007, the U.S. House of 
Representatives passed legislation that would reinstate the wording 
of the former grant of authority to national banks to make community 
development investments. See H.R. 1066, the Depository Institution 
Community Development Investments Enhancement Act. The enactment of 
legislation further amending section 24(Eleventh) may affect the 
content or timing of the OCC's issuance of final rules revising part 
24.
    \65\ FSRRA, section 305, 120 Stat. at 1970-71.
---------------------------------------------------------------------------

    The FSRRA also raised the maximum aggregate outstanding investment 
limit under section 24(Eleventh) from 10 to 15 percent of the bank's 
unimpaired capital and surplus.
    The proposal revises part 24, which implements section 24(Eleventh) 
to conform to the statutory changes.

Definition of ``Community and Economic Development Entity'' (CEDE) 
Sec.  24.2(c)

    The definition of a CEDE in proposed Sec.  24.2(c) implements the 
FSRRA change to the public welfare test. Proposed paragraph (c) defines 
a CEDE as ``an entity that makes investments or conducts activities 
that promote the public welfare by benefiting primarily low- and 
moderate-income areas or individuals'.

Definition of ``Benefiting Primarily Low- and Moderate-Income Areas or 
Individuals'' (Sec.  24.2(g))

    12 U.S.C. 24(Eleventh) authorizes a national bank and its 
subsidiaries to make investments that promote the public welfare by 
``benefiting primarily'' low- and moderate-income areas or individuals. 
The proposal defines ``benefiting primarily low and moderate-income 
areas or individuals'' when used to describe an investment to mean 
that: (1) A majority (more than 50 percent) of the investment benefits 
low- and moderate-income areas or individuals; or (2) the express, 
primary purpose of the investment (evidenced, for example, by 
government eligibility requirements) is to benefit ``low- and moderate-
income areas or individuals.'' This proposed definition is consistent 
with the way in which the OCC and the other Federal banking agencies 
have construed the concept of ``primary'' in the phrase ``primary 
purpose'' for community development activities pursuant to the CRA 
rules.\66\
---------------------------------------------------------------------------

    \66\ See Interagency Questions and Answers Regarding Community 
Reinvestment, Q&A Sec. Sec.  .12(i) and 563e.12(h) `` 7, 66 FR 
36620, 36627 (July 12, 2001) (explaining ``primary purpose'' for 
community development activities in the context of the CRA rules).
---------------------------------------------------------------------------

Public Welfare Investments (Sec. Sec.  24.3, 24.1)

    Section 24.3 contains the authorization to make investments 
pursuant to section 24(Eleventh). The proposal revises the authorizing 
language to conform with the changes made by the FSRRA. Here and 
elsewhere in the proposal where the ``benefiting primarily'' standard 
appears, the phrases ``low- and moderate-income individuals'' and 
``low- and moderate income areas'' are retained to describe the 
beneficiaries of national banks' section 24(Eleventh) investments since 
the statutory language underlying those phrases was not revised by the 
FSRRA.\67\ The proposal also adds a new section 24.1(e) to clarify that 
investments made, or written commitments to make investments entered 
into, before the enactment of the FSRRA continue to be subject to the 
statutes and regulations in effect prior to October 13, 2006.\68\
---------------------------------------------------------------------------

    \67\ We also note that the OCC has consistently used the term 
``areas'' interchangeably with ``communities'' and the term 
``individuals'' interchangeably with ``families.''
    \68\ See 152 Cong. Rec. H7586 (daily ed. Sept. 29, 2006) 
(colloquy between Chairman Oxley of the House Financial Services 
Committee and Ranking Member Frank) (explaining that the revised 
standard in section 24(Eleventh) applies prospectively only and does 
not affect investments made, or written commitments to make 
investments that were entered into, prior to the enactment of the 
new standard).
---------------------------------------------------------------------------

Investment Limits (Sec.  24.4)

    The proposed revisions to Sec.  24.4(a) implement the statutory 
change to the aggregate investment limit in section 24(Eleventh) from 
10 to 15 percent of unimpaired capital and surplus.
    This proposal also modifies the procedure that applies when a 
national bank requests OCC approval to exceed the investment limit. The 
current rule permits a national bank's aggregate outstanding 
investments to exceed 5 percent of its capital and surplus if the bank 
is well capitalized and the OCC determines, by written approval of a 
bank's proposed investment pursuant to the procedures set out at Sec.  
24.5(b), that

[[Page 36564]]

a higher amount will pose no significant risk to the deposit insurance 
fund. Section 24.5(b) describes the application process that is 
required for the OCC's prior approval of an investment when a bank does 
not satisfy the requirements for using an after-the-fact notice. Thus, 
the investment limits provision in current Sec.  24.4(a) requires a 
national bank to submit a request to exceed the 5 percent limit 
together with a specific investment proposal, and to use the prior 
approval procedures for that investment proposal.
    This particular prior approval procedure is not required by the 
statute and the OCC has determined that the burden it imposes is not 
warranted in view of the low level of risk generally presented by the 
types of investments authorized pursuant to section 24(Eleventh). 
Accordingly, the proposal removes the requirement that a national bank 
submit a specific investment proposal for prior approval under Sec.  
24.5(b) when it also seeks approval to exceed the 5 percent investment 
limit. Under the proposed simpler procedure, the bank would submit a 
written request to the OCC to exceed the 5 percent limit and would not 
be required to tie this request to a specific investment proposal. If 
the OCC provides written approval of the request, the bank may make 
investments above the 5 percent limit. However, as is the case for 
investments below the 5 percent limit, for each investment above the 
limit the bank would submit either an after-the-fact notice under Sec.  
24.5(a) if it satisfies the requirements for after-the-fact notice, or 
an application under Sec.  25.4(b) if it does not. These revisions 
facilitate national banks' ability to plan their investment activity 
while enabling the OCC to monitor the bank's use of the part 24 
authority on a case-by-case basis. Thus, proposed Sec.  24.4(a) permits 
a national bank's aggregate outstanding investments to exceed 5 percent 
of its capital and surplus, provided that the bank is at least 
adequately capitalized and the OCC determines, by written approval of a 
written request submitted by the bank, that a higher amount of 
investment will pose no significant risk to the deposit insurance fund.

Examples of Qualifying Public Welfare Investments (Sec.  24.6)

    Current Sec.  24.6 contains examples of qualifying public welfare 
investments. The proposal revises Sec.  24.6 as necessary to reflect 
the revision to the language of the statutory standard effected by 
section 305 of the FSRRA. The proposal also makes conforming amendments 
to Sec.  24.6 to clarify that the examples of qualifying public 
investments include investments that benefit primarily low- and 
moderate-income areas or individuals and that: (1) Finance minority- 
and women-owned small businesses; (2) provide technical assistance for 
minority- and women-owned small businesses; or (3) are made in 
minority- and women-owned depository institutions. The OCC expects 
these qualifying investments to be made in minority- and women-owned 
entities that conform to the ownership and control, profit and loss 
taking, and senior management representation requirements of the CRA's 
provision governing operation of branch facilities by minorities and 
women (see 12 U.S.C. 2907(b)(1)-(3)). In addition, the proposal revises 
references to investments in ``targeted redevelopment areas,'' which, 
after FSRRA, would be permissible only if they promote the public 
welfare by benefiting primarily low- and moderate-income areas or 
individuals. Finally, the proposal amends Sec.  24.6(d)(1) to include 
investments that provide financial literacy as an additional example of 
a qualifying public welfare investment.
Technical Amendments
    The proposal also revises several sections of part 24 to eliminate 
language that is inconsistent or unnecessary in light of the revised 
statutory standard for community development investments and to make 
technical changes, including:
    <bullet> A revision to Sec.  24.2(f) to update a cross-reference to 
the definitions of ``low-income'' and ``moderate-income'' in Sec.  
25.12. The revision to Sec.  24.2(f) does not result in any substantive 
change to the definition of ``low- and moderate-income.''
    <bullet> Technical amendments to Sec.  24.5 to reflect an address 
change for sending certain notices, letters, and proposals to the OCC. 
These materials are proposed to be sent to the OCC's Community Affairs 
Department; the current regulation directs the materials to the 
Director, Community Development Division. Technical amendments to 
paragraphs (a)(2) and (b)(1) would permit national banks to submit 
after-the-fact notices and investment proposals needing prior approval 
via e-mail, fax, or electronically through National BankNet, rather 
than mailing the submissions. A technical amendment is proposed for 
paragraph (a)(1) to correct the format of a citation to 12 U.S.C. 
24(Eleventh).
    <bullet> Proposed Sec.  24.6 would make a technical amendment to 
paragraph (b)(2) by removing the phrase ``low-or moderate-income'' and 
replacing it with ``low- and moderate-income,'' which is consistent 
with how that phrase appears throughout part 24. In addition, a 
conforming technical amendment is proposed for paragraph (d)(3) that 
would permit other public welfare investments, including investments of 
a type determined by the OCC to be permissible under the proposed 
revisions to part 24. Grandfathered investments that are subject to 
statutes and regulations in effect prior to October 13, 2006 would not 
be affected. These terms are familiar to national banks and correspond 
to similar terms in existing part 24 and the part 25 CRA regulations. 
Therefore, this proposal makes no change to the use of the terms 
``areas'' and ``individuals'' in part 24.
    The proposal also revises Appendix 1 to part 24, the CD-1 National 
Bank Community Development (Part 24) Investments Form, to reflect the 
proposed changes to the regulation.

Part 26--Management Officials Interlocks

    Part 26 implements the provisions of the Depository Institution 
Management Interlocks Act (Interlocks Act) \69\ which generally 
prohibits a management official from serving two nonaffiliated 
depository organizations in situations where the management interlock 
likely would have an anticompetitive effect. Section 610 of the FSRRA 
raised the asset-size amount from $20 million to $50 million for small 
banks that are exempt under certain provisions of the Interlocks Act. 
Because the OCC's current substantive rules implementing the Interlocks 
Act were issued together with the other Federal banking agencies, the 
OCC has implemented this FSRRA provision through a separate rulemaking 
conducted jointly with those agencies.\70\
---------------------------------------------------------------------------

    \69\ 12 U.S.C. 3201 et seq.
    \70\ The OCC and the other Federal banking agencies recently 
issued an interim final rule with request for comments amending 
their management interlocks rules to implement this change. See 72 
FR 1274 (Jan. 11, 2007).
---------------------------------------------------------------------------

    However, this proposal amends part 26 by deleting the reference to 
DC banks in the scope section, Sec.  26.1(c), deleting the definition 
of ``District bank'' in Sec.  26.2(i), and deleting the reference to DC 
banks in the enforcement section, Sec.  26.8.

Part 27--Fair Housing Home Loan Data System

    Part 27 applies to activities of national banks and their 
subsidiaries that make home loans for the purpose of purchasing, 
construction-permanent financing, or refinancing of residential real 
property. The proposed rule would remove DC banks from the scope of 
part

[[Page 36565]]

27 in Sec.  27.1(a) and the definition of ``bank'' in Sec.  27.2(c).

Part 28--International Banking Activities

    This proposal makes a technical change to the definition of 
``limited Federal branch'' in 12 CFR 28.11(s). Currently, this 
regulation defines a limited foreign branch as a Federal branch or 
agency that, pursuant to an agreement between the parent foreign bank 
and the FRB, may receive only those deposits permissible for an Edge 
corporation to receive. However, this agreement is not required for a 
foreign bank to operate a limited Federal branch in the United States. 
Therefore, we are removing the unnecessary reference to this agreement 
from this definition. This change, however, does not in any manner 
affect the requirement in Sec.  28.11(s) that a limited Federal branch 
licensed by the OCC may accept only those deposits that are permissible 
for an Edge corporation.
    We also are proposing a technical change to part 28 with respect to 
the expedited time periods for processing applications by eligible 
foreign banks to establish or relocate an interstate Federal branch or 
agency. Current 12 CFR 28.12(e)(3) provides that an application by an 
eligible foreign bank to establish and operate a de novo interstate 
Federal branch or agency is conditionally approved as of the 30th day 
after the OCC receives the application unless the OCC notifies the bank 
otherwise. However, the OCC is finding that the expedited process in 
the current regulation is not allowing sufficient time for the 30-day 
comment period to expire and for consideration of the comments 
received. As a result, the OCC is routinely notifying the eligible 
banks that the time period is extended. The proposal amends Sec.  
28.12(e) to provide that all expedited approvals to establish or 
relocate a Federal branch or agency are approved as of the 15th day 
after the close of the applicable public comment period, or the 45th 
day after the filing is received by the OCC, whichever is later, unless 
the OCC notifies the bank otherwise. These are the same time frames 
that would apply under 12 CFR 5.20(f)(5) if a national bank were 
engaging in a similar transaction.
    The proposal also would eliminate the applicability to DC banks of 
subpart C of part 28, which implements the International Lending 
Supervision Act of 1988 (12 U.S.C. 3901 et seq.). Specifically, the 
proposal would eliminate the references to DC banks in the scope 
section, Sec.  28.50(c), and in the definition of ``banking 
institution'', Sec.  28.51(a).

Part 31--Extensions of Credit to Insiders and Transactions With 
Affiliates

    Sections 23A and 23B of the Federal Reserve Act, as implemented by 
the Federal Reserve Board's Regulation W, impose quantitative and 
qualitative limitations on a bank's transactions with its 
``affiliates.'' Appendix A to part 31 of the OCC's rules contains two 
interpretations of section 23A pertaining to a national bank's 
transactions with an affiliate. One of these interpretations provides 
that a loan to an unaffiliated third party that is collateralized by 
securities issued by an affiliate is not a ``covered transaction'' 
(that is, a transaction to which the requirements of section 23A apply) 
so long as: the borrower provides additional collateral that meets or 
exceeds the collateral requirements of Sec.  23A (i.e., up to 130% of 
the loan); and the loan proceeds are not used to purchase the 
affiliate-issued securities or otherwise used for the benefit of, or 
transferred to, any affiliate. The Federal Reserve Board's Regulation 
W, which was issued subsequent to the OCC's adoption of these 
interpretations, treats this transaction differently. Accordingly, we 
are proposing to remove our interpretation on that issue from Appendix 
A to part 31.
    In addition, we have made minor changes to section 2 of Appendix A 
to part 31 to reflect the applicability of 12 U.S.C. 371c, 371c-1, and 
their implementing regulation, Regulation W, to deposits between 
affiliated banks. Furthermore, we have added an exception to this 
provision in order to clarify that a national bank may make or receive 
a deposit if a party other than the depositary can legally offer and 
does post the collateral.
    The proposal also removes the reference to 12 U.S.C. 1972(2)(G), 
which was repealed by section 601 of the FSRRA, in the authority 
section of part 31 as well as in Sec.  31.1.
    Finally, the proposal makes a technical amendment to Appendix B to 
part 31. This appendix compares the requirements of part 31 and part 
32. However, it currently contains an inaccurate description of part 32 
relating to exclusions to the definition of ``loans or extensions of 
credit.'' The proposal removes this inaccuracy.

Part 32--Lending Limits

    Part 32 sets forth the lending limits that are applicable to a 
national bank. Section 32.1(c)(1) excludes from the scope of part 32's 
coverage loans made by a national bank and its domestic operating 
subsidiaries to a bank ``affiliate,'' as that term is defined in 
section 23A(b)(1) of the Federal Reserve Act. After the OCC adopted 
part 32 in its current form, the Gramm-Leach-Bliley Act \71\ authorized 
a national bank (as well as insured State member banks) to hold 
financial subsidiaries and provided generally that financial 
subsidiaries would be treated as ``affiliates'' for purposes of 
sections 23A and 23B of the Federal Reserve Act. This treatment appears 
in the statute at section 23A(e). Accordingly, the Federal Reserve 
Board's Regulation W generally defines as ``affiliates'' financial 
subsidiaries established pursuant to the authorization in the Gramm-
Leach-Bliley Act.
---------------------------------------------------------------------------

    \71\ See Pub. L. 106-102, Section 121, 113 Stat. 1338, 1373-81 
(Nov. 12, 1999).
---------------------------------------------------------------------------

    This proposal adds to Sec.  32.1(c)(1) cross-references to section 
23A(e) and to Sec.  223.2(a) of the Federal Reserve Board's Regulation 
W. This change would directly cite the specific statute that defines an 
affiliate to include a financial subsidiary as well as the implementing 
provision of Regulation W. This amendment to Sec.  32.1 would make 
clear that a bank's loan to its financial subsidiary is not covered by 
the lending limit and that, instead, Regulation W applies to such a 
loan.\72\ The amendment also serves more generally to reflect the fact 
that Regulation W contains a definition of the term ``affiliate'' that 
is broader than the definition that appears in Sec.  371c.
---------------------------------------------------------------------------

    \72\ However, subsidiaries that are financial subsidiaries 
solely because they sell insurance as agent or broker in a manner 
not permitted to the parent bank are not considered ``affiliates'' 
under Regulation W (see 12 CFR 223.3(p)(2)(i)) (unless the 
subsidiary is an affiliate for reasons other than its status as a 
financial subsidiary under the Gramm-Leach-Bliley Act). Loans to 
such subsidiaries are not subject to the lending limit for the same 
reason that the lending limit does not apply to loans to companies 
that meet the general definition of ``affiliate'' in Sec.  
371c(b)(1) but are excepted from Sec.  371c by another provision, 
e.g., operating subsidiaries or companies engaged solely in holding 
the premises of the bank (see section 371c(b)(2)). The OCC does not 
apply the lending limit to loans to any financial subsidiary since 
it is not necessary given that another statutory scheme--the 
affiliate transaction restrictions--is generally applicable. This 
reason applies even where a specific exemption--such as for the 
entities described in 12 CFR 223.3(p)(2)(i)--causes the affiliate 
transaction restrictions to be inapplicable.
---------------------------------------------------------------------------

Part 34--Real Estate Lending and Appraisals

    Under current Sec.  34.22, if a national bank makes an adjustable 
rate mortgage (ARM) loan, the loan documents must specify an index to 
which a change in the interest rate will be linked. Section 34.22 
describes the requirements that generally apply to such an index. This 
proposal amends Sec.  34.22 to provide

[[Page 36566]]

national banks with additional flexibility with respect to the indices 
upon which ARM rates may be based. Specifically, the amendment permits 
national banks to use a combination of indices to which changes in the 
interest rate will be linked, in addition to a single index. The 
amendment also permits a national bank to use an index other than one 
already permissible under the rule, if the bank files a notice with the 
OCC and the OCC does not notify the bank within 30 days that the notice 
raises supervisory concerns or significant issues of law or policy. If 
the OCC notifies the bank about such issues or concerns, the bank may 
not proceed unless it has obtained the OCC's written approval. The 
approval could include any restrictions or conditions necessary to 
address the issues or concerns the OCC has identified.

Part 37--Debt Cancellation Contracts and Debt Suspension Agreements

    On September 19, 2002, the OCC published a final rule in the 
Federal Register that added a new 12 CFR part 37, which establishes 
standards governing DCCs and DSAs.\73\ In the last sentence of Sec.  
37.7(a), the cross-reference to standards in Sec.  37.6 is incorrect. 
The rule should say Sec.  37.6(d), not Sec.  37.6(b). This amendment 
corrects that error.
---------------------------------------------------------------------------

    \73\ 67 FR 58962.
---------------------------------------------------------------------------

Part 40--Privacy of Consumer Financial Information

    Part 40 governs the treatment of nonpublic personal information 
about consumers by financial institutions. Pursuant to the DC Bank Act, 
the proposal would amend the scope section, Sec.  40.1(b), to eliminate 
the applicability of part 40 to DC banks.

Request for Comments

    The OCC welcomes comments on any aspect of this proposal, 
particularly those issues specifically noted in this preamble.

Solicitation of Comments on Use of Plain Language

    Section 722 of the Gramm-Leach-Bliley Act, Public Law 106-102, sec. 
722, 113 Stat. 1338, 1471 (Nov. 12, 1999), requires the Federal banking 
agencies to use plain language in all proposed and final rules 
published after January 1, 2000. We invite your comments on how to make 
this proposal easier to understand. For example:
    <bullet> Have we organized the material to suit your needs? If not, 
how could this material be better organized?
    <bullet> Are the requirements in the proposed regulation clearly 
stated? If not, how could the regulation be more clearly stated?
    <bullet> Does the proposed regulation contain language or jargon 
that is not clear? If so, which language requires clarification?
    <bullet> Would a different format (grouping and order of sections, 
use of headings, paragraphing) make the regulation easier to 
understand? If so, what changes to the format would make the regulation 
easier to understand?
    <bullet> What else could we do to make the regulation easier to 
understand?

Community Bank Comment Request

    In addition, we invite your comments 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 comments on 
the impact of this 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.

Regulatory Analysis

Regulatory Flexibility Act

    Pursuant to Sec.  605(b) of the Regulatory Flexibility Act, 5 
U.S.C. 605(b) (RFA), the regulatory flexibility analysis otherwise 
required under Section 604 of the RFA is not required if the agency 
certifies that the rule will not have a significant economic impact on 
a substantial number of small entities and publishes its certification 
and a short, explanatory statement in the Federal Register along with 
its rule.
    We have estimated that the economic costs associated with the 
changes made by this proposal will not be significant and that the 
majority of banks affected by these costs will be those with assets 
greater than $250 million. Therefore, pursuant to Section 605(b) of the 
RFA, the OCC hereby certifies that this proposal will not have a 
significant economic impact on a substantial number of small entities. 
Accordingly, a regulatory flexibility analysis is not needed.

Executive Order 12866

    The OCC has determined that this proposal is not a significant 
regulatory action under Executive Order 12866. We have concluded that 
the changes made by this rule will not have an annual effect on the 
economy of $100 million or more. The OCC further concludes that this 
proposal does not meet any of the other standards for a significant 
regulatory action set forth in Executive Order 12866.

Paperwork Reduction Act

    In accordance with the requirements of the Paperwork Reduction Act 
of 1995 (PRA), the Agencies may not conduct or sponsor, and the 
respondent is not required to respond to, an information collection 
unless it displays a currently valid Office of Management and Budget 
(OMB) control number.
    The information collection requirements contained in this notice of 
proposed rulemaking have been submitted to OMB for review and approval 
under existing OMB control numbers 1557-0014 (Comptroller's Licensing 
Manual), 1557-0120 (Securities Offering Disclosure Rules), 1557-0194 
(Community and Economic Development Entities, Community Development 
Projects, and Other Public Welfare Investments), and 1557-0190 (Real 
Estate Lending and Appraisals).
    The OCC is proposing to revise part 5 to reflect organizational 
restructuring, and to simplify, clarify and make conforming and 
technical corrections to corporate application procedures and 
standards. The PRA burden in part 5 is currently approved under OMB 
Control No. 1557-0014, which also covers the Comptroller's Licensing 
Manual. Therefore, we submitted the entire information collection to 
OMB for review. The numbers below reflect the total burden under part 5 
and the Comptroller's Licensing Manual following adoption of the rule 
and the review of the entire information collection to ensure accuracy 
of the estimates.
    Title of Information Collection: Comptroller's Licensing Manual.
    OMB Number: 1557-0014.
    Estimated Number of Respondents: 5,894.
    Estimated Number of Responses: 5,894.
    Average Hours Per Response: 2.98 hours.
    Total Estimated Annual Burden: 17,572 hours.
    Affected Public: National banks.
    Estimated Net Burden Change: -7,975 hours.
    The OCC is proposing to revise part 16 to delete the public and 
periodic requirements in 12 CFR 16.20 and the requirement to submit to 
the OCC a Form D required in 12 CFR 16(a)(3). The PRA burden in part 16 
is currently approved under OMB Control No. 1557-0120. Therefore, we 
submitted the entire information collection for review. The numbers 
below reflect the entire burden for part 16 following adoption of the 
rule and the review of the entire

[[Page 36567]]

information collection to ensure accuracy of the estimates.
    Title of Information Collection: Securities Offering Disclosure 
Rules--12 CFR Part 16.
    OMB Number: 1557-0120.
    Estimated Number of Respondents: 48.
    Estimated Number of Responses: 48.
    Average Hours Per Response: 10.63.
    Total Estimated Annual Burden: 510.
    Affected Public: National banks.
    Estimated Net Burden Change: -4,823 hours.
    The OCC is proposing to revise part 24 to incorporate changes made 
by the FSRRA to community development investment authority. The OCC is 
also proposing to revise its community development investment form 
contained in Appendix 1 to Part 24. The PRA burden for part 24 is 
currently approved under OMB Control No. 1557-0194. Therefore, the OCC 
submitted the entire information collection for review. The numbers 
below reflect the entire burden for part 24 following adoption of the 
rule and the review of the entire information collection to ensure 
accuracy of the estimates.
    Title of Information Collection: Community and Economic Development 
Entities, Community Development Projects--Part 24.
    OMB Number: 1557-0194.
    Estimated Number of Respondents: 400.
    Estimated Number of Responses: 400.
    Average Hours Per Response: 1.475 hours.
    Total Estimated Annual Burden: 590 hours.
    Affected Public: National banks.
    Estimated Net Burden Change: + 219 hours.
    The OCC is proposing to revise part 34 to provide national banks 
with additional flexibility with respect to the indices upon which ARM 
rates may be based. The PRA burden for part 34 is currently approved 
under OMB Control No. 1557-0190. Therefore, the OCC submitted the 
entire information collection for review. The numbers below reflect the 
entire burden for part 34 following adoption of the rule and the review 
of the entire information collection to ensure accuracy of the 
estimates.
    Title of Information Collection: Real Estate Lending and 
Appraisals--12 CFR Part 34.
    OMB Number: 1557-0190.
    Estimated Number of Respondents: 1,800.
    Estimated Number of Responses: 1,800.
    Average Hours Per Response: 57.
    Total Estimated Annual Burden: 102,650 hours.
    Affected Public: National banks.
    Estimated Net Burden Change: -12,900 hours.
    The information collection requirements enable the OCC to ensure 
that the proposed transactions are permissible under law and regulation 
and are consistent with safe and sound banking practices.
    Comments are invited on:
    (a) Whether the collection of information is necessary for the 
proper performance of the Agencies' functions, including whether the 
information has practical utility;
    (b) The accuracy of the estimates of the burden of the information 
collection, including the validity of the methodology and assumptions 
used;
    (c) Ways to enhance the quality, utility, and clarity of the 
information to be collected;
    (d) Ways to minimize the burden of the information collection on 
respondents, including through the use of automated collection 
techniques or other forms of information technology; and
    (e) Estimates of capital or start up costs and costs of operation, 
maintenance, and purchase of services to provide information.
    Comments on these burden estimates should be submitted using one of 
the methods outlined in the ADDRESSES caption set forth above, and a 
copy should also be sent to OCC Desk Officer, 1557-0014, 1557-0120, 
1557-0194, or 1557-0190 by mail to U.S. Office of Management and 
Budget, 725 17th Street, NW., <greek-i>10235, Washington, DC 20503, or 
by fax to (202) 395-6974. You may request additional information or 
copies of the collections and supporting documentation submitted to OMB 
by contacting: Mary H. Gottlieb or Camille Y. Dickerson, (202) 874-
5090, Legislative and Regulatory Activities Division, Office of the 
Comptroller of the Currency, 250 E Street, SW., Washington, DC 20219.

Unfunded Mandates Reform Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 
104-4 (2 .S.C. 1532) (Unfunded Mandates Act), requires that an agency 
prepare a budgetary impact statement before promulgating any rule 
likely to result in a Federal mandate that may result in the 
expenditure by State, local, and tribal governments, in the aggregate, 
or by the private sector of $100 million or more in any one year. If a 
budgetary impact statement is required, Section 205 of the 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 this proposed rule will not result in 
expenditures by State, local, and tribal governments, or by the private 
sector, of $100 million or more in any one year. Accordingly, this 
proposal is not subject to Section 202 of the Unfunded Mandates Act.

List of Subjects

12 CFR Part 1

    Banks, Banking, National banks, Reporting and recordkeeping 
requirements, Securities.

12 CFR Part 2

    Credit life insurance, National banks.

12 CFR Part 3

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

12 CFR Part 4

    Administrative practice and procedure, Freedom of information, 
Individuals with disabilities, Minority businesses, Organization and 
functions (Government agencies), Reporting and recordkeeping 
requirements, Women.

12 CFR Part 5

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

12 CFR Part 7

    Bank Activities and Operations.

12 CFR Part 9

    Estates, Investments, National banks, Reporting and recordkeeping 
requirements, Trusts and trustees.

12 CFR Part 10

    National banks, Reporting and recordkeeping requirements, 
Securities.

12 CFR Part 11

    Confidential business information, National banks, Reporting and 
recordkeeping requirements, Securities.

12 CFR Part 12

    National banks, Reporting and recordkeeping requirements, 
Securities.

12 CFR Part 16

    National banks, Reporting and recordkeeping requirements, 
Securities.

12 CFR Part 19

    Administrative practice and procedure, Crime, Equal access to 
justice, Investigations, National banks, Penalties, Securities.

[[Page 36568]]

12 CFR Part 21

    Crime, Currency, National banks, Reporting and recordkeeping 
requirements, Security measures.

12 CFR Part 22

    Flood insurance, Mortgages, National banks, Reporting and 
recordkeeping requirements.

12 CFR Part 23

    National banks

12 CFR Part 24

    Community development, Credit investments, Low and moderate income 
housing, National banks, Reporting and recordkeeping requirements, 
Rural areas, Small businesses

12 CFR Part 26

    Antitrust, Holding companies, National banks.

12 CFR Part 27

    Civil rights, Credit, Fair housing, Mortgages, National banks, 
Reporting and recordkeeping requirements.

12 CFR Part 28

    Foreign banking, National banks, Reporting and recordkeeping 
requirements.

12 CFR Part 31

    Credit, National banks, Reporting and recordkeeping requirements

12 CFR Part 32

    National banks, Reporting and recordkeeping requirements

12 CFR Part 34

    Mortgages, National banks, Reporting and recordkeeping requirements

12 CFR Part 37

    Banks, banking, Consumer protection, National banks, Reporting and 
recordkeeping requirements.

12 CFR Part 40

    Banks, Banking, Consumer protection, National banks, Privacy, 
Reporting and recordkeeping requirements.

Authority and Issuance

    For the reasons set forth in the preamble, chapter I of title 12 of 
the Code of Federal Regulations is proposed to be amended as follows:

PART 1--INVESTMENT SECURITIES

    1. The authority citation for part 1 continues to read as follows:

    Authority: 12 U.S.C. 1 et seq., 24 (Seventh), and 93a.

    2. Amend Sec.  1.1 by:
    a. Revising the heading of Sec.  1.1;
    b. Revising the first sentence of paragraph (c); and
    c. Adding a new paragraph (d).
    The additions and revisions read as follows:


Sec.  1.1  Authority, purpose, scope, and reservation of authority.

* * * * *
    (c) Scope. The standards set forth apply to national banks and 
federal branches of foreign banks. * * *
    (d) Reservation of authority. The OCC may determine, on a case-by-
case basis, that a national bank may acquire an investment security 
other than an investment security of a type set forth in this part, 
provided the OCC determines that the bank's investment is consistent 
with section 24 (Seventh) and with safe and sound banking practices. 
The OCC will consider all relevant factors, including the risk 
characteristics of the particular investment in comparison with the 
risk characteristics of investments that the OCC has previously 
authorized, and the bank's ability effectively to manage such risks. 
The OCC may impose limits or conditions in connection with approval of 
an investment security under this subsection.
    3. Amend Sec.  1.3 by:
    a. In paragraph (h), removing the heading ``Investment company 
shares'' and in its place add the heading ``Pooled investments'';
    b. In paragraph (h)(1)(i), removing the phrase ``under this part'';
    c. In paragraph (h)(2), removing the phrase ``under this part'';
    d. Adding a new paragraph (h)(3) to read as follows; and
    e. In paragraph (i)(1), adding the phrase ``the security is 
marketable and'' after the word ``if'' and removing the phrase ``, and 
the bank believes that the security may be sold with reasonable 
promptness at a price that corresponds reasonably to its fair value''.
    The addition reads as follows:


Sec.  1.3  Limitations on dealing in, underwriting, and purchase and 
sale of securities.

* * * * *
    (h) * * *
    (3) Investments made under Sec.  1.3(h) must be:
    (i) Marketable and rated investment grade or the credit equivalent 
of a security rated investment grade, or
    (ii) Satisfy the requirements of Sec.  1.3(i).
* * * * *

PART 2--SALES OF CREDIT LIFE INSURANCE

    4. The authority citation for part 2 continues to read as follows:

    Authority: 12 U.S.C. 24 (Seventh), 93a, and 1818(n).

    5. In Sec.  2.2 revise paragraph (a) to read as follows:


Sec.  2.2  Definitions.

    (a) Bank means a national banking association.
* * * * *

PART 3--MINIMUM CAPITAL RATIOS; ISSUANCE OF DIRECTIVES

    6. The authority citation for part 3 continues to read as follows:

    Authority: 12 U.S.C. 93a, 161, 1818, 1828(n), 1828 note, 1831n 
note, 1835, 3907, and 3909.

    7. In Sec.  3.2, revise paragraph (b) to read as follows:


Sec.  3.2  Definitions.

* * * * *
    (b) Bank means a national banking association.
* * * * *
    8. In Appendix A of part 3, revise the first sentence of section 
3(a)(1)(v) to read as follows:

Appendix A to Part 3--Risk-Based Capital Guidelines

* * * * *
    Section 3. Risk Categories/Weights for On-Balance Sheet Assets 
and Off-Balance Sheet Items
* * * * *
    (a) * * *
    (1) * * *
    (v) That portion of local currency claims on, or unconditionally 
guaranteed by, central governments of non-OECD countries, to the 
extent the bank has liabilities in that currency. * * *
* * * * *

PART 4--ORGANIZATION AND FUNCTIONS, AVAILABILITY AND RELEASE OF 
INFORMATION, CONTRACTING OUTREACH PROGRAM, POST-EMPLOYMENT 
RESTRICTIONS FOR SENIOR EXAMINERS

    9. The authority citation for part 4 is revised to read as follows:

    Authority: 12 U.S.C. 93a. Subpart A also issued under 5 U.S.C. 
552. Subpart B also issued under 5 U.S.C. 552; E.O. 12600 (3 CFR 
1987 Comp., p. 235). Subpart C also issued under 5 U.S.C. 301, 552; 
12 U.S.C. 161, 481, 482, 484(a), 1442, 1817(a)(2) and (3), 1818(u) 
and (v), 1820(d)(6), 1920(k), 1821(c), 1821(o), 1821(t), 1831m, 
1831p-1, 1831o, 1867, 1951 et seq., 2601 et seq., 2801 et seq., 2901 
et seq., 3101 et seq., 3401 et seq.; 15 U.S.C. 77uu(b), 78q(c)(3); 
18 U.S.C. 641, 1905, 1906; 29 U.S.C. 1204; 31 U.S.C. 9701; 42 U.S.C. 
3601; 44 U.S.C. 3506, 3510. Subpart D also issued under 12 U.S.C. 
1833e.


[[Page 36569]]


    10. In Sec.  4.4, revise the second sentence to read as follows:


Sec.  4.4  Washington office.

    * * * The Washington office directs OCC policy, oversees OCC 
operations, and is responsible for the direct supervision of certain 
national banks, including the largest national banks (through its Large 
Bank Supervision Department) and other national banks requiring special 
supervision. * * *
    11. In Sec.  4.5(a), revise the table to read as follows:


Sec.  4.5  District and field offices.

    (a) * * *

------------------------------------------------------------------------
                                                        Geographical
          District               Office address          composition
------------------------------------------------------------------------
Northeastern District.......  Office of the         Connecticut,
                               Comptroller of the    Delaware, District
                               Currency, 340         of Columbia, Maine,
                               Madison Avenue, 5th   Maryland,
                               Floor, New York, NY   Massachusetts, New
                               10017-2613.           Hampshire, New
                                                     Jersey, New York,
                                                     North Carolina,
                                                     eastern Ohio,
                                                     Pennsylvania,
                                                     Puerto Rico, Rhode
                                                     Island, South
                                                     Carolina, Vermont,
                                                     the Virgin Islands,
                                                     Virginia, and West
                                                     Virginia.
Central District............  Office of the         Illinois, Indiana,
                               Comptroller of the    eastern Iowa,
                               Currency, One         northern Kentucky,
                               Financial Place,      Michigan,
                               Suite2700, 440        Minnesota, eastern
                               South LaSalle         Missouri, North
                               Street, Chicago, IL   Dakota, Ohio
                               60605.                (except for eastern
                                                     Ohio), and
                                                     Wisconsin.
Southern District...........  Office of the         Alabama, Arkansas,
                               Comptroller of the    Florida, Georgia,
                               Currency, 500 North   southern Kentucky,
                               Akard Street, Suite   Louisiana,
                               1600, Dallas, TX      Mississippi,
                               75201.                Oklahoma,
                                                     Tennessee, and
                                                     Texas.
Western District............  Office of the         Alaska, Arizona,
                               Comptroller of the    California,
                               Currency, 1225 17th   Colorado, Hawaii,
                               Street, Suite 300,    Idaho, western
                               Denver, CO 80202.     Iowa, Kansas,
                                                     western Missouri,
                                                     Montana, Nebraska,
                                                     Nevada, New Mexico,
                                                     Oregon, South
                                                     Dakota, Utah,
                                                     Washington,
                                                     Wyoming, and Guam.
------------------------------------------------------------------------

* * * * *

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

    12. The authority citation for part 5 continues to read as follows:

    Authority:  12 U.S.C. 1 et seq.; 93a; 215a-2; 215a-3, 481, and 
section 5136A of the Revised Statutes (12 U.S.C. 24a).


Sec.  5.3  [Amended]

    13. In Sec.  5.3 remove paragraph (j) and redesignate paragraphs 
(k) and (l) as paragraphs (j) and (k), respectively.


Sec.  5.4  [Amended]

    14. Amend Sec.  5.4(d) by:
    a. Removing ``Licensing Manager'' in the first sentence and adding 
in its place ``Director for District Licensing''; and
    b. Removing the phrase ``Bank Organization and Structure 
Department'' in the second sentence and adding in its place the phrase 
``Licensing Department''.
    15. Amend Sec.  5.13 by:
    a. In paragraph (c), adding two sentences at the end of the 
paragraph;
    b. In paragraph (f):
    i. Removing the phrase ``Deputy Comptroller for Bank Organization 
and Structure'' in the first sentence and adding in its place the 
phrase ``Deputy Comptroller for Licensing''; and
    ii. Adding a sentence after the first sentence.
    The additions read as follows:


Sec.  5.13  Decisions.

* * * * *
    (c) * * * The OCC may return an application without a decision if 
it finds the filing to be materially deficient. A filing is materially 
deficient if it lacks sufficient information for the OCC to make a 
determination under the applicable statutory or regulatory criteria.
* * * * *
    (f) * * * In the event the Deputy Comptroller for Licensing was the 
deciding official of the matter appealed, or was involved personally 
and substantially in the matter, the appeal may be referred instead to 
the Chief Counsel. * * *
* * * * *
    16. Amend Sec.  5.20 by:
    a. In paragraph (i)(3), removing the term ``spokesperson'' wherever 
it appears and in its place adding the term `` contact person''; and
    b. In paragraph (i)(5) by:
    i. Revising the heading; and
    ii. Adding a sentence after the second sentence of paragraph 
(i)(5)(i); and
    iii. Redesignating paragraphs (i)(5)(ii) and (i)(5)(iii) as 
paragraphs (i)(5)(iii) and (i)(5)(iv), respectively; and
    iv. Redesignating the last sentence of paragraph (i)(5)(i) as new 
paragraph (i)(5)(ii).
    The addition and revision read as follows:


Sec.  5.20  Organizing a bank.

    (i) * * *
    (5) Activities.
    (i) * * * A proposed national bank may offer and sell securities 
prior to OCC preliminary approval of the proposed national bank's 
charter application, provided that the proposed national bank has filed 
articles of association and an organization certificate, and a charter 
application that is completed and the bank complies with the OCC's 
securities offering regulations, 12 CFR part 16. * * *
    17. Amend Sec.  5.26 as follows:
    a. Remove paragraph (e)(2)(i)(B);
    b. Redesignate paragraphs (e)(2)(i)(C), (e)(2)(i)(D), (e)(2)(i)(E), 
as paragraphs (e)(2)(i)(B), (e)(2)(i)(C), (e)(2)(i)(D), respectively;
    c. At the end of newly redesignated paragraph (e)(2)(i)(C), remove 
the word ``and';
    d. At the end of newly redesignated paragraph (e)(2)(i)(D), remove 
the period and add in its place the phrase ``; and';
    e. Add a new paragraph (e)(2)(i)(E) to read as follows;
    f. In paragraph (e)(3), remove the designation ``(i)'' for 
paragraph (e)(3)(i); and
    g. Remove paragraph (e)(3)(ii) in its entirety.
    The addition reads as follows:


Sec.  5.26  Fiduciary powers.

* * * * *
    (e) * * *
    (2) * * *
    (i) * * *
    (E) If requested by the OCC, an opinion of counsel that the 
proposed activities do not violate applicable Federal or State law, 
including citations to applicable law.
* * * * *
    18. Amend Sec.  5.30 as follows:
    a. In paragraph (d)(1)(i), add ``intermittent facility,'' after 
``temporary facility,' ''; and
    b. Redesignate paragraphs (d)(3) though (d)(5) as paragraphs (d)(4) 
through (d)(6), respectively; and add a new paragraph (d)(3);

[[Page 36570]]

    c. Redesignate paragraphs (f)(4) and (f)(5) as paragraphs (f)(5) 
and (f)(6), respectively, and add a new paragraph (f)(4) to read as 
follows.
    The additions read as follows:


Sec.  5.30  Establishment, acquisition, and relocation of a branch.

* * * * *
    (d) * * *
    (3) Intermittent branch means a branch that is operated for one or 
more limited periods of time to provide branch banking services at a 
specified recurring event, on the grounds or premises where the event 
is held or at a fixed site adjacent to the grounds or premises where 
the event is held, and exclusively during the occurrence of the event. 
Examples of an intermittent branch include the operation of a branch on 
the campus of, or at a fixed site adjacent to the campus of, a specific 
college during school registration periods; or the operation of a 
branch during a State fair on State fairgrounds or at a fixed site 
adjacent to the fairgrounds.
* * * * *
    (f) * * *
    (4) Intermittent branches. Prior to operating an intermittent 
branch, a national bank shall file a branch application and publish 
notice in accordance with Sec.  5.8, both of which shall identify the 
event at which the branch will be operated; designate a location for 
operation of the branch which shall be on the grounds or premises at 
which the event is held or on a fixed site adjacent to those grounds or 
premises; and specify the approximate time period during which the 
event will be held and during which the branch will operate, including 
whether operation of the branch will be on an annual or otherwise 
recurring basis. If the branch is approved, then the bank need not 
obtain approval each time it seeks to operate the branch in accordance 
with the original application and approval.
* * * * *
    19. Amend Sec.  5.33 to read as follows:
    a. Add introductory text at the beginning of paragraph (d);
    b. Remove the introductory text in paragraph (e)(1);
    c. Redesignate paragraphs (e)(1)(i)(A) and (e)(1)(i)(B) as 
paragraphs (e)(1)(i)(A)(1) and (e)(1)(i)(A)(2), respectively, and 
paragraphs (e)(1)(i) through (e)(1)(iii) as paragraphs (e)(1)(i)(A) 
through (e)(1)(i)(C), respectively; paragraph (e)(1)(iv) as paragraph 
(e)(1)(ii); and paragraph (e)(1)(v) as paragraph (e)(1)(iii);
    d. Add paragraph (e)(1)(i) introductory text;
    e. Revise redesignated paragraph (e)(1)(ii);
    f. Remove the phrase ``, and with the appropriate district office'' 
from the first sentence of paragraph (e)(8)(ii);
    g. Revise the headings of paragraphs (g), (g)(1) and (g)(3);
    h. Remove the phrase ``or merger'' in paragraph (g)(2)(ii);
    i. Remove the phrase ``12 U.S.C. 214c'' in paragraph (g)(3)(i) and 
add in its place ``12 U.S.C. 214b''; and
    j. Revise paragraph (h).
    The additions and revisions read as follows:


Sec.  5.33  Business combinations.

* * * * *
    (d) Definitions--For purposes of this Sec.  5.33: * * *
    (e) Policy.--(1) Factors.--(i) Bank Merger Act. When the OCC 
evaluates an application for a business combination under the Bank 
Merger Act, the OCC considers the following factors: * * *
    (ii) Community Reinvestment Act. When the OCC evaluates an 
application for a business combination under the Community Reinvestment 
Act, the OCC considers the performance of the applicant and the other 
depository institutions involved in the business combination in helping 
to meet the credit needs of the relevant communities, including low- 
and moderate-income neighborhoods, consistent with safe and sound 
banking practices.
* * * * *
    (g) Provisions governing consolidations and mergers with different 
types of entities.--(1) Consolidations and mergers under 12 U.S.C. 215 
or 215a of a national bank with other national banks and State banks as 
defined in 12 U.S.C. 215b(1) resulting in a national bank. * * *
* * * * *
    (3) Consolidation or merger of a national bank resulting in a State 
bank as defined in 12 U.S.C. 214(a) under 12 U.S.C. 214a or a Federal 
savings association under 12 U.S.C. 215c. * * *
* * * * *
    (h) Interstate combinations under 12 U.S.C. 1831u. A business 
combination between insured banks with different home States under the 
authority of 12 U.S.C. 1831u must satisfy the standards and 
requirements and comply with the procedures of 12 U.S.C. 1831u and 
either 12 U.S.C. 215, 215a, and 215a-1, as applicable, if the resulting 
bank is a national bank, or 12 U.S.C. 214a, 214b, and 214c if the 
resulting bank is a State bank. For purposes of 12 U.S.C. 1831u, the 
acquisition of a branch without the acquisition of all or substantially 
all of the assets of a bank is treated as the acquisition of a bank 
whose home State is the State in which the branch is located.
* * * * *
    20. Amend Sec.  5.34 as follows:
    a. Amend paragraph (e)(2) by:
    i. Redesignating paragraphs (e)(2)(i) and (e)(2)(ii) as paragraphs 
(e)(2)(ii)(A) and (e)(2)(ii)(B), respectively;
    ii. Redesignating the first sentence of paragraph (e)(2) 
introductory text as paragraph (e)(2)(i) and revising it; and
    iii. Redesignating the second sentence of paragraph (e)(2) 
introductory text as paragraph (e)(2)(ii) introductory text, 
republishing it for reader reference;
    b. Amend paragraph (e)(5) by:
    i. Revising paragraph (e)(5)(i);
    ii. Removing paragraph (e)(5)(iv);
    iii. Redesignating paragraphs (e)(5)(ii) and (e)(5)(iii) as 
paragraphs (e)(5)(iii) and (e)(5)(iv);
    iv. Removing the word ``and'' at the end of paragraph (e)(5)(v)(X), 
and the period at the end of paragraph (e)(5)(v)(Y) and adding in its 
place ``; and'';
    v. Revising paragraph (e)(5)(vi) introductory text;
    vi. Removing the word ``and'' at the end of paragraph 
(e)(5)(vi)(B);
    vii. Replacing the period with a semicolon and adding the word 
``and'' at the end of (e)(5)(vi)(C); and
    viii. Adding new paragraphs (e)(5)(ii), (e)(5)(v)(Z), 
(e)(5)(v)(AA), (e)(5)(v)(BB), (e)(5)(v)(CC), (e)(5)(v)(DD), 
(e)(5)(v)(EE), (e)(5)(v)(FF), (e)(5)(v)(GG), and (e)(5)(vi)(D).
    The additions and revisions read as follows:


Sec.  5.34  Operating subsidiaries.

* * * * *
    (e) * * *
    (2) Qualifying subsidiaries. (i) An operating subsidiary in which a 
national bank may invest includes a corporation, limited liability 
company, limited partnership, or similar entity if:
    (A) The bank has the ability to control the management and 
operations of the subsidiary by owning more than 50 percent of the 
voting interest in the subsidiary, or otherwise; and
    (B) The operating subsidiary is consolidated with the bank under 
Generally Accepted Accounting Principles (GAAP).
    (ii) However, the following subsidiaries are not operating 
subsidiaries subject to this section: * * *
    (5) Procedures.--(i) Notice required. (A) Except for operating 
subsidiaries subject to the application procedures set forth in 
paragraph (e)(5)(ii) of this section or exempt from notice or

[[Page 36571]]

application procedures under paragraph (e)(5)(vi) of this section, a 
national bank that is ``well capitalized'' and ``well managed'' may 
establish or acquire 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 new activity, if:
    (1) The activity is listed in paragraph (e)(5)(v) of this section;
    (2) The entity is a corporation or a limited liability company, or 
it is a limited partnership and the bank controls, directly or 
indirectly, all of the ownership interests in the limited partnership;
    (3) If the entity is not organized in the form of a limited 
partnership, the bank has the ability to control the management and 
operations of the subsidiary by holding:
    (i) More than 50 percent of the voting interests in the subsidiary, 
or
    (ii) Voting interests sufficient to select the number of directors 
needed to control the subsidiary's board and to select and terminate 
senior management; and
    (4) The financial statements of the bank and the subsidiary are 
consolidated under Generally Accepted Accounting Principles.
    (B) 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. To the extent that the notice relates to the 
initial affiliation of the bank with a company engaged in insurance 
activities, the bank should describe the type of insurance activity in 
which the company is engaged and has present plans to conduct. 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 
where the company holds a resident license or charter, as applicable. 
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.
    (ii) Application required. (A) Except where the operating 
subsidiary is exempt from notice or application requirements under 
paragraph (e)(5)(vi) of this section, or subject to the notice 
procedures in paragraph (e)(5)(i), a national bank must first submit an 
application to, and receive approval from, the OCC with respect to the 
establishment or acquisition of an operating subsidiary, or the 
performance of a new activity in an existing operating subsidiary.
    (B) The application must explain, as appropriate, how the bank 
``controls'' the enterprise, describing in full detail structural 
arrangements where control is based on factors other than bank 
ownership of more than 50 percent of the voting interest of the 
subsidiary. The application also 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 
subsidiary, the relations between the bank and the subsidiary, and 
other information necessary to adequately describe the proposal. To the 
extent that the application relates to the initial affiliation of the 
bank with a company engaged in insurance activities, the bank should 
describe 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 where the company holds a 
resident license or charter, as applicable. The application must state 
whether the operating subsidiary will conduct any activity at a 
location other than the main office or a previously approved branch of 
the bank. The OCC may require an 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. 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) * * *
    (Z) Providing data processing, and data transmission services, 
facilities (including equipment, technology, and personnel), data 
bases, advice and access to such services, facilities, data bases and 
advice, for the parent bank and for others, pursuant to 12 CFR 7.5006 
to the extent permitted by published OCC precedent;
    (AA) Providing bill presentment, billing, collection, and claims-
processing services;
    (BB) Providing safekeeping for personal information or valuable 
confidential trade or business information, such as encryption keys, to 
the extent permitted by published OCC precedent;
    (CC) Providing payroll processing;
    (DD) Providing branch management services;
    (EE) Providing merchant processing services except when the 
activity involves the use of third parties to solicit or underwrite 
merchants;
    (FF) Performing administrative tasks involved in benefits 
administration; and
    (GG) Performing an activity approved in published OCC precedent for 
a non-controlling investment by a national bank or its operating 
subsidiary pursuant to 12 CFR 5.36(e)(2), provided the activity is 
conducted in accordance with the same terms and conditions applicable 
to the activity covered by the precedent as well as with any other 
restrictions that would be imposed due to its status as an operating 
subsidiary.
    (vi) No application or notice required. A national bank may acquire 
or establish an operating subsidiary, or engage in the performance of a 
new activity in an existing operating subsidiary, without filing an 
application or providing notice to the OCC, if the bank is well managed 
and adequately capitalized or well capitalized and the: * * *
    (D) The standards set forth in paragraphs (e)(5)(i)(A)(2), (3), and 
(4) of this section are satisfied.
* * * * *
    21.Amend Sec.  5.35 as follows:
    a. In paragraph (d)(1) remove ``insured banks'' each time it 
appears and add in its place ``insured depository institutions'';
    b. In paragraph (d)(3) add ``, except when such term appears in 
connection with the term `insured depository institution' '' after 
``means'';
    c. Redesignate paragraphs (d)(4) and (d)(5) as paragraphs (d)(5) 
and (d)(6), respectively;
    d. Add new paragraph (d)(4);
    e. In newly redesignated paragraph (d)(6):
    i. Remove ``insured bank'' and add in its place ``insured 
depository institution'';
    ii. Remove ``insured banks'' and add in its place ``insured 
depository institutions''; and
    iii. Remove ``banks as its principal investor'' and add in its 
place ``insured depository institutions as its principal investor'';
    f. Add the word ``and'' at the end of paragraph (g)(3);
    g. Revise paragraph (g)(4);
    h. Revise the heading in paragraph (i); and
    i. Remove paragraphs (g)(5) and (i)(2) and the paragraph 
designation for paragraph (i)(1).
    The additions and revisions read as follows:

[[Page 36572]]

Sec.  5.35  Bank service companies.

* * * * *
    (d) * * *
    (4) Insured depository institution, for purposes of this section, 
has the same meaning as in section 3 of the Federal Deposit Insurance 
Act.
* * * * *
    (g) * * *
    (4) Information demonstrating that the bank service company will 
perform only those services that each insured depository institution 
shareholder or member is authorized to perform under applicable Federal 
or State law and will perform such services only at locations in a 
State in which each such shareholder or member is authorized to perform 
such services unless performing services that are authorized by the 
Federal Reserve Board under the authority of 12 U.S.C. 1865(b).
* * * * *
    (i) Investment limitations. * * *
    22. Add Sec.  5.36 as follows:
    a. Add ``application or'' before ``notice'' in paragraph (b);
    b. Remove the last sentence of paragraph (b);
    c. Revise paragraph (e) introductory text;
    d. Remove paragraph (e)(5);
    e. Redesignate paragraphs (e)(6) through (e)(8) as paragraphs 
(e)(5) through (e)(7), respectively, and paragraphs (f) and (g) as 
paragraphs (h) and (i), respectively;
    f. Revise redesignated paragraph (e)(6);
    g. Add new paragraphs (f) and (g) to read as follows:


Sec.  5.36  Other equity investments.

* * * * *
    (e) Non-controlling investments; notice procedure. Unless the 
procedures governing a national bank's non-controlling investment are 
prescribed by OCC rules implementing a separate legal authorization of 
the investment and except as provided in paragraphs (f) and (g) of this 
section, a national bank may make a non-controlling investment, 
directly or through its operating subsidiary, in an enterprise that 
engages in the activities described in paragraph (e)(2) of this section 
by filing a written notice. The bank must file this written notice with 
the appropriate district office no later than 10 days after making the 
investment. The written notice must:
* * * * *
    (6) Certify that the bank's loss exposure is limited as a legal 
matter and that the bank does not have unlimited liability for the 
obligations of the enterprise; and
* * * * *
    (f) Non-controlling investment; application procedure. Unless the 
procedures governing a national bank's non-controlling investment are 
prescribed by OCC rules implementing a separate legal authorization of 
the investment, a national bank must file an application and obtain 
prior approval before making or acquiring, either directly or through 
an operating subsidiary, a non-controlling investment in an enterprise 
if the non-controlling investment does not qualify for the notice 
procedure set forth in paragraph (e) because the bank is unable to make 
the representations set forth in paragraph (e)(2) or (e)(3) of this 
section. The application must include the information required in 
paragraphs (e)(1) and (e)(4) through (e)(7) of this section and (e)(2) 
or (e)(3), as appropriate. If the bank is unable to make the 
representation set forth in paragraph (e)(2) of this section, the 
bank's application must explain why the activity in which the 
enterprise engages is a permissible activity for a national bank and 
why the applicant should be permitted to hold a non-controlling 
investment in an enterprise engaged in that activity. A bank may not 
make a non-controlling investment if it is unable to make the 
representations and provide the information specified in paragraphs 
(e)(1) and (e)(4) through (e)(7) of this section.
    (g) Non-controlling investments in entities holding assets in 
satisfaction of debts previously contracted. Certain non-controlling 
investments may be eligible for expedited treatment where the bank's 
investment is in an entity holding assets in satisfaction of debts 
previously contracted or the bank acquires shares of a company in 
satisfaction of debts previously contracted.
    (1) Notice required. A national bank that is well capitalized and 
well managed may acquire a non-controlling investment, directly or 
through its operating subsidiary, in an enterprise that engages in the 
activities of holding and managing assets acquired by the parent bank 
through foreclosure or otherwise in good faith to compromise a doubtful 
claim, or in the ordinary course of collecting a debt previously 
contracted, by filing a written notice in accordance with this 
paragraph (g)(i). The activities of the enterprise must be conducted 
pursuant to the same terms and conditions as would be applicable if the 
activity were conducted directly by a national bank. The bank must file 
the written notice with the appropriate district office no later than 
10 days after making the non-controlling investment. This notice must 
include a complete description of the bank's investment in the 
enterprise and the activities conducted, a description of how the bank 
plans to divest the non-controlling investment or the underlying assets 
within applicable statutory time frames, and a representation and 
undertaking that the bank will conduct the activities in accordance 
with OCC policies contained in guidance issued by the OCC regarding the 
activities. Any national bank receiving approval under this paragraph 
(g)(i) is deemed to have agreed that the enterprise will conduct the 
activity in a manner consistent with published OCC guidance.
    (2) No notice or application required. A national bank is not 
required to file a notice or application under this Sec.  5.36 if it 
acquires a non-controlling investment in shares of a company through 
foreclosure or otherwise in good faith to compromise a doubtful claim, 
or in the ordinary course of collecting a debt previously contracted.
* * * * *
    23. Amend Sec.  5.39 as follows:
    a. Amend paragraph (d) by adding the phrase ``, as implemented by 
Regulation W, 12 CFR part 223'' before ``as applicable'' in paragraph 
(d)(1);
    b. Revise paragraph (h) by:
    i. Removing the word ``Sections'' at the beginning of paragraph 
(h)(5) and adding in its place the phrase ``Except for a subsidiary of 
a bank that is considered a financial subsidiary under paragraph (a)(6) 
of this section solely because the subsidiary engages in the sale of 
insurance as agent or broker in a manner that is not permitted for 
national banks, sections'';
    ii. Adding the phrase ``, as implemented by Regulation W, 12 CFR 
part 223,'' before the word ``apply'' in paragraph (h)(5);
    iii. Revising paragraph (h)(5)(iii);
    iv. Redesignating paragraph (h)(5)(v) as paragraph (h)(5)(vi) and 
adding in redesignated paragraph (h)(5)(vi) the word ``other'' after 
the word ``Any''; and
    v. Adding paragraph (h)(5)(v).
    The additions and revisions read as follows:


Sec.  5.39  Financial subsidiaries.

* * * * *
    (h) * * *
    (5) * * *
    (iii) A bank's purchase of or investment in a security issued by a 
financial subsidiary of the bank must be valued at the greater of:
    (A) The total amount of consideration given (including liabilities 
assumed) by the bank, reduced to reflect amortization of the security 
to the extent consistent with GAAP, or

[[Page 36573]]

    (B) The carrying value of the security (adjusted so as not to 
reflect the bank's pro rata portion of any earnings retained or losses 
incurred by the financial subsidiary after the bank's acquisition of 
the security).
* * * * *
    (v) Any extension of credit to a financial subsidiary of a bank by 
an affiliate of the bank is treated as 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 any Federal or State law, 
regulation, or interpretation applicable to the subsidiary.
* * * * *
    24. Amend Sec.  5.46 as follows:
    a. Remove the phrase ``letter of notification'' wherever it appears 
and replace it with the word ``notice'';
    b. Revise paragraph (e)(3)(iii);
    c. Amend the first sentence of paragraph (i)(2) by removing the 
number ``30'' and replacing it with the number ``15''; and
    d. Remove the phrase ``in order to obtain a certification from the 
OCC'' in the first sentence in paragraph (i)(3).
    The revision reads as follows:


Sec.  5.46  Changes in permanent capital.

* * * * *
    (e) * * *
    (3) * * *
    (iii) The amount transferred from undivided profits; and
* * * * *
    25. Amend Sec.  5.50 by:
    a. Revising paragraph (a);
    b. Redesignating paragraphs (d)(4) through (d)(6) as paragraphs 
(d)(5) through (d)(7), respectively;
    c. Adding a new paragraph (d)(4);
    d. Redesignating paragraphs (f)(2)(ii) through (f)(2)(v) as 
paragraphs (f)(2)(iii) through (f)(2)(vi), respectively;
    e. Adding a new paragraph (f)(2)(ii);
    f. Removing the phrase ``paragraph (f)(2)(ii)'' in newly 
redesignated paragraph (f)(2)(vi) and adding in its place ``paragraphs 
(f)(2)(ii) and (iii)'';
    g. Adding the phrase ``information regarding the future prospects 
of the institution,'' after ``detailed financial information,'' in 
paragraph (f)(3)(i)(A);
    h. Redesignating paragraphs (f)(4) and (f)(5) as paragraphs (f)(5) 
and (f)(6), respectively;
    i. Adding a new paragraph (f)(4);
    j. Removing the phrase ``The financial condition of any acquiring 
person'' and adding in its place ``Either the financial condition of 
any acquiring person or the future prospects of the institution'' in 
newly redesignated paragraph (f)(5)(iii);
    k. Redesignating paragraph (h) as paragraph (i); and
    l. Adding a new paragraph (h).
    The additions and revisions read as follows:


Sec.  5.50  Change in bank control; reporting of stock loans.

    (a) Authority. 12 U.S.C. 93a, 1817(j), and 12 U.S.C. 1831aa.
* * * * *
    (d) * * *
    (4) Immediate family includes a person's spouse, father, mother, 
stepfather, stepmother, brother, sister, stepbrother, stepsister, 
children, stepchildren, grandparent, grandchildren, father-in-law, 
mother-in-law, brother-in-law, sister-in-law, son-in-law, daughter-in-
law, and the spouse of any of the forgoing.
* * * * *
    (f) * * *
    (2) * * *
    (ii) The OCC presumes, unless rebutted, that a person is acting in 
concert with his or her immediate family.
* * * * *
    (4) Conditional actions. The OCC may impose conditions on its 
action not to disapprove a notice to assure satisfaction of the 
relevant statutory criteria for non-objection to a notice.
* * * * *
    (h) Reporting requirement. After the consummation of the change in 
control, the national bank shall notify the OCC in writing of any 
changes or replacements of its chief executive officer or of any 
director occurring during the 12-month period beginning on the date of 
consummation. This notice must be filed within 10 days of such change 
or replacement and must include a statement of the past and current 
business and professional affiliations of the new chief executive 
officers or directors.
* * * * *
    26. Revise Sec.  5.64 to read as follows:


Sec.  5.64  Earnings limitation under 12 U.S.C. 60.

    (a) Definitions. As used in this section, the term ``current year'' 
means the calendar year in which a national bank declared, or proposes 
to declare, a dividend. The term ``current year minus one'' means the 
year immediately preceding the current year. The term ``current year 
minus two'' means the year that is two years prior to the current year. 
The term ``current year minus three'' means the year that is three 
years prior to the current year. The term ``current year minus four'' 
means the year that is four years prior to the current year.
    (b) Dividends from undivided profits. Subject to 12 U.S.C. 56 and 
this subpart, the directors of a national bank may declare and pay 
dividends of so much of the undivided profits as they judge to be 
expedient.
    (c) Earnings limitations under 12 U.S.C. 60.--(1) General rule. For 
purposes of 12 U.S.C. 60, unless approved by the OCC in accordance with 
paragraph (c)(3) of this section, a national bank may not declare a 
dividend if the total amount of all dividends (common and preferred), 
including the proposed dividend, declared by the national bank in any 
current year exceeds the total of the national bank's net income for 
the current year to date, combined with its retained net income of 
current year minus one and current year minus two, less the sum of any 
transfers required by the OCC and any transfers required to be made to 
a fund for the retirement of any preferred stock.
    (2) Excess dividends in prior periods. (i) If in current year minus 
one or current year minus two the bank declared dividends in excess of 
that year's net income, the excess shall not reduce retained net income 
for the three-year period specified in paragraph (c)(1) of this 
section, provided that the amount of excess dividends can be offset by 
retained net income in current year minus three or current year minus 
four. If the bank declared dividends in excess of net income in current 
year minus one, the excess is offset by retained net income in current 
year minus three and then by retained net income in current year minus 
two. If the bank declared dividends in excess of net income in current 
year minus two, the excess is first offset by retained net income in 
current year minus four and then by retained net income in current year 
minus three.
    (ii) If the bank's retained net income in current year minus three 
and current year minus four was insufficient to offset the full amount 
of the excess dividends declared, as calculated in accordance with 
paragraph (c)(2)(i) of this section, then the amount that is not offset 
will reduce the retained net income available to pay dividends in the 
current year.
    (iii) The calculation in paragraph (c)(2) of this section shall 
apply only to retained net loss that results from dividends declared in 
excess of a single year's net income and does not apply to other types 
of current earnings deficits.
    (3) Prior approval required. A national bank may declare a dividend 
in excess of the amount described in paragraph (c) of this section, 
provided that the dividend is approved by the OCC. A national bank 
shall submit a request for prior approval of a dividend under 12

[[Page 36574]]

U.S.C. 60 to the appropriate district office.
    (d) Surplus surplus. Any amount in capital surplus in excess of 
capital stock (referred to as ``surplus surplus'') may be transferred 
to undivided profits and available as dividends, provided:
    (1) The bank can demonstrate that the amount came from earnings in 
prior periods, excluding the effect of any stock dividend; and
    (2) The board of directors of the bank approves the transfer of the 
amount from capital surplus to undivided profits.

PART 7--BANK ACTIVITIES AND OPERATIONS

    27. The authority citation for part 7 continues to read as follows:

    Authority: 12 U.S.C. 1 et seq., 71, 71a, 92, 92a, 93, 93a, 481, 
and 1818.


Sec.  7.1016  [Amended]

    28. Amend footnote 1 to part 7 by adding ``Supplement to UCP 500 
for Electronic Presentation (eUCP) (available from ICC Publishing, 
Inc., 212/206-1150; http://www.iccwbo.org);'' before ``the 
International Standby Practices (ISP98) (ICC Publication No. 590)''.
    29. Amend Sec.  7.1017 by:
    a. Redesignating the introductory text, paragraph (a), paragraph 
(b) introductory text, paragraphs (b)(1) through (b)(3), and paragraphs 
(b)(2)(i) through (b)(2)(iv) as paragraph (a) introductory text, 
paragraph (a)(1), paragraph (a)(2) introductory text, paragraphs 
(a)(2)(i) through (a)(2)(iii), and paragraphs (a)(2)(ii)(A) through 
(a)(2)(ii)(D), respectively; and
    b. Adding a new paragraph (b) to read as follows:


Sec.  7.1017  National bank as guarantor or surety on indemnity bond.

* * * * *
    (b) In addition to the foregoing, a national bank may guarantee 
financial obligations of a customer, subsidiary or affiliate, provided 
the amount of the bank's obligation is reasonably ascertainable and 
otherwise consistent with applicable law.
    30. In Sec.  7.2006, revise the second sentence to read as follows:


Sec.  7.2006  Cumulative voting in election of directors.

    * * * If permitted by the national bank's articles of association, 
the shareholder may cast all these votes for one candidate or 
distribute the votes among as many candidates as the shareholder 
chooses. * * *
    31. In Sec.  7.5001, add a new paragraph (d)(3) to read as follows:


Sec.  7.5001  Electronic activities that are part of, or incidental to, 
the business of banking.

* * * * *
    (d) * * *
    (3) In addition to the electronic activities specifically permitted 
in Sec.  7.5004 (sale of excess electronic capacity and by-products) 
and Sec.  7.5006 (incidental non-financial data processing), the OCC 
has determined that the following electronic activities are incidental 
to the business of banking, pursuant to this section. This list of 
activities is illustrative and not exclusive; the OCC may determine 
that other activities are permissible pursuant to this authority.
    (i) Web site development where incidental to other banking 
services;
    (ii) Internet access and e-mail provided on a non-profit basis as a 
promotional activity;
    (iii) Advisory and consulting services on electronic activities 
where the services are incidental to customer use of electronic banking 
services; and
    (iv) Sale of equipment that is convenient or useful to customer's 
use of related electronic banking services, such as specialized 
terminals for scanning checks that will be deposited electronically by 
wholesale customers of banks under the Check Clearing for the 21st 
Century Act, Public Law 108-100 (12 U.S.C. 5001-5018) (the Check 21 
Act).
    32. Amend Sec.  7.5002 by:
    a. Removing the word ``and'' at the end of paragraph (a)(3),
    b. Removing the period at the end of paragraph (a)(4) and adding in 
its place the ``; and''; and
    c. Adding a new paragraph (a)(5) to read as follows:


Sec.  7.5002  Furnishing of products and services by electronic means 
and facilities.

    (a) * * *
    (5) Issuing electronic letters of credit within the scope of 12 CFR 
7.1016.
* * * * *
    33. In Sec.  7.5006, add a new paragraph (c) as follows:


Sec.  7.5006  Data processing.

* * * * *
    (c) Software for performance of authorized banking functions. A 
national bank may produce, market, or sell software that performs 
services or functions that the bank could perform directly, as part of 
the business of banking.

PART 9--FIDUCIARY ACTIVITIES OF NATIONAL BANKS

    34. The authority citation for part 9 continues to read as follows:

    Authority: 12 U.S.C. 24 (Seventh), 92a, and 93a; 15 U.S.C. 78q, 
78q-1, and 78w.

    35. Revise Sec.  9.20 to read as follows:


Sec.  9.20  Transfer agents.

    (a)(1) Registration. An application for registration under Section 
17A(c) of the Securities Exchange Act of 1934 of a transfer agent for 
which the OCC is the appropriate regulatory agency, as defined in 
section 3(a)(34)(B) of the Securities Exchange Act of 1934, shall be 
filed with the OCC on FFIEC Form TA-1, in accordance with the 
instructions contained therein. Registration shall become effective 30 
days after the date an application on Form TA-1 is filed unless the OCC 
accelerates, denies, or postpones such registration in accordance with 
section 17A(c) of the Securities Exchange Act of 1934.
    (2) Amendments to registration. Within 60 days following the date 
on which any information reported on Form TA-1 becomes inaccurate, 
misleading, or incomplete, the registrant shall file an amendment on 
FFIEC Form TA-1 correcting the inaccurate, misleading, or incomplete 
information. The filing of an amendment to an application for 
registration as a transfer agent under this section, which registration 
has not become effective, shall postpone the effective date of the 
registration for 30 days following the date on which the amendment is 
filed unless the OCC accelerates, denies, or postpones the registration 
in accordance with Section 17A(c) of the Securities Exchange Act of 
1934.
    (3) Withdrawal from registration. Any registered national bank 
transfer agent that ceases to engage in activities that require 
registration under Section 17A(c) of the Securities Exchange Act of 
1934 may file a written notice of withdrawal from registration with the 
OCC. Deregistration shall be effective 60 days after filing.
    (4) Reports. Every registration or amendment filed under this 
section shall constitute a report or application within the meaning of 
Sections 17, 17A(c), and 32(a) of the Securities Exchange Act of 1934.
    (b) Operational and Reporting Requirements. The rules adopted by 
the Securities and Exchange Commission pursuant to Section 17A of the 
Securities Exchange Act of 1934 prescribing operational and reporting 
requirements for transfer agents apply to the domestic activities of 
registered national bank transfer agents.

[[Page 36575]]

PART 10--MUNICIPAL SECURITIES DEALERS

    36. The authority citation for part 10 is revised to read as 
follows:

    Authority: 12 U.S.C. 93a, 481, and 1818; 15 U.S.C. 78o-4(c)(5) 
and 78q-78w.

    37. In Sec.  10.1 revise paragraph (a) to read as follows:


Sec.  10.1  Scope.

    * * *
    (a) Any national bank and separately identifiable department or 
division of a national bank (collectively, a national bank) that acts 
as a municipal securities dealer, as that term is defined in section 
3(a)(30) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(30)); 
and
* * * * *

PART 11--SECURITIES EXCHANGE ACT DISCLOSURE RULES

    38. The authority citation for part 11 continues to read as 
follows:

    Authority: 12 U.S.C. 93a, 15 U.S.C. 78l, 78m, 78n, 78p, 78w, 
7241, 7242, 7243, 7244, 7261, 7262, 7264, and 7265.

    39. In Sec.  11.1 revise paragraph (a) to read as follows:


Sec.  11.1  Authority and OMB control number.

    (a) Authority. The Office of the Comptroller of the Currency (OCC) 
is vested with the powers, functions, and duties otherwise vested in 
the Securities and Exchange Commission (Commission) to administer and 
enforce the provisions of sections 12, 13, 14(a), 14(c), 14(d), 14(f), 
and 16 of the Securities Exchange Act of 1934, as amended (1934 Act) 
(15 U.S.C. 78l, 78m, 78n(a), 78n(c), 78n(d), 78n(f), and 78p), 
regarding national banks with one or more classes of securities subject 
to the registration provisions of sections 12(b) and (g) of the 1934 
Act (registered national banks). Further, the OCC has general 
rulemaking authority under 12 U.S.C. 93a, to promulgate rules and 
regulations concerning the activities of national banks.
* * * * *

PART 12--RECORDKEEPING AND CONFRIMATION REQUIREMENTS FOR SECURITIES 
TRANSACTIONS

    40. The authority citation for part 12 continues to read as 
follows:

    Authority: 12 U.S.C. 24, 92a, and 93a.


Sec.  12.7  [Amended]

    41. Amend Sec.  12.7(a)(4) by removing ``ten business days after 
the end of the calendar quarter'' and adding ``the deadline specified 
in SEC rule 17j-1 (17 CFR 270.17j-1) for quarterly transaction 
reports'' in its place.

PART 16--SECURITIES OFFERING DISCLOSURE RULES

    42. The authority citation for part 16 continues to read as 
follows:

    Authority: 12 U.S.C. 1 et seq. and 93a.

    43. In Sec.  16.2 revise paragraph (b) to read as follows:


Sec.  16.2  Definitions.

* * * * *
    (b) Bank means an existing national bank, a national bank in 
organization, or a Federal branch or agency of a foreign bank.
* * * * *
    44. Amend Sec.  16.5 as follows:
    a. Revise paragraph (a); and
    b. Add a new paragraph (h), to read as follows:


Sec.  16.5  Exemptions.

* * * * *
    (a) If the securities are exempt from registration under section 3 
of the Securities Act (15 U.S.C. 77c), but only by reason of an 
exemption other than section 3(a)(2) (exemption for bank securities), 
section 3(a)(11) (exemption for intrastate offerings), and section 
3(a)(12) of the Securities Act (exemption for bank holding company 
formation).
* * * * *
    (h) In a transaction that satisfies the requirements of Sec.  16.9 
of this part.


Sec.  16.6  [Amended]

    45. Amend Sec.  16.6 by:
    a. In paragraph (a) introductory text, removing the phrase 
``Sec. Sec.  16.3, 16.15(a) and (b), and 16.20'' and adding in its 
place ``Sec. Sec.  16.3 and 16.15(a) and (b)'';
    b. In paragraph (a)(3), adding ``, if issued in certificate form,'' 
after ``each note or debenture''.


Sec.  16.7  [Amended]

    46. Amend Sec.  16.7 as follows:
    a. Remove paragraph (a)(3);
    b. In paragraph (a)(1), add the word ``and'' after the semicolon; 
and
    c. In paragraph (a)(2), remove ``; and'' and replace it with a 
period.
    47. Add a new Sec.  16.9 to read as follows:


Sec.  16.9  Securities offered and sold in holding company dissolution.

    Offers and sales of bank issued securities in connection with the 
dissolution of the holding company of the bank are exempt from the 
registration and prospectus requirements of Sec.  16.3 pursuant to 
Sec.  16.5(h), provided all of the following requirements are met:
    (a) The offer and sale of bank-issued securities occurs solely as 
part of a dissolution in which the security holders exchange their 
shares of stock in a holding company that had no significant assets 
other than securities of the bank, for bank stock;
    (b) The security holders receive, after the dissolution, 
substantially the same proportional share interests in the bank as they 
held in the holding company;
    (c) The rights and interests of the security holders in the bank 
are substantially the same as those in the holding company prior to the 
transaction; and
    (d) The bank has substantially the same assets and liabilities as 
the holding company had on a consolidated basis prior to the 
transaction.


Sec.  16.20  [Removed]

    48. Remove Sec.  16.20.

PART 19--RULES OF PRACTICE AND PROCEDURE

    49. The authority citation for part 19 continues to read as 
follows:

    Authority: 5 U.S.C. 504, 554-557; 12 U.S.C. 93(b), 93a, 164, 
505, 1817, 1818, 1820, 1831m, 1831o, 1972, 3102, 3018(a), 3909 and 
4717; 15 U.S.C. 78(h) and (i), 78o-4(c), 78o-5, 78q-1, 78s, 78u, 
78u-2, 78u-3, and 78w; 28 U.S.C. 2461 note, 31 U.S.C. 330, 5321; and 
42 U.S.C. 4012a.

    50. In Sec.  19.3, revise paragraph (g) to read as follows:


Sec.  19.3  Definitions.

* * * * *
    (g) Institution includes any national bank or Federal branch or 
agency of a foreign bank.
* * * * *


Sec.  19.100  [Amended]

    51. In Sec.  19.100, second sentence, remove the phrase ``(except 
that in removal and prohibition cases instituted pursuant to 12 U.S.C. 
1818, the administrative law judge will file the record and the 
recommended decision with the Board of Governors of the Federal Reserve 
System)''.


Sec.  19.110  [Amended]

    52. In Sec.  19.110, remove the phrase ``bank affairs'' and add in 
its place ``the affairs of any depository institution''.
    53. Revise Sec.  19.111 to read as follows:


Sec.  19.111  Suspension, removal, or prohibition.

    The Comptroller may serve a notice of suspension or order of 
removal or prohibition on an institution-affiliated party. A copy of 
such notice or order will be served on any depository institution that 
the subject of the notice

[[Page 36576]]

or order is affiliated with at the time the notice or order is issued, 
whereupon the institution-affiliated party involved must immediately 
cease service to, or participation in the affairs of, that depository 
institution and, if so determined by the OCC, any other depository 
institution. The notice or order will indicate the basis for 
suspension, removal or prohibition and will inform the institution-
affiliated party of the right to request in writing an opportunity to 
show at an informal hearing that continued service to or participation 
in the conduct of the affairs of any depository institution has not 
posed, does not pose, or is not likely to pose a threat to the 
interests of the depositors of, or has not threatened, does not 
threaten, or is not likely to threaten to impair public confidence in, 
any relevant depository institution. The written request must be sent 
by certified mail to, or served personally with a signed receipt on the 
District Deputy Comptroller in the OCC district in which the bank in 
question is located; if the bank is supervised by Large Bank 
Supervision, to the Senior Deputy Comptroller for Large Bank 
Supervision for the Office of the Comptroller of the Currency; if the 
bank is supervised by Mid-Size/Community Bank Supervision, to the 
Senior Deputy Comptroller for Mid-Size/Community Bank Supervision for 
the Office of the Comptroller of the Currency; or if the institution-
affiliated party is no longer affiliated with a particular national 
bank, to the Deputy Comptroller for Special Supervision, Washington, DC 
20219. The request must state specifically the relief desired and the 
grounds on which that relief is based. For purposes of this section, 
the term depository institution means any depository institution of 
which the petitioner is or was an institution-affiliated party at the 
time at which the notice or order was issued by the Comptroller.


Sec.  19.112  [Amended]

    54. In Sec.  19.112, amend paragraphs (a), (b), and (c) by removing 
the phrase ``the District Deputy Comptroller or Administrator, the 
Deputy Comptroller for Multinational Banking, or the Deputy Comptroller 
or Director for Special Supervision,'' wherever it appears and adding 
in its place ``the District Deputy Comptroller, the Senior Deputy 
Comptroller for Large Bank Supervision, the Senior Deputy Comptroller 
for Mid-Size/Community Bank Supervision or the Deputy Comptroller for 
Special Supervision,''.


Sec.  19.113  [Amended]

    55. In Sec.  19.113, amend paragraph (c) by removing the phrase `` 
the bank'' and adding in its place ``any depository institution''.
    56. Revise Sec.  19.241 to read as follows:


Sec.  19.241  Scope.

    This subpart, which implements section 36(g)(4) of the Federal 
Deposit Insurance Act (FDI Act) (12 U.S.C. 1831m(g)(4)), provides rules 
and procedures for the removal, suspension, or debarment of independent 
public accountants and their accounting firms from performing 
independent audit and attestation services required by section 36 of 
the FDI Act (12 U.S.C. 1831m) for insured national banks and Federal 
branches and agencies of foreign banks.

PART 21--MINIMUM SECURITY DEVICES AND PROCEDURES, REPORTS OF 
SUSPICIOUS ACTIVITIES, AND BANK SECRECY ACT COMPLIANCE PROGRAM

    57. The authority citation for part 21 continues to read as 
follows:

    Authority: 12 U.S.C. 93a, 1818, 1881-1884, and 3401-3422; 31 
U.S.C. 5318.

    58. In Sec.  21.1, revise the first sentence of paragraph (a) to 
read as follows:


Sec.  21.1  Purpose and scope of subpart A of this part.

    (a) This subpart is issued by the Comptroller of the Currency 
pursuant to section 3 of the Bank Protection Act of 1968 (12 U.S.C. 
1882) and is applicable to all national banking associations. * * *
* * * * *

PART 22--LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS

    59. The authority citation for part 22 continues to read as 
follows:

    Authority: 12 U.S.C. 93a, 42 U.S.C. 4012a, 4104a, 4104b, 4106, 
and 4128.
    60. In Sec.  22.2 revise paragraph (b) to read as follows:


Sec.  22.2  Definitions.

* * * * *
    (b) Bank means a national bank.
* * * * *

PART 23--LEASING

    61. The authority citation for part 23 continues to read as 
follows:

    Authority: 12 U.S.C. 1 et seq., 24 (Seventh), 24 (Tenth), and 
93a.


Sec.  23.6  [Amended]

    62. Amend Sec.  23.6 by:
    a. Adding the phrase ``, as implemented by Regulation W, 12 CFR 
part 223'' after ``12 U.S.C. 371c and 371c-1'' in the first sentence 
and before ``as applicable'' in the third sentence;
    b. Adding ``, as implemented by 12 CFR part 32'' after ``12 U.S.C. 
84'' in the first sentence; and
    c. Adding ``, as implemented by part 32'', after ``12 U.S.C. 84'' 
in the fourth sentence.

PART 24--COMMUNITY AND ECONOMIC DEVELOPMENT ENTITIES, COMMUNITY 
DEVELOPMENT PROJECTS, AND OTHER PUBLIC WELFARE INVESTMENTS

    63. The authority citation for part 24 continues to read as 
follows:

    Authority: 12 U.S.C. 24 (Eleventh), 93a, 481, and 1818.

    64. Amend Sec.  24.1 by:
    a. Removing in paragraph (a) the colon after the word ``Authority'' 
and adding a period in its place;
    b. Revising paragraphs (b) and (d); and
    c. Adding paragraph (e).
    The revisions and addition read as follows:


Sec.  24.1  Authority, purpose, and OMB control number.

* * * * *
    (b) Purpose. This part implements 12 U.S.C. 24 (Eleventh). It is 
the OCC's policy to encourage a national bank to make investments 
described in Sec.  24.3, consistent with safety and soundness. This 
part provides the standards and procedures that apply to these 
investments.
* * * * *
    (d) A national bank that makes loans or investments that are 
authorized under both 12 U.S.C. 24 (Eleventh) and other provisions of 
the Federal banking laws may do so under such other provisions without 
regard to the provisions of 12 U.S.C. 24 (Eleventh) or this part.
    (e) Investments made, or written commitments to make investments 
made, prior to October 13, 2006, pursuant to 12 U.S.C. 24 (Eleventh) 
and this part, continue to be subject to the statutes and regulations 
in effect prior to the enactment of the Financial Services Regulatory 
Relief Act of 2006 (Pub. L. 109-351).
    65. Amend Sec.  24.2 by:
    a. Revising paragraph (c);
    b. Amending paragraph (f) by removing ``12 CFR 25.12(n)'' and 
adding ``12 CFR 25.12(m)'' in its place;
    c. Redesignating paragraphs (g) through (i) as paragraphs (h) 
through (j), respectively; and
    d. Adding new paragraph (g).
    The revision and addition read as follows:

[[Page 36577]]

Sec.  24.2  Definitions.

* * * * *
    (c) Community and economic development entity (CEDE) means an 
entity that makes investments or conducts activities that promote the 
public welfare by benefiting primarily low- and moderate-income areas 
or individuals.
* * * * *
    (g) Benefiting primarily low- and moderate-income areas or 
individuals, when used to describe an investment, means:
    (1) A majority (more than 50 percent) of the investment benefits 
low- and moderate-income areas or individuals; or
    (2) The express, primary purpose of the investment (evidenced, for 
example, by government eligibility requirements) is to benefit low- and 
moderate-income areas or individuals.
* * * * *
    66. Revise Sec.  24.3 to read as follows:


Sec.  24.3  Public welfare investments.

    A national bank or national bank subsidiary may make an investment 
directly or indirectly under this part if the investment promotes the 
public welfare by benefiting primarily low- and moderate-income areas 
or individuals.
    67. Amend Sec.  24.4 by:
    a. Revising the first sentence in paragraph (a); and
    b. Removing, in the second sentence of paragraph (a), ``10'' and 
adding ``15'' in its place.
    The revision reads as follows:


Sec.  24.4  Investment limits.

    (a) * * * A national bank's aggregate outstanding investments under 
this part may not exceed 5 percent of its capital and surplus, unless 
the bank is at least adequately capitalized and the OCC determines, by 
written approval of a written request by the bank to exceed the 5 
percent limit, that a higher amount of investments will not pose a 
significant risk to the deposit insurance fund. * * *
* * * * *
    68. Amend Sec.  24.5 by:
    a. Removing, in paragraph (a)(1), the space between the number 
``24'' and the term ``(Eleventh)'';
    b. Amending paragraphs (a)(2) and (b)(1) by removing ``Director, 
Community Development Division,'' and adding ``Community Affairs 
Department,'' in its place;
    c. Adding a second sentence at the end of paragraph (a)(2);
    d. In paragraph (a)(5), removing ``Community Development Division'' 
where it appears in the first and second sentences and adding 
``Community Affairs Department'' in its place; and
    e. Adding a new sentence after the first sentence in paragraph 
(b)(1).
    The additions read as follows:


Sec.  24.5  Public welfare investment after-the-fact notice and prior 
approval procedures.

    (a) * * *
    (2) * * * The after-the-fact notification may also be e-mailed to 
<a href="/cdn-cgi/l/email-protection#f3b09c9e9e869d9a878ab29595929a8180b39c9090dd8781969280dd949c85"><span class="__cf_email__" data-cfemail="efac8082829a81869b96ae89898e869d9caf808c8cc19b9d8a8e9cc1888099">[email protected]</span></a>, faxed to (202) 874-4652, or provided 
electronically via National BankNet at http://www.occ.treas.gov.
* * * * *
    (b) * * * (1) * * * The investment proposal may also be e-mailed to 
<a href="/cdn-cgi/l/email-protection#88cbe7e5e5fde6e1fcf1c9eeeee9e1fafbc8e7ebeba6fcfaede9fba6efe7fe"><span class="__cf_email__" data-cfemail="83c0eceeeef6edeaf7fac2e5e5e2eaf1f0c3ece0e0adf7f1e6e2f0ade4ecf5">[email protected]</span></a>, faxed to (202) 874-4652, or submitted 
electronically via National BankNet at http://www.occ.treas.gov. * * *
    69. Amend Sec.  24.6 by:
    a. Revising the introductory text;
    b. Amending paragraph (b)(1) by removing the phrase ``or other 
targeted redevelopment areas'';
    c. Revising paragraphs (b)(2) and (d)(1);
    d. Amending paragraphs (b)(3) and (b)(4) by removing the phrase 
``or targeted redevelopment areas'';
    e. Amend paragraph (d)(3) by removing the word ``previously'' and
    f. Adding paragraph (d)(4).
    The revisions and addition read as follows:


Sec.  24.6  Examples of qualifying public welfare investments.

    The following are examples of qualifying public welfare investments 
to the extent they benefit primarily low- and moderate-income areas or 
individuals as set forth in Sec.  24.3:
* * * * *
    (b) * * *
    (2) Investments that finance small businesses or small farms, 
including minority- and women-owned small businesses or small farms 
that, although not located in low- and moderate-income areas, create a 
significant number of permanent jobs for low- and moderate-income 
individuals.
* * * * *
    (d) * * *
    (1) Investments that provide credit counseling, financial literacy, 
job training, community development research, and similar technical 
assistance for non-profit community development organizations, low- and 
moderate-income individuals or areas, or small businesses, including 
minority- and women-owned small businesses, located in low- and 
moderate income areas or that produce or retain permanent jobs, the 
majority of which are held by low- and moderate-income individuals.
* * * * *
    (4) Investments in minority- and women-owned depository 
institutions that serve primarily low- and moderate-income individuals 
or low- and moderate-income areas.
    70. Revise Appendix 1 to Part 24 to read as follows:

Appendix 1 to Part 24--CD-1--National Bank Community Development (Part 
24) Investments

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PART 26--MANAGEMENT OFFICIAL INTERLOCKS

    71. The authority citation for part 26 continues to read as 
follows:

    Authority: 12 U.S.C. 93a and 3201-3208.

    72. In Sec.  26.1 revise paragraph (c) to read as follows:


Sec.  26.1  Authority, purpose, and scope.

* * * * *
    (c) Scope. This part applies to management officials of national 
banks and their affiliates.


Sec.  26.2  [Amended]

    73. In Sec.  26.2 remove paragraph (i) and redesignate paragraphs 
(j) through (q) as (i) through (p), respectively.
    74. Revise Sec.  26.8 to read as follows:


Sec.  26.8  Enforcement.

    Except as provided in this section, the OCC administers and 
enforces the Interlocks Act with respect to national banks and their 
affiliates, and may refer any case of a prohibited interlocking 
relationship involving these entities to the Attorney General of the 
United States to enforce compliance with the Interlocks Act and this 
part. If an affiliate of a national bank is subject to the primary 
regulation of another Federal depository organization supervisory 
agency, then the OCC does not administer and enforce the Interlocks Act 
with respect to that affiliate.

PART 27--FAIR HOUSING HOME LOAN DATA SYSTEM

    75. The authority citation for part 27 continues to read as 
follows:

    Authority: 5 U.S.C. 301; 12 U.S.C. 1 et seq., 93a, 161, 481, and 
1818; 15 U.S.C. 1691 et seq.; 42 U.S.C. 3601 et seq.; 12 CFR part 
202.

    76. In Sec.  27.1 revise paragraph (a) to read as follows:


Sec.  27.1  Scope and OMB control number.

    (a) Scope. This part applies to the activities of national banks 
and their subsidiaries, which make home loans for the purpose of 
purchasing, construction-permanent financing, or refinancing of 
residential real property.
* * * * *
    77. In Sec.  27.2 revise paragraph (c) to read as follows:


Sec.  27.2  Definitions.

* * * * *
    (c) Bank means a national bank and any subsidiaries of a national 
bank.
* * * * *

PART 28--INTERNATIONAL BANKING ACTIVITIES

    78. The authority citation for part 28 continues to read as 
follows:

    Authority: 12 U.S.C. 1 et seq., 24 (Seventh), 93a, 161, 602, 
1818, 3101 et seq., and 3901 et seq.


Sec.  28.11  [Amended]

    79. In Sec.  28.11, remove the phrase ``, pursuant to an agreement 
between the parent foreign bank and the FRB,'' in paragraph (s).


Sec.  28.12  [Amended].

    80. In Sec.  28.12, remove the phrase ``30th day after the OCC 
receives the filing,'' in paragraph (e)(3) and add in its place ``15th 
day after the close of the applicable public comment period, or the 
45th day after the filing is received by the OCC, whichever is 
later,''.
    81. In Sec.  28.50, revise paragraph (c) to read as follows:


Sec.  28.50  Authority, purpose, and scope.

* * * * *
    (c) Scope. This subpart requires national banks to establish 
reserves against the risks presented in certain international assets 
and sets forth the accounting for various fees received by the banks 
when making international loans.
    82. In Sec.  28.51, revise paragraph (a) to read as follows:


Sec.  28.51  Definitions.

* * * * *
    (a) Banking institution means a national bank.
* * * * *

PART 31--EXTENSIONS OF CREDIT TO INSIDERS AND TRANSACTIONS WITH 
AFFILIATES

    83. The authority citation for part 31 is revised to read as 
follows:

    Authority: 12 U.S.C. 93a, 375a(4), 375b(3), and 1817(k).


Sec.  31.1  [Amended]

    84. Amend Sec.  31.1 by removing ``1817(k), and 1972(2)(G),'' and 
adding in its place ``and 1817(k),''.
    85. Revise Appendix A to part 31 as follows:

Appendix A to Part 31--Interpretations: Deposits Between Affiliated 
Banks

    a. General rule. A deposit made by a bank in an affiliated bank is 
treated as a loan or extension of credit to the affiliate bank under 12 
U.S.C. 371c, as this statute is implemented by the Federal Reserve 
Board's Regulation W, 12 CFR part 223. Thus, unless an exemption from 
Regulation W is available, these deposits must be secured in accordance 
with 12 CFR 223.14. However, a national bank may not pledge assets to 
secure private deposits unless otherwise permitted by law (see, e.g., 
12 U.S.C. 90 (permitting collateralization of deposits of public 
funds); 12 U.S.C. 92a (trust funds); and 25 U.S.C. 156 and 162a (Native 
American funds)). Thus, unless one of the exceptions to 12 CFR part 223 
noted in paragraph b. of this interpretation applies, unless another 
exception applies that enables a bank to meet the collateral 
requirements of Sec.  223.14, or unless a party other than the bank in 
which the deposit is made can legally offer and does post the required 
collateral, a national bank may not:
    1. Make a deposit in an affiliated national bank;
    2. Make a deposit in an affiliated State-chartered bank unless the 
affiliated State-chartered bank can legally offer collateral for the 
deposit in conformance with applicable State law and 12 CFR 223.14; or
    3. Receive deposits from an affiliated bank.
    b. Exceptions. The restrictions of 12 CFR part 223 (other than 12 
CFR 223.13, which requires affiliate transactions to be consistent with 
safe and sound banking practices) do not apply to deposits:
    1. Made in an affiliated depository institution or affiliated 
foreign bank provided that the deposit represents an ongoing, working 
balance maintained in the ordinary course of correspondent business. 
See 12 CFR 223.42(a); or
    2. Made in an affiliated, insured depository institution that meets 
the requirements of the ``sister bank'' exemption under 12 CFR 
223.41(a) or (b).

Appendix B to Part 31--[Amended]

    86. Amend Appendix B to part 31 by removing the third sentence 
under the heading ``Exclusions to Definition.''

PART 32--LENDING LIMITS

    87. The authority citation for part 32 continues to read as 
follows:

    Authority: 12 U.S.C. 1 et seq., 84, and 93a.

Sec.  32.1 [Amended]

    88. In Sec.  32.1(c)(1), add the phrase ``and (e), as implemented 
by section 223.2(a) of Regulation W'' after ``12 U.S.C. 371c(b)(1)''.

PART 34--REAL ESTATE LENDING AND APPRAISALS

    89. The authority citation for part 34 continues to read as 
follows:


[[Page 36584]]


    Authority: 12 U.S.C. 1 et seq., 29, 93a, 371, 1701j-3, 1828(o), 
and 3331 et seq.

    90. Amend Sec.  34.22 by:
    a. Designating the existing text as paragraph (a), and by adding 
the following heading;
    b. In newly designated paragraph (a), adding to the first sentence 
the words ``or combination of indices'' after the words ``specify an 
index''; and
    c. Adding a new paragraph (b).
    The addition and revision read as follows:


Sec.  34.22  Index.

    (a) In General. * * *
    (b) Exception. Thirty days after filing a notice with the OCC, a 
national bank may use an index other than one described in paragraph 
(a) of this section unless, within that 30-day period, the OCC has 
notified the bank that the notice presents supervisory concerns or 
raises significant issues of law or policy. If the OCC provides such 
notice to the bank, the bank may not use that index unless it applies 
for and receives the OCC's prior written approval.

PART 37--DEBT CANCELLATION CONTRACTS AND DEBT SUSPENSION AGREEMENTS

    91. The authority citation for part 37 continues to read as 
follows:

    Authority: 12 U.S.C. 1 et seq., 24 (Seventh), 93a, 1818.


Sec.  37.7  [Amended]

    92. Amend the last sentence in Sec.  37.7(a) by removing the phrase 
``Sec.  37.6(b)'' and adding the phrase ``Sec.  37.6(d)'' in its place.

PART 40--PRIVACY OF CONSUMER FINANCIAL INFORMATION

    93. The authority citation for part 40 continues to read as 
follows:

    Authority: 12 U.S.C. 93a; 15 U.S.C. 6801 et seq.

    94. In Sec.  40.1 revise the last sentence of paragraph (b)(1) to 
read as follows:


Sec.  40.1  Purpose and scope.

* * * * *
    (b) Scope. (1) * * * These are national banks, Federal branches and 
Federal agencies of foreign banks, and any subsidiaries of such 
entities except a broker or dealer that is registered under the 
Securities Exchange Act of 1934, a registered investment adviser (with 
respect to the investment advisory activities of the adviser and 
activities incidental to those investment advisory activities), an 
investment company registered under the Investment Company Act of 1940, 
an insurance company that is subject to supervision by a State 
insurance regulator (with respect to insurance activities of the 
company and activities incidental to those insurance activities), and 
an entity that is subject to regulation by the Commodity Futures 
Trading Commission.
* * * * *

    Dated: May 25, 2007.
John C. Dugan,
Comptroller of the Currency.
[FR Doc. 07-3206 Filed 7-2-07; 8:45 am]
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