11924 Federal Register / Vol. 60, No. 42 / Friday, March 3, 1995 / Proposed Rules

1The 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

(3) Acid-cut. A bleached or faded

color which sometimes varies

throughout the cheese and appears most

often around mechanical openings.

(4) Bleached surface. A faded color

beginning at the surface and progressing

inward.

(5) Dull or faded. A color condition

lacking in luster or translucency.

(6) Mottled. Irregular shaped spots or

blotches in which portions are not

uniform in color. Also an unevenness of

color due to combining the curd from

two different vats, sometimes referred to

as ‘‘mixed curd.’’

(7) Natural. White to light cream in

color.

(8) Salt spots. Large light-colored

spots or areas.

(9) Unnatural. Any color which is not

white to light cream.

(10) Wavy. An unevenness of color

which appears as layers or waves.

(e) With respect to finish and

appearance:

(1) Very slight. Detected only upon

very critical examination and present to

a minute degree.

(2) Slight. Barely identifiable and

present to a small degree.

(3) Definite. Readily identifiable and

present to a substantial degree.

(4) Adequately and securely

enveloped. The wrapper or covering is

properly sealed and entirely encloses

the cheese with sufficient adherence to

the surface of the cheese to protect it

from contamination or dehydration.

(5) Bandage. Cheese cloth used to

wrap cheese prior to dipping in paraffin.

(6) Bandage evenly placed. Placement

of the bandage so that it completely

envelops the cheese and overlaps evenly

about one inch.

(7) Bright surface. Clean, glossy

surface.

(8) Burst or torn bandage. A severance

of the bandage usually occurring at the

side seam; or when the bandage is

otherwise snagged or broken.

(9) Checked rind. Numerous small

cracks or breaks in the rind which

sometimes follows the outline of curd

particles.

(10) Defective coating. A brittle

coating of paraffin that breaks and peels

off in the form of scales or flakes; flat

or raised blisters or bubbles under the

surface of the paraffin; checked paraffin,

including cracks, breaks or hairline

checks in the paraffin or coating of the

cheese.

(11) Firm sound rind. A rind

possessing a firmness and thickness (not

easily dented or damaged) consistent

with the size of the cheese and which

is dry, smooth, and closely knit,

sufficient to protect the interior quality

from external defects; free from checks,

cracks, breaks, or soft spots.

(12) High edge. A rim or ridge on the

side of the cheese.

(13) Huffed. A block of cheese which

is swollen because of gas fermentation.

The cheese becomes rounded or oval in

shape instead of having flat surfaces.

(14) Irregular press cloth. Press cloth

improperly placed in the hoop resulting

in too much press cloth on one end and

insufficient on the other causing

overlapping; wrinkled and loose fitting.

(15) Lopsided. One side of the cheese

is higher than the other side.

(16) Mold under bandage and

paraffin. Mold spots or areas under the

paraffin.

(17) Mold under wrapper or covering.

Mold spots or areas under the wrapper

or covering.

(18) Rind rot. Soft spots on the rind

that have become discolored and are

decayed or decomposed.

(19) Rough Surface. Lacks

smoothness.

(20) Smooth surface. Not rough or

uneven.

(21) Soft spots. Areas soft to the touch

and which are usually faded and moist.

(22) Soiled surface. Milkstone, rust

spots, or other discoloration on the

surface of the cheese.

(23) Sour rind. A fermented rind

condition, usually confined to the faces

of the cheese.

(24) Surface mold. Mold on the

exterior of the paraffin or wrapper.

(25) Wax or paraffin that adheres

firmly to the surface of the cheese. A

coating with no cracks, breaks, or loose

areas.

(26) Weak rind. A thin rind which

possesses little or no resistance to

pressure.

Dated: February 24, 1995.

Kenneth C. Clayton,

Acting Administrator.

[FR Doc. 95–5292 Filed 3–2–95; 8:45 am]

BILLING CODE 3410–02–P

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.1
Federal Register / Vol. 60, No. 42 / Friday, March 3, 1995 / Proposed Rules 11925

the public generally. The Comptroller has

accordingly concluded that the public interest

requires the publication of these rulings in the Code

of Federal Regulations.

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 § 7.2011 on bank

compensation plans combines current

§§ 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 sectionby-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 (§ 7.1000)

Proposed § 7.1000 simplifies and

consolidates current §§ 7.3005, 7.3010,

7.3100, 7.3300, and 7.5230 regarding

permissible ownership of real property

by national banks, primarily bank

premises. Proposed § 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 § 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 § 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 § 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

§ 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 § 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 § 5.37 of this chapter,

59 FR 61034, Nov. 29, 1994. Proposed

§ 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 § 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 § 7.1000(e) also incorporates

the present § 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

(§ 7.1002)

Proposed § 7.1002 revises current

§ 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

§ 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 § 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

§ 7.1002 also revises current § 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 (§ 7.1003);

Loans originating at other than banking

offices (§ 7.1004); Credit decisions at

other than banking offices (§ 7.1005)

The proposal retains and redesignates

current § 7.7380 as § 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,

§§ 7.1003 and 7.1005, are intended to
11926 Federal Register / Vol. 60, No. 42 / Friday, March 3, 1995 / Proposed Rules

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 lendingrelated activities at nonbranch locations.

Proposed § 7.1003 incorporates case

law relating to where a loan is ‘‘made’’

for purposes of branching. Under

§ 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

§ 7.7490 (proposed § 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 § 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 § 7.1004 clarifies the

language in current § 7.7380. It

addresses what does and does not

constitute a branch in the lending

context but makes no substantive

change to current § 7.7380.

Proposed § 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 (§ 7.1012)

Proposed § 7.1012 modifies current

§ 7.7490. Proposed § 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 § 7.1012 retains the safe

harbor in current § 7.7490 and also

allows OCC to evaluate, on a case-bycase 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 (§ 7.1013)

Proposed § 7.1013 revises current

§ 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 (§ 7.1014)

Proposed § 7.1014 modifies current

§ 7.7500 by removing unnecessary

descriptive language. However, these

changes do not represent any change in

OCC policy.

Independent Undertakings To Pay

Against Documents (§ 7.1016)

Proposed § 7.1016 revises current

§ 7.1016 to make its provisions current

and relevant to modern market

standards and industry usage. Last

revised in 1977, current § 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 § 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 § 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 § 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

§ 7.7016.

Proposed § 7.1016 recognizes that the

scope of current § 7.7016 is too limited

and does not reflect the scope of

independent undertakings permissible

for national banks. Proposed § 7.1016

also extends the same safety and

soundness principles in current § 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 (§ 7.1017)

Proposed § 7.1017 modifies § 7.7010

by removing § 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

(§ 7.1019)

Proposed § 7.1019 revises current

§ 7.3500. Under proposed § 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

§ 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
Federal Register / Vol. 60, No. 42 / Friday, March 3, 1995 / Proposed Rules 11927

questions regarding the permissibility of

particular data processing services.

Current § 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

(§ 7.2000)

Proposed § 7.2000 is a new section

that provides additional guidance

regarding national banks’ corporate

governance procedures. Under proposed

§ 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 § 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 § 7.2000,

such meetings would be permissible as

provided for under the relevant

provision of the MBCA, § 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 § 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

(§ 7.2001)

Proposed § 7.2001 clarifies the

language of current § 7.4000 and

removes the sentence referring to

specific statutory provisions concerning

conversions, consolidations and mergers

of national banks. Proposed § 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 (§ 7.2002)

Proposed § 7.2002 modifies current

§ 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 § 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

(§ 7.2003)

Proposed § 7.2003 revises current

§ 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 (§ 7.2005)

Proposed § 7.2005 consolidates and

streamlines current § 7.4210 by

removing repetitive information and

making the provision more readable.

Consistent with OCC precedent,

proposed § 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

§ 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 (§ 7.2006)

Proposed § 7.2006 streamlines and

simplifies current § 7.4300. Proposed

§ 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 § 7.4300.

Filling Vacancy in or Increasing Board

of Directors (§ 7.2007)

Proposed § 7.2007 modifies current

§ 7.4305 to clarify that it is ‘‘the majority

of shareholders or a majority of

directors’’ that may increase the number

of directors. Current § 7.4305 uses the

more ambiguous term ‘‘national bank,’’

creating uncertainty about what body

has the ability to act on this issue.

Proposed § 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 (§ 7.2009)

Proposed § 7.2009 clarifies current

§ 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

(§ 7.2010)

Proposed § 7.2010 revises current

§ 7.4425. Proposed § 7.2010 states that

while directors may delegate the day-today 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 (§ 7.2011)

Proposed § 7.2011 combines and

condenses current §§ 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 (§ 7.2012)

Proposed § 7.2012 modifies current

§ 7.5200 to provide that a person other

than the president or a director may
11928 Federal Register / Vol. 60, No. 42 / Friday, March 3, 1995 / Proposed Rules

serve as chief executive officer of the

bank.

Indemnification of Directors, Officers,

and Employees (§ 7.2014)

Proposed § 7.2014 clarifies current

§ 7.5217 to state that a national bank

may indemnify certain individuals and

advance legal fees and expenses, subject

to certain limitations. Under proposed

§ 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

§ 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 § 7.2014(b).

Proposed § 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 § 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 § 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

§ 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 § 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 (§ 7.2015)

Proposed § 7.2015 revises current

§ 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 (§ 7.2016)

Proposed § 7.2016 modifies current

§ 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 (§ 7.2017)

Proposed § 7.2017 revises current

§ 7.6010 to clarify that facsimile

signatures include electronic means of

signature.

Loan Secured by a Bank’s Own Shares

(§ 7.2019)

Proposed § 7.2019 modifies current

§ 7.6030 by removing the first paragraph

which merely restates the statute.

Proposed § 7.2019 does not alter the

substance of current § 7.6030.

Acquisition and Holding of Shares as

Treasury Stock (§ 7.2020)

Proposed § 7.2020 is a new section

that addresses a national bank’s

acquisition and holding of shares as

treasury stock. Proposed § 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 (§ 7.2022)

Proposed § 7.2022 revises current

§ 7.6060 by affirmatively stating that a

national bank shareholder may establish

a voting trust. Proposed § 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 § 7.2022 continues

to require that the trust be consistent

with safe and sound banking practices.

Bank Hours and Closings (§ 7.3000)

Proposed § 7.3000 revises current

§ 7.7434 to provide more comprehensive

guidance to banks regarding hours and

closings.

Proposed § 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 § 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

§ 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 § 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 § 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

§ 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 (§ 7.3001)

Proposed § 7.3001 revises current

§ 7.7516 to reflect current OCC positions
Federal Register / Vol. 60, No. 42 / Friday, March 3, 1995 / Proposed Rules 11929

on sharing space and employees.

Current § 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 § 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 § 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 § 7.3001(c)

summarizes the supervisory concerns

that may be presented by these

arrangements, and proposed § 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

(§ 7.4000)

Proposed § 7.4000 revises current

§ 7.6025 which addresses the exclusive

examination authority of the OCC.

Proposed § 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 § 7.4000 also

removes the current § 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

(§ 7.4001).

Proposed § 7.4001 updates current

§ 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 § 7.4001(a) proposes to

codify these interpretive positions.

Under proposed § 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 § 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 (§ 7.4002)

Proposed § 7.4002 revises current

§ 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 § 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 § 7.8000 that

Federal law preempts state laws that

prohibit, limit, or restrict deposit

account service charges imposed by a

national bank. Specifically, current

§ 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 § 7.4002 revises the

approach in current § 7.8000.

Proposed § 7.4002(a) addresses the

ability of a national bank to charge

customers reasonable deposit account

service charges and loan-related fees.

Proposed § 7.4002(a) incorporates

current §§ 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

§ 7.4002(a) requires such fees to be

reasonable and determined through

consideration of all factors relevant to a

sound business decision.

Proposed § 7.4002(b) sets out the

relevant considerations in establishing

such charges.

In place of the broad assertion of

Federal preemption in current § 7.8000,

proposed § 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

§ 7.4002(c) affirms that in issuing an

opinion on whether such state laws are
11930 Federal Register / Vol. 60, No. 42 / Friday, March 3, 1995 / Proposed Rules

2See 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).

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.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.

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 §§ 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 crossreferences to the MBCA, § 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 § 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 § 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 § 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 § 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 § 7.7380 to proposed

§ 7.1004—Loans originating at other

than banking offices;

Current § 7.4110 to proposed

§ 7.2004—Honorary directors or

advisory board;

Current § 7.4415 to proposed

§ 7.2008—Oath of directors;

Current § 7.4420 to proposed

§ 7.2009—Quorum of board of directors;

proxies not permissible;

Current § 7.5215 to proposed

§ 7.2013—Fidelity bonds covering

officers and employees;
Federal Register / Vol. 60, No. 42 / Friday, March 3, 1995 / Proposed Rules 11931

Current § 7.6015 to proposed

§ 7.2018—Lost stock certificates;

Current § 7.6050 to proposed

§ 7.2021—Preemptive rights;

Current § 7.7100 to proposed

§ 7.1001—National banks acting as

general insurance agents;

Current § 7.7430 to proposed

§ 7.1008—Preparing income tax returns

for customers or public;

Current § 7.7312 to proposed

§ 7.1006—Loan agreement providing for

share in profits, income or earnings;

Current § 7.7420 to § 7.1007—

Acceptances;

Current § 7.7455 to proposed 7.1009—

National bank holding collateral as

nominee.

Current § 7.7482 to proposed

§ 7.1010—Postal service by national

bank;

Current § 7.7485 to proposed

§ 7.1011—National bank acting as

payroll issuer;

Current § 7.7535 to proposed

§ 7.1015—Receipt of stock from SBIC;

and

Current § 7.7560 to proposed

§ 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

§ 7.1100 ............................................................................ .......................................................................................... Moved (part 32).

§ 7.1105 ............................................................................ .......................................................................................... Moved (part 32).

§ 7.3000 ............................................................................ .......................................................................................... Moved (part 32).

§ 7.3005 ............................................................................ § 7.1000 ........................................................................... Significant change.

§ 7.3010 ............................................................................ § 7.1000 ........................................................................... Significant change.

§ 7.3100 ............................................................................ § 7.1000 ........................................................................... Significant change.

§ 7.3300 ............................................................................ § 7.1000 ........................................................................... Significant change.

§ 7.3500 ............................................................................ § 7.1019 ........................................................................... Significant change.

§ 7.4000 ............................................................................ § 7.2001 ........................................................................... Significant change.

§ 7.4005 ............................................................................ .......................................................................................... Removed.

§ 7.4010 ............................................................................ .......................................................................................... Removed.

§ 7.4015 ............................................................................ .......................................................................................... Removed.

§ 7.4020 ............................................................................ § 7.2002 ........................................................................... Modified.

§ 7.4100 ............................................................................ .......................................................................................... Removed.

§ 7.4105 ............................................................................ § 7.2003 ........................................................................... Significant change.

§ 7.4110 ............................................................................ § 7.2004 ........................................................................... Unchanged.

§ 7.4200 ............................................................................ .......................................................................................... Removed.

§ 7.4205 ............................................................................ .......................................................................................... Removed.

§ 7.4210 ............................................................................ § 7.2005 ........................................................................... Significant change.

§ 7.4300 ............................................................................ § 7.2006 ........................................................................... Significant change.

§ 7.4305 ............................................................................ § 7.2007 ........................................................................... Modified.

§ 7.4400 ............................................................................ .......................................................................................... Removed.

§ 7.4410 ............................................................................ .......................................................................................... Removed.

§ 7.4415 ............................................................................ § 7.2008 ........................................................................... Unchanged.

§ 7.4420 ............................................................................ § 7.2009 ........................................................................... Unchanged.

§ 7.4425 ............................................................................ § 7.2010 ........................................................................... Modified.

§ 7.5000 ............................................................................ § 7.2011 ........................................................................... Significant change.

§ 7.5010 ............................................................................ § 7.2011 ........................................................................... Significant change.

§ 7.5015 ............................................................................ § 7.2011 ........................................................................... Significant change.

§ 7.5200 ............................................................................ § 7.2012 ........................................................................... Modified.

§ 7.5210 ............................................................................ .......................................................................................... Removed.

§ 7.5215 ............................................................................ § 7.2013 ........................................................................... Unchanged.

§ 7.5217 ............................................................................ § 7.2014 ........................................................................... Significant change.

§ 7.5220 ............................................................................ .......................................................................................... Removed.

§ 7.5230 ............................................................................ § 7.1000 ........................................................................... Significant change.

§ 7.5245 ............................................................................ § 7.2015 ........................................................................... Significant change.

§ 7.6005 ............................................................................ § 7.2016 ........................................................................... Modified.

§ 7.6010 ............................................................................ § 7.2017 ........................................................................... Significant change.

§ 7.6015 ............................................................................ § 7.2018 ........................................................................... Unchanged.

§ 7.6025 ............................................................................ § 7.4000 ........................................................................... Significant change.

§ 7.6030 ............................................................................ § 7.2019 ........................................................................... Modified.

§ 7.6040 ............................................................................ .......................................................................................... Moved (part 5).

§ 7.6050 ............................................................................ § 7.2021 ........................................................................... Unchanged.

§ 7.6060 ............................................................................ § 7.2022 ........................................................................... Significant change.

§ 7.6120 ............................................................................ .......................................................................................... Moved (part 5).

§ 7.7000 ............................................................................ .......................................................................................... Removed.

§ 7.7010 ............................................................................ § 7.1017 ........................................................................... Modified.

§ 7.7012 ............................................................................ .......................................................................................... Removed.

§ 7.7015 ............................................................................ .......................................................................................... Removed.

§ 7.7016 ............................................................................ § 7.1016 ........................................................................... Significant change.

§ 7.7100 ............................................................................ § 7.1001 ........................................................................... Unchanged.

§ 7.7115 ............................................................................ .......................................................................................... Removed.

§ 7.7200 ............................................................................ § 7.1002 ........................................................................... Significant change.

§ 7.7310 ............................................................................ § 7.4001 ........................................................................... Significant change.

§ 7.7312 ............................................................................ § 7.1006 ........................................................................... Unchanged.

§ 7.7315 ............................................................................ § 7.4002 ........................................................................... Significant change.

§ 7.7355 ............................................................................ .......................................................................................... Moved (part 31).

§ 7.7360 ............................................................................ .......................................................................................... Moved (part 31).
11932 Federal Register / Vol. 60, No. 42 / Friday, March 3, 1995 / Proposed Rules

Original provision Revised provision Comment

§ 7.7365 ............................................................................ .......................................................................................... Moved (part 31).

§ 7.7370 ............................................................................ .......................................................................................... Moved (part 31).

§ 7.7378 ............................................................................ .......................................................................................... Removed.

§ 7.7379 ............................................................................ .......................................................................................... Removed.

§ 7.7380 ............................................................................ § 7.1004 ........................................................................... Unchanged.

§ 7.7400 ............................................................................ .......................................................................................... Removed.

§ 7.7405 ............................................................................ .......................................................................................... Removed.

§ 7.7410 ............................................................................ .......................................................................................... Removed.

§ 7.7415 ............................................................................ .......................................................................................... Removed.

§ 7.7420 ............................................................................ § 7.1007 ........................................................................... Unchanged.

§ 7.7430 ............................................................................ § 7.1008 ........................................................................... Unchanged.

§ 7.7434 ............................................................................ § 7.3000 ........................................................................... Significant change.

§ 7.7455 ............................................................................ § 7.1009 ........................................................................... Unchanged.

§ 7.7482 ............................................................................ § 7.1010 ........................................................................... Unchanged.

§ 7.7485 ............................................................................ § 7.1011 ........................................................................... Unchanged.

§ 7.7490 ............................................................................ § 7.1012 ........................................................................... Modified.

§ 7.7495 ............................................................................ § 7.1013 ........................................................................... Significant change.

§ 7.7500 ............................................................................ § 7.1014 ........................................................................... Modified.

§ 7.7505 ............................................................................ .......................................................................................... Removed.

§ 7.7515 ............................................................................ § 7.4002 ........................................................................... Significant change.

§ 7.7516 ............................................................................ § 7.3001 ........................................................................... Significant change.

§ 7.7519 ............................................................................ .......................................................................................... Removed.

§ 7.7530 ............................................................................ .......................................................................................... Removed.

§ 7.7535 ............................................................................ § 7.1015 ........................................................................... Unchanged.

§ 7.7540 ............................................................................ .......................................................................................... Removed.

§ 7.7560 ............................................................................ § 7.1018 ........................................................................... Modified.

§ 7.7570 ............................................................................ .......................................................................................... Moved (part 1).

§ 7.7590 ............................................................................ .......................................................................................... Removed.

§ 7.8000 ............................................................................ § 7.4002 ........................................................................... Significant change.

Derivation Table

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

Revised provision Original provision Comment

§ 7.1100 ........................................................................... Moved (part 32).

§ 7.1105 ........................................................................... Moved (part 32).

§ 7.3000 ........................................................................... Removed.

§ 7.1000 ............................................................................ §§ 7.3005, 7.3010, 7.3100, 7.3300, 7.5230 .................... Significant change.

§ 7.1001 ............................................................................ § 7.7100 ........................................................................... Unchanged.

§ 7.1002 ............................................................................ § 7.7200 ........................................................................... Significant change.

§ 7.1003 ............................................................................ .......................................................................................... Added.

§ 7.1004 ............................................................................ § 7.7380 ........................................................................... Unchanged.

§ 7.1005 ............................................................................ .......................................................................................... Added.

§ 7.1006 ............................................................................ § 7.7312 ........................................................................... Unchanged.

§ 7.1007 ............................................................................ § 7.7420 ........................................................................... Unchanged.

§ 7.1008 ............................................................................ § 7.7430 ........................................................................... Unchanged.

§ 7.1009 ............................................................................ § 7.7455 ........................................................................... Unchanged.

§ 7.1010 ............................................................................ § 7.7482 ........................................................................... Unchanged.

§ 7.1011 ............................................................................ § 7.7485 ........................................................................... Unchanged.

§ 7.1012 ............................................................................ § 7.7490 ........................................................................... Modified.

§ 7.1013 ............................................................................ § 7.7495 ........................................................................... Significant change.

§ 7.1014 ............................................................................ § 7.7500 ........................................................................... Modified.

§ 7.1015 ............................................................................ § 7.7535 ........................................................................... Unchanged.

§ 7.1016 ............................................................................ § 7.7016 ........................................................................... Significant change.

§ 7.1017 ............................................................................ § 7.7010 ........................................................................... Modified.

§ 7.1018 ............................................................................ § 7.7560 ........................................................................... Unchanged.

§ 7.1019 ............................................................................ § 7.3500 ........................................................................... Significant change.

§ 7.2000 ............................................................................ .......................................................................................... Added.

§ 7.2001 ............................................................................ § 7.4000 ........................................................................... Significant change.

§ 7.4005 ........................................................................... Removed.

§ 7.4010 ........................................................................... Removed.

§ 7.4015 ........................................................................... Removed.

§ 7.2002 ............................................................................ § 7.4020 ........................................................................... Modified.

§ 7.4100 ........................................................................... Removed.

§ 7.2003 ............................................................................ § 7.4105 ........................................................................... Significant change.

§ 7.2004 ............................................................................ § 7.4110 ........................................................................... Unchanged.

§ 7.4200 ........................................................................... Removed.

§ 7.4205 ........................................................................... Removed.

§ 7.2005 ............................................................................ § 7.4210 ........................................................................... Significant change.

§ 7.2006 ............................................................................ § 7.4300 ........................................................................... Significant change.

§ 7.2007 ............................................................................ § 7.4305 ........................................................................... Modified.
Federal Register / Vol. 60, No. 42 / Friday, March 3, 1995 / Proposed Rules 11933

Revised provision Original provision Comment

§ 7.4400 ........................................................................... Removed.

§ 7.4410 ........................................................................... Removed.

§ 7.2008 ............................................................................ § 7.4415 ........................................................................... Unchanged.

§ 7.2009 ............................................................................ § 7.4420 ........................................................................... Unchanged.

§ 7.2010 ............................................................................ § 7.4425 ........................................................................... Modified.

§ 7.2011 ............................................................................ §§ 7.5000, 7.5010, 7.5015 ............................................... Significant change.

§ 7.2012 ............................................................................ § 7.5200 ........................................................................... Modified.

§ 7.5210 ........................................................................... Removed.

§ 7.2013 ............................................................................ § 7.5215 ........................................................................... Unchanged.

§ 7.2014 ............................................................................ § 7.5217 ........................................................................... Significant change.

§ 7.5220 ........................................................................... Removed.

§ 7.2015 ............................................................................ § 7.5245 ........................................................................... Significant change.

§ 7.2016 ............................................................................ § 7.6005 ........................................................................... Modified.

§ 7.2017 ............................................................................ § 7.6010 ........................................................................... Significant change.

§ 7.2018 ............................................................................ § 7.6015 ........................................................................... Unchanged.

§ 7.2019 ............................................................................ § 7.6030 ........................................................................... Modified.

§ 7.6040 ........................................................................... Moved (part 5).

§ 7.2020 ............................................................................ .......................................................................................... Added.

§ 7.2021 ............................................................................ § 7.6050 ........................................................................... Unchanged.

§ 7.2022 ............................................................................ § 7.6060 ........................................................................... Significant change.

§ 7.6120 ........................................................................... Moved (part 5).

§ 7.7000 ........................................................................... Removed.

§ 7.7012 ........................................................................... Removed.

§ 7.7015 ........................................................................... Removed.

§ 7.7355 ........................................................................... Moved (part 31).

§ 7.7360 ........................................................................... Moved (part 31).

§ 7.7365 ........................................................................... Moved (part 31).

§ 7.7370 ........................................................................... Moved (part 31).

§ 7.7400 ........................................................................... Removed.

§ 7.3000 ............................................................................ § 7.7434 ........................................................................... Significant change.

§ 7.7505 ........................................................................... Removed.

§ 7.3001 ............................................................................ § 7.7516 ........................................................................... Significant change.

§ 7.7519 ........................................................................... Removed.

§ 7.7540 ........................................................................... Removed.

§ 7.7570 ........................................................................... Moved (part 1).

§ 7.7590 ........................................................................... Removed.

§ 7.4000 ............................................................................ § 7.6025 ........................................................................... Significant change.

§ 7.4001 ............................................................................ § 7.7310 ........................................................................... Significant change.

§ 7.4002 ............................................................................ §§ 7.7315, 7.7515, 7.8000 ............................................... Significant change.

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.
11934 Federal Register / Vol. 60, No. 42 / Friday, March 3, 1995 / Proposed Rules

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

§ 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 § 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 § 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 § 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.

§ 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.

§ 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.

§ 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 § 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.

§ 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
Federal Register / Vol. 60, No. 42 / Friday, March 3, 1995 / Proposed Rules 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.

§ 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

§ 7.1003.

§ 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.

§ 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.

§ 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.

§ 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.

§ 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.

§ 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.

§ 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 § 5.30 of this chapter.
11936 Federal Register / Vol. 60, No. 42 / Friday, March 3, 1995 / Proposed Rules

§ 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.

§ 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.

§ 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).

§ 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.

§ 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.

§ 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.

§ 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

§ 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
Federal Register / Vol. 60, No. 42 / Friday, March 3, 1995 / Proposed Rules 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.

§ 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.

§ 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.

§ 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.

§ 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.

§ 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.

§ 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.

§ 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.

§ 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.’’

§ 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.

§ 7.2010 Delegation of directors’ duties.

The board of directors of a national

bank has the responsibility for

supervising the management of the bank
11938 Federal Register / Vol. 60, No. 42 / Friday, March 3, 1995 / Proposed Rules

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.

§ 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.

§ 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.

§ 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.

§ 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.

§ 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.

§ 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.

§ 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.
Federal Register / Vol. 60, No. 42 / Friday, March 3, 1995 / Proposed Rules 11939

§ 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.

§ 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.

§ 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.

§ 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.

§ 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

§ 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.

§ 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

§ 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.
11940 Federal Register / Vol. 60, No. 42 / Friday, March 3, 1995 / Proposed Rules

(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.

§ 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.

§ 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 § 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 § 31.100 to read

as follows:

Subpart C—Interpretive Rulings

§ 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
Federal Register / Vol. 60, No. 42 / Friday, March 3, 1995 / Proposed Rules 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

SMALL BUSINESS ADMINISTRATION

13 CFR Parts 120 and 122

Business Loan Policy and Business

Loans; Facsimiles of SBA Forms

AGENCY: Small Business Administration

(SBA).

ACTION: Proposed rule.

SUMMARY: This proposed rule would

authorize SBA participating lenders to

use computer generated facsimile exact

copies of SBA application and closing

forms in making SBA guaranteed loans.

SBA lenders, under the proposed rule,

would agree to accept liability for a

substantial SBA loss attributable to

deficiencies in such forms. Under the

proposed rule, SBA would deny liability

to a lender which fails to use SBA

provided forms or computerized

facsimile exact copies of the SBA forms

if this failure would contribute to a

substantial loss by the SBA on the

guaranteed loan.

DATES: Comments must be submitted on

or before April 3, 1995.

ADDRESSES: Comments may be mailed to

John R. Cox, Associate Administrator for

Financial Assistance, Small Business

Administration, 409 Third Street, SW.,

Washington, DC 20416.

FOR FURTHER INFORMATION CONTACT: John

R. Cox, 202/205–6490.

SUPPLEMENTARY INFORMATION: For many

years, the SBA has required that its

participating lenders use SBA provided

forms in the SBA guaranteed business

loan program. With advances in

technology, SBA recognizes that such

forms may be reproduced as mirror

image facsimiles by computers and that

such reproductions may be in the best

interest of expedition of the SBA

guaranteed loan program.

Under this proposed rule, lenders

participating in the SBA guaranteed

business loan program would be

authorized to use SBA application and

closing forms which are computer

generated by the lenders or from

software prepared by third parties with

whom they have contracted. Because

SBA in the past has withheld

permission to computerize some

identified SBA forms, the proposed new

§ 122.5–6 would specifically include

these forms in the general authority to

utilize computer generated facsimile

copies: SBA Forms 147 (Note), 148

(Guaranty), 155 (Standby Agreement),

601 (Applicant’s Agreement of

Compliance), 928 (Mortgage), 1050

(Settlement Sheet), 1059 (Security

Agreement).

SBA’s guaranty to a participating

lender with respect to an SBA

guaranteed business loan is conditional

on the lender’s actions in properly and

prudently making, closing, servicing,

and liquidating a loan. Accordingly,

SBA’s rules release the agency from its

obligation to the lender to purchase the

guaranteed portion of a business loan

under certain prescribed conditions.

SBA is proposing to amend § 120.202–

5 of its regulations so that it would be

released from an obligation to a

participating lender to purchase the

guaranteed portion of a loan if the

lender fails to utilize SBA provided

forms or computer exact facsimile

copies thereof, and this failure

contributes to a substantial loss on the

loan by the SBA. This means that if the

computer generated SBA forms used by

a lender are not exact facsimile copies,

and such lack of conformity contributes

or may contribute to a substantial loss

by SBA on the loan, SBA could refuse

to honor its guaranty with respect to the

lender. In no event could SBA refuse to

purchase the guaranteed portion from a

registered holder (i.e., investor) in the

secondary market. SBA’s obligation to a

registered holder always unconditional,

and this proposed rule would have no

effect on such obligation.

Compliance With Executive Orders

12612, 12778 and 12866, the Regulatory

Flexibility Act, 5 U.S.C. 601, et seq. and

the Paperwork Reduction Act, 44 U.S.C.

Ch. 35

For purposes of the Regulatory

Flexibility Act, 5 U.S.C. 601 et seq., SBA

certifies that this proposed rule, if

promulgated in final form, will not have

a significant economic impact on a

substantial numbers of small entities.

SBA certifies that this proposed rule,

if promulgated in the final form, will

not constitute a significant regulatory

action for the purposes of Executive

Order 12866, since the proposed change

is not likely to result in an annual effect

on the economy of $100 million or

more.

SBA certifies that the proposed rule,

if promulgated in final form, would not

impose additional reporting or

recordkeeping requirements which

could be subject to the Paperwork

Reduction Act, 44 U.S.C. Chapter 35.

SBA certifies that this proposed rule

could not have federalism implications

warranting the preparation of a

Federalism Assessment in accordance

with Executive Order 12612.

Further, for purposes of Executive

Order 12778, SBA certifies that this

proposed rule, if promulgated in final

form, is drafted, to the extent

practicable, in accordance with the

standards set forth in section 2 of that

Order. (Catalog of Federal Domestic

Assistance Programs, No. 59.012)

List of Subjects

13 CFR Part 120

Loan programs-business, Small

Businesses.

13 CFR Part 122

Loan programs-business, Small

businesses.

Accordingly, pursuant to the

authority contained in section 5(b)(6) of

the Small Business Act (15 U.S.C.

634(b)(6)), SBA proposes to amend parts