[Federal Register Volume 60, Number 42 (Friday, March 3, 1995)]
[Proposed Rules]
[Pages 11924-11941]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-4703]



=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Parts 7 and 31

[Docket No. 95-04]
RIN 1557-AB38


Interpretive Rulings

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 the interpretive rulings that appear in part 7 of 
title 12. This proposal, another component of the OCC's Regulation 
Review Program, updates and streamlines OCC regulations and seeks to 
eliminate regulatory requirements that impose ineffective, inefficient 
and costly regulatory burdens on national banks. This proposal 
clarifies, revises, and reorganizes existing interpretive rulings, 
eliminates rulings that are obsolete, adds interpretive rulings to 
address new issues, and transfers some interpretive rulings to other 
parts of title 12.

DATES: Comments must be received by May 2, 1995.

ADDRESSES: Comments should be directed to: Communications Division, 250 
E Street, SW, Washington, DC 20219, Attention: Docket No. 95-04. 
Comments will be available for public inspection and photocopying at 
the same location.

FOR FURTHER INFORMATION CONTACT: Stuart E. Feldstein, Senior Attorney, 
Jacqueline L. Lussier, Senior Attorney, or Laurie P. Sears, Attorney, 
Legislative and Regulatory Activities Division, (202) 874-5090.

SUPPLEMENTARY INFORMATION:

Background

    The OCC proposes to revise and reorganize 12 CFR part 7 in 
connection with its Regulation Review Program (Program). The goal of 
the Program is to review all of the OCC's rules and regulations to 
eliminate regulatory requirements that impose ineffective, inefficient 
and costly regulatory burdens on national banks, which do not 
contribute significantly to maintaining safety and soundness, and to 
revise rules that do not effectively advance the OCC's other goals and 
statutory responsibilities. The proposal is also intended to clarify 
and supplement the interpretive rulings where necessary.

Part 7

    Part 7 is a collection of interpretive rulings, some of which date 
back several decades. Prior to 1971 these interpretive rulings were not 
codified in the Code of Federal Regulations. When part 7 was originally 
introduced in the Federal Register, the OCC characterized the new part 
7 simply as a collection of interpretive rulings that merited 
publication in order to be available to the general population.<SUP>1

    \1\The preamble to the original publication, 36 FR 17000, Aug. 
26, 1971, introduced part 7 as follows:
    These rulings, which interpret and apply the laws and 
regulations relating to national banks and general principles of 
prudent banking, have become of increasing importance not only to 
national banks but to persons dealing with national banks and to the 
public generally. The Comptroller has accordingly concluded that the 
public interest requires the publication of these rulings in the 
Code of Federal Regulations. [[Page 11925]] 
---------------------------------------------------------------------------

    At the time of their initial publication, many of the rulings 
formed the basis of regulatory authority for new bank activities. Many 
of those activities are recognized as usual and customary today. 
However, most of these interpretive rulings are unchanged since their 
initial publication, while the banking statutes and interpretive 
positions of the OCC have continued to evolve. As a result, many of the 
interpretive rulings in part 7 need revision, and some are so outdated 
that they no longer serve any useful purpose. In addition, new rulings 
are needed to address changing industry practices, developing issues, 
and recent statutory amendments. In conjunction with these revisions, 
the OCC also is proposing to transfer some interpretive rulings 
presently located in part 7 of title 12 to part 31 of title 12, since 
they relate to the subject matter of that part.

Proposal

    This proposal also substantially reorganizes part 7. To aid users 
of the part, the subparts are renumbered and divided among four topic 
sections: Subpart A--Bank Powers, Subpart B--Corporate Practices, 
Subpart C--Bank Operations, and Subpart D--Preemption. The proposal 
removes a number of rulings that are obsolete or superfluous because 
they merely restate statutory authority, and proposes changes to the 
remaining rulings to clarify or update longstanding interpretive 
positions. In addition, new interpretive rulings are proposed to 
address developing issues and changing industry practices as well as 
recent statutory developments.
    Wherever possible, this proposal consolidates related interpretive 
rulings into one section in order to address related issues together. 
For instance, proposed Sec. 7.2011 on bank compensation plans combines 
current Secs. 7.5000, 7.5010, and 7.5015, regarding bonus and profit 
sharing plans, pension plans, and employee stock option and stock 
purchase plans. The OCC condensed related sections, to present relevant 
information in one comprehensive section for greater clarity.
    The proposal's revisions, additions, and consolidation of current 
sections are described in the section-by-section summary that follows. 
After the section-by-section summary, the preamble explains the OCC's 
reasons for proposing to remove a number of interpretive rulings 
contained in current part 7. The preamble concludes by listing those 
sections for which no change, except for necessary renumbering, is 
proposed, and briefly explains the reasons for preserving the sections 
as they are. A distribution table and derivation table comparing 
current part 7 sections to the proposed sections follows the 
``proposal'' segment of this preamble.

Section-by-Section Descriptions of Proposed Changes

Bank Ownership of Property (Sec. 7.1000)
    Proposed Sec. 7.1000 simplifies and consolidates current 
Secs. 7.3005, 7.3010, 7.3100, 7.3300, and 7.5230 regarding permissible 
ownership of real property by national banks, primarily bank premises. 
Proposed Sec. 7.1000 provides an updated, non-exclusive list of real 
estate the OCC considers as bank premises for purposes of 12 U.S.C. 29, 
and removes provisions that merely repeat statutory language. For 
greater simplicity and clarity, proposed Sec. 7.1000 uses the phrase 
``necessary for the transaction of its business'' rather than 
``necessary for its accommodation in the transaction of its business'' 
used in 12 U.S.C. 29.
    Proposed Sec. 7.1000(b) clarifies that a national bank, as well as 
a bank premises corporation, may own necessary fixed assets as part of 
bank premises, and adds that a national bank may own real property 
``fixtures.'' In recognition of modern corporate law developments, 
proposed Sec. 7.1000(c) provides that a bank premises subsidiary may be 
organized as a partnership or similar entity (e.g., a limited liability 
company) as well as a corporation. A statement in current 
Sec. 7.3100(b)(2) that a bank premises corporation is not a bank 
service corporation has been removed as unnecessary, but the OCC 
intends no substantive change.
    Proposed Sec. 7.1000(d) shortens the discussion of investment 
limitations on bank ownership of property or corporations owning bank 
premises by referring to 12 U.S.C. 371d, where they are fully set 
forth, and refers to part 5 of this chapter for the relevant approval 
requirements. See Sec. 5.37 of this chapter, 59 FR 61034, Nov. 29, 
1994. Proposed Sec. 7.1000 removes references to prior approval, 
because revisions to part 5, recently proposed by the OCC, would not 
always require prior approval for these investments. See 59 FR 61034, 
Nov. 29, 1994.
    Proposed Sec. 7.1000(e) covers two other types of real estate 
ownership that the OCC has found to be permissible in narrowly defined 
circumstances, although not as bank premises. In a line of precedent 
originating in the early sixties, the OCC has permitted the lease 
financing of public facilities under certain conditions, on the basis 
that such transactions are essentially secured real estate loans. This 
rationale is analogous to the basis for leasing personal property 
pursuant to 12 U.S.C. 24(Seventh), and could have broader 
applicability.
    The OCC invites comment on the extent to which real estate lease 
financing should be similarly permitted for other types of borrowers 
and other types of properties.
    Proposed Sec. 7.1000(e) also incorporates the present Sec. 7.5230, 
concerning bank purchases of the homes of relocating employees who 
would otherwise suffer a loss on the sale of their homes. Such 
purchases are justified because they facilitate the efficient 
utilization of bank personnel, but the bank must divest itself of the 
house as soon as reasonably possible.
National Bank Acting as Finder (Sec. 7.1002)
    Proposed Sec. 7.1002 revises current Sec. 7.7200 to reflect more 
recent OCC interpretations. The proposal clarifies that a national bank 
may act as a finder of certain goods and services other than insurance. 
In addition, proposed Sec. 7.1002(b) contains a non-exclusive list of 
the types of activities that a national bank may engage in while acting 
as finder.
    Proposed Sec. 7.1002(c) also adds the phrase--``Unless otherwise 
prohibited''--to recognize that some state laws prohibit insurance 
brokers from splitting commissions with nonbrokers and certain national 
bank finder activities could violate the Real Estate Settlement 
Procedures Act (RESPA) and its implementing regulations. See 12 U.S.C. 
2601 through 2617, and 24 CFR 3500.14(b). Proposed Sec. 7.1002 also 
revises current Sec. 7.7200 to reflect that since 1986 the OCC has not 
objected to a national bank advertising its finder services.

Loans made at banking offices or at other than banking offices 
(Sec. 7.1003); Loans originating at other than banking offices 
(Sec. 7.1004); Credit decisions at other than banking offices 
(Sec. 7.1005)

    The proposal retains and redesignates current Sec. 7.7380 as 
Sec. 7.1004 without substantive change, (the section is slightly 
reworded to be more readable) and adds new sections that address when a 
loan is made, loan approval and loan disbursal. The new sections, 
Secs. 7.1003 and 7.1005, are intended to [[Page 11926]] codify recent 
OCC interpretations relating to loan production offices (LPOs) and the 
use of back offices. These sections, taken together, provide guidance 
on what types of facilities constitute a branch in the lending context, 
and the circumstances under which a bank may conduct lending-related 
activities at nonbranch locations.
    Proposed Sec. 7.1003 incorporates case law relating to where a loan 
is ``made'' for purposes of branching. Under Sec. 7.1003, a loan is 
made where the customer, in person, receives loan funds from the bank. 
Thus, if funds are received by a customer from a bank employee or at 
bank premises, branching limitations apply and OCC approval is 
required. If, however, funds are received by the customer from an 
independent third party, including a messenger service described in 
current Sec. 7.7490 (proposed Sec. 7.1012), at the customer's home, 
office, or at another nonbank facility, branching limitations do not 
apply and OCC approval is not needed. Proposed Sec. 7.1003 also 
codifies OCC interpretations that branching requirements do not 
encompass industry practices with respect to loan disbursal such as 
when an attorney or escrow agent disburses funds at a real estate 
closing.
    Proposed Sec. 7.1004 clarifies the language in current Sec. 7.7380. 
It addresses what does and does not constitute a branch in the lending 
context but makes no substantive change to current Sec. 7.7380.
    Proposed Sec. 7.1005 codifies OCC interpretations that offices at 
which loan approvals occur are not branches if the public has no in-
person access to such offices. This clarifies that loans may be 
approved at locations other than the bank's main office or branches, 
and that loans originated at LPOs may be approved at such back offices.
Messenger Service (Sec. 7.1012)
    Proposed Sec. 7.1012 modifies current Sec. 7.7490. Proposed 
Sec. 7.1012 clarifies factors regarding: (1) the responsibility of the 
messenger for items during transit; (2) the relationship between the 
messenger and the bank customer; and (3) the permissibility of 
transporting items by the messenger between a bank customer and a back 
office facility that processes deposits and withdrawals. Proposed 
Sec. 7.1012 retains the safe harbor in current Sec. 7.7490 and also 
allows OCC to evaluate, on a case-by-case basis, whether messenger 
services that do not precisely fit the terms of the safe harbor need to 
be considered as bank branches.
Debt Cancellation Contracts (Sec. 7.1013)
    Proposed Sec. 7.1013 revises current Sec. 7.7495 to provide that a 
national bank may enter into a contract to provide for the cancellation 
of a loan upon disability or unemployment as well as upon death of the 
borrower.
Sale of Money Orders at Nonbanking Outlets (Sec. 7.1014)
    Proposed Sec. 7.1014 modifies current Sec. 7.7500 by removing 
unnecessary descriptive language. However, these changes do not 
represent any change in OCC policy.
Independent Undertakings To Pay Against Documents (Sec. 7.1016)
    Proposed Sec. 7.1016 revises current Sec. 7.1016 to make its 
provisions current and relevant to modern market standards and industry 
usage. Last revised in 1977, current Sec. 7.7016 has served as the 
basis for, an expansion of services beyond typical letters of credit. 
The term ``letters of credit'' is no longer adequate to describe the 
type of services that banks are offering pursuant to the conditions in 
the regulation. Therefore, proposed Sec. 7.1016 uses the term 
``independent undertakings'' to describe all such unilateral 
commitments under which the bank's obligation to honor its commitment 
is dependent solely on the proper presentation of specified documents.
    The term ``independent undertakings'' is used by the United Nations 
Commission on International Trade Law (UNCITRAL) to cover a broad array 
of transactions including commercial letters of credit, standby letters 
of credit, and other undertakings that are functionally identical or 
equivalent to letters of credit. The common characteristic of these 
transactions is that a bank's obligation to pay is conditioned solely 
on the proper presentation of specified documents regardless of 
extrinsic factors (except fraud, forgery, or an overriding public 
policy issue).
    Proposed Sec. 7.1016(a) states that a national bank may issue and 
commit to issue a letter of credit or other independent undertaking 
within the scope of the laws or rules of practice recognized by law 
under which the bank's obligation to honor depends upon the 
presentation of specified documents. Proposed Sec. 7.1016(a) provides a 
nonexclusive list of sample laws and rules of practice and explains 
that non-documentary conditions on the bank's undertaking are not 
relevant to the bank's obligation to honor its commitment. Because the 
obligation of the issuer of an independent undertaking is restricted to 
determining matters of documentary character, the issuer can act 
without regard to other circumstantial matters of dispute, such as 
breach of an implied warranty or the terms of delivery. Such matters 
are settled between the parties to the underlying transactions.
    Independent undertakings encompass not only letters of credit and 
standby letters of credit but similar types of commitments that are 
used widely in international trade. These include (but are not limited 
to): independent guarantees, authorized confirmations, commitments to 
purchase documents, irrevocable reimbursement undertakings, and 
preliminary advices. All of these independent undertakings are in 
common use domestically and worldwide, and national banks currently are 
engaged in providing these services. In fact, the variation has 
developed, at least in part, in reliance upon the terms and conditions 
required for letters of credit by current Proposed Sec. 7.7016.
    Proposed Sec. 7.1016 recognizes that the scope of current 
Sec. 7.7016 is too limited and does not reflect the scope of 
independent undertakings permissible for national banks. Proposed 
Sec. 7.1016 also extends the same safety and soundness principles in 
current Sec. 7.7016 to this broader class of activities. Although more 
specific and more dependent on industry terminology, the revised 
interpretive ruling is a clearer statement of regulatory standards 
directed to the segment of the banking industry that engages in these 
activities.
National Bank as Guarantor or Surety on Indemnity Bond (Sec. 7.1017)
    Proposed Sec. 7.1017 modifies Sec. 7.7010 by removing 
Sec. 7.7010(b). Paragraph (b) states the ``[u]nder appropriate 
circumstances, foreign branches may exercise additional powers pursuant 
to 12 U.S.C. 604a.'' The OCC expects to incorporate that provision into 
part 28 through a later Federal Register document revision of part 28.
Use of Data Processing Equipment and Furnishing of Data Processing 
Services (Sec. 7.1019)
    Proposed Sec. 7.1019 revises current Sec. 7.3500. Under proposed 
Sec. 7.1019 a national bank that uses data processing equipment or 
technology to perform authorized services may market and sell any 
legitimate excess capacity in that equipment or technology. Current 
Sec. 7.3500 states the Comptroller's opinion on the data processing 
services that a national bank may perform for itself and others. It 
sets forth a general analytical framework for deciding 
[[Page 11927]] questions regarding the permissibility of particular 
data processing services. Current Sec. 7.3500 does not specify in 
detail the data processing services permissible for national banks.
    In light of the rapid advances in data processing equipment and 
technology in the ten years since the interpretive ruling was last 
amended, the OCC invites comment on whether the interpretive ruling 
should be more specific in describing the authorized services a 
national bank may provide using data processing equipment or 
technology, and, if so, what services should be included and how should 
they be described.
    Commenters also are asked to address whether the additional 
language recognizing the authority of national banks to sell legitimate 
excess capacity in data processing equipment or technology is needed.
    Commenters are also requested to indicate whether the OCC should be 
more specific in describing permissible sales of excess capacity and, 
if so, how such sales should be described.
Corporate Governance Procedures (Sec. 7.2000)
    Proposed Sec. 7.2000 is a new section that provides additional 
guidance regarding national banks' corporate governance procedures. 
Under proposed Sec. 7.2000, a bank undertaking a corporate governance 
procedure must comply with applicable statutes and regulations, and 
safe and sound banking practices. However, where the statutes and 
regulations are silent on a matter, proposed Sec. 7.2000 establishes a 
safe harbor for a national bank that undertakes a corporate governance 
procedure that complies with designated sections of the Model Business 
Corporation Act (MBCA), sections 6.24, 6.28, 7.01, 7.02, 7.25, 7.26, 
8.05, 8.07, 8.20-23, 8.25, 10.03, and 10.09 (1984) (amended 1993). For 
example, telephonic board meetings for directors of a national bank are 
not covered by Federal banking statutes or regulations. Under proposed 
Sec. 7.2000, such meetings would be permissible as provided for under 
the relevant provision of the MBCA, Sec. 8.20(b) (1984) (amended 1993).
    A list of approved MBCA sections are contained in Appendix A to 
Part 7. The OCC anticipates adding additional provisions over time 
following a careful review of the procedures' impact on the safe and 
sound operation of banks.
    The OCC invites comment on whether additional sections of the MBCA 
should be included in the safe harbor.
    Proposed Sec. 7.2000(c) also provides that in accordance with the 
no-objection procedures contained in Banking Circular 205, the OCC will 
consider requests for staff guidance on the permissibility of engaging 
in certain corporate governance practices that are not addressed by 
applicable Federal banking statutes and regulations or by the 
designated sections of the MBCA.
    The OCC also invites comment on whether the MBCA is the appropriate 
form of guidance to provide national banks with additional flexibility 
in structuring their corporate practices to meet new technologies and 
other corporate changes, or whether the Delaware General Corporation 
Law or other sources are preferable.
Notice of Shareholders' Meetings (Sec. 7.2001)
    Proposed Sec. 7.2001 clarifies the language of current Sec. 7.4000 
and removes the sentence referring to specific statutory provisions 
concerning conversions, consolidations and mergers of national banks. 
Proposed Sec. 7.2001 clarifies that the national bank must mail the 
notice of shareholders' meetings ten days before the proposed meeting.
Director or Attorney as Proxy (Sec. 7.2002)
    Proposed Sec. 7.2002 modifies current Sec. 7.4020 to clarify that a 
person who is both an officer, and either a director or attorney may 
not act as proxy. Proposed 7.2002 like current Sec. 7.4020 repeats 12 
U.S.C. 61 and states that directors and attorneys may act as proxy.
    The OCC invites comment on whether to remove this section as 
unnecessary.
Annual Meeting for Election of Directors (Sec. 7.2003)
    Proposed Sec. 7.2003 revises current Sec. 7.4105 by removing 
unnecessary language that merely explains the rationale for the 
statutory requirement that a director stay in office until a successor 
has been elected.
Ownership of Stock Necessary To Qualify as Director (Sec. 7.2005)
    Proposed Sec. 7.2005 consolidates and streamlines current 
Sec. 7.4210 by removing repetitive information and making the provision 
more readable. Consistent with OCC precedent, proposed Sec. 7.2005 
provides that a director's ownership of preferred stock in a national 
bank may satisfy the requirements of 12 U.S.C. 72. Proposed Sec. 7.2005 
also clarifies that the funds used to purchase the required minimum 
equity interest may be borrowed from the bank or its affiliates. (When 
funds are borrowed from the bank itself, however, the bank must make 
appropriate accounting adjustments to the value of the stock.)
Cumulative Voting in Election of Directors (Sec. 7.2006)
    Proposed Sec. 7.2006 streamlines and simplifies current 
Sec. 7.4300. Proposed Sec. 7.2006 directly states how shares may be 
allocated to elect directors if all directors are not elected on the 
first ballot. The proposal removes an example of this procedure 
contained in current Sec. 7.4300.
Filling Vacancy in or Increasing Board of Directors (Sec. 7.2007)
    Proposed Sec. 7.2007 modifies current Sec. 7.4305 to clarify that 
it is ``the majority of shareholders or a majority of directors'' that 
may increase the number of directors. Current Sec. 7.4305 uses the more 
ambiguous term ``national bank,'' creating uncertainty about what body 
has the ability to act on this issue. Proposed Sec. 7.2007 also 
eliminates language that repeats the statute, and clarifies the 
procedures for filling vacancies.
Quorum of the Board of Directors; Proxies Not Permissible (Sec. 7.2009)
    Proposed Sec. 7.2009 clarifies current Sec. 7.4420 to indicate that 
the OCC requires a national bank's articles of association or bylaws to 
provide that a quorum of directors is at least a majority of the entire 
board then in office.
Delegation of Directors' Duties (Sec. 7.2010)
    Proposed Sec. 7.2010 revises current Sec. 7.4425. Proposed 
Sec. 7.2010 states that while directors may delegate the day-to-day 
operations of the bank to management, the directors maintain the 
responsibility for supervising management to ensure that the bank is 
operated in accordance with policies and procedures established by the 
board as well as with applicable law, regulations, and safe and sound 
banking practices.
Compensation Plans (Sec. 7.2011)
    Proposed Sec. 7.2011 combines and condenses current Secs. 7.5000, 
7.5010, and 7.5015, regarding bonus and profit sharing plans, pension 
plans, and employee stock option and stock purchase plans, 
respectively, into one section on compensation plans. The OCC believes 
these subjects are closely related and thus belong in one section.
President as Director; Chief Executive Officer (Sec. 7.2012)
    Proposed Sec. 7.2012 modifies current Sec. 7.5200 to provide that a 
person other than the president or a director may [[Page 11928]] serve 
as chief executive officer of the bank.
Indemnification of Directors, Officers, and Employees (Sec. 7.2014)
    Proposed Sec. 7.2014 clarifies current Sec. 7.5217 to state that a 
national bank may indemnify certain individuals and advance legal fees 
and expenses, subject to certain limitations. Under proposed 
Sec. 7.2014, a national bank may not indemnify an individual where an 
administrative proceeding results in a final order assessing a civil 
money penalty or requiring restitution, or a final removal or 
prohibition order under 12 U.S.C. 1818 (e) or (g). Proposed Sec. 7.2014 
adds legal fees to the list of expenses for which a national bank may 
not indemnify an individual under such circumstances.
    The OCC invites comments on whether the general provision 
permitting indemnification is broad enough to permit appropriate 
indemnification in contexts outside of administrative enforcement 
action.
    The OCC also invites comment on whether the term ``institution-
affiliated party'' should be added to the list of individuals who a 
bank may not indemnify under Sec. 7.2014(b).
    Proposed Sec. 7.2014(c) also adds a new paragraph that imposes 
certain procedural requirements for national banks that wish to advance 
expenses and legal fees in connection with administrative enforcement 
actions. Under proposed Sec. 7.2014, a national bank may advance 
expenses and legal fees if the disinterested members of the board of 
directors determine, in good faith, that there is a reasonable basis 
for the individual to prevail on the merits; that the individual has 
the financial capacity to reimburse the bank if he or she does not 
prevail; and that the payment of the expenses by the bank is not unsafe 
or unsound. The indemnified individual must repay advances to the bank, 
however, if the action or proceeding results in a final order assessing 
a civil money penalty or requiring restitution, or a final removal or 
prohibition order under 12 U.S.C. 1818 (e) or (g).
    The OCC invites comment on whether these standards (particularly 
the determination of a reasonable basis for prevailing on the merits) 
are workable or too restrictive, and whether other standards are more 
appropriate.
    Proposed Sec. 7.2014(c)(2) also requires an individual to execute a 
formal and binding agreement to reimburse the bank for expenses and 
fees in the event he or she does not prevail. Proposed Sec. 7.2014(d) 
also clarifies that based upon a review of an indemnification or 
advance, or proposed indemnification or advance, the OCC may direct a 
national bank to modify a specific indemnification or payment through 
any appropriate means.
    Proposed Sec. 7.2014(e) clarifies that a bank may pay reasonable 
premiums for insurance covering the expenses, legal fees and liability 
of directors, officers, or employees, except that the insurance may not 
cover final orders assessing civil money penalties.
    The OCC invites comment on whether the exclusion from insurance 
coverage should be limited further to require exclusions only for 
willful or criminal misconduct.
Cashier (Sec. 7.2015)
    Proposed Sec. 7.2015 revises current Sec. 7.5245 to clarify that 
the cashier's duties may be delegated to the president, chief executive 
officer, or other officer.
Restricting Transfer of Stock and Record Dates (Sec. 7.2016)
    Proposed Sec. 7.2016 modifies current Sec. 7.6005 to clarify, among 
other things, that it is the board of directors, rather than the bank, 
that sets the record date.
Facsimile Signatures on Bank Stock Certificates (Sec. 7.2017)
    Proposed Sec. 7.2017 revises current Sec. 7.6010 to clarify that 
facsimile signatures include electronic means of signature.
Loan Secured by a Bank's Own Shares (Sec. 7.2019)
    Proposed Sec. 7.2019 modifies current Sec. 7.6030 by removing the 
first paragraph which merely restates the statute. Proposed Sec. 7.2019 
does not alter the substance of current Sec. 7.6030.
Acquisition and Holding of Shares as Treasury Stock (Sec. 7.2020)
    Proposed Sec. 7.2020 is a new section that addresses a national 
bank's acquisition and holding of shares as treasury stock. Proposed 
Sec. 7.2020 explains that pursuant to the authority and procedures of 
12 U.S.C. 59, a national bank may acquire its outstanding shares and 
hold them as treasury stock, as long as the acquisition and retention 
of the shares is for a legitimate corporate purpose. A national bank 
has authority under section 12 U.S.C. 24(Seventh) to fulfill a 
legitimate corporate need, so long as it complies with section 59 in 
its repurchase of outstanding shares with the consequent reduction in 
capital. Because section 59 limits such capital reductions to 
situations where the bank receives the approval of the OCC and of two-
thirds of its shareholders, there is little risk of improper use of 
treasury stock. It would not be permissible, however, for a national 
bank to acquire and hold treasury stock for speculation or as a means 
of bypassing some requirement or obligation under the Federal banking 
laws.
Voting Trusts (Sec. 7.2022)
    Proposed Sec. 7.2022 revises current Sec. 7.6060 by affirmatively 
stating that a national bank shareholder may establish a voting trust. 
Proposed Sec. 7.2022 also removes the requirement that the law of the 
state in which the bank is located should be observed in the 
preparation of the trust agreement. The OCC recognizes that with the 
advent of interstate banking, it is increasingly likely that a bank's 
shareholders will be located in many different states. Accordingly, the 
voting trust may be established under the law of any state selected by 
the participants and designated in the trust agreement. Proposed 
Sec. 7.2022 continues to require that the trust be consistent with safe 
and sound banking practices.
Bank Hours and Closings (Sec. 7.3000)
    Proposed Sec. 7.3000 revises current Sec. 7.7434 to provide more 
comprehensive guidance to banks regarding hours and closings.
    Proposed Sec. 7.3000(a) maintains the general information that a 
national bank's board of directors is responsible for establishing a 
schedule of business hours independently of other banks.
    Proposed Sec. 7.3000(b) informs national banks that the 
Comptroller, a state or a legally authorized state official may declare 
a day to be a legal holiday for emergency reasons. Proposed 
Sec. 7.3000(b) sets forth examples to provide guidance regarding the 
circumstances under which a national bank may remain closed and be 
assured that the bank will not incur liability for closing.
    Proposed Sec. 7.3000(c) also provides that a state or a legally 
authorized state official may declare a day a legal holiday for 
ceremonial reasons, and that a national bank may choose to remain open 
or to close on such holidays.
    Finally, proposed Sec. 7.3000(d) reminds national banks to look to 
applicable law to determine if they may incur liability for closing.
    Although not specified in proposed Sec. 7.3000, the proposed ruling 
would apply to foreign branches and agencies pursuant to the 
International Banking Act, 12 U.S.C. 3102(b).
Sharing Space and Employees (Sec. 7.3001)
    Proposed Sec. 7.3001 revises current Sec. 7.7516 to reflect current 
OCC positions [[Page 11929]] on sharing space and employees. Current 
Sec. 7.7516 only addresses sharing bank premises with other financial 
institutions. Through interpretive letters, however, the OCC has 
allowed national banks to lease excess space in bank-owned buildings.
    Proposed Sec. 7.3001(a) codifies existing interpretive letters that 
have addressed the scope of a national bank's ability to share space 
with other businesses.
    Proposed Sec. 7.3001(b) also addresses the issue of a national bank 
sharing employees with businesses with which it shares space. In 
addition to permitting a national bank to lease lobby space to various 
tenants, the OCC has permitted bank employees to perform services as 
agent for the bank's tenants under certain circumstances.
    Finally, proposed Sec. 7.3001(c) summarizes the supervisory 
concerns that may be presented by these arrangements, and proposed 
Sec. 7.3001(d) identifies legal issues a bank should consider when 
entering into these arrangements.
    Commenters are specifically requested to address whether the listed 
items are appropriate and if other considerations should be identified 
in lieu of, or in addition to, those described in the proposal.
Books and Records of National Banks (Sec. 7.4000)
    Proposed Sec. 7.4000 revises current Sec. 7.6025 which addresses 
the exclusive examination authority of the OCC. Proposed Sec. 7.4000 
clarifies that state authority to review the books and records of a 
national bank is limited to those circumstances in which there is 
reasonable cause to believe that the bank has failed to comply with 
applicable state unclaimed property and escheat laws. Proposed 
Sec. 7.4000 also removes the current Sec. 7.6025(c) provisions relating 
to the disclosure of examination reports, which will be incorporated 
into 12 CFR Part 4 through a later Federal Register document to revise 
part 4.
Charging Interest at Rates Permitted Competing Institutions; Charging 
Interest to Corporate Borrowers (Sec. 7.4001).
    Proposed Sec. 7.4001 updates current Sec. 7.7310 to reflect current 
law and OCC interpretive letters. Under 12 U.S.C. 85, a national bank 
may charge interest at the highest rate allowed by the state in which 
the bank is located. Section 85 permits a national bank to ``export'' 
the rate of ``interest'' allowed by the state in which the bank is 
located to customers in other states. For example, a national bank 
located in State A can charge interest in accordance with the law of 
State A to a borrower in State B even though the laws of State B 
prohibit or restrict the rate or type of interest charged.
    Although the exportation principle of section 85 is well 
established in case law, the application of section 85 is still the 
subject of court challenges, usually over whether a particular fee or 
charge imposed by a bank located in a given state is properly 
characterized as ``interest,'' and thus is ``exportable'' to a 
different state. For example, courts have held that charges such as 
late fees and overlimit fees are a component of ``interest.'' See 
Tikkanen v. Citibank (South Dakota) N.A., 801 F. Supp. 270 (D. Minn. 
1992); Cades v. H & R Block, Inc., No. 4:92-1454-21, 1993 U.S. Dist. 
LEXIS 19043 (D.S.C. 1993), aff'd, No. 93-2555, 1994 WL 719070 (4th Cir. 
Dec. 30, 1994); Ament v. PNC National Bank, 849 F. Supp. 1015 (W.D. Pa. 
1994) (on appeal). But see Mazaika v. Bank One, Columbus, N.A., No. 
00231 Phila. 1993, 1994 WL 698016 (Pa.Super.Ct. Dec. 14, 1994) (en 
banc).
    The OCC has addressed, through interpretive letters, the issue of 
what fees or charges may be considered ``interest.'' Most recently, the 
OCC summarized its previous opinions and concluded that in addition to 
periodic percentage rates, charges consisting of late charges, annual 
fees and overlimit charges are included within the meaning of 
``interest'' as used in section 85. Thus, if they are permissible for 
lenders to impose under the laws of the state where a bank is located, 
they may be charged and ``exported'' by the national bank without 
reference to whether such fees and charges are denominated ``interest'' 
by the laws of the state where the bank is located or by the laws of 
the state where the customer resides. See Letter from Julie L. 
Williams, Chief Counsel, to John L. Douglas, dated February 17, 1995.
    Proposed Sec. 7.4001(a) proposes to codify these interpretive 
positions. Under proposed Sec. 7.4001(a) ``interest'' as used in 12 
U.S.C. 85 includes any payment compensating a creditor or prospective 
creditor for any extension of credit, the making available of a line of 
credit, or any default or breach by a borrower of a condition upon 
which credit was extended. It includes, among other things, the 
following fees connected with credit extension or availability: 
numerical periodic rates, late fees, not sufficient funds (NSF) fees, 
overlimit fees, annual fees, cash advance fees, and membership fees. It 
does not ordinarily include appraisal fees, premiums and commissions 
attributable to insurance guaranteeing repayment of any extension of 
credit, finders' fees, fees for document preparation or notarization, 
or fees incurred to obtain credit reports. Thus, the description 
includes items that the OCC considers components of interest, such as 
late fees and annual fees, as well as items that the OCC generally does 
not consider interest, such as appraisal fees and premiums. Proposed 
Sec. 7.4001(a) also is not intended to be a comprehensive treatment of 
the issue, and other charges may also be found to be components of 
interest.
National Bank Charges (Sec. 7.4002)
    Proposed Sec. 7.4002 revises current Sec. 7.8000 to clarify that 
section and to address concerns raised by Congress. The conference 
report to the Riegle-Neal Interstate Banking and Branching Efficiency 
Act of 1994 urged the OCC to review current Sec. 7.8000 to determine if 
it should be withdrawn or revised. H.R. Conf. Rep. No. 651, 103rd 
Cong., 2d sess. 54 (1994). The conferees expressed the view that in 
certain circumstances the OCC had applied the principles of preemption 
in an overly broad manner. In particular, the conferees expressed 
concern regarding the scope of the broad assertion of current 
Sec. 7.8000 that Federal law preempts state laws that prohibit, limit, 
or restrict deposit account service charges imposed by a national bank. 
Specifically, current Sec. 7.8000 cites the ``comprehensive [F]ederal 
statutory scheme governing the deposit-taking function of national 
banks'' as authority for preemption of these state laws.
    Proposed Sec. 7.4002 revises the approach in current Sec. 7.8000.
    Proposed Sec. 7.4002(a) addresses the ability of a national bank to 
charge customers reasonable deposit account service charges and loan-
related fees. Proposed Sec. 7.4002(a) incorporates current Secs. 7.7315 
and 7.7515 which deal with credit report fees and service charges on 
dormant accounts. The authority of a national bank to charge these fees 
is well established. Proposed Sec. 7.4002(a) requires such fees to be 
reasonable and determined through consideration of all factors relevant 
to a sound business decision.
    Proposed Sec. 7.4002(b) sets out the relevant considerations in 
establishing such charges.
    In place of the broad assertion of Federal preemption in current 
Sec. 7.8000, proposed Sec. 7.4002(c) states that the OCC will consider 
on a case-by-case basis whether a national bank may establish a 
particular service charge that is in conflict with a state law. 
Proposed Sec. 7.4002(c) affirms that in issuing an opinion on whether 
such state laws are [[Page 11930]] preempted, the OCC will employ the 
preemption principles derived from the Supremacy Clause of the U.S. 
Constitution and judicial precedent. Generally, state laws apply to 
national banks unless the state law expressly or impliedly conflicts 
with Federal law, Federal law is so comprehensive as to evidence a 
congressional intent to occupy a given field, or the state law stands 
as an obstacle to the accomplishment of the full purposes and 
objectives of the Federal law.
Licensing; Request for Comments
    The OCC has not proposed a specific interpretive ruling addressing 
the applicability of state licensing requirements to national banks, 
but is considering whether it would be advisable to do so in order to 
clarify its position on various issues that have recently arisen in 
this area. For example, the OCC has consistently taken the position 
that a state may not require a national bank to obtain a state license 
to exercise the powers authorized for national banks under Federal law. 
This position is consistent with judicial precedent that establishes 
the parameters of preemption of state law by Federal banking law.<SUP>2 
The OCC's position also is supported by Bank of America v. Lima, 103 F. 
Supp. 916 (D. Mass. 1952), which stated that as Federal government 
instrumentalities, national banks are not required to obtain state 
approval for the exercise of the powers granted to them by Congress.

    \2\See McClellan v. Chipman, 164 U.S. 347, 356-57 (1896) 
(National banks are instrumentalities of the Federal government and 
are necessarily subject to the paramount authority of the United 
States); see also Flood v. City Nat'l Bank of Clinton, 220 Iowa 935, 
263 N.W. 321 (1935), cert. denied, 298 U.S. 666 (1936) (National 
banks derive their powers and authority under Federal law, and thus 
are not subject to conflicting state law).
---------------------------------------------------------------------------

    Some state laws apply to national banks. However, as a general 
principle, a national bank need not conform to state laws that conflict 
with Federal law. In Davis v. Elmira Savings Bank, 161 U.S. 275 (1896), 
for example, the Supreme Court drew upon constitutional principles to 
define the ability of the states to regulate national banks:

    National banks are instrumentalities of the Federal government, 
created for a public purpose and as such necessarily subject to the 
paramount authority of the United States. It follows that an attempt 
by a state to define their duties or control the conduct of their 
affairs is absolutely void, wherever such attempted exercise of 
authority expressly conflicts with the laws of the United States, 
and either frustrates the purpose of the national legislation, or 
impairs the efficiency of these agencies of the Federal government 
to discharge the duties for the performance of which they were 
created. These principles are axiomatic, and are sanctioned by the 
repeated adjudications of this court.

161 U.S. 275, 283. The Davis decision captures the essential elements 
of Federal banking preemption analysis and is frequently cited by the 
OCC and reviewing courts. However, it is not always simple to apply 
these preemption principles because of the valid role of state law in 
certain aspects of national bank operations. Moreover, the manner in 
which the national bank's activities may be conducted may be subject to 
certain types of state laws, and the OCC often encourages national 
banks to comply with certain types of state law requirements as a 
matter of sound business practices.
    Commenters are specifically asked to address whether these 
principles should be included in a new interpretive ruling and if any 
additional or alternative provisions would also be appropriate.
Sections Removed From Part 7
    The OCC is proposing to remove current Secs. 7.3000, 7.4005, 
7.4015, 7.4100, 7.4200, 7.4205, 7.4400, 7.4410, 7.7400, 7.7410, 7505, 
7.7519, 7.7590, 7.7000, and 7.7015 as generally unnecessary, outdated 
or repetitive. The OCC proposes to remove the following additional 
sections for the reasons stated below.
    Section 7.4010--Quorum for shareholders' meeting. The issues are 
covered sufficiently by proposed cross-references to the MBCA, 
Sec. 7.25 (1984) (amended 1993).
    Section 7.5210--Same person holding offices of president and 
cashier. There is no legal impediment to one person serving as both 
president and cashier. Further, proposed Sec. 7.2015, discusses the 
assignment of the cashier's duties and clarifies that the duties of 
cashier may be delegated to the president, chief executive officer, or 
other officer.
    Section 7.5220--Contracts of employment. Any employment contract 
that is excessive or unreasonable is unsafe and unsound. Therefore, the 
current ``reasonable'' standard is necessarily in effect, so it is 
unnecessary to reiterate the standard in this interpretive ruling. 
Moreover, section 132 of the Federal Deposit Insurance Corporation 
Improvement Act of 1991 (FDICIA) and regulations to be issued by the 
OCC and other agencies under section 132 will deal with excessive or 
unreasonable contracts. See 12 U.S.C. 1831p-1 (c), and (d).
    Section 7.7012--Foreign operations. This section has been removed 
and will be incorporated into 12 CFR part 28 as part of the overall 
revision of that part.
    Section 7.7112--Insuring lives of bank officers. Banking Circular 
249 covers the relevant issues in more detail, and Sec. 7.7112 is 
therefore unnecessary.
    Sections 7.7355--Debts of affiliates, 7.7360--Loans secured by 
stock or obligation of an affiliate, 7.7365--Federal funds transactions 
between affiliates, and 7.7370--Deposits between affiliated banks. 
These sections have been transferred to Sec. 31.100 of this chapter.
    Sections 7.7378--Issuance of credit cards, and 7.7379--Servicing of 
mortgage and other loans as agent. These sections have been 
incorporated into proposed revisions of part 5 of this chapter. See 
proposed Sec. 5.34(e)(2)(ii)(F) of this chapter, 59 FR 61034, Nov. 29, 
1994.
    Section 7.7540--Reports of condition: Waiver of affiliate reports. 
Section 308 of the Riegle Community Development and Regulatory 
Improvement Act of 1994, Pub. L. 103-325, 108 Stat. 2160 (Sept. 23, 
1994), eliminated the requirement that national banks and their 
affiliates periodically publish the reports of condition in a 
newspaper. See 12 U.S.C. 161.
    The OCC's proposed removal or transfer of these sections does not 
imply any alteration of the underlying authority for national bank 
activity. The interpretive rulings the OCC proposes to remove or 
transfer are grounded in statutory authority that remains unchanged. 
Unless otherwise noted, these proposed changes to part 7 are not 
intended to effect any change in the substance or influence of the 
interpretive rulings beyond that described in this preamble.
    The OCC requests comments on whether it should retain any of the 
sections proposed to be removed, and if so, why.

Sections That Remain Substantively Unchanged

    The OCC proposes stylistic changes and redesignates the following 
sections. The OCC does not intend to affect the substance of these 
sections.
    Current Sec. 7.7380 to proposed Sec. 7.1004--Loans originating at 
other than banking offices;
    Current Sec. 7.4110 to proposed Sec. 7.2004--Honorary directors or 
advisory board;
    Current Sec. 7.4415 to proposed Sec. 7.2008--Oath of directors;
    Current Sec. 7.4420 to proposed Sec. 7.2009--Quorum of board of 
directors; proxies not permissible;
    Current Sec. 7.5215 to proposed Sec. 7.2013--Fidelity bonds 
covering officers and employees; [[Page 11931]] 
    Current Sec. 7.6015 to proposed Sec. 7.2018--Lost stock 
certificates;
    Current Sec. 7.6050 to proposed Sec. 7.2021--Preemptive rights;
    Current Sec. 7.7100 to proposed Sec. 7.1001--National banks acting 
as general insurance agents;
    Current Sec. 7.7430 to proposed Sec. 7.1008--Preparing income tax 
returns for customers or public;
    Current Sec. 7.7312 to proposed Sec. 7.1006--Loan agreement 
providing for share in profits, income or earnings;
    Current Sec. 7.7420 to Sec. 7.1007--Acceptances;
    Current Sec. 7.7455 to proposed 7.1009--National bank holding 
collateral as nominee.
    Current Sec. 7.7482 to proposed Sec. 7.1010--Postal service by 
national bank;
    Current Sec. 7.7485 to proposed Sec. 7.1011--National bank acting 
as payroll issuer;
    Current Sec. 7.7535 to proposed Sec. 7.1015--Receipt of stock from 
SBIC; and
    Current Sec. 7.7560 to proposed Sec. 7.1018--Automatic payment plan 
account.
    The OCC includes these sections in the proposal for the convenience 
of readers to present part 7 as proposed in its entirety.

Distribution Table

    The distribution table indicates where, if applicable, each section 
of the current part 7 will appear in the proposed part 7 or elsewhere.

------------------------------------------------------------------------
Original provision  Revised provision               Comment             
------------------------------------------------------------------------
Sec. 7.1100.......  .................  Moved (part 32).                 
Sec. 7.1105.......  .................  Moved (part 32).                 
Sec. 7.3000.......  .................  Moved (part 32).                 
Sec. 7.3005.......  Sec. 7.1000......  Significant change.              
Sec. 7.3010.......  Sec. 7.1000......  Significant change.              
Sec. 7.3100.......  Sec. 7.1000......  Significant change.              
Sec. 7.3300.......  Sec. 7.1000......  Significant change.              
Sec. 7.3500.......  Sec. 7.1019......  Significant change.              
Sec. 7.4000.......  Sec. 7.2001......  Significant change.              
Sec. 7.4005.......  .................  Removed.                         
Sec. 7.4010.......  .................  Removed.                         
Sec. 7.4015.......  .................  Removed.                         
Sec. 7.4020.......  Sec. 7.2002......  Modified.                        
Sec. 7.4100.......  .................  Removed.                         
Sec. 7.4105.......  Sec. 7.2003......  Significant change.              
Sec. 7.4110.......  Sec. 7.2004......  Unchanged.                       
Sec. 7.4200.......  .................  Removed.                         
Sec. 7.4205.......  .................  Removed.                         
Sec. 7.4210.......  Sec. 7.2005......  Significant change.              
Sec. 7.4300.......  Sec. 7.2006......  Significant change.              
Sec. 7.4305.......  Sec. 7.2007......  Modified.                        
Sec. 7.4400.......  .................  Removed.                         
Sec. 7.4410.......  .................  Removed.                         
Sec. 7.4415.......  Sec. 7.2008......  Unchanged.                       
Sec. 7.4420.......  Sec. 7.2009......  Unchanged.                       
Sec. 7.4425.......  Sec. 7.2010......  Modified.                        
Sec. 7.5000.......  Sec. 7.2011......  Significant change.              
Sec. 7.5010.......  Sec. 7.2011......  Significant change.              
Sec. 7.5015.......  Sec. 7.2011......  Significant change.              
Sec. 7.5200.......  Sec. 7.2012......  Modified.                        
Sec. 7.5210.......  .................  Removed.                         
Sec. 7.5215.......  Sec. 7.2013......  Unchanged.                       
Sec. 7.5217.......  Sec. 7.2014......  Significant change.              
Sec. 7.5220.......  .................  Removed.                         
Sec. 7.5230.......  Sec. 7.1000......  Significant change.              
Sec. 7.5245.......  Sec. 7.2015......  Significant change.              
Sec. 7.6005.......  Sec. 7.2016......  Modified.                        
Sec. 7.6010.......  Sec. 7.2017......  Significant change.              
Sec. 7.6015.......  Sec. 7.2018......  Unchanged.                       
Sec. 7.6025.......  Sec. 7.4000......  Significant change.              
Sec. 7.6030.......  Sec. 7.2019......  Modified.                        
Sec. 7.6040.......  .................  Moved (part 5).                  
Sec. 7.6050.......  Sec. 7.2021......  Unchanged.                       
Sec. 7.6060.......  Sec. 7.2022......  Significant change.              
Sec. 7.6120.......  .................  Moved (part 5).                  
Sec. 7.7000.......  .................  Removed.                         
Sec. 7.7010.......  Sec. 7.1017......  Modified.                        
Sec. 7.7012.......  .................  Removed.                         
Sec. 7.7015.......  .................  Removed.                         
Sec. 7.7016.......  Sec. 7.1016......  Significant change.              
Sec. 7.7100.......  Sec. 7.1001......  Unchanged.                       
Sec. 7.7115.......  .................  Removed.                         
Sec. 7.7200.......  Sec. 7.1002......  Significant change.              
Sec. 7.7310.......  Sec. 7.4001......  Significant change.              
Sec. 7.7312.......  Sec. 7.1006......  Unchanged.                       
Sec. 7.7315.......  Sec. 7.4002......  Significant change.              
Sec. 7.7355.......  .................   Moved (part 31).                
Sec. 7.7360.......  .................  Moved (part 31).                 
[[Page 11932]]                                                          
                                                                        
Sec. 7.7365.......  .................  Moved (part 31).                 
Sec. 7.7370.......  .................  Moved (part 31).                 
Sec. 7.7378.......  .................  Removed.                         
Sec. 7.7379.......  .................  Removed.                         
Sec. 7.7380.......  Sec. 7.1004......  Unchanged.                       
Sec. 7.7400.......  .................  Removed.                         
Sec. 7.7405.......  .................  Removed.                         
Sec. 7.7410.......  .................  Removed.                         
Sec. 7.7415.......  .................  Removed.                         
Sec. 7.7420.......  Sec. 7.1007......  Unchanged.                       
Sec. 7.7430.......  Sec. 7.1008......  Unchanged.                       
Sec. 7.7434.......  Sec. 7.3000......  Significant change.              
Sec. 7.7455.......  Sec. 7.1009......  Unchanged.                       
Sec. 7.7482.......  Sec. 7.1010......  Unchanged.                       
Sec. 7.7485.......  Sec. 7.1011......  Unchanged.                       
Sec. 7.7490.......  Sec. 7.1012......  Modified.                        
Sec. 7.7495.......  Sec. 7.1013......  Significant change.              
Sec. 7.7500.......  Sec. 7.1014......  Modified.                        
Sec. 7.7505.......  .................  Removed.                         
Sec. 7.7515.......  Sec. 7.4002......  Significant change.              
Sec. 7.7516.......  Sec. 7.3001......  Significant change.              
Sec. 7.7519.......  .................  Removed.                         
Sec. 7.7530.......  .................  Removed.                         
Sec. 7.7535.......  Sec. 7.1015......  Unchanged.                       
Sec. 7.7540.......  .................  Removed.                         
Sec. 7.7560.......  Sec. 7.1018......  Modified.                        
Sec. 7.7570.......  .................  Moved (part 1).                  
Sec. 7.7590.......  .................  Removed.                         
Sec. 7.8000.......  Sec. 7.4002......  Significant change.              
------------------------------------------------------------------------

Derivation Table

    This derivation table illustrates which current sections of part 7 
the proposed sections are based upon.

------------------------------------------------------------------------
                         Original                                       
 Revised provision      provision                   Comment             
------------------------------------------------------------------------
                    Sec. 7.1100......  Moved (part 32).                 
                    Sec. 7.1105......  Moved (part 32).                 
                    Sec. 7.3000......  Removed.                         
Sec. 7.1000.......  Secs. 7.3005,      Significant change.              
                     7.3010, 7.3100,                                    
                     7.3300, 7.5230.                                    
Sec. 7.1001.......  Sec. 7.7100......  Unchanged.                       
Sec. 7.1002.......  Sec. 7.7200......  Significant change.              
Sec. 7.1003.......  .................  Added.                           
Sec. 7.1004.......  Sec. 7.7380......  Unchanged.                       
Sec. 7.1005.......  .................  Added.                           
Sec. 7.1006.......  Sec. 7.7312......  Unchanged.                       
Sec. 7.1007.......  Sec. 7.7420......  Unchanged.                       
Sec. 7.1008.......  Sec. 7.7430......  Unchanged.                       
Sec. 7.1009.......  Sec. 7.7455......  Unchanged.                       
Sec. 7.1010.......  Sec. 7.7482......  Unchanged.                       
Sec. 7.1011.......  Sec. 7.7485......  Unchanged.                       
Sec. 7.1012.......  Sec. 7.7490......  Modified.                        
Sec. 7.1013.......  Sec. 7.7495......  Significant change.              
Sec. 7.1014.......  Sec. 7.7500......  Modified.                        
Sec. 7.1015.......  Sec. 7.7535......  Unchanged.                       
Sec. 7.1016.......  Sec. 7.7016......  Significant change.              
Sec. 7.1017.......  Sec. 7.7010......  Modified.                        
Sec. 7.1018.......  Sec. 7.7560......  Unchanged.                       
Sec. 7.1019.......  Sec. 7.3500......  Significant change.              
Sec. 7.2000.......  .................  Added.                           
Sec. 7.2001.......  Sec. 7.4000......  Significant change.              
                    Sec. 7.4005......  Removed.                         
                    Sec. 7.4010......  Removed.                         
                    Sec. 7.4015......  Removed.                         
Sec. 7.2002.......  Sec. 7.4020......  Modified.                        
                    Sec. 7.4100......  Removed.                         
Sec. 7.2003.......  Sec. 7.4105......  Significant change.              
Sec. 7.2004.......  Sec. 7.4110......  Unchanged.                       
                    Sec. 7.4200......  Removed.                         
                    Sec. 7.4205......  Removed.                         
Sec. 7.2005.......  Sec. 7.4210......  Significant change.              
Sec. 7.2006.......  Sec. 7.4300......  Significant change.              
Sec. 7.2007.......  Sec. 7.4305......  Modified.                        
[[Page 11933]]                                                          
                                                                        
                    Sec. 7.4400......  Removed.                         
                    Sec. 7.4410......  Removed.                         
Sec. 7.2008.......  Sec. 7.4415......  Unchanged.                       
Sec. 7.2009.......  Sec. 7.4420......  Unchanged.                       
Sec. 7.2010.......  Sec. 7.4425......  Modified.                        
Sec. 7.2011.......  Secs. 7.5000,      Significant change.              
                     7.5010, 7.5015.                                    
Sec. 7.2012.......  Sec. 7.5200......  Modified.                        
                    Sec. 7.5210......  Removed.                         
Sec. 7.2013.......  Sec. 7.5215......  Unchanged.                       
Sec. 7.2014.......  Sec. 7.5217......  Significant change.              
                    Sec. 7.5220......  Removed.                         
Sec. 7.2015.......  Sec. 7.5245......  Significant change.              
Sec. 7.2016.......  Sec. 7.6005......  Modified.                        
Sec. 7.2017.......  Sec. 7.6010......  Significant change.              
Sec. 7.2018.......  Sec. 7.6015......  Unchanged.                       
Sec. 7.2019.......  Sec. 7.6030......  Modified.                        
                    Sec. 7.6040......  Moved (part 5).                  
Sec. 7.2020.......  .................  Added.                           
Sec. 7.2021.......  Sec. 7.6050......  Unchanged.                       
Sec. 7.2022.......  Sec. 7.6060......  Significant change.              
                    Sec. 7.6120......  Moved (part 5).                  
                    Sec. 7.7000......  Removed.                         
                    Sec. 7.7012......  Removed.                         
                    Sec. 7.7015......  Removed.                         
                    Sec. 7.7355......  Moved (part 31).                 
                    Sec. 7.7360......  Moved (part 31).                 
                    Sec. 7.7365......  Moved (part 31).                 
                    Sec. 7.7370......  Moved (part 31).                 
                    Sec. 7.7400......  Removed.                         
Sec. 7.3000.......  Sec. 7.7434......  Significant change.              
                    Sec. 7.7505......  Removed.                         
Sec. 7.3001.......  Sec. 7.7516......  Significant change.              
                    Sec. 7.7519......  Removed.                         
                    Sec. 7.7540......  Removed.                         
                    Sec. 7.7570......  Moved (part 1).                  
                    Sec. 7.7590......  Removed.                         
Sec. 7.4000.......  Sec. 7.6025......  Significant change.              
Sec. 7.4001.......  Sec. 7.7310......  Significant change.              
Sec. 7.4002.......  Secs. 7.7315,      Significant change.              
                     7.7515, 7.8000.                                    
------------------------------------------------------------------------

Regulatory Flexibility Act

    It is hereby certified that this regulation will not have a 
significant economic impact on a substantial number of small entities. 
Accordingly, a regulatory flexibility analysis is not required. This 
regulation will reduce the regulatory burden on national banks, 
regardless of size, by simplifying and clarifying existing regulatory 
requirements.

Executive Order 12866

    The OCC has determined that this proposal is not a significant 
regulatory action.

List of Subjects

12 CFR Part 7

    Credit, Insurance, Investments, National banks, Reporting and 
recordkeeping requirements, Securities, Surety bonds.

12 CFR Part 31

    Credit, National banks, Reporting and recordkeeping requirements.

Authority and Issuance

    For the reasons set out in the preamble, chapter I of title 12 of 
the Code of Federal Regulations is amended as follows:
    1. Part 7 is revised to read as follows:

PART 7--INTERPRETIVE RULINGS

Subpart A--Bank Powers

Sec.

7.1000  Bank ownership of property.
7.1001  National bank acting as general insurance agent.
7.1002  National bank acting as finder.
7.1003  Loans made at banking offices, or at other than banking 
offices.
7.1004  Loans originating at other than banking offices.
7.1005  Credit decisions at other than banking offices.
7.1006  Loan agreement providing for share in profits, income or 
earnings.
7.1007  Acceptances.
7.1008  Preparing income tax returns for customers or public.
7.1009  National bank holding collateral stock as nominee.
7.1010  Postal service by national bank.
7.1011  National bank acting as payroll issuer.
7.1012  Messenger service.
7.1013  Debt cancellation contracts.
7.1014  Sale of money orders at nonbanking outlets.
7.1015  Receipt of stock from small business investment company.
7.1016  Independent undertakings to pay against documents.
7.1017  National bank as guarantor or surety on indemnity bond.
7.1018  Automatic payment plan account.
7.1019  Use of data processing equipment and furnishing of data 
processing services.

Subpart B--Corporate Practices

Sec.

7.2000  Corporate governance procedures.
7.2001  Notice of shareholders' meetings.
7.2002  Director or attorney as proxy.
7.2003  Annual meeting for election of directors.
7.2004  Honorary directors or advisory board.
7.2005  Ownership of stock necessary to qualify as director.
7.2006  Cumulative voting in election of directors.
7.2007  Filling vacancy in or increasing board of directors.
7.2008  Oath of directors. [[Page 11934]] 
7.2009  Quorum of board of directors; proxies not permissible.
7.2010  Delegation of directors' duties.
7.2011  Compensation plans.
7.2012  President as director; chief executive officer.
7.2013  Fidelity bonds covering officers and employees.
7.2014  Indemnification of directors, officers, and employees.
7.2015  Cashier.
7.2016  Restricting transfer of stock and record dates.
7.2017  Facsimile signatures on bank stock certificates.
7.2018  Lost stock certificates.
7.2019  Loan secured by own shares.
7.2020  Acquisition and holding of shares as treasury stock.
7.2021  Preemptive rights.
7.2022  Voting trusts.

Subpart C--Bank Operations

7.3000  Bank hours and closings.
7.3001  Sharing space and employees.

Subpart D--Preemption

7.4000  Books and records of national banks.
7.4001  Charging interest at rates permitted competing institutions; 
charging interest to corporate borrowers.
7.4002  National bank charges.

Appendix A to Part 7--Corporate Governance Procedures; OCC Approved 
Model Business Corporation Act Provisions

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

Subpart A--Bank Powers


Sec. 7.1000  Bank ownership of property.

    (a) Bank premises--(1) General. Under 12 U.S.C. 29, a national bank 
may invest in real estate that is necessary for the transaction of its 
business.
    (2) Type of real estate. This real estate includes, but is not 
limited to:
    (i) Bank buildings and parking facilities, including the underlying 
real estate;
    (ii) Real estate held for future bank expansion, where the bank in 
good faith expects to utilize the property as bank premises (property 
acquired for this purpose should normally be used within five years. 
See Sec. 34.83(c) of this chapter);
    (iii) Residential property for the use of bank officers or 
employees who are:
    (A) Located in remote areas where suitable housing at a reasonable 
price is not readily available; or
    (B) Temporarily assigned to a foreign country, including foreign 
nationals temporarily assigned to the United States; and
    (iv) Property for the use of bank officers, employees, or 
customers, or for the temporary lodging of such persons in areas where 
suitable commercial lodging is not readily available, provided that the 
purchase and operation of the property qualifies as a deductible 
business expense for Federal tax purposes.
    (b) Fixed assets. In addition to real estate, a national bank may 
own fixed assets necessary for the transaction of its business, such as 
fixtures, furniture, and data processing equipment.
    (c) Permissible means of holding. A national bank may acquire and 
hold bank premises real estate by any reasonable and prudent means, 
including ownership in fee, a leasehold estate, or an interest in a 
cooperative. Property described in this paragraph may be held directly 
by the bank, or by one or more subsidiaries. A bank premises subsidiary 
may be organized as a corporation, a partnership, or similar entity.
    (d) Investment in bank premises--(1) Investment limitation; 
approval. A national bank's aggregate investment in bank premises 
generally is limited by 12 U.S.C. 371d to the amount of the bank's 
capital stock, except where the bank receives approval from the OCC in 
accordance with Sec. 5.37 of this chapter.
    (2) Options to purchase. An unexercised option to purchase bank 
premises or stock in a corporation holding bank premises is not an 
investment in bank premises. A national bank must receive OCC approval 
in accordance with Sec. 5.37 of this chapter to exercise the option if 
the price of the option and the bank's other investments in bank 
premises/real property, exceed the amount of the bank's capital stock.
    (e) Other real property--(1) Lease financing of public facilities. 
A national bank may purchase or construct a municipal building, school 
building, or other similar public facility and, as holder of legal 
title, lease the facility to a municipality or other public authority 
having resources sufficient to make all rental payments as they become 
due. The lease agreement must provide that the lessee will become the 
owner of the building or facility upon the expiration of the lease.
    (2) Purchase of employee's residence. To facilitate the efficient 
use of bank personnel, a national bank may purchase the residence of an 
employee who has been transferred to another area, in order to spare 
the employee a loss in the prevailing real estate market. The bank must 
arrange for early divestment of title to such property.


Sec. 7.1001  National bank acting as general insurance agent.

    Pursuant to 12 U.S.C. 92 a national bank may act as an agent for 
any fire, life, or other insurance company in any place the population 
of which does not exceed 5,000 inhabitants. This provision is 
applicable to any office of a national bank when the office is located 
in a community having a population of less than 5,000, even though the 
principal office of such bank is located in a community whose 
population exceeds 5,000.


Sec. 7.1002  National bank acting as finder.

    (a) General. A national bank may act as a finder in bringing 
together a buyer and seller.
    (b) Qualification. Acting as a finder includes, without limitation, 
identifying potential parties, making inquiries as to interest, 
introducing or arranging meetings of interested parties, and otherwise 
bringing parties together for a transaction that the parties themselves 
negotiate and consummate. Acting as a finder does not include 
activities that would characterize the bank as a broker under 
applicable Federal law.
    (c) Advertisement and fee. Unless otherwise prohibited, a national 
bank may advertise the availability of, and accept a fee for, the 
services provided pursuant to this section.


Sec. 7.1003  Loans made at banking offices, or at other than banking 
offices.

    (a) General. For purposes of 12 U.S.C. 36, a loan generally is 
deemed to be made at the location where the borrower receives funds. If 
funds are disbursed to a borrower in person by the lending bank or a 
subsidiary corporation, or if funds are disbursed to a borrower in 
person at a facility that is owned or rented by the bank or subsidiary 
corporation, branching limitations apply and OCC approval is required.
    (b) Disbursed funds. Funds may be disbursed to a borrower at a 
location that is not licensed as a branch without violating 12 U.S.C. 
36 and 81, provided that a third party is used to deliver the loan 
proceeds and the location is not owned or rented by the lending bank or 
subsidiary corporation. A third party includes a person who satisfies 
the requirements of Sec. 7.1012(c)(2), or one who customarily delivers 
loan proceeds under accepted industry practice, such as an attorney or 
escrow agent at a real estate closing.


Sec. 7.1004  Loans originating at other than banking offices.

    (a) General. A national bank may use the services of and compensate 
persons not employed by the bank for originating loans.
    (b) Approval. An employee or agent of a national bank or of a 
subsidiary corporation may originate a loan at locations other than the 
main office or a branch office of the bank. This action does not 
violate 12 U.S.C. 36 and 81 if the loan is approved and made at the 
[[Page 11935]] main office or a branch office of the bank or at an 
office of the subsidiary located on the premises of, or contiguous to, 
the main office or branch office of the bank.


Sec. 7.1005  Credit decisions at other than banking offices.

    A national bank or subsidiary corporation also may make credit 
decisions regarding loan applications at locations other than the main 
office or a branch office of the bank without violating 12 U.S.C. 36 
and 81, provided that loans are not made at those other locations 
within the meaning of Sec. 7.1003.


Sec. 7.1006  Loan agreement providing for share in profits, income or 
earnings.

    A national bank may take as consideration for a loan a share in the 
profit, income or earnings from a business enterprise of a borrower. 
Such share may be in addition to, or in lieu of, interest. The 
borrower's obligation to repay principal, however, shall not be 
conditioned upon the profit, income, or earnings of the business 
enterprise.


Sec. 7.1007  Acceptances.

    A national bank is not limited in the character of acceptances it 
may make in financing credit transactions. Bankers' acceptances may be 
used for such purpose, since the making of acceptances is an essential 
part of banking authorized by 12 U.S.C. 24.


Sec. 7.1008  Preparing income tax returns for customers or public.

    A national bank may not serve as an expert tax consultant. However, 
a national bank may assist its customers in preparing their tax 
returns, either gratuitously or for a reasonable fee.


Sec. 7.1009  National bank holding collateral stock as nominee.

    A national bank that accepts stock of another bank or other 
corporation as collateral for a loan, may have such stock transferred 
to the bank's name, as nominee.


Sec. 7.1010  Postal service by national bank.

    (a) General. A national bank may maintain and operate a postal 
substation on banking premises and receive income from it. The services 
performed by the substation may include meter stamping of letters and 
packages, and the sale of related insurance. The bank may advertise, 
develop, and extend the services of the substation for the purpose of 
attracting customers to the bank.
    (b) Postal regulations. A national bank operating a postal 
substation shall do so in accordance with the rules and regulations of 
the U.S. Postal Service. The national bank shall keep the books and 
records of the substation separate from those of other banking 
operations. Under 39 U.S.C. 705 and regulations issued pursuant 
thereto, the Postal Service may inspect the books and records of the 
substation.


Sec. 7.1011  National bank acting as payroll issuer.

    A national bank may disburse to employees of its customers payroll 
funds deposited with the bank by its customers. A national bank may 
disburse funds by direct payment to any employee, or by crediting an 
account standing in the employee's name at the disbursing bank.


Sec. 7.1012  Messenger service.

    (a) Definition. For purposes of this section, a ``messenger 
service'' refers to any service, such as a courier service or armored 
car service, that is used by a national bank and its customers to pick 
up from, and deliver to, specific customers at locations such as their 
homes or offices, items relating to transactions between the bank and 
those customers.
    (b) Pick-up and delivery of items relating to nonbranching 
activities. Pursuant to 12 U.S.C. 24(Seventh), a national bank may 
establish and operate a messenger service, or use, with its customers, 
a third party messenger service. The bank may use the messenger service 
to transport items relevant to the bank's transactions with its 
customers without regard to the limitations set forth in 12 U.S.C. 36, 
so long as the service does not engage in branching functions within 
the meaning of 12 U.S.C. 36(j). In establishing or using such a 
facility, the national bank may establish terms, conditions, and 
limitations that it deems appropriate to assure compliance with safe 
and sound banking practices.
    (c) Pickup and delivery of items pertaining to branching functions 
by a messenger service established by a third party. (1) Pursuant to 12 
U.S.C. 24(Seventh), a national bank and its customers may use a 
messenger service to pick up from, and deliver to, customers items that 
relate to branching functions within the meaning of 12 U.S.C. 36(j) 
without regard to the limitations set forth in 12 U.S.C. 36, provided 
the messenger service is established and operated by a third party. In 
using such a facility, a national bank may establish terms, conditions, 
and limitations, consistent with this ruling, as it deems appropriate 
to assure compliance with safe and sound banking practices.
    (2) The OCC reviews whether a messenger service is established by a 
third party on a case-by-case basis, considering all of the 
circumstances. However, a messenger service clearly is established by a 
third party if:
    (i) A party other than the national bank owns the service and its 
facilities (or rents them from a party other than the bank) and employs 
the person engaged in the provision of the service; and
    (ii) The messenger service:
    (A) Makes its services available to the public, including other 
depository institutions;
    (B) Retains ultimate discretion to determine which customers and 
geographical areas it will serve;
    (C) Maintains ultimate responsibility for scheduling, movement, and 
routing;
    (D) Does not operate under the name of the bank, and the bank and 
the messenger service do not advertise, or otherwise represent, that 
the bank itself is providing the service, although the bank may 
advertise that its customers may use one or more third party messenger 
services to transact business with the bank;
    (E) Assumes responsibility for the items during transit and for 
maintaining adequate insurance covering holdups, employee fidelity, and 
other in-transit losses; and
    (F) Acts as the agent for the customer when the items are in 
transit. The bank does not deem items intended for deposit to be 
deposited until credited to the customer's account at an established 
bank office or other permissible nonbranch facility. The bank deems 
items representing withdrawals to be paid when the items are given to 
the messenger service.
    (3) A national bank may defray all or part of the costs incurred by 
a customer in transporting items through a messenger service. Payment 
of those costs may only cover expenses associated with each transaction 
involving the customer and the messenger service. The national bank may 
impose terms, conditions, and limitations that it deems appropriate 
with respect to the payment of such costs.
    (d) Pickup and delivery of items pertaining to branching activities 
where the messenger service is established by the national bank. A 
national bank may establish and operate a messenger service to 
transport items relevant to the bank's transactions with its customers 
if such transactions involve one or more branching functions within the 
meaning of 12 U.S.C. 36(j), provided the bank receives approval to 
establish a branch pursuant to Sec. 5.30 of this chapter. 
[[Page 11936]] 


Sec. 7.1013  Debt cancellation contracts.

    A national bank may enter into a contract to provide for losses 
arising from cancellation of outstanding loans upon the death, 
disability, or unemployment of borrowers. The imposition of an 
additional charge and the establishment of necessary reserves in order 
to enable the bank to enter into such debt cancellation contracts are a 
lawful exercise of the powers of a national bank.


Sec. 7.1014  Sale of money orders at nonbanking outlets.

    A national bank may designate bonded agents to sell the bank's 
money orders at nonbanking outlets. The responsibility of both the bank 
and their agents should be carefully defined in a written agreement 
setting forth the duties of both parties and providing for remuneration 
of the agent. The bank's agents need not report on sales and transmit 
funds from the nonbanking outlets more frequently than at the end of 
the third business day following receipt of the funds.


Sec. 7.1015  Receipt of stock from small business investment company.

    A national bank may purchase the stock of a small business 
investment company (SBIC), (see 15 U.S.C. 682(b)) and may receive the 
benefits of such stock ownership (e.g., stock dividends). The receipt 
and retention of a dividend by a national bank from an SBIC in the form 
of stock of a corporate borrower of the SBIC is not a purchase of stock 
within the meaning of 12 U.S.C. 24(Seventh).


Sec. 7.1016  Independent undertakings to pay against documents.

    (a) General authority. A national bank may issue and commit to 
issue letters of credit and other independent undertakings within the 
scope of the laws or rules of practice recognized by law (such as the 
Uniform Commercial Code (1962) (amended 1990)), the Uniform Customs and 
Practice for Documentary Credits (Int'l Chamber of Com., 1983) (ICC 
Publication No. 400), the United Nations Commission on International 
Trade Law (UNCITRAL) Convention on Independent Guarantees and Standby 
Letters of Credit, and Uniform Rules for Bank-to-Bank Reimbursements 
Under Documentary Credits (Int'l Chamber of Com., 1995) (ICC 
Publication No. 525), under which the bank's obligation to honor 
depends upon the presentation of specified documents and not upon 
nondocumentary conditions outside the bank's operational purview. A 
national bank may also confirm or otherwise undertake to honor or 
purchase specified documents upon their presentation under another 
person's independent undertaking within the scope of such laws or 
rules.
    (b) Safety and soundness considerations. (1) Terms. As a matter of 
safe and sound banking practice, banks that issue independent 
undertakings must not be exposed to undue risk. At a minimum, banks 
must consider the following:
    (i) The independent character of the undertaking must be apparent 
from its terms and include a reference to the laws or rules providing 
for its independent character;
    (ii) The undertaking must be limited in duration and in amount; and
    (iii) The bank must have a post-honor right of reimbursement from 
its customer or from another bank, or if the bank's undertaking is to 
purchase drafts accompanied by documents of title, securities, or other 
intrinsically valuable documents, the bank must obtain a first priority 
right to realize on the documents if the bank is not otherwise 
reimbursed.
    (2) Additional considerations in special circumstances. Certain 
undertakings require particular protections against credit, operational 
and market risk:
    (i) In the event that the undertaking is to honor by delivery of an 
item of value other than money, the bank must ensure that market 
fluctuations that affect the value of the item will not cause the bank 
to assume undue market risk;
    (ii) In the event that an undertaking provides for renewal, the 
terms for renewal must be consistent with the bank's ability to make 
any necessary credit assessments prior to renewal; and
    (iii) In the event that a bank issues an undertaking for its own 
account, the underlying obligation for which it is issued must be 
within the bank's authority and comply with any safety and soundness 
requirements applicable to that obligation.
    (3) Operational expertise. The bank must possess operational 
expertise that is commensurate with the sophistication of its 
independent undertaking activities.
    (4) Documentation. The bank must accurately reflect the bank's 
undertakings in its records, including any acceptance or deferred 
payment or other absolute obligation arising out of its contingent 
undertaking.


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

    General. A national bank may lend its credit, bind itself as a 
surety to indemnify another, or otherwise become a guarantor, if it has 
a substantial interest in the performance of the transaction involved 
or has a segregated deposit sufficient in amount to cover the bank's 
total potential liability. For example, a bank, as a fiduciary, has a 
sufficient interest in the faithful performance by a cofiduciary of its 
duties to act as surety on the bond of such cofiduciary.


Sec. 7.1018  Automatic payment plan account.

    A national bank may, for the benefit and convenience of its savings 
depositors, adopt an automatic payment plan under which a savings 
account will earn dividends at the current rate paid on regular savings 
accounts. The depositor, upon reaching a previously designated age, 
receives his or her accumulated savings and earned interest in 
installments of equal amounts over a specified period.


Sec. 7.1019  Use of data processing equipment and furnishing of data 
processing services.

    In general, data processing is a technology rather than a service 
distinct or different from the underlying services or functions to 
which the technology is applied. A national bank may use data 
processing equipment and technology to perform for itself and others 
all services expressly or incidentally authorized under the statutes 
applicable to national banks. Further, when a national bank uses data 
processing equipment or technology to perform authorized services, the 
bank may market and sell any legitimate excess capacity in that 
equipment or technology.

Subpart B--Corporate Practices


Sec. 7.2000  Corporate governance procedures.

    (a) General. A national bank proposing to engage in a corporate 
governance procedure must comply with applicable Federal banking 
statutes and regulations, and safe and sound banking practices.
    (b) Model Business Corporation Act. In the event that there is no 
applicable Federal banking statute or regulation, a national bank may 
obtain guidance on proper corporate governance procedures from a 
variety of sources. In addition to other appropriate sources of 
guidance, a national bank may engage in a corporate governance 
procedure in the manner prescribed in those sections of the Model 
Business Corporation Act (MBCA) (1984) (amended 1993), designated by 
the OCC, which are set forth in Appendix A of this part.
    (c) No-objection procedures. The OCC also considers requests for 
the staff's position on the ability of a national bank 
[[Page 11937]] to engage in a particular corporate governance procedure 
in accordance with the no-objection procedures set forth in Banking 
Circular 205. Requests should demonstrate how the proposed practice is 
not inconsistent with applicable Federal statutes or regulations, and 
is consistent with safe and sound banking practices.


Sec. 7.2001  Notice of shareholders' meetings.

    A national bank must mail shareholders notice of the time, place, 
and purpose of all shareholders' meetings at least ten days prior to 
the meeting by first class mail, unless the OCC determines that an 
emergency circumstance exists. The articles of association, bylaws or 
law applicable to national banks may require a longer period of notice 
and/or specific means of delivery.


Sec. 7.2002  Director or attorney as proxy.

    Any person or group of persons except the bank's officers, clerks, 
tellers, or bookkeepers may be designated to act as proxy. The bank's 
directors or attorneys may act as proxy. An individual who is both an 
officer and either a director or attorney may not act as proxy.


Sec. 7.2003  Annual meeting for election of directors.

    When the day fixed for the regular annual meeting of the 
shareholders falls on a legal holiday in the state in which the bank is 
located, the shareholders' meeting shall be held, and the directors 
elected, on the next following banking day.


Sec. 7.2004  Honorary directors or advisory board.

    A national bank may appoint honorary or advisory members of the 
board of directors to act in advisory capacities without voting power 
or power of final decision in matters concerning the business of the 
bank. Any listing of such honorary or advisory directors must 
distinguish between them and the bank's board of directors or indicate 
their advisory status.


Sec. 7.2005  Ownership of stock necessary to qualify as director.

    (a) General. A national bank director must own a qualifying equity 
interest in a national bank or a company that has control of a national 
bank. The director must own the qualifying equity interest in his or 
her own right and meet a certain minimum threshold ownership.
    (b) Qualifying equity interest--(1) Minimum required equity 
interest. For purposes of this section, a qualifying equity interest 
includes common or preferred stock that has an aggregate par value of 
not less than $1,000 in the case of a director whose sole equity 
interest is held in the stock of a national bank. In the case of a 
director whose sole equity interest is held in the stock of a company 
that controls a national bank, the common or preferred stock must have 
an aggregate par value of not less than either $1,000, an aggregate 
shareholders' equity of $1,000, or an aggregate fair market value of 
$1,000.
    (i) The value of the common or preferred stock held by a national 
bank director is valued as of the date purchased or the date on which 
the individual became a director, whichever value is greater.
    (ii) In the case of a company that owns more than one national 
bank, a director may use his or her equity interest in the controlling 
company to satisfy, in whole or part, the equity interest requirement 
for any or all of the controlled national banks.
    (iii) Upon request, the OCC may consider whether other interests in 
a company controlling a national bank constitute an interest equivalent 
to $1,000 par value of national bank stock.
    (2) Joint ownership and tenancy in common. Shares held jointly or 
as a tenant in common are qualifying shares held by a director in his 
or her own right only to the extent of the aggregate value of the 
shares which the director would be entitled to receive on dissolution 
of the joint tenancy or tenancy in common.
    (3) Shares in a living trust. Shares deposited by a person in a 
living trust (inter vivos trust) as to which the person is a trustee 
and retains an absolute power of revocation are shares owned by the 
person in his or her own right.
    (c) Non-qualifying ownership. The following are not shares held by 
a director in his or her own right:
    (1) Shares pledged by the holder to secure a loan. However, all or 
part of the funds used to purchase the required qualifying equity 
interest may be borrowed from any party, including the bank or its 
affiliates;
    (2) Shares that are purchased subject to an absolute option vested 
in the seller to repurchase the shares within a specified period; and
    (3) Shares deposited in a voting trust where the depositor 
surrenders:
    (i) Legal ownership (depositor ceases to be registered owner of the 
stock);
    (ii) Power to vote the stock or to direct how it shall be voted; or
    (iii) Power to transfer legal title to the stock.


Sec. 7.2006  Cumulative voting in election of directors.

    When electing directors, a shareholder shall have as many votes as 
the number of directors to be elected multiplied by the number of the 
shareholder's shares. The shareholder may cast all these votes for one 
candidate, or distribute the votes among as many candidates as the 
shareholder chooses. If, after the first ballot, subsequent ballots are 
necessary to elect directors, a stockholder may not vote shares that he 
or she has already fully cumulated and voted in favor of a successful 
candidate.


Sec. 7.2007  Filling vacancy in or increasing board of directors.

    A majority of the board of directors or a majority of the 
shareholders may increase the number of the bank's directors within the 
limits specified in 12 U.S.C. 71a. The board of directors may appoint 
persons to fill the resulting vacancies between meetings of 
shareholders, if authorized by the bank's articles of association. A 
majority of the board of directors or a majority of the shareholders 
may increase the number of directors by up to two directors, when the 
number of directors last elected by shareholders was 15 or less, and by 
four directors, when the number of directors last elected by 
shareholders was 16 or more.


Sec. 7.2008  Oath of directors.

    (a) Administration of the oath. A notary public, including one who 
is a director but not an officer of the national bank, may administer 
the oath of directors. An officer, other than an officer of the bank, 
having an official seal and authorized by the state to administer 
oaths, may also administer the oath.
    (b) Execution of the oath. All directors attending the organization 
meeting must execute either the joint or individual oath. Directors not 
attending the organization meeting (the first meeting after the 
election of the directors) must execute the individual oath. A director 
must take another oath upon re-election, notwithstanding uninterrupted 
service. Appropriate sample oaths are located in the ``Comptroller's 
Manual for Corporate Activities.''


Sec. 7.2009  Quorum of board of directors; proxies not permissible.

    The articles of association or bylaws of a national bank shall 
provide that, for the transaction of business, a quorum of the board of 
directors is at least a majority of the entire board then in office. A 
national bank director may not vote by proxy.


Sec. 7.2010  Delegation of directors' duties.

    The board of directors of a national bank has the responsibility 
for supervising the management of the bank [[Page 11938]] to ensure 
that the bank is operated in compliance with the policies and 
procedures established by the board, all applicable laws, rules and 
regulations, and safe and sound banking practices. The board may 
delegate the day-to-day operation of the bank to the management of the 
bank, but the board remains responsible for overseeing the affairs of 
the bank and the conduct of the management of the bank.


Sec. 7.2011  Compensation plans.

    Consistent with safe and sound banking practices, a national bank 
may adopt the following compensation plans:
    (a) Bonus and profit-sharing plans. A national bank may adopt a 
bonus or profit-sharing plan designed to ensure adequate remuneration 
of bank officers and employees.
    (b) Pension plans. A national bank may provide employee pension 
plans and make reasonable contributions to the cost of the pension 
plan.
    (c) Employee stock option and stock purchase plans. A national bank 
may provide employee stock option and stock purchase plans.


Sec. 7.2012  President as director; chief executive officer.

    Pursuant to 12 U.S.C. 76, the president of a national bank must be 
a member of the board of directors, but a director other than the 
president may be elected chairman of the board. A person other than the 
president may serve as chief executive officer, and this person is not 
required to be a director of the bank.


Sec. 7.2013  Fidelity bonds covering officers and employees.

    (a) Adequate coverage. All officers and employees of a national 
bank must have adequate fidelity coverage. The failure of directors to 
require bonds with adequate sureties and in sufficient amount may make 
the directors liable for any losses which the bank sustains because of 
the absence of such bonds. Directors should not serve as sureties on 
such bonds.
    (b) Factors. The board of directors should determine the amount of 
such coverage, premised upon a consideration of factors, including:
    (1) Internal auditing safeguards employed;
    (2) Number of employees;
    (3) Amount of deposit liabilities; and
    (4) Amount of cash and securities normally held by the bank.


Sec. 7.2014  Indemnification of directors, officers, and employees.

    (a) General. Except as provided in paragraph (b) of this section, a 
national bank may provide in its articles of association that the bank 
will indemnify directors, officers, and employees for damages and 
expenses reasonably incurred. These damages include the advancement of 
expenses and legal fees, in actions to which the directors, officers, 
or employees are parties or potential parties by reason of the 
performance of their official duties. Indemnification articles which 
substantially reflect general standards of law as evidenced by the law 
of the state in which the main office of the bank is located, the law 
of the state in which the bank's holding company is incorporated, or 
the relevant provisions of the MBCA are presumed by the OCC to be 
within the corporate powers of a national bank.
    (b) Prohibitions. When an administrative proceeding or action 
instituted by a bank regulatory agency results in a final order 
assessing a civil money penalty or requiring restitution, or a final 
removal or prohibition order against such individuals pursuant to 12 
U.S.C. 1818(e) or (g), a national bank must require the repayment of 
all legal fees and expenses advanced pursuant to paragraph (c) of this 
section, and may not indemnify directors, officers, or employees for 
expenses. Expenses that may not be indemnified include legal fees, 
penalties, or other payments incurred.
    (c) Procedural requirements for certain actions and proceedings--
(1) Advancing expenses. A national bank may advance expenses and legal 
fees to directors, officers, or employees of the bank in connection 
with an action or proceeding under 12 U.S.C. 164 or 1818 only if the:
    (i) Disinterested members of the board of directors of the bank 
determine in good faith that the director, officer, or employee has a 
reasonable basis for prevailing on the merits;
    (ii) Indemnified individual will have the financial capacity to 
reimburse the bank in the event he or she does not prevail; and
    (iii) Payment of expenses and fees by the bank will not adversely 
affect the safety and soundness of the bank.
    (2) Restrictions. The bank must require the individual to execute a 
formal and binding agreement to reimburse the bank for all expenses and 
fees advanced by the bank in the event an order is issued against the 
individual assessing a civil money penalty or requiring restitution, or 
a removal or prohibition order against the individual is issued 
pursuant to 12 U.S.C. 1818(e) or (g). The bank must cease advancing 
expenses and fees at any time the board believes, or reasonably should 
believe, that any of the conditions in paragraph (c)(1) of this section 
are no longer met.
    (d) OCC review. In accordance with its supervisory 
responsibilities, the OCC may, in its discretion, review any 
indemnification or advancement of fees and expenses, or proposed 
indemnification or advancement of fees and expenses, of directors, 
officers, or employees by a national bank to evaluate whether the 
indemnification or advance is consistent with safe and sound banking 
practices and with the standards adopted by that bank in its articles 
of association. Based upon this review, the OCC may direct a national 
bank to modify a specific indemnification or payment.
    (e) Insurance premiums. A national bank may provide in its articles 
of association for the payment of reasonable premiums for insurance 
covering the expenses, legal fees, and liability of its directors, 
officers, or employees except that such provision shall explicitly 
exclude insurance coverage for a final order assessing civil money 
penalties against such persons by an agency.


Sec. 7.2015  Cashier.

    A national bank's bylaws or board of directors may assign some or 
all of the duties previously performed by the bank's cashier to its 
president, chief executive officer, or any other officer.


Sec. 7.2016  Restricting transfer of stock and record dates.

    (a) Conditions for stock transfer. Under 12 U.S.C. 52, a national 
bank may impose conditions upon the transfer of its stock reasonably 
calculated to simplify the work of the bank with respect to stock 
transfers, voting at shareholders' meetings, and related matters and to 
protect it against fraudulent transfers.
    (b) Record dates. Stock records of a national bank may be closed 
for a reasonable period to ascertain shareholders for voting purposes. 
The board of directors may fix a record date for determining the 
shareholders entitled to notice of, and to vote at, any meeting of 
shareholders. Such record date should be in reasonable proximity to the 
date that notice is given to the shareholders of such meeting.


Sec. 7.2017  Facsimile signatures on bank stock certificates.

    The president and cashier, or other officers authorized by the 
bank's bylaws, must sign every national bank stock certificate. The 
signatures may be manual or facsimile, including electronic means of 
signature. Each certificate must be sealed with the seal of the 
association. [[Page 11939]] 


Sec. 7.2018  Lost stock certificates.

    If a national bank does not provide for replacing lost, stolen, or 
destroyed stock certificates in its articles of association or bylaws, 
the bank may adopt procedures that meet the requirements of the law of 
the state in which the bank is located.


Sec. 7.2019  Loan secured by own shares.

    (a) Permitted agreements, relating to bank shares. A national bank 
may require a borrower holding shares of the bank to execute 
agreements:
    (1) Not to pledge, give away, transfer, or otherwise assign such 
shares;
    (2) To pledge such shares at the request of the bank when necessary 
to prevent loss; and
    (3) To leave such shares in the bank's custody.
    (b) Use of capital notes and debentures. A national bank may not 
make loans secured by a pledge of the bank's own capital notes and 
debentures. Such notes and debentures must be subordinated to the 
claims of depositors and other creditors of the issuing bank, and are, 
therefore, capital instruments within the purview of 12 U.S.C. 83.


Sec. 7.2020  Acquisition and holding of shares as treasury stock.

    Pursuant to the authority and procedures of 12 U.S.C. 59, a 
national bank may acquire its outstanding shares and hold them for a 
reasonable period as treasury stock, provided that the acquisition and 
retention of the shares is for a legitimate corporate purpose.


Sec. 7.2021  Preemptive rights.

    A national bank's articles of association must allow or disallow, 
by a vote of the holders of two-thirds of the bank's outstanding voting 
shares, preemptive rights in the bank's shareholders.


Sec. 7.2022  Voting trusts.

    The shareholders of a national bank may establish a voting trust 
under the applicable law of a state selected by the participants and 
designated in the trust agreement, provided the implementation of the 
trust is consistent with safe and sound banking practices.

Subpart C--Bank Operations


Sec. 7.3000  Bank hours and closings.

    (a) Bank hours. A national bank's board of directors should review 
its banking hours, and, independently of any other bank, take 
appropriate action to establish a schedule of banking hours.
    (b) Emergency closings. Pursuant to 12 U.S.C. 95 (b) (1), the 
Comptroller of the Currency, a state, or a legally authorized state 
official may declare a day a legal holiday if emergency conditions 
exist. That day is a legal holiday for national banks or their offices 
in the affected geographic area (i.e., throughout the country, in a 
state, or in a part of a state). Emergency conditions include natural 
disasters, civil and municipal emergencies (e.g., severe flooding, or a 
power emergency declared by a local power company or government 
requesting that businesses in the affected area close). The Comptroller 
issues a proclamation authorizing the emergency closing in accordance 
with 12 U.S.C. 95 at the time of the emergency condition, or soon 
thereafter. When the Comptroller, a state, or a legally authorized 
state official declares a day to be a legal holiday due to emergency 
conditions, a national bank may choose to remain open or to close any 
of its banking offices in the affected geographic area.
    (c) Ceremonial closings. A state or a legally authorized state 
official may declare a day a legal holiday for ceremonial reasons. When 
a state or a legally authorized state official declares a day to be a 
legal holiday for ceremonial reasons, a national bank may choose to 
remain open or to close.
    (d) Liability. A national bank should assure that all liabilities 
or other obligations under the applicable law due to the bank's closing 
are satisfied.


Sec. 7.3001  Sharing space and employees.

    (a) Sharing space. Subject to paragraphs (c) and (d) of this 
section, a national bank may:
    (1) Lease excess space in bank premises to one or more other 
businesses (including other banks and financial institutions);
    (2) Share space jointly held with one or more other businesses; or
    (3) Offer its services in space owned or leased by other 
businesses.
    (b) Sharing employees. Subject to paragraphs (c) and (d) of this 
section, when sharing space with other businesses as described in 
paragraph (a) of this section, a national bank may provide, under one 
or more written agreements among the bank, the other businesses, and 
their employees, that:
    (1) Bank employees may act as agents for the other businesses; or
    (2) Employees of the other businesses may act as agents for the 
bank.
    (c) Supervisory conditions. When a national bank engages in 
arrangements of the types listed in paragraphs (a) and (b) of this 
section, the bank must ensure that:
    (1) The other businesses are conspicuously, accurately, and 
separately identified;
    (2) Shared employees clearly and fully disclose the nature of their 
agency relationship to customers of the bank and of the other 
businesses so that customers will know the identity of the bank or 
business that is providing the product or service;
    (3) The arrangement does not constitute a joint venture or 
partnership with the other business under applicable state law;
    (4) All aspects of the relationship between the bank and the other 
businesses are conducted at arm's length, unless a special arrangement 
is warranted because the other business is a subsidiary of the bank;
    (5) Security issues arising from the activities of the other 
businesses on the premises are addressed;
    (6) The activities of the other businesses do not adversely affect 
the safety and soundness of the bank;
    (7) The activities of shared employees are consistent with 
applicable laws and regulations that pertain to agents or employees of 
such other businesses; and
    (8) The assets and records of the parties are segregated.
    (d) Other legal requirements. When entering into arrangements of 
the types described in paragraphs (a) and (b) of this section, and in 
conducting operations pursuant to those arrangements the bank must 
ensure that each arrangement complies with 12 U.S.C. 29 and 36, and 
with any other applicable laws and regulations. If the arrangement 
involves an affiliate or a shareholder, director, officer or employee 
of the bank:
    (1) The bank must ensure compliance with all applicable statutory 
and regulatory provisions governing bank transactions with these 
persons or entities; and
    (2) The parties must comply with all applicable fiduciary duties; 
and
    (3) The parties, if they are in competition with each other, must 
consider limitations, if any, imposed by applicable antitrust laws.

Subpart D--Preemption


Sec. 7.4000  Books and records of national banks.

    (a) Inspection. The only provision of Federal banking law 
authorizing persons other than the Comptroller of the Currency or his 
authorized representatives to inspect books or records of a national 
bank is contained in 12 U.S.C. 62, relating to the right of 
shareholders, creditors, and certain tax officials to inspect the list 
of shareholders of a bank. Production of records may, however, be 
required under normal judicial procedures. [[Page 11940]] 
    (b) Visitorial powers. Except as otherwise expressly provided by 
Federal law, the exercise of visitorial powers over national banks is 
vested solely in the OCC, 12 U.S.C. 484. State officials have no 
authority to conduct examinations or to inspect or require the 
production of books or records of national banks, except for the 
limited purpose of ensuring compliance with applicable state unclaimed 
property and escheat laws. State authority to review the books and 
records of a national bank is limited to those circumstances in which 
there is reasonable cause to believe that the bank has failed to comply 
with those laws. Federal law provides special procedures for verifying 
payroll records for unemployment compensation purposes, 26 U.S.C. 
3305(c), for enforcing the Fair Labor Standards Act, 29 U.S.C. 211, and 
for ascertaining the correctness of Federal tax returns, 26 U.S.C. 
7602.
    (c) Report of examination. The report of examination made by an 
examiner selected by the OCC is designated solely for use in the 
supervision of the bank. The bank's copy of the report is the property 
of the OCC and is loaned to the bank and any holding company thereof 
solely for its confidential use. The bank's directors, in keeping with 
their responsibilities both to depositors and to shareholders, should 
thoroughly review the report. The report may be made available to other 
persons only in accordance with the rules on disclosure in part 4 of 
this chapter.


Sec. 7.4001  Charging interest at rates permitted competing 
institutions; charging interest to corporate borrowers.

    (a) Definition. The word ``interest'' as used in 12 U.S.C. 85 
includes any payment compensating a creditor or prospective creditor 
for any extension of credit, the making available of a line of credit, 
or any default or breach by a borrower of a condition upon which credit 
was extended. It includes, among other things, the following fees 
connected with credit extension or availability: numerical periodic 
rates, late fees, not sufficient funds (NSF) fees, overlimit fees, 
annual fees, cash advance fees, and membership fees. It does not 
ordinarily include appraisal fees, premiums and commissions 
attributable to insurance guaranteeing repayment of any extension of 
credit, finders' fees, fees for document preparation or notarization, 
or fees incurred to obtain credit reports.
    (b) Authority. A national bank located in a state may charge 
interest at the maximum rate permitted by law of that state to any 
state-chartered or licensed lending institution. If state law permits a 
higher interest rate on a specified class of loans, a national bank 
making loans at the higher rate is subject only to the provisions of 
state law relating to the class of loans that are material to the 
determination of the interest rate. For example, a national bank may 
lawfully charge the highest rate permitted to be charged by a state-
licensed small loan company or Morris Plan bank, without being so 
licensed.
    (c) Usury. A national bank located in a state the law of which 
denies the defense of usury to a corporate borrower may charge a 
corporate borrower any rate of interest agreed upon by a corporate 
borrower.


Sec. 7.4002  National bank charges.

    (a) Customer charges and fees. A national bank may charge its 
customers deposit account service charges and loan-related fees. For 
example, a national bank may impose service charges, that its board of 
directors determines to be reasonable, on dormant accounts. A national 
bank may also charge a borrower reasonable fees for credit reports or 
investigations with respect to a borrower's credit. All charges to 
customers should be arrived at by each bank on a competitive basis and 
not on the basis of any agreement, arrangement, undertaking, 
understanding or discussion with other banks or their officers.
    (b) Considerations. The establishment of reasonable deposit account 
service charges and loan-related fees, and the amounts thereof, is a 
business decision to be made by each bank according to sound banking 
judgment and safe and sound banking principles. In establishing deposit 
account service charges and loan-related fees, the bank may consider, 
but is not limited to considering:
    (1) The cost incurred by the bank, plus a profit margin, in 
providing the service;
    (2) The enhancement of the competitive position of the bank in 
accord with the bank's marketing strategy; and
    (3) Maintenance of the safety and soundness of the institution.
    (c) State law. The OCC evaluates on a case-by-case basis whether a 
national bank may establish deposit account service charges or loan-
related fees pursuant to paragraphs (a) and (b) of this section 
notwithstanding a contrary state law that purports to limit or prohibit 
such charges or fees. In issuing an opinion on whether such state laws 
are preempted, the OCC applies preemption principles derived from the 
Supremacy Clause of the United States Constitution and applicable 
judicial precedent.
    (d) National bank as fiduciary. This section does not apply to 
charges imposed by a national bank in its capacity as a fiduciary, 
which are governed by part 9 of this chapter.

Appendix A to Part 7--Corporate Governance Procedures; OCC Approved 
Model Business Corporation Act Provisions

    The following sections of the Model Business Corporation Act 
(1984), as amended through 1993, are permissible corporate governance 
procedures for a national bank under Sec. 7.2000(b) of this part:

6.24  Share Options
6.28  Expense of Issue
7.01  Annual Meeting
7.02  Special Meeting
7.04  Action Without Meeting 
7.25  Quorum and Voting Requirements for Voting Groups
7.26  Action by Single and Multiple Voting Groups
8.05(a), (c)-(e)  Terms of Directors Generally
8.07  Resignation of Directors
8.20  Meetings
8.21  Action Without Meeting
8.22  Notice of Meeting
8.23  Waiver of Notice
8.25  Committees
10.03  Amendment By Board of Directors and Shareholders
10.09  Effect of Amendment

PART 31--EXTENSIONS OF CREDIT TO NATIONAL BANK INSIDERS

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

    Authority: 12 U.S.C. 375a(4), 375b(3), 1817(k), and 
1972(2)(G)(ii).

    3. Part 31 is amended by adding new subpart C consisting of 
Sec. 31.100 to read as follows:

Subpart C--Interpretive Rulings


Sec. 31.100  Transactions with affiliates.

    (a) Debts of affiliates. A national bank's bad debts do not include 
bad debts due to an affiliate for purposes of 12 U.S.C. 56 except to 
the extent of each debt of, or other claim against, the affiliate with 
respect to which the bank is personally liable either as obligor or 
guarantor. This section does not apply, however, to debts of operating 
subsidiaries.
    (b) Loans secured by stock or obligations of an affiliate. Where a 
loan is otherwise adequately secured, additional security in the form 
of the capital stock, bonds, debentures, or other such obligations of 
an affiliate [[Page 11941]] need not be considered in determining the 
limitation contained in 12 U.S.C. 371c with respect to the aggregate 
amount of loans secured by stock or obligations of an affiliate.
    (c) Federal funds transactions between affiliates. The limitations 
contained in 12 U.S.C. 371c apply to the sale of Federal funds by a 
national bank to an affiliate of such bank.
    (d) Deposits between affiliated banks. A deposit made by a national 
bank in an affiliate is considered to be a loan or extension of credit 
to the affiliate under 12 U.S.C. 371c, except for a deposit made in an 
affiliated domestic or foreign bank in the ordinary course of 
correspondent business or as otherwise provided in 12 U.S.C. 
371c(d)(1). Loans or extensions of credit to an affiliate are required 
to be secured under 12 U.S.C. 371c. However, 12 U.S.C. 90 and 
applicable case law restrict the authority of national banks to pledge 
their assets to secure private deposits. Similar restrictions on 
securing deposits also apply to many state-chartered banks. 
Consequently, a national bank may not make a deposit in an affiliated 
national bank unless made in the ordinary course of correspondent 
business or as provided in 12 U.S.C. 371c(d)(1). A national bank may 
not make a deposit in an affiliated state bank unless made in the 
ordinary course of correspondent business or as provided in 12 U.S.C. 
371c(d)(1) or unless the affiliated state bank can legally offer 
collateral for such deposit in conformance with the requirements of 12 
U.S.C. 371c. A national bank may not receive a deposit from an 
affiliated bank, except in the ordinary course of correspondent 
business or as provided in 12 U.S.C. 371c(d)(1), because of its legal 
inability to provide the required collateral.

    Dated: February 17, 1995.
Eugene A. Ludwig,
Comptroller of the Currency.
[FR Doc. 95-4703 Filed 3-2-95; 8:45 am]
BILLING CODE 4810-33-P