[Federal Register Volume 65, Number 234 (Tuesday, December 5, 2000)]
[Rules and Regulations]
[Pages 75859-75863]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-30843]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 8

[Docket No. 00-31]
RIN 1557-AB72


Assessment of Fees; National Banks; District of Columbia Banks

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

ACTION: Final rule.

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SUMMARY: The Office of the Comptroller of the Currency (OCC) is 
amending the assessment formula it uses to assess independent trust 
banks. A trust bank is considered independent for purposes of this 
regulation if it specializes in trust activities and is not affiliated 
with a

[[Page 75860]]

full-service national bank. Under the revised rate structure, all 
independent trust banks will be assessed based on balance sheet assets 
plus a minimum fee as provided by the OCC in the annual Notice of 
Comptroller of the Currency Fees (Notice of Fees). Independent trust 
banks with assets under management in excess of $1 billion would pay an 
additional amount based on a declining marginal rate, which also will 
be provided in the Notice of Fees.

EFFECTIVE DATE: December 31, 2000.

FOR FURTHER INFORMATION CONTACT: Mitchell E. Plave, Senior Attorney, 
Legislative and Regulatory Activities Division, (202) 874-5090; or 
Karen McCluskey, National Bank Examiner, Asset Management Division, 
(202) 874-7276.

SUPPLEMENTARY INFORMATION:

Background

    The OCC charters, regulates, and supervises approximately 2300 
national banks and 58 Federal branches and agencies of foreign banks in 
the United States, accounting for nearly 60 percent of the nation's 
banking assets. Its mission is to ensure a safe, sound, and competitive 
national banking system that supports the citizens, communities, and 
economy of the United States.
    The OCC funds the activities it undertakes to carry out this 
mission through assessments on national banks and Federal branches and 
agencies of foreign banks. The National Bank Act authorizes the OCC to 
collect these assessments, stating, in relevant part:

    The Comptroller of the Currency may impose and collects 
assessments, fees, or other charges as necessary or appropriate to 
carry out the responsibilities of the office of the Comptroller. 
Such assessments, fees, and other charges shall be set to meet the 
Comptroller's expenses in carrying out authorized activities.

12 U.S.C. 482 (Supp. 2000).

    This provision authorizes the OCC to adjust its assessment formula 
so that banks, or categories of banks, pay an assessment that 
appropriately apportions to them the OCC's overall expenses of carrying 
out the agency's activities. Therefore the OCC currently assesses 
national banks and Federal branches and agencies according to a formula 
based on several factors, including a bank's size, condition, and 
whether it is the ``lead'' bank or ``non-lead'' bank among national 
banks in a holding company.\1\ The OCC also has reserved in its 
assessment regulation (12 CFR part 8) the authority to assess a fee for 
certain special examinations and investigations and for examining the 
fiduciary activities of national banks. 12 CFR 8.6(a). In recent years, 
however, the OCC stopped separately charging national banks for the 
expenses of examining and supervising fiduciary activities.
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    \1\ A ``lead bank'' is the largest national bank controlled by a 
company, based on a comparison of the total assets held by each 
national bank controlled by that company as reported in each bank's 
most recent Consolidated Report of Condition (Including Domestic and 
Foreign Subsidiaries) (Call Report). 12 CFR 8.2(a)(6)(ii)(A).
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    Since the OCC eliminated those separate fees, the number, size, and 
complexity of the activities of independent trust banks have increased 
and their balance sheet assets increasingly do not reflect the ongoing 
scope or complexity of their activity, nor the extent of the OCC's 
responsibilities with respect to them. For example, although trust 
assets managed by a bank are not shown on the bank's balance sheet, the 
bank's fiduciary activities are subject to extensive regulatory 
standards under 12 CFR part 9 as well as under state laws that are made 
applicable to national bank fiduciary activities by 12 U.S.C. 92a. The 
OCC evaluates the bank's adherence to those standards as part of our 
examination, supervision, and regulation of the bank.
    On March 21, 2000, we published a notice of proposed rulemaking in 
the Federal Register (65 FR 15111) to amend the OCC's assessment 
regulation to revise the formula for independent trust banks. The 
purpose of the proposal was to adjust the OCC's assessment structure to 
better reflect the full extent of the OCC's activities in the 
examination, supervision, and regulation of those banks. For the 
reasons discussed below, we are adopting the rule as proposed with 
changes to clarify the definition of ``affiliated'' and to address 
situations in which a large trust bank becomes affiliated with a small 
full-service national bank. We also have updated our anticipated flat 
minimum fee and rate schedules applicable to managed assets to reflect 
more recent data concerning the OCC's activities, as discussed more 
fully below.

Proposed Rule and Comments Received

    We proposed to amend 12 CFR 8.6 to give the OCC the flexibility to 
increase assessments on independent trust banks by applying either a 
managed assets component or a flat fee, depending on the amount of 
assets a particular bank has under management. Under the proposed rule, 
the managed assets component and flat fee were assessed on independent 
trust banks in addition to the assessment calculated on book assets 
under 12 CFR 8.2.
    The OCC received 18 comments on the proposal. The comments included 
16 from trust banks and 2 from bank trade associations. While many of 
the commenters objected to paying increased assessments, the commenters 
also recognized that the OCC must recover its expenses through 
assessments. Several commenters recommended specific changes to the 
proposal or asked for clarifications. The following is a more detailed 
discussion of the issues raised by the proposal, the comments we 
received concerning those issues, and the OCC's responses to the 
comments.
    Scope of the rule. The proposal did not include additional 
assessments for full-service national banks or trust banks that are 
affiliated with a full-service national bank. Four commenters suggested 
that we apply the proposal to all trust banks, not only those 
affiliated with a full-service national bank.
    In the case of a full-service national bank that exercises trust 
powers, however, since the bank also conducts substantial non-fiduciary 
activities, the balance sheet assets approach of the general assessment 
schedule continues to be a fair yardstick for determining the bank's 
assessments. Similarly, when a full-service bank opts as a matter of 
corporate form to use a separate charter to conduct its trust business, 
the OCC is able to supervise, examine, and regulate those activities on 
a coordinated basis with its activities with respect to the affiliated 
full-service bank. Thus, in this situation, since the activities of the 
two charters will be evaluated in combination, the balance sheet assets 
approach for determining assessments continues to be a fair basis of 
measurement.
    Independent trust banks that are not affiliated with a full-service 
national bank present a distinguishable situation because their balance 
sheet assets do not constitute a fair yardstick of the complexity of 
their operations or the extent of the OCC's activities related to their 
operations. Therefore, except as noted below in the discussion of the 
test for affiliation, the OCC has decided to confine the scope of the 
rule to independent trust banks.
    Test for affiliation. The proposal defined an ``independent trust 
bank'' as a national bank that ``has trust powers, does not primarily 
offer full-service banking, and is not affiliated with a full service 
national bank'' (emphasis

[[Page 75861]]

added). \2\ It did not, however, define ``affiliated.'' Two commenters 
asked that we clarify the meaning of the term ``affiliated.''
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    \2\ See Charters, Corporate Manual, Office of the Comptroller of 
the Currency at 19-20 (1998) (describing trust banks).
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    The final rule states that a trust bank is ``affiliated'' with 
another entity for assessment purposes if it meets the criteria for 
affiliation found in the OCC's trust regulation (12 CFR part 9), which 
incorporates the definition of ``affiliate'' found in section 2 of the 
Banking Act of 1933, 12 U.S.C. 221a(b). Generally speaking, a trust 
bank is deemed ``affiliated'' with a full-service national bank under 
that section if the full-service bank owns more than 50% of the voting 
stock of the trust bank or controls the election of a majority of the 
trust bank's directors, or if the trust bank is controlled by 
shareholders that own at least 50% of the full-service bank or control 
the election of a majority of the full-service bank's directors. Given 
that this is the test already used in the OCC's trust regulation, 
affected institutions should be familiar with its application.
    The final rule also adds a provision, in new Sec. 8.6(c)(2), to 
address situations in which an independent trust bank affiliates with a 
comparatively small full-service national bank for the purpose of 
evading the assessment regulation. The final rule preserves the 
authority of the OCC in those instances to assess a trust bank that is 
affiliated with a full-service national bank as if the trust bank were 
independent. This change is consistent with one of the underlying 
premises of the rulemaking, namely, that assessments paid by full-
service national banks that are affiliated with trust banks are 
adequate to meet the OCC's expenses in carrying out our authorized 
activities.
    Distinguishing discretionary from non-discretionary assets. Under 
the proposal, independent trust banks with assets under management in 
excess of $1 billion would pay a managed assets component that would be 
calculated by multiplying the amount of assets under management by a 
factor to be supplied by the OCC in the annual Notice of Fees pursuant 
to 12 CFR 8.8. ``Assets under management'' are those assets reported by 
national banks on Schedule A, Line 18 of the Annual Report of Trust 
Assets (FFIEC Form 001).
    The proposal asked for comment on whether we should distinguish for 
assessment purposes between assets over which the bank has investment 
discretion (discretionary assets) and those that it holds without 
discretion (non-discretionary assets), for example in a custodial 
capacity. Two commenters stated that they can differentiate such assets 
and that the OCC should make that distinction. A third commenter, a 
large independent trust bank with a considerable amount of assets under 
management, rejected the assumption underlying the question. This 
commenter disagreed with the implication that it takes more time or 
resources to supervise discretionary assets and rejected the concept of 
making the distinction.
    After considering these views, we have concluded that making this 
distinction between discretionary and non-discretionary assets is 
inappropriate because it is inconsistent with the way the OCC examines 
trust banks. The OCC examines trust banks based on lines of business 
and areas of risk rather than on the discretionary/non-discretionary 
asset distinction. Making the distinction between discretionary and 
non-discretionary assets for assessment purposes would not reflect this 
risk-focused examination approach. One additional basis for rejecting 
the distinction is that, depending on the nature of the product or 
services, it can be difficult for trust banks to fit assets neatly in 
one category or the other. Indeed, there is a large ``gray'' area in 
making this distinction, which supports a risk-focused supervisory 
approach rather than one based on the label applied to the assets.
    Basis for the flat fee and managed asset rates. The proposal stated 
the flat fee and managed asset rate tiers were being proposed to better 
align the OCC's assessment structure with the OCC's responsibilities 
regarding independent trust banks. One commenter opined that the 
``assets under management'' approach fails to take into account 
economies of scale or relative risks of off-balance sheet activities or 
the OCC's ratings of individual banks.
    The OCC notes that the proposal does reflect economies of scale. As 
is explained further in the discussion of the final rule, all 
independent trust banks will pay a minimum flat fee. In addition to the 
minimum flat fee, independent trust banks with assets under management 
in excess of $1 billion will be assessed according to a declining 
marginal rate to reflect the economies of scale noted by the commenter. 
For institutions with $1 billion or less in assets under management, we 
have identified no additional economy of scale when analyzing the 
expenses of supervising these institutions. Accordingly, the final rule 
retains the approach of assessing these institutions by a minimum flat 
fee that is set at a level consistent with the OCC's expenses.
    Application of assessment to de novo banks. The proposal did not 
distinguish the assessment of de novo independent trust banks from 
those already established. Six commenters suggested that the OCC assess 
``start-up'' independent trust banks at a reduced rate or phase in the 
fees over a few years. These banks asserted that our proposed flat fee 
will be burdensome for them.
    We believe that it would be inappropriate to charge de novo 
institutions less. While we recognize that newly formed trust banks 
typically will not be immediately profitable, they nevertheless require 
considerable supervisory attention as they set up systems and 
procedures and learn the compliance requirements. In addition, de novo 
national trust banks are often not new to trust business--they are 
often formed when an institution transfers its existing trust business 
into a national bank charter. For these reasons, the OCC believes that 
it is appropriate to treat de novo trust banks in the same manner as 
all other de novo national banks are treated.
    Billable hours. The proposed rule did not include a billable hours 
component, although it did invite comment on whether the OCC should 
adopt a billable hours approach to assessing independent trust banks. 
Five commenters were of the view that a system of assessments for 
independent trust banks with $1 billion or less in managed assets based 
on billable hours would be more ``fair'' than a flat fee, because it 
would ensure that the assessment was directly linked to the amount of 
effort required of the OCC in any given assessment period.
    After a careful consideration of the comments received, we have 
declined to adopt a billable hours approach. Based on experience gained 
previously with a billable hours system, we have concluded that such a 
system can have an adverse impact on the examiner/banker relationship. 
In addition, given the variability in scheduling examinations, a 
billable hours approach could result in assessments that vary from year 
to year for any given institution, thereby making it difficult for 
banks to anticipate expenses.

Final Rule

    For the reasons discussed above, the OCC adopts the rule as 
proposed, with two changes. The first change, as described previously, 
is to clarify the meaning of ``affiliate'' for purposes of the 
assessment rule. The second is to address affiliations created for the

[[Page 75862]]

purpose of evading the assessment regulation.
    While the actual assessment rates will be set in the Notice of 
Fees, we have revised our projected fee schedule to include an 
additional marginal rate. Under the final rule, the OCC will assess all 
independent trust banks a minimum flat fee. Independent trust banks 
with assets under management in excess of $1 billion will pay an 
additional amount, calculated by multiplying assets under management by 
a declining marginal rate. That calculation will yield the managed 
assets component of the assessment for these banks. In either case, the 
trust bank will also be assessed an amount based on its book assets.
    In the proposal, we set out estimated rates and fees that reflected 
the data we had at the time. These rates and fees have been adjusted in 
the final rule to reflect more recent data. Using these more recent 
data, we now anticipate that a bank having assets under management in 
excess of $1 billion would, in the upcoming year, calculate each of its 
semiannual assessments by multiplying the first $1 billion in assets 
under management by 0.00001875 \3\, assets under management over $1 
billion up to $10 billion by 0.00000375, assets under management over 
$10 billion up to $100 billion by 0.000000625, and assets under 
management over $100 billion by .0000004. The product then would be 
added to the assessment calculated under section 8.2 that is based on 
book assets.
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    \3\ This rate will yield $18,750 on a semi-annual basis, which 
is the same as the minimum flat fee for independent trust banks with 
$1 billion or less in managed assets.
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    For independent trust banks that have $1 billion or less in trust 
assets, the OCC will assess a flat fee that reflects the minimum 
expenses of regulating and supervising any independent trust bank, 
regardless of size. We expect that the fee due with each of the 
semiannual assessments for the upcoming year will be $18,750, in 
addition to the amount calculated under the formula based on balance 
sheet assets. The actual fees and rates used to calculate assessments 
of independent trust banks will be published in the Notice of Fees. 
Future rates and fees may be adjusted to reflect the OCC's latest 
expense data and the appropriate allocation of those expenses to 
national banks.

Regulatory Flexibility Act

    An agency must prepare a Regulatory Flexibility Analysis if a rule 
it proposes will have a ``significant economic impact'' on a 
``substantial number of small entities.'' 5 U.S.C. 603, 605. If, after 
an analysis of a rule, an agency determines that the rule is not 
expected to have a significant economic impact on a substantial number 
of small entities, section 605(b) provides that the head of the agency 
may so certify. The OCC has reviewed the impact this final rule will 
have on small independent trust banks. Based on that review, the OCC 
certifies that the final rule will not have a significant economic 
impact on a substantial number of small entities. The basis for this 
conclusion is that the rule will apply to a very small portion of 
national banks. For purposes of this Regulatory Flexibility Analysis 
and regulation, the OCC defines ``small independent trust banks'' to be 
those banks with less than $100 million in total assets, including 
managed assets.\4\ Using this definition, the final rule will affect 
only seven small entities, representing less than 1% of all national 
banks. The OCC does not believe this to be a substantial number of 
small entities.
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    \4\ The OCC is using this definition for the sole purose of this 
preliminary regulatory flexibility analysis after consulting with 
the Small Business Administration's Office of Advocacy. The OTS, in 
its assessment regulation, also consulted with the Office of 
Advocacy and defined ``small savings associations'' as those with 
less than $100 million in total assets, including off-balance sheet 
assets. See Assessments and Fees, 63 FR 43642, 43646 (1998).
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Executive Order 12866

    The OCC has determined that this final rule is not a significant 
regulatory action under Executive Order 12866.

Unfunded Mandates Reform Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 
104-4 (2 U.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 the final 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 
rulemaking requires no further analysis under the Unfunded Mandates 
Act.

List of Subjects in 12 CFR Part 8

    National banks.

Authority and Issuance

    For the reasons set forth in the preamble, the OCC proposes to 
amend part 8 of chapter I of title 12 of the Code of Federal 
Regulations as follows:

PART 8--ASSESSMENT OF FEES; NATIONAL BANKS; DISTRICT OF COLUMBIA 
BANKS

    1. The authority citation for Part 8 continues to read as follows:

    Authority: 12 U.S.C. 93a, 481, 482, and 3102 and 3108; 15 U.S.C. 
78c and 781; and 26 D.C. Code 102.

    2. In Sec. 8.6, the section heading is revised and a new paragraph 
(c) is added to read as follows:


Sec. 8.6  Fees and assessments for examinations and investigations; 
independent trust banks.

* * * * *
    (c) Additional assessments on trust banks. (1) Independent trust 
banks. The assessment of independent trust banks will include a managed 
asset component, in addition to the assessment calculated according to 
Sec. 8.2 of this part, as follows:
    (i) Minimum fee. All independent trust banks will pay a minimum 
fee, to be provided in the Notice of Comptroller of the currency Fees.
    (ii) Additional amount for independent trust banks with managed 
assets in excess of $1 billion. Independent trust banks with managed 
assets in excess of $1billion will pay an amount that exceeds the 
minimum fee. The amount to be paid will be calculated by multiplying 
the amount of trust assets under management by a rate or rates provided 
by the OCC in the Notice of Comptroller of the Currency Fees.
    (2) Trust banks affiliated with full-service national banks. The 
OCC will assess a trust bank in accordance with paragraph (c)(1) of 
this section, notwithstanding that the bank is affiliated with a full-
service national bank, if the OCC concludes that the affiliation is 
intended to evade the assessment regulation.
    (3) Definitions. For purposes of this paragraph (c) of this 
section, the following definitions apply:
    (i) Affiliate has the same meaning as this term has in 12 U.S.C. 
221a(b);
    (ii) Independent trust bank is a national bank that has trust 
powers, does not primarily offer full-service banking, and is not 
affiliated with a full-service national bank; and

[[Page 75863]]

    (iii) Trust assets are those assets reported on Schedule A, Line 18 
of the Annual Report of Trust Assets (FFIEC Form 001). The form is 
available by mail from the Office of the Comptroller of the Currency, 
Asset Management Division, 250 E Street, SW., Washington, DC 20219.

    Dated: October 20, 2000.
John D. Hawke, Jr.,
Comptroller of the Currency.
[FR Doc. 00-30843 Filed 12-4-00; 8:45 am]
BILLING CODE 4810-33-P