Industrial and Commercial Metals, 63428-63433 [2016-22017]
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63428
Proposed Rules
Federal Register
Vol. 81, No. 179
Thursday, September 15, 2016
This section of the FEDERAL REGISTER
contains notices to the public of the proposed
issuance of rules and regulations. The
purpose of these notices is to give interested
persons an opportunity to participate in the
rule making prior to the adoption of the final
rules.
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Part 7
[Docket ID OCC–2016–0022]
RIN 1557–AD93
Industrial and Commercial Metals
Office of the Comptroller of the
Currency (OCC), Treasury.
ACTION: Notice of proposed rulemaking.
AGENCY:
The OCC is proposing to
prohibit national banks and federal
savings associations from dealing and
investing in industrial and commercial
metal.
DATES: You must submit comments by
November 14, 2016.
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
‘‘Industrial and Commercial Metals’’ 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–2016–0022’’ in the Search Box and
click ‘‘Search.’’ 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.
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SUMMARY:
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• Fax: (571) 465–4326.
Instructions: You must include
‘‘OCC’’ as the agency name and ‘‘Docket
ID OCC–2016–0022’’ in your comment.
In general, the 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
include 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–2016–0022’’ in the
Search box and click ‘‘Search.’’ Click on
‘‘Open Docket Folder’’ on the right side
of the screen and then ‘‘Comments.’’
Comments can be filtered by clicking on
‘‘View All’’ and then 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.
Supporting materials may be viewed by
clicking on ‘‘Open Docket Folder’’ and
then clicking on ‘‘Supporting
Documents.’’ The docket may be viewed
after the close of the comment period in
the same manner as during 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 or, for persons who are
deaf or hard of hearing, TTY, (202) 649–
5597. Upon arrival, visitors will be
required to present valid governmentissued photo identification and submit
to security screening in order to inspect
and photocopy comments.
FOR FURTHER INFORMATION CONTACT:
Casey Scott Laxton, Counsel, Beth
Kirby, Assistant Director, or Ted Dowd,
Director, Securities and Corporate
Practices Division, (202) 649–5510; Carl
Kaminski, Special Counsel, Legislative
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and Regulatory Activities Division,
(202) 649–5490.
SUPPLEMENTARY INFORMATION:
I. Background
A national bank may engage in
activities that are part of, or incidental
to, the business of banking under 12
U.S.C. 24(Seventh). Section 24(Seventh)
lists several activities that are part of the
business of banking; for example, it
expressly provides that national banks
may buy and sell exchange, coin, and
bullion.
In addition to these enumerated
powers, section 24(Seventh) authorizes
national banks to exercise all such
incidental powers as shall be necessary
to carry on the business of banking.
National banks also are authorized to
engage in any other activities not
expressly enumerated in the statute that
the Comptroller of the Currency
reasonably determines are part of the
business of banking.1
In Interpretive Letter 693,2 issued
approximately twenty years ago, the
OCC authorized national banks to buy
and sell copper on the grounds that
trading copper was becoming
increasingly similar to trading gold,
silver, platinum, and palladium. The
letter observed that copper was traded
in liquid markets; that it was traded in
a form standardized as to weight and
purity; and that the bank seeking
authority to engage in the activity traded
copper under policies and procedures
similar to those that governed trading
precious metals. The letter concluded
that national banks could buy and sell
copper under the express authority to
buy and sell coin and bullion and as
part of or incidental to the business of
banking. The scope of the authorization
in Interpretive Letter 693 was
sufficiently broad to permit national
banks to buy and sell copper in the form
of cathodes, which are used for
industrial purposes.
In this notice of proposed rulemaking,
the OCC proposes to prohibit national
banks from dealing and investing in a
metal (or alloy), including copper, in a
form primarily suited to industrial or
commercial use (industrial or
1 NationsBank of N.C., N.A. v. Var. Ann. Life. Ins.
Co., (VALIC) 513 U.S. 251, 258–59 (1995).
2 1995 WL 788816 (Nov. 14, 1995).
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commercial metal).3 The proposal: (i)
Excludes industrial and commercial
metals from the terms ‘‘exchange,’’
‘‘coin,’’ and ‘‘bullion’’ in 12 U.S.C.
24(Seventh); and (ii) provides that
dealing or investing in them is not part
of, or incidental to, the business of
banking. Examples of metals and alloys
in a form primarily suited for industrial
or commercial use include copper
cathodes, aluminum T-bars, and gold
jewelry. The OCC does not believe that
dealing or investing in these metals is
appropriate for national banks. The
proposed rule would supersede
Interpretive Letter 693.4
The proposed rule also applies to
federal savings associations (FSA). The
Home Owners’ Loan Act does not
expressly authorize FSAs to buy or sell
exchange, coin, and bullion.5 FSAs do
have incidental authority to buy and sell
precious metals in certain cases and to
sell gold and silver coins minted by the
U.S. Treasury.6 However, the OCC is not
aware of any precedent authorizing
FSAs to buy and sell any industrial or
commercial metal. The OCC does not
interpret FSAs’ incidental powers to
buy and sell metals to be broader than
those of national banks. To avoid doubt,
and to further integrate national bank
and FSA regulations, the proposed rule
prohibits FSAs from dealing and
investing in industrial or commercial
metal.7
3 The OCC considers the definition of industrial
or commercial metal to include a warehouse receipt
for such metal.
4 See Nat’l Cable & Telecomms. Ass’n v. Brand X
Internet Servs., 545 U.S. 967, 981–82 (2005) (agency
reconsiderations of prior interpretations entitled to
judicial deference so long as the agency adequately
explains the reasons for the change).
5 See 12 U.S.C. 1464(c).
6 See, e.g., OTS Op. Ch. Couns. P–2006–1 (Mar.
6, 2006), 2006 WL 6195026 (engaging in precious
metal transactions on behalf of customers); Gold
Bullion Coin Transactions, 51 FR 34950 (Oct. 1,
1986); Letter from Jack D. Smith, Deputy General
Counsel, Federal Home Loan Bank Board, 1988 WL
1021651 (May 18, 1988). All precedents (orders,
resolutions, determinations, agreements,
regulations, interpretive rules, interpretations,
guidelines, procedures, and other advisory
materials) made, prescribed, or allowed to become
effective by the former Office of Thrift Supervision
or its Director that apply to FSAs remain effective
until the OCC modifies, terminates, sets aside, or
supersedes those precedents. 12 U.S.C. 5414(b).
7 The proposed rule indirectly applies to federal
branches and agencies of foreign banks because
they operate with the same rights and privileges
(and subject to the same duties, restrictions,
penalties, liabilities, conditions, and limitations) as
national banks. 12 CFR 28.13(a)(1). The proposed
rule also indirectly applies to insured state banks
and state savings associations. See 12 U.S.C. 1831a,
1831e.
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II. Description of the Proposed Rule
A. Industrial or Commercial Metal Is
Not ‘‘Exchange, Coin, and Bullion’’
As noted above, the National Bank
Act authorizes national banks to buy
and sell exchange, coin, and bullion. In
this notice of proposed rulemaking, the
OCC is proposing to exclude from the
scope of these terms metals in a form
primarily suited to industrial or
commercial use.
Banking Circular 58 (BC–58) 8 sets
forth general guidelines that apply to
national banks’ coin and bullion
activities. It defines ‘‘coin’’ as ‘‘coins
held for their metallic value which are
minted by a government, or exact
restrikes of such coins minted at a later
date by or under the authority of the
issuing government.’’ Contemporaneous
OCC interpretive letters elaborated that
‘‘coin’’ referred only to media of
exchange.9 BC–58 defines ‘‘bullion’’ as
‘‘uncoined gold or silver in bar or ingot
form.’’ These definitions do not
encompass industrial or commercial
metal.
Interpretive letters published after
BC–58 interpreted national banks’
authority to buy coin and bullion to
include other precious metals, namely
platinum and palladium. Consistent
with BC–58’s definition of ‘‘coin,’’ the
OCC in 1987 found that legal tender
platinum coins held for their metallic
value were ‘‘coin.’’ 10 That same letter
prohibited dealing in platinum bars.
However, in 1991, the OCC concluded
that market developments warranted
treating platinum bars as bullion.11 The
OCC also found trading in platinum bars
to be incidental to trading in platinum
coins.12 For similar reasons, the OCC
concluded palladium was coin and
bullion and national banks could trade
and deal in palladium as part of the
business of banking.13 In support of its
8 BC–58 (Rev.) (Nov. 3, 1981). The OCC published
the original version in 1974.
9 Interpretive Letter 326 (Jan. 17, 1985), 1985 WL
202590; Interpretive Letter 252 (Oct. 26, 1982), 1982
WL 54157; Letter from Peter Liebesman, Assistant
Director, Legal Advisory Services Division (Feb. 18,
1982), 1982 WL 170844. But see Letter from Richard
V. Fitzgerald, Deputy Chief Counsel (Nov. 4, 1983),
1983 WL 145720 (concluding that national banks
could purchase and sell the Department of
Treasury’s commemorative Olympic coins based on
their metallic value even though it was unlikely
that the coins would be used as a medium of
exchange).
10 Letter from William J. Stolte, Chief National
Bank Examiner (July 29, 1987), 1987 WL 149775.
11 Interpretive Letter 553 (May 2, 1991), 1991 WL
340660 (noting that (i) the financial press
considered platinum coins and bars to be bullion
and (ii) a state statute defined ‘‘bullion’’ to include
platinum).
12 Id.
13 Interpretive Letter 685 (Aug. 4, 1995), 1995 WL
550220.
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position, the OCC noted that the London
Platinum and Palladium Market had
linked platinum and palladium for
market making and regulatory purposes
and that most of the Market’s members
were banks.
However, other interpretive letters
recognized that not every precious metal
is coin or bullion. Jewelry, the OCC
determined, is not.14
The OCC proposes to conclude that
‘‘exchange, coin, and bullion’’ does not
encompass industrial or commercial
metal. The OCC believes this conclusion
is consistent with the National Bank Act
and current market practice. For
example, in the mid-19th century, when
Congress passed the National Bank Act,
‘‘bullion’’ meant metal suitable for
coining, not metal suitable for making
wires.15 The contemporary
understanding of ‘‘bullion’’ is broader—
most currency is no longer made of
precious metal—but the contemporary
understanding does distinguish bullion
from industrial or commercial metal.
For example, modern bullion markets
trade precious metals by the kilogram.16
By contrast, industrial and commercial
metals markets trade base metals in
quantities suitable for industrial or
commercial use.17 The following table
illustrates trading differences between
bullion markets and industrial or
commercial metal markets.
Contract
Contract size
Industrial/Commercial Metal Markets
LME physical copper
25,000 kg.
14 See No-Objection Letter 88–8 (May 26, 1988),
1988 WL 284872 (selling gold and silver jewelry is
impermissible general merchandising); Letter from
Madonna K. Starr, Attorney (Oct. 3, 1986), 1986 WL
144029 (limited design jewelry is not exchange,
coin, or bullion).
15 See Act of June 22, 1874, 18 Stat. 202
(authorizing the transfer from the U.S. bullion fund
of refined gold bars bearing the United States stamp
of fineness, weight, and value, or bars from any
melt of foreign coin or bullion of standard equal to
or above that of the United States); Act of Feb. 12,
1873 § 31, 17 Stat. 429 (The bullion thus placed in
the hands of the melter and refiner shall be
subjected to the several processes which may be
necessary to form it into ingots of the legal
standard, and of a quality suitable for coinage.)
16 See, e.g., London Bullion Market Association,
The Good Delivery Rules for Gold and Silver Bars
11 (Mar. 2015), available at http://
www.lbma.org.uk/assets/market/gdl/GD_Rules_15_
Final%2020160512.pdf; London Platinum &
Palladium Market, ‘‘The London/Zurich Good
Delivery List,’’ http://www.lppm.com/gooddelivery/ (visited July 19, 2016).
17 The London Metal Exchange (LME) describes
itself as the ‘‘world centre for the trading of
industrial metals—more than three quarters of all
non-ferrous metal futures business is transacted on
[its] platforms.’’ LME, ‘‘About us,’’ http://
www.lme.com/about-us (visited July 19, 2016). The
LME trades aluminum, aluminum alloys, copper,
lead, nickel, tin, and zinc. LME, ‘‘Metals,’’ http://
www.lme.com/metals (visited July 19, 2016).
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Contract
Contract size
LME copper future ....
COMEX copper future
SHFE copper future ..
LME physical aluminum.
LME aluminum future
COMEX aluminum future.
SHFE aluminum future.
25,000 kg.
25,000 lbs. (about
11,340 kg).
5,000 kg.
25,000 kg.
25,000 kg.
25,000 kg.
5,000 kg.
Bullion Markets
LBMA physical gold ..
LBMA physical silver
LPPM physical platinum.
LPPM physical palladium.
350–430 troy oz.
(about 11–13 kg).
750–1100 troy oz.
(about 23–34 kg).
1–6 kg.
1–6 kg.
Key:
LME: London Metals Exchange.
COMEX: Commodity Exchange.
SHFE: Shanghai Futures Exchange.
LBMA: London Bullion Market Association.
LPPM: London Platinum & Palladium
Market.
In general, gold, silver, platinum, and
palladium are bullion today because
they:
• Trade in troy ounces or grams
rather than metric tons; 18
• Trade in pure forms; 19
• Trade in a form suitable for coining;
• Trade as precious metals in the
world’s major organized markets,
including the London bullion markets;
and
• Are considered currency by the
International Organization for
Standardization.20
Gold, silver, platinum, and palladium
in industrial or commercial form are not
exchange, coin, or bullion.
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B. Dealing and Investing in Industrial or
Commercial Metal Is Neither Part of,
Nor Incidental to, the Business of
Banking
Interpretive Letter 693 concluded that
national banks could buy and sell
copper (including industrial copper) as
a part of or incidental to the business of
banking. The OCC has reviewed the
18 See, e.g., Bloomberg, ‘‘Gold, Silver, and
Industrial Metals Prices,’’ http://
www.bloomberg.com/markets/commodities/futures/
metals.
19 See, e.g., London Bullion Market Association,
The Good Delivery Rules for Gold and Silver Bars
6 (Mar. 2015) (minimum fineness for gold is 99.5
percent and for silver is 99.9 percent); London
Platinum & Palladium Market, ‘‘The London/Zurich
Good Delivery List,’’ http://www.lppm.com/gooddelivery/ (minimum fineness for platinum and
palladium is 99.95 percent).
20 ISO 4217 (Aug. 1, 2015), available at http://
www.currency-iso.org/dam/downloads/lists/list_
one.xls.
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bases for the conclusion in Interpretive
Letter 693 that buying and selling
industrial copper is part of the business
of banking, including developments in
copper markets that followed this letter.
For the following reasons, the OCC now
believes that buying and selling
copper—or any other metal—in
industrial or commercial form for the
purpose of dealing or investing in that
metal is not part of the business of
banking.
When the OCC issued Interpretive
Letter 693 in 1995, the agency noted
increasing similarity between
transactions involving copper and those
transactions already conducted by
national banks with respect to gold,
silver, platinum and palladium
(precious metals). This increasing
similarity informed the OCC’s view at
that time that buying and selling copper,
including dealing and investing, was
part of the business of banking.
However, copper markets have not
increased in similarity to precious metal
markets.21 Instead, as noted in detail
above, copper is generally traded as a
base metal.22
The OCC believes that dealing and
investing in industrial or commercial
metals, including base and precious
metals in this form, is not the functional
equivalent of dealing and investing in
coin and bullion. The paradigmatic
example of functional equivalence is
that a lease is in economic substance a
secured loan.23 But the significant
differences between dealing in
industrial or commercial metals and
dealing in coin and bullion demonstrate
that the former is not, in economic
substance, the same as the latter. Most
importantly, industrial and commercial
metals trade in base metal markets by
the ton in cathode or other industrial
form, while coin and bullion trade in
precious metal markets by the troy
ounce or kilogram in bar or ingot form.
In addition, banks’ risk management
21 Events subsequent to Interpretive Letter 693
have confirmed copper’s status as a base metal. In
2000, the LME introduced a future on a base metal
index containing copper, aluminum, lead, nickel,
tin, and zinc. Then, in 2006, it introduced ‘‘mini’’
futures for copper, aluminum, and zinc. Similarly,
many firms have launched exchange-traded funds
(ETFs) that invest solely in gold, silver, palladium,
platinum, or some combination thereof, indicating
a widespread belief that these metals are a store of
value. However, there is no copper ETF. Finally, the
OCC understands that national banks that trade
copper treat it as a base metal and trade it alongside
aluminum and zinc rather than gold and silver.
22 See generally U.S. Senate Permanent
Subcommittee on Investigations, Wall Street Bank
Involvement with Physical Commodities 364 (2014)
(identifying banks, trading firms, analysts, and
exchanges that treat copper as a base metal for
trading and risk management purposes).
23 See M&M Leasing Corp. v. Seattle First Nat’l
Bank, 563 F.2d 1377 (9th Cir. 1977).
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systems distinguish between precious
metals and base metals.
The OCC has also considered other
factors identified in relevant precedent
for determining whether dealing in or
investing in industrial or commercial
metal is part of the business of
banking.24 The OCC does not believe
that analysis under these factors
supports a conclusion at this time that
this activity is part of the business of
banking. For example, the OCC has not
seen evidence that this activity
strengthens a bank by benefiting its
customers or its business.25 Nor is the
OCC aware of any state-chartered banks
dealing in or investing in industrial or
commercial metal.26 Indeed, the OCC
has not identified any precedent
authorizing that activity for state banks.
As described above, under 12 U.S.C.
24 (Seventh), a national bank has the
power to exercise all such incidental
powers as shall be necessary to carry on
the business of banking. An activity is
incidental to the business of banking if
it is convenient or useful to an activity
that is part of the business of banking.27
The OCC believes that dealing and
investing in industrial or commercial
metal is not incidental to the business
of banking. Some customers may wish
to trade industrial or commercial metal
with national banks. However, because
few banks buy or sell industrial or
commercial metal in the ordinary course
of business, it does not appear that
dealing or investing in industrial or
commercial metal significantly
enhances national banks’ ability to offer
banking products and services,
including those related to precious
metals. Moreover, dealing and investing
in industrial or commercial metal does
not appear to enable national banks to
use capacity acquired for banking
operations or otherwise avoid economic
24 See, e.g., Merchants’ Nat’l Bank v. State Nat’l
Bank, 77 U.S. 604, 648 (1871) (holding that national
banks could certify checks because the activity had
‘‘grown out of the business needs of the country.’’).
25 Currently, national banks’ dealing and
investments in industrial or commercial metal are
limited, suggesting that the business needs of the
United States economy are not meaningfully
affected by national banks’ dealing in industrial or
commercial metal. Nor is there evidence that the
amount of revenue from industrial or commercial
metal dealing and investing meaningfully improve
national banks’ financial strength. In any case, the
prospect for additional revenue alone is not
sufficient to deem an activity to be part of the
business of banking. See VALIC, 513 U.S. at 258
n.2. See also No-objection Letter 88–8 (May 26,
1988), 1988 WL 284872 (concluding that it is
impermissible for a national bank to make
substantial profits from the sale of merchandise).
26 See Colorado Nat’l Bank v. Bedford, 310 U.S.
41, 49–50 (1940).
27 Interpretive Letter 1071 (Sept. 6, 2006), 26 OCC
Q.J. 46, 2007 WL 5122909 (citing Arnold Tours, Inc.
v. Camp, 472 F.2d 427, 431–32 (1st Cir. 1972)).
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loss or waste. Therefore, the OCC
concludes national banks may not deal
or invest in industrial or commercial
metal under their incidental powers.
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C. Transactions in Industrial or
Commercial Metal That May Be
Permissible
National banks do have incidental
authority to buy and sell industrial or
commercial metal in limited cases.
Buying or selling industrial or
commercial metal could be incidental to
lending activities. For example, a
mining company could post a copper
cathode as collateral for a loan. Pursuant
to the national bank’s authority to
acquire property in satisfaction of debt
previously contracted, the bank could
seize and then sell the copper to
mitigate loan losses if the borrower
defaulted.28 National banks also have
incidental authority to buy and sell
nominal amounts of industrial or
commercial metal to hedge customerdriven commodity derivatives.29 The
proposed rule would not prohibit these
purchases and sales because they are
not dealing or investing.30
The OCC views national banks’
lending authority 31 as including buying
and selling industrial or commercial
metal under reverse repurchase
28 Cf. Cooper v. Hill, 94 F. 582 (8th Cir. 1899)
(foreclosure of a mine); First Nat’l Bank of Parker
v. Peavy Elevator Co., 10 S.D. 167, 170 (1897)
(foreclosure of grain seed and subsequent sale).
29 Interpretive Letter 684 (Aug. 4, 1995), 1995 WL
550219; OCC Bulletin 2015–35, Quantitative Limits
on Physical Commodity Transactions (Aug. 4, 2015)
(explaining that ‘‘nominal’’ means 5 percent of the
bank’s short positions in a particular commodity).
30 Cf. First Nat’l Bank v. Nat’l Exch. Bank, 92 U.S.
122, 128 (1875) (‘‘In the honest exercise of the
power to compromise a doubtful debt owing to a
bank, it can hardly be doubted that stocks may be
accepted in payment and satisfaction, with a view
to their subsequent sale or conversion into money
so as to make good or reduce an anticipated loss.
Such a transaction would not amount to a dealing
in stocks. It was, in effect, so decided in Fleckner
v. Bank U.S., 8 Wheat. 351 [22 U.S. 338 (1823)],
where it was held that a prohibition against trading
and dealing was nothing more than a prohibition
against engaging in the ordinary business of buying
and selling for profit, and did not include purchases
resulting from ordinary banking transactions.’’).
Similarly, national banks may buy and sell
industrial or commercial metal as part of their
leasing business. 12 U.S.C. 24 (Seventh); 12 U.S.C.
24 (Tenth); 12 CFR 23.4. A car, for example,
contains metal in a commercial form, but buying a
car to lease it is not dealing or investing in
commercial metal. Rather, a lease, like a reverse
repurchase transaction, is a secured loan in a
different form. National banks may also buy and
sell industrial or commercial metals to install pipes
and electrical wiring in their physical premises. 12
U.S.C. 29 (First); 12 CFR 7.1000. This activity is
clearly not dealing or investing in industrial or
commercial metal.
31 See 12 U.S.C. 24 (Seventh) (stating that
discounting and negotiating promissory notes,
drafts, bills of exchange, and other evidences of
debt and loaning money on personal security are
part of the business of banking).
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agreements that are the functional and
economic equivalent of secured loans.
As described below, a standard reverse
repurchase agreement for metal used to
provide financing to a bank customer
ordinarily does not indicate dealing or
investing in the metal. However, the
OCC notes that the facts and
circumstances of a particular transaction
may warrant a different conclusion. For
example, to the extent a reverse
repurchase agreement or related activity
is structured in a way that causes a bank
to incur commodity price risk or
indicates market speculation, the OCC
may view the transaction to be dealing
or investing in the metal.
In a reverse repurchase agreement, a
bank extends credit by simultaneously
buying collateral from a client and
agreeing to sell the collateral back to the
client at a future date. The difference
between the sale and purchase price is
effectively the interest the client pays
for the extension of credit. If the reverse
repurchase agreement counterparty
defaults, the bank can mitigate its losses
by selling the collateral without first
foreclosing on it. Financing customer
inventory is a traditional bank activity;
using reverse repurchase agreements
rather than loans to provide the
financing is merely a different way of
providing financing.32 Financing
customer inventory using reverse
repurchase agreements in itself does not
indicate dealing or investing in the
metal. However, pledging, selling, or
rehypothecating metal acquired under
reverse repurchase agreements suggests
dealing or investing activity. So, too,
does assuming commodity price risk.
For example, an agreement in which the
counterparty sells a metal at a certain
price to the bank and then repurchases
the metal at a price that depends on the
metal’s then-current market price
indicates dealing or investing activity:
The bank is assuming the metal’s price
risk. On the other hand, setting the
repurchase price at the sale price plus
a spread based on the time value of
money is equivalent to a secured loan.
The OCC invites comment on the
treatment of reverse repurchase
agreements under the proposed rule. In
particular, the OCC seeks comment on
whether reverse repurchase agreements
32 Under the National Bank Act, credit exposures
from repurchase and reverse repurchase agreements
are loans and extensions of credit subject to a
national bank’s lending limits. 12 U.S.C. 84(b)(1)(C).
See also Letter from Charles F. Byrd, Assistant
Director, Legal Advisory Services Division, [1978–
1979 Transfer Binder] Fed. Banking L. Rep. (CCH)
¶ 85,020 (Aug. 30, 1977) (repurchase and reverse
repurchase agreements are extensions of credit
subject to 12 U.S.C. 82 (repealed by Garn–St.
Germain Depository Institutions Act of 1982, Pub.
L. 97–320, 402)).
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63431
that do not present commodity price
risk for a bank and do not indicate
market speculation are appropriately
viewed to not indicate dealing or
investing in metal. The OCC also seeks
comment on whether there are forms of
reverse purchase agreements or related
activities that warrant a determination
that the activity is dealing or investing
in metal. If so, should the OCC include
such agreements in the final rule’s
dealing or investing prohibition?
The proposal does not prohibit
national banks from buying and selling
metal through transitory title transfers
entered into as part of a customer-driven
financial intermediation business.33
Metal owned through a transitory title
transfer typically does not entail
physical possession of a commodity; the
ownership occurs solely to facilitate the
underlying transaction and lasts only for
a moment in time. For these reasons, the
OCC does not consider transitory title
transfers to be dealing or investing in
industrial or commercial metal for
purposes of this proposal. Interpretive
Letter 1073 34 provides that national
banks may hedge metal derivative
transactions on a portfolio basis with
over-the-counter derivative transactions
that settle in cash or transitory title
transfer. Interpretive Letter 1073 also
provides that a national bank may
engage in transitory title transfers in
metals for the accommodation of
customers. The OCC concluded in
Interpretive Letter 1073 that transitory
title transfers involving metals do not
entail the physical possession of
commodities.35 The OCC’s analysis in
this letter noted that transitory title
transfers do not involve the customary
activities relating to, or risks attendant
to, commodity ownership, such as
storage costs, insurance, and
environmental protection. The OCC
continues to believe that transitory title
transfers do not constitute physical
possession of commodities and
therefore does not consider transitory
33 For purposes of this proposal, the OCC
considers a transitory title transfer to be back-toback contracts providing for the receipt and
immediate transfer of title to the metal. This means
that a bank holds title to the metal for no more than
a legal instant. See Interpretive Letter 962 (Apr. 21,
2003), 2003 WL 21283155 (‘‘[T]ransitory title
transfers preclude actual delivery by passing title
down the chain from the initial seller to the
ultimate buyer in a series of instantaneous back-toback transactions. Each party in the chain has title
for an instant but does not take actual physical
delivery (other than the ultimate buyer which, in
no case, will be the Bank.’’)).
34 26 OCC Q.J. 46, 2007 WL 5122911 (Oct. 19,
2006).
35 See also OCC Bulletin 2015–3 (Aug. 4, 2015)
(noting that a physical commodity that a bank
acquired and then immediately sold by transitory
title transfer would not be included in the bank’s
physical inventory of that commodity).
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Federal Register / Vol. 81, No. 179 / Thursday, September 15, 2016 / Proposed Rules
title transfers to be dealing or investing
in industrial or commercial metal for
purposes of this proposal.36
Notwithstanding the above, the OCC
may consider alternative approaches for
transitory title transfers in the final rule
if it determines that these transactions
present risks similar to holding physical
metal. The OCC invites comment on
whether it should continue to view
transitory title transfers as transactions
that do not entail physical possession of
a commodity. In particular, the OCC
seeks comment on whether transitory
title transfers involving metals present
risks that warrant treating such
transactions as physical holdings. If so,
then the prohibition on dealing and
investing in industrial or commercial
metal would apply to metals bought or
sold by transitory title transfer.37
III. Request for Comment
rmajette on DSK2TPTVN1PROD with PROPOSALS
The OCC invites comment on all
aspects of this proposal, including the
questions in part II.C of this
Supplementary Information.
In addition, the OCC requests
comment on the appropriate treatment
of existing holdings of industrial or
commercial metal. In other contexts, the
OCC provides five years to divest
nonconforming assets, with the
possibility of a five-year extension. Are
there reasons a similar approach would
not work here? Are there compelling
reasons to grandfather existing holdings
indefinitely?
36 In contrast to transitory title transfers, the OCC
considers a commodity held by warehouse receipt
for more than a legal instant to entail physical
possession of the commodity. See OCC Bulletin
2015–3 (‘‘[A] bank that satisfies certain conditions
may engage in physical commodity transactions (for
example, by buying or selling title to a commodity
via a warehouse receipt or bill of lading) to manage
the risks of commodity derivatives.’’)); Interpretive
Letter 684 (August 4, 1995), 1995 WL 550219
(recognizing physical possession of a commodity by
warehouse receipt). The OCC notes that the
customary activities relating to, or risks attendant
to, commodity ownership by warehouse receipt are
distinguishable from those involving transitory title
transfer. For example, Interpretive Letter 684
provides that the OCC expects a bank engaged in
physical commodity hedging, either through
warehouse receipt or ‘‘pass-through’’ delivery, to
adopt and maintain ‘‘safeguards designed to manage
the risks associated with storing, transporting, and
disposing of commodities of which the bank has
taken delivery, including policies and procedures
designed to ensure that the bank has adequate
levels of insurance (including insurance for
environmental liabilities) which, after deductions,
are commensurate with the risks assumed.’’
37 The OCC notes that even if it determines that
a transitory title transfer entails physical possession
of a commodity, national banks engaged in a
customer-driven financial intermediation business
could still enter into such transactions under the
proposal, provided the transaction is a hedge and
is nominal.
VerDate Sep<11>2014
14:41 Sep 14, 2016
Jkt 238001
IV. Regulatory Analysis
Paperwork Reduction Act
Under the Paperwork Reduction Act,
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. This notice of proposed
rulemaking does not introduce any new
collections of information, therefore, it
does not require a submission to OMB.
Regulatory Flexibility Act
The Regulatory Flexibility Act, 5
U.S.C. 601 et seq. (RFA), requires an
agency, in connection with a proposed
rule, to prepare an Initial Regulatory
Flexibility Analysis describing the
impact of the proposed rule on small
entities (defined by the Small Business
Administration (SBA) for purposes of
the RFA to include banking entities
with total assets of $550 million or less)
or to certify that the proposed rule
would not have a significant economic
impact on a substantial number of small
entities.
As of December 31, 2015, the OCC
supervised 1,032 small entities.38
Although the rule applies to all OCCsupervised small entities, and thus
affects a substantial number of small
entities, no small entities supervised by
the OCC currently buy or sell metal in
a physical form primarily suited to
commercial or industrial use for the
purpose of dealing or investing in that
metal. Thus, the rule will not have a
substantial impact on any OCCsupervised small entities.
Therefore, the OCC certifies that the
proposed rule would not have a
significant economic impact on a
substantial number of OCC-supervised
small entities.
Unfunded Mandates Reform Act of 1995
Determination
The OCC analyzed the proposed rule
under the factors set forth in the
Unfunded Mandates Reform Act of 1995
(2 U.S.C. 1532). Under this analysis, the
OCC considered whether the proposed
38 The OCC calculated the number of small
entities using the SBA’s size thresholds for
commercial banks and savings institutions, and
trust companies, which are $550 million and $38.5
million, respectively. Consistent with the General
Principles of Affiliation, 13 CFR 121.103(a), the
OCC counted the assets of affiliated financial
institutions when determining whether to classify
a national bank or federal savings association as a
small entity. The OCC used December 31, 2015, to
determine size because a ‘‘financial institution’s
assets are determined by averaging the assets
reported on its four quarterly financial statements
for the preceding year.’’ See footnote 8 of the SBA’s
Table of Size Standards.
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rule includes a federal mandate that
may result in the expenditure by state,
local, and Tribal governments, in the
aggregate, or by the private sector, of
$100 million or more in any one year
(adjusted annually for inflation).
Although the proposed rule would
apply to all OCC-supervised
institutions, very few of these
institutions are currently involved in
activities involving dealing or investing
in copper or other metals in a physical
form primarily suited to commercial or
industrial use.
While the proposed rule may prevent
OCC-supervised institutions from
realizing potential gains from prohibited
investments in physical metals, the
proposed rule also may protect them
from realizing potential losses from
investments in physical metals. The
OCC is not able to estimate these
potential gains or losses because they
will depend on future fluctuations in
the prices of the various physical
metals. However, the OCC does expect
OCC-supervised institutions to be able
to achieve comparable returns in
alternative non-prohibited investment
opportunities. Thus, the OCC estimates
that the opportunity cost of the
proposed rule will be near zero.
The proposed rule may impose onetime costs on affected institutions with
respect to the disposal of current
physical metal inventory that a bank
may not deal in or invest in under the
rule. This cost will depend to some
extent on the amount of physical metal
inventory that affected institutions must
dispose of. However, a gradual sell-off
should not affect market prices and the
affected institutions would receive fair
value for their metals. Under these
circumstances, the OCC estimates that
the disposal costs will also be minimal.
Finally, by establishing that buying
and selling physical metal in
commercial or industrial form is
generally not part of the business of
banking, the rule implies that customers
of OCC-supervised institutions will
have to identify another reliable source
of supply of physical metals and that
OCC-supervised institutions will be less
able to compete with non-bank metals
dealers. Given how technology has
made the physical metals markets more
accessible, the OCC expects bank
customers will face minimal costs
associated with identifying another
supplier of physical metals. The OCC
also expects that losing the ability to
compete with non-bank metal dealers
will not significantly detract from the
strength of OCC-supervised institutions,
especially given that the proposed rule
would recognize several business-of-
E:\FR\FM\15SEP1.SGM
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Federal Register / Vol. 81, No. 179 / Thursday, September 15, 2016 / Proposed Rules
banking exceptions to the prohibition
on buying and selling physical metal.
For the reasons described above, the
OCC has determined that the proposed
rule would not result in expenditures by
state, local, and Tribal governments, or
by the private sector, of $100 million or
more. Accordingly, the OCC has not
prepared a written statement to
accompany the proposed rule.
physical metal to hedge a derivative for
which that metal is the reference asset
so long as the amount of the physical
metal used for hedging purposes is
nominal.
■ 3. Add § 7.1023 to subpart A to read
as follows:
List of subjects in 12 CFR Part 7
Banks, banking, Computer
technology, Credit, Federal savings
associations, Insurance, Investments,
Metals, National banks, Reporting and
recordkeeping requirements, Securities,
Surety bonds.
For the reasons set forth in the
preamble, OCC proposes to amend 12
CFR part 7 as follows:
(a) In this section, industrial or
commercial metal means metal
(including an alloy) in a physical form
primarily suited to industrial or
commercial use, for example, copper
cathodes.
(b) Federal savings associations may
not deal or invest in industrial or
commercial metal. Federal savings
associations may not buy or sell
industrial or commercial metal if the
purchase or sale is impermissible for a
national bank.
PART 7—BANK ACTIVITIES AND
OPERATIONS
§ 7.1023 Federal savings associations,
prohibition on industrial or commercial
metal dealing or investing.
Dated: September 7, 2016
Thomas J. Curry,
Comptroller of the Currency.
1. The authority citation for part 7 is
amended to read as follows:
■
Authority: 12 U.S.C. 1 et seq., 25b, 71, 71a,
92, 92a, 93, 93a, 371, 371a, 481, 484, 1463,
1464, 1818, and 5412(b)(2)(B).
2. Add § 7.1022 to subpart A to read
as follows:
[FR Doc. 2016–22017 Filed 9–14–16; 8:45 am]
BILLING CODE 4810–33–P
■
DEPARTMENT OF TRANSPORTATION
rmajette on DSK2TPTVN1PROD with PROPOSALS
§ 7.1022 National bank authority to buy
and sell exchange, coin, and bullion.
Federal Aviation Administration
(a) In this section, industrial or
commercial metal means metal
(including an alloy) in a physical form
primarily suited to industrial or
commercial use, for example, copper
cathodes.
(b) Scope of authorization. Section 24
(Seventh) of the National Bank Act
authorizes national banks to buy and
sell exchange, coin, and bullion.
Industrial or commercial metal is not
exchange, coin, and bullion within the
meaning of this authorization.
(c) Buying and selling metal as part of
or incidental to the business of banking.
Section 24 (Seventh) authorizes national
banks to engage in activities that are
part of, or incidental to, the business of
banking. Buying and selling industrial
or commercial metal for the purpose of
dealing or investing in that metal is not
part of or incidental to the business of
banking pursuant to section 24
(Seventh).
(d) Other authorities not affected.
This section shall not be construed to
preclude a national bank from acquiring
or selling metal in connection with its
incidental authority to foreclose on loan
collateral, compromise doubtful claims,
or avoid loss in connection with a debt
previously contracted. This section also
shall not be construed to preclude a
national bank from buying and selling
14 CFR Part 39
VerDate Sep<11>2014
14:41 Sep 14, 2016
Jkt 238001
[Docket No. FAA–2016–9075; Directorate
Identifier 2016–NM–082–AD]
RIN 2120–AA64
Airworthiness Directives; The Boeing
Company Airplanes
Federal Aviation
Administration (FAA), DOT.
ACTION: Notice of proposed rulemaking
(NPRM).
AGENCY:
We propose to adopt a new
airworthiness directive (AD) for certain
The Boeing Company Model 787–8 and
787–9 airplanes. This proposed AD was
prompted by a report indicating that a
portion of the sealant above the engine
pylon between the wing skin and the
vapor barrier may have been omitted.
This proposed AD would require an
inspection for missing sealant in the
seam on the outside and inside of the
engine struts, and corrective actions if
necessary. We are proposing this AD to
detect and correct missing sealant above
the engine pylon between the wing skin
and the vapor barrier, which can create
an unintended leak path for fuel,
potentially draining onto the aft fairing
heat shield above the engine and onto
hot engine parts or brakes, which could
lead to a major ground fire.
SUMMARY:
PO 00000
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63433
We must receive comments on
this proposed AD by October 31, 2016.
ADDRESSES: You may send comments,
using the procedures found in 14 CFR
11.43 and 11.45, by any of the following
methods:
• Federal eRulemaking Portal: Go to
http://www.regulations.gov. Follow the
instructions for submitting comments.
• Fax: 202–493–2251.
• Mail: U.S. Department of
Transportation, Docket Operations, M–
30, West Building Ground Floor, Room
W12–140, 1200 New Jersey Avenue SE.,
Washington, DC 20590.
• Hand Delivery: Deliver to Mail
address above between 9 a.m. and 5
p.m., Monday through Friday, except
Federal holidays.
For service information identified in
this NPRM, contact Boeing Commercial
Airplanes, Attention: Data & Services
Management, P.O. Box 3707, MC 2H–65,
Seattle, WA 98124–2207; telephone
206–544–5000, extension 1; fax 206–
766–5680; Internet https://
www.myboeingfleet.com. You may view
this referenced service information at
the FAA, Transport Airplane
Directorate, 1601 Lind Avenue SW.,
Renton, WA. For information on the
availability of this material at the FAA,
call 425–227–1221. It is also available
on the internet at http://
www.regulations.gov by searching for
and locating Docket No. FAA–2016–
9075.
DATES:
Examining the AD Docket
You may examine the AD docket on
the Internet at http://
www.regulations.gov by searching for
and locating Docket No. FAA–2016–
9075; or in person at the Docket
Management Facility between 9 a.m.
and 5 p.m., Monday through Friday,
except Federal holidays. The AD docket
contains this proposed AD, the
regulatory evaluation, any comments
received, and other information. The
street address for the Docket Office
(phone: 800–647–5527) is in the
ADDRESSES section. Comments will be
available in the AD docket shortly after
receipt.
FOR FURTHER INFORMATION CONTACT:
Sherry Vevea, Aerospace Engineer,
Propulsion Branch, ANM–140S, FAA,
Seattle Aircraft Certification Office
(ACO), 1601 Lind Avenue SW., Renton,
WA 98057–3356; phone: 425–917–6514;
fax: 425–917–6590; email:
sherry.vevea@faa.gov.
SUPPLEMENTARY INFORMATION:
Comments Invited
We invite you to send any written
relevant data, views, or arguments about
E:\FR\FM\15SEP1.SGM
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]]>Agencies
[Federal Register Volume 81, Number 179 (Thursday, September 15, 2016)]
[Proposed Rules]
[Pages 63428-63433]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-22017]
========================================================================
Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
========================================================================
Federal Register / Vol. 81, No. 179 / Thursday, September 15, 2016 /
Proposed Rules
[[Page 63428]]
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 7
[Docket ID OCC-2016-0022]
RIN 1557-AD93
Industrial and Commercial Metals
AGENCY: Office of the Comptroller of the Currency (OCC), Treasury.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The OCC is proposing to prohibit national banks and federal
savings associations from dealing and investing in industrial and
commercial metal.
DATES: You must submit comments by November 14, 2016.
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 ``Industrial and Commercial Metals'' 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-2016-0022'' in the Search
Box and click ``Search.'' 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-2016-0022'' in your comment. In general, the 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 include 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-2016-0022'' in the Search
box and click ``Search.'' Click on ``Open Docket Folder'' on the right
side of the screen and then ``Comments.'' Comments can be filtered by
clicking on ``View All'' and then 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. Supporting materials may
be viewed by clicking on ``Open Docket Folder'' and then clicking on
``Supporting Documents.'' The docket may be viewed after the close of
the comment period in the same manner as during 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 or, for persons who are deaf or hard of hearing, TTY, (202) 649-
5597. Upon arrival, visitors will be required to present valid
government-issued photo identification and submit to security screening
in order to inspect and photocopy comments.
FOR FURTHER INFORMATION CONTACT: Casey Scott Laxton, Counsel, Beth
Kirby, Assistant Director, or Ted Dowd, Director, Securities and
Corporate Practices Division, (202) 649-5510; Carl Kaminski, Special
Counsel, Legislative and Regulatory Activities Division, (202) 649-
5490.
SUPPLEMENTARY INFORMATION:
I. Background
A national bank may engage in activities that are part of, or
incidental to, the business of banking under 12 U.S.C. 24(Seventh).
Section 24(Seventh) lists several activities that are part of the
business of banking; for example, it expressly provides that national
banks may buy and sell exchange, coin, and bullion.
In addition to these enumerated powers, section 24(Seventh)
authorizes national banks to exercise all such incidental powers as
shall be necessary to carry on the business of banking. National banks
also are authorized to engage in any other activities not expressly
enumerated in the statute that the Comptroller of the Currency
reasonably determines are part of the business of banking.\1\
---------------------------------------------------------------------------
\1\ NationsBank of N.C., N.A. v. Var. Ann. Life. Ins. Co.,
(VALIC) 513 U.S. 251, 258-59 (1995).
---------------------------------------------------------------------------
In Interpretive Letter 693,\2\ issued approximately twenty years
ago, the OCC authorized national banks to buy and sell copper on the
grounds that trading copper was becoming increasingly similar to
trading gold, silver, platinum, and palladium. The letter observed that
copper was traded in liquid markets; that it was traded in a form
standardized as to weight and purity; and that the bank seeking
authority to engage in the activity traded copper under policies and
procedures similar to those that governed trading precious metals. The
letter concluded that national banks could buy and sell copper under
the express authority to buy and sell coin and bullion and as part of
or incidental to the business of banking. The scope of the
authorization in Interpretive Letter 693 was sufficiently broad to
permit national banks to buy and sell copper in the form of cathodes,
which are used for industrial purposes.
---------------------------------------------------------------------------
\2\ 1995 WL 788816 (Nov. 14, 1995).
---------------------------------------------------------------------------
In this notice of proposed rulemaking, the OCC proposes to prohibit
national banks from dealing and investing in a metal (or alloy),
including copper, in a form primarily suited to industrial or
commercial use (industrial or
[[Page 63429]]
commercial metal).\3\ The proposal: (i) Excludes industrial and
commercial metals from the terms ``exchange,'' ``coin,'' and
``bullion'' in 12 U.S.C. 24(Seventh); and (ii) provides that dealing or
investing in them is not part of, or incidental to, the business of
banking. Examples of metals and alloys in a form primarily suited for
industrial or commercial use include copper cathodes, aluminum T-bars,
and gold jewelry. The OCC does not believe that dealing or investing in
these metals is appropriate for national banks. The proposed rule would
supersede Interpretive Letter 693.\4\
---------------------------------------------------------------------------
\3\ The OCC considers the definition of industrial or commercial
metal to include a warehouse receipt for such metal.
\4\ See Nat'l Cable & Telecomms. Ass'n v. Brand X Internet
Servs., 545 U.S. 967, 981-82 (2005) (agency reconsiderations of
prior interpretations entitled to judicial deference so long as the
agency adequately explains the reasons for the change).
---------------------------------------------------------------------------
The proposed rule also applies to federal savings associations
(FSA). The Home Owners' Loan Act does not expressly authorize FSAs to
buy or sell exchange, coin, and bullion.\5\ FSAs do have incidental
authority to buy and sell precious metals in certain cases and to sell
gold and silver coins minted by the U.S. Treasury.\6\ However, the OCC
is not aware of any precedent authorizing FSAs to buy and sell any
industrial or commercial metal. The OCC does not interpret FSAs'
incidental powers to buy and sell metals to be broader than those of
national banks. To avoid doubt, and to further integrate national bank
and FSA regulations, the proposed rule prohibits FSAs from dealing and
investing in industrial or commercial metal.\7\
---------------------------------------------------------------------------
\5\ See 12 U.S.C. 1464(c).
\6\ See, e.g., OTS Op. Ch. Couns. P-2006-1 (Mar. 6, 2006), 2006
WL 6195026 (engaging in precious metal transactions on behalf of
customers); Gold Bullion Coin Transactions, 51 FR 34950 (Oct. 1,
1986); Letter from Jack D. Smith, Deputy General Counsel, Federal
Home Loan Bank Board, 1988 WL 1021651 (May 18, 1988). All precedents
(orders, resolutions, determinations, agreements, regulations,
interpretive rules, interpretations, guidelines, procedures, and
other advisory materials) made, prescribed, or allowed to become
effective by the former Office of Thrift Supervision or its Director
that apply to FSAs remain effective until the OCC modifies,
terminates, sets aside, or supersedes those precedents. 12 U.S.C.
5414(b).
\7\ The proposed rule indirectly applies to federal branches and
agencies of foreign banks because they operate with the same rights
and privileges (and subject to the same duties, restrictions,
penalties, liabilities, conditions, and limitations) as national
banks. 12 CFR 28.13(a)(1). The proposed rule also indirectly applies
to insured state banks and state savings associations. See 12 U.S.C.
1831a, 1831e.
---------------------------------------------------------------------------
II. Description of the Proposed Rule
A. Industrial or Commercial Metal Is Not ``Exchange, Coin, and
Bullion''
As noted above, the National Bank Act authorizes national banks to
buy and sell exchange, coin, and bullion. In this notice of proposed
rulemaking, the OCC is proposing to exclude from the scope of these
terms metals in a form primarily suited to industrial or commercial
use.
Banking Circular 58 (BC-58) \8\ sets forth general guidelines that
apply to national banks' coin and bullion activities. It defines
``coin'' as ``coins held for their metallic value which are minted by a
government, or exact restrikes of such coins minted at a later date by
or under the authority of the issuing government.'' Contemporaneous OCC
interpretive letters elaborated that ``coin'' referred only to media of
exchange.\9\ BC-58 defines ``bullion'' as ``uncoined gold or silver in
bar or ingot form.'' These definitions do not encompass industrial or
commercial metal.
---------------------------------------------------------------------------
\8\ BC-58 (Rev.) (Nov. 3, 1981). The OCC published the original
version in 1974.
\9\ Interpretive Letter 326 (Jan. 17, 1985), 1985 WL 202590;
Interpretive Letter 252 (Oct. 26, 1982), 1982 WL 54157; Letter from
Peter Liebesman, Assistant Director, Legal Advisory Services
Division (Feb. 18, 1982), 1982 WL 170844. But see Letter from
Richard V. Fitzgerald, Deputy Chief Counsel (Nov. 4, 1983), 1983 WL
145720 (concluding that national banks could purchase and sell the
Department of Treasury's commemorative Olympic coins based on their
metallic value even though it was unlikely that the coins would be
used as a medium of exchange).
---------------------------------------------------------------------------
Interpretive letters published after BC-58 interpreted national
banks' authority to buy coin and bullion to include other precious
metals, namely platinum and palladium. Consistent with BC-58's
definition of ``coin,'' the OCC in 1987 found that legal tender
platinum coins held for their metallic value were ``coin.'' \10\ That
same letter prohibited dealing in platinum bars. However, in 1991, the
OCC concluded that market developments warranted treating platinum bars
as bullion.\11\ The OCC also found trading in platinum bars to be
incidental to trading in platinum coins.\12\ For similar reasons, the
OCC concluded palladium was coin and bullion and national banks could
trade and deal in palladium as part of the business of banking.\13\ In
support of its position, the OCC noted that the London Platinum and
Palladium Market had linked platinum and palladium for market making
and regulatory purposes and that most of the Market's members were
banks.
---------------------------------------------------------------------------
\10\ Letter from William J. Stolte, Chief National Bank Examiner
(July 29, 1987), 1987 WL 149775.
\11\ Interpretive Letter 553 (May 2, 1991), 1991 WL 340660
(noting that (i) the financial press considered platinum coins and
bars to be bullion and (ii) a state statute defined ``bullion'' to
include platinum).
\12\ Id.
\13\ Interpretive Letter 685 (Aug. 4, 1995), 1995 WL 550220.
---------------------------------------------------------------------------
However, other interpretive letters recognized that not every
precious metal is coin or bullion. Jewelry, the OCC determined, is
not.\14\
---------------------------------------------------------------------------
\14\ See No-Objection Letter 88-8 (May 26, 1988), 1988 WL 284872
(selling gold and silver jewelry is impermissible general
merchandising); Letter from Madonna K. Starr, Attorney (Oct. 3,
1986), 1986 WL 144029 (limited design jewelry is not exchange, coin,
or bullion).
---------------------------------------------------------------------------
The OCC proposes to conclude that ``exchange, coin, and bullion''
does not encompass industrial or commercial metal. The OCC believes
this conclusion is consistent with the National Bank Act and current
market practice. For example, in the mid-19th century, when Congress
passed the National Bank Act, ``bullion'' meant metal suitable for
coining, not metal suitable for making wires.\15\ The contemporary
understanding of ``bullion'' is broader--most currency is no longer
made of precious metal--but the contemporary understanding does
distinguish bullion from industrial or commercial metal. For example,
modern bullion markets trade precious metals by the kilogram.\16\ By
contrast, industrial and commercial metals markets trade base metals in
quantities suitable for industrial or commercial use.\17\ The following
table illustrates trading differences between bullion markets and
industrial or commercial metal markets.
---------------------------------------------------------------------------
\15\ See Act of June 22, 1874, 18 Stat. 202 (authorizing the
transfer from the U.S. bullion fund of refined gold bars bearing the
United States stamp of fineness, weight, and value, or bars from any
melt of foreign coin or bullion of standard equal to or above that
of the United States); Act of Feb. 12, 1873 Sec. 31, 17 Stat. 429
(The bullion thus placed in the hands of the melter and refiner
shall be subjected to the several processes which may be necessary
to form it into ingots of the legal standard, and of a quality
suitable for coinage.)
\16\ See, e.g., London Bullion Market Association, The Good
Delivery Rules for Gold and Silver Bars 11 (Mar. 2015), available at
http://www.lbma.org.uk/assets/market/gdl/GD_Rules_15_Final%2020160512.pdf; London Platinum & Palladium
Market, ``The London/Zurich Good Delivery List,'' http://www.lppm.com/good-delivery/ (visited July 19, 2016).
\17\ The London Metal Exchange (LME) describes itself as the
``world centre for the trading of industrial metals--more than three
quarters of all non-ferrous metal futures business is transacted on
[its] platforms.'' LME, ``About us,'' http://www.lme.com/about-us
(visited July 19, 2016). The LME trades aluminum, aluminum alloys,
copper, lead, nickel, tin, and zinc. LME, ``Metals,'' http://www.lme.com/metals (visited July 19, 2016).
------------------------------------------------------------------------
Contract Contract size
------------------------------------------------------------------------
Industrial/Commercial Metal Markets
------------------------------------------------------------------------
LME physical copper....................... 25,000 kg.
[[Page 63430]]
LME copper future......................... 25,000 kg.
COMEX copper future....................... 25,000 lbs. (about 11,340
kg).
SHFE copper future........................ 5,000 kg.
LME physical aluminum..................... 25,000 kg.
LME aluminum future....................... 25,000 kg.
COMEX aluminum future..................... 25,000 kg.
SHFE aluminum future...................... 5,000 kg.
------------------------------------------------------------------------
Bullion Markets
------------------------------------------------------------------------
LBMA physical gold........................ 350-430 troy oz. (about 11-
13 kg).
LBMA physical silver...................... 750-1100 troy oz. (about 23-
34 kg).
LPPM physical platinum.................... 1-6 kg.
LPPM physical palladium................... 1-6 kg.
------------------------------------------------------------------------
Key:
LME: London Metals Exchange.
COMEX: Commodity Exchange.
SHFE: Shanghai Futures Exchange.
LBMA: London Bullion Market Association.
LPPM: London Platinum & Palladium Market.
In general, gold, silver, platinum, and palladium are bullion today
because they:
Trade in troy ounces or grams rather than metric tons;
\18\
---------------------------------------------------------------------------
\18\ See, e.g., Bloomberg, ``Gold, Silver, and Industrial Metals
Prices,'' http://www.bloomberg.com/markets/commodities/futures/metals.
---------------------------------------------------------------------------
Trade in pure forms; \19\
---------------------------------------------------------------------------
\19\ See, e.g., London Bullion Market Association, The Good
Delivery Rules for Gold and Silver Bars 6 (Mar. 2015) (minimum
fineness for gold is 99.5 percent and for silver is 99.9 percent);
London Platinum & Palladium Market, ``The London/Zurich Good
Delivery List,'' http://www.lppm.com/good-delivery/ (minimum
fineness for platinum and palladium is 99.95 percent).
---------------------------------------------------------------------------
Trade in a form suitable for coining;
Trade as precious metals in the world's major organized
markets, including the London bullion markets; and
Are considered currency by the International Organization
for Standardization.\20\
---------------------------------------------------------------------------
\20\ ISO 4217 (Aug. 1, 2015), available at http://www.currency-iso.org/dam/downloads/lists/list_one.xls.
---------------------------------------------------------------------------
Gold, silver, platinum, and palladium in industrial or commercial
form are not exchange, coin, or bullion.
B. Dealing and Investing in Industrial or Commercial Metal Is Neither
Part of, Nor Incidental to, the Business of Banking
Interpretive Letter 693 concluded that national banks could buy and
sell copper (including industrial copper) as a part of or incidental to
the business of banking. The OCC has reviewed the bases for the
conclusion in Interpretive Letter 693 that buying and selling
industrial copper is part of the business of banking, including
developments in copper markets that followed this letter. For the
following reasons, the OCC now believes that buying and selling
copper--or any other metal--in industrial or commercial form for the
purpose of dealing or investing in that metal is not part of the
business of banking.
When the OCC issued Interpretive Letter 693 in 1995, the agency
noted increasing similarity between transactions involving copper and
those transactions already conducted by national banks with respect to
gold, silver, platinum and palladium (precious metals). This increasing
similarity informed the OCC's view at that time that buying and selling
copper, including dealing and investing, was part of the business of
banking. However, copper markets have not increased in similarity to
precious metal markets.\21\ Instead, as noted in detail above, copper
is generally traded as a base metal.\22\
---------------------------------------------------------------------------
\21\ Events subsequent to Interpretive Letter 693 have confirmed
copper's status as a base metal. In 2000, the LME introduced a
future on a base metal index containing copper, aluminum, lead,
nickel, tin, and zinc. Then, in 2006, it introduced ``mini'' futures
for copper, aluminum, and zinc. Similarly, many firms have launched
exchange-traded funds (ETFs) that invest solely in gold, silver,
palladium, platinum, or some combination thereof, indicating a
widespread belief that these metals are a store of value. However,
there is no copper ETF. Finally, the OCC understands that national
banks that trade copper treat it as a base metal and trade it
alongside aluminum and zinc rather than gold and silver.
\22\ See generally U.S. Senate Permanent Subcommittee on
Investigations, Wall Street Bank Involvement with Physical
Commodities 364 (2014) (identifying banks, trading firms, analysts,
and exchanges that treat copper as a base metal for trading and risk
management purposes).
---------------------------------------------------------------------------
The OCC believes that dealing and investing in industrial or
commercial metals, including base and precious metals in this form, is
not the functional equivalent of dealing and investing in coin and
bullion. The paradigmatic example of functional equivalence is that a
lease is in economic substance a secured loan.\23\ But the significant
differences between dealing in industrial or commercial metals and
dealing in coin and bullion demonstrate that the former is not, in
economic substance, the same as the latter. Most importantly,
industrial and commercial metals trade in base metal markets by the ton
in cathode or other industrial form, while coin and bullion trade in
precious metal markets by the troy ounce or kilogram in bar or ingot
form. In addition, banks' risk management systems distinguish between
precious metals and base metals.
---------------------------------------------------------------------------
\23\ See M&M Leasing Corp. v. Seattle First Nat'l Bank, 563 F.2d
1377 (9th Cir. 1977).
---------------------------------------------------------------------------
The OCC has also considered other factors identified in relevant
precedent for determining whether dealing in or investing in industrial
or commercial metal is part of the business of banking.\24\ The OCC
does not believe that analysis under these factors supports a
conclusion at this time that this activity is part of the business of
banking. For example, the OCC has not seen evidence that this activity
strengthens a bank by benefiting its customers or its business.\25\ Nor
is the OCC aware of any state-chartered banks dealing in or investing
in industrial or commercial metal.\26\ Indeed, the OCC has not
identified any precedent authorizing that activity for state banks.
---------------------------------------------------------------------------
\24\ See, e.g., Merchants' Nat'l Bank v. State Nat'l Bank, 77
U.S. 604, 648 (1871) (holding that national banks could certify
checks because the activity had ``grown out of the business needs of
the country.'').
\25\ Currently, national banks' dealing and investments in
industrial or commercial metal are limited, suggesting that the
business needs of the United States economy are not meaningfully
affected by national banks' dealing in industrial or commercial
metal. Nor is there evidence that the amount of revenue from
industrial or commercial metal dealing and investing meaningfully
improve national banks' financial strength. In any case, the
prospect for additional revenue alone is not sufficient to deem an
activity to be part of the business of banking. See VALIC, 513 U.S.
at 258 n.2. See also No-objection Letter 88-8 (May 26, 1988), 1988
WL 284872 (concluding that it is impermissible for a national bank
to make substantial profits from the sale of merchandise).
\26\ See Colorado Nat'l Bank v. Bedford, 310 U.S. 41, 49-50
(1940).
---------------------------------------------------------------------------
As described above, under 12 U.S.C. 24 (Seventh), a national bank
has the power to exercise all such incidental powers as shall be
necessary to carry on the business of banking. An activity is
incidental to the business of banking if it is convenient or useful to
an activity that is part of the business of banking.\27\
---------------------------------------------------------------------------
\27\ Interpretive Letter 1071 (Sept. 6, 2006), 26 OCC Q.J. 46,
2007 WL 5122909 (citing Arnold Tours, Inc. v. Camp, 472 F.2d 427,
431-32 (1st Cir. 1972)).
---------------------------------------------------------------------------
The OCC believes that dealing and investing in industrial or
commercial metal is not incidental to the business of banking. Some
customers may wish to trade industrial or commercial metal with
national banks. However, because few banks buy or sell industrial or
commercial metal in the ordinary course of business, it does not appear
that dealing or investing in industrial or commercial metal
significantly enhances national banks' ability to offer banking
products and services, including those related to precious metals.
Moreover, dealing and investing in industrial or commercial metal does
not appear to enable national banks to use capacity acquired for
banking operations or otherwise avoid economic
[[Page 63431]]
loss or waste. Therefore, the OCC concludes national banks may not deal
or invest in industrial or commercial metal under their incidental
powers.
C. Transactions in Industrial or Commercial Metal That May Be
Permissible
National banks do have incidental authority to buy and sell
industrial or commercial metal in limited cases. Buying or selling
industrial or commercial metal could be incidental to lending
activities. For example, a mining company could post a copper cathode
as collateral for a loan. Pursuant to the national bank's authority to
acquire property in satisfaction of debt previously contracted, the
bank could seize and then sell the copper to mitigate loan losses if
the borrower defaulted.\28\ National banks also have incidental
authority to buy and sell nominal amounts of industrial or commercial
metal to hedge customer-driven commodity derivatives.\29\ The proposed
rule would not prohibit these purchases and sales because they are not
dealing or investing.\30\
---------------------------------------------------------------------------
\28\ Cf. Cooper v. Hill, 94 F. 582 (8th Cir. 1899) (foreclosure
of a mine); First Nat'l Bank of Parker v. Peavy Elevator Co., 10
S.D. 167, 170 (1897) (foreclosure of grain seed and subsequent
sale).
\29\ Interpretive Letter 684 (Aug. 4, 1995), 1995 WL 550219; OCC
Bulletin 2015-35, Quantitative Limits on Physical Commodity
Transactions (Aug. 4, 2015) (explaining that ``nominal'' means 5
percent of the bank's short positions in a particular commodity).
\30\ Cf. First Nat'l Bank v. Nat'l Exch. Bank, 92 U.S. 122, 128
(1875) (``In the honest exercise of the power to compromise a
doubtful debt owing to a bank, it can hardly be doubted that stocks
may be accepted in payment and satisfaction, with a view to their
subsequent sale or conversion into money so as to make good or
reduce an anticipated loss. Such a transaction would not amount to a
dealing in stocks. It was, in effect, so decided in Fleckner v. Bank
U.S., 8 Wheat. 351 [22 U.S. 338 (1823)], where it was held that a
prohibition against trading and dealing was nothing more than a
prohibition against engaging in the ordinary business of buying and
selling for profit, and did not include purchases resulting from
ordinary banking transactions.'').
Similarly, national banks may buy and sell industrial or
commercial metal as part of their leasing business. 12 U.S.C. 24
(Seventh); 12 U.S.C. 24 (Tenth); 12 CFR 23.4. A car, for example,
contains metal in a commercial form, but buying a car to lease it is
not dealing or investing in commercial metal. Rather, a lease, like
a reverse repurchase transaction, is a secured loan in a different
form. National banks may also buy and sell industrial or commercial
metals to install pipes and electrical wiring in their physical
premises. 12 U.S.C. 29 (First); 12 CFR 7.1000. This activity is
clearly not dealing or investing in industrial or commercial metal.
---------------------------------------------------------------------------
The OCC views national banks' lending authority \31\ as including
buying and selling industrial or commercial metal under reverse
repurchase agreements that are the functional and economic equivalent
of secured loans. As described below, a standard reverse repurchase
agreement for metal used to provide financing to a bank customer
ordinarily does not indicate dealing or investing in the metal.
However, the OCC notes that the facts and circumstances of a particular
transaction may warrant a different conclusion. For example, to the
extent a reverse repurchase agreement or related activity is structured
in a way that causes a bank to incur commodity price risk or indicates
market speculation, the OCC may view the transaction to be dealing or
investing in the metal.
---------------------------------------------------------------------------
\31\ See 12 U.S.C. 24 (Seventh) (stating that discounting and
negotiating promissory notes, drafts, bills of exchange, and other
evidences of debt and loaning money on personal security are part of
the business of banking).
---------------------------------------------------------------------------
In a reverse repurchase agreement, a bank extends credit by
simultaneously buying collateral from a client and agreeing to sell the
collateral back to the client at a future date. The difference between
the sale and purchase price is effectively the interest the client pays
for the extension of credit. If the reverse repurchase agreement
counterparty defaults, the bank can mitigate its losses by selling the
collateral without first foreclosing on it. Financing customer
inventory is a traditional bank activity; using reverse repurchase
agreements rather than loans to provide the financing is merely a
different way of providing financing.\32\ Financing customer inventory
using reverse repurchase agreements in itself does not indicate dealing
or investing in the metal. However, pledging, selling, or
rehypothecating metal acquired under reverse repurchase agreements
suggests dealing or investing activity. So, too, does assuming
commodity price risk. For example, an agreement in which the
counterparty sells a metal at a certain price to the bank and then
repurchases the metal at a price that depends on the metal's then-
current market price indicates dealing or investing activity: The bank
is assuming the metal's price risk. On the other hand, setting the
repurchase price at the sale price plus a spread based on the time
value of money is equivalent to a secured loan.
---------------------------------------------------------------------------
\32\ Under the National Bank Act, credit exposures from
repurchase and reverse repurchase agreements are loans and
extensions of credit subject to a national bank's lending limits. 12
U.S.C. 84(b)(1)(C). See also Letter from Charles F. Byrd, Assistant
Director, Legal Advisory Services Division, [1978-1979 Transfer
Binder] Fed. Banking L. Rep. (CCH) ] 85,020 (Aug. 30, 1977)
(repurchase and reverse repurchase agreements are extensions of
credit subject to 12 U.S.C. 82 (repealed by Garn-St. Germain
Depository Institutions Act of 1982, Pub. L. 97-320, 402)).
---------------------------------------------------------------------------
The OCC invites comment on the treatment of reverse repurchase
agreements under the proposed rule. In particular, the OCC seeks
comment on whether reverse repurchase agreements that do not present
commodity price risk for a bank and do not indicate market speculation
are appropriately viewed to not indicate dealing or investing in metal.
The OCC also seeks comment on whether there are forms of reverse
purchase agreements or related activities that warrant a determination
that the activity is dealing or investing in metal. If so, should the
OCC include such agreements in the final rule's dealing or investing
prohibition?
The proposal does not prohibit national banks from buying and
selling metal through transitory title transfers entered into as part
of a customer-driven financial intermediation business.\33\ Metal owned
through a transitory title transfer typically does not entail physical
possession of a commodity; the ownership occurs solely to facilitate
the underlying transaction and lasts only for a moment in time. For
these reasons, the OCC does not consider transitory title transfers to
be dealing or investing in industrial or commercial metal for purposes
of this proposal. Interpretive Letter 1073 \34\ provides that national
banks may hedge metal derivative transactions on a portfolio basis with
over-the-counter derivative transactions that settle in cash or
transitory title transfer. Interpretive Letter 1073 also provides that
a national bank may engage in transitory title transfers in metals for
the accommodation of customers. The OCC concluded in Interpretive
Letter 1073 that transitory title transfers involving metals do not
entail the physical possession of commodities.\35\ The OCC's analysis
in this letter noted that transitory title transfers do not involve the
customary activities relating to, or risks attendant to, commodity
ownership, such as storage costs, insurance, and environmental
protection. The OCC continues to believe that transitory title
transfers do not constitute physical possession of commodities and
therefore does not consider transitory
[[Page 63432]]
title transfers to be dealing or investing in industrial or commercial
metal for purposes of this proposal.\36\
---------------------------------------------------------------------------
\33\ For purposes of this proposal, the OCC considers a
transitory title transfer to be back-to-back contracts providing for
the receipt and immediate transfer of title to the metal. This means
that a bank holds title to the metal for no more than a legal
instant. See Interpretive Letter 962 (Apr. 21, 2003), 2003 WL
21283155 (``[T]ransitory title transfers preclude actual delivery by
passing title down the chain from the initial seller to the ultimate
buyer in a series of instantaneous back-to-back transactions. Each
party in the chain has title for an instant but does not take actual
physical delivery (other than the ultimate buyer which, in no case,
will be the Bank.'')).
\34\ 26 OCC Q.J. 46, 2007 WL 5122911 (Oct. 19, 2006).
\35\ See also OCC Bulletin 2015-3 (Aug. 4, 2015) (noting that a
physical commodity that a bank acquired and then immediately sold by
transitory title transfer would not be included in the bank's
physical inventory of that commodity).
\36\ In contrast to transitory title transfers, the OCC
considers a commodity held by warehouse receipt for more than a
legal instant to entail physical possession of the commodity. See
OCC Bulletin 2015-3 (``[A] bank that satisfies certain conditions
may engage in physical commodity transactions (for example, by
buying or selling title to a commodity via a warehouse receipt or
bill of lading) to manage the risks of commodity derivatives.''));
Interpretive Letter 684 (August 4, 1995), 1995 WL 550219
(recognizing physical possession of a commodity by warehouse
receipt). The OCC notes that the customary activities relating to,
or risks attendant to, commodity ownership by warehouse receipt are
distinguishable from those involving transitory title transfer. For
example, Interpretive Letter 684 provides that the OCC expects a
bank engaged in physical commodity hedging, either through warehouse
receipt or ``pass-through'' delivery, to adopt and maintain
``safeguards designed to manage the risks associated with storing,
transporting, and disposing of commodities of which the bank has
taken delivery, including policies and procedures designed to ensure
that the bank has adequate levels of insurance (including insurance
for environmental liabilities) which, after deductions, are
commensurate with the risks assumed.''
---------------------------------------------------------------------------
Notwithstanding the above, the OCC may consider alternative
approaches for transitory title transfers in the final rule if it
determines that these transactions present risks similar to holding
physical metal. The OCC invites comment on whether it should continue
to view transitory title transfers as transactions that do not entail
physical possession of a commodity. In particular, the OCC seeks
comment on whether transitory title transfers involving metals present
risks that warrant treating such transactions as physical holdings. If
so, then the prohibition on dealing and investing in industrial or
commercial metal would apply to metals bought or sold by transitory
title transfer.\37\
---------------------------------------------------------------------------
\37\ The OCC notes that even if it determines that a transitory
title transfer entails physical possession of a commodity, national
banks engaged in a customer-driven financial intermediation business
could still enter into such transactions under the proposal,
provided the transaction is a hedge and is nominal.
---------------------------------------------------------------------------
III. Request for Comment
The OCC invites comment on all aspects of this proposal, including
the questions in part II.C of this Supplementary Information.
In addition, the OCC requests comment on the appropriate treatment
of existing holdings of industrial or commercial metal. In other
contexts, the OCC provides five years to divest nonconforming assets,
with the possibility of a five-year extension. Are there reasons a
similar approach would not work here? Are there compelling reasons to
grandfather existing holdings indefinitely?
IV. Regulatory Analysis
Paperwork Reduction Act
Under the Paperwork Reduction Act, 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. This notice
of proposed rulemaking does not introduce any new collections of
information, therefore, it does not require a submission to OMB.
Regulatory Flexibility Act
The Regulatory Flexibility Act, 5 U.S.C. 601 et seq. (RFA),
requires an agency, in connection with a proposed rule, to prepare an
Initial Regulatory Flexibility Analysis describing the impact of the
proposed rule on small entities (defined by the Small Business
Administration (SBA) for purposes of the RFA to include banking
entities with total assets of $550 million or less) or to certify that
the proposed rule would not have a significant economic impact on a
substantial number of small entities.
As of December 31, 2015, the OCC supervised 1,032 small
entities.\38\ Although the rule applies to all OCC-supervised small
entities, and thus affects a substantial number of small entities, no
small entities supervised by the OCC currently buy or sell metal in a
physical form primarily suited to commercial or industrial use for the
purpose of dealing or investing in that metal. Thus, the rule will not
have a substantial impact on any OCC-supervised small entities.
---------------------------------------------------------------------------
\38\ The OCC calculated the number of small entities using the
SBA's size thresholds for commercial banks and savings institutions,
and trust companies, which are $550 million and $38.5 million,
respectively. Consistent with the General Principles of Affiliation,
13 CFR 121.103(a), the OCC counted the assets of affiliated
financial institutions when determining whether to classify a
national bank or federal savings association as a small entity. The
OCC used December 31, 2015, to determine size because a ``financial
institution's assets are determined by averaging the assets reported
on its four quarterly financial statements for the preceding year.''
See footnote 8 of the SBA's Table of Size Standards.
---------------------------------------------------------------------------
Therefore, the OCC certifies that the proposed rule would not have
a significant economic impact on a substantial number of OCC-supervised
small entities.
Unfunded Mandates Reform Act of 1995 Determination
The OCC analyzed the proposed rule under the factors set forth in
the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1532). Under this
analysis, the OCC considered whether the proposed rule includes a
federal mandate that may result in the expenditure by state, local, and
Tribal governments, in the aggregate, or by the private sector, of $100
million or more in any one year (adjusted annually for inflation).
Although the proposed rule would apply to all OCC-supervised
institutions, very few of these institutions are currently involved in
activities involving dealing or investing in copper or other metals in
a physical form primarily suited to commercial or industrial use.
While the proposed rule may prevent OCC-supervised institutions
from realizing potential gains from prohibited investments in physical
metals, the proposed rule also may protect them from realizing
potential losses from investments in physical metals. The OCC is not
able to estimate these potential gains or losses because they will
depend on future fluctuations in the prices of the various physical
metals. However, the OCC does expect OCC-supervised institutions to be
able to achieve comparable returns in alternative non-prohibited
investment opportunities. Thus, the OCC estimates that the opportunity
cost of the proposed rule will be near zero.
The proposed rule may impose one-time costs on affected
institutions with respect to the disposal of current physical metal
inventory that a bank may not deal in or invest in under the rule. This
cost will depend to some extent on the amount of physical metal
inventory that affected institutions must dispose of. However, a
gradual sell-off should not affect market prices and the affected
institutions would receive fair value for their metals. Under these
circumstances, the OCC estimates that the disposal costs will also be
minimal.
Finally, by establishing that buying and selling physical metal in
commercial or industrial form is generally not part of the business of
banking, the rule implies that customers of OCC-supervised institutions
will have to identify another reliable source of supply of physical
metals and that OCC-supervised institutions will be less able to
compete with non-bank metals dealers. Given how technology has made the
physical metals markets more accessible, the OCC expects bank customers
will face minimal costs associated with identifying another supplier of
physical metals. The OCC also expects that losing the ability to
compete with non-bank metal dealers will not significantly detract from
the strength of OCC-supervised institutions, especially given that the
proposed rule would recognize several business-of-
[[Page 63433]]
banking exceptions to the prohibition on buying and selling physical
metal.
For the reasons described above, the OCC has determined that the
proposed rule would not result in expenditures by state, local, and
Tribal governments, or by the private sector, of $100 million or more.
Accordingly, the OCC has not prepared a written statement to accompany
the proposed rule.
List of subjects in 12 CFR Part 7
Banks, banking, Computer technology, Credit, Federal savings
associations, Insurance, Investments, Metals, National banks, Reporting
and recordkeeping requirements, Securities, Surety bonds.
For the reasons set forth in the preamble, OCC proposes to amend 12
CFR part 7 as follows:
PART 7--BANK ACTIVITIES AND OPERATIONS
0
1. The authority citation for part 7 is amended to read as follows:
Authority: 12 U.S.C. 1 et seq., 25b, 71, 71a, 92, 92a, 93, 93a,
371, 371a, 481, 484, 1463, 1464, 1818, and 5412(b)(2)(B).
0
2. Add Sec. 7.1022 to subpart A to read as follows:
Sec. 7.1022 National bank authority to buy and sell exchange, coin,
and bullion.
(a) In this section, industrial or commercial metal means metal
(including an alloy) in a physical form primarily suited to industrial
or commercial use, for example, copper cathodes.
(b) Scope of authorization. Section 24 (Seventh) of the National
Bank Act authorizes national banks to buy and sell exchange, coin, and
bullion. Industrial or commercial metal is not exchange, coin, and
bullion within the meaning of this authorization.
(c) Buying and selling metal as part of or incidental to the
business of banking. Section 24 (Seventh) authorizes national banks to
engage in activities that are part of, or incidental to, the business
of banking. Buying and selling industrial or commercial metal for the
purpose of dealing or investing in that metal is not part of or
incidental to the business of banking pursuant to section 24 (Seventh).
(d) Other authorities not affected. This section shall not be
construed to preclude a national bank from acquiring or selling metal
in connection with its incidental authority to foreclose on loan
collateral, compromise doubtful claims, or avoid loss in connection
with a debt previously contracted. This section also shall not be
construed to preclude a national bank from buying and selling physical
metal to hedge a derivative for which that metal is the reference asset
so long as the amount of the physical metal used for hedging purposes
is nominal.
0
3. Add Sec. 7.1023 to subpart A to read as follows:
Sec. 7.1023 Federal savings associations, prohibition on industrial
or commercial metal dealing or investing.
(a) In this section, industrial or commercial metal means metal
(including an alloy) in a physical form primarily suited to industrial
or commercial use, for example, copper cathodes.
(b) Federal savings associations may not deal or invest in
industrial or commercial metal. Federal savings associations may not
buy or sell industrial or commercial metal if the purchase or sale is
impermissible for a national bank.
Dated: September 7, 2016
Thomas J. Curry,
Comptroller of the Currency.
[FR Doc. 2016-22017 Filed 9-14-16; 8:45 am]
BILLING CODE 4810-33-P
