36550 Federal Register / Vol. 72, No. 127 / Tuesday, July 3, 2007 / Proposed Rules 

1See EGRPRA, Pub. L. 104–208, § 2222, 110 Stat. 

3009–394, 3009–314–315 (Sept. 30, 1996), codified 

at 12 U.S.C. 3311. 

2Pursuant 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. 

3Pub. L. 109–351, 120 Stat. 1966 (Oct. 13, 2006). 

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. 

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eliminate regulations that are outdated, 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: 

• 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. 

• E-mail: 

regs.comments@occ.treas.gov. 

• Fax: (202) 874–4448. 

• Mail: Office of the Comptroller of 

the Currency, 250 E Street, SW., Mail 

Stop 1–5, Washington, DC 20219. 

• 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: 

• 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. 

• 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. 

• 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 bankingrelated 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

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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4 12 CFR part 223. 

5 12 U.S.C. 371c and 371c–1. 

6Pub. L. 108–386, 118 Stat. 2228 (2004) (the DC 

Bank Act). The DC Bank Act took effect on October 

30, 2004. 

7Under 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. 8 12 U.S.C. 24 (Seventh). 

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: 

• 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. 

• Amendments to part 5, which 

governs national banks’ corporate 

activities, to: 

Æ Codify prior OCC interpretive 

opinions recognizing that national bank 

operating subsidiaries may take the form 

of limited partnerships; 

Æ 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; 

Æ 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 

Æ Expand the list of operating 

subsidiary activities eligible for afterthe-fact notice. 

• 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. 

• 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. 

• Amendments to part 7, to codify 

OCC electronic banking precedent and 

adapt the OCC’s rules to certain current 

developments. 

• 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. 

• 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: 

• 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. 

• 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

• 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). 

• Amendments to part 31 to remove 

an obsolete interpretation relating to 

loans to third parties secured by both 

affiliate-issued securities and 

nonaffiliate collateral. 

• 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

• Amendments to conform our 

regulations to the changes made by the 

FSRRA, including: 

Æ 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; 

Æ Amendments to the OCC’s Change 

in Bank Control Act (CBCA) regulation, 

§ 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; 

Æ Amendments to part 7 that permit 

national banks to choose whether to 

provide for cumulative voting in the 

election of their directors; 

Æ Amendments to part 19 that reflect 

changes to the OCC’s enforcement 

authority with respect to institutionaffiliated parties; and 

Æ Amendments to part 24 

(community development investments) 

that implement section 305 of the 

FSRRA. 

Set forth below is a detailed sectionby-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 (§ 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 caseby-case basis, that a national bank may 


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36552 Federal Register / Vol. 72, No. 127 / Tuesday, July 3, 2007 / Proposed Rules 

9See, 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). 

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). 

14See 12 CFR 1.3(i)(1). 

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. 

In addition, this proposal removes the 

now-obsolete reference to DC banks 

from the scope of part 1 (§ 1.1(c)), thus 

eliminating the applicability of part 1 to 

DC banks. 

Pooled Investments (§ 1.3(h)) 

Current § 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 

§ 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 § 1.3(h) 

and revises the heading to read ‘‘Pooled 

investments.’’ Investments made under 

the proposed § 1.3(h) must meet certain 

credit quality and marketability 

standards generally applicable to 

investment securities. 

Securities Held Based on Estimates of 

Obligor’s Performance (§ 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

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 § 1.2(f), in 

that it does not contain all of the 

elements of the definition in § 1.2(f). 

This proposal harmonizes these 

marketability standards by amending 

§ 1.3 to reflect the same standard as in 

§ 1.2. 

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 § 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 § 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 § 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 

§ 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 (§ 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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15An ‘‘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). 

16The definition of ‘‘mobile branch’’ in current 

§ 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. 

18The statutory authority underlying § 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.’’). 19 36 FR 17015 (August 26, 1971). 

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. 

Establishment, Acquisition, and 

Relocation of a Branch—Intermittent 

Branches (§ 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 § 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 § 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. 

Operating Subsidiaries (§ 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

We propose to make several changes 

to § 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 afterthe-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 

§ 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 § 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 


pwalker on PROD1PC71 with PROPOSALS2
36554 Federal Register / Vol. 72, No. 127 / Tuesday, July 3, 2007 / Proposed Rules 

20FASB Interpretation No. 46 (revised), 

Consolidation of Variable Interest Entities 

(December 2003) (FIN 46R). 

21See Corporate Decision No. 2004–16 (Sept. 10, 

2004). 

22See OCC Interpretive Letter No. 712 (Feb. 29, 

1996). 

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

24See Conditional Approval No. 384 (April 25, 

2000) and Corporate Decision No. 2002–2 (Jan. 9, 

2002). 

25See Conditional Approval No. 612 (Dec. 21, 

2003). 

26See Conditional Approvals Nos. 582 (March 12, 

2003) and 583 (March 12, 2003). 

27See Corporate Decision No. 98–13 (Feb. 9, 

1998). 

assured consolidation under the prior 

GAAP standard. 

Since our adoption of the regulatory 

control standards in § 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. 

Form of operating subsidiary. Current 

§ 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

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 § 5.34. 

After-the-fact notice procedures. 

Current § 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 § 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 § 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: 

• 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 § 5.34(e)(5)(v)(H). 

• Providing bill presentment, billing, 

collection, and claims-processing 

services.22

• 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

• Payroll processing.24

• Branch management services.25

• Merchant processing except when 

the activity involves the use of third 

parties to solicit or underwrite 

merchants.26

• Administrative tasks involved in 

benefits administration.27

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. 


pwalker on PROD1PC71 with PROPOSALS2
Federal Register / Vol. 72, No. 127 / Tuesday, July 3, 2007 / Proposed Rules 36555 

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

29Under 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. 

30Section 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. 

Application procedures. Current 

§ 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 § 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 § 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 (§ 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. 

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 (§ 5.36) 

Section 5.36(e) provides an expedited 

process for OCC review of a noncontrolling investment by a national 

bank. Under this section, a national 

bank may make, directly or through an 

operating subsidiary, certain noncontrolling 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. 

Representations concerning 

accounting treatment. Current 

§ 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 noncontrolling 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 

§ 5.36(e)(7) that a bank certify that its 

loss exposure related to the noncontrolling 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 § 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 

§ 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 afterthe-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. 

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 noncontrolling 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 noncontrolling investments comport with 

appropriate supervisory requirements. 


pwalker on PROD1PC71 with PROPOSALS2
36556 Federal Register / Vol. 72, No. 127 / Tuesday, July 3, 2007 / Proposed Rules 

31Part 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. 

32Section 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. 

33See 12 CFR 574.4 (OTS) and 12 CFR 

225.41(b)(3) and 225.41(d) (Federal Reserve Board). 

This proposal also makes two 

conforming changes to § 5.36(b), scope. 

First, it amends the scope section to 

provide that § 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 § 5.36(b), 

which currently states that other 

investments authorized under § 5.36 

may be reviewed on a case-by-case 

basis. Because the proposal amends 

§ 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 § 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 noncontrolling 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 noncontrolling 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. 

The proposal also would amend 

§ 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 § 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 

§ 5.34 and, therefore, no application or 

notice is required. 

Changes in Permanent Capital (§ 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 

§ 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 

§ 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 § 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). 

Change in Bank Control (§ 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 § 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 

§ 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-inlaw, brother-in-law, sister-in-law, sonin-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


pwalker on PROD1PC71 with PROPOSALS2
Federal Register / Vol. 72, No. 127 / Tuesday, July 3, 2007 / Proposed Rules 36557 

34The 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. 

35 12 U.S.C. 1828(c). 

36 12 U.S.C. 2901 et seq. 

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

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 § 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 § 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 (§ 5.3(j)). 

This proposed change removes the 

reference to DC banks from the 

definition of ‘‘national bank’’ found in 

§ 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 (§ 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 (§ 5.13). Section 5.13 sets 

forth the procedures for OCC decisions 

on corporate filings. Paragraph (c) of 

§ 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 § 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 decisionmaking 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 (§ 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

Therefore, this proposal amends 

§ 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 (§ 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 

§ 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. 

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 

§ 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. 

Section 5.33(g)(2)(ii) provides the 

rules for a national bank consolidation 

and merger with a Federal savings 

association when the resulting 


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36558 Federal Register / Vol. 72, No. 127 / Tuesday, July 3, 2007 / Proposed Rules 

38Pub. L. 103–328, 108 Stat. 2338 (Sept. 29, 

1994). 

39 12 U.S.C. 371c and 371c–1. 

40Section 5.50 covers uninsured national banks 

as well as insured national banks. 

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 § 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 § 5.33(h) to 

include a reference to 12 U.S.C. 1831u 

to clarify that an interstate, singlebranch 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. 

Finally the proposal specifies that the 

definitions set forth in § 5.33(d) are only 

applicable to § 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 (§ 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 § 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

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 § 5.39(d)(1) and amend 

§ 5.39(h)(5) to reflect this exception in 

Regulation W’s definition of financial 

subsidiary. 

In addition, this proposal updates 

§ 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 

§ 5.39(h)(5), the proposal amends 

§ 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 (§ 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, 

§ 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 § 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). 

Earnings limitations under 12 U.S.C. 

60 (§ 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 

§ 5.46 (governing changes in permanent 

capital) and § 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 § 5.64 (earnings limitation 

under 12 U.S.C. 60) and § 5.46 (changes 

in permanent capital) by eliminating 

references to the surplus fund 

requirement. The proposal also 

reorganizes and renumbers § 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. 


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41See OCC Interpretive Letter No. 937 (June 27, 

2002). 

42See, 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). 

43The OCC determined that the GSIP’s crossliability 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). 

44See VALIC, 513 U.S. 251 (1995). 

45Pub. L. 106–102, 113 Stat. 1338, 1407 (Nov. 12, 

1999), codified at 15 U.S.C. 6712. 

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 § 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 

(§ 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

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

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

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 


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46See OCC Corporate Decision No. 2002–13, July 

31, 2002. 

47See OCC Conditional Approval No. 612, Nov. 

21, 2003. 

48See OCC Corporate Decision No. 2002–11, June 

28, 2002. 

49See OCC Interpretive Letter No. 1036, Aug. 10, 

2005. 

50 12 CFR 7.5004. 

51See, e.g., Corporate Decision 2003–6, March 17, 

2003. 

52See 12 CFR 7.5001(c) and 7.5001(d). 

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 § 7.5002 by adding the issuance 

of electronic letters of credit within the 

scope of § 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 § 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 byproducts (§ 7.5004) and incidental nonfinancial data processing (§ 7.5006). We 

propose to amend § 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. 

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 § 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

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 § 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, § 9.20(a) of the OCC’s rules 

cross-references to the SEC’s rules with 

respect to registration. This crossreference 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 crossreference in § 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 § 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 § 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. 


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53See 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). 

54See 69 FR 41696 (July 9, 2004). 

55 17 CFR 230.501 et seq. 

56 17 CFR 230.503. 

57Specifically, 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). 

Part 10—Municipal Securities Dealers 

This proposal amends § 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 

§ 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

To conform part 12 with the current 

SEC filing deadline in SEC Rule 17j–1, 

this proposal amends § 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 (§ 16.2) 

The proposal eliminates DC banks 

from the definition of ‘‘bank’’ in 

§ 16.2(b). 

Sales of Nonconvertible Debt (§ 16.6) 

Section 16.6(a)(3) requires bank debt 

issued under § 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 § 16.6(a)(3) to provide 

that this legend requirement only 

applies to debt issued in certificate 

form. All other requirements of § 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 (§ 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

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. 

Securities Offered and Sold in Bank 

Holding Company Dissolution (New 

§ 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 § 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 § 16.3 

registration statement and prospectus 

requirements. 

Specifically, the proposal adds a new 

§ 16.9 that would expressly exempt from 

the § 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 


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36562 Federal Register / Vol. 72, No. 127 / Tuesday, July 3, 2007 / Proposed Rules 

58See Exchange Act Section 12(i), 15 U.S.C. 

78l(i), 12 CFR part 335, and 12 CFR part 11. 

59Section 12(g) of the Exchange Act also requires 

a bank to have more than $ 1 million of assets. 

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

61See Exchange Act Section 12(i), 15 U.S.C. 78l(i) 

and 12 CFR part 11. 

62 12 U.S.C. 1818. 63 Id. at 1818(g). 

company of a bank (pursuant § 3(a) of 

the Bank Holding Company Act of 1956) 

to be eligible for exemption from the 

registration requirements of § 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 § 16.5(a) to 

section 3(a)(12) of the Exchange Act and 

adding a reference to new § 16.9 in the 

listing of exempt securities under § 16.5. 

Removal of Current and Periodic Report 

Filing (§ 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 § 12(g) of the 

Exchange Act.59 Once registered, a bank 

becomes subject to the periodic and 

current reporting requirements of the 

Exchange Act. 

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 § 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. 

The periodic and current reporting 

requirements of § 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 § 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 

§ 16.6, by deleting the reference to 

§ 16.20 in that section. 

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 § 19.100 of the OCC’s 

rules, pertaining to OCC adjudications, 

to reflect the change in the law. 

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 §§ 19.110 and 19.111 of our 

rules to conform to these amendments. 

The proposal also updates the titles of 

OCC officials referenced in §§ 19.111 

and 19.112. 

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 

§ 19.3(g). The proposal also deletes a 

reference to DC banks in the scope 

section (§ 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 


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64We 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. 

65FSRRA, section 305, 120 Stat. at 1970–71. 

66See Interagency Questions and Answers 

Regarding Community Reinvestment, Q&A §§ .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). 

67We also note that the OCC has consistently 

used the term ‘‘areas’’ interchangeably with 

‘‘communities’’ and the term ‘‘individuals’’

interchangeably with ‘‘families.’’

68See 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). 

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 

§ 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 § 23.6 crossreferences 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 § 371c and 

§ 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

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) 

§ 24.2(c) 

The definition of a CEDE in proposed 

§ 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 Lowand Moderate-Income Areas or 

Individuals’’ (§ 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 moderateincome 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

Public Welfare Investments (§§ 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

Investment Limits (§ 24.4) 

The proposed revisions to § 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 § 24.5(b), that 


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36564 Federal Register / Vol. 72, No. 127 / Tuesday, July 3, 2007 / Proposed Rules 

69 12 U.S.C. 3201 et seq. 

70The 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). 

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 § 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 

§ 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-thefact notice under § 24.5(a) if it satisfies 

the requirements for after-the-fact 

notice, or an application under § 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 § 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 (§ 24.6) 

Current § 24.6 contains examples of 

qualifying public welfare investments. 

The proposal revises § 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 

§ 24.6 to clarify that the examples of 

qualifying public investments include 

investments that benefit primarily lowand moderate-income areas or 

individuals and that: (1) Finance 

minority- and women-owned small 

businesses; (2) provide technical 

assistance for minority- and womenowned 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 womenowned 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 moderateincome areas or individuals. Finally, the 

proposal amends § 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: 

• A revision to § 24.2(f) to update a 

cross-reference to the definitions of 

‘‘low-income’’ and ‘‘moderate-income’’

in § 25.12. The revision to § 24.2(f) does 

not result in any substantive change to 

the definition of ‘‘low- and moderateincome.’’

• Technical amendments to § 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 afterthe-fact notices and investment 

proposals needing prior approval via email, 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). 

• Proposed § 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

However, this proposal amends part 

26 by deleting the reference to DC banks 

in the scope section, § 26.1(c), deleting 

the definition of ‘‘District bank’’ in 

§ 26.2(i), and deleting the reference to 

DC banks in the enforcement section, 

§ 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 


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71See Pub. L. 106–102, Section 121, 113 Stat. 

1338, 1373–81 (Nov. 12, 1999). 72However, 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 GrammLeach-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 § 371c(b)(1) but are excepted from 

§ 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. 

27 in § 27.1(a) and the definition of 

‘‘bank’’ in § 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 

§ 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 § 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, § 28.50(c), and in the 

definition of ‘‘banking institution’’, 

§ 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 § 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 § 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-LeachBliley 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-LeachBliley Act. 

This proposal adds to § 32.1(c)(1) 

cross-references to section 23A(e) and to 

§ 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 § 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 § 371c. 

Part 34—Real Estate Lending and 

Appraisals 

Under current § 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 § 34.22 to provide 


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73 67 FR 58962. 

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 § 37.7(a), the cross-reference 

to standards in § 37.6 is incorrect. The 

rule should say § 37.6(d), not § 37.6(b). 

This amendment corrects that error. 

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, § 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-LeachBliley 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: 

• Have we organized the material to 

suit your needs? If not, how could this 

material be better organized? 

• Are the requirements in the 

proposed regulation clearly stated? If 

not, how could the regulation be more 

clearly stated? 

• Does the proposed regulation 

contain language or jargon that is not 

clear? If so, which language requires 

clarification? 

• 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? 

• 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 § 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 


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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., #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. 


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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 § 1.1 by: 

a. Revising the heading of § 1.1; 

b. Revising the first sentence of 

paragraph (c); and 

c. Adding a new paragraph (d). 

The additions and revisions read as 

follows: 

§ 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 § 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: 

§ 1.3 Limitations on dealing in, 

underwriting, and purchase and sale of 

securities. 

* * * * * 

(h) * * * 

(3) Investments made under § 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 § 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 § 2.2 revise paragraph (a) to read 

as follows: 

§ 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 § 3.2, revise paragraph (b) to read 

as follows: 

§ 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 OnBalance 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. 


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10. In § 4.4, revise the second 

sentence to read as follows: 

§ 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 § 4.5(a), revise the table to read 

as follows: 

§ 4.5 District and field offices. 

(a) * * * 

District Office address Geographical composition 

Northeastern District ............ Office of the Comptroller of the Currency, 340 Madison 

Avenue, 5th Floor, New York, NY 10017–2613.

Connecticut, Delaware, District of Columbia, Maine, 

Maryland, Massachusetts, New 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 Comptroller of the Currency, One Financial Place, Suite2700, 440 South LaSalle Street, Chicago, IL 60605.Illinois, Indiana, eastern Iowa, northern Kentucky, 

Michigan, Minnesota, eastern Missouri, North Dakota, 

Ohio (except for eastern Ohio), and Wisconsin. 

Southern District .................. Office of the Comptroller of the Currency, 500 North 

Akard Street, Suite 1600, Dallas, TX 75201.

Alabama, Arkansas, Florida, Georgia, southern Kentucky, Louisiana, Mississippi, Oklahoma, Tennessee, 

and Texas. 

Western District .................... Office of the Comptroller of the Currency, 1225 17th 

Street, Suite 300, Denver, CO 80202.

Alaska, Arizona, California, Colorado, Hawaii, Idaho, 

western 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). 

§ 5.3 [Amended] 

13. In § 5.3 remove paragraph (j) and 

redesignate paragraphs (k) and (l) as 

paragraphs (j) and (k), respectively. 

§ 5.4 [Amended] 

14. Amend § 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 § 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: 

§ 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 § 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: 

§ 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 § 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: 

§ 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 § 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); 


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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: 

§ 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 § 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 § 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: 

§ 5.33 Business combinations. 

* * * * * 

(d) Definitions—For purposes of this 

§ 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 § 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: 

§ 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 


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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 claimsprocessing 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 noncontrolling 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 § 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: 


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§ 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 § 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: 

§ 5.36 Other equity investments. 

* * * * * 

(e) Non-controlling investments; 

notice procedure. Unless the procedures 

governing a national bank’s noncontrolling 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 noncontrolling 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 § 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 § 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: 

§ 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 


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(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 § 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: 

§ 5.46 Changes in permanent capital. 

* * * * * 

(e) * * * 

(3) * * * 

(iii) The amount transferred from 

undivided profits; and 

* * * * * 

25. Amend § 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: 

§ 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-inlaw, brother-in-law, sister-in-law, sonin-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 § 5.64 to read as follows: 

§ 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 


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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. 

§ 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 § 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: 

§ 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 § 7.2006, revise the second 

sentence to read as follows: 

§ 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 § 7.5001, add a new paragraph 

(d)(3) to read as follows: 

§ 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 

§ 7.5004 (sale of excess electronic 

capacity and by-products) and § 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 § 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: 

§ 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 § 7.5006, add a new paragraph 

(c) as follows: 

§ 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 § 9.20 to read as follows: 

§ 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. 


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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 § 10.1 revise paragraph (a) to 

read as follows: 

§ 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 § 11.1 revise paragraph (a) to 

read as follows: 

§ 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. 

§ 12.7 [Amended] 

41. Amend § 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 § 16.2 revise paragraph (b) to 

read as follows: 

§ 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 § 16.5 as follows: 

a. Revise paragraph (a); and 

b. Add a new paragraph (h), to read 

as follows: 

§ 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 § 16.9 of this part. 

§ 16.6 [Amended] 

45. Amend § 16.6 by: 

a. In paragraph (a) introductory text, 

removing the phrase ‘‘§§ 16.3, 16.15(a) 

and (b), and 16.20’’ and adding in its 

place ‘‘§§ 16.3 and 16.15(a) and (b)’’; 

b. In paragraph (a)(3), adding ‘‘, if 

issued in certificate form,’’ after ‘‘each 

note or debenture’’. 

§ 16.7 [Amended] 

46. Amend § 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 § 16.9 to read as 

follows: 

§ 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 § 16.3 pursuant to 

§ 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. 

§ 16.20 [Removed] 

48. Remove § 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 § 19.3, revise paragraph (g) to 

read as follows: 

§ 19.3 Definitions. 

* * * * * 

(g) Institution includes any national 

bank or Federal branch or agency of a 

foreign bank. 

* * * * * 

§ 19.100 [Amended] 

51. In § 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)’’. 

§ 19.110 [Amended] 

52. In § 19.110, remove the phrase 

‘‘bank affairs’’ and add in its place ‘‘the 

affairs of any depository institution’’. 

53. Revise § 19.111 to read as follows: 

§ 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 


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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 institutionaffiliated party at the time at which the 

notice or order was issued by the 

Comptroller. 

§ 19.112 [Amended] 

54. In § 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,’’. 

§ 19.113 [Amended] 

55. In § 19.113, amend paragraph (c) 

by removing the phrase ‘‘ the bank’’ and 

adding in its place ‘‘any depository 

institution’’. 

56. Revise § 19.241 to read as follows: 

§ 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 § 21.1, revise the first sentence 

of paragraph (a) to read as follows: 

§ 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 § 22.2 revise paragraph (b) to 

read as follows: 

§ 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. 

§ 23.6 [Amended] 

62. Amend § 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 § 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: 

§ 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 § 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 § 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: 


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§ 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 § 24.3 to read as follows: 

§ 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 § 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: 

§ 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 § 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: 

§ 24.5 Public welfare investment after-thefact notice and prior approval procedures. 

(a) * * * 

(2) * * * The after-the-fact 

notification may also be e-mailed to 

CommunityAffairs@occ.treas.gov, 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 

CommunityAffairs@occ.treas.gov, faxed 

to (202) 874–4652, or submitted 

electronically via National BankNet at 

http://www.occ.treas.gov. * * * 

69. Amend § 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: 

§ 24.6 Examples of qualifying public 

welfare investments. 

The following are examples of 

qualifying public welfare investments to 

the extent they benefit primarily lowand moderate-income areas or 

individuals as set forth in § 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 moderateincome 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 minorityand 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 moderateincome 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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BILLING CODE 4810–33–C 


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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 § 26.1 revise paragraph (c) to 

read as follows: 

§ 26.1 Authority, purpose, and scope. 

* * * * * 

(c) Scope. This part applies to 

management officials of national banks 

and their affiliates. 

§ 26.2 [Amended] 

73. In § 26.2 remove paragraph (i) and 

redesignate paragraphs (j) through (q) as 

(i) through (p), respectively. 

74. Revise § 26.8 to read as follows: 

§ 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 § 27.1 revise paragraph (a) to 

read as follows: 

§ 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 § 27.2 revise paragraph (c) to 

read as follows: 

§ 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. 

§ 28.11 [Amended] 

79. In § 28.11, remove the phrase ‘‘, 

pursuant to an agreement between the 

parent foreign bank and the FRB,’’ in 

paragraph (s). 

§ 28.12 [Amended]. 

80. In § 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 § 28.50, revise paragraph (c) to 

read as follows: 

§ 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 § 28.51, revise paragraph (a) to 

read as follows: 

§ 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). 

§ 31.1 [Amended] 

84. Amend § 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 § 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. 

§ 32.1 [Amended] 

88. In § 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: 


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36584 Federal Register / Vol. 72, No. 127 / Tuesday, July 3, 2007 / Proposed Rules 

Authority: 12 U.S.C. 1 et seq., 29, 93a, 371, 

1701j–3, 1828(o), and 3331 et seq. 

90. Amend § 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: 

§ 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. 

§ 37.7 [Amended] 

92. Amend the last sentence in 

§ 37.7(a) by removing the phrase 

‘‘§ 37.6(b)’’ and adding the phrase 

‘‘§ 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 § 40.1 revise the last sentence 

of paragraph (b)(1) to read as follows: 

§ 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] 

BILLING CODE 4810–33–P 


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