This section of the FEDERAL REGISTER

contains regulatory documents having general

applicability and legal effect, most of which

are keyed to and codified in the Code of

Federal Regulations, which is published under

50 titles pursuant to 44 U.S.C. 1510.

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Rules and Regulations Federal Register

75417 

Vol. 79, No. 243 

Thursday, December 18, 2014 

1See 78 FR 62018 (Oct. 11, 2013). Among other 

things, this rule adopted the Basel III Capital 

Framework and revised Prompt Corrective Action 

requirements for national banks and Federal savings 

associations. 

2The Basel III Capital Framework, at 12 CFR 

3.100(b)(1), defines an advanced approaches 

national bank or Federal savings association to 

mean a national bank or Federal savings association 

that: 

1. Has consolidated total assets, as reported on its 

most recent year-end Consolidated Reports of 

Condition and Income (Call Report) equal to $250 

billion or more; 

2. Has consolidated total on-balance sheet foreign 

exposure on its most recent year-end Call Report 

equal to $10 billion or more (where total on-balance 

sheet foreign exposure equals total cross-border 

claims less claims with a head office or guarantor 

located in another country plus redistributed 

guaranteed amounts to the country of head office 

or guarantor plus local country claims on local 

residents plus revaluation gains on foreign 

exchange and derivative products, calculated in 

accordance with the Federal Financial Institutions 

Examination Council (FFIEC) 009 Country Exposure 

Report); 

3. Is a subsidiary of a depository institution that 

uses the advanced approaches pursuant to subpart 

E of 12 CFR part 3 (OCC), 12 CFR part 217 (Board 

of Governors of the Federal Reserve System) 

Continued 

DEPARTMENT OF THE TREASURY 

Office of the Comptroller of the 

Currency 

12 CFR Part 5 

[Docket ID OCC–2014–0024] 

RIN 1557–AD73 

Subordinated Debt Issued by a 

National Bank 

AGENCY: Office of the Comptroller of the 

Currency, Treasury. 

ACTION: Interim final rule and request 

for comments. 

SUMMARY: The Office of the Comptroller 

of the Currency (OCC) is amending its 

interim final rule making Basel III 

conforming amendments related to 

cross-references, subordinated debt and 

limits based on regulatory capital. The 

interim final rule, published in the 

Federal Register on February 28, 2014, 

revised and clarified the OCC’s rules 

governing subordinated debt issued by 

national banks and Federal savings 

associations to make those rules 

consistent with the 2013 revised capital 

rules. The OCC is further clarifying the 

subordinated debt rules for national 

banks by moving certain provisions 

from national bank guidance to the rules 

and making other clarifying and 

technical amendments. 

DATES: This interim final rule is 

effective January 1, 2015. Comments 

must be received by January 20, 2015. 

ADDRESSES: Because paper mail in the 

Washington, DC area and at the OCC is 

subject to delay, commenters are 

encouraged to submit comments 

through the Federal eRulemaking Portal 

or email, if possible. Please use the title 

‘‘Subordinated Debt Issued by a 

National Bank’’ to facilitate the 

organization and distribution of the 

comments. You may submit comments 

by any of the following methods: 

• Federal eRulemaking Portal— 

‘‘Regulations.gov’’: Go to 

www.regulations.gov. Enter ‘‘Docket ID 

OCC–2014–0024’’ in the Search Box and 

click ‘‘Search.’’ Results can be filtered 

using the filtering tools on the left side 

of the screen. Click on ‘‘Comment Now’’ 

to submit public comments. 

• Click on the ‘‘Help’’ tab on the 

Regulations.gov home page to get 

information on using Regulations.gov, 

including instructions for submitting 

public comments. 

• Email: regs.comments@

occ.treas.gov. 

• Mail: Legislative and Regulatory 

Activities Division, Office of the 

Comptroller of the Currency, 400 7th 

Street SW., Suite 3E–218, Mail Stop 

9W–11, Washington, DC 20219. 

• Hand Delivery/Courier: 400 7th 

Street SW., Suite 3E–218, Mail Stop 

9W–11, Washington, DC 20219. 

• Fax: (571) 465–4326. 

Instructions: You must include 

‘‘OCC’’ as the agency name and ‘‘Docket 

ID OCC–2014–0024’’ in your comment. 

In general, OCC will enter all comments 

received into the docket and publish 

them on the Regulations.gov Web site 

without change, including any business 

or personal information that you 

provide such as name and address 

information, email addresses, or phone 

numbers. Comments received, including 

attachments and other supporting 

materials, are part of the public record 

and subject to public disclosure. Do not 

enclose any information in your 

comment or supporting materials that 

you consider confidential or 

inappropriate for public disclosure. 

You may review comments and other 

related materials that pertain to this 

rulemaking action by any of the 

following methods: 

• Viewing Comments Electronically: 

Go to www.regulations.gov. Enter 

‘‘Docket ID OCC–2014–0024’’ in the 

Search box and click ‘‘Search.’’ 

Comments can be filtered by Agency 

using the filtering tools on the left side 

of the screen. 

• Click on the ‘‘Help’’ tab on the 

Regulations.gov home page to get 

information on using Regulations.gov, 

including instructions for viewing 

public comments, viewing other 

supporting and related materials, and 

viewing the docket after the close of the 

comment period. 

• Viewing Comments Personally: You 

may personally inspect and photocopy 

comments at the OCC, 400 7th Street 

SW., Washington, DC. For security 

reasons, the OCC requires that visitors 

make an appointment to inspect 

comments. You may do so by calling 

(202) 649–6700. Upon arrival, visitors 

will be required to present valid 

government-issued photo identification 

and to submit to security screening in 

order to inspect and photocopy 

comments. 

• Docket: You may also view or 

request available background 

documents and project summaries using 

the methods described above. 

FOR FURTHER INFORMATION CONTACT: Jean 

Campbell, Senior Attorney, Legislative 

and Regulatory Activities Division, 

(202) 649–5490; and Patricia D. Goings, 

Senior Licensing Analyst, or Patricia 

Roberts, Senior Licensing Analyst, 

Licensing Division, (202) 649–6260. 

SUPPLEMENTARY INFORMATION: 

I. Background 

On October 11, 2013, the OCC 

published in the Federal Register the 

2013 revised capital rules,1 which 

listed, at 12 CFR 3.20(d), the criteria that 

an instrument must satisfy to be 

included in tier 2 capital. The 

mandatory compliance date for the 2013 

revised capital rules is January 1, 2014, 

for advanced approaches national banks 

and Federal savings associations,2 and 


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75418 Federal Register / Vol. 79, No. 243 / Thursday, December 18, 2014 / Rules and Regulations 

(Board), or 12 CFR part 325 (Federal Deposit 

Insurance Corporation) (FDIC) to calculate its total 

risk-weighted assets; 

4. Is a subsidiary of a bank holding company or 

savings and loan holding company that uses the 

advanced approaches pursuant to 12 CFR part 217 

to calculate its total risk-weighted assets; or 

5. Elects to use subpart E of 12 CFR part 3 to 

calculate its total risk-weighted assets. 

3See 79 FR 11300 (Feb. 28, 2014). 

4The OCC recently proposed to move 12 CFR 

163.81 to 12 CFR 5.56. See 79 FR 33260 (June 10, 

2014). 

January 1, 2015, for non-advanced 

approaches national banks and Federal 

savings associations. 

On February 28, 2014, the OCC 

published an interim final rule 

(February 2014 interim final rule) 3

amending the OCC’s rules to be 

consistent with the 2013 revised capital 

rules. The February 2014 interim final 

rule revised and clarified the OCC’s 

rules, at 12 CFR 5.47 and 163.81,4

governing subordinated debt issued by 

national banks and Federal savings 

associations, respectively, to make the 

subordinated debt rules consistent with 

the Basel III criteria. In order to 

accommodate the different compliance 

dates for advanced approaches national 

banks and Federal savings associations 

and non-advanced approaches national 

banks and Federal savings associations, 

the February 2014 interim final rule 

created two sets of provisions: the first 

set of provisions that contained the preBasel III version of the subordinated 

debt rules (with minimal changes), and 

the second set of provisions that 

contained the new Basel III-conforming 

subordinated debt rules. 

The second set of provisions 

incorporated substantive changes 

necessary to be consistent with the 

Basel III Capital Framework for 

subordinated debt. With respect to tier 

2 capital instruments, those changes 

include: (i) Requiring all national banks 

and Federal savings associations to 

obtain prior OCC approval to prepay 

subordinated debt; (ii) prohibiting the 

holder of subordinated debt from having 

a contractual right to accelerate 

principal or interest on the instrument, 

except in the event of a receivership, 

insolvency, liquidation, or other similar 

proceeding; and (iii) prohibiting the 

exercise of a call option in the first five 

years following issuance, except in 

certain very limited circumstances. 

As described in the preamble to the 

February 2014 interim final rule, this 

structure was intended to be temporary. 

The next section of this Supplementary 

Information describes in detail the 

changes the OCC is making in this 

interim final rule to further clarify the 

subordinated debt rules applicable to 

national banks under § 5.47. 

Because of differences in the 

respective rules and guidance 

applicable to national banks and Federal 

savings associations, changes to 12 CFR 

163.81 are not being made at this time. 

In the future, the OCC will consider 

integrating its rules regarding the 

issuance of subordinated debt for 

national banks and Federal savings 

associations. 

II. Changes to § 5.47 Applicable to 

National Banks 

A. Structural Changes 

Beginning January 1, 2015, the first 

set of provisions at paragraphs (b) 

through (i) will no longer be necessary 

because they provide the old criteria 

and procedures for issuance and 

prepayment of subordinated debt that 

are not consistent with the Basel III 

Capital Framework. Accordingly, the 

OCC is deleting the first set of 

provisions and renumbering the second 

set of provisions. In addition, the OCC 

is making technical amendments 

throughout § 5.47 to remove all 

references to timing differences for 

advanced approaches national banks 

and non-advanced approaches national 

banks. 

B. Requirements Applicable to 

Subordinated Debt 

1. Guidelines for Subordinated Debt 

Following publication of the February 

2014 interim final rule, the OCC 

undertook a review of its guidance for 

subordinated debt issued by a national 

bank to make it consistent with the 

Basel III Capital Framework and the 

amendments to § 5.47. As a result of that 

review, the OCC has decided that most 

of the practices and disclosures 

described in Appendix A of the 

Subordinated Debt booklet of the 

Licensing Manual (current Guidelines) 

should be moved to § 5.47 to locate 

applicable requirements in one place. 

The changes to § 5.47 are described in 

Section II.B.2. of this Supplementary 

Information. 

We note that, with a few exceptions 

described in Section II.B.2. of this 

Supplementary Information, the 

changes do not increase burden for 

institutions issuing subordinated debt. 

Typically, subordinated debt notes 

issued by national banks were 

consistent with the practices and 

disclosures described in the current 

Guidelines for a number of practical 

reasons, including making the review 

process quicker and more efficient and 

avoiding unnecessary burden and effort 

by the national bank by using sample 

language provided in the current 

Guidelines. The new requirements in 

this interim final rule are: (1) A new 

disclosure related to the OCC’s authority 

under 12 CFR 3.11 to limit distributions, 

including interest payments on any tier 

2 capital instrument if the national bank 

has full discretion to permanently or 

temporarily suspend such payments 

without triggering an event of default; 

and (2) an expanded prohibition on 

covenants or provisions that 

unreasonably restrict a national bank’s 

ability to raise additional capital 

through the issuance of additional 

subordinated debt or other regulatory 

capital instruments. 

Prior to the effective date of this 

interim final rule, the OCC plans to 

issue revised Guidelines for 

Subordinated Debt Issued by National 

Banks (revised Guidelines) and a 

revised sample note that are consistent 

with the 2013 revised capital rules and 

the amendments to § 5.47 made by the 

February 2014 interim final rule. 

2. Description of Changes to § 5.47 

The pre-Basel III rules were 

ambiguous regarding what, if any, 

requirements apply to subordinated 

debt that is not included in tier 2 

capital. Accordingly, the February 2014 

interim final rule clarified that certain 

basic requirements apply to all 

subordinated debt by adding the 

substantive requirements in § 3.701(f)(1) 

to the subordinated debt rule. The preBasel III rules generally did not require 

eligible national banks to obtain prior 

approval to prepay subordinated debt. 

However, the Basel III Capital 

Framework requires prior approval to 

prepay subordinated debt included in 

tier 2 capital. Therefore, the February 

2014 interim final rule required that all 

national banks, not just eligible national 

banks, obtain prior approval to prepay 

such subordinated debt. In addition, the 

Basel III Capital Framework imposes 

additional requirements on a 

prepayment in the form of a call option, 

and the February 2014 interim final rule 

added those requirements to the 

subordinated debt rules. 

The OCC is amending the name of 

paragraph (a) by deleting ‘‘and 

applicability’’ from the title of 

paragraph (a); adding additional 

statutory cites in paragraph (a)(1); and 

deleting paragraph (a)(2), which 

provides different compliance dates for 

an advanced approaches national bank 

and a non-advanced approaches 

national bank. 

The OCC is redesignating current 

paragraph (j), ‘‘Scope,’’ as new 

paragraph (b). New paragraph (b) is 

amended to clarify that, in addition to 

setting forth procedures for the OCC’s 

review and approval of subordinated 


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debt, § 5.47 also sets forth requirements 

that are applicable to all subordinated 

debt issued by a national bank. The OCC 

believes this change more accurately 

reflects the content of § 5.47 and alerts 

a national bank that certain 

requirements apply to all subordinated 

debt, even if the national bank is not 

required to file an application to issue 

or prepay subordinated debt or a notice 

to include the subordinated debt in 

regulatory capital. 

The OCC is redesignating current 

paragraph (k), ‘‘Definitions,’’ as new 

paragraph (c) and adding two new 

definitions. The new definitions are 

‘‘payment on subordinated debt’’ and 

‘‘original maturity.’’ The OCC is adding 

these definitions to clarify the meaning 

of those terms as they are used in § 5.47. 

‘‘Payment on subordinated debt’’ is 

defined to mean principal and interest, 

and premium, if any, and ‘‘original 

maturity’’ is defined to mean the stated 

maturity of the subordinated debt note. 

While the definition of ‘‘payment on 

subordinated debt’’ is new, the 

substance of this definition reflects the 

prior understanding of payment as 

reflected in the language of the 

disclosures in the current Guidelines. 

The new definition of ‘‘original 

maturity’’ further clarifies that if a 

subordinated debt note does not have a 

stated maturity, the original maturity 

would be the earliest possible date the 

subordinated debt note may be 

redeemed, repurchased, prepaid, 

terminated, or otherwise retired by the 

national bank pursuant to the terms of 

such note. This definition of ‘‘original 

maturity’’ is consistent with existing 

OCC precedent. 

The OCC is redesignating current 

paragraph (l) as new paragraph (d); 

renaming new paragraph (d) 

‘‘Requirements for issuance of 

subordinated debt’’; adding a heading to 

new paragraph (d)(1), ‘‘Minimum 

terms’’; and redesignating current 

paragraph (l)(1)(viii) as new paragraph 

(d)(3)(iii). The OCC also is revising 

paragraph (d)(1); redesignating 

paragraph (d)(2) as new paragraph (e); 

and adding new paragraphs (d)(2) and 

(d)(3), as described in greater detail 

below. 

In addition, in redesignated paragraph 

(d)(1)(iv) the OCC is clarifying the 

meaning of the term ‘‘unsecured’’ by 

providing that a subordinated debt note 

must not include the establishment of 

any legally enforceable fund for 

payment of the subordinated debt note 

through: (i) a sinking fund; or (ii) a 

compensating balance or other funds or 

assets subject to a legal right of offset, 

as defined by applicable state law. This 

concept of a sinking fund or 

compensating balance is being moved to 

paragraph (d)(1)(iv) from the current 

Guidelines. The OCC is concerned with 

any type of arrangement that acts, in 

economic substance, to create a secured 

arrangement between the note holder 

and the issuing national bank. The OCC 

has concluded that a sinking fund or 

similar arrangement that sets aside 

assets of a national bank constitutes a de 

facto secured arrangement or interest for 

the benefit of the subordinated note 

holder because, in the event of 

insolvency, the proceeds from the sale 

of the assets securing the loan would 

function like collateral and would be 

applied to the obligations of the holder 

of the subordinated debt note, which 

would place the note holder senior in 

right of payment to other creditors. 

Compensating balances, while rare, also 

have the potential to place the note 

holder in a de facto secured position. 

The concern is that, under state law, a 

correspondent bank may have a right of 

offset against the compensating balance 

for any amount due on the note. 

Therefore, the OCC is prohibiting such 

an arrangement with respect to the 

issuance of subordinated debt where a 

legally enforceable right of offset exists 

because it constitutes a secured 

arrangement for the benefit of the note 

holder. 

The OCC is adding new paragraph 

(d)(2), ‘‘Corporate authority.’’ New 

paragraph (d)(2) prohibits the inclusion 

of any provision or covenant in a 

subordinated debt note that unduly 

restricts or otherwise limits the 

authority of a national bank or interferes 

with the OCC’s supervision of the 

national bank. The OCC is moving five 

examples of provisions or covenants to 

new paragraph (d)(2) from the current 

Guidelines. Although these provisions 

are being added as new provisions to 

the regulations, as described in Section 

II.B.1. of this Supplementary 

Information, national banks currently 

comply with the substance of these 

provisions. New paragraph (d)(2)(i) 

prohibits a covenant or provision in 

which the national bank agrees to 

maintain a certain minimum amount in 

its capital accounts, or minimum assets, 

liquidity, loan ratios or other similar 

metrics. Pursuant to 12 U.S.C. 1818 and 

3907, the OCC seeks to prohibit unsafe 

or unsound banking practices and 

promote maintenance of a national 

bank’s capital, particularly when a 

national bank is experiencing financial 

difficulties. While a statement affirming 

the national bank’s current condition 

would be acceptable, a covenant that 

would require a national bank to 

maintain on an ongoing basis a specified 

minimum amount in its capital 

accounts, or minimum capital assets, 

liquidity, loan ratios or other similar 

metrics, potentially would subject the 

national bank to acceleration at the very 

point in time when the national bank 

should seek to maintain its capital. The 

OCC believes this would constitute an 

unsafe or unsound banking practice and 

therefore is prohibiting such a covenant. 

New paragraph (d)(2)(ii) prohibits a 

covenant or provision that unduly 

restricts a national bank’s ability to raise 

additional capital through the issuance 

of additional subordinated debt or other 

regulatory capital instruments. The OCC 

believes that it would constitute an 

unsafe or unsound banking practice if a 

national bank agreed to such a covenant. 

The OCC notes that this provision 

mirrors similar restrictions in the 2013 

revised capital rules for additional tier 

1 capital and the wording in the current 

Guidelines has been expanded to cover 

the issuance of all regulatory capital 

instruments, including additional 

subordinated debt. An example of a 

prohibited covenant, which is provided 

in the current Guidelines, would be one 

that requires any subordinated debt 

issued by the national bank in the future 

to be junior in right of payment to the 

current issuance. The OCC believes this 

requirement reflects a fundamental 

supervisory policy that is equally 

applicable to all capital instruments, not 

just tier 1 instruments, and that the 

underlying concern that such a 

covenant in a subordinated debt note 

would unreasonably restrict a national 

bank’s ability to raise capital in the 

future is equally applicable to 

subordinated debt. 

New paragraph (d)(2)(iii) prohibits a 

covenant or provision that provides for 

default and acceleration of the 

subordinated debt as the result of a 

change in control, if such change in 

control results from the OCC’s exercise 

of its statutory authority to require a 

national bank to sell stock in that 

national bank, enter into a merger or 

consolidation, or be acquired by a bank 

holding company. In a situation where 

a national bank is considered 

‘‘significantly undercapitalized’’ as 

defined under applicable law, or in 

certain circumstances where it is 

considered ‘‘undercapitalized,’’ the OCC 

has broad statutory authority to require 

a national bank to sell stock in the 

national bank, enter into a merger or 

consolidation, or be acquired by a bank 

holding company. In such a case, the 

OCC does not allow a change in control 

resulting from such OCC action to 

constitute a default. Therefore, the OCC 

is adding this prohibition. The OCC 

believes that, in practice, such a clause 


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75420 Federal Register / Vol. 79, No. 243 / Thursday, December 18, 2014 / Rules and Regulations 

is unnecessary because when the OCC 

directs the merger or acquisition of the 

national bank, the OCC requires the 

purchaser of a national bank to assume 

the obligation on the subordinated debt 

note, which provides adequate 

protection to the note holder. 

New paragraph (d)(2)(iv) prohibits a 

covenant or provision that requires the 

prior approval of a purchaser or holder 

of the subordinated debt note in the case 

of a voluntary merger by a national bank 

where the resulting institution assumes 

the due and punctual performance of all 

conditions of the subordinated debt note 

and agreement and is not in default of 

the various covenants of the 

subordinated debt. The OCC is moving 

this provision from the current 

Guidelines to paragraph (d)(2)(iv) with 

one simplifying change; the rule does 

not require the resulting institution to 

be a commercial bank. The OCC 

believes that the amended language 

sufficiently protects the note holder by 

permitting a default clause if a 

voluntary merger does not satisfy these 

conditions, while at the same time not 

interfering with a national bank’s ability 

to exercise its business judgment and 

manage the national bank in a manner 

that avoids unsafe or unsound banking 

practices. 

Paragraph (d)(2)(v) prohibits a 

covenant or provision that provides for 

default and acceleration of the 

subordinated debt as the result of a 

default by a subsidiary of the national 

bank (including a limited liability 

company), unless there is a separate 

agreement between the subsidiary and 

the purchaser of the national bank’s 

subordinated debt note; and such 

separate agreement has been reviewed 

and approved by the OCC. While the 

OCC acknowledges that in some 

instances default by a subsidiary may 

signal financial difficulties of the parent 

national bank, the OCC believes it 

would be an unsafe or unsound banking 

practice if a technical or otherwise 

minor default by a subsidiary of the 

national bank could trigger the default 

of a national bank’s subordinated debt 

note resulting in acceleration. Therefore, 

the rule allows such a default to occur 

only if there is a separate agreement 

between the subsidiary and the 

purchaser and the separate agreement 

has been reviewed and approved by the 

OCC. 

The OCC is adding new paragraph 

(d)(3), ‘‘Disclosure requirements.’’ New 

paragraph (d)(3)(i) provides two 

disclosures that the OCC has 

determined are sufficiently important to 

require that they must appear clearly on 

the face of a subordinated debt note in 

all capital letters using the exact 

language in paragraph (d)(3)(i). These 

disclosures, which are being moved to 

new paragraph (d)(3)(i) from the current 

Guidelines, state that the obligation is 

not a deposit and is not insured by the 

Federal Deposit Insurance Corporation 

(FDIC), and that the obligation is 

subordinated to claims of depositors 

and general creditors, is unsecured, and 

is ineligible as collateral for a loan by 

the issuing national bank. 

New paragraph (d)(3)(ii) lists three 

types of disclosures that a national bank 

is required to make in the subordinated 

debt note. The OCC has determined that 

these disclosures contain important 

information that must be disclosed to a 

potential purchaser of the subordinated 

debt note. However, rather than 

providing specific language for these 

disclosures, paragraph (d)(3)(ii) allows 

national banks discretion in how they 

word the disclosures, provided the 

disclosures are made clearly and 

accurately. Two of these disclosures are 

being moved to paragraph (d)(3)(ii) from 

the current Guidelines, and the third 

one is a new disclosure. 

The first such disclosure, at paragraph 

(d)(3)(ii)(A), relates to the order and 

level of subordination. In addition to 

being subordinated to the claims of 

depositors, this disclosure provides that, 

at a minimum, the subordinated debt 

note is subordinate and junior in its 

right of payment to the obligations of all 

creditors, including both secured and 

unsecured or general creditors, except 

those specifically designated as ranking 

on a parity with, or subordinated to, the 

subordinated debt note. The second 

disclosure, at paragraph (d)(3)(ii)(B), is a 

general description of the OCC’s 

regulatory authority with respect to a 

national bank in danger of insolvency 

that includes: (1) in the case of 

insolvency, that the FDIC, acting as 

receiver, has authority to transfer a 

national bank’s obligation under the 

subordinated debt note and to supersede 

or void any default, acceleration, or 

subordination that may have occurred; 

(2) in the case of a national bank that is 

‘‘undercapitalized’’ as defined by 

applicable law and fails to satisfactorily 

implement a required capital restoration 

plan, that the national bank may be 

subject to the additional restrictions and 

requirements applicable to a 

‘‘significantly undercapitalized’’ 

institution, including being required to 

sell shares in the national bank, being 

acquired by a depository institution 

holding company, or being merged or 

consolidated with another depository 

institution, and this authority 

supersedes and voids any defaults that 

may have occurred; and (3) in the case 

of a national bank that is ‘‘critically 

undercapitalized,’’ as defined by 

applicable law, that the national bank is 

prohibited from making principal or 

interest payments on the subordinated 

debt note without prior regulatory 

approval. 

The third such disclosure, at 

paragraph (d)(3)(ii)(C), is a new 

disclosure that is not in the current 

Guidelines. It describes the OCC’s 

authority under 12 CFR 3.11 to limit 

distributions, including interest 

payments on any tier 2 capital 

instrument if the national bank has full 

discretion to permanently or 

temporarily suspend such payments 

without triggering an event of default. 

The OCC believes that this disclosure is 

necessary to make clear to subordinated 

debt note holders the circumstances in 

which certain payments or other 

distributions related to the subordinated 

debt note could be limited and is 

particularly important in light of the 

potential new limitations under the 

Basel III Capital Framework. 

Current paragraph (l)(1)(viii) requires 

that subordinated debt must comply 

with the Securities Offering Disclosure 

Rules in 12 CFR part 16, and the OCC 

is retaining that requirement as 

redesignated paragraph (d)(3)(iii). The 

rules in Part 16 establish registration 

statement and prospectus requirements 

for the offer or sale of securities issued 

by a national bank, subject to 

exemptions. 

The OCC notes that national banks 

also must comply with all applicable 

laws and regulations, such as the federal 

and state securities laws. 

The OCC is redesignating current 

paragraph (l)(2), ‘‘Additional 

requirements to qualify as tier 2 

capital,’’ as new paragraph (e). In 

addition, the OCC is adding a reminder 

that 12 CFR 3.20(d)(1)(xi) requires an 

advanced approaches national bank to 

make a specific disclosure that holders 

of the instrument may be fully 

subordinated to interests held by the 

U.S. government in the event that the 

national bank enters into a receivership, 

insolvency, liquidation, or similar 

proceeding. The OCC also is deleting 

the requirement relating to applicable 

OCC guidance for subordinated debt, 

which will no longer be necessary 

because those practices and disclosures 

deemed to be most important by the 

OCC are being added to § 5.47. 

The OCC is redesignating current 

paragraph (m) as new paragraph (f) and 

renaming new paragraph (f) ‘‘Process 

and procedures.’’ The OCC also is 

redesignating current paragraphs (n), 

(o), and (p) as new paragraphs (g), (h), 

and (i). 


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5See 5 U.S.C. 553(b) and (d). 

6See id. at 553(d). 

7See id. at 601 et seq. 

8See id. at 603 and 604. 

III. Request for Comments 

The OCC requests comment on all 

aspects of this interim final rule. 

IV. Regulatory Analysis 

A. Administrative Procedure Act 

Pursuant to the Administrative 

Procedure Act (APA),5 at 5 U.S.C. 

553(b)(B), notice and comment are not 

required prior to the issuance of a final 

rule if an agency, for good cause, finds 

that ‘‘notice and public procedure 

thereon are impracticable, unnecessary, 

or contrary to the public interest.’’ The 

OCC finds that it is impracticable to 

seek prior notice and comment for the 

following reasons. Subordinated debt 

plays an important role in the capital 

and liquidity management of national 

banks. The February 2014 interim final 

rule revised and clarified the OCC’s 

rules governing subordinated debt 

issued by national banks to make those 

rules consistent with the 2013 revised 

capital rules. This interim final rule 

makes important clarifications to those 

subordinated debt rules by moving 

certain provisions from the current 

Guidelines to the rules and making 

other clarifying and technical 

amendments. This interim final rule is 

necessary because the 2013 revised 

capital rules will become applicable to 

non-advanced approaches national 

banks beginning January 1, 2015. 

Accordingly, the OCC finds good cause 

to issue this interim final rule. 

The APA also requires that a 

substantive rule must be published not 

less than 30 days before its effective 

date, unless, among other things, the 

agency determines for good cause that 

the rule should become effective before 

such time. For the reasons described 

above, the OCC finds good cause to 

dispense with the delayed effective date 

otherwise required.6

B. Regulatory Flexibility Act 

The Regulatory Flexibility Act (RFA) 7

generally requires an agency that is 

issuing a proposed rule to prepare and 

make available for public comment an 

initial regulatory flexibility analysis that 

describes the impact of the proposed 

rule on small entities. The RFA does not 

apply to a rulemaking where a general 

notice of proposed rulemaking is not 

required.8 For the reasons described 

above, the OCC has determined, for 

good cause, that it is unnecessary to 

publish a notice of proposed rulemaking 

for this interim final rule. Accordingly, 

the RFA’s requirements relating to an 

initial and final regulatory flexibility 

analysis do not apply. 

C. Unfunded Mandates Reform Act 

Section 202 of the Unfunded 

Mandates Reform Act of 1995, 2 U.S.C. 

1532, requires that an agency prepare a 

budgetary impact statement before 

promulgating any rule likely to result in 

a Federal mandate that may result in the 

expenditure by State, local, and tribal 

governments, in the aggregate, or by the 

private sector of $100 million or more, 

as adjusted for inflation, in any one 

year. The Unfunded Mandates Reform 

Act only applies when an agency issues 

a general notice of proposed 

rulemaking. Because the OCC is not 

publishing a notice of proposed 

rulemaking, this final rule is not subject 

to section 202 of the Unfunded 

Mandates Reform Act. 

D. Paperwork Reduction Act 

Under the Paperwork Reduction Act 

(PRA) (44 U.S.C. 3501–3520), the OCC 

may not conduct or sponsor, and a 

person is not required to respond to, an 

information collection unless the 

information collection displays a valid 

Office of Management and Budget 

(OMB) control number. The majority of 

the information collection requirements 

contained in this interim final rule have 

previously been approved under OMB 

Control Nos. 1557–0014 and 1557–0320. 

The amendments published today do 

not modify the approved collections but 

add a disclosure requirement that needs 

OMB approval. Section 5.47(d)(3)(ii)(C) 

requires in the subordinated debt note, 

a description of the OCC’s authority 

under 12 CFR 3.11 to limit distributions, 

including interest payments on any tier 

2 capital instrument if the national bank 

has full discretion to permanently or 

temporarily suspend such payments 

without triggering an event of default. 

The OCC has submitted its collection 

under OMB Control No. 1557–0320 to 

OMB for revision to seek approval for 

this requirement. 

Estimated Number of Respondents: 

42. 

Estimated Number of Responses per 

Respondent: 1. 

Estimated Burden Hours per 

Response: 0.50 hours. 

Total Estimated Burden: 21 hours. 

Comments are invited on: 

(a) Whether the collection of 

information is necessary for the proper 

performance of the functions of the 

OCC, including whether the information 

shall have practical utility; 

(b) The accuracy of the OCC’s 

estimate of the burden of the collection 

of information; 

(c) Ways to enhance the quality, 

utility, and clarity of the information to 

be collected; 

(d) Ways to minimize the burden of 

the collection on respondents, including 

through the use of automated collection 

techniques or other forms of information 

technology; and 

(e) Estimates of capital or start-up 

costs and costs of operation, 

maintenance, and purchase of services 

to provide information. 

List of Subjects in 12 CFR Part 5 

Administrative practice and 

procedure, National banks, Reporting 

and recordkeeping requirements, 

Securities. 

Authority and Issuance 

For the reasons set forth in the 

preamble, the OCC amends 12 CFR 

Chapter I, part 5, as set forth below. 

PART 5—RULES, POLICIES, AND 

PROCEDURES FOR CORPORATE 

ACTIVITIES 

■ 1. The authority citation for part 5 

continues to read as follows: 

Authority: 12 U.S.C. 1 et seq., 93a, 215a– 

2, 215a–3, 481, and section 5136A of the 

Revised Statutes (12 U.S.C. 24a). 

■ 2. Revise § 5.47 to read as follows: 

§ 5.47 Subordinated debt issued by a 

national bank. 

(a) Authority. 12 U.S.C. 93a, 1831o, 

and 3907. 

(b) Scope. This section sets forth the 

requirements applicable to all 

subordinated debt notes issued by 

national banks and the procedures for 

OCC review and approval of a national 

bank’s application to issue or prepay 

subordinated debt and a notice to 

include subordinated debt in tier 2 

capital. 

(c) Definitions. The following 

definitions apply to this section: 

Capital plan means a plan describing 

the means and schedule by which a 

national bank will attain specified 

capital levels or ratios, including a 

capital restoration plan filed with the 

OCC under 12 U.S.C. 1831o and 12 CFR 

6.5. 

Original maturity means the stated 

maturity of the subordinated debt note. 

If the subordinated debt note does not 

have a stated maturity, then original 

maturity means the earliest possible 

date the subordinated debt note may be 

redeemed, repurchased, prepaid, 

terminated, or otherwise retired by the 

national bank pursuant to the terms of 

the subordinated debt note. 

Payment on subordinated debt means 

principal and interest, and premium, if 

any. 


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75422 Federal Register / Vol. 79, No. 243 / Thursday, December 18, 2014 / Rules and Regulations 

Tier 2 capital has the same meaning 

as set forth in 12 CFR 3.20(d). 

(d) Requirements for issuance of 

subordinated debt. A national bank 

issuing subordinated debt must satisfy 

the requirements of this paragraph (d). 

(1) Minimum terms. The terms of any 

subordinated debt note issued by a 

national bank must: 

(i) Have a minimum original maturity 

of at least five years; 

(ii) Not be a deposit and not insured 

by the Federal Deposit Insurance 

Corporation (FDIC); 

(iii) Be subordinated to the claims of 

depositors; 

(iv) Be unsecured, which would 

include prohibiting the establishment of 

any legally enforceable fund earmarked 

for payment of the subordinated debt 

note through: 

(A) A sinking fund; or 

(B) A compensating balance or any 

other funds or assets subject to a legal 

right of offset, as defined by applicable 

state law; 

(v) Be ineligible as collateral for a loan 

by the issuing national bank; 

(vi) Provide that once any scheduled 

payments of principal begin, all 

scheduled payments shall be made at 

least annually and the amount repaid in 

each year shall be no less than in the 

prior year; and 

(vii) Provide that, where applicable, 

no payment (including payment 

pursuant to an acceleration clause, 

redemption prior to maturity, 

repurchase, or exercising a call option) 

shall be made without prior OCC 

approval. 

(2) Corporate authority. A 

subordinated debt note must not 

include any provision or covenant that 

unduly restricts or otherwise acts to 

unduly limit the authority of a national 

bank or interferes with the OCC’s 

supervision of the national bank. 

Specifically, this would include a 

provision or covenant that: 

(i) Maintains a certain minimum 

amount in its capital accounts or other 

metric, such as minimum capital assets, 

liquidity, or loan ratios; 

(ii) Unreasonably restricts a national 

bank’s ability to raise additional capital 

through the issuance of additional 

subordinated debt or other regulatory 

capital instruments; 

(iii) Provides for default and 

acceleration of the subordinated debt as 

the result of a change in control, if such 

change in control results from the OCC’s 

exercise of its statutory authority to 

require a national bank to sell stock in 

that national bank, enter into a merger 

or consolidation, or be acquired by a 

bank holding company; 

(iv) Requires the prior approval of a 

purchaser or holder of the subordinated 

debt note in the case of a voluntary 

merger by a national bank where the 

resulting institution: 

(A) Assumes the due and punctual 

performance of all conditions of the 

subordinated debt note and agreement; 

and 

(B) Is not in default of the various 

covenants of the subordinated debt; and 

(v) Provides for default and 

acceleration of the subordinated debt as 

the result of a default by a subsidiary 

(including a limited liability company) 

of the national bank, unless: 

(A) There is a separate agreement 

between the subsidiary and the 

purchaser of the national bank’s 

subordinated debt note; and 

(B) Such agreement has been 

reviewed and approved by the OCC. 

(3) Disclosure requirements. (i) A 

national bank must disclose clearly on 

the face of any subordinated debt note 

the following language in all capital 

letters: 

(A) THIS OBLIGATION IS NOT A 

DEPOSIT AND IS NOT INSURED BY 

THE FEDERAL DEPOSIT INSURANCE 

CORPORATION; and 

(B) THIS OBLIGATION IS 

SUBORDINATED TO CLAIMS OF 

DEPOSITORS AND GENERAL 

CREDITORS, IS UNSECURED, AND IS 

INELIGIBLE AS COLLATERAL FOR A 

LOAN BY [INSERT NAME OF ISSUING 

NATIONAL BANK]. 

(ii) A national bank must disclose 

clearly and accurately in the 

subordinated debt note: 

(A) The order and level of 

subordination, and in addition to being 

subordinated to the claims of 

depositors, provide that, at a minimum, 

the subordinated debt note is 

subordinate and junior in its right of 

payment to the obligations of all 

creditors, including both secured and 

unsecured or general creditors, except 

those specifically designated as ranking 

on a parity with, or subordinated to, the 

subordinated debt note; 

(B) A general description of the OCC’s 

regulatory authority with respect to a 

national bank in danger of insolvency 

that includes: 

(1) With respect to insolvency, that 

the FDIC, acting as receiver, has 

authority to transfer a national bank’s 

obligation under the subordinated debt 

note and to supersede or void any 

default, acceleration, or subordination 

that may have occurred; 

(2) If a national bank that is 

‘‘undercapitalized’’ as defined by 

applicable law fails to satisfactorily 

implement a required capital restoration 

plan, the national bank may be subject 

to all the additional restrictions and 

requirements applicable to a 

‘‘significantly undercapitalized’’ 

institution, as defined by applicable 

law, including being required to sell 

shares in the national bank, being 

acquired by a depository institution 

holding company, or being merged or 

consolidated with another depository 

institution, and this authority 

supersedes and voids any defaults that 

may have occurred; and 

(3) If a national bank is ‘‘critically 

undercapitalized,’’ as defined by 

applicable law, the national bank is 

prohibited from making principal or 

interest payments on the subordinated 

debt note without prior regulatory 

approval; and 

(C) A description of the OCC’s 

authority under 12 CFR 3.11 to limit 

distributions, including interest 

payments on any tier 2 capital 

instrument if the national bank has full 

discretion to permanently or 

temporarily suspend such payments 

without triggering an event of default. 

(iii) A national bank must comply 

with the Securities Offering Disclosure 

Rules in 12 CFR part 16. 

(e) Additional requirements to qualify 

as tier 2 capital. In order to qualify as 

tier 2 capital, a national bank’s 

subordinated debt must meet the 

requirements in 12 CFR 3.20(d), 

including, for an advanced approaches 

national bank, the disclosure 

requirement in 12 CFR 3.20(d)(1)(xi). 

(f) Process and procedures—(1) 

Issuance of subordinated debt—(i) 

Approval—(A) Eligible bank. An eligible 

bank is required to receive prior 

approval from the OCC to issue any 

subordinated debt, in accordance with 

paragraph (g)(1)(i) of this section, if: 

(1) The national bank will not 

continue to be an eligible bank after the 

transaction; 

(2) The OCC has previously notified 

the national bank that prior approval is 

required; or 

(3) Prior approval is required by law. 

(B) National bank not an eligible 

bank. A national bank that is not an 

eligible bank must receive prior OCC 

approval to issue any subordinated debt, 

in accordance with paragraph (g)(1)(i) of 

this section. 

(ii) Notice to include subordinated 

debt in tier 2 capital. All national banks 

must notify the OCC, in accordance 

with paragraph (h) of this section, 

within ten days after issuing 

subordinated debt that is to be counted 

as tier 2 capital. Where a national bank’s 

application to issue subordinated debt 

has been deemed to be approved, in 

accordance with paragraph (g)(2)(i) of 

this section, the national bank must 

notify the OCC, pursuant to paragraph 

(h) of this section, after issuance of the 


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Federal Register / Vol. 79, No. 243 / Thursday, December 18, 2014 / Rules and Regulations 75423 

2A national bank may replace tier 2 capital 

instruments concurrent with the redemption of 

existing tier 2 capital instruments. 

subordinated debt. A national bank may 

not include subordinated debt as tier 2 

capital unless the national bank has 

filed the notice with the OCC and 

received notification from the OCC that 

the subordinated debt issued by the 

national bank qualifies as tier 2 capital. 

(2) Prepayment of subordinated 

debt—(i) Subordinated debt not 

included in tier 2 capital—(A) Eligible 

bank. An eligible bank is required to 

receive prior approval from the OCC to 

prepay any subordinated debt that is not 

included in tier 2 capital (including 

acceleration, repurchase, redemption 

prior to maturity, and exercising a call 

option), in accordance with paragraph 

(g)(1)(ii) of this section, only if: 

(1) The national bank will not be an 

eligible bank after the transaction; 

(2) The OCC has previously notified 

the national bank that prior approval is 

required; 

(3) Prior approval is required by law; 

or 

(4) The amount of the proposed 

prepayment is equal to or greater than 

one percent of the national bank’s total 

capital, as defined in 12 CFR 3.2. 

(B) National bank not an eligible 

bank. A national bank that is not an 

eligible bank must receive prior OCC 

approval to prepay any subordinated 

debt that is not included in tier 2 capital 

(including acceleration, repurchase, 

redemption prior to maturity, and 

exercising a call option), in accordance 

with paragraph (g)(1)(ii) of this section. 

(ii) Subordinated debt included in tier 

2 capital—(A) General. Notwithstanding 

paragraph (f)(2)(i)(B) of this section, all 

national banks must receive prior OCC 

approval to prepay subordinated debt 

included in tier 2 capital, in accordance 

with paragraph (g)(1)(ii)(A) of this 

section. 

(B) Call option. Notwithstanding this 

paragraph (f)(2)(ii)(A) of this section, a 

national bank must receive prior OCC 

approval to prepay subordinated debt 

included in tier 2 capital, in accordance 

with paragraph (g)(2)(ii)(B) of this 

section, when the prepayment is a result 

of exercising a call option. 

(g) Prior approval procedure—(1) 

Application—(i) Issuance of 

subordinated debt. A national bank 

required to obtain OCC approval before 

issuing subordinated debt shall submit 

an application to the appropriate OCC 

licensing office. The application must 

include: 

(A) A description of the terms and 

amount of the proposed issuance; 

(B) A statement of whether the 

national bank is subject to a capital plan 

or required to file a capital plan with the 

OCC and, if so, how the proposed 

change conforms to the capital plan; 

(C) A copy of the proposed 

subordinated note format and note 

agreement; and 

(D) A statement that the subordinated 

debt issue complies with all applicable 

laws and regulations. 

(ii) Prepayment of subordinated 

debt—(A) General. A national bank 

required to obtain OCC approval before 

prepaying subordinated debt, pursuant 

to paragraph (f)(2) of this section, shall 

submit an application to the appropriate 

OCC licensing office. The application 

must include: 

(1) A description of the terms and 

amount of the proposed prepayment; 

(2) A statement of whether the 

national bank is subject to a capital plan 

or required to file a capital plan with the 

OCC and, if so, how the proposed 

change conforms to the capital plan; and 

(3) A copy of the subordinated debt 

instrument the national bank is 

proposing to prepay. 

(B) Call option. (1) Before prepaying 

subordinated debt if the prepayment is 

in the form of a call option, a national 

bank is required to obtain OCC 

approval, pursuant to paragraph 

(g)(2)(ii) of this section, by submitting 

an application to the appropriate OCC 

licensing office. 

(2) In addition to the information 

required in this paragraph (g)(1)(ii)(A) of 

this section, the application must 

include: 

(i) A statement explaining why the 

national bank believes that following 

the proposed prepayment the national 

bank would continue to hold an amount 

of capital commensurate with its risk; or 

(ii) A description of the replacement 

capital instrument that meets the 

criteria for tier 1 or tier 2 capital under 

12 CFR 3.20, including the amount of 

such instrument, and the time frame for 

issuance. 

(iii) Additional information. The OCC 

reserves the right to request additional 

relevant information, as appropriate. 

(2) Approval—(i) General. The 

application is deemed approved by the 

OCC as of the 30th day after the filing 

is received by the OCC, unless the OCC 

notifies the national bank prior to that 

date that the filing presents a significant 

supervisory, or compliance concern, or 

raises a significant legal or policy issue. 

(ii) Call option. Notwithstanding this 

paragraph (g)(2)(i) of this section, if the 

application for prior approval is for 

prepayment in the form of a call option, 

the national bank must receive 

affirmative approval from the OCC to 

exercise the call option. If the OCC 

requires the national bank to replace the 

subordinated debt, the national bank 

must receive affirmative approval that 

the replacement capital instrument 

meets the criteria for tier 1 or tier 2 

capital under 12 CFR 3.20 and must 

issue the replacement instrument prior 

to exercising the call option, or 

immediately thereafter.2

(iii) Tier 2 capital. Following 

notification to the OCC pursuant to 

paragraph (f)(1)(ii) of this section that 

the national bank has issued the 

subordinated debt, the OCC will notify 

the national bank whether the 

subordinated debt qualifies as tier 2 

capital. 

(iv) Expiration of approval. Approval 

expires if a national bank does not 

complete the sale of the subordinated 

debt within one year of approval. 

(h) Notice procedure for inclusion in 

tier 2 capital. (1) All national banks 

shall notify the appropriate OCC 

licensing office in writing within ten 

days after issuing subordinated debt that 

it intends to include as tier 2 capital. A 

national bank may not include such 

subordinated debt in tier 2 capital 

unless the national bank has received 

notification from the OCC that the 

subordinated debt qualifies as tier 2 

capital. 

(2) The notice must include: 

(i) The terms of the issuance; 

(ii) The amount and date of receipt of 

funds; 

(iii) A copy of the final subordinated 

note format and note agreement; and 

(iv) A statement that the issuance 

complies with all applicable laws and 

regulations. 

(i) Exceptions to rules of general 

applicability. Sections 5.8, 5.10, and 

5.11 do not apply to transactions 

governed by this section. 

Dated: December 10, 2014. 

Thomas J. Curry, 

Comptroller of the Currency. 

[FR Doc. 2014–29615 Filed 12–17–14; 8:45 am] 

BILLING CODE 4810–33–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 29 

[Docket No.FAA–2011–1026; Special 

Conditions No. 29–036–SC] 

Special Conditions: Sikorsky Aircraft 

Corporation (Sikorsky) Model S–76D 

Helicopter, Search and Rescue (SAR) 

Automatic Flight Control System 

(AFCS) Installation 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 


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