Licensing Amendments, 80404-80470 [2020-25595]
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Federal Register / Vol. 85, No. 239 / Friday, December 11, 2020 / Rules and Regulations
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Parts 3, 5, 7
[Docket ID OCC–2019–0024]
RIN 1557–AE71
Licensing Amendments
Office of the Comptroller of the
Currency, Treasury.
ACTION: Final rule.
AGENCY:
The Office of the Comptroller
of the Currency (OCC) is amending its
rules relating to policies and procedures
for corporate activities and transactions
involving national banks and Federal
savings associations to update and
clarify the policies and procedures,
eliminate unnecessary requirements
consistent with safety and soundness,
and make other technical and
conforming changes.
DATES: The final rule is effective on
January 11, 2021, except for instruction
15g which is effective on December 11,
2020.
FOR FURTHER INFORMATION CONTACT: For
additional information, contact
Christopher Crawford, Counsel, Valerie
Song, Assistant Director, Heidi M.
Thomas, Special Counsel, or Rima
Kundnani, Senior Attorney, Chief
Counsel’s Office, (202) 649–5490; or
Karen Marcotte, Director for Licensing
Activities, (202) 649–7297, Office of the
Comptroller of the Currency, 400 7th
Street SW, Washington, DC 20219. For
persons who are deaf or hearing
impaired, TTY, (202) 649–5597.
SUPPLEMENTARY INFORMATION:
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SUMMARY:
I. Background
Twelve CFR part 5 sets forth the
OCC’s requirements for national banks
and Federal savings associations that
seek to engage in certain corporate
transactions or activities. It addresses
the range of an institution’s existence
from chartering to dissolution and
includes, among other things, business
combinations, branching matters,
operating subsidiaries, and dividend
payments. In some cases, a national
bank or Federal savings association is
required to apply to engage in a certain
transaction or activity while in other
situations the bank or savings
association must submit a notice to the
OCC either for informational purposes
or as a means for providing the OCC
with the opportunity to object to the
transaction or activity. On March 5,
2020, the OCC issued a notice of
proposed rulemaking (proposal) to
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revise part 5.1 This proposal is part of
the OCC’s continual review of its
regulations to eliminate outdated or
otherwise unnecessary provisions and
to clarify or revise requirements
imposed on national banks and Federal
savings associations where possible and
when not inconsistent with safety and
soundness.2
The OCC received six substantive
written comments on this proposal.
These comments and the OCC’s
response are discussed in the next
section of this Supplementary
Information.
II. Description of the Final Rule
Rules of General Applicability (Part 5,
Subpart A)
Twelve CFR part 5, subpart A, sets
forth the OCC’s generally applicable
rules and procedures for corporate
activities and transactions of national
banks and Federal savings associations.
The OCC proposed substantive and
technical changes to subpart A as
explained below.
Rules of General Applicability (§ 5.2)
Section 5.2(b) provides that the OCC
may adopt materially different
procedures for a particular filing or class
of filings in exceptional circumstances
or for unusual transactions after
providing notice to the applicant and
any other party that the OCC determines
should receive notice. The proposal
would increase the OCC’s flexibility to
address unusual situations by providing
that the OCC may adopt materially
different procedures as it deems
necessary and then using the term
‘‘exceptional circumstances or unusual
transactions’’ as examples, but not
limitations, as to when the OCC may
deem it necessary to adopt materially
different procedures. One commenter
expressed concern that the phrase ‘‘as it
deems necessary’’ seemed vague and
suggested the OCC note specific
1 The proposed rule was published in the Federal
Register on April 2, 2020. 85 FR 18728.
2 These periodic reviews are in addition to the
OCC’s decennial review of its regulations as
required by the Economic Growth and Regulatory
Paperwork Reduction Act (EGRPRA). Public Law
104–208 (1996), codified at 12 U.S.C. 3311(b).
Section 2222 of EGRPRA requires that, at least once
every 10 years, the OCC along with the other
Federal banking agencies and the Federal Financial
Institutions Examination Council (FFIEC) conduct a
review of their regulations to identify outdated or
otherwise unnecessary regulatory requirements
imposed on insured depository institutions.
Specifically, EGRPRA requires the agencies to
categorize and publish their regulations for
comment, eliminate unnecessary regulations to the
extent that such action is appropriate, and submit
a report to Congress summarizing their review. The
agencies completed their second EGRPRA review
on March 30, 2017 and published their report in the
Federal Register. 82 FR 15900 (March 30, 2017).
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instances where flexibility is needed to
eliminate vagueness.
The OCC disagrees with this
commenter. The final rule includes
examples—for exceptional
circumstances or unusual transactions—
that are intended to explain when the
OCC may act while not limiting its
ability in unforeseen cases where
additional flexibility may be needed.
Therefore, the OCC adopts this change
as proposed.
Definitions (§ 5.3) Section 5.3 defines
terms that are used throughout part 5.
The OCC proposed several new
definitions to this section. First, the
OCC proposed definitions for
‘‘nonconforming assets’’ and
‘‘nonconforming activities.’’ The OCC
uses, but does not define, these terms in
§§ 5.23 and 5.24 (conversions to a
Federal savings association or national
bank, respectively) and § 5.33 (business
combinations). The OCC proposed these
definitions to mean assets or activities
that are impermissible for a national
bank or a Federal savings association, as
applicable, to hold or conduct, or if
permissible, are nonetheless held or
conducted in a manner that exceeds
limits applicable to national banks or
Federal savings associations. Under this
proposed definition, the term ‘‘assets’’
includes a national bank’s or Federal
savings association’s investments in
subsidiaries or other entities. The OCC
did not receive any comments on these
definitions and adopts them as
proposed.
Second, the OCC proposed to define
the term ‘‘previously approved activity’’
to mean, in the case of a national bank,
an activity approved in published OCC
precedent for a national bank, an
operating subsidiary of a national bank,
or a non-controlling investment of a
national bank; and in the case of a
Federal savings association, an activity
approved in published OCC or Office of
Thrift Supervision (OTS) precedent for
a Federal savings association, an
operating subsidiary of a Federal
savings association, or a pass-through
investment of a Federal savings
association.3 The OCC proposed this
definition to provide more clarity given
the repeated use of this standard in
§§ 5.34, 5.36, 5.38, and 5.58. One
commenter discussed this definition.
This commenter requested that the OCC
clarify that this definition includes a
previous OCC approval for any bank,
not only the bank in question. The
intention of this definition is to apply to
3 The OCC notes that this definition would not
apply to an activity that a statute, regulation, or
court decision has subsequently made
impermissible.
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all previously approved activities. To
clarify this, the OCC has changed ‘‘an
activity’’ to ‘‘any activity’’ in this
definition in the final rule.
The preamble to the proposed rule
also noted that for references to
previously approved activities, national
banks and Federal savings associations
may consult the OCC’s publications
Comparison of the Powers of National
Banks and Federal Savings Associations
and Activities Permissible for National
Banks and Federal Savings
Associations, Cumulative.4 In response
to the commenter, the OCC clarifies that
these documents are not exclusive
examples of where to find published
OCC precedent. The OCC also publishes
interpretive letters and corporate
decisions that may be used as precedent
in its monthly Interpretations and
Actions.5 This commenter also
suggested that the OCC publish its
unpublished interpretive letters
regarding permissible activities. The
OCC notes that it endeavors to publish
all pertinent interpretive letters.
Third, the OCC defines the term ‘‘well
capitalized’’ differently in various
sections of part 5 by cross-referencing to
other OCC rules. The OCC proposed to
add a definition of ‘‘well capitalized’’ to
§ 5.3 that incorporates these crossreferences so that the individual crossreferences in other sections are no
longer needed. The OCC received no
comments on this change and adopts it
in the final rule as proposed, with one
technical change to make a crossreference citation more specific. As
noted in the preamble to the proposed
rule, this new definition does not make
any substantive changes.
Fourth, the OCC proposed to add the
term ‘‘well managed’’ to § 5.3. Currently,
part 5 contains two different definitions
of ‘‘well managed.’’ Consistent with
section 5136A of the Revised Statutes
(12 U.S.C. 24a), § 5.39 generally defines
‘‘well managed’’ for purposes of
financial subsidiaries as a 1 or 2
composite rating under the Uniform
Financial Institutions Rating System
and at least a rating of 2 for
management. By contrast, §§ 5.34 and
5.38, governing national bank and
Federal savings association operating
subsidiaries, respectively, generally
define ‘‘well managed’’ as a 1 or 2
4 These references are available at https://
www.occ.gov/publications-and-resources/
publications/banker-education/files/pubcomparison-powers-national-banks-fed-savassoc.pdf and https://www.occ.gov/publicationsand-resources/publications/banker-education/files/
pub-activities-permissible-for-nat-banks-fedsaving.pdf.
5 See https://occ.gov/topics/charters-andlicensing/interpretations-and-actions/indexinterpretations-and-actions.html.
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composite rating without reference to
the management rating. Sections 5.35
(bank service company investments),
5.36 (other equity investments by a
national bank), and 5.58 (Federal
savings association pass-through
investments) cross-reference to the
§§ 5.34 or 5.38 definition. Additionally,
§ 5.59(h)(2)(ii)(A) requires a Federal
savings association to be well managed
to be eligible for expedited review when
acquiring or establishing a service
corporation.
The OCC proposed a single definition
of ‘‘well managed’’ applicable
throughout part 5 to eliminate confusion
between the two definitions and to
further the OCC’s supervisory
objectives.6 The financial subsidiary
statute, 12 U.S.C. 24a, defines ‘‘well
managed’’ to include the management
rating, and the OCC proposed to use this
definition for national banks and
Federal savings associations. The
proposal also defined ‘‘well managed’’
for Federal branches and agencies of
foreign banks as meaning the composite
ROCA supervisory rating (which rates
risk management, operational controls,
compliance and assets quality) of 1 or 2,
and at least a rating of 2 for risk
management.
The OCC received one comment on
this proposed definition. This
commenter opposed the inclusion of
management rating in a definition of
‘‘well managed,’’ except as required by
statute. It stated that the financial
subsidiary statutory definition of ‘‘well
managed’’ was intended for new nontraditional activities, not core banking
activities, and that using the new ‘‘well
managed’’ definition could cause some
banks to conduct activities in the bank
rather than the subsidiary. The
commenter noted that this could create
safety and soundness issues because the
bank would no longer benefit from
having the activities conducted in a
separate entity. In addition, this
commenter stated that, in any event, the
CAMELS management rating is in need
of change.
The OCC disagrees with this
commenter. As the OCC explained in
the preamble to the proposed rule, the
6 There is one instance of the term ‘‘well
managed’’ in current part 5 that does not follow this
definition. Specifically, 12 CFR 5.59(e)(7)(i)
requires that each Federal savings association ‘‘be
well managed and operate safely and soundly.’’
This provision is not directly applicable to any
filing procedures but is rather a general statement
of appropriate management and safety and
soundness standards. For example, pursuant to
§ 5.59(e)(7)(ii) the OCC may limit a Federal savings
association’s investment in a service corporation, or
limit or refuse to permit any activity of a service
corporation, for supervisory, legal, or safety or
soundness reasons.
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OCC believes that a single definition of
‘‘well managed’’ would enhance bank
safety and soundness and provide a
clearer and more consistent standard for
national banks and Federal savings
associations. In addition, the OCC finds
that the components reflected in an
entity’s management rating, such as
bank controls, are relevant to the
establishment of operating subsidiaries,
investments in bank service companies,
other equity investments of a national
bank and pass-through investments of a
Federal savings association, and Federal
savings association investments in
service corporations. As explained in
the preamble to the proposed rule, a
national bank, Federal savings
association, or Federal branch or agency
with a 2 composite rating but a 3
management, or risk management, rating
warrants additional scrutiny. Further,
the OCC notes that the definition of
‘‘well managed’’ in Regulation K
(international banking) and Regulation
Y (bank holding companies) of the
Board of Governors of the Federal
Reserve System (Federal Reserve Board)
also includes both composite and
management ratings.7
This commenter also requested that if
the OCC adopts the proposed ‘‘well
managed’’ definition, the definition
should include reasonable exceptions to
the associated filing requirements.
However, the proposed definition
provides that it applies unless the OCC
otherwise determines in writing. This
provision allows the OCC to make
exceptions in certain cases as
warranted.
Finally, this commenter requested a
transition period in event a bank
receives a new rating, noting that
without such a transition period a bank
might be required to file an application
where it already has begun negotiating
or entering into an agreement to, for
example, make a non-controlling
investment, or otherwise relied on the
fact that only an after-the-fact notice
would be required. Specifically, the
commenter recommended that the
required ‘‘compliance date’’ of a new
rating, particularly if it creates new
requirements for the bank, should be
several months after it is assigned or
there should be an exception for any
agreement already entered into at the
7 See 12 CFR 211.2(z); 12 CFR 225.2(s).
Additionally, the OCC notes that the definition of
‘‘well managed’’ in Regulation Y applies to both
expedited processing, see, e.g., 12 CFR 225.14(c)(2),
and for an entity qualifying to be a financial holding
company, see, e.g., 12 CFR 225.82. These are
analogous, for example, to the revised usage of
‘‘well managed’’ for processing procedures to
establish an operating subsidiary in § 5.34 and for
a national bank qualifying to invest in a financial
subsidiary in § 5.39, respectively.
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time the rating is assigned. The OCC
disagrees. For safety and soundness
reasons, a national bank’s or Federal
savings association’s rating should
apply to all its activities as of the date
the OCC issues the rating. Furthermore,
a national bank or Federal savings
association may mitigate any rating
changes by including appropriate
regulatory approval clauses in
agreements with third parties.
For the reasons discussed above, the
OCC adopts the definition of ‘‘well
managed’’ as proposed.
The proposed rule also noted that the
OCC was considering an amendment to
the definition of ‘‘short-distance
relocation.’’ Currently, moving the
premises of a branch or main office of
a national bank or a branch or home
office of a Federal savings association is
a short-distance relocation if the move
is within: (1) A one-thousand footradius of the site if the branch, main
office, or home office is located within
a principal city of a metropolitan
statistical area (MSA); (2) a one-mile
radius of the site if the branch, main
office, or home office is not located
within a principal city but is located
within an MSA; or (3) a two-mile radius
of the site if the branch, main office, or
home office is not located within an
MSA. Under the branch relocation
provisions in § 5.30 (national banks) and
§ 5.31 (Federal savings associations) and
the main office and home office
relocation provisions in § 5.40, shortdistance relocations have a shorter
public comment and OCC approval
period than other relocations.
Additionally, the OCC finds the shortdistance relocation provision to be
equivalent to a ‘‘relocation’’ for the
purposes of branch closings under
section 42 of the Federal Deposit
Insurance Act (FDI Act) (12 U.S.C.
1831r–1).
The preamble to the proposed rule
noted that the OCC was considering
doubling the distances for shortdistance relocations to allow greater
flexibility and to reduce regulatory
burden for office relocations. The
preamble noted that any amended
definition would not apply to a branch
that would be relocated from a low- or
moderate-income (LMI) area to a nonLMI area.
The OCC received three comments on
this possible amendment. One
commenter supported the change and
agreed that it would promote flexibility
and reduce regulatory burden without
depriving customers of appropriate
notice. However, the commenter
expressed concerns about having a
separate standard for LMI areas because
it could affect statistics on bank closures
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by more heavily weighing branch
relocations in LMI areas relative to
relocation in non-LMI areas. Another
commenter stated that the expanded
definitions for ‘‘short distance
relocations’’ should not apply when the
branch is relocated from an LMI tract to
another LMI tract in addition to the
suggested exclusion for branches
relocated from an LMI tract to a nonLMI tract. The third commenter stated
that the suggested definition may
disproportionately adversely impact
LMI persons and that the OCC should
exempt branches in LMI areas or that
largely service LMI customers from the
definition change. Further, this
commenter advocated no change to the
definition, noting that it is not only LMI
customers who would be
inconvenienced.
The OCC has decided not to expand
the distances in the definition of ‘‘shortdistance relocation’’ in the final rule. In
light of these public comments and after
further reviewing this suggestion, the
OCC believes that a bifurcated
definition would increase burden on
national banks without providing a
compensating benefit. In addition, the
exception may cause confusion for
banks if a census tract LMI status
changes. However, any increase in
distance without excluding LMI tracts
would negatively affect LMI
communities. Therefore, the current
definition of ‘‘short distance relocation’’
remains unchanged.
Finally, the OCC proposed technical
changes to § 5.3. The OCC received no
comments on these technical changes
and adopts them as proposed. First,
current § 5.3 defines ‘‘applicant’’ as a
‘‘person or entity that submits a notice
or application to the OCC under’’ part
5. However, this usage of the term
‘‘applicant’’ is confusing because it
covers persons who submit an
application or a notice. Accordingly, the
final rule changes the term ‘‘applicant’’
to ‘‘filer’’ to more clearly cover both a
person who files an application or a
notice. The final rule makes conforming
changes throughout part 5.
Second, the final rule adds a new
definition for ‘‘Appropriate Federal
banking agency’’ that cross-references
the definition contained in section 3(q)
of the FDI Act, 12 U.S.C. 1813(q).
Third, the final rule adds a new
definition clarifying that ‘‘MSA’’ means
metropolitan statistical area as defined
by the Director of the Office of
Management and Budget (OMB).8
8 According to the OMB,’’[t]he general concept of
a metropolitan statistical area is that of an area
containing a large population nucleus and adjacent
communities that have a high degree of integration
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Fourth, part 5 currently defines
‘‘notice’’ to mean a submission notifying
the OCC that a national bank or Federal
savings association intends to engage in
or has commenced certain activities or
transactions. The definition notes that
the specific meaning depends on
context and ‘‘may require the filer to
obtain prior OCC approval before
engaging in the activity or transaction.’’
As described later in this
Supplementary Information, the final
rule generally changes the term ‘‘notice’’
to ‘‘application’’ for activities or
transactions that require prior OCC
approval. Therefore, the final rule
removes the quoted language from the
definition.
Fifth, the final rule adds abbreviations
for the former OTS, the Federal Deposit
Insurance Corporation (FDIC), and
generally accepted accounting
principles as used in the United States
(GAAP) to make their use consistent
throughout part 5.
Finally, to reflect the more current
regulatory drafting style, the final rule
removes the paragraph designations in
§ 5.3 and makes conforming changes to
cross-references in § 5.3 and other OCC
rules.
The final rule also makes additional
technical corrections by removing the
phrase ‘‘as defined in § 5.3’’ and related
language throughout part 5. The
definitions in § 5.3 apply to all of part
5 so these cross-references are not
necessary.
Filing required (§ 5.4) Section 5.4
requires a depository institution to file
an application or notice with the OCC
to engage in certain corporate activities
and transactions and provides general
information on this filing requirement.
Section 5.4(f) currently encourages a
potential filer to contact the appropriate
OCC licensing office to determine the
need for a prefiling meeting, and it
specifically provides that the OCC
decides whether to require a prefiling
meeting on a case-by-case basis. The
proposal included more general
guidance on when a filer should seek a
prefiling meeting with the OCC.
Specifically, the OCC proposed to
include a new sentence advising
potential filers with novel, complex, or
unique proposals to contact the
appropriate OCC licensing office early
in the development of the proposal to
help identify and consider relevant
policy issues. The OCC received no
comments on this change and adopts it
as proposed.
with that nucleus.’’ 75 FR 37246 (June 28, 2010).
These standards are then applied to census data to
delineate the metropolitan statistical areas.
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Additionally, the OCC proposed to
move the certification requirement in
current § 5.13(h) to new § 5.4(g). Current
§ 5.13(h) requires filers to certify that
material submitted to the OCC contains
no material misrepresentations or
omissions. The OCC also may review
and verify any information filed in
connection with a notice or an
application. Section 5.13(h) further
provides that material
misrepresentations or omissions may be
subject to enforcement actions and other
penalties, including criminal penalties
under 18 U.S.C. 1001. As discussed
below, the OCC proposed to revise
§ 5.13(h) to clarify the procedures
regarding nullification of decisions. The
certification requirement in § 5.13(h)
does not fit well in the revised provision
so the OCC proposed to move it to § 5.4
with other provisions relating to the
form of the filing, as new paragraph (g).
The OCC received one comment on
new § 5.4(g). This commenter stated that
because proposed § 5.4(g) makes no
mention of a legal standard for
culpability, it is unclear whether a filer
would be subject to criminal penalties
even if a material misrepresentation or
omission were not made knowingly and
willfully. The commenter suggested that
in order to provide clarity regarding the
applicable legal standard to which
criminal penalties may apply when
signing a certification, the OCC should
amend proposed § 5.4(g) to qualify that
filers who ‘‘knowingly and willfully’’
make material misrepresentations or
omissions in a filing may be subject to
enforcement and criminal penalty under
18 U.S.C. 1001. The commenter also
suggested that the OCC update its
standard forms accordingly. However,
the OCC is not the appropriate agency
to make representations about the
specific elements of a criminal statute.
Further, the OCC notes that the existing
phrasing of ‘‘may be subject to
enforcement action and other penalties’’
in the rule text indicates that section
1001 may or may not be applicable
given the circumstances of a particular
case, and that every misrepresentation
or omission will not necessarily lead to
a violation of section 1001. Section 1001
only would be applicable if the
misrepresentation or omission meets the
standard for a violation set forth in
section 1001. Therefore, the OCC
declines to address this comment in
§ 5.4(g).
Filing fees (§ 5.5) Section 5.5(a)
provides the procedure for submitting
filing fees to the OCC. The current rule
requires payment to the OCC by check,
money order, cashier’s check, or wire
transfer. The OCC proposed updating
this provision by providing that a filer
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can pay the fees by check payable to the
OCC or by other means acceptable to the
OCC. The OCC received no comments
on this change and adopts it as
proposed. The OCC notes that it does
not currently charge filing fees for
licensing filings and is not imposing any
fees as part of this final rule.
Investigations (§ 5.7) Section 5.7
provides the OCC with examination and
investigation authority related to a
filing. As discussed in the ‘‘Background
Investigations’’ booklet of the
Comptroller’s Licensing Manual, the
OCC routinely engages in background
investigations of filers and other
individuals involved in filings for new
charters, changes in bank control, and
changes in directors and senior
executive officers. As part of these
background investigations, the OCC
collects fingerprints and submits them
to the Federal Bureau of Investigation
for a national criminal history
background check. The OCC proposed
adding a new paragraph (b) to § 5.7 to
codify this procedure. The OCC also
proposed conforming changes to other
sections in part 5 to clarify when it
collects fingerprints. The OCC received
one comment in support of these
changes. The final rule includes these
changes as proposed.
Public availability, Comments, and
Hearings and other meetings (§§ 5.9,
5.10, 5.11) Section 5.9 addresses the
public availability and confidential
treatment of filings. Section 5.10
provides the process for public
comment periods and the submission of
public comments. Section 5.11 provides
the process for hearings and public and
private meetings. The OCC proposed
changing the terms ‘‘application’’ to
‘‘filing’’ and ‘‘applicant’’ to ‘‘filer’’ in
these sections to reflect the more general
terminology proposed in this rule.
Furthermore, each of these sections
currently uses the term ‘‘interested
persons’’ to refer to persons other than
the filer who seek to interact with a
filing or related procedure. The OCC
understands the term ‘‘interested
persons’’ to mean any person who is or
may wish to be involved in the licensing
process. Such a person may, but need
not, have particular financial,
pecuniary, or other interest in the
transaction itself, the filer, or other party
to the transaction. In the proposal, the
OCC invited comment about whether
the term ‘‘interested persons’’ is
sufficiently clear, or whether a change
in terminology would be helpful to
indicate the breadth of this provision.
The OCC received no comments on
changing the terms ‘‘application’’ to
‘‘filing’’ and ‘‘applicant’’ to ‘‘filer’’ and
adopts these changes in the final rule.
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Further the OCC received no comments
in the term ‘‘interested persons’’ and so
does not change this term in the final
rule.
Decisions (§ 5.13) Section 5.13
contains the OCC’s procedures for
acting on a filing. Paragraph (a)(2) of
this section provides the procedures for
the OCC’s expedited review, including
extending the time frame for reviewing
or removing a filing from expedited
review. Specifically, the OCC may
change the expedited review procedures
if it concludes that the filing, or an
adverse comment regarding the filing,
presents a significant supervisory,
Community Reinvestment Act (CRA) 9
(if applicable), or compliance concern or
raises a significant legal or policy issue
requiring additional OCC review.
Paragraph (a)(2)(ii) of § 5.13 provides
that the OCC will not change the
expedited procedures if it determines,
among other things, that an adverse
comment does not raise a significant
supervisory, CRA (if applicable), or
compliance concern or a significant
legal or policy issue, or is frivolous or
filed primarily as a means of delaying
action on the filing. The OCC proposed
adding non-substantive comments to
this list to better align the regulation
with OCC policy. The proposal stated
that the OCC considers a comment to be
‘‘non-substantive’’ if it is: (1) A
generalized opinion that a filing should
or should not be approved; or (2) a
conclusory statement, lacking factual or
analytical support.
The OCC received three comments on
this proposed change. One commenter
supported the addition of ‘‘nonsubstantive’’ to the list of items that do
not remove a filing from expedited
processing stating that this change
would provide commenters with a clear
standard and reduce unfair or
unnecessary delays where a comment
lacks factual or analytical support.
Another commenter opposed this
change stating that it would increase the
risk that the OCC could arbitrarily
classify comments as non-substantive.
The OCC disagrees with this
commenter. For example, in the
analogous context of informal
rulemaking under the Administrative
Procedure Act (APA),10 agencies need
only ‘‘consider and respond to
significant comments’’ received during
the public comment period.11 Courts
have not interpreted the APA as
requiring agencies to respond to
9 12
U.S.C. 2901 et seq.
U.S.C. 551 et seq.
11 See, e.g., Perez v. Mortg. Bankers Ass’n, 575
U.S. 92, 96 (2015).
10 5
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insubstantial comments.12 As stated by
the Supreme Court, ‘‘administrative
proceedings should not be a game or a
forum to engage in unjustified
obstructionism by making cryptic and
obscure reference to matters that ‘ought
to be’ considered and then, after failing
to do more to bring the matter to the
agency’s attention, seeking to have that
agency determination vacated on the
ground that the agency failed to
consider matters ‘forcefully
presented.’ ’’ 13
The regulation’s requirement that a
party seeking relief must provide
sufficient and supported information to
warrant review of its claim is fully
consistent with established principles
that wholly speculative or unsupported
comments need not be addressed.14
Further, the receipt of a large number of
comments that set forth a particular
view regarding a proposal does not
necessarily render those comments
‘‘significant’’ or material 15 if they do not
contain the requisite level of analytical
or substantive content.
The situation also may be analogized
with the standards applicable to setting
forth minimally viable claims in
litigation. A Federal plaintiff has an
‘‘obligation to provide the ‘grounds’ of
his ‘entitle[ment] to relief’ [that]
requires more than labels and
conclusions, and a formulaic recitation
of the elements of a cause of action will
not do.’’ 16 ‘‘Threadbare recitals of the
elements of a cause of action, supported
12 See Thompson v. Clark, 741 F.2d 401, 408–09
(D.C. Cir. 1984); Auto. Parts & Accessories Ass’n v.
Boyd, 407 F.2d 330, 338 (D.C. Cir.1968).
13 Vermont Yankee Nuclear Power Corp. v.
Natural Res. Def. Council, Inc., 435 U.S. 519, 553–
54 (1978). See also, e.g., Interstate Natural Gas
Ass’n of Am. v. Fed. Energy Regulatory Comm’n,
494 F.3d 1092, 1096 (D.C. Cir. 2007) (‘‘‘[C]omments
must be significant enough to step over a threshold
requirement of materiality before any lack of agency
response or consideration becomes of concern’ . . .
and ‘[t]he APA requirement of agency
responsiveness to comments is subject to the
common-sense rule that a response be
necessary.’’’(quoting Portland Cement Ass’n v.
Ruckelshaus, 486 F.2d 375, 294 (D.C. Cir. 1973) and
Natural Res. Def. Council, Inc. v. U.S. Envtl. Prot.
Agency, 859 F.2d 156, 188 (D.C. Cir. 1988) (per
curiam)).
14 See Home Box Office, Inc. v. Fed’l Commc’ns
Comm’n, 567 F.2d 9, 35 n.58 (D.C. Cir. 1977)
(‘‘Moreover, comments which themselves are
purely speculative and do not disclose the factual
or policy basis on which they rest require no
response. There must be some basis for thinking a
position taken in opposition to the agency is true.’’).
15 See Hillsdale Envtl. Loss Prevention, Inc. v.
U.S. Army Corps of Eng’rs, 702 F.3d 1156, 1181–
82 (10th Cir. 2012) (Holding that ‘‘[e]ven if 90% of
the comments . . . were negative, this merely
demonstrates public opposition, not a substantial
dispute’’ concerning the factors that the agency had
to consider per the statute).
16 Bell Atlantic Corp. v. Twombly, 550 U.S. 544,
555 (2007) (quoting Fed. R. Civ. P. 8(a)(2) (first
alteration in original)).
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by mere conclusory statements, do not
suffice.’’ 17
The OCC believes that either of these
standards, as expressed by the Supreme
Court, are analogous to those proposed
for a comment on a licensing filing to
warrant a change to expedited
procedures. The requirement that a
comment not be ‘‘non-substantive’’ to be
considered reflects that the OCC will
not ‘‘accept as true a legal conclusion
couched as a factual allegation.’’ 18
Similarly, the requirement is consistent
with the APA’s provisions governing
formal rulemaking proceedings.19 Thus,
a comment containing merely a
conclusory statement would not be
sufficient to change the expedited
processing procedures. It is appropriate
for the OCC to require that a comment
must have factual and analytical
support to allow the OCC to determine
that one of the concerns set forth in
§ 5.13(a)(1) has indeed been raised, thus
warranting additional OCC review.20
Accordingly, the OCC believes that
the criteria for being ‘‘non-substantive’’
set forth in the amendment provides a
clear standard for when the OCC will
consider a comment to be nonsubstantive and provides commenters
with guidance on submitting views on
a filing. Further, the OCC notes that if
a commenter believes that the OCC
inadequately considered a comment,
they may have grounds to challenge the
OCC’s licensing decision under the
APA.
This commenter also stated that the
final rule should describe the procedure
by which the OCC would notify the
commenter if the OCC determines a
comment to be non-substantive and the
procedure for re-submission of the
comment. The OCC also disagrees with
this comment. The OCC does not intend
to notify a commenter that it finds its
comment non-substantive. As indicated
above, the OCC believes the provision as
proposed adequately explains the OCC’s
standards for non-substantive comments
and that these standards should inform
commenters when the OCC would find
a comment to be non-substantive.
Another commenter requested the
OCC to define and explain the term
‘‘significant’’ as used in the current rule
to describe supervisory, CRA, and
compliance concerns and to provide the
17 Ashcroft
v. Iqbal, 556 U.S. 662, 678 (2009).
v. Allain, 478 U.S. 265, 286 (1986).
19 See 5 U.S.C. 556(d) (permitting agency officials
or administrative law judges overseeing formal
rulemaking proceedings to exclude ‘‘irrelevant,
immaterial, or unduly repetitious evidence’’).
20 Cf. Twombly, 550 U.S. at 556 (requiring that an
antitrust complaint contain ‘‘enough fact to raise a
reasonable expectation that discovery will reveal
evidence of illegal agreement’’).
18 Papsan
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criteria it would use to determine the
significance of concerns. In response to
this comment, the OCC intends
‘‘significant’’ as used in the current and
final rule to mean a ‘‘substantive’’
comment that raises material concerns
requiring a longer review period to
determine the impact on the
application. A ‘‘substantive’’ comment
is one that includes specific, concrete
statements raising an issue on the
relevant subject with supporting
argument and material. A comment may
be ‘‘substantive’’ but not ‘‘significant’’ if
it does not raise concerns for which the
OCC would need a longer time period
to review to determine their impact on
the application (e.g., they are relatively
minor or can be addressed in other
ways). The OCC notes that it considers
all comments received.
This commenter also requested that
the final rule clarify whether a ‘‘prior
filing’’ means a filing from the current
filer or a different bank that shares the
same assessment area. This provision is
referring to the current filer. As
requested by the commenter, the final
rule includes language to clarify this
point.
Current § 5.13(a)(2)(ii) also provides
that the OCC will not change the
expedited procedures if the adverse
comment raises a CRA concern that the
OCC determines has been satisfactorily
resolved. The current rule states that the
OCC considers a CRA concern to be
satisfactorily resolved if the OCC
previously reviewed (e.g., in an
examination or application) a concern
presenting substantially the same issue
in substantially the same assessment
area during substantially the same time,
and the OCC determines that the
concern would not warrant denial or
imposition of a condition on approval of
the application. The OCC proposed
amending this provision to expand what
is meant by ‘‘previously reviewed’’ to
include other supervisory activity, in
addition to an examination, and a prior
filing, which includes notices and
applications.
One commenter read this proposed
amendment to mean that the OCC
would not consider a comment to be
substantive if it addresses an issue the
OCC previously resolved during an
examination or application and as such
opposed this change, noting that it
would increase the arbitrariness of the
OCC’s rulings. However, the commenter
misreads the proposal. The proposal
does not classify an already addressed
issue as non-substantive. Instead, a CRA
concern that has been satisfactorily
resolved is currently, and remains in the
final rule, a separate basis for not
changing expedited processing under
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§ 5.13(a)(2). The only proposed change
to this provision was to broaden the
types of activities in which the concern
had already been addressed. The
commenter does not address this aspect
of the proposal. Further, as stated in the
‘‘Public Notice and Comments’’ booklet
of the Comptroller’s Licensing Manual,
‘‘[t]he OCC construes these standards
[for satisfactorily resolved CRA
concerns] narrowly. The OCC may
consider a CRA concern to be
unresolved, for example, if the agency
receives new information on a matter
that it reviewed previously.’’ 21
The OCC also proposed amending the
introductory text to paragraph (a)(2) to
reflect that some expedited review
procedures in part 5 do not require the
national bank or Federal savings
association to be an eligible bank or
eligible savings association, as defined
in § 5.3. In addition, the OCC proposed
clarifying paragraphs (a)(2)(i) and (ii) by
revising the punctuation and sentence
structure so that it is easier to read.
For these reasons, the OCC adopts
these proposed amendments to § 5.13
(a)(2) with the change discussed above.
Additionally, the OCC is making
additional technical amendments to
paragraph (a)(2)(iii) to conform with the
general change in terminology from
‘‘application’’ to ‘‘filing’’ in rules of
general applicability.
Paragraph (h) of § 5.13 provides that
the OCC may nullify a decision on a
filing if: (1) The OCC discovers a
material misrepresentation or omission
after the OCC has rendered a decision
on the filing; (2) the decision is contrary
to law, regulation, or OCC policy; or (3)
the OCC granted the decision due to
clerical or administrative error or a
material mistake of law or fact. The
OCC’s decisions on filings generally
contain a statement that the ‘‘OCC may
modify, suspend or rescind this
approval if a material change in the
information on which the OCC relied
occurs prior to the date of the
transaction to which the decision
pertains.’’ The OCC proposed revising
paragraph (h) to clarify that the OCC
may nullify a decision on a filing either
prior to or after consummation of the
transaction and that the OCC may
nullify a decision based on a material
misrepresentation or omission in any
21 ‘‘Public Notice and Comments’’ booklet of the
Comptroller’s Licensing Manual, Version 1.1, Nov.
2017, p. 8. The OCC note’s that one commenter
requested that this language regarding new
information be included in the regulatory text.
However, the OCC believes that it is not necessary
to include this language in the rule, and that the
inclusion of this language in the Supplementary
Information of this final rule and in the Licensing
Manual provides adequate explanation for how
OCC construes as ‘‘previously reviewed.’’
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information provided to the OCC in the
filing or supporting materials.
Additionally, the OCC proposed adding
a new paragraph (i) that would provide
that the OCC may modify, suspend, or
rescind a decision on a filing if a
material change in the information or
circumstance on which the OCC relied
occurs prior to the date of the
consummation of the transaction to
which the decision pertains. The OCC
received no comments on these
amendments to § 5.13(g) and new
§ 5.13(i) and adopts them as proposed.
As explained in the preamble to the
proposed rule, these revisions are
intended to clarify that nullification is
based on the facts, law, and policy as
they existed at the time of the OCC’s
decision. By contrast, modification,
suspension, or rescission is based on a
change in facts or circumstance from the
time of the OCC’s decision until
consummation of the transaction to
which the decision pertains.
As indicated previously in this
Supplementary Information, the final
rule moves the provisions in current
§ 5.13(h) regarding certification of the
submitted filing and penalties for
material misrepresentation and
omissions in a filing to new paragraph
§ 5.4(g).
Organizing a National Bank or Federal
Savings Association (§ 5.20)
Section 5.20 provides the procedures
and requirements involved in
organizing a de novo national bank or
Federal savings association. The OCC
proposed two new definitions to
§ 5.20(d). First, the OCC proposed
defining ‘‘principal shareholder’’ as a
person who directly or indirectly or
acting in concert with one or more
persons or companies, or together with
members of their immediate family, will
own, control, or hold 10 percent or more
of the stock of the proposed national
bank or Federal savings association.
This definition is consistent with the
definition used in the ‘‘Background
Investigations’’ booklet of the
Comptroller’s Licensing Manual and the
instructions for the Interagency
Biographical and Financial Report.22
The OCC proposed this definition in
conjunction with provisions related to
background checks and fingerprint
collections in § 5.20(i)(3), discussed
below.
Second, the OCC proposed clarifying
that the term ‘‘organizer’’ means a
member of the organizing group. This
22 The Interagency Biographical and Financial
Report is available on the OCC’s website at https://
www.occ.gov/static/licensing/form-ia-biographicalfinancial-report.pdf.
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80409
definition is not clearly stated in current
§ 5.20.
The OCC received no comments on
these new definitions and adopts them
as proposed.
Paragraph (i) contains procedures for
filing a charter application. The OCC
proposed a new paragraph (i)(3)
requiring each proposed organizer,
director, executive officer, or principal
shareholder to submit to the OCC the
information prescribed in the
Interagency Biographical and Financial
Report and legible fingerprints. New
paragraph (i)(3) permits the OCC to
request additional information, if
appropriate, and waive the requirements
of that paragraph if the OCC determines
it to be in the public interest. The OCC
received no comments on this provision
and adopts it as proposed. As discussed
in the ‘‘Charters’’ booklet of the
Comptroller Licensing Manual, the OCC
generally conducts routine background
checks on insiders, including proposed
organizers, directors, executive officers,
and controlling shareholders. This
revision to § 5.20(i), which is consistent
with the final rule’s background
investigation changes in § 5.7(b),
codifies this process and authorizes the
collection of fingerprints for charter
applications.
The OCC also proposed a number of
technical changes to § 5.20. First, in the
definition of ‘‘organizing group’’ in
§ 5.20(d)(7), the OCC proposed to
change the term ‘‘persons’’ to
‘‘individuals’’ to more accurately reflect
who may make up an organizing group.
One commenter stated that further
clarity is needed for changing this term.
The OCC proposed this change to clarify
that only individuals and not entities
may serve in the organizing group, as
provided by 12 U.S.C. 21. Section 21
states that ‘‘[a]ssociations for carrying
on the business of banking . . . . may
be formed by any number of natural
persons, not less in any case than five.’’
However, to be as consistent as possible
with this statute, the final rule instead
changes the term ‘‘persons’’ to ‘‘natural
persons.’’ Although 12 U.S.C. 21 only
applies to national banks, this
definitional change applies to both
national banks and Federal savings
associations. Second, in § 5.20(g)(4)(ii),
the OCC proposed to change the phrase
‘‘withdrawal of preliminary approval’’
to ‘‘nullification or rescission of
preliminary approval’’ to align with the
terminology in proposed §§ 5.13(h) and
(i). Third, in § 5.20(i), the OCC proposed
to change the term ‘‘spokesperson’’ to
‘‘contact person’’ in redesignated
paragraph (i)(5) to conform to the use of
this term in other paragraphs of this
section. Fourth, in redesignated
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paragraph (i)(5), the OCC proposed to
change the term ‘‘interested parties’’ to
‘‘relevant parties,’’ which more
accurately describes who the OCC
should notify of its decision on an
application. Lastly, the OCC proposed to
remove the reference to 12 CFR part 197
in § 5.20(i), redesignated paragraph
(i)(6)(iii), because the OCC has removed
this regulation. The remaining citation,
12 CFR part 16, now applies to both
national banks and Federal savings
associations. The OCC received no
comments on these technical changes
and therefore adopts them as proposed,
with an additional technical correction
of cross-references in redesignated
paragraph (i)(6)(i).
The final rule makes one new
technical correction to § 5.20. It removes
the reference to 12 CFR part 195, the
Federal savings association CRA rule, in
§ 5.20(e)(2)(ii) as of December 11, 2020.
The OCC recently amended 12 CFR part
25 to include Federal savings
associations and removed 12 CFR part
195 as of October 1, 2020.23
Federal Mutual Savings Association
Charter and Bylaws (§ 5.21)
Section 5.21 governs the procedures
and requirements for charters and
bylaws of Federal mutual savings
associations. Pursuant to paragraph
(f)(2), charter amendments are generally
subject to prior approval by the OCC
although, under paragraph (g), most
applications for charter amendments are
subject to expedited review and deemed
approved as of the 30th day after filing
unless the OCC notifies the filer that it
has denied the amendment, or the
amendment is not eligible for expedited
review. An application is not eligible for
expedited review if the charter
amendment would render more difficult
or discourage a merger, proxy contest,
the assumption of control by a mutual
account holder of the association, or the
removal of incumbent management or
involves a significant issue of law or
policy. Paragraph (g) further provides
that a notice is required within 30 days
after adoption if the filer adopts the
optional charter amendments contained
in paragraph (g) without change.
The OCC proposed to reorganize these
provisions to clarify the procedures
Federal mutual savings associations
must follow in adopting charter
amendments, to align the terminology in
§ 5.21 with general usage in part 5, and
to make other clarifying changes. As
indicated in the preamble to the
proposed rule, the OCC does not intend
these changes to be substantive. The
OCC received no comments on these
23 See
85 CFR 34734 (June 5, 2020).
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amendments to § 5.21 and adopts them
as proposed, with technical
amendments. Specifically, the final rule
amends paragraphs (j)(2) to reflect the
changes made by the OCC’s interim
final rule on Director, Shareholder, and
Member Meetings.24 These amendments
do not make any substantive changes to
paragraph (j)(2) as proposed.
As a result of the final rule, all of this
section’s procedural requirements for
adopting charter amendments are
located in paragraph (f)(2). These
amendments clarify that charter
amendments are subject to a three-part
regime: Application with expedited
review, standard application, or notice.
As a result, revised paragraph (g) now
only contains provisions relating to
optional charter amendments.
Additionally, the final rule adds a new
paragraph (f)(3) specifying that a charter
amendment is effective once it is: (1)
Approved by the OCC, if approval is
required under paragraph (f)(2); and (2)
adopted by the association provided the
association follows the requirements of
its charter in adopting the amendment.
The final rule also makes a clarifying
amendment to paragraph (g)(2) to reflect
that change of a Federal savings
association’s title does not require prior
OCC notice under § 5.42, as is implied
by the current paragraph (g)(2).25 The
24 See 85 FR 31943 (May 28, 2020). Because the
final rule includes the changes made by the interim
final rule, the OCC is not issuing a separate
rulemaking to finalize the part 5 changes made by
the interim final rule. Among other things, this
interim final rule amended §§ 5.21 and 5.22 to
permit an association’s bylaws to provide for
telephonic or electronic participation of members
and shareholders, as applicable, at both annual and
special meetings. These amendments also provide
that members or shareholders participating
telephonically or electronically at these meetings
will be deemed present in person for purposes of
the quorum requirement in §§ 5.21(j)(2)(v) or
5.22(k)(5), as applicable. In addition, this interim
final rule requires Federal savings associations to
have procedures in place for telephonic and
electronic participation and provides associations
with a choice of procedures to follow based on
elected State corporate governance procedures, the
Delaware General Corporation Law, or the Model
Business Corporation Act. Further, this interim
final rule clarifies that stock Federal savings
associations may provide for telephonic or
electronic participation at all board of directors
meetings, as currently provided for mutual Federal
savings associations. The OCC received one
substantive comment letter on this interim final
rule, which supported its amendments. In response
to a request for comment in the preamble to this
interim final rule, this commenter opposed any new
risk management standards to mitigate any security
risks arising from telephonic or electronic meetings,
noting that new standards would be unnecessary
given current safeguards and regulatory
requirements. The OCC is not imposing any new
risk management standards for telephonic or
electronic meetings through this part 5 final rule.
25 When provisions for Federal savings
associations were added to § 5.42, the OCC did not
include the prior rule’s advance notice requirement.
See 80 FR 28383 (May 15, 2015).
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OCC intends no substantive change with
this amendment.
Current paragraph (j) of § 5.21 governs
the bylaws for Federal mutual savings
associations. Paragraph (j)(2)(viii)
requires the bylaws to specify that the
Federal mutual association’s board of
directors consist of no fewer than five
nor more than fifteen members unless
the OCC has authorized a higher or
lower number. However, unlike the
corresponding provision for Federal
stock savings associations, 12 CFR
5.22(l)(2), paragraph (j)(2)(viii) does not
explicitly address numbers of directors
authorized by the former OTS.
Accordingly, the final rule revises this
paragraph to explicitly acknowledge
that authorizations by the former OTS
remain effective.
Current paragraph (j)(3) contains the
filing requirements for changes to
Federal mutual savings association
bylaws. Currently, all bylaw
amendments require some sort of filing
with the OCC. As with the charter
amendments discussed above, the OCC
reorganizes these provisions in the final
rule to clarify the procedures Federal
mutual savings associations must follow
in adopting bylaw amendments and to
align the terminology with that used in
part 5. The OCC also is eliminating the
filing requirement for savings
associations that adopt without change
the OCC’s model or optional bylaws,
thereby reducing burden for these
Federal mutual savings associations. As
a result, these amendments specify that
bylaw amendments are subject to a fourpart regime: Application with expedited
review, standard application, notice,
and no filing required. As with the
charter amendments, the final rule
provides that a bylaw amendment is
effective after approval by the OCC, if
required, and adoption by the
association, provided that the
association follows the requirements of
its charter and bylaws in adopting the
amendment. Additionally, the final rule
makes two additional technical changes.
First it corrects a cross reference in
paragraph (j)(3)(i)(A) to correctly refer to
paragraph (j)(3)(i)(B). Second, it changes
the heading of proposed paragraph
(j)(3)(ii) from ‘‘Notice requirement’’ to
‘‘Corporate governance election and
notice requirement’’ to better reflect the
subject of this paragraph.
As discussed later in this
Supplementary Information, the OCC
proposed technical changes throughout
part 5, including replacing the word
‘‘shall’’ with another appropriate word
or words. These technical changes, as
well as other minor proposed wording
changes, are included in the model
charter and bylaw provisions provided
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in revised § 5.21. As indicated in the
preamble to the proposed rule, the OCC
does not intend these technical changes
to require any changes on the part of
Federal mutual savings associations that
use the current model language. Further,
the OCC does not intend these technical
changes to have any effect on the
provisions or effectiveness of a Federal
mutual savings association’s current
charter or bylaws.
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Federal Stock Savings Association
Charter and Bylaws (§ 5.22)
Section 5.22 governs the procedures
and requirements for Federal stock
savings association charters and bylaws.
Section 5.22 generally parallels § 5.21,
which applies to Federal mutual savings
association charters and bylaws. The
OCC proposed equivalent changes to
§ 5.22 as proposed for § 5.21. The OCC
also proposed two additional technical
amendments to § 5.22. Section 5.22
contains sample charter and bylaw
provisions, and paragraph (g)(7)
provides an optional ‘‘Section 8’’ for
Federal stock savings association
charters following mutual to stock
conversions. This optional section
contains a definition of ‘‘acting in
concert.’’ The OCC proposed minor
wording changes to this definition for
consistency with the definition of this
term in the OCC’s change in bank
control regulation, § 5.50. The OCC also
proposed correcting a cross-reference to
12 CFR part 192 in paragraph (e). The
OCC received no comments on the
revisions to § 5.22 and adopts them as
proposed, with additional technical
amendments. First, as discussed above
regarding § 5.21, the final rule amends
paragraph (g)(1) to reflect that change of
a Federal savings association’s title does
not require prior OCC notice under
§ 5.42. Second, the final rule corrects
the cross-reference in paragraph (i) to
the form ‘‘Federal stock charter.’’ Third,
the final rule changes the heading in
proposed paragraph (j)(2)(ii) from
‘‘Notice requirement’’ to ‘‘Corporate
governance election and notice
requirement’’ to better reflect the subject
of this paragraph. Fourth, the final rule
amends paragraphs (k)(1) and (l)(3) and
(8) to reflect the changes made by the
OCC’s interim final rule on Director,
Shareholder, and Member Meetings.26
Fifth, the final rule corrects crossreferences in paragraphs (k)(2) and
(k)(4)(ii). Finally, the final rule amends
paragraph (m)(2) to remove the sentence
that provides that employment contracts
shall conform with 12 CFR 163.39
26 See
85 FR 31943 (May 28, 2020).
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because the OCC removed § 163.39 in a
separate final rule.27
Conversion To Become a Federal
Savings Association (§ 5.23) and
Conversion To Become a National Bank
(§ 5.24)
Sections 5.23 and 5.24 are largely
parallel rules that provide the
procedures and standards for OCC
review and approval of an application
by an institution to convert to a Federal
savings association or national bank,
respectively. The OCC proposed a
number of amendments to these
sections and did not receive any
comments. Therefore, the OCC adopts
these amendments as proposed.
First, § 5.23(d)(2)(ii)(A) and
5.24(e)(2)(i) each require the president
or other duly authorized officer to sign
the conversion application. OCC
applications also require an authorized
signature. However, these sections are
the only provisions in part 5 that require
an authorized officer to sign the
application. The final rule removes
§§ 5.23(d)(2)(ii)(A) and 5.24(e)(2)(i)
because the OCC does not find it
necessary to specify this signature
requirement in a regulation.
Second, the ‘‘Conversions to Federal
Charter’’ booklet of the Comptroller’s
Licensing Manual indicates that filers
should include a list of directors and
senior executive officers of the
converting institution as well as a list of
individuals, directors, and shareholders
who directly or indirectly, or acting in
concert with one or more persons or
companies, or together with members of
their immediate family, do or will own,
control, or hold 10 percent or more of
the converting institution’s stock. It is
necessary for the OCC to have a
complete list of these individuals
because the OCC generally conducts
routine background investigations as
part of the application process. The final
rule codifies these requirements in
§§ 5.23(d)(2)(ii) and 5.24(e)(2).
Additionally, the final rule makes a
technical change to redesignated
§ 5.23(d)(2)(ii)(F) to correctly reference
§ 5.58 for Federal savings association
equity investments, rather than § 5.36,
which applies to national banks.
Furthermore, as proposed, the final
rule adds a new paragraph to each of
these rules, §§ 5.23(d)(2)(iv) and
5.24(e)(4), providing that the OCC may
require directors and senior executive
officers of the converting institution to
submit the Interagency Biographical and
Financial Report and legible
fingerprints. This amendment codifies
the background investigation process set
27 See
PO 00000
85 FR 42630 (July 14, 2020).
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forth in the ‘‘Conversions to Federal
Charter’’ booklet of the Comptroller’s
Licensing Manual and specifically
authorizes the collection of fingerprints
for conversion applications, consistent
with the background investigation
changes proposed to other sections in
this final rule.
Sections 5.23(d)(4) and 5.24(h)
provide for expedited review for
conversion from an eligible national
bank to a Federal savings association,
and vice versa. Currently, this
conversion application is deemed
approved as of the 60th day after the
OCC receives the filing. As noted in the
preamble to the proposed rule, the OCC
believes that it can review and decide
these conversion applications in a
shorter period because it already
supervises an entity eligible to use the
expedited review process. Accordingly,
the final rule decreases the time period
for the expedited review to 45 days. The
final rule also makes a technical change
to § 5.23(d)(4) to remove the modifier
‘‘national’’ before bank as the defined
term in § 5.3 is ‘‘eligible bank.’’ This
deletion does not change the scope of
institutions eligible for expedited
review as only a national bank, and not
a State bank, may be an eligible bank
under the definition in § 5.3.
Fiduciary Powers of National Banks and
Federal Savings Associations (§ 5.26)
Section 5.26 contains the application
requirements and processes for a
national bank or Federal savings
association to engage in the exercise of
fiduciary powers. Paragraph (e)(2)(i)(C)
requires a national bank or Federal
savings association to submit sufficient
biographical information on proposed
trust management personnel as part of
an application for fiduciary powers. The
OCC proposed two changes to this
paragraph and did not receive any
comments. Therefore, the OCC adopts
them as proposed. Because the scope of
the term ‘‘trust management personnel’’
in paragraph (e)(2)(i)(C) is unclear, the
final rule clarifies that the biographical
information is required for proposed
senior trust management personnel, as
identified by the OCC. The final rule
also provides that the application
required in paragraph (e)(2)(i)(C)
include, if requested by the OCC, the
Interagency Biographical and Financial
Report and legible fingerprints for these
individuals, consistent with the
background investigation changes made
to other sections of part 5 by this final
rule.
Section 5.26(e)(6) requires a national
bank or Federal savings association to
submit a written notice to the OCC no
later than 10 days after it begins
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previously approved fiduciary activities
in additional States. The OCC proposed
to reorganize this paragraph with no
substantive changes. No commenters
discussed this reorganization and the
OCC adopts it as proposed. Under the
final rule, paragraph (e)(6)(i) generally
requires a written notice after the
national bank or Federal savings
association begins any of the activities
specified in 12 CFR 9.7(d) in a new
State. Paragraph (e)(6)(ii) requires the
notice to include the new States, the
fiduciary activities to be conducted, and
the extent to which the activities differ
materially from the fiduciary activities
currently conducted. Paragraph
(e)(6)(iii) provides that no notice is
required if the information required by
paragraph (e)(6)(ii) is provided by other
means, such as in a merger application.
Finally, the final rule redesignates
current paragraph (iii), which provides
that no notice is required if the national
bank or Federal savings association is
conducting only activities ancillary to
its fiduciary business through a trust
representative office or otherwise, as
paragraph (iv).
One commenter discussed
§ 5.26(e)(5), which the OCC did not
propose to amend. This provision
requires a national bank or Federal
savings association that has ceased to
conduct previously approved fiduciary
powers for 18 consecutive months to
provide the OCC with a new notice as
set forth by this section 60 days prior to
commencing any fiduciary activity. The
commenter requested that the OCC
change this 18 month time period to five
years. The commenter noted that five
years would be consistent with 12
U.S.C. 92a(k), which allows the OCC to
revoke the authority to engage in
fiduciary activities if the national bank
has not exercised it for five consecutive
years. The OCC disagrees with this
commenter’s recommendation and
continues to believe, as discussed when
the OCC originally adopted this
requirement in 2015, that an 18-month
time period is appropriate to ensure that
the management and condition of a
national bank or Federal savings
association has not changed since the
OCC’s original approval of the fiduciary
activities.28 Further, this 18-month
notification period enables the OCC to
allocate supervisory resources to
evaluate the institution when it resumes
fiduciary activities. Lastly, § 5.26(e)(5)
requires notice to the OCC, and not OCC
approval. Therefore, the OCC does not
find this requirement to be overly
burdensome.
28 See
80 FR 28345, at 28365 (May 18, 2015).
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Establishment, Acquisition, and
Relocation of a Branch of a National
Bank (§ 5.30)
Section 5.30 describes the application
procedures to establish and relocate a
national bank branch. Paragraph (d)
provides definitions applicable to
§ 5.30. The OCC proposed two
amendments to paragraph (d). First,
paragraph (d)(1)(i) lists certain types of
facilities that are considered branches.
The OCC proposed to reorder this list so
that the reference to 12 U.S.C. 36(c)
applies only to seasonal agencies and
not to the other types of facilities.
Second, paragraph (d)(1)(iii) specifies
that remote service units (RSUs) and
certain types of offices are not within
the definition of ‘‘branch.’’ The OCC
proposed to clarify this provision by
adding both a cross-reference to the
description of RSUs contained in 12
CFR 7.4003 29 and a reference to
automated teller machines (ATMs),
including interactive ATMs, codifying
OCC Interpretive Letter No. 1165
(August 2019).30 As discussed in this
interpretive letter, a national bank
establishment of an interactive ATM
does not constitute establishing a
branch if the machine meets the
definition of an ATM used for purposes
of 12 U.S.C. 36 consistent with OCC
interpretations, and the nature of the
interactions between the customer and
remote bank personnel are delimited as
would be the case with an RSU. The
OCC received no comments on these
amendments and adopts them as
proposed.
One commenter requested that the
OCC amend the definition of ‘‘mobile
branch’’ in § 5.30(d)(5) to clarify that a
mobile branch may be located at one
location for up to four months without
requiring an application for a temporary
branch. Currently, paragraph (d)(5)
defines ‘‘mobile branch’’ as a branch of
a national bank, other than a messenger
service branch, that does not have a
single, permanent site, and includes a
vehicle that travels to various public
locations to enable customers to
conduct their banking business.
Pursuant to this definition, a mobile
branch may provide services at various
regularly scheduled locations or it may
be open at irregular times and locations
29 The OCC notes that it has proposed to
renumber 12 CFR 7.4003 to 12 CFR 7.1027 in a
separate rulemaking. See 85 FR 40794 (July 7,
2020). The OCC will update this cross-reference in
§ 5.30 if it finalizes this renumbering.
30 OCC Interpretive Letter No. 1165, Legal
Requirements for the Establishment of Interactive
Automated Teller Machines (August 2019),
available at https://www.occ.gov/topics/chartersand-licensing/interpretations-and-actions/2019/
int1165.pdf.
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such as at county fairs, sporting events,
or school registration periods. The OCC
agrees that the rule does not clearly
indicate how long a mobile branch may
serve one location before losing its
status as a mobile branch and that
clarity and uniformity on this point
would be helpful. Further, the OCC
finds that locating a mobile branch at
one location for a limited period of time
without having to continuously move it
back and forth to this location to
prevent it from losing its status as a
mobile branch would be useful in
certain circumstances, especially during
emergency situations such as weatherrelated emergencies or during the
current COVID–19 pandemic. Therefore,
the OCC is clarifying in the final rule
that a mobile branch may be stationed
continuously at a single location within
the geographic area it is approved to
serve for a period of up to four months.
The OCC views this new language as
interpretive. The OCC notes that a
mobile branch is only permitted in
States where a State bank is permitted
to establish a mobile branch. Because
State statutes restricting mobile branch
locations are applicable to national
banks, if a State statute restricts how
long a mobile branch could serve a
given location, that restriction is
applicable to national bank mobile
branches in that State.
In the preamble to the proposed rule,
the OCC noted that it is considering one
additional change to the definition of
‘‘branch’’ in paragraph (d). Paragraph
(d)(1)(ii)(B) provides that a facility is not
a branch if it is located at the site, or is
an extension, of an approved main
office or branch office of the national
bank. The rule further provides that the
OCC determines whether a facility is an
extension of an existing main office or
branch office on a case-by-case basis.
However, the rule deems a drive-in or
pedestrian facility located within 500
feet of a public entrance to an existing
main office or branch office to be an
extension of the existing main office or
branch office, provided the functions
performed at the drive-in or pedestrian
facility are limited to functions that are
ordinarily performed at a teller window,
without the OCC’s case-by case analysis.
The OCC requested comment on
expanding this 500 foot distance to
1,500 feet. One commenter supported
this increase. However, after further
review, the OCC has concluded that 500
feet is a more appropriate limit for a
facility to have the benefit of automatic
treatment as an extension of the main
office or branch.31 Furthermore, a
31 The OCC also stated that it was considering the
same change for a drive-in or pedestrian office of
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facility at a distance greater than 500
feet may still be considered an
extension of the main office or branch
based on the OCC’s case-by-case
analysis. The OCC believes this current
rule provides adequate flexibility
without the need to increase the
regulatory distance threshold.
Finally, the OCC proposed a technical
change to paragraph (f), which provides
the procedures for establishing a
national bank branch. Paragraph (f)(1)
requires each national bank that
proposes to establish a branch to submit
an application to the OCC, except in the
case of messenger services as specified
in paragraph (f)(2). However, paragraph
(f)(3) provides that if a national bank
proposes to establish a branch jointly
with one or more national banks or
other depository institutions, only one
of the national banks must submit a
branch application and this bank may
act as agent for the other institutions.
Even if a single application is submitted
for a joint branch, the OCC still
considers the relevant factors for each
national bank. The OCC proposed
including paragraph (f)(3) as an
additional exception to the application
requirement in paragraph (f)(1), thereby
conforming these two paragraphs. The
OCC received no comments on this
change and adopts it as proposed.
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Establishment, Acquisition, and
Relocation of a Branch and
Establishment of an Agency Office of a
Federal Savings Association (§ 5.31)
Section 5.31 describes application
and notice procedures for the
establishment, acquisition, or relocation
of a Federal savings association branch.
Paragraph (j), implementing section
5(m) of the Home Owners’ Loan Act
(HOLA) (12 U.S.C. 1464(m)), requires a
Federal or State savings association to
obtain prior OCC approval to establish
or move a branch or move its principal
office in the District of Columbia. The
OCC proposed to add a new paragraph
(j)(3) to clarify that a branch in the
District of Columbia includes any
location at which accounts are opened,
payments are received, or withdrawals
made, including ATMs that perform one
or more of these functions. This
amendment implements court opinions
finding that ATMs that accept deposits
or disburse funds against a customer’s
account constitute a branch.32 Although
a Federal savings association, in 12 CFR 5.31. To
maintain consistency between national bank and
Federal association rules, the OCC also declines to
move forward with expanding the 500 foot distance
rule to 1,500 feet in § 5.31.
32 See Independent Bankers Ass’n of New York
State, Inc. v. Marine Midland Bank, N.A., 757 F.2d
453, 458 (2d Cir. 1985) (collecting cases).
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Congress amended 12 U.S.C. 36(j) to
remove ATMs and RSUs from the
definition of a national bank ‘‘branch,’’
Congress has not similarly amended
section 5(m) of the HOLA. Therefore,
the OCC and OTS have long taken the
position that an ATM established by a
savings association in the District of
Columbia constitutes a branch requiring
approval. The OCC did not receive any
comments on this proposed amendment
and adopts it as proposed. Because new
paragraph (j)(3) codifies the OCC’s
existing legal interpretation, the OCC
believes that this amendment does not
add any regulatory burden to savings
associations.
Business Combinations Involving a
National Bank or Federal Savings
Association (§ 5.33)
Section 5.33 provides the application
requirements and procedures for
business combinations involving
national banks and Federal savings
associations, such as mergers,
consolidations, and certain purchase
and assumption transactions. The OCC
proposed several changes to this
section.
Paragraph (e) of § 5.33 sets forth
policies the OCC considers when
evaluating business combinations.
Paragraph (e)(1)(ii)(F) provides that the
OCC will not approve a transaction that
would violate the deposit concentration
limit in 12 U.S.C. 1828(c)(13). Only
interstate merger transactions as defined
12 U.S.C. 1828(c)(13)(C)(i) are subject to
this deposit concentration limit. The
OCC proposed adding a reference to 12
U.S.C. 1828(c)(13)(C)(i) in paragraph
(e)(1)(ii)(F) for clarity. The OCC did not
receive any comments on this change
and adopts it as proposed.
Paragraph (e)(1)(iii) provides the
OCC’s policy for evaluating business
combinations under the CRA. Under 12
U.S.C. 2903(a)(2), the OCC must
evaluate an insured national bank’s or
Federal savings association’s CRA
record when evaluating its application
for a business combination. The OCC
proposed three changes to paragraph
(e)(1)(iii). First, the OCC proposed a new
paragraph (e)(1)(iii)(A) to better describe
the OCC’s review of a business
combination and to more closely track
the statutory language under which the
OCC is required to assess the track
record of the applicant. This paragraph
specifies that the OCC takes into
account the filer’s CRA record of
performance in considering an
application for a business combination.
It also states that the OCC’s conclusion
of whether the CRA performance is or
is not consistent with approval of an
application is considered in conjunction
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80413
with the other factors in § 5.33,
codifying the OCC’s practice of
evaluating all policy factors in light of
the whole application as set forth in the
OCC’s Policies and Procedures Manual
(PPM–6300–2).
One commenter supported the
clarification that the OCC will consider
the institution’s CRA’s performance in
conjunction with the other factors in
§ 5.33, stating that this change is
consistent with statutory requirements
and codifies existing OCC practice.
Another commenter said that it would
break with precedent to remove the
provision providing that the OCC will
take into account the CRA record of the
target institution. This commenter also
stated that this change would impair the
public’s ability to comment and render
the OCC unable to fully consider the
public benefit of the proposed merger as
required by the CRA statute. The
commenter stated that only a review of
the CRA performance of both the target
and the acquiring bank provides a full
understanding of likely future CRA
performance and the resultant bank’s
ability to meet the convenience and
needs of the communities it serves.
The OCC disagrees with this
commenter. The OCC’s review of an
institution’s CRA performance is
retrospective, while the OCC’s review of
a business combination application is
prospective. As noted in the preamble to
the proposed rule, OCC practice is to
consider and evaluate a filer’s record of
performance under the CRA and, more
broadly, the filer’s plans and ability to
enable the combined organization to
serve the convenience and needs of its
communities. Thus, the target’s CRA
record will inform the convenience and
needs analysis but is not in of itself a
factor in the OCC’s review of the
application. Additionally, the OCC
notes that public benefit is not a
statutory factor the OCC must consider
despite the comment’s reference to it as
such. 33 The OCC therefore adopts this
new paragraph (e)(1)(iii)(A) as proposed.
Second, the OCC proposed a new
paragraph (e)(1)(iii)(B) to recognize the
expanded community reinvestment
compliance review required by 12
U.S.C. 1831u(b)(3) when the filing
national bank would have a branch or
bank affiliate immediately following the
transaction in any State in which the
filer had no branch or bank affiliate
immediately before the transaction.
Specifically, this new paragraph
provides that the OCC considers the
CRA record of performance of the filer
and its resulting bank affiliates and the
filer’s record of compliance with
33 See
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applicable State community
reinvestment laws when required by 12
U.S.C. 1831(b)(3). The OCC received no
comments on this new paragraph and
adopts it as proposed.
Third, the OCC proposed a new
paragraph (e)(1)(iii)(C) requiring the filer
to disclose whether it has entered into
and disclosed a covered agreement, as
defined in 12 CFR 35.2, in accordance
with 12 CFR 35.6 and 35.7. These
regulations implement the CRA
sunshine requirements of section 48 of
the FDI Act, 12 U.S.C. 1831y. Requiring
disclosure of any covered agreements
will better permit the OCC to review the
filer’s CRA record and any CRA-related
comments on the filing. One commenter
supported the disclosure of these
covered agreements. Therefore, the OCC
adopts this new paragraph as proposed.
The final rule also includes a technical
amendment that changes the heading of
paragraph (e) from ‘‘Policy’’ to ‘‘Policy
and related filing requirements’’ to
better reflect the contents of this
paragraph.
This commenter also stated that the
regulators should work with community
groups and banks on the development of
a process for recognizing these
agreements during the merger
application process and for their
implementation to become a factor on
CRA performance evaluations. The OCC
agrees that these agreements may
provide the OCC with context on the
credit needs of the community served
during the application process.
However, the OCC and the other Federal
banking regulators have long held the
position that these agreements are
private agreements between depository
institutions and private parties.
Therefore, the Federal banking
regulators do not monitor compliance
with, nor enforce, these agreements.34
Because they are private agreements, a
bank’s compliance with these
agreements should not be a factor in the
OCC’s decision on an application.
The OCC noted in the preamble to the
proposed rule that it is considering
whether to require a filer to memorialize
and publish any discussion between the
filer and any third party with respect to
the development of any community
reinvestment plan, community benefit
plan, or similar plan in connection with
a business combination. Two
commenters opposed this idea. One
commenter stated that the requirement
to memorialize discussions would be
burdensome, frivolous, and extraneous
because all relevant information is
34 See the Interagency Questions and Answers
Regarding Community Reinvestment, Q&A § __
.29(b)—2, 81 FR 48506 (July 25, 2016).
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included in the final plan. This
commenter also stated that such a
requirement may cause disagreements
about what is covered and what
constitutes an acceptable level of
memorialization. In addition, this
commenter noted that this requirement
would discourage community
participation in discussions for these
agreements. The second commenter
stated that this requirement could have
a chilling effect on discussions between
filers and third parties causing them to
be less candid during these discussions,
reducing the likelihood of reaching an
agreement. This commenter also stated
that the filer and third party may
disagree in the way in which the
discussion has been memorialized.
Lastly this commenter noted that this
requirement would duplicate the CRA
sunshine requirements in 12 CFR part
35, which provides the circumstances
under which these discussions should
be made public.
The OCC disagrees with these
comments and is adding a new
paragraph in the final rule requiring that
the national bank or Federal savings
association submitting a business
combination filing must provide
summaries of, or documents relating to,
all substantive discussions with respect
to the development of the content of a
covered agreement submitted pursuant
to new paragraph (e)(1)(iii)(C)(1). This
summary must include the names of
participants, dates, and synopsis of
these discussions. The OCC believes
that memorializing and disclosing
discussions between a national bank or
Federal savings association and a
community group during the
development of an agreement promotes
transparency and results in a fairer and
more robust agreement for both the
financial institution and the community
served by the institution, furthering the
intent of the CRA Sunshine statute as
well as providing the OCC with
additional context during the
application process on the credit needs
of the community served. The OCC does
not expect minor or trivial
communications to be memorialized; for
example, discussions regarding
scheduling or staffing need not be
documented. However, national banks
and Federal savings associations will
need to memorialize and disclose
substantive discussions pertaining to
the content of a plan. This
documentation may consist of
summaries or transcripts of the
discussions, or work product produced
to further the negotiations, such as
summaries of suggested terms of the
plan. Further, to avoid conflicts between
PO 00000
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the institution and the community
group, the institution may share the
documentation with the community
group prior to disclosure. Because
national banks and Federal savings
associations already should be
documenting these discussions in the
course of normal business operations,
and because many of the documents are
already produced as part of the
negotiating process, the OCC believes
that any additional burden placed on
banks and savings associations will be
minimal and will be outweighed by the
benefit of ensuring transparency in the
development of these plans in
connection with a business
combination.
The OCC also proposed a new
paragraph (e)(1)(iv) to state that the OCC
considers the standards and
requirements contained in 12 U.S.C.
1831u for interstate merger transactions
between insured banks, when
applicable. Current paragraph (h)
describes the application of 12 U.S.C.
1831u to combinations between insured
banks with different home states. As
part of the reorganization of paragraphs
(g) and (h), discussed below, the OCC
proposed instead to include its review
of the 12 U.S.C. 1831u factors in
paragraph (e)(1) for clarity. The OCC
received no comments on this change
and adopts it as proposed.
Paragraph (e)(8)(ii) requires a national
bank or Federal savings association with
one or more classes of securities subject
to registration under sections 12(b) or (g)
of the Securities Exchange Act of 1934
to file preliminary proxy material or
information statements with the
Director, Securities and Corporate
Practices Division (SCP) of the OCC. As
a result of an internal reorganization,
the OCC proposed replacing the
reference to SCP in paragraph (e)(8)(ii)
with the OCC Chief Counsel’s Office.
The OCC received no comments on this
change and adopts it as proposed.
Paragraph (g) provides procedures for
different types of consolidations and
mergers. Paragraph (o) provides general
procedures for approval of Federal
savings association business
combinations. These paragraphs provide
detailed procedures for national banks
and Federal savings associations
engaging in several different types of
business combinations. Some of these
requirements are imposed by statute.
Specifically, 12 U.S.C. 215 and 215a
provide procedures for consolidations
and mergers, respectively, between
national banks and State or national
banks located in the same State
resulting in a national bank. Similarly,
12 U.S.C. 214 through 214d provide
procedures for consolidations and
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mergers between national banks and
State banks located in the same State
resulting in a State bank. Other
consolidation and merger transactions
described in § 5.33 do not have any
statutory procedures, including
interstate consolidations and mergers
involving a national bank under 12
U.S.C. 215a–1; consolidations and
mergers of national banks and Federal
savings associations under 12 U.S.C.
215c and 1467a(s); consolidations and
mergers of Federal savings associations
and State banks, State savings
associations, State trust companies, or
credit unions under 12 U.S.C.
1464(d)(3)(A) and 1467a(s); and mergers
of national banks with their non-bank
affiliates under 12 U.S.C. 215a–3.
In order to increase flexibility and
reduce regulatory burden for national
banks and Federal savings associations
involved in business combinations for
which procedural requirements are not
specified by statute, the OCC proposed
a number of changes to these procedural
provisions. First, the OCC proposed that
a national bank may follow the
procedures for mergers and
consolidations under sections 2 and 3 of
the National Bank Consolidation and
Merger Act (NBCMA) currently
provided in paragraph (g) for the
specific transaction.
Second, the OCC proposed that a
national bank or Federal savings
association may elect to follow the
procedures applicable to a State bank or
State savings association, respectively,
chartered by the State in which the
national bank’s main office or the
Federal savings association’s home
office is located. In connection with this
election, the OCC proposed rules of
construction so that the State
procedures function logically for
national banks and Federal savings
associations. Specifically, any
references to a State agency in the
applicable State procedures would be
read as referring to the OCC.
Additionally, unless otherwise specified
in Federal law, all filings required by
the applicable State procedures would
be made to the OCC. Requiring filings
prescribed by State law to be made with
the OCC, rather than a State agency, is
consistent with past OCC practice for
certain transactions under State
corporate governance procedures
adopted pursuant to 12 CFR 7.2000.35
Third, the OCC proposed that the
national bank or Federal savings
association that is the acquiring
institution in a transaction may follow
a de minimis procedure that does not
e.g., OCC Conditional Approval No. 859
(July 2008).
require a shareholder vote pursuant to
proposed § 5.33(p) if certain criteria are
met. Proposed § 5.33(p) is similar to the
de minimis exception to general
shareholder voting requirements for
Federal stock savings associations in
current § 5.33(o)(3)(ii), which applies if
the transaction does not involve an
interim savings association; the Federal
savings association charter does not
change; each share of stock outstanding
will be identical to an outstanding share
or treasury share after the effective date
of the transaction; and either no stock or
securities convertible into stock will be
issued or delivered under the plan of
combination, or the authorized unissued
shares or treasury shares of the resulting
Federal savings association to be issued
or delivered, plus those initially
issuable upon conversion of any
securities to be issued or delivered, do
not exceed 15 percent of the total shares
of voting stock outstanding immediately
prior to the effective date of the
consolidation or merger.
The OCC proposed making this de
minimis exception available to a
national bank engaging in transactions
not subject to statutory procedural
requirements as well as a Federal stock
savings association in new paragraph (p)
with two revisions. First, the OCC
proposed permitting certain
combinations involving an interim bank
or savings association. Specifically, a
national bank or Federal stock savings
association engaging in a transaction
involving an interim bank or interim
saving association would potentially be
able to use the procedures in paragraph
(p) if the existing shareholders of the
national bank or Federal stock savings
association would directly hold the
shares of the resulting national bank or
Federal stock savings association. In
promulgating an amendment to the
predecessor to current § 5.33(o)(3)(ii),
the Federal Home Loan Bank Board, the
predecessor to OTS, stated that
‘‘[a]lthough the ownership interests of
shareholders of a reorganizing
association generally do not undergo
substantive change upon a
reorganization into holding company
form, the Board believes that
shareholders should, nevertheless, be
given an opportunity to approve or
disapprove a plan of reorganization.’’ 36
The OCC believes that in a transaction
involving reorganization into a holding
company structure, shareholders of the
national bank or Federal stock savings
association should have the opportunity
to vote. However, the OCC believes that
a national bank or Federal stock savings
association may engage in transactions
35 See,
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involving interim banks or savings
association that do not involve holding
company reorganizations where
shareholder votes are not necessary, if
the rest of the requirements of proposed
paragraph (p) are met.
Second, to provide additional
flexibility, the OCC also proposed
increasing the maximum issuance of
shares eligible under this procedure for
both national banks and Federal savings
associations from 15 percent of total
outstanding shares to 20 percent. This
change mirrors the 20 percent threshold
in similar procedures under Delaware
law.37
The new procedural options
described above would apply to: (1)
Consolidations and mergers of national
banks and Federal savings associations
under 12 U.S.C. 215c and 1467a(s),
resulting in either a national bank or
Federal savings association; (2)
consolidations and mergers of Federal
savings associations and State banks,
State savings associations, State trust
companies, or credit unions under 12
U.S.C. 1464(d)(3)(A) and 1467a(s),
resulting in either a Federal savings
association or another entity; and (3)
mergers of national banks with their
non-bank affiliates under 12 U.S.C.
215a–3, resulting in either a national
bank or a non-bank affiliate.
The new procedural options also
would apply to interstate consolidations
and mergers involving a national bank
under 12 U.S.C. 215a–1 based on a
revised analysis of the NBCMA. As
indicated in the preamble to the
proposed rule, the OCC formerly opined
in licensing decisions that 12 U.S.C.
215a–1 incorporates the provisions of 12
U.S.C. 215 for consolidations and 12
U.S.C. 215a for mergers.38 Twelve
U.S.C. 215a–1 is the codification of
section 4 of the NBCMA, which was
enacted by section 102(b)(4)(D) of the
Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994.39
Twelve U.S.C. 215 and 215a are
codifications of sections 2 and 3 of the
NBCMA, respectively. Section 4 of the
NBCMA states that ‘‘a national bank
may engage in a consolidation or merger
under this Act with an out-of-State bank
if the consolidation or merger is
approved’’ (emphasis added) 40 under
12 U.S.C. 1831u, which sets out
requirements for interstate mergers of
insured banks. In prior licensing
decisions, the OCC interpreted ‘‘under
this Act’’ to mean that an interstate
37 See
Del. Code Ann. tit. 8, § 251(f).
e.g., OCC CRA Decision No. 94 (June
38 See,
1999).
39 Public Law 103–328, 108 Stat. 2338, 2351.
40 12 U.S.C. 215a–1(a).
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consolidation or merger authorized
under section 4 of the NBCMA is a
consolidation or merger under section 2
or 3 of the NBCMA, respectively, and
thus subject to the procedural
provisions of those sections with respect
to shareholder vote, dissenter’s rights,
and other matters as well as the
substantive provisions addressing
corporate succession, transfer of assets,
liabilities, property, rights and interests
including fiduciary appointments, and
the status of the resulting bank
(collectively ‘‘corporate succession
provisions’’). In other words, section 4
extended sections 2 and 3, which cover
consolidations and mergers between
banks located in the same state, to also
cover consolidations and mergers
between banks with different home
states. The OCC therefore implemented
the NBCMA in § 5.33(h) by applying
these provisions of sections 2 and 3 of
the NBCMA to transactions authorized
under section 4 of the NBCMA.
However, after further analysis, the
OCC believes that the proper reading of
section 4 of the NBCMA is that it does
not directly incorporate any provisions
of sections 2 or 3 of the NBCMA. As
noted above, the OCC previously
focused on the phrase ‘‘under this Act’’
as imposing the requirements of
sections 2 and 3 on a merger conducted
under section 4. However, the statutory
language is ambiguous and does not
require the OCC to incorporate any of
the provisions in sections 2 or 3 of the
NBCMA. Upon further consideration,
the OCC believes the text taken in its
entirety may be read as merely
specifying the source of the authority
and imposing the requirement that the
consolidation or merger be approved
under section 1831u, but not imposing
additional requirements or conditions
with which the bank must comply. As
there are no other sections of the
NBCMA under which an interstate
merger between banks with different
home States could be conducted in
cases in which the acquiring bank does
not have branches in the same State as
the target bank, 41 ‘‘under this Act’’ can
be read to refer only to section 4 itself.
Since section 4 of the NBCMA, 12
U.S.C. 215a–1, does not contain any
substantive or procedural provisions,
there are no statutory procedures for
41 An acquiring bank that has branches in the
same State as the target bank but has a different
home State than the target bank is also ‘‘located’’
in the same State as the target bank for purposes
of sections 2 or 3. In this case, while the banks have
different home states, the transaction can be
conducted either under section 4 or under sections
2 or 3. See Ghiglieri v. NationsBank of Texas, N.A.,
1998 U.S. Dist. LEXIS 6637 (N.D. Texas, May 6,
1998); OCC Corporate Decision No. 98–19 (April 2,
1998).
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interstate bank mergers under 12 U.S.C.
215a–1 resulting in a national bank.
Therefore, the new proposed procedures
described above apply to these section
4 transactions.
In addition to new paragraph (p), the
OCC proposed implementing the
changes discussed above through
revisions to paragraphs (g), (h), and (o).
Specifically, the OCC proposed
redesignating current paragraphs (g)(2),
(g)(3), (g)(6), and (g)(7) as paragraphs
(g)(3), (g)(6), (g)(7), and (g)(9),
respectively. The proposal included
new paragraph (g)(2) that provides
procedures for interstate consolidations
and mergers under 12 U.S.C. 215a–1
resulting in a national bank and
paragraph (g)(8) providing procedures
for interstate mergers between an
insured national bank and an insured
State bank resulting in a State bank.
Procedures for these transactions are
currently contained in paragraph (h).
New paragraphs (g)(2) and (g)(8) include
an option to follow the procedures for
intrastate mergers resulting in a national
bank or State bank in paragraphs (g)(1)
and redesignated paragraph (g)(7),
respectively. The proposal also included
in new and redesignated paragraphs
(g)(2), (g)(3), (g)(4), (g)(5), (g)(6), and
(g)(8) a reference to a national bank
making an election under paragraph (h).
Revised paragraph (h) would permit a
national bank to elect to follow the
procedures of the laws of the State
which the national bank association has
elected to follow pursuant to 12 CFR
7.2000(b) or to use the de minimis
procedure in new paragraph (p) if
applicable. Further, the proposal
included a new corporate succession
provision in new paragraph (g)(2)(iv) for
interstate mergers resulting in a national
bank to ensure that the resulting bank
succeeds to the rights, franchises, and
interests, including the fiduciary
appointments, of the consolidating or
merging banks. The proposal also
included coordinating revisions to
cross-references to paragraph (g).
For Federal savings associations, the
OCC proposed reorganizing paragraph
(o) to contain the election procedures.
Revised paragraph (o)(1)(i) permits a
Federal savings association to follow the
procedures applicable to a State savings
association chartered by the State where
the Federal savings association’s home
office is located or to follow the
standard procedures in revised
paragraph (o)(2). As discussed above for
national banks, revised paragraph
(o)(1)(ii) would direct Federal savings
associations to read references to State
agencies as the OCC and to make filings
generally with the OCC.
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Revised paragraph (o)(2) would
contain the procedures in current
paragraphs (o)(1) and (o)(3) governing
board and shareholder votes,
respectively. The proposal changed the
de minimis exception to the shareholder
voting requirement in current paragraph
(o)(3)(ii), redesignated by the proposal
as paragraph (o)(2)(ii)(B), to a crossreference to new paragraph (p) and
redesignated current paragraph (o)(2)
regarding the Federal savings
association’s change in name or home
office as paragraph (o)(3). Finally, the
OCC proposed a technical amendment
to revised paragraph (o)(2)(ii)(A),
replacing the citation to 12 CFR 152.4
with the current citation, 12 CFR 5.22.
The OCC received one comment on
these proposed procedures, which
focused on national bank business
combinations conducted under section
4 of the NBCMA. This commenter stated
that the proposal contradicts prior OCC
public precedent. The OCC
acknowledges this is a reversal of the
OCC’s prior interpretation of section 4.
However, an agency is permitted to
change its position on an interpretation
of law.42 As noted above, the statutory
language is ambiguous. The OCC’s
change of position is based on the OCC’s
belief, after further review, that reading
the language in section 4 of the NBCMA
in its entirety as authorizing a
consolidation or merger with an out-ofState bank under the NBCMA if it is
approved pursuant 12 U.S.C. 1831u, but
not importing the substantive or
procedural requirements of sections 2
and 3 into section 4 through oblique
terminology is more in accordance with
the statutory language. Moreover, the
OCC notes that this commenter did not
identify any reliance concerns
implicated by the change in position,
nor did the OCC receive any such
comments from OCC-regulated entities
42 See, e.g., Perez v. Mortgage Bankers
Association, 575 U.S. 92 (2015); Federal
Communications Commission v. Fox Television
Stations, 556 U.S. 502 (2009) (an agency must
provide a reasonable explanation for the change in
position. The depth of explanation depends on the
degree of the change. The agency also should take
into account the reliance interests of parties who
have relied on the agency’s prior interpretation.)
See also National Cable & Telecommunications
Association v. Brand X internet Services., 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); Motor Vehicle
Manufacturers Association of the U.S., Inc. v. State
Farm Mutual Automobile Insurance Company, 463
U.S. 29, 43 (1983) (‘‘agency must examine the
relevant data and articulate a satisfactory
explanation for its action including a ‘rational
connection between the facts found and the choice
made’ ’’).
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that could conceivably have such an
interest.
This commenter also stated that the
proposal contradicts prior OCC
licensing decisions and has
contradictory results, arguing that if
sections 2 and 3 of the NBCMA cannot
now be used to authorize a combination
of a national bank with an out-of-State
bank, then the OCC would need to
reverse its prior interpretation set forth
in previous business combination
approvals that a bank is located in a
State for purposes of sections 2 and 3 by
virtue of having a branch in that State.
The OCC disagrees with this point. As
noted above, sections 2 and 3 authorize
consolidations and mergers between
insured banks that are located in the
same State. Section 4 authorizes mergers
between insured banks with different
home States if the merger is approved
under 12 U.S.C. 1831u. It stands on its
own and is not tied to sections 2 and 3.
However, the OCC is not changing its
interpretation of sections 2 and 3 that
was involved in the prior business
combination approvals to which the
commenter refers, namely, that an
acquiring bank that has a different home
State than the target bank but that has
a branch in the target bank’s State is
located in the target bank’s State for
purposes of section 2 and 3.43 The OCC
continues to believe such banks could
engage in the transaction under the
authority of section 2 or 3 or,
alternatively, could engage in the
transaction under section 4. Neither the
revised interpretation of section 4 nor
the prior interpretation affects the
applicability of sections 2 or 3 to such
transactions. An interstate merger that
must be conducted under section 4
because the acquiring bank is not
located in the same State as the target
bank would be conducted under the
procedures that apply for transactions
under section 4 at the time of the
application (whether the procedures of
section 2 or 3 of the NBCMA as under
the current rule or the procedures
available under the proposed rule).
Thus, the commenter failed to
distinguish between a transaction
conducted under section 4 and
following the procedures of sections 2
or 3, as in the OCC’s prior interpretation
43 See Ghiglieri v. NationsBank of Texas, N.A.,
1998 U.S. Dist. LEXIS 6637 (N.D. Texas, May 6,
1998); OCC Corporate Decision No. 98–19 (April 2,
1998). The prior OCC decisions referred to by the
commenter, Corporate Decision No. 2001–29
(September 28, 2001); Conditional Approval No.
687 (April 25, 2005); Conditional Approval No.
1105 (Aug. 11, 2014), were instances of such
transactions and were conducted under the
authority of section 3, not under section 4.
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of section 4, and a transaction
conducted under sections 2 or 3.
In addition, this commenter argues
that the proposed change may raise
issues with respect to the Tenth
Amendment, citing Hopkins Federal
Savings & Loan Association v. Cleary,44
noting that section 4 does not contain a
‘‘not in contravention of State law’’
provision. Sections 2 and 3 contain such
a provision, and under the OCC’s prior
interpretation of section 4, that
provision would have been incorporated
into section 4. Under the OCC’s new
interpretation, this provision is not
incorporated, and the commenter claims
that raises an issue. The OCC does not
agree that such language is needed in
Section 4. Sections 2 and 3 include
State banks within their scope,
authorizing them to consolidate or
merge with a national bank, but by
virtue of a non-contravention provision
in those sections, a State bank may not
engage in a business combination
pursuant to sections 2 and 3 with a
national bank if it would contravene
State law. However, section 4
(interpreted as a stand-alone provision,
not incorporating sections 2 and 3) is
directed only at national banks; it does
not refer to State banks. Therefore, the
OCC’s proposal with respect to
transactions authorized under section 4
does not affect State banks. A State bank
can engage in an interstate merger with
a national bank if the State bank has
authority to do so under State law.
The commenter similarly suggests
that failure to include a ‘‘not in
contravention of State law’’ provision
with respect to corporate succession in
mergers conducted under section 4
raises issues under Hopkins. However,
as noted, an interstate merger of a
national bank and a State bank under
section 4, resulting in a national bank,
would occur only if the State bank had
authority to engage in the merger under
State law. Moreover, a Federal law
providing for corporate succession and
the transfer of property, fiduciary
appointments, and other relationships
in a merger with a resulting national
bank does not raise the same concerns
as a Federal law purporting to authorize
a State bank to convert into a Federal
institution, as in Hopkins.
Lastly, this commenter stated that the
OCC did not adequately explain the
proposed change regarding interim
transactions appropriate for de minimis
transactions. Per proposed § 5.33(g) and
(o), a national bank or Federal savings
44 296 U.S. 315, 337 (1935) (ruling that a statute
allowing State-chartered institutions to convert to
Federal charters without regard to State law
violated the Tenth Amendment).
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80417
association that is the acquiring
institution in a transaction may elect not
to have a shareholder vote if a vote is
not required by statute and certain
criteria are met, including the de
minimis nature of the transaction. The
proposed de minimis procedures in
§ 5.33(p) are similar to existing Federal
savings association de minimis
procedures except for two changes.
First, they permit the use of the
procedures for transactions that use
interim charters that are not holding
company reorganizations provided that
the existing shareholders of the national
bank or Federal savings association will
directly hold the shares of the resulting
national bank or Federal savings
association and the national bank’s
articles or Federal savings association’s
charter is not changed. Second, they
increase the maximum issuance of
shares under this procedure from 15%
total outstanding shares to 20%. The
current Federal savings association
regulation for de minimis transactions
excludes those involving an interim
because such transactions were
commonly used in a reorganization to
form a holding company and the OCC
believes that shareholders in these
transactions should have a vote.
However, it is possible to have a
transaction that involves an interim in
which the existing institution and its
shareholders continue as the surviving
institution after the transaction in a
manner that meets the requirements set
out in the rule that the existing
shareholders of the national bank or
Federal savings association directly
hold the shares of the resulting national
bank or Federal savings association and
the national bank’s articles or Federal
savings association’s charter is not
changed. In this case, there is no reason
not to allow the acquiring institution to
use the procedures in proposed
paragraph (p).
For the reasons stated above, the OCC
adopts the proposed procedures that a
national bank or Federal savings
association may elect for business
combinations for which there are no
statutory procedural requirements.
Current paragraph (k) of § 5.33
requires a national bank or Federal
savings association engaging in a
consolidation or merger in which it is
not the filer and the resulting institution
to file a notice with the OCC advising
of its intention. This requirement
currently applies even when the
surviving institution is another national
bank or Federal savings association.
Because the OCC already supervises the
surviving institution and has acted on
the application for consolidation or
merger, the OCC proposed removing
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this requirement for the disappearing
national bank or Federal savings
association in this type of transaction
and making a conforming revisions to
paragraph (g). In such a case, the OCC
already has the information that it needs
to process termination and ensure that
the disappearing national bank or
Federal savings association has met all
applicable requirements. The OCC
received one comment on this
provision, which supported the change.
The OCC therefore adopts this change as
proposed. The final rule also makes
technical amendments to crossreferences in paragraph (k)(4).
Current paragraph (n) provides
authority for, and limits on, certain
business combinations for Federal
savings associations. In addition to
consolidations, mergers, and other
specified forms of business
combinations, this paragraph addresses
‘‘other combinations,’’ the definition of
which in § 5.33(d)(10) includes the
transfer of any deposit liabilities to
another insured depository institution,
credit union, or other institution.
Paragraph (n)(2)(iii) provides special
requirements for mutual savings
associations. Specifically, if any
combining savings association is a
mutual savings association, the resulting
institution must be a mutually held
depository institution insured by the
FDIC, unless the transaction is approved
under 12 CFR part 192 governing
mutual to stock conversions or the
transaction involves a mutual holding
company organization under 12 U.S.C.
1467a(o) or a similar transaction under
State law. Under the definition of ‘‘other
combination,’’ § 5.33(n)(2)(iii) applies to
any transfer of deposit liabilities, such
as the sale of a branch, even if the
mutual savings association still exists as
an ongoing institution after the
transaction. Accordingly, a branch sale
would not be permissible unless the sale
is to an insured mutual institution or
either the mutual to stock or mutual
holding company reorganization
exception applied. The OCC proposed
revising paragraph (n)(2)(iii) to state that
a consolidation or merger involving a
mutual savings association or the
transfer of all or substantially all of the
deposits of a mutual savings association
must result in a mutually held
depository institution insured by the
FDIC unless one of the exceptions
applies.
As noted in the preamble to the
proposed rule, the OCC did not intend
paragraph (n)(2)(iii) to apply to this type
of transfer of deposit liabilities when it
last amended this provision in 2015
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(2015 Final Rule).45 In fact, § 5.33(n)(4),
which requires mutual savings
associations to provide notice to
accountholders of a proposed account
transfer and to give them the option of
retaining the account in the transferring
Federal savings association if the
account liabilities are transferred to an
uninsured institution, contemplates just
such an account transfer. In addition,
the anomalous reading of
§ 5.33(n)(2)(iii) was not present in the
pre-integration version of the Federal
savings association combination rules.46
Former 12 CFR 146.2(a)(4) contained a
similar restriction on the resulting
institution being a mutually held
savings association with similar
exceptions. However, § 146.2(a) applied
to combinations, which was defined in
12 CFR 152.13(b)(1) as a merger or
consolidation with another depository
institution, or an acquisition of all or
substantially all of the assets or
assumption of all or substantially all of
the liabilities of a depository institution
by another depository institution.
Accordingly, a branch purchase or other
transfer of less than substantially all
deposits was not a combination and
thus not subject to the restrictions in
§ 146.2(a)(4). Furthermore, in the
preamble to the 2015 Final Rule, the
OCC did not describe paragraph
(n)(2)(iii) as applying to transfers of less
than substantially all deposits.47
The OCC did not receive any
comments on this change to paragraph
(n)(2)(iii) and adopts it as proposed.
The OCC also proposed adding an
additional exception to paragraph
(n)(2)(iii), as new paragraph
(n)(2)(iii)(C). The OCC and OTS have
permitted transactions where a mutual
savings association transferred all of its
deposits to a non-mutual savings
association institution followed by the
voluntarily liquidation of the mutual
savings association. These transactions
are subject to approvals or nonobjections by the OCC. However, the
literal reading of § 5.33(n)(2)(iii) may
not permit such transactions.
Accordingly, the OCC proposed adding
a new exception to the requirement that
the resulting institution be an insured
mutual institution when the transaction
is part of a voluntary liquidation for
which the OCC has provided nonobjection under § 5.48. The OCC
45 80
FR 28346 (May 18, 2015).
2015 Final Rule integrated many licensing
rules that apply to national banks and Federal
savings associations.
47 The OCC stated, ‘‘in a merger or consolidation
with a mutual Federal savings association, a mutual
savings association must be the resulting
institution.’’ 80 FR 28346 at 28374 (May 18, 2015).
46 The
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received no comments on this change
and adopts it as proposed.
Finally, the OCC proposed technical
amendments to paragraph (l) to correct
a typographical error and to revise
paragraph (o)(2)(ii)(A) to replace the
citation to 12 CFR 152.4 with the
current citation, 12 CFR 5.22. The OCC
received no comments on these
technical amendments and adopts them
as proposed. The final rule makes
additional technical amendments to
paragraphs (o)(2)(ii)(A) and (o)(2)(ii)(C)
to correct cross-references, paragraphs
(f)(3) and (g)(6) to properly reflect the
reorganization of paragraph (g), and
paragraph (g) to conform headings to the
plural form.
Two commenters suggested changes
to § 5.33 that were not included in the
proposed rule. One of these commenters
suggested that prefiling discussions
between the OCC and national banks
filing to engage in a business
combination be memorialized and made
public after the bank submits its
application. The OCC notes that § 5.33
does not contain a requirement for
prefiling meetings but that these
meetings may occur. This commenter
asserts that publication of these
discussions would promote fairness and
transparency and deter the OCC from
giving unfair advantage to certain banks.
The OCC disagrees with this
commenter. Prefiling discussions
generally concern confidential business
and often supervisory information,
which may not be disclosed. The OCC
therefore is not including this
suggestion in its final rule.
The other commenter suggested a
change to § 5.33(e)(1)(ii), which lists the
policies that the OCC considers when
evaluating a business combination
under the Bank Merger Act.
Specifically, this commenter requested a
change to paragraph (e)(1)(ii)(D), which
states that the OCC considers the
effectiveness of any insured depository
institution involved in the business
combination in combating money
laundering activities, including in
overseas branches. This commenter
requested that the OCC change this
provision to provide that, as the OCC
proposed with respect to CRA, the
OCC’s conclusion of whether the filer’s
effectiveness in combatting money
laundering activities is consistent with
approval of an application be
considered in conjunction with the
other factors in § 5.33. The OCC
disagrees with the commenter. CRA is a
separate statute and is not included in
the Bank Merger Act. However, 12
U.S.C. 1828(c)(11) requires the OCC to
consider, among other factors, the
effectiveness of insured depository
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institutions’ efforts in combating money
laundering when evaluating proposals
subject to the Bank Merger Act. The
current regulatory text repeats this
statutory requirement. In addition,
banks with significant Bank Secrecy Act
deficiencies may not have the capability
to put in place sufficient controls to
mitigate additional money laundering or
terrorist financing risks associated with
significant corporate activities.
Operating Subsidiaries of a National
Bank (§ 5.34)
Section 5.34 provides the licensing
requirements for a national bank’s
acquisition or establishment of an
operating subsidiary or commencement
of a new activity in an existing
operating subsidiary. Paragraph (e)(2)(i)
specifies what entities may qualify as an
operating subsidiary. Paragraph
(e)(2)(i)(A) requires that the national
bank must have the ability to control the
management and operations of the
subsidiary and no other person or entity
exercises effective operating control
over the subsidiary or has the ability to
influence the subsidiary’s operations to
an extent equal to or greater than that of
the bank. The OCC proposed to clarify
this provision by requiring that no other
person or entity has the ability to
exercise effective control or influence
over the management or operations of
the subsidiary to an extent equal to or
greater than that of the bank or an
operating subsidiary thereof. The OCC
also proposed conforming amendments
to current § 5.34(e)(5)(A)(3)(i),
redesignated by the proposed rule as
§ 5.34(f)(2)(i)(C)(l), which contains a
parallel requirement for operating
subsidiary filings. Redesignated
§ 5.34(f)(2)(i)(C)(l) provides additional
requirements for how the national bank
must effectively control the operating
subsidiary to be eligible to submit a
notice to the OCC instead of an
application to establish or engage in an
activity in an operating subsidiary. The
OCC received no comments on these
changes and adopts them as proposed.
Section 5.34(e)(2)(ii) identifies certain
subsidiaries that are not operating
subsidiaries for purposes of § 5.34. The
OCC proposed to replace the word
‘‘subsidiaries’’ with ‘‘entities’’ to further
clarify the exclusion. The OCC received
no comments on this change and adopts
it as proposed.
The OCC also proposed a new
paragraph (e)(2)(ii)(C) to specify that a
trust formed for purposes of securitizing
assets held by the bank as part of its
banking business would not be
considered an operating subsidiary.
This proposal would codify the OCC’s
position that securitization trusts
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generally do not qualify as operating
subsidiaries because of the bank’s
limited control over the trust and
because beneficial interests in trusts
lack many of the indicia of traditional
equity. The OCC received two
comments on this new paragraph. One
commenter supported removing
securitization trusts from the definition
of operating subsidiary, but also
proposed excluding trusts formed for
the purpose of holding securities, offlease property, real estate, and other
assets held in satisfaction of debt
previously contracted (DPC assets) from
this definition. The OCC does not agree
with this suggested change. The parent
bank likely will have actual control and
management of trusts holding securities,
off-lease property, real estate, and other
DPC assets. Therefore, the reasons for
excluding securitization trusts from the
definition of operating subsidiary are
unlikely to be present for these trusts
identified by the commenter.
A second commenter disagreed with
the proposed change asserting that the
OCC has not indicated any authority for
the proposition that securitization trusts
are not operating subsidiaries or noncontrolling investments. The commenter
also stated that the OCC has not
adequately discussed the intent or
expected impact of the proposal. As
indicted above, the OCC generally has
not treated the securitization trust as an
operating subsidiary. The interests in
securitization trusts typically are not the
equivalent of ‘‘equity’’ for purposes of
12 CFR 5.34, 5.36, 5.38, and 5.58, and
do not provide indicia of ‘‘control’’ for
purposes of 12 CFR 5.34 and 5.38.
Rather, the beneficial interest or any
other interests retained in a
securitization trust are more akin to
economic interests than to traditional
equity interests. The beneficial interests
do not give rise to traditional voting
power associated with equity interests
in a corporation or LLC. Furthermore,
securitization trusts are generally
structured simply as a set of instructions
for administering the securitization that
are difficult to change. Given these
factors, the bank does not control the
trust in the traditional sense of directing
its operations.
For the reasons discussed above, the
OCC adopts new paragraph (e)(2)(ii)(C)
as proposed.
Paragraph (e)(5) of § 5.34 provides the
procedures for operating subsidiary
filings. The OCC proposed to
redesignate the majority of paragraph
(e)(5) as paragraph (f) and to redesignate
current paragraph (e)(6), addressing
grandfathered operating subsidiaries, as
paragraph (g). The OCC also proposed
conforming revisions to cross-
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references. The OCC received no
comments on these technical changes
and adopts them as proposed.
Redesignated § 5.34(f)(2) contains the
requirements for a national bank to
qualify for the notice process for
operating subsidiary filings. In addition
to meeting additional control
requirements and being well capitalized
and well managed, paragraph (f)(2)(i)(A)
permits a national bank to file a notice
instead of an application if the activity
is listed in paragraph (e)(5),
redesignated by the proposal as
paragraph (f)(5). The OCC proposed to
expand the scope of this requirement to
include any activity that is substantively
the same as a previously approved
activity and that will be conducted in
accordance with the same terms and
conditions applicable to the previously
approved activity. As discussed
previously in this Supplementary
Information, the OCC proposed to
define ‘‘previously approved activity’’
in § 5.3 to mean, for national banks, any
activity approved in published OCC
precedent for a national bank, an
operating subsidiary of a national bank,
or a non-controlling investment of a
national bank.48 The OCC noted in the
preamble to the proposed rule that the
expansion of the notice requirement to
activities that are substantively the same
as previously approved activities does
not relieve the national bank from the
requirement to ensure that the operating
subsidiary is only conducting
permissible activities and would not
affect the OCC’s ability to take action if
the OCC finds that the activities are not
permissible or are conducted in an
unsafe or unsound manner.
The proposal also raised as an
alternative removing all filing
requirements for national bank
operating subsidiaries noting that a
filing would not be required if the
activity was conducted in the bank.
Under this alternative, a national bank
would be able to acquire or establish an
operating subsidiary or commence a
new activity in an existing operating
subsidiary without filing a notice or
application if the activity to be engaged
in by the operating subsidiary is a
permissible bank activity, provided the
operating subsidiary meets the
ownership and structural aspects
currently required for notice and the
national bank is well capitalized and
well managed.
One commenter supported this
alternative noting that no filing would
be required if the activity were
performed in the bank and contending
48 As discussed, the final rule changes ‘‘an
activity approved’’ to ‘‘any activity approved.’’
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that there are safety and soundness
reasons to reduce regulatory obstacles to
conducting an activity in an operating
subsidiary.49 However, upon further
consideration, the OCC has determined
not to pursue this alternative at this
time. The OCC would like experience
with the new notice provision for an
activity that is substantively the same as
a previously approved activity before
making a decision on removing all
filings for operating subsidiaries.
Therefore, the OCC is not including this
change in the final rule.
This commenter also argued that the
OCC should extend the proposal to
fiduciary powers, stating that operating
subsidiaries should be able to rely on
the fiduciary powers of the parent
national bank or Federal savings
association without notifying or seeking
approval from the OCC, so long as the
parent national bank or Federal savings
association was not required to notify or
seek approval from the OCC prior to
engaging in permissible bank activities.
The commenter argued that this change
would also obviate the need for many
national banks and Federal savings
associations to register an operating
subsidiary as an investment adviser
under the Investment Advisers Act of
1940 (Advisers Act) when the
subsidiary is exercising its investment
discretion on behalf of its customers or
providing investment advice for a fee
under 12 CFR part 9 and therefore
would substantially reduce regulatory
burden.
The OCC disagrees with this
comment. Regardless of the OCC’s
decision regarding the alternative
proposal, the provision regarding
fiduciary powers and investment advice
activity is special and distinct. Current
§ 5.34(e)(5)(vii)(B) does not require an
investment advisory subsidiary to be
registered. Rather, the provision
provides that if the subsidiary is
registered, the national bank or Federal
savings association need not have
fiduciary powers, but if the subsidiary is
not registered, then the national bank or
Federal savings association must have
fiduciary powers. This requirement is
necessary to ensure that there will be
some applicable law that will govern the
conduct of the subsidiary, whether it is
the Advisers Act or 12 CFR part 9.
49 This commenter also discussed having this
alternative amendment apply to Federal savings
associations. However, this alternative would not
permissible for Federal savings associations because
section 18(m) of the FDI Act (12 U.S.C. 1828(m))
requires a Federal savings associations to file a
notice with the OCC when establishing, acquiring,
or conducting a new activity in an operating
subsidiary.
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The commenter further recommended
that if the OCC does not eliminate
filings for operating subsidiary fiduciary
activities, the OCC should add the
exercise of fiduciary powers to the list
of activities for which no advance filing
is required under 12 CFR 5.34(e)(5)(vi).
The OCC disagrees with this
recommendation because the proposal
to expand the activities eligible for
notice under § 5.34(e)(5)(v) to include
all previously approved activities would
already include most national bank
subsidiary fiduciary activities.
The commenter also argues that
subsidiaries engaging in the activities
listed in § 5.34(e)(5)(v) are an example
of why a bank’s ability to establish an
operating subsidiary should not be tied
to the bank’s management rating, as
required by the proposed definition of
‘‘well managed.’’ The commenter
contends that if a bank is well
capitalized and has a satisfactory
composite rating, it should be able to
establish, without a separate regulatory
approval, a subsidiary to engage in
activities listed in § 5.34(e)(5)(v), such
as the management and disposition of
DPC assets. The commenter requests
that the OCC retain the existing
definition of ‘‘well managed’’ for this
section, instead of the proposed
definition which includes the
management rating. The OCC disagrees
with this comment. If a bank is not
‘‘well managed’’ it may lack sufficient
internal controls and processes to
properly manage an operating
subsidiary, such as one managing DPC
assets. As such, an application should
be required. If the bank is well managed
and well capitalized, it need only file a
notice once, as it can rely on the
provision in current § 5.34(e)(5)(vi) to
form additional subsidiaries engaging in
the same activity without any additional
filing.
The commenter also suggests that, in
the event that the OCC decides to retain
some filing requirements, the OCC use
a notice rather than an application when
a national bank intends to acquire as an
operating subsidiary an entity that
engages in de minimis activities not
permissible for a national bank. The
OCC does not agree with this comment.
Although de minimis-type provisions
did exist in the past, all were removed
after the passage of the Gramm-LeachBliley Act, Public Law 105–102. In
addition, a financial subsidiary provides
an alternative existing mechanism if a
national bank wishes to use a subsidiary
to conduct limited activities not
permissible for a national bank.
For the reasons discussed above, the
OCC adopts redesignated § 5.34(f) as
proposed, with two technical
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amendments. First, the final rule
removes unnecessary cross-references to
§ 5.3 for the definitions of ’’well
capitalized,’’ ‘‘well managed, ’’ and
‘‘previously approved activity.’’ As
indicated above, the definitions in § 5.3
apply to all of part 5 so these crossreferences are unnecessary.
Additionally, the final rule corrects a
cross-reference to redesignated § 5.34(f)
in § 5.34(c) regarding ownership
requirements applying to a foreign bank
rather than its Federal branch. The OCC
inadvertently did not adjust the current
cross-reference in § 5.34(c) to
§ 5.34(e)(5)(i)(B) when it restructured
the rule in 2008.50 The final rule
restores the cross-reference to the
ownership requirement to file a notice
under § 5.34, as was originally
promulgated in 2001.51
Current paragraph (e)(7) requires
national banks to file an annual report
with the OCC describing operating
subsidiaries that do business directly
with consumers. The OCC publishes
this information on its website. The
OCC proposed to remove this
requirement to reduce burden and
because it generally duplicates
information contained elsewhere, such
as the FFIEC’s National Information
Center (NIC). In addition, the majority of
the operating subsidiaries reported are
now subject to the jurisdiction of the
Consumer Financial Protection Bureau,
and not the OCC, for most consumer law
issues. The OCC received one comment
on this proposal. The commenter
supported the proposal and agreed that
the existing regulation is redundant.
The final rule therefore removes the
requirement as proposed.
Bank Service Company Investments by
a National Bank or Federal Savings
Association (§ 5.35)
Section 5.35 addresses national bank
and Federal savings association
investments in bank service companies
as authorized by the Bank Service
Company Act (BSCA) (12 U.S.C. 1861–
1867). Pursuant to section 2 of the BSCA
(12 U.S.C. 1862), paragraph (i) of § 5.35
provides that a national bank or Federal
savings association may not invest more
than 10 percent of its capital and
surplus in a bank service company. In
addition, paragraph (i) also provides
that the national bank’s or Federal
savings association’s total investments
in all bank service companies may not
exceed five percent of the national
bank’s or Federal savings association’s
total assets. However, section 2 of the
BSCA also specifies that the investment
50 See
51 See
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limitations in section 5(c)(4)(B) of the
HOLA apply to Federal savings
associations with regard to bank service
company investments. This limitation is
not currently included in paragraph (i).
Accordingly, the OCC proposed to
revise paragraph (i) to directly reference
the limitations in section 2 of the BSCA.
The OCC also proposed a technical
correction to the title of this section that
would remove the extraneous word
‘‘investment.’’ The OCC received no
comments on the changes it proposed to
§ 5.35 and adopts them in the final rule
as proposed with additional technical
changes. Specifically, the final rule does
not include the unnecessary cross
reference to § 5.3 for the definitions of
‘‘well capitalized’’ and ‘‘well managed’’
in paragraph (f). The final rule also
corrects a reference to the FDI Act in
paragraph (d)(3).
Other Equity Investments by a National
Bank (§ 5.36)
Section 5.36 provides the procedures
for national banks to make certain types
of equity investments. Paragraphs (e)
and (f) provide the procedures and
requirements for a national bank to
make a non-controlling investment that
is not prescribed by other OCC rules.
The OCC proposed to clarify the types
of national bank equity investments that
are subject to § 5.36 by adding a new
definition to paragraph (c) that would
define ‘‘non-controlling investment’’ to
mean an equity investment made
pursuant to 12 U.S.C. 24(Seventh) that
is not governed by procedures
prescribed by another OCC rule.
Additionally, the OCC proposed to
specify in the definition that the term
‘‘non-controlling investment’’ does not
include a national bank holding
interests in a trust formed for the
purposes of securitizing assets held by
the bank as part of its banking business
or for the purposes of holding multiple
legal titles of motor vehicles or
equipment in conjunction with lease
financing transactions. This would
codify the OCC’s interpretation that
these interests do not have sufficient
indicia of ownership and control to
qualify as an equity investment for
purposes of § 5.36. The OCC also
proposed a conforming change to
paragraphs (e) and (f). The OCC received
no comments to the new definition and
conforming amendments and adopts
them in the final rule as proposed.
For a national bank to make a
noncontrolling investment, current
§ 5.36 requires a filing with the OCC
that: (1) Describes the structure of the
investment and the activity or activities
conducted by the enterprise in which
the bank is investing; (2) describes how
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the bank has the ability to prevent the
enterprise from engaging in
impermissible activities or has the
ability to withdraw its investment; (3)
describes how the investment is
convenient and useful to the bank in
carrying out its business and not a mere
passive investment; (4) certifies that the
bank’s loss exposure is limited; and (5)
certifies that the enterprise agrees to be
subject to OCC supervision and
examination, subject to the limitations
and requirements of section 45 of the
FDI Act (12 U.S.C. 1831v) and section
115 of the Gramm-Leach-Bliley Act (12
U.S.C. 1820a).
A national bank must file an
application with the OCC to make a
non-controlling investment unless it
qualifies for the notice procedure in
§ 5.36(e). A national bank may file a
notice if: (1) The investment meets the
above requirements; (2) the enterprise
engages in activities that are listed in
§ 5.34(e)(5)(v) (permissible operating
subsidiary activities) or an activity that
is substantively the same as that
contained in published OCC precedent
approving a non-controlling investment
by a national bank or its operating
subsidiary; and (3) the bank is well
managed and well capitalized. As with
operating subsidiary notices, the OCC
proposed to expand the activities
eligible for notice for non-controlling
investments to all previously approved
activities, as defined in proposed § 5.3.
This definition includes activities
approved for national banks and their
operating subsidiaries, in addition to
previously approved non-controlling
investments. The proposal also
reorganized paragraph (e) and made
conforming changes to paragraphs (e)(2)
and (e)(4). Additionally, the OCC stated
that it is considering an alternative
amendment removing the filing
requirement for non-controlling
investments in enterprises engaging in
bank permissible activities, as discussed
above for national bank operating
subsidiaries.
The OCC received one comment
relating to § 5.36(e), supporting the
alternative amendment. However, for
the reasons noted in the discussion on
§ 5.34, Operating subsidiaries, the OCC
declines to include this alternative in
the final rule.
This commenter also recommended
that if the OCC retains the notice
requirements and limits the use of a
notice to banks meeting the proposed
definition to ‘‘well managed’’ in § 5.3,
the OCC should make exceptions to
these filing requirements for
investments that help to meet the credit
needs of the community and for
investments below a specified
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threshold. As noted above in its
discussion of comments on the
definition of ‘‘well managed’’ in § 5.3,
the OCC finds that the components
reflected in an entity’s management
rating, such as bank controls, are
relevant to the establishment of other
equity investments of a national bank
and that a national bank with a 2
composite rating but a 3 management, or
risk management, rating warrants
additional scrutiny. This rationale is
generally applicable, regardless of the
size of the investment, including for
investments that help meet the credit
needs of the community.
For these reasons, the OCC adopts
these changes to § 5.36(e) as proposed,
with technical amendments to remove
unnecessary cross-references to § 5.3.
As noted, whether a national bank is
filing a notice under paragraph (e) or an
application under paragraph (f), the
current rule requires the enterprise in
which the bank will make a noncontrolling investment to agree to OCC
supervision and examination. The OCC
proposed to amend paragraph (f),
redesignated as paragraph (f)(1), to
permit national banks to file an
application for prior approval to invest
in an enterprise that has not agreed to
be subject to OCC supervision and
examination. Additionally, the OCC
proposed a new paragraph (f)(2) to
provide for expedited review of certain
applications for investments in
enterprises that do not agree to OCC
supervision and examination that pose
minimal risk to the national bank’s
safety and soundness. An application
under proposed paragraph (f)(2) would
be deemed approved by the OCC within
10 days after the application is received
if five additional requirements are met.
First, the enterprise must engage in
permissible bank activities as described
in proposed paragraph (e) of this
section. Second, the national bank must
be well managed and well capitalized.
These two requirements parallel the
requirements for filing a notice. Third,
the book value of the national bank’s
non-controlling investment for which
the application is submitted must not be
more than 1% of the bank’s capital and
surplus. Fourth, no more than 50% of
the enterprise may be owned or
controlled by banks or savings
associations subject to examination by
an appropriate Federal banking agency
or credit unions insured by the National
Credit Union Association. Many
enterprises in which national banks
make non-controlling investments are
owned by a consortium of banks and
savings associations and provide
services to their owners and others.
Given the potentially complex
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interactions between these enterprises
and their owners and the additional
risks posed to the owners, the OCC
believes that OCC supervision and
examination of these enterprises is
necessary for the safety and soundness
of the investing national banks and
Federal savings associations.
Accordingly, the proposed rule did not
permit investments in these entities
without their commitment to OCC
supervision and examination, and
therefore expedited review of these
investments would not be available.
Finally, the OCC must not have notified
the national bank that the application
has been removed from expedited
review, or that the expedited review
process has been extended, pursuant to
the standards contained in § 5.13(a)(2).
The OCC received one comment on
these proposed amendments to § 5.36(f),
which supported the proposed changes.
The OCC therefore adopts these
amendments to paragraph (f) as
proposed, with one technical change in
wording for clarity. As explained in the
preamble to the proposed rule, the OCC
believes that these amendments will
give national banks greater flexibility to
make permissible non-controlling
investments, while giving the OCC an
opportunity for an in-depth review of
the proposed investment to ensure there
is no inappropriate risk to the national
bank’s safety and soundness.
Furthermore, the OCC believes that this
added flexibility will in particular
facilitate national bank investments in
financial technology (fintech)
companies, which will enhance the
ability of national banks to enter into
strategic partnerships and to develop
innovative products, services, and
processes while ensuring the OCC
receives adequate information to
supervise the attendant banking
activities.52
In addition, the OCC proposed adding
a new paragraph (g) to § 5.36 to permit
a national bank to make a noncontrolling investment without a filing
to the OCC in certain circumstances.
Specifically, a national bank would be
permitted to make a non-controlling
investment without an application or
notice if the activities of the enterprise
are limited to those activities previously
reported by the bank in connection with
making or acquiring a non-controlling
investment; the activities in the
enterprise continue to be legally
permissible for a national bank; the
bank’s non-controlling investment will
52 Notwithstanding this amendment, if the
enterprise in which the national bank invests also
provides services to the national bank, it may be
subject to the examination and regulation under the
Bank Service Company Act. See 12 U.S.C. 1867(c).
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be made in accordance with any
conditions imposed by the OCC in
approving any prior non-controlling
investment in an enterprise conducting
these same activities; and the bank is
able to make the representations and
certifications specified in amended
§§ 5.36(e)(3) through (e)(7). As a
conforming amendment, the OCC
proposed to redesignate current
paragraphs (g) through (i) as paragraphs
(h) through (j), respectively.
The OCC received no comments on
new paragraph (g) and the conforming
amendments and adopts the revisions as
proposed, with two technical changes to
correct a cross-reference in paragraph
(h)(1) to reflect the redesignation and to
remove an unnecessary cross-reference
to § 5.3 in redesignated paragraph (i). As
stated in the preamble to the proposed
rule, the national bank would already
have a non-controlling investment in an
entity conducting particular activities,
and the OCC finds that there would be
little risk in the bank making an
additional non-controlling investment
in an entity conducting the same
activities. Furthermore, the OCC finds
that non-controlling investments pose
similar risks to national banks as
operating subsidiaries, and new
paragraph (g) would parallel current
§ 5.34(e)(5)(vi), redesignated in the final
rule as § 5.34(f)(6), which permits
national banks to make investments in
operating subsidiaries without a filing.
Therefore, the OCC believes that the
revisions to paragraph (g) will reduce
burden without jeopardizing the
national bank’s safety and soundness.
Redesignated paragraph (j) provides
exceptions to the rules of general
applicability. The OCC proposed to
remove the exception to § 5.9, public
availability, because some of these
investments may be of public interest.
Further, the proposal would permit the
OCC to determine that some or all
provisions in §§ 5.8, 5.10, and 5.11
apply if it concludes that an application
presents significant or novel policy,
supervisory, or legal issues. This
proposed paragraph (j) would parallel
the equivalent provision for operating
subsidiary filings in current
§ 5.34(e)(5)(iii). The OCC received one
comment to these changes to paragraph
(j). The commenter opposed making the
public availability requirements of § 5.9
applicable to non-controlling
investment filings on the grounds that
the information included in those filings
could be competitive information and
the commenter contended that a bank
cannot rely on the OCC deeming this
information confidential. Therefore, the
commenter argued that the proposed
change would have a chilling effect on
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equity investments by banks. The
commenter also stated that the public
will learn about bank noncontrolling
investments when the bank or firm in
which the bank invested announces the
investment.
The OCC has reconsidered this
proposed amendment in light of this
comment. A noncontrolling investment
filing differs from an operating
subsidiary filing. Although confidential
information can be redacted in both of
these types of filings when made
available to the public, the fact that a
national bank is making a
noncontrolling investment in an entity
may itself be considered confidential
information until the national bank or
entity announces the investment.
Therefore, the OCC is not removing the
exception to § 5.9, public availability,
for § 5.36 filings as proposed. However,
the OCC is adopting in the final rule the
proposed provision that permits the
OCC to determine that some or all of the
provisions in §§ 5.8, 5.10, and 5.11
apply if it concludes that an application
presents significant or novel policy,
supervisory, or legal issues, with the
addition of § 5.9 to this sentence.
Investment in National Bank or Federal
Savings Association Premises (§ 5.37)
Section 5.37 describes the procedures
for national bank and Federal savings
association investment in bank
premises. Paragraph (d)(1)(i) provides
that the procedures of § 5.37 are
applicable to investments in the stocks,
bonds, debentures, or other obligations
of any corporation holding the premises
of the national bank or Federal savings
association in addition to direct
investments in the bank premises.
Twelve CFR 7.1000 provides the
authority for national bank and Federal
savings association investments in bank
premises.53 In addition to the
investments listed in § 5.37(d)(1)(i),
§ 7.1000(a)(3) provides that national
banks and Federal savings associations
may hold bank premises through a
subsidiary organized as a corporation,
partnership, or similar entity (e.g., a
limited liability company). The OCC
proposed to revise § 5.37(d)(1)(i) to
recognize the permissibility of holding
bank premises through partnerships and
similar entities, such as limited liability
companies, so that it is consistent with
§ 7.1000(a)(3). In addition, the OCC
proposed to remove the definition of
‘‘capital and surplus’’ in § 5.37 as it is
redundant with the definition of this
53 The OCC notes that it has proposed to
redesignate 12 CFR 7.1000 as 12 CFR 7.1024 in a
separate rulemaking. See 85 FR 40794 (July 7,
2020).
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term in § 5.3. The OCC also proposed
adding § 5.9, public availability, to the
exceptions to rules of general
applicability in § 5.37(d)(5). Finally, the
OCC proposed to correct a technical
error in paragraph (a), replacing ‘‘12
U.S.C. 317d’’ with ‘‘12 U.S.C. 371d.’’
The OCC received no comments on
these changes and adopts them as
proposed, with two technical changes to
remove an unnecessary cross-reference
to § 5.3 in paragraph (d)(3)(i) and to
conform a cross-reference in paragraph
(d)(4).
Operating Subsidiaries of a Federal
Savings Association (§ 5.38)
Section 5.38 provides the application
requirements for a Federal savings
association’s acquisition or
establishment of an operating subsidiary
or commencement of a new activity in
an existing operating subsidiary when
required by section 18(m) of the FDI Act
(12 U.S.C. 1828(m)). Section 5.38 is
largely parallel to § 5.34 for national
bank operating subsidiaries, except that
where a national bank would file a
notice, a Federal savings association
would file an application eligible for
expedited review. Accordingly, the OCC
proposed coordinating revisions to
§ 5.38 including: (1) Revising the
standard for qualifying subsidiaries in
paragraph (e)(2)(i)(A); (2) excluding
securitization trusts from the scope of
the section in new paragraph
(e)(2)(iii)(C); (3) redesignating
paragraphs (e)(5), (e)(6), and (e)(7) as
paragraphs (f), (g), and (h), respectively;
(4) expanding the activities eligible for
expedited review to include activities
substantially the same as a previously
approved activity (as proposed to be
defined in § 5.3) and conducted in
accordance with the same terms and
conditions applicable to the previously
approved activity, in redesignated
paragraph (f)(2)(ii)(B); (5) expanding the
entities eligible for expedited review to
include certain trusts where the Federal
savings association or its operating
subsidiary is the sole beneficiary and
has the ability to replace the trustee at
will, in redesignated paragraphs
(f)(2)(ii)(C) and (D); and (6) explicitly
recognizing that the control required by
redesignated paragraphs (f)(2)(ii)(D) may
be met through an operating subsidiary
of the Federal savings association. In
addition, the OCC proposed technical
changes that would remove the
definitions of ‘‘well capitalized’’ and
‘‘well managed’’ from § 5.38, as with
§ 5.34, and replace the word
‘‘subsidiary’’ with the more appropriate
word ‘‘entity’’ in the introductory text of
paragraph (e)(2)(iii). The OCC received
no comments on these proposed
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amendments and the OCC adopts them
as proposed, with one technical change
to remove unnecessary cross-references
to § 5.3 in paragraph (f).
In addition, the OCC proposed to
correct an inadvertent omission in the
2015 Final Rule by amending
redesignated § 5.38(f)(2)(ii)(D)(1), which
contains requirements for how a Federal
savings association must effectively
control an operating subsidiary to be
eligible for expedited review of an
application. Although the OCC made
changes in the 2015 Final Rule to
current §§ 5.34(e)(2)(i)(A),
5.34(e)(5)(ii)(A)(3)(i), and 5.38(e)(2)(i)(A)
to address commenter’s concerns
regarding the application of the rule to
joint ventures,54 the OCC did not make
corresponding conforming changes to
current § 5.38(e)(5)(ii)(B)(4)(i),
redesignated in the proposal as
§ 5.38(f)(2)(ii)(D)(1). However, all of
these provisions should contain parallel
language. Accordingly, the OCC
proposed to revise redesignated
§ 5.38(f)(2)(ii)(D)(1) so that it parallels
current § 5.34(e)(5)(ii)(A)(3)(i),
redesignated in this proposal as
§ 5.34(f)(2)(i)(C)(1). The OCC received
no comments on this change and adopts
it as proposed.
Financial Subsidiaries of a National
Bank (§ 5.39)
Section 5.39 describes the procedures
for national bank acquisition of, and
conduct of activities in, a financial
subsidiary pursuant to section 5136A of
the Revised Statutes.55 Paragraph
(h)(5)(ii) of § 5.39 specifies that the
restrictions contained in section
23A(a)(1)(A) of the Federal Reserve
Act 56 do not apply to a covered
transaction between a bank and its
financial subsidiary. However, section
609 of the Dodd-Frank Wall Street
Reform and Consumer Protection Act
removed this section 23A exclusion.
Accordingly, the OCC proposed to
remove paragraph (h)(5)(ii).
The OCC also proposed to clarify the
approval process for financial
subsidiary activities. First, consistent
with other changes in part 5, the OCC
proposed to change the terminology for
filings under § 5.39 from notice to
application. The OCC did not intend
any substantive change in standards or
procedures as a result of this proposal.
Second, as the OCC recognized in the
initial proposal for § 5.39, section 24a
states that OCC approval shall be based
solely upon statutory factors.57
54 See
80 FR 28346, at 28375 (May 18, 2015).
U.S.C. 24a.
56 12 U.S.C. 371c(a)(1)(A).
57 65 FR 3159 (Jan. 20, 2000).
55 12
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Accordingly, the OCC initially proposed
the current procedures for § 5.39 upon
the understanding that the approval
may occur upon a bank’s submission of
information demonstrating satisfaction
of the statutory criteria.58 In the current
proposal, the OCC proposed to add a
new paragraph (i)(3) specifying that an
application is deemed approved upon
filing of the information required by the
procedures of paragraphs (i)(1) or (i)(2)
within the time frames provided.
Finally, the OCC proposed technical
changes to paragraph (d) that would
remove the definitions of ‘‘appropriate
Federal banking agency,’’ ‘‘well
capitalized,’’ and ‘‘well managed.’’
The OCC received no comments
specific to the amendments it proposed
to § 5.39 and adopts them as proposed
with technical changes that remove an
unnecessary cross-reference to § 5.3 in
paragraph (g) and correct a crossreference in paragraph (h)(5), and with
other technical changes to citations.
Change in Location of a Main Office of
a National Bank or Home Office of a
Federal Savings Association (§ 5.40)
The final rule makes a technical
correction to § 5.40. Among other
things, § 5.40(c)(2)(ii) requires a Federal
savings association to obtain
shareholder approval required under its
charter if relocating its home office
outside the limits of its city, town, or
village, and must amend its charter.
Because this provision applies to both
Federal stock savings associations and
Federal mutual savings associations, the
OCC is amending this provision to
include member approval as Federal
mutual savings associations have
members and not shareholders.
National Bank Director Residency and
Citizenship Waivers (New § 5.43)
The OCC proposed a new § 5.43 to
provide procedures for waivers of the
national bank director residency and
citizenship requirements. Section 5146
of the Revised Statues (12 U.S.C. 72)
requires every director of a national
bank to be a citizen of the United States
and that a majority of the directors
reside in the State, Territory, or District
where the national bank is located, or
within one hundred miles of the
location of the office of the bank. These
requirements reflect the principle of
local ownership and control of national
banks. Twelve U.S.C. 72 provides the
Comptroller the discretion to waive the
residency requirement and to waive the
citizenship requirement for not more
than a minority of the total number of
directors.
58 Id.
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The OCC has processed requests for
waivers of the residency and citizenship
requirements for many years. The
‘‘National Bank Director Waivers’’
booklet of the Comptroller’s Licensing
Manual currently describes the
procedures for requesting and granting
waivers. The OCC proposed codifying
these procedures in a new 12 CFR 5.43
to better clarify and structure the waiver
process. The OCC received no
comments on this new section and
adopts these provisions as proposed,
with the changes discussed below.
Specifically, paragraph (a) of § 5.43
sets forth the authority for the
regulation, 12 U.S.C. 72 and 93a, the
latter of which grants the OCC general
rulemaking authority. Paragraph (b) sets
forth the scope of the section as
describing the procedures for the OCC
to waive the residency and citizenship
requirements.
Paragraph (c) sets forth the
application procedures. Under
paragraph (c)(1), a national bank would
file a written application with the OCC
to request a waiver of the residency
requirement. Paragraph (c)(1) also
provides that the OCC may grant this
waiver for individual directors or for
any number of director positions. The
OCC typically grants residency waivers
for a certain number of directors on the
board rather than to specific
individuals, but the final rule increases
flexibility by permitting either
procedure. As a clarifying change, the
final rule provides that the waiver is
valid until the OCC revokes it in
accordance with paragraph (d) of this
section, or, if granted on an individual
basis, until the individual no longer
serves on the board.
Under paragraph (c)(2), a national
bank may request a waiver of the
citizenship requirements for individuals
who comprise up to a minority of the
total number of directors by filing a
written application with the OCC.
Paragraph (c)(2) also provides that the
OCC may grant a waiver on an
individual basis. Given the more
prescriptive nature of the citizenship
requirement and the greater background
investigation that the OCC undertakes
on proposed non-citizen directors, OCC
practice is to grant waivers to
individuals and not to a designated
number of directors. Accordingly, the
final rule specifies in paragraph (c)(2)
that a citizenship waiver is valid until
the individual leaves the board or the
OCC revokes the waiver in accordance
with paragraph (d), discussed below.
Paragraph (c)(3)(i) requires the subject
of a citizenship waiver application to
submit the information prescribed in the
Interagency Biographical and Financial
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Report. Paragraph (c)(3)(ii) provides that
the OCC may require additional
information about the subject of a
citizenship waiver application,
including legible fingerprints, if
appropriate. This paragraph also
permits the OCC to waive any of the
information requirements if the OCC
determines that doing so is in the public
interest. The final rule makes a
technical correction to the crossreference in this paragraph.
Paragraph (c)(4) provides exceptions
to the rules of general applicability.
Specifically, §§ 5.8 (public notice), 5.9
(public availability), 5.10 (comments),
and 5.11 (hearings and other meetings)
do not apply to applications for
citizenship waivers. As noted in the
preamble to the proposed rule, the OCC
believes the applications will largely
consist of information specific to a
bank’s internal practice as well as
private information about the
individuals subject to the waiver
applications. Accordingly, these
applications should not be publicly
available nor subject to public notice,
comment, or hearings.
Paragraph (d) provides procedures for
the OCC’s revocation of a residency or
citizenship waiver. Under these
procedures, the OCC will provide
written notice before a revocation to the
national bank and affected director(s) of
its intention to revoke the waiver and
the basis for its intention. The OCC
recognizes that discretion in revoking
residency and citizenship waivers is
premised upon the guarantee of due
process. Accordingly, this paragraph
provides the bank and the affected
director(s) the opportunity to respond in
writing to the OCC’s intention to revoke
a waiver within 10 calendar days,
unless the OCC determines that a
shorter period is appropriate in light of
relevant circumstances. The OCC will
consider the written responses of the
bank and affected director(s), if any,
prior to deciding whether or not to
revoke a residency or citizenship
waiver. The OCC will notify the
national bank and the director of the
OCC’s decision to revoke a residency or
citizenship waiver in writing. If the
director appeals pursuant to paragraph
(e), this waiver decision is effective
upon the director’s receipt of the
decision of the Comptroller, an
authorized delegate, or the appellate
official, to uphold the initial decision to
revoke the residency or citizenship
waiver. If the director does not appeal,
the revocation is effective at the
expiration of the period to appeal. As
stated in the preamble to the proposed
rule, the OCC believes the decision to
revoke a waiver is consistent with the
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Comptroller’s authority to grant a
waiver even though 12 U.S.C. 72 does
not contain any specific provisions for
revoking a waiver. Absent this authority
many residency waivers effectively
would be perpetual as the OCC
generally grants residency waivers for a
designated number of director positions.
Further, changing geo-political
circumstances may in some
circumstances warrant the revocation of
citizenship waivers, particularly if
foreign governments are unduly
influencing directors’ activities with
regard to a national bank.
Paragraph (e) provides an appeals
process for a director whose residency
or citizenship waiver the OCC has
decided to revoke. This appeals process
parallels the appeals process provided
for disapprovals of directors and senior
executive officers in 12 CFR 5.51, and
provides review by the Comptroller, an
authorized delegate, or a designated
appellate official. As proposed, a
director may appeal on the grounds that
the reasons for the initial decision to
revoke were contrary to fact or arbitrary
and capricious. The final rule provides
that either the director or the national
bank, or both, may make this appeal.
This change corrects an inadvertent
omission in the proposed rule and is
consistent with the language in § 5.51.
The Comptroller, an authorized
delegate, or the appellate official will
independently determine whether the
reasons given for the initial decision to
revoke are contrary to fact or arbitrary
and capricious. If they determine either
to be the case, the Comptroller, an
authorized delegate, or the appellate
official may reverse the initial decision
to revoke the waiver. The final rule also
corrects the cross-reference in paragraph
(e)(4) for the effective date of a
revocation.
Paragraph (f) provides that waivers
outstanding on the effective date of the
final rule remain in effect, unless
revoked pursuant to paragraph (d). The
OCC adopts this provision as proposed
with a technical change for clarity. The
final rule removes the language
‘‘notwithstanding paragraph (c)(2)’’ and
instead adds a reference to a waiver no
longer being in effect because the
individual is no longer on the board, as
provided in paragraph (c).
Increases in Permanent Capital of a
Federal Stock Savings Association
(§ 5.45)
Section 5.45 sets out the OCC’s rules
addressing increases in permanent
capital by a Federal savings association
organized in stock form. The OCC
proposed two technical amendments to
this section. The OCC received no
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comments to these technical changes
and adopts them as proposed.
Specifically, the final rule changes the
term ‘‘Federal savings association’’ or
‘‘savings association’’ to ‘‘Federal stock
savings association’’ each time it
appears, except as used in the defined
term ‘‘eligible savings association,’’ to
more accurately reflect the scope of this
section. Second, the final rule replaces
the reference to 12 CFR part 197 in
paragraph (h) with 12 CFR part 16,
which now applies to Federal savings
associations.
The OCC invited comment on another
possible change to § 5.45. Under the
current rule, Federal savings
associations that meet the criteria for an
eligible savings association described in
§ 5.3 may have their applications for
capital increases, when required,
reviewed under an expedited process.
The OCC requested comment on
whether it should amend its regulations
so that only well capitalized and well
managed Federal savings associations
are eligible to request expedited review
of their applications for capital
increases. The preamble to the proposed
rule explained that if the OCC makes
this change to § 5.45 in the final rule, it
would also amend its other capital
filing-related rules in part 5 based on
this same rationale, §§ 5.46 (Changes in
permanent capital of a national bank),
5.47 (Subordinated debt issued by a
national bank), 5.55 (Capital
distributions by Federal savings
associations), and 5.56 (Inclusion of
subordinated debt securities and
mandatorily redeemable preferred stock
as Federal savings association
supplementary (tier 2) capital).
The OCC received no comments
specifically on the changes proposed or
suggested for § 5.45. As discussed
further below regarding § 5.46, the OCC
believes that the current standard for
evaluating capital filings, including the
compliance rating, is appropriate.
Therefore, the OCC adopts the
amendments to § 5.45 as proposed.
Changes in Permanent Capital of a
National Bank (§ 5.46)
Section 5.46 sets out the OCC’s rules
addressing changes in permanent
capital for a national bank. Paragraph
(g)(1)(ii) provides that prior OCC
approval is required for an increase in
permanent capital in certain cases. In
addition, pursuant to 12 U.S.C. 57,
paragraph (i)(3) of § 5.46 requires a bank
to submit a notice to the appropriate
licensing office after it completes an
increase in capital, regardless of
whether prior approval is required. The
OCC proposed to clarify these
procedures for increases in capital
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requiring prior approval by referencing
paragraph (i)(3) in the introductory text
of paragraph (g)(1)(ii) and removing it
from paragraph (g)(1)(ii)(C). The OCC
also proposed to clarify the introductory
text of paragraph (g)(1)(ii) to specifically
indicate that an application to increase
a national bank’s permanent capital may
be eligible for expedited review under
paragraph (i)(2). The OCC received no
comments to these changes.
Paragraph (h) provides that a national
bank must apply and obtain the OCC’s
prior approval for any reduction in its
permanent capital. Paragraph (i)(2)
provides expedited review procedures
and currently provides that an eligible
bank may request approval for
decreasing its capital for up to four
consecutive quarters. The OCC
proposed a number of amendments to
paragraphs (h) and (i) to add flexibility
for national banks and to clarify
procedures. First, the OCC proposed to
amend paragraph (h) to permit a
national bank to request approval in a
standard application for a reduction in
capital for multiple quarters. The
request need only specify a total dollar
amount for the requested period and
need not specify amounts for each
quarter. As a result, a national bank may
request approval for a reduction in
permanent capital over more than four
consecutive quarters. However, this
request would not be eligible for
expedited review so that the OCC may
have the time to carefully review the
request. Second, the OCC proposed to
add flexibility to the expedited process
in paragraph (i)(2) by specifying that an
eligible national bank need only state
the total dollar amount rather than perquarter reductions in requests for fourquarter decreases. As a conforming
change, the OCC proposed to amend
paragraph (i)(5) to clarify that the OCC’s
approval of a capital change does not
expire within one year of the date of the
approval if the OCC specifies a longer
period.
The OCC received one comment on
this proposal, which supported the
proposed amendments. This commenter
also recommended amending the
criteria for an eligible bank in the
context of requesting approval for
decreasing its capital for four
consecutive quarters. The commenter
recommended adopting a single
eligibility standard for all part 5 filings
and other procedures that takes into
account the criteria that are most
relevant to the activity at hand, which,
in this section, would relate to the
bank’s capital levels. However, the
commenter stated that if a uniform
standard is not adopted, then the OCC
should not require a bank to receive a
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consumer compliance rating (or any
other single component rating) of at
least 2 in order to meet the eligible bank
standard for changes to its permanent
capital through the expedited review
process. The commenter recommended
that the OCC instead employ a standard
for eligibility that relates to the bank’s
capital levels.
The OCC disagrees with this
commenter’s recommendation. The OCC
believes that a consistent definition of
‘‘eligible bank’’ is appropriate across
part 5. Further, ‘‘eligible bank’’ status
only results in expedited processing.
Since a bank has to file an application
regardless of whether it is an ‘‘eligible
bank,’’ the suggested change does not
reduce burden. Finally, the OCC
believes that expedited treatment for a
bank with a consumer compliance
rating lower than 2 is not appropriate
when considering a capital reduction.
For the reasons discussed above, the
OCC has not made any changes to the
final rule in response to this comment
and adopts the amendments to § 5.46 as
proposed.
Subordinated Debt Issued by a National
Bank (§ 5.47)
Section 5.47 describes the
requirements applicable to a national
bank’s issuance of subordinated debt,
including subordinated debt intended
for inclusion in tier 2 capital. The OCC
proposed numerous changes to this
section. Specifically, the OCC proposed
to add a new definition of
‘‘subordinated debt document’’ to
§ 5.47(c) to mean any document
pertaining to an issuance of
subordinated debt, and any renewal,
extension, amendment, modification, or
replacement thereof, including the
subordinated debt note, and any global
note, pricing supplement, note
agreement, trust indenture, paying agent
agreement, or underwriting agreement.
The OCC also proposed conforming
revisions throughout § 5.47 to better
reflect this terminology. The OCC
received one comment on this new
definition stating that the definition of
‘‘subordinated debt document’’ is broad.
The OCC disagrees with this comment
because the ‘‘subordinated debt
document’’ definition is intended to
capture the scope of documents that
could impact a bank’s compliance with
the OCC’s regulatory requirements.
Therefore, the OCC adopts this
definition as proposed. This change
clarifies that a national bank should
submit with their applications all
material documents needed for the OCC
to review the application for compliance
with its regulatory requirements. The
OCC reviews ancillary securities
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documents to ensure that they do not
contain language that conflicts with
required disclosures or statements made
in the subordinated debt note. The OCC
notes that this list of documents in the
definition is illustrative and not
exclusive. The final rule makes a
conforming change in paragraph (c) to
remove the proposed numbering of the
definitions.
Paragraph (d)(3)(ii) contains a list of
statements and descriptions that a
national bank must clearly and
accurately disclose in the subordinated
debt note. The OCC proposed adding
language to paragraph (d)(3)(ii)(C) to
clarify that a national bank is only
required to disclose the OCC’s authority
under 12 CFR 3.11 to limit certain
distributions if the disclosure
requirement is applicable to the
subordinated debt issuance. The OCC
received no comments on this new
language and adopts it as proposed.
Under the final rule, a national bank is
only required to incorporate this
disclosure language into a subordinated
debt note if the issuing bank, or any
successor institution to the issuing
bank, would have discretion under the
terms of the subordinated debt to
permanently or temporarily suspend
payments without triggering an event of
default. The OCC believes that this
amendment will provide flexibility and
reduce burden by permitting national
banks to omit the provisions when
warranted.
The OCC also proposed to add a new
paragraph (d)(3)(ii)(D) that would
require a national bank to disclose in a
subordinated debt note that the
subordinated debt obligation may be
fully subordinated to interests held by
the U.S. government in the event that
the national bank enters into a
receivership, insolvency, liquidation, or
similar proceeding. This proposed
requirement mirrors the language in 12
CFR 3.20(d)(1)(xi), which requires
advanced approaches banks to disclose
this information in the governing
agreement, offering circular, or
prospectus of an instrument to be
included in tier 2 capital. The proposal
also made a conforming change to the
paragraph (e) introductory text to
remove the reference to advanced
approaches national banks. The OCC
received no comments on this new
paragraph or the conforming change and
adopts them as proposed. As stated in
the preamble to the proposal, the OCC
believes that disclosing this information
to potential investors in subordinated
debt is beneficial for all national banks,
even those that are not advanced
approaches banks or that do not intend
to include the debt in tier 2 capital.
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Paragraphs (f)(1)(ii) and (h) govern the
procedures for a national bank to
include subordinated debt in tier 2
capital. Currently, these provisions
provide that a national bank may not
include subordinated debt as tier 2
capital unless it has filed a notice with
the OCC and received notification from
the OCC that the subordinated debt
qualifies as tier 2 capital. The OCC
proposed to make these paragraphs
consistent with the general usage in part
5 by changing the terminology from
notice to application. The OCC also
proposed clarifying changes to these
paragraphs. The OCC received no
comments on these changes and adopts
then as proposed. The OCC does not
intend these changes to be substantive.
Additionally, the OCC proposed to
provide explicit regulatory authority for
a national bank to seek approval to
include subordinated debt as tier 2
capital before issuance of the
subordinated debt in paragraphs
(f)(1)(ii) and (h)(1). National banks
routinely seek confirmation from the
OCC that subordinated debt will qualify
as tier 2 capital prior to issuance to
mitigate the risk of issuing
nonqualifying subordinated debt. This
paragraph codifies this practice.
Relatedly, the OCC proposed a
conforming revision to paragraph
(h)(2)(ii), which requires the application
to include the amount and date of
receipt of funds, to permit submission of
the projected amount and date of
receipt. The OCC also proposed to add
a new paragraph (h)(2)(iii) requiring the
application to include the interest rate
or expected calculation method for the
interest rate for the subordinated debt.
This paragraph would assist the OCC in
reviewing applications for inclusion of
the subordinated debt in tier 2 capital.
The OCC received no comments on
these changes and adopts them as
proposed. Under the final rule, and as
with current practice, the OCC will not
provide final approval that the
subordinated debt qualifies as tier 2
capital until after the debt is issued and
final pricing is available.
Paragraphs (f)(2)(ii) and (g)(1)(ii)
require OCC approval for a national
bank to prepay subordinated debt. The
approval requirements for prepayment
of subordinated debt include specific
additional requirements for prepayment
that is in the form of a call option.
Specifically, a national bank seeking to
prepay subordinated debt in the form of
a call option is required to provide: (1)
A statement explaining why the
national bank believes that following
the proposed prepayment the national
bank would continue to hold an amount
of capital commensurate with its risk; or
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(2) a description of the replacement
capital instrument that meets the
criteria for tier 1 or tier 2 capital under
12 CFR 3.20, including the amount of
such instrument, and the time frame for
issuance. As noted in the preamble to
the proposed rule, the OCC has found
that the distinction between prepayment
and prepayment in the form of a call
option is immaterial to OCC review, that
the additional requirements are
generally satisfied in most prepayment
applications, and that the additional
information is helpful for the OCC to
determine the impact of the prepayment
on the national bank’s capital levels and
safety and soundness. Accordingly, the
OCC proposed having a single
procedure for the prepayment of
subordinated debt that would
incorporate the requirements for
prepayment in the form of a call option.
The proposal contained a coordinating
revision to paragraph (g)(2)(ii) regarding
OCC approval. The OCC received no
comments on these changes and adopts
them as proposed.
Currently, § 5.47 does not explicitly
require a national bank to make a filing
with the OCC if the national bank makes
a material change to its outstanding
subordinated debt note or any related
subordinated debt documents. The OCC
proposed to add new paragraphs (f)(3)
and (g)(1)(iii) to ensure that
subordinated debt issuances remain
compliant with OCC regulatory
requirements, including the
requirements for inclusion in tier 2
capital. These revisions would require
OCC approval for a material change to
an existing subordinated debt document
if the bank would have been required to
receive OCC approval to issue the
security under paragraph (f)(1) or to
include it in tier 2 capital under
paragraph (h). An application to make a
material change would include: (1) A
description of the proposed changes; (2)
a statement of whether the national
bank is subject to or required to file a
capital plan with the OCC, and if so,
how the proposed change conforms to
the capital plan; (3) a copy of the
revised subordinated debt documents
reflecting all proposed changes; and (4)
a statement that the proposed changes to
the subordinated debt documents
comply with all applicable laws and
regulations.
The OCC received one comment letter
suggesting that the OCC not implement
this OCC approval requirement for
material changes to subordinated debt
documents. The commenter stated that
the ‘‘material change’’ standard is
imprecise, the ‘‘subordinated debt
document’’ definition is broad, and the
overall requirement would increase
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burden. The commenter also argued
against tying the application
requirements to the bank’s consumer
compliance rating, which is a
component of whether a bank is an
‘‘eligible bank’’ under 12 CFR 5.3 and
therefore subject to certain procedural
requirements.
The OCC disagrees with this comment
and is finalizing the OCC approval
requirement for material changes as
proposed. The OCC reviews
subordinated debt documents for
compliance with the OCC’s licensing
requirements at 12 CFR 5.47 and the
OCC’s capital component eligibility
criteria at 12 CFR 3.20. The OCC
reviews ancillary securities documents
to ensure that they do not contradict the
statements and disclosures made in the
primary documents. As previously
explained, the ‘‘subordinated debt
document’’ definition is intended to
capture the scope of documents that
could impact a bank’s compliance with
the OCC’s regulatory requirements.
The OCC uses the ‘‘eligible bank’’
criteria as a proxy for determining the
appropriate level of review for
subordinated debt issuance and
prepayment actions. As discussed
elsewhere in this Supplementary
Information, the OCC believes that
expedited treatment for a bank with a
consumer compliance rating lower than
2 is not appropriate. Because the terms
of a subordinated debt document govern
the rights and obligations of the issuing
bank throughout the lifetime of the
security, the OCC’s supervisory interest
in reviewing subordinated debt
documents for regulatory compliance
extends past the security’s date of
issuance.
The commenter also requested, in the
event the OCC finalized this provision
as proposed, that the OCC confirm that
approval would only be required in the
event that the bank would have been
required to receive approval to issue the
security under 12 CFR 5.47(f)(1) or to
include it in tier 2 capital under 12 CFR
5.47(h). In response, the OCC notes that
a bank would only have to seek OCC
approval of a change to a subordinated
debt document if: (1) The change is
material and (2) at the time of issuance
of the security, the bank would have
been required to receive OCC approval
to issue the security under 12 CFR
5.47(f)(1) or to include it in tier 2 capital
under 12 CFR 5.47(h). In response to the
comment that the ‘‘material change’’
standard is imprecise, the OCC notes
that it would not consider a change to
a subordinated debt document to be
material if it consists entirely of
technical or administrative changes to
the subordinated debt document, such
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as a change to a filing address or filing
procedure. The OCC would consider a
change to be material if it pertains to
subjects covered by the OCC regulatory
requirements at 12 CFR 3.20 and 12 CFR
5.47, such as pricing and maturity,
rights and obligations of the lender and
borrowers, and required regulatory
disclosures.
Finally, the OCC proposed to make
certain stylistic changes to the rule text
of § 5.47 that are not intended to impact
the substantive requirements applicable
to national banks. The OCC received no
comments on these changes and adopts
them as proposed.
Change in Control of a National Bank or
Federal Savings Association; Reporting
of Stock Loans (§ 5.50)
Section 5.50 sets forth the procedures
and standards for changes in control of
national banks and Federal savings
associations. Paragraph (d)(8) contains a
definition of insured depository
institution. However, that term is not
used within § 5.50. Accordingly, the
OCC proposed to replace that definition
with the definition of ‘‘depository
institution,’’ to mean a depository
institution as defined in section 3(c)(1)
of the FDI Act (12 U.S.C. 1813(c)(1)).
Paragraph (f)(3)(iv) states that an
applicant may request a hearing by the
OCC within 10 days of receipt of a
notice disapproving a change in control
and that following final agency action
under 12 CFR part 19, further review by
the courts is available. Paragraph (f)(6)
provides that the OCC will notify the
proposed acquiror in writing of a
disapproval within three days and will
indicate the basis of its disapproval. For
clarity, the OCC proposed combining
these provisions in a revised paragraph
(f)(6). The OCC also proposed to add
language stating that this disapproval
notice will inform the filer of the
availability of a hearing. Additionally,
the OCC proposed a new paragraph
(f)(6)(iii) specifying that if a filer fails to
request a hearing with a timely request,
the notice of disapproval constitutes a
final and unappealable order. This
language is currently included in 12
CFR 19.161 and the OCC stated in the
preamble to the proposal that it believes
the language also should be included in
§ 5.50 to put filers on notice of the
implications of failure to request a
hearing in a timely manner.
Finally, paragraph (g)(2)(i) provides
procedures for the OCC’s release of
information related to a change in
control notice, including publication of
information in the OCC’s Weekly
Bulletin. The OCC proposed revising
this provision to reflect the information
that the OCC publishes in the Weekly
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Bulletin in practice, namely the date of
filing, the disposition of the notice and
date thereof, and the consummation
date of the transaction, if applicable.
The OCC received no comments on
these changes to § 5.50 and adopts them
as proposed.
Changes in Directors and Senior
Executive Officers of a National Bank or
Federal Savings Association (§ 5.51)
Section 5.51 implements section 914
of the Financial Institutions Reform,
Recovery, and Enforcement of 1989 (12
U.S.C. 1831i). Section 914 requires a
national bank or Federal savings
association to provide prior notice to the
OCC of the proposed addition of any
individual to the board of directors or
the employment of any individual as a
senior executive officer of a bank if,
among other things, the bank is in
troubled condition. Paragraph (c)(4)
defines ‘‘senior executive officer’’ to
mean the president, chief executive
officer, chief operating officer, chief
financial officer, chief lending officer,
chief investment officer, and any other
individual the OCC identifies in writing
to the national bank or Federal savings
association who exercises significant
influence over, or participates in, major
policy making decisions of the bank or
savings association without regard to
title, salary, or compensation. The term
also includes employees of entities
retained by a national bank or Federal
savings association to perform functions
in lieu of directly hiring the individuals,
and the individual functioning as the
chief managing official of the Federal
branch of a foreign bank. The OCC
proposed to add chief risk officer to the
definition of senior executive officer
given the increase in that role at many
national banks and Federal savings
associations. The OCC received no
comments to this change and adopts it
as proposed.
Paragraph (c)(7) provides the
definition of ‘‘troubled condition,’’
which is one of the circumstances in
which a national bank or Federal
savings association is required to file a
notice under § 5.51. Pursuant to
paragraph (c)(7)(ii), this definition
includes a national bank or Federal
savings association that is subject to a
cease and desist order, a consent order,
or a formal written agreement, unless
otherwise informed in writing by the
OCC. The OCC proposed to amend
paragraph (c)(7)(ii) to specify that the
cease and desist order, consent order, or
formal written agreement must require
the bank or savings association to
improve its financial condition for the
institution to be considered in ‘‘troubled
condition’’ solely as a result of the
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enforcement action. The OCC expects to
inform a bank in writing when an
enforcement action does not require
action to improve the financial
condition of the bank. The OCC’s
general policy is not to apply troubled
condition status to national banks or
Federal savings associations solely as a
result of cease and desist orders,
consent orders, or formal written
agreements that do not require
improvement in the financial condition
of the bank or savings association, such
as enforcement actions that address
certain compliance-related deficiencies
that do not affect the financial condition
of the bank or savings association.
Typically, the OCC has noted in these
actions that the bank or savings
association is not in troubled condition
as a result of the action. The proposal
updated the definition of troubled
condition in § 5.51 to align with the
OCC’s current supervisory practice. The
OCC noted in the preamble to the
proposal that this practice is consistent
with that of the Federal Reserve Board
and the FDIC, and the proposed revision
would align the OCC’s regulations with
the Federal Reserve Board’s and FDIC’s
regulations implementing section 914.59
The OCC received a comment in
response to this proposed amendment
that strongly supported the revised
definition of ‘‘troubled condition.’’
Therefore, the OCC finalizes this
definition as proposed.
Capital Distributions by Federal Savings
Associations (§ 5.55)
Section 5.55 provides standards and
procedures for capital distributions
made by Federal savings associations.
Paragraph (d)(2) defines ‘‘capital’’ as
total capital, computed under 12 CFR
part 3. The OCC proposed to delete this
definition as unnecessary because all
references to ‘‘capital’’ are either in
relation to the defined term ‘‘capital
distribution’’ or contain an explicit
reference to calculations under 12 CFR
part 3. Additionally, the OCC proposed
a new definition of ‘‘control,’’ to have
the same meaning as in section 10(a)(2)
of the HOLA (12 U.S.C. 1467a(a)(2)),
and to use this term to describe control
relationships, rather than the current
use of the term ‘‘subsidiary’’ in § 5.55.
The OCC did not receive any comments
on these updated definitions and adopts
them as proposed.
Current paragraph (e)(1) of § 5.55
requires a Federal savings association to
file an application if it is not an eligible
savings association. Current paragraphs
(e)(2) and (g)(2) of § 5.55 require eligible
59 See 12 CFR 225.71(d) (Board); 12 CFR
303.101(c) (FDIC).
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savings associations to file a notice if
certain requirements are met. Consistent
with other changes in part 5, the OCC
proposed to change the terminology for
notice to application and to make
corresponding changes throughout
§ 5.55. As a result, filings that are
currently notices would be applications
subject to expedited review. In addition,
the OCC proposed to reorganize
paragraphs (e) and (g) to clarify the
procedures; however no substantive
change is intended. The OCC also
proposed additional stylistic revisions
to current paragraph (e)(4) of § 5.55 to
clarify that the notice mentioned in this
paragraph is that of the notice filed with
the Federal Reserve Board. The OCC did
not receive any comments on these
changes and adopts them as proposed
with clarifying technical changes.
The OCC proposed a substantive
change to the application procedures.
Current paragraph (e)(1)(ii) requires a
Federal savings association to file an
application if the total amount of all its
capital distributions (including the
proposed capital distribution) for the
applicable calendar year exceeds its net
income for that year to date plus
retained net income for the preceding
two years. Under 12 CFR 5.64(c)(2), a
national bank may calculate its
dividends in excess of a single year’s
current net income by offsetting certain
excess dividends against retained net
income from each of the prior two years,
with the potential to incorporate net
income from up to four years prior to
the current year when determining the
maximum dividend payout possible
without prior OCC approval. To provide
additional flexibility, the OCC proposed
to permit a Federal savings association
to conduct this calculation when
determining whether this application
requirement applies. Specifically, if the
capital distribution is from retained
earnings, a Federal savings association
would be able to calculate the aggregate
limitation for a capital distribution in
accordance with 12 CFR 5.64(c)(2),
substituting ‘‘capital distributions’’ for
‘‘dividends’’ in that section. The OCC
did not receive any comments on this
change to the application procedures
and adopts it as proposed with a
confirming change to a citation.
Paragraph (f)(2) provides that the
capital distribution application may
include a schedule proposing capital
distributions over a specified period,
not to exceed 12 months. The OCC
proposed to remove this 12-month
limitation to allow a Federal savings
association more flexibility for its
distributions and to align this provision
with the analogous national bank
provision, 12 CFR 5.46(i)(1)(ii). The
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OCC did not receive any comments on
the removal of this 12-month limitation
and adopts it as proposed.
Additionally, the OCC proposed a
new paragraph (g)(3) to clarify the
appropriate OCC filing office for capital
distribution applications and notices. In
general, a Federal savings association
would file with the appropriate OCC
licensing office. However, the Federal
savings association must submit the
application to the appropriate OCC
supervisory office if the application
involves solely a cash dividend from
retained earnings or involves a cash
dividend from retained earnings and a
concurrent cash distribution from
permanent capital. The OCC did not
receive any comments on this change,
and the OCC adopts it as proposed.
Finally, the OCC proposed to
reorganize paragraph (h), which
addresses OCC review of an application,
by providing separate paragraphs for
OCC denials and approvals. As a result,
paragraph (h)(1) would address OCC
denials and include the majority of
current paragraph (h) and paragraph
(h)(2) would address OCC approvals. In
doing so, the proposal clarified that the
OCC may approve an application in
whole or in part and that the OCC may
waive any waivable prohibition or
condition to permit a distribution. The
proposal also changed the crossreference in the current introductory
text to the more appropriate paragraph
(e)(1). The OCC did not receive any
comments on these changes to
paragraph (h) of § 5.55 and adopts them
as proposed.
Inclusion of Subordinated Debt
Securities and Mandatorily Redeemable
Preferred Stock as Federal Savings
Association Supplementary (Tier 2)
Capital (§ 5.56)
Section 5.56 provides the
requirements and procedures for a
Federal savings association to include
subordinated debt and mandatorily
redeemable preferred stock (collectively,
‘‘covered securities’’) in tier 2 capital.
Paragraph (b) provides the filing
procedures, including the application
and notice procedures. Under § 5.56, the
OCC must approve an application or
notice before a Federal savings
association may include covered
securities as tier 2 capital. As with
§ 5.47, the OCC proposed to make this
process consistent with the general
usage in part 5 by changing the
terminology from notice to application
where appropriate throughout § 5.56.
The proposal also clarified that a
savings association may not include
covered securities in tier 2 capital until
the OCC approves the application and
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the securities are issued. This change is
not intended to be substantive.
Paragraph (b)(2) requires an
application and prior approval from the
OCC for a Federal savings association to
prepay covered securities included in
tier 2 capital. Similar to the national
bank requirement in § 5.47, paragraphs
(b)(2)(ii) and (h) of § 5.56 contain
additional application requirements for
OCC review of prepayments in the form
of a call option. As provided in the
discussion for § 5.47 in this
Supplemental Information, and for the
same reasons, the OCC proposed to
incorporate the application
requirements currently applicable to
prepayment in the form of a call option
to all prepayment applications. The
OCC also proposed one additional
technical change in § 5.56(b)(2) to
replace a reference to ‘‘a tier 1 or tier 2
instrument’’ to refer to ‘‘tier 1 or tier 2
capital.’’
Paragraph (d)(1) contains disclosure
requirements for covered securities. The
OCC proposed to add a new paragraph
(d)(1)(i)(H) to require the covered
security to state that it may be fully
subordinated to interests held by the
U.S. government in the event that the
savings association enters into a
receivership, insolvency, liquidation, or
similar proceeding. As discussed above
regarding § 5.47, a Federal savings
association that is an advanced
approaches institution must make this
disclosure under 12 CFR 3.20(d)(1)(xi).
As stated in the preamble to the
proposed rule, the OCC believes that
disclosing this information to potential
investors in the covered security is
beneficial for all Federal savings
associations, even those that are not
advanced approaches Federal savings
associations or that do not intend to
include the debt in tier 2 capital.
In addition, the OCC proposed to
replace the reference to 12 CFR part 197
in paragraphs (b)(1)(iii) and (d)(2)(i) of
§ 5.56 with 12 CFR part 16, which now
applies to Federal savings associations.
The OCC also proposed to make certain
purely stylistic changes to the rule text
of § 5.56 that are not intended to impact
the substantive requirements applicable
to Federal savings associations.
The OCC received no comments to
any changes proposed to § 5.56 and
adopts them as proposed. The final rule
also makes a technical correction to the
statutory reference to the definition of
accredited investor in paragraph
(d)(2)(ii).
Pass-Through Investments by a Federal
Savings Association (§ 5.58)
Section 5.58 provides the licensing
procedures for Federal savings
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associations making pass-through
investments. Although based on
different authority, § 5.58 is largely
analogous to the provisions in § 5.36
governing national bank non-controlling
investments. Accordingly, the OCC
proposed amendments to § 5.58 similar
to those proposed for § 5.36, and for the
same reasons.
First, the OCC proposed to amend
paragraph (d), Definitions, by defining
‘‘pass-through investment’’ as an
investment authorized under 12 CFR
160.32(a). As discussed in this
Supplemental Information for the
proposed definition of ‘‘non-controlling
investment’’ in § 5.36, the proposed
definition for ‘‘pass-through
investment’’ would exclude a Federal
savings association holding interests in
a trust formed for the purposes of
securitizing assets held by the bank as
part of its business or for the purposes
of holding multiple legal titles of motor
vehicles or equipment in conjunction
with lease financing transactions. The
OCC received no comments on the
proposed definition of ‘‘pass-through
investment’’ and adopts it as proposed.
The OCC also proposed to amend
paragraph (d) by removing the
definitions of ‘‘well capitalized’’ and
‘‘well managed’’ because the proposed
rule defined these terms in § 5.3. The
OCC received no comments on these
changes and adopts them as proposed,
with a technical change that removes
unnecessary cross-references to § 5.3 in
paragraph (e).
Second, the OCC proposed to expand
the activities eligible for notice to
include activities that are substantially
the same as previously approved
activities, as proposed to be defined in
§ 5.3. In making this change, the
proposal reorganized paragraph (e) and
made conforming changes to paragraphs
(e)(2) and (e)(4). Additionally, the OCC
stated in the preamble to the proposed
rule that it is considering removing the
filing requirement for pass-through
investments in enterprises engaging in
activities permissible for a Federal
savings association, as discussed above
for national bank operating subsidiaries
and non-controlling investments. Under
the alternative, the OCC would not
remove the filing requirement if the
enterprise would be a subsidiary of the
Federal savings association for purposes
of section 18(m) of the FDIA Act (12
U.S.C. 1828(m)), which generally
requires a Federal savings association to
provide 30-days prior notice to the OCC
before establishing or acquiring a
subsidiary defined in section 3(w)(4) of
the FDI Act (12 U.S.C. 1813(w)(4)).
The OCC received no comments to the
alternative proposal in § 5.58 directly,
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but did receive comments to the similar
alternative proposal for operating
subsidiaries, § 5.34, and noncontrolling
investments of national banks, § 5.36.
For the reasons noted in the discussion
on § 5.34, Operating subsidiaries in this
Supplemental Information, the OCC
declines to include this alternative in
the final rule.
Third, the OCC proposed to revise
paragraph (f)(1) of § 5.58 to permit a
Federal savings association to file an
application to make a pass-through
investment in an entity that does not
agree to OCC supervision and
examination. The proposal redesignated
paragraph (f)(2) as paragraph (f)(3) and
added a new paragraph (f)(2) providing
for expedited review for certain
applications. The qualifications for
expedited review are equivalent to those
in proposed § 5.36(f). The OCC received
no direct responses to this proposal but
as discussed in this Supplemental
Information received one comment in
support of the similar proposal for
noncontrolling investments of national
banks under § 5.36. The OCC adopts
these proposed changes to § 5.58(f), with
clarifying technical changes, for the
same reasons discussed in the
corresponding change to § 5.36. The
final rule also makes conforming
changes to redesignated paragraph (f)(3)
to reflect that a Federal savings
association may make a pass-through
investment requiring a filing under 12
U.S.C. 1828(m) in an entity that has not
agreed to OCC supervision and
examination.
Fourth, the OCC proposed to add a
new paragraph (g) that would permit a
Federal savings association to make a
pass-through investment without a
notice or application to the OCC. The
standards would be equivalent to those
in proposed § 5.36(g) except that the
enterprise must not be a subsidiary of
the Federal savings association for
purposes of section 18(m) of the FDI
Act. In such a case, an application
would be required under § 5.58(f)(2).
The OCC received no comments on new
paragraph (g) and adopts it as proposed.
Additionally, the final rule corrects a
cross-reference in redesignated
paragraph (h)(1).
Finally, the OCC proposed to amend
redesignated paragraph (j) to provide
exceptions to the rules of general
applicability in the same manner as
proposed § 5.36(j). As with this
amendment to § 5.36, the OCC has not
removed the proposed exception to
public availability, § 5.9, in the final
rule. However, as with § 5.36, the OCC
is adopting in the final rule the
proposed provision that permits the
OCC to determine that some or all of
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these rules of general applicability
apply if it concludes that the
application presents significant or novel
policy, supervisory, or legal issues, with
the addition of § 5.9 to this sentence.
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§ 5.59 Service Corporations of Federal
Savings Associations.
Section 5.59 provides procedures
governing OCC review and approval of
filings by Federal savings associations to
establish or acquire, or to conduct new
activities in existing, service
corporations pursuant to the authority
provided in section 5(c)(4)(B) of the
HOLA, 12 U.S.C. 1464(c)(4)(B). An
application under this section is eligible
for expedited review if, among other
things, the Federal savings association is
‘‘well capitalized’’ and ‘‘well managed.’’
However, this section currently does not
define ‘‘well managed.’’ The proposal
applied the proposed definition of ‘‘well
managed’’ in § 5.3 to this term as used
in § 5.59. The final rule adopts this
amendment as proposed, with one
technical change that removes the crossreference to § 5.3 in paragraph
(h)(2)(ii)(A). As indicated elsewhere in
this SUPLEMENTARY INFORMATION,
because the definitions in § 5.3 apply to
all of part 5, this cross-reference is not
necessary.
Earnings Limitation Under 12 U.S.C. 60
(§ 5.64)
Section 5.64 describes the
calculations for earnings available for
dividends under 12 U.S.C. 60.
Paragraph (d) provides special rules for
what the OCC referred to as ‘‘surplus
surplus,’’ which is an amount in capital
surplus in excess of capital stock that
the national bank can demonstrate came
from earnings in prior periods. A
national bank had been required to
retain a certain percentage of net income
as capital surplus whenever it paid
dividends. In addition, a variety of
statutes and regulations established
limits for banks based on permanent
capital, including capital surplus, and
ignored any amounts in retained
earnings, which provided an incentive
for banks to shift earnings into
permanent capital. After Congress
revised the statutes to provide more
flexibility to include retained earnings
as capital for purposes of the statutory
limits, the OCC permitted banks to
distribute these surplus surplus funds as
dividends rather than as reductions in
permanent capital given the surplus
surplus funds’ origin as earnings rather
than paid in capital. As these statutory
and regulatory changes occurred
decades ago, national banks have not
needed to create new surplus surplus
for many years but may still incur
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recordkeeping burden associated with
identifying regulatory surplus surplus
within capital surplus. Accordingly, the
OCC proposed to remove the concept of
surplus surplus and associated
procedures described in paragraph (d).
The OCC received no comments on
these proposed changes and finalizes
them as proposed. The OCC notes that
removal of paragraph (d) will not
prevent a bank from distributing
amounts contained in the capital
surplus accounts. A national bank may
make an appropriate filing under 12
CFR 5.46 for a reduction in capital to
distribute these funds.
Dividends Payable in Property Other
Than Cash (§ 5.66)
Section 5.66 provides procedures for
payment of dividends in non-cash
property by national banks. This section
currently provides that these dividends
are equivalent to a cash dividend in an
amount equal to the actual current value
of the property, even if the bank
previously has charged down or written
off the property. Before the dividend is
declared, the bank should show the
excess of the actual value over book
value on its books as a recovery and
should declare the dividend in the
amount of the full book value
(equivalent to the actual current value)
of the property being distributed. The
OCC proposed to revise this section to
clarify that the dividend is equivalent to
a cash dividend in an amount equal to
the actual current value of the property,
regardless of whether the book value is
higher or lower under GAAP. The OCC
also proposed to apply this valuation
methodology to all non-cash dividends,
not just those for property that has been
charged down or written off. Further,
the amendment would provide that the
bank should show the difference
between the actual value and book value
on its books as gain or loss, as
applicable, prior to recording the noncash dividend reflecting the actual value
of the property. The OCC received no
comments on these changes and adopts
them as proposed. As stated in the
preamble to the proposed rule, the OCC
believes this approach better reflects the
value of the property being distributed
from the bank, particularly in cases
where the non-cash property was
recorded at historical cost under GAAP.
Fractional Shares (§ 5.67)
Section 5.67 provides a number of
potential arrangements that a national
bank may adopt to avoid the issuance of
fractional shares. The OCC proposed to
simplify this section for a national bank
by retaining only one of these options,
the remittance of the cash equivalent of
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the fraction not being issued to those to
whom fractional shares would
otherwise be issued. The OCC believes
this procedure is the simplest and is the
predominant method of disposing of
fractional shares today. Other options in
the current rule include issuing
warrants for fractional shares or
permitting shareholders to purchase
additional fractions up to one whole
share. While the OCC permitted these
methods historically, these methods can
create significant recordkeeping costs
today when bank stock may be traded in
‘‘round lots’’ of 100 shares or more. The
OCC received no comments on this
change and adopts it as proposed.
Because a transaction that would result
in the issuance of fractional shares will
generally require an application with
the OCC, revised § 5.67 maintains
flexibility for banks by permitting the
bank to propose an alternate method in
the application for the stock issuance,
which could include one of the options
being removed from the rule.
Federal Branches and Agencies (§ 5.70)
Section 5.70 provides the filing
procedures for corporate activities and
transactions involving Federal branches
and agencies of foreign banks.
Consistent with the background
investigation changes proposed to other
sections, the OCC proposed adding a
new paragraph (d)(3) to explicitly
permit the OCC to require any senior
executive officer of a Federal branch or
agency submitting a filing to submit an
Interagency Biographical and Financial
Report and legible fingerprints.
The OCC received no comments to
this new paragraph and adopts it as
proposed.
Additional Issues and General
Comments
Digital and remote filings. One
commenter encouraged the OCC to
advance digital and remote filing
procedures, such as digital signatures
and virtual notarization. The OCC has
already updated its licensing regulation
to encourage the use of electronic
filings, including permitting digital
signatures in the OCC’s Central
Application Tracking System (CATS).
Further, the OCC is unable to update to
virtual notarization because notarization
is governed by State law.
Public input. One commenter
generally opposed the proposed changes
for procedures outlining public input.
The commenter further expressed that it
is more difficult for community
organizations to offer meaningful input
under these proposed procedures,
which limits the OCC’s ability to
determine whether an application
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achieves a public benefit. The OCC
disagrees with this comment. The OCC
notes that ‘‘public benefit’’ is not a
factor for any licensing filings, rather
the OCC is seeking public comments
that provide meaningful and substantive
information about a bank’s CRA
performance. Only such comments can
assist the OCC in its evaluation of a
transaction.
CRA ratings. Generally, the OCC
requires a rating of at least
‘‘Satisfactory’’ for approval of a filing. In
response to the CRA ratings used in
§§ 5.30, 5.31, 5.33, 5.40, one commenter
suggested that a CRA rating of less than
‘‘Satisfactory’’ should not automatically
preclude approval of a filing. The OCC
is not adopting this commenter’s
recommendation. OCC policy provides
that if an applicant bank has an overall
less than ‘‘Satisfactory’’ rating, the OCC
provides enhanced scrutiny of covered
applications by the bank. Further,
proposed § 5.33(e)(1)(iii)(A) makes clear
that the CRA consideration is in
conjunction with the other factors.
One commenter requested that the
OCC codify the policies in PPM 5000–
43 and Bulletin 2018–23 regarding CRA
downgrades. The commenter also
asserted that the OCC should allow
expedited reexamination if a bank
believes it has remediated a CRA
concern. The OCC notes that this
comment is outside the scope of this
rulemaking.
Public comment period. One
commenter questioned the proposed
rule’s compliance with the notice
requirements of the APA noting that the
Notice of Proposed Rulemaking was
published on the OCC website on March
5, 2020, but not in the Federal Register
until April 2, 2020, with the comment
period ending May 4, 2020.60 The
commenter is incorrect about the
requirements of the APA. The OCC
notes that the APA does not provide a
minimum comment period and that the
generally recommended time for
comment is 60 days.61 Here, the public
had notice of the proposal for 60 days
beginning on March 5 when the OCC
provided notice of the proposal on its
website and issued a news release and
OCC Bulletin on the proposal.
60 This commenter also objected to the OCC
issuing the rulemaking during the COVID–19
pandemic. However, the OCC believes that it is
important to move forward with updating its rules
so that national banks and Federal savings
associations can better address current economic
issues. Furthermore the pandemic should not
prevent the OCC from meeting its obligations to
provide oversight and ensure the safety and
soundness of OCC regulated banks and the Federal
banking system.
61 See E.O. 12866, section 6(a).
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Moreover, the proposal was published
in the Federal Register for 32 days.62
General Technical Changes
62 The OCC, as well as the FDIC and Federal
Reserve Board, have published other rules in the
Federal Register for only 30 days. See e.g., 84 FR
9940 (Mar. 19, 2019), 84 FR 24296 (May 24, 2019),
and 84 FR 59970 (Nov. 7, 2019).
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III. Regulatory Analyses
A. Paperwork Reduction Act
Paperwork Reduction Act
The OCC proposed numerous
technical changes throughout 12 CFR
part 5. The OCC received no comments
on these changes and adopts them as
proposed, with additional conforming
changes. Specifically, the final rule:
• Replaces the word ‘‘shall’’ with
‘‘must,’’ ‘‘will,’’ or other appropriate
language, which is the more current rule
writing convention for imposing an
obligation and is the recommended
drafting style of the Federal Register;
• Generally replaces the term
‘‘notice’’ with the term ‘‘application’’
where prior OCC approval is required,
thereby conforming the terminology to
the licensing action provided in the
provision (notices would continue to
include informational filings to the OCC
as well as certain transactions that the
OCC has the power to disapprove, such
as changes in control);
• Amends the expedited review
provisions throughout part 5 to refer to
the OCC removing a filing from
expedited review rather than making a
determination that the filing is not
eligible for expedited review to accord
with the language and procedure in
§ 5.13(a)(2).
• Revises citations to the U.S. Code
and the Code of Federal Regulations by
adjusting cross-references, making
citations more specific, and using
consistent style;
• Updates and standardizes
references to the OCC website;
• Simplifies gender references by
replacing ‘‘his or her’’ with the neutral
‘‘their;’’
• Uniformly capitalizes the word
‘‘State,’’ in conformance with Federal
Register drafting style; and
• Replaces the terms ‘‘bank’’ and
‘‘savings association’’ with ‘‘national
bank’’ or ‘‘Federal savings association,’’
respectively, where appropriate.
The OCC also is adopting in this final
rule additional corrections to crossreferences and citations throughout part
5. Further, the OCC is adopting
technical changes that update the crossreference to the § 5.3 definition of
‘‘eligible bank’’ in 12 CFR 3.701(f)(1)(vi)
and the cross-reference to the § 5.3
definition of ‘‘appropriate OCC
licensing office’’ in 12 CFR 7.2008(c).
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Certain provisions of the proposed
rulemaking contain ‘‘collection of
information’’ requirements within the
meaning of the Paperwork Reduction
Act (PRA) of 1995 (44 U.S.C. 3501–
3521). In accordance with the
requirements of the PRA, the OCC may
not conduct or sponsor, and a
respondent is not required to respond
to, an information collection unless it
displays a currently valid Office of
Management and Budget (OMB) control
number.
The OCC reviewed the final rule and
determined that it revises certain
information collection requirements
previously cleared by OMB under OMB
Control No. 1557–0014. The OCC
submitted the information collection
requirements at the proposed rule stage.
OMB neither approved nor disapproved
the submission, requiring OCC to
resubmit the collection at the final rule
stage. Therefore, the OCC has submitted
the revised information collection to
OMB for review under section 3507(d)
of the PRA (44 U.S.C. 3507(d)) and
section 1320.11 of the OMB’s
implementing regulations (5 CFR 1320).
Current Actions
The final rule:
• Adds new definitions to add clarity
and consistency across part 5. This
includes proposing a single definition
well managed applicable throughout
part 5. 12 CFR 5.3.
• Requires each proposed organizer,
director, executive officer, or principal
shareholder to submit information
prescribed in the Interagency
Biographical and Financial Report and
legible fingerprints. This amendment
merely codifies current application
requirements and will not result in a
change in burden. 12 CFR 5.20.
• Eliminates the bylaw amendment
notice requirement for Federal savings
associations that adopt without change
the OCC’s model or optional bylaws set
forth in the rule. 12 CFR 5.21, 5.22.
• Requires that applications to
convert to a Federal savings association
or national bank include: A list of
directors and senior executive officers of
the converting institution; and a list of
individuals, directors, and shareholders
who directly or indirectly, or acting in
concert with one or more persons or
companies, or together with members of
their immediate family, do or will own,
control, or hold 10 percent or more of
the converting institution’s stock. This
amendment merely codifies current
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application requirements and will not
result in a change in burden. 12 CFR
5.23(d)(2)(ii), 5.24(e)(2).
• Permits the OCC to require directors
and senior executive officers of a
converting institution to submit the
Interagency Biographical and Financial
Report and legible fingerprints. This
amendment merely codifies current
application requirements and will not
result in a change in burden. 12 CFR
5.23, 5.24.
• Requires that applications for
national banks or Federal savings
associations that wish to engage in the
exercise of fiduciary powers include, if
requested by the OCC, the Interagency
Biographical and Financial Report and
legible fingerprints. 12 CFR 5.26.
• Requires a filer of a business
combination application under CRA to
disclose whether it has entered into and
disclosed a covered agreement, as
defined in 12 CFR 35.2. A filer must
also provide summaries of, or
documents related to, all substantive
discussions with respect to the
development of the content of a CRA
sunshine agreement. 12 CFR
5.33(e)(1)(iii).
• Removes the requirement that a
disappearing national bank or Federal
savings association consolidating or
merging with another OCC-supervised
institution provide a notice to the OCC.
§ 5.33(g), (k).
• For national bank operating
subsidiaries, expands the after the fact
notice for national banks to activities
that are substantially the same as
previously approved activities that will
be conducted in accordance with the
same terms and conditions applicable to
the previously approved activity.
Expands the list of eligible entities to
include trusts provided that the bank or
operating subsidiary has the ability to
replace the trustee at will and be the
sole beneficial owner of the trust. 12
CFR 5.34.
• Removes the requirement for a
national bank to file an annual report
identifying its operating subsidiaries
that do business directly with
consumers and are not functionally
regulated. 12 CFR 5.34.
• For national bank non-controlling
investments and Federal savings
association pass-through investments,
expands the activities eligible for notice
to activities that are substantially the
same as previously approved activities.
12 CFR 5.36, 5.58.
• Allows national banks and Federal
savings associations to file an
application to make a non-controlling
investment or a pass-through
investment, respectively, in an
enterprise that has not agreed to be
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subject to OCC supervision and
examination. 12 CFR 5.36(f), 5.58(f).
• Allows national banks and Federal
savings associations to make noncontrolling investments or a passthrough investments, respectively,
without a filing if the activities of the
enterprise are limited to those
previously reported to the OCC in
connection with a prior investment. 12
CFR 5.36, 5.58.
• For Federal savings association
operating subsidiaries, expands the
expedited approval process for Federal
savings associations to include activities
that are substantially the same as
previously approved activities that will
be conducted in accordance with the
same terms and conditions applicable to
the previously approved activity.
Expands the list of eligible entities to
include trusts provided that the Federal
savings association or operating
subsidiary has the ability to replace the
trustee at will and be the sole beneficial
owner of the trust. 12 CFR 5.38.
• Permits national banks to request
approval for a reduction in permanent
capital for multiple quarters. 12 CFR
5.46.
• Regarding subordinated debt notes,
allows national banks to omit
inapplicable provisions when
warranted, and require national banks to
disclose in subordinated debt notes that
the subordinated debt obligation may be
fully subordinated to interests held by
the U.S. government in the event that
the national bank enters into a
receivership, insolvency, liquidation, or
similar proceeding. 12 CFR 5.47.
• Revises the standard for when prior
approval is required for a national
bank’s issuance of subordinated debt
and for prepayment of any subordinated
debt that is not included in tier 2 capital
12 CFR 5.47(f).
• Requires OCC approval for a
material change to an existing
subordinated debt document if the
national bank would have been required
to receive OCC approval to issue the
security under § 5.47(f)(1) or to include
it in tier 2 capital under § 5.47(h). 12
CFR 5.47.
• Adds the position of chief risk
officer to the definition of senior
executive officer. This change requires
prior OCC approval for the employment
of an individual as a chief risk officer by
a national bank or Federal savings
association in troubled condition. 12
CFR 5.51.
• Requires a covered security
(inclusion of subordinated debt and
mandatorily redeemable preferred stock)
issued by a Federal savings association
to state that it may be fully subordinated
to interests held by the U.S. government
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in the event that the savings association
enters into a receivership, insolvency,
liquidation, or similar proceeding. 12
CFR 5.56.
• Permits the OCC to require any
senior executive officer of a Federal
branch or agency submitting a filing to
submit an Interagency Biographical and
Financial Report and legible
fingerprints. This amendment merely
codifies current application
requirements and will not result in a
change in burden. 12 CFR 5.70.
Title of Information Collection:
Licensing Manual.
Frequency: Event generated.
Affected Public: Businesses or other
for-profit.
Estimated number of respondents:
3,698.
Total estimated annual burden:
12,981 hours.
Comments are invited on:
a. Whether the collections of
information are necessary for the proper
performance of the agencies’ functions,
including whether the information has
practical utility;
b. The accuracy or the estimate of the
burden of the information collections,
including the validity of the
methodology and assumptions used;
c. Ways to enhance the quality,
utility, and clarity of the information to
be collected;
d. Ways to minimize the burden of the
information collections on respondents,
including through the use of automated
collection techniques or other forms of
information technology; and
e. Estimates of capital or startup costs
and costs of operation, maintenance,
and purchase of services to provide
information.
All comments will become a matter of
public record. Comments on aspects of
this notice that may affect reporting,
recordkeeping, or disclosure
requirements and burden estimates
should be sent to the addresses listed in
the ADDRESSES section of this document.
A copy of the comments may also be
submitted to the OMB desk officer by
mail to U.S. Office of Management and
Budget, 725 17th Street NW, #10235,
Washington, DC 20503; facsimile to
(202) 395–6974; or email to oira_
submission@omb.eop.gov, Attention,
Federal Banking Agency Desk Officer.
B. Regulatory Flexibility Act Analysis
In general, the Regulatory Flexibility
Act (5 U.S.C. 601 et seq.) requires an
agency, in connection with a final rule,
to prepare a Regulatory Flexibility
Analysis describing the impact of the
rule on small entities (defined by the
SBA for purposes of the RFA to include
commercial banks and savings
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institutions with total assets of $600
million or less and trust companies with
total revenue of $41.5 million or less).
However, under section 605(b) of the
RFA, this analysis is not required if an
agency certifies that the rule would not
have a significant economic impact on
a substantial number of small entities
and publishes its certification and a
short explanatory statement in the
Federal Register along with its rule.
The OCC currently supervises
approximately 1,163 institutions
(commercial banks, trust companies,
Federal savings associations, and
branches or agencies of foreign banks,
collectively banks), of which 745 are
small entities.63 To measure whether a
rule will have a ‘‘significant economic
impact,’’ the OCC focuses on the
potential costs of the rule to OCCsupervised small entities, consistent
with guidance on the RFA published by
the Office of Advocacy of the Small
Business Administration.64 Because the
rule applies to all OCC-supervised
depository institutions, the final rule
would affect all small OCC-supervised
entities, and thus a substantial number
of them.
The OCC classifies the economic
impact of total costs on an OCCregulated entity as significant if the total
costs for the entity in a single year are
greater than 5 percent of total salaries
and benefits, or greater than 2.5 percent
of total non-interest expense. The OCC
estimates that the monetized direct cost
of this rulemaking will range from a low
of approximately $4,600 per bank (40
hours × $115 per hour 65) to a high of
approximately $18,400 per bank (160
hours × $115 per hour).66 Using the
63 The OCC bases its estimate of the number of
small entities on the SBA’s size thresholds for
commercial banks and savings institutions, and
trust companies, which are $600 million and $41.5
million, respectively. Consistent with the General
Principles of Affiliation 13 CFR 121.103(a), the OCC
counts the assets of affiliated financial institutions
when determining if it should classify an institution
as a small entity. The OCC used December 31, 2019,
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 U.S.
Small Business Administration’s Table of
Standards.
64 See, ‘‘A Guide for Government Agencies; How
to Comply with the Regulatory Flexibility Act,’’ (pp.
18–20), available at: https://www.sba.gov/sites/
default/files/advocacy/How-to-Comply-with-theRFA-WEB.pdf.
65 This per hour dollar amount is based on the
U.S. Bureau of Labor Statistics data for wages (by
industry and occupation).
66 The OCC believes that substantially all of
banks’ direct costs will be associated with
reviewing the final rule and, when necessary,
modifying policies and procedures to correct any
inconsistencies between banks’ internal policies
and the final modified rules. The overall impact
estimate of the final rule is a conservative one
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upper bound average direct cost per
bank, the OCC finds the compliance
costs will have a significant economic
impact on no more than 18 small banks,
which is not a substantial number.67
Therefore, the OCC finds that this final
rule does not have a significant
economic impact on a substantial
number of small entities supervised by
the OCC. Accordingly, a Regulatory
Flexibility Analysis is not required.
C. Unfunded Mandates Reform Act of
1995
The OCC has analyzed the final rule
under the factors in the Unfunded
Mandates Reform Act of 1995 (UMRA)
(2 U.S.C. 1501 et seq.). Under this
analysis, the OCC considered whether
the final 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 (currently $157 million). The
UMRA does not apply to regulations
that incorporate requirements
specifically set forth in law.
Based on the OCC estimate that the
monetized direct cost of this rulemaking
would range from a low of
approximately $4,600 per bank to a high
of approximately $18,400 per bank, the
OCC’s overall estimate of the total effect
of the final rule ranges from
approximately $5.4 million to
approximately $21.4 million for the
approximately 1,163 institutions
supervised by the OCC. Therefore, the
OCC finds that the final rule does not
trigger the UMRA cost threshold.
Accordingly, the OCC has not prepared
the written statement described in
section 202 of the UMRA.
D. Riegle Community Development and
Regulatory Improvement Act of 1994
Pursuant to section 302(a) of the
Riegle Community Development and
Regulatory Improvement Act of 1994
(RCDRIA) (12 U.S.C. 4802(a)), in
determining the effective date and
administrative compliance requirements
for new regulations that impose
additional reporting, disclosure, or other
requirements on insured depository
institutions, the OCC must consider,
consistent with the principles of safety
and soundness and the public interest:
(1) Any administrative burdens that the
because it is difficult to monetize the potential
offsetting benefits associated with the final changes.
Benefits from these changes will accrue over the
long-term and are therefore more difficult to
monetize for purposes of this estimate.
67 The OCC’s threshold for a substantial number
of small entities is five percent of OCC-supervised
small entities, or 37 as of December 31, 2019.
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80433
rule would place on depository
institutions, including small depository
institutions and customers of depository
institutions; and (2) the benefits of the
rule. The has considered the changes
made by this final rule and believes that
the overall effective date of January 11,
2021 will provide OCC-regulated
institutions with adequate time to
comply with the rule.68 With respect to
administrative compliance
requirements, the OCC has considered
the administrative burdens and the
benefits of this final rule and believes
that any burdens are necessary for safety
and soundness and proper OCC
supervision. The final rule’s benefits
include increased flexibility for filing
procedures, elimination of redundant or
unnecessary reporting requirements
consistent with safety and soundness,
and updated policies and procedures
that increase clarity and reduce
ambiguity for banks seeking compliance
with 12 CFR part 5 requirements.
Further discussion of the consideration
by the OCC of these administrative
compliance requirements is found in
other sections of the final rule’s
SUPPLEMENTARY INFORMATION section.
E. Effective Date
The APA 69 requires that a substantive
rule must be published not less than 30
days before its effective date, except for:
(1) Substantive rules which grant or
recognize an exemption or relieve a
restriction; (2) interpretative rules and
statements of policy; or (3) as otherwise
provided by the agency for good
cause.70 The January 11, 2021 effective
date of this final rule for all but one of
its amendments meets the APA effective
date requirements, as it will take effect
at least 30 days after its publication date
of December 11, 2020. One technical
amendment takes effect on December
11, 2020. This amendment removes the
reference to 12 CFR part 195, the
Federal savings association CRA rule, in
§ 5.20(e)(2)(ii) because the OCC recently
amended 12 CFR part 25 to include
Federal savings associations and
removed 12 CFR part 195 as of October
1, 2020.71 Because this is a technical
amendment that aligns § 5.20(e)(2)(ii)
with revised part 25, the OCC believes
68 The OCC is making one technical change that
takes effect on December 11, 2020. This amendment
removes the reference to 12 CFR part 195, the
Federal savings association CRA rule, in
§ 5.20(e)(2)(ii) because the OCC recently amended
12 CFR part 25 to include Federal savings
associations and removed 12 CFR part 195 as of this
date.
69 Codified at 5 U.S.C. 551 et seq.
70 5 U.S.C. 553(d).
71 See 85 CFR 34734 (June 5, 2020).
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it has good cause to issue this rule
without a delayed effective date.
Pursuant to section 553(b)(B) of the
APA, general notice and the opportunity
for public comment are not required
with respect to a rulemaking when an
‘‘agency for good cause finds (and
incorporates the finding and a brief
statement of reasons therefor in the
rules issued) that notice and public
procedure thereon are impracticable,
unnecessary, or contrary to the public
interest.’’ 72 As described in the final
rule’s SUPPLEMENTARY INFORMATION
section, the final rule includes a number
of technical, clarifying, or conforming
amendments that the OCC did not
include in its proposed rule. Because
these amendments are not substantive
and merely correct or clarify the rule,
update the rule to reflect current law, or
fix citation and regulatory text format,
the OCC believes that public notice of
these changes is unnecessary and
therefore that it has good cause to adopt
these changes without notice and
comment.
F. Congressional Review Act
For purposes of the Congressional
Review Act, the Office of Management
and Budget (OMB) makes a
determination as to whether a final rule
constitutes a ‘‘major rule.’’ 73 If a rule is
deemed a ‘‘major rule’’ by OMB, the
Congressional Review Act generally
provides that the rule may not take
effect until at least 60 days following its
publication.74
The Congressional Review Act defines
a ‘‘major rule’’ as any rule that the
Administrator of the Office of
Information and Regulatory Affairs of
the OMB finds has resulted in or is
likely to result in: (1) An annual effect
on the economy of $100,000,000 or
more; (2) a major increase in costs or
prices for consumers, individual
industries, Federal, State, or local
government agencies, or geographic
regions; or (3) a significant adverse
effects on competition, employment,
investment, productivity, innovation, or
on the ability of United States-based
enterprises to compete with foreignbased enterprises in domestic and
export markets.75
OMB has determined that this final
rule is not a major rule. As required by
the Congressional Review Act, the OCC
will submit the final rule and other
appropriate reports to Congress and the
Government Accountability Office for
review.
U.S.C. 553(b)(3)(A).
U.S.C. 801 et seq.
74 5 U.S.C. 801(a)(3).
75 5 U.S.C. 804(2).
Administrative practice and
procedure, Capital, National banks,
Federal savings associations, Risk.
12 CFR Part 5
Administrative practice and
procedure, Federal savings associations,
National banks, Reporting and
recordkeeping requirements, Securities.
12 CFR Part 7
Computer technology, Credit,
Derivatives, Federal savings
associations, Insurance, Investments,
Metals, National banks, Reporting and
recordkeeping requirements, Securities,
Security bonds.
For the reasons set out in the
preamble, the OCC proposes to amend
12 CFR chapter I as follows:
PART 3—CAPITAL ADEQUACY
STANDARDS
1. The authority citation for part 3
continues to read as follows:
■
Authority: 12 U.S.C. 93a, 161, 1462, 1462a,
1463, 1464, 1818, 1828(n), 1828 note, 1831n
note, 1835, 3907, 3909, 5412(b)(2)(B), and
Pub. L. 116–136, 134 Stat. 281.134 Stat. 281.
§ 3.701
[Amended]
2. Amend § 3.701(f)(1)(vi) by
removing the phrase ‘‘12 CFR 5.3(g)’’
and adding in its place the phrase ‘‘12
CFR 5.3’’.
■
PART 5—RULES, POLICIES, AND
PROCEDURES FOR CORPORATE
ACTIVITIES
3. The authority citation for part 5 is
revised to read as follows:
■
Authority: 12 U.S.C. 1 et seq., 24a, 35, 93a,
214a, 215, 215a, 215a–1, 215a–2, 215a–3,
215c, 371d, 481, 1462a, 1463, 1464, 1817(j),
1831i, 1831u, 2901 et seq., 3101 et seq., 3907,
and 5412(b)(2)(B).
§ 5.2
[Amended]
4. Amend § 5.2 by:
a. In paragraph (b), removing the word
‘‘filings,’’ and adding in its place the
phrase ‘‘filings as it deems necessary,
for example,’’ and removing the word
‘‘applicant’’ and adding in its place the
word ‘‘filer’’; and
■ b. In paragraph (c), removing the
phrase ‘‘on the OCC’s Internet Web
page’’.
■ 5. Revise § 5.3 to read as follows.
■
■
Definitions.
As used in this part:
Application means a submission
requesting OCC approval to engage in
73 5
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§ 5.3
72 5
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various corporate activities and
transactions.
Appropriate Federal banking agency
has the meaning set forth in section 3(q)
of the Federal Deposit Insurance Act, 12
U.S.C. 1813(q).
Appropriate OCC licensing office
means the OCC office that is responsible
for processing applications or notices to
engage in various corporate activities or
transactions, as described at
www.occ.gov.
Appropriate OCC supervisory office
means the OCC office that is responsible
for the supervision of a national bank or
Federal savings association, as
described in subpart A of 12 CFR part
4.
Capital and surplus means:
(1) For qualifying community banking
organizations that have elected to use
the community bank leverage ratio
framework, as set forth under the OCC’s
Capital Adequacy Standards at part 3 of
this chapter:
(i) A qualifying community banking
organization’s tier 1 capital, as used
under § 3.12 of this chapter; plus
(ii) A qualifying community banking
organization’s allowance for loan and
lease losses or adjusted allowances for
credit losses, as applicable, as reported
in the national bank’s or Federal savings
association’s Consolidated Report of
Condition and Income (Call Report); or
(2) For all other national banks and
Federal savings associations:
(i) A national bank’s or Federal
savings association’s tier 1 and tier 2
capital calculated under the OCC’s riskbased capital standards set forth in part
3 of this chapter, as applicable, as
reported in the Call Report, respectively;
plus
(ii) The balance of the national bank’s
or Federal savings association’s
allowance for loan and lease losses or
adjusted allowances for credit losses, as
applicable, not included in the
institution’s tier 2 capital, for purposes
of the calculation of risk-based capital
described in paragraph (2)(i) of this
definition, as reported in the Call
Report.
Depository institution means any bank
or savings association.
Eligible bank or eligible savings
association means a national bank or
Federal savings association that:
(1) Is well capitalized under § 5.3;
(2) Has a composite rating of 1 or 2
under the Uniform Financial
Institutions Rating System (CAMELS);
(3) Has a Community Reinvestment
Act (CRA), 12 U.S.C. 2901 et seq., rating
of ‘‘Outstanding’’ or ‘‘Satisfactory,’’ if
applicable;
(4) Has a consumer compliance rating
of 1 or 2 under the Uniform Interagency
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Consumer Compliance Rating System;
and
(5) Is not subject to a cease and desist
order, consent order, formal written
agreement, or Prompt Corrective Action
directive (see 12 CFR part 6, subpart B)
or, if subject to any such order,
agreement, or directive, is informed in
writing by the OCC that the bank or
savings association may be treated as an
‘‘eligible bank or eligible savings
association’’ for purposes of this part.
Eligible depository institution means:
(1) With respect to a national bank, a
State bank or a Federal or State savings
association that meets the criteria for an
‘‘eligible bank or eligible savings
association’’ under § 5.3 and is FDICinsured; and
(2) With respect to a Federal savings
association, a State or national bank or
a State savings association that meets
the criteria for an ‘‘eligible bank or
eligible savings association’’ under § 5.3
and is FDIC-insured.
FDIC means the Federal Deposit
Insurance Corporation.
Filer means a person or entity that
submits a notice or application to the
OCC under this part.
Filing means an application or notice
submitted to the OCC under this part.
GAAP means generally accepted
accounting principles as used in the
United States.
MSA means metropolitan statistical
area as defined by the Director of the
Office of Management and Budget.
Nonconforming assets and
nonconforming activities mean assets or
activities, respectively, that are
impermissible for national banks or
Federal savings associations to hold or
conduct, as applicable, or, if
permissible, are held or conducted in a
manner that exceeds limits applicable to
national banks or Federal savings
associations, as applicable. Assets
include investments in subsidiaries or
other entities.
Notice, in general, means a
submission notifying the OCC that a
national bank or Federal savings
association intends to engage in or has
commenced certain corporate activities
or transactions. The specific meaning of
notice depends on the context of the
rule in which it is used and may
provide the OCC with authority to
disapprove the notice or may be
informational requiring no official OCC
action.
OTS means the former Office of Thrift
Supervision.
Previously approved activity means:
(1) In the case of a national bank, any
activity approved in published OCC
precedent for a national bank, an
operating subsidiary of a national bank,
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or a non-controlling investment of a
national bank; and
(2) In the case of a Federal savings
association, any activity approved in
published OCC or OTS precedent for a
Federal savings association, an
operating subsidiary of a Federal
savings association, or a pass-through
investment of a Federal savings
association.
Principal city means an area
designated as a ‘‘principal city’’ by the
Office of Management and Budget.
Short-distance relocation means
moving the premises of a branch or
main office of a national bank or a
branch or home office of a Federal
savings association within a:
(1) One thousand foot-radius of the
site if the branch, main office, or home
office is located within a principal city
of an MSA;
(2) One-mile radius of the site if the
branch, main office, or home office is
not located within a principal city, but
is located within an MSA; or
(3) Two-mile radius of the site if the
branch, main office, or home office is
not located within an MSA.
Well capitalized means:
(1) In the case of a national bank or
Federal savings association, the capital
level described in 12 CFR 6.4(b)(1);
(2) In the case of a Federal branch or
agency, the capital level described in 12
CFR 4.7(b)(1)(iii); or
(3) In the case of another depository
institution, the capital level designated
as ‘‘well capitalized’’ by the institution’s
appropriate Federal banking agency
pursuant to section 38 of the Federal
Deposit Insurance Act (12 U.S.C.
1831o).
Well managed means:
(1) In the case of a national bank or
Federal savings association:
(i) Unless otherwise determined in
writing by the OCC, the national bank
or Federal savings association has
received a composite rating of 1 or 2
under the Uniform Financial
Institutions Rating System in
connection with its most recent
examination, and at least a rating of 2
for management, if such a rating is
given; or
(ii) In the case of a national bank or
Federal savings association that has not
been examined by the OCC, the
existence and use of managerial
resources that the OCC determines are
satisfactory.
(2) In the case of a Federal branch or
agency of a foreign bank:
(i) Unless determined otherwise in
writing by the OCC, the Federal branch
or agency has received a composite
ROCA supervisory rating (which rates
risk management, operational controls,
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compliance, and asset quality) of 1 or 2
at its most recent examination, and at
least a rating of 2 for risk management,
if such a rating is given; or
(ii) In the case of a Federal branch or
agency that has not been examined by
the OCC, the existence and use of
managerial resources that the OCC
determines are satisfactory.
(3) In the case of another depository
institution:
(i) Unless otherwise determined in
writing by the appropriate Federal
banking agency, the institution has
received a composite rating of 1 or 2
under the Uniform Financial
Institutions Rating System (or an
equivalent rating under an equivalent
rating system) in connection with the
most recent examination or subsequent
review of the depository institution and,
at least a rating of 2 for management, if
such a rating is given; or
(ii) In the case of another depository
institution that has not been examined
by its appropriate Federal banking
agency, the existence and use of
managerial resources that the
appropriate Federal banking agency
determines are satisfactory.
■ 6. Amend § 5.4 by:
■ a. In paragraph (a), removing the word
‘‘shall’’ and adding in its place the word
‘‘must’’;
■ b. In paragraph (b), removing the
phrase ‘‘on the OCC’s Internet Web
page’’;
■ c. In paragraph (c), removing the word
‘‘applicant’’ wherever it appears and
adding in its place the word ‘‘filer’’;
■ d. In paragraph (d):
■ i. Removing the phrases ‘‘An
applicant’’ and ‘‘an applicant’’ and
adding in their place the phrases ‘‘A
filer’’ and ‘‘a filer’’, respectively; and
■ ii. Removing the phrase ‘‘the OCC’s
Internet Web page at’’;
■ e. In paragraph (e), removing the
phrase ‘‘An applicant’’ and adding in its
place the phrase ‘‘A filer’’;
■ f. Revising paragraph (f); and
■ g. Adding paragraph (g).
The addition and revision read as
follows:
§ 5.4
Filing required.
*
*
*
*
*
(f) Prefiling meeting. Before
submitting a filing to the OCC, a
potential filer is encouraged to contact
the appropriate OCC licensing office to
determine the need for a prefiling
meeting. The OCC decides whether to
require a prefiling meeting on a case-bycase basis. Submission of a draft
business plan or other relevant
information before any prefiling meeting
may expedite the filing review process.
A potential filer considering a novel,
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complex, or unique proposal is
encouraged to contact the appropriate
OCC licensing office to schedule a
prefiling meeting early in the
development of its proposal for the early
identification and consideration of
policy issues. Information on model
business plans can be found in the
Comptroller’s Licensing Manual.
(g) Certification. A filer must certify
that any filing or supporting material
submitted to the OCC contains no
material misrepresentations or
omissions. The OCC may review and
verify any information filed in
connection with a notice or an
application. Any person responsible for
any material misrepresentation or
omission in a filing or supporting
materials may be subject to enforcement
action and other penalties, including
criminal penalties provided in 18 U.S.C.
1001.
■ 7. Amend § 5.5 by revising paragraph
(a) to read as follows:
§ 5.5
Filing fees.
(a) Procedure. A filer must submit the
appropriate filing fee, if any, in
connection with its filing. Filing fees
must be paid by check payable to the
OCC or by other means acceptable to the
OCC. Additional information on filing
fees, including where to file, can be
found in the Comptroller’s Licensing
Manual. The OCC generally does not
refund the filing fees.
*
*
*
*
*
■ 8. Amend § 5.7 by redesignating
paragraph (b) as paragraph (c) and
adding a new paragraph (b) to read as
follows:
§ 5.7
Investigations.
*
*
*
*
*
(b) Fingerprints. For certain filings,
the OCC collects fingerprints for
submission to the Federal Bureau of
Investigation for a national criminal
history background check.
*
*
*
*
*
§ 5.8
[Amended]
9. Amend § 5.8 by:
a. In paragraph (a), removing the
phrase ‘‘An applicant shall publish’’
and adding in its place the phrase ‘‘A
filer must publish’’ and removing the
phrase ‘‘the applicant proposes’’ and
adding in its place the phrase ‘‘the filer
proposes’’;
■ b. In paragraphs (a) and (b), removing
the word ‘‘shall’’ and adding in its place
the word ‘‘must’’;
■ c. In paragraphs (b) and (g)(1),
removing the word ‘‘applicant’’ and
adding in its place the word ‘‘filer’’;
■
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d. In paragraphs (c) and (d), removing
the phrase ‘‘applicant shall’’ and adding
in its place the phrase ‘‘filer must’’; and
■ e. In paragraphs (e) and (g)
introductory text, removing the phrase
‘‘an applicant’’ and adding in its place
the phrase ‘‘a filer’’.
■
§ 5.9
[Amended]
10. Amend § 5.9 by:
a. In paragraph (b), in the second
sentence, removing the word
‘‘Applicants’’ and adding in its place the
word ‘‘Filers’’; and
■ b. In paragraph (c), in the first
sentence, removing the word
‘‘applicant’’ and adding in its place the
word ‘‘filer’’.
■
■
§ 5.10
[Amended]
11. Amend § 5.10 by:
a. In paragraphs (b)(2)(i) and (b)(3),
removing the word ‘‘applicant’’ and
adding in its place the word ‘‘filer’’;
■ b. In paragraph (b)(2)(ii), removing the
word ‘‘application’’ and adding in its
place the word ‘‘filing’’; and
■ c. In paragraph (b)(3), revising the
paragraph heading by removing the
word ‘‘Applicant’’ and adding in its
place the word ‘‘Filer’’.
■
■
§ 5.11
[Amended]
12. Amend § 5.11 by:
a. In paragraphs (a), (e), and (g)(2),
removing the word ‘‘shall’’ wherever it
appears and adding in its place the
word ‘‘must’’;
■ b. In paragraphs (a), (d)(1), (e), (g)(1),
and (g)(2), removing the word
‘‘applicant’’ and adding in its place the
word ‘‘filer’’;
■ c. In paragraph (c), removing the word
‘‘shall’’ and adding in its place the word
‘‘will’’;
■ d. In paragraphs (e) and (f), removing
the phrase ‘‘his or her’’ and adding in
its place the word ‘‘their’’;
■ e. In paragraph (h), removing the word
‘‘applicant’s’’ and adding in its place the
word ‘‘filer’s’’; and
■ f. In paragraph (i)(1) removing the
phrase ‘‘an application’’ and adding in
its place the phrase ‘‘a filing’’ and
removing the phrase ‘‘the application’’
and adding in its place the phrase ‘‘the
filing’’; and
■ g. In paragraph (i)(2), removing the
phrase ‘‘an applicant’’ and adding in its
place the phrase ‘‘a filer’’.
■
■
§ 5.12
[Amended]
13. Amend § 5.12 by removing the
phrase ‘‘an application’’ and adding in
its place the phrase ‘‘a filing’’.
■ 14. Amend § 5.13 by:
■ a. In paragraphs (a) introductory text
and (b)(1), (d), and (g), removing the
■
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phrase ‘‘the applicant’’ wherever it
appears and adding in its place the
phrase ‘‘the filer’’;
■ b. Revising paragraph (a)(2);
■ c. In paragraph (b)(3), removing the
phrase ‘‘The applicant’’ and adding in
its place the phrase ‘‘The filer’’;
■ d. In paragraph (c), removing the
phrase ‘‘an applicant’’ and adding in its
place the phrase ‘‘a filer’’;
■ e. In paragraph (f), removing the
phrase ‘‘An applicant’’ and adding in its
place the phrase ‘‘A filer’’;
■ f. In paragraph (g), removing the word
‘‘applicant’s’’ and adding in its place the
word filer’s’’;
■ g. Revising paragraph (h); and
■ h. Adding paragraph (i).
The revisions and addition read as
follows:
§ 5.13
Decisions.
(a) * * *
(2) Expedited review. The OCC grants
qualifying national banks and Federal
savings associations expedited review
within a specified time after filing or
commencement of the public comment
period for certain filings.
(i) The OCC may extend the expedited
review period or remove a filing from
expedited review procedures if it
concludes that the filing, or an adverse
comment regarding the filing, presents a
significant supervisory, CRA (if
applicable), or compliance concern or
raises a significant legal or policy issue
requiring additional OCC review. The
OCC will provide the filer with a
written explanation if it decides not to
process an application from a qualifying
national bank or Federal savings
association under expedited review
pursuant to this paragraph.
(ii) Adverse comments that the OCC
determines do not raise a significant
supervisory, CRA (if applicable), or
compliance concern or a significant
legal or policy issue; are frivolous, nonsubstantive, or filed primarily as a
means of delaying action on the filing;
or raise a CRA concern that has been
satisfactorily resolved do not affect the
OCC’s decision under paragraph (a)(2)(i)
of this section. The OCC considers a
comment to be non-substantive if it is a
generalized opinion that a filing should
or should not be approved or a
conclusory statement, lacking factual or
analytical support. The OCC considers a
CRA concern to have been satisfactorily
resolved if the OCC previously reviewed
(e.g., in an examination, other
supervisory activity, or a prior filing
made by the current filer) a concern
presenting substantially the same issue
in substantially the same assessment
area during substantially the same time,
and the OCC determines that the
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concern would not warrant denial or
imposition of a condition on approval of
the application.
(iii) If a bank or savings association
makes a filing for any activity or
transaction that is dependent upon the
approval of another filing under this
part, or if requests for approval for more
than one activity or transaction are
combined in a single filing under
applicable sections of this part, none of
the subject filings may be deemed
approved upon expiration of the
applicable time periods, unless all of the
filings are subject to expedited review
procedures and the longest of the time
periods expires without the OCC issuing
a decision or notifying the bank or
savings association that the filings are
not eligible for expedited review under
the standards in paragraph (a)(2)(i) of
this section.
*
*
*
*
*
(h) Nullifying a decision. The OCC
may nullify any decision on a filing
either prior to or after consummation of
the transaction if:
(1) The OCC discovers a material
misrepresentation or omission in any
information provided to the OCC in the
filing or supporting materials;
(2) The decision is contrary to law,
regulation, or OCC policy thereunder; or
(3) The decision was granted due to
clerical or administrative error, or a
material mistake of law or fact.
(i) Modifying, Suspending, or
Rescinding a Decision. The OCC may
modify, suspend, or rescind a decision
on a filing if a material change in the
information or circumstance on which
the OCC relied occurs prior to the date
of the consummation of the transaction
to which the decision pertains.
■ 15. Amend § 5.20 by:
■ a. In paragraph (b), paragraph
(e)(1)(iii) introductory text, and
paragraphs (h)(1)(i), (h)(2), (h)(3)(i),
(h)(5)(i), (h)(5)(ii), (h)(5)(iii), (h)(7),
(i)(2), (k)(1), (l)(1), and (l)(2), removing
the word ‘‘shall’’ wherever it appears
and adding in its place the word
‘‘must’’;
■ b. In paragraph (d)(2), removing the
phrase ‘‘section 2’’ and adding in its
place ‘‘section 2(a)(2)’’ and removing the
phrase ‘‘section 10’’ and adding in its
place ‘‘section 10(a)(2)’’;
■ c. Redesignating paragraphs (d)(7) and
(8) as paragraphs (d)(8) and (9),
respectively, and adding new
paragraphs (d)(7) and (d)(10);
■ d. In redesignated paragraph (d)(8),
adding the word ‘‘natural’’ before the
word ‘‘persons’’; and
■ e. In redesignated paragraph (d)(9),
removing the phrase ‘‘an applicant’’ and
adding in its place the phrase ‘‘a filer’’;
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f. In paragraph (e)(1)(ii)(A), removing
the word ‘‘applicants’’ and adding in its
place the word ‘‘filers’’;
■ g. Effective December 11, 2020,
revising paragraph (e)(2);
■ h. In paragraph (e)(3), removing the
phrase ‘‘Federal Deposit Insurance
Corporation (FDIC)’’ and adding in its
place the word ‘‘FDIC’’;
■ i. In paragraph (g)(4)(ii), removing the
word ‘‘shall’’ and adding in its place the
word ‘‘may’’ and removing the phrase
‘‘withdrawal of preliminary approval’’
and adding in its place the phrase
‘‘nullification or rescission of a
preliminary approval’’;
■ j. In paragraphs (i)(1) and (j)(2),
removing the word ‘‘applicant’’ and
adding in its place the word ‘‘filer’’;
■ k. Redesignating paragraphs (i)(3)
through (5) as paragraphs (i)(4) through
(i)(6) and adding a new paragraph (i)(3);
■ l. In redesignated paragraph (i)(4),
removing the word ‘‘shall’’ wherever it
appears and adding in its place the
word ‘‘must’’;
■ m. In redesignated paragraph (i)(5),
removing the phrase ‘‘spokesperson and
other interested persons’’ and adding in
its place the phrase ‘‘contact person and
other relevant parties’’;
■ n. In redesignated paragraph (i)(6)(i),
removing the phrase ‘‘paragraph
(i)(5)(iii)’’ wherever it appears and
adding in its place the phrase
‘‘paragraph (i)(6)(iii)’’;
■ o. In redesignated paragraphs
(i)(6)(ii)(A) and (B), and (iii) and (iv),
removing the word ‘‘shall’’ wherever it
appears and adding in its place the
word ‘‘must’’;
■ p. In redesignated paragraph (i)(6)(iii),
removing the phrase ‘‘or part 197’’;
■ q. Revising paragraph (j)(1); and
■ r. In paragraphs (k)(2) and (l)(1),
removing the phrase ‘‘An applicant’’
wherever it appears and adding in its
place the phrase ‘‘A filer’’.
The additions and revision read as
follows:
■
§ 5.20 Organizing a national bank or
Federal savings association.
*
*
*
*
*
(d) * * *
(7) Organizer means a member of the
organizing group.
*
*
*
*
*
(10) Principal shareholder means a
person who directly or indirectly or
acting in concert with one or more
persons or companies, or together with
members of their immediate family, will
own, control, or hold 10 percent or more
of the voting stock of the proposed
national bank or Federal savings
association.
(e) * * *
(2) Community Reinvestment Act.
Twelve CFR part 25 requires the OCC to
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take into account a proposed insured
national bank’s or Federal savings
association’s description of how it will
meet its CRA objectives.
*
*
*
*
*
(i) * * *
(3) Biographical and financial
reports—(i) Each proposed organizer,
director, executive officer, or principal
shareholder must submit to the
appropriate OCC licensing office:
(A) The information prescribed in the
Interagency Biographical and Financial
Report, available at www.occ.gov; and
(B) Legible fingerprints.
(ii) The OCC may require additional
information about any proposed
organizer, director, executive officer, or
principal shareholder, if appropriate.
The OCC may waive any of the
information requirements of this
paragraph if the OCC determines that it
is in the public interest.
*
*
*
*
*
(j) * * *
(1) Notifies the filer prior to that date
that the filing has been removed from
expedited review, or the expedited
review process is extended, under
§ 5.13(a)(2); or
*
*
*
*
*
■ 16. Amend § 5.21 by:
■ a. In paragraph (d), removing the word
‘‘shall’’ and adding in its place the word
‘‘do’’;
■ b. In paragraph (e) introductory text,
removing the word ‘‘shall’’ and adding
in its place the word ‘‘must’’ in the first
and second sentence; and removing the
word ‘‘shall’’ and adding in its place the
word ‘‘will’’ in the last sentence;
■ c. In the form ‘‘Federal Mutual
Charter’’ following paragraph (e):
■ i. Removing the phrase ‘‘shall be’’ and
adding in its place the word ‘‘is’’ in
Section 2 and Section 7;
■ ii. In Section 6:
■ A. Removing the phrase ‘‘shall be
permitted’’ and adding in its place the
phrase ‘‘is permitted’’;
■ B. Removing the phrase ‘‘shall cast’’
and adding in its place the phrase ‘‘may
cast’’; and
■ C. Removing the phrase ‘‘accounts
shall be’’ and adding in its place the
phrase ‘‘accounts are’’;
■ iii. In Section 7:
■ A. Removing the phrase ‘‘shall be’’
and adding in its place the word ‘‘is’’;
■ B. Removing the phrase ‘‘shall not’’
and adding in its place the phrase ‘‘may
not’’; and
■ iv. Removing the word ‘‘shall’’ and
adding in its place the word ‘‘will’’
wherever it appears in Section 8 and
Section 9;
■ d. Revising paragraph (f)(2) and
adding paragraph (f)(3);
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e. Revising paragraph (g) introductory
text;
■ f. Revising paragraph (g)(1):
■ g. In paragraph (g)(2), removing the
phrase ‘‘has complied’’ and adding in its
place the word ‘‘complies’’;
■ h. Revising paragraph (i); and
■ g. Revising paragraph (j).
The revisions and addition read as
follows.
■
§ 5.21 Federal mutual savings association
charter and bylaws.
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(f) * * *
(2) Form of filing—(i) Application
requirement. Except as provided in
paragraph (f)(2)(ii) of this section, a
Federal mutual savings association must
file the proposed charter amendment
with, and obtain the prior approval of,
the OCC.
(A) Expedited review. Except as
provided in paragraph (f)(2)(i)(B) of this
section, the charter amendment will be
deemed approved as of the 30th day
after filing, unless the OCC notifies the
filer that the amendment is denied or
that the amendment contains
procedures of the type described in
paragraph (f)(2)(i)(B) of this section and
is not eligible for expedited review,
provided the association follows the
requirements of its charter in adopting
the amendment.
(B) Amendments exempted from
expedited review. Expedited review is
not available for a charter amendment
that would render more difficult or
discourage a merger, proxy contest, the
assumption of control by a mutual
account holder of the association, or the
removal of incumbent management; or
involve a significant issue of law or
policy.
(ii) Notice requirement. No
application under paragraph (f)(2)(i) of
this section is required if the text of the
amendment is contained within
paragraphs (e) or (g) of this section. In
such case, the Federal mutual savings
association must submit a notice with
the charter amendment to the OCC
within 30 days after adoption.
(3) Effectiveness. A charter
amendment is effective after approval
by the OCC, if required pursuant to
paragraph (f)(2) of this section, and
adoption by the association, provided
the association follows the requirements
of its charter in adopting the
amendment.
(g) Optional charter amendments. The
following charter amendments are
subject to the notice requirement in
paragraph (f)(2)(ii) of this section if
adopted without change:
(1) Purpose and powers. Add a second
paragraph to section 4, as follows:
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Section 4. Purpose and powers. * * *
The association has the express power:
(i) To act as fiscal agent of the United
States when designated for that purpose
by the Secretary of the Treasury, under
such regulations as the Secretary may
prescribe, to perform all such reasonable
duties as fiscal agent of the United
States as may be required, and to act as
agent for any other instrumentality of
the United States when designated for
that purpose by any such
instrumentality; (ii) To sue and be sued,
complain and defend in any court of
law or equity; (iii) To have a corporate
seal, affixed by imprint, facsimile or
otherwise; (iv) To appoint officers and
agents as its business requires and allow
them suitable compensation; (v) To
adopt bylaws not inconsistent with the
Constitution or laws of the United States
and rules and regulations adopted
thereunder and under this Charter; (vi)
To raise unlimited capital by accepting
payments on savings, demand, or other
accounts, as are authorized by rules and
regulations made by the OCC, and the
holders of all such accounts or other
accounts as will, to such extent as may
be provided by such rules and
regulations, be members of the
association and will have such voting
rights and such other rights as are
thereby provided; (vii) To issue notes,
bonds, debentures, or other obligations,
or securities, provided by or under any
provision of Federal statute as from time
to time is in effect; (viii) To provide for
redemption of insured accounts; (ix) To
borrow money without limitation and
pledge and otherwise encumber any of
its assets to secure its debts; (x) To lend
and otherwise invest its funds as
authorized by statute and the rules and
regulations of the OCC; (xi) To wind up
and dissolve, merge, consolidate,
convert, or reorganize; (xii) To purchase,
hold, and convey real estate and
personalty consistent with its objects,
purposes, and powers; (xiii) To
mortgage or lease any real estate and
personalty and take such property by
gift, devise, or bequest; and (xiv) To
exercise all powers conferred by law. In
addition to the foregoing powers
expressly enumerated, this association
has the power to do all things
reasonably incident to the
accomplishment of its express objects
and the performance of its express
powers.
*
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*
*
(i) Availability of chartering
documents. A Federal mutual savings
association must make available a true
copy of its charter and bylaws and all
amendments thereto to accountholders
at all times in each office of the savings
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association, and must upon request
deliver to any accountholders a copy of
such charter and bylaws or amendments
thereto.
(j) Bylaws for Federal mutual savings
associations—(1) In general. A Federal
mutual savings association must operate
under bylaws that contain provisions
that comply with all requirements
specified by the OCC in this paragraph
and that are not otherwise inconsistent
with the provisions of this paragraph;
the association’s charter; and all other
applicable laws, rules, and regulations
provided that, a bylaw provision
inconsistent with the provisions of this
paragraph may be adopted with the
approval of the OCC. Bylaws may be
adopted, amended or repealed by a
majority of the votes cast by the
members at a legal meeting or a majority
of the association’s board of directors.
The bylaws for a Federal mutual savings
bank must substitute the term ‘‘savings
bank’’ for ‘‘association’’. The term
‘‘trustee’’ may be substituted for the
term ‘‘director’’.
(2) Requirements. The following
requirements are applicable to Federal
mutual savings associations:
(i) Annual meetings of members. (A)
An association must provide for and
conduct an annual meeting of its
members for the election of directors
and at which any other business of the
association may be conducted. Such
meeting must be held at any convenient
place the board of directors may
designate, and at a date and time within
150 days after the end of the
association’s fiscal year. The
association’s bylaws may provide for
telephonic or electronic participation of
members at an annual meeting.
Members participating in an annual
meeting telephonically or electronically
will be deemed present in person for
purposes of the quorum requirement in
paragraph (j)(2)(v) of this section.
(B) At each annual meeting, the
officers must make a full report of the
financial condition of the association
and of its progress for the preceding
year and must outline a program for the
succeeding year.
(C) If the association’s bylaws provide
for telephonic or electronic
participation in member meetings, the
association must follow the procedures
for telephonic or electronic
participation of the State corporate
governance procedures it is permitted to
elect pursuant to paragraph (j)(3)(ii) of
this section, if those State corporate
governance procedures include
telephonic or electronic participation
procedures; the Delaware General
Corporation Law, Del. Code Ann. Tit. 8
(1991, as amended 1994, and as
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amended thereafter) (with ‘‘member’’
substituting for ‘‘stockholder’’); or the
Model Business Corporation Act (with
‘‘member’’ substituting for
‘‘shareholder’’), provided, however, that
such procedures are not inconsistent
with applicable Federal statutes and
regulations and safety and soundness.
The association must indicate the use of
these procedures in its bylaws.
(ii) Special meetings of members.
Procedures for calling any special
meeting of the members and for
conducting such a meeting must be set
forth in the bylaws. The board of
directors of the association or the
holders of 10 percent or more of the
voting capital must be entitled to call a
special meeting. The association’s
bylaws may provide for telephonic or
electronic participation of members at a
special meeting pursuant to the
procedures specified in paragraph
(j)(2)(i)(C) of this section. Members
participating in a special meeting
telephonically or electronically will be
deemed present in person for purposes
of the quorum requirement in paragraph
(j)(2)(v) of this section. For purposes of
this paragraph, ‘‘voting capital’’ means
FDIC-insured deposits as of the voting
record date.
(iii) Notice of meeting of members.
Notice specifying the date, time, and
place of the annual or any special
meeting and adequately describing any
business to be conducted must be
published for two successive weeks
immediately prior to the week in which
such meeting will convene in a
newspaper of general circulation in the
city or county in which the principal
place of business of the association is
located, or mailed postage prepaid at
least 15 days and not more than 45 days
prior to the date on which such meeting
will convene to each of its members of
record. A similar notice must be posted
in a conspicuous place in each of the
offices of the association during the 14
days immediately preceding the date on
which such meeting will convene. The
bylaws may permit a member to waive
in writing any right to receive personal
delivery of the notice. When any
meeting is adjourned for 30 days or
more, notice of the adjournment and
reconvening of the meeting must be
given as in the case of the original
meeting.
(iv) Fixing of record date. The bylaws
must provide for the fixing of a record
date and a method for determining from
the books of the association the
members entitled to vote. Such date
may not be more than 60 days nor fewer
than 10 days prior to the date on which
the action, requiring such determination
of members, is to be taken. The same
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determination must apply to any
adjourned meeting.
(v) Member quorum. Any number of
members present and voting,
represented in person or by proxy, at a
regular or special meeting of the
members constitutes a quorum. A
majority of all votes cast at any meeting
of the members determines any
question, unless otherwise required by
regulation. At any adjourned meeting,
any business may be transacted that
might have been transacted at the
meeting as originally called. Members
present at a duly constituted meeting
may continue to transact business until
adjournment.
(vi) Voting by proxy. Procedures must
be established for voting at any annual
or special meeting of the members by
proxy pursuant to the rules and
regulations of the OCC. Proxies may be
given telephonically or electronically as
long as the holder uses a procedure for
verifying the identity of the member. All
proxies with a term greater than eleven
months or solicited at the expense of the
association must run to the board of
directors as a whole, or to a committee
appointed by a majority of such board.
(vii) Communications between
members. Provisions relating to
communications between members
must be consistent with § 144.8 of this
chapter. No member, however, may
have the right to inspect or copy any
portion of any books or records of a
Federal mutual savings association
containing:
(A) A list of depositors in or
borrowers from such association;
(B) Their addresses;
(C) Individual deposit or loan
balances or records; or
(D) Any data from which such
information could be reasonably
constructed.
(viii) Number of directors,
membership. The bylaws must set forth
a specific number of directors, not a
range. The number of directors may not
be fewer than five nor more than fifteen,
unless a higher or lower number has
been authorized by the OTS prior to July
21, 2011 or by the OCC. Each director
of the association must be a member of
the association. Directors may be elected
for periods of one to three years and
until their successors are elected and
qualified, but if a staggered board is
chosen, provision must be made for the
election of approximately one-third or
one-half of the board each year, as
appropriate. State-chartered savings
banks converting to Federal savings
banks may include alternative
provisions for the election and term of
office of directors so long as such
provisions are authorized by the OCC,
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80439
and provide for compliance with the
standard provisions of this paragraph no
later than six years after the conversion
to a Federal savings association.
(ix) Meetings of the board. The board
of directors determines the place,
frequency, time, procedure for notice,
which must be at least 24 hours unless
waived by the directors, and waiver of
notice for all regular and special
meetings. The board also may permit
telephonic or electronic participation at
meetings. The bylaws may provide for
action to be taken without a meeting if
unanimous written consent is obtained
for such action. A majority of the
authorized directors constitutes a
quorum for the transaction of business.
The act of a majority of the directors
present at any meeting at which there is
a quorum will be the act of the board.
(x) Officers, employees and agents.
(A) The bylaws must contain provisions
regarding the officers of the association,
their functions, duties, and powers. The
officers of the association must consist
of a president, one or more vice
presidents, a secretary, and a treasurer
or comptroller, each of whom must be
elected annually by the board of
directors. Such other officers and
assistant officers and agents as may be
deemed necessary may be elected or
appointed by the board of directors or
chosen in such other manner as may be
prescribed in the bylaws. Any two or
more offices may be held by the same
person, except the offices of president
and secretary.
(B) Any officer may be removed by
the board of directors with or without
cause, but such removal, other than for
cause, must be without prejudice to the
contractual rights, if any, of the person
so removed. Termination for cause, for
purposes of this section and § 5.22,
includes termination because of the
person’s personal dishonesty;
incompetence; willful misconduct;
breach of fiduciary duty involving
personal profit; intentional failure to
perform stated duties; willful violation
of any law, rule, or regulation (other
than traffic violations or similar
offenses) or final cease and desist order;
or material breach of any provision of an
employment contract.
(xi) Vacancies, resignation or removal
of directors. In the event of a vacancy on
the board, the board of directors may, by
its affirmative vote, fill such vacancy,
even if the remaining directors
constitute less than a quorum. A
director elected to fill a vacancy may
serve only until the next election of
directors by the members. The bylaws
must set out the procedure for the
resignation of a director. Directors may
be removed only for cause, as defined in
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paragraph (j)(2)(x)(B) of this section, by
a vote of the holders of a majority of the
shares then entitled to vote at an
election of directors.
(xii) Powers of the board. The board
of directors has the power to exercise
any and all of the powers of the
association not expressly reserved by
the charter to the members.
(xiii) Nominations for directors. The
bylaws must provide that nominations
for directors may be made at the annual
meeting by any member and must be
voted upon, except, however, the
bylaws may require that nominations by
a member must be submitted to the
secretary and then prominently posted
in the principal place of business at
least 10 days prior to the date of the
annual meeting. However, if such
provision is made for prior submission
of nominations by a member, then the
bylaws must provide for a nominating
committee, which, except in the case of
a nominee substituted as a result of
death or other incapacity, must submit
nominations to the secretary and have
such nominations similarly posted at
least 15 days prior to the date of the
annual meeting.
(xiv) New business. The bylaws must
provide procedures for the introduction
of new business at the annual meeting.
(xv) Amendment. Bylaws may include
any provision for their amendment that
would be consistent with applicable
law, rules, and regulations and
adequately addresses its subject and
purpose.
(A) Amendments will be effective:
(1) After approval by a majority vote
of the authorized board, or by a majority
of the vote cast by the members of the
association at a legal meeting; and
(2) After receipt of any applicable
regulatory approval.
(B) When an association fails to meet
its quorum requirement, solely due to
vacancies on the board, the bylaws may
be amended by an affirmative vote of a
majority of the sitting board.
(xvi) Miscellaneous. The bylaws also
may address any other subjects
necessary or appropriate for effective
operation of the association.
(3) Form of filing—(i) Application
requirement. Except as provided in
paragraphs (j)(3)(ii) or (j)(3)(iii) of this
section, a Federal mutual savings
association must file the proposed
bylaw amendment with, and obtain the
prior approval of, the OCC.
(A) Expedited review. Except as
provided in paragraph (j)(3)(i)(B) of this
section, the bylaw amendment will be
deemed approved as of the 30th day
after filing, unless the OCC notifies the
filer that the bylaw amendment is
denied or that the amendment contains
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procedures of the type described in
paragraph (j)(3)(i)(B) of this section and
is not eligible for expedited review,
provided the association follows the
requirements of its charter and bylaws
in adopting the amendment.
(B) Amendments not subject to
expedited review. A bylaw amendment
is not subject to expedited review if it
would render more difficult or
discourage a merger, proxy contest, the
assumption of control by a mutual
account holder of the association, or the
removal of incumbent management;
involve a significant issue of law or
policy, including indemnification,
conflicts of interest, and limitations on
director or officer liability; or be
inconsistent with the requirements of
this paragraph or with applicable laws,
rules, regulations, or the association’s
charter.
(ii) Corporate governance election and
notice requirement. A Federal mutual
association may elect to follow the
corporate governance procedures of the
laws of the State where the home office
of the institution is located, provided
that such procedures are not
inconsistent with applicable Federal
statutes, regulations, and safety and
soundness, and such procedures are not
of the type described in paragraph
(j)(3)(i)(B) of this section. If this election
is selected, a Federal mutual association
must designate in its bylaws the
provision or provisions from the body of
law selected for its corporate
governance procedures, and must
submit a notice containing a copy of
such bylaws, within 30 days after
adoption. The notice must indicate,
where not obvious, why the bylaw
provisions meet the requirements stated
in paragraph (j)(3)(i)(B) of this section.
(iii) No filing required. No filing is
required for purposes of paragraph (j)(3)
of this section if a bylaw amendment
adopts the language of the OCC’s model
or optional bylaws without change.
(4) Effectiveness. A bylaw amendment
is effective after approval by the OCC,
if required, and adoption by the
association, provided that the
association follows the requirements of
its charter and bylaws in adopting the
amendment.
(5) Effect of subsequent charter or
bylaw change. Notwithstanding any
subsequent change to its charter or
bylaws, the authority of a Federal
mutual savings association to engage in
any transaction is determined only by
the association’s charter or bylaws then
in effect.
■ 17. Amend § 5.22 by:
■ a. In paragraph (d), removing the word
‘‘shall’’ and adding in its place the word
‘‘do’’;
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b. In paragraph (e) introductory text
removing the word ‘‘shall’’ wherever it
appears and adding in its place the
word ‘‘must’’ and removing
‘‘§ 192.3(c)(13)’’ and adding in its place
‘‘§ 192.485’’;
■ c. In the form ‘‘Federal Stock Charter’’
following paragraph (e):
■ i. In Section 2, removing the phrase
‘‘shall be’’ and adding in its place the
word ‘‘is’’;
■ ii. Revising Section 5;
■ iii. In Section 6, removing the phrase
‘‘shall not be entitled’’ and adding in its
place the phrase ‘‘are not entitled’’;
■ iv. In Section 7, removing the phrase
‘‘shall be’’ and adding in its place the
phrase ‘‘will be’’ and removing the
phrase ‘‘shall not be’’ and adding in its
place the phrase ‘‘may not be’’; and
■ v. In Section 8, removing the phrase
‘‘shall be’’ and adding in its place ‘‘may
be’’;
■ d. Revising paragraph (f)(2) and
adding paragraph (f)(3);
■ e. Revising paragraph (g) introductory
text;
■ f. In paragraph (g)(1), removing the
phrase ‘‘has complied’’ and adding in its
place the word ‘‘complies’’;
■ g. Revising paragraph (g)(4);
■ h. Removing the word ‘‘shall’’
wherever it appears and adding in its
place the word ‘‘will’’ in paragraph
(g)(6); and
■ i. Revising paragraph (g)(7);
■ j. In paragraph (h):
■ i. Removing the phrase ‘‘shall file’’
and adding in its place the word ‘‘files’’;
■ ii. Removing the phrase ‘‘for
approval’’ and adding in its place the
phrase ‘‘pursuant to paragraph (f)(2)(i)
of this section’’;
■ iii. Removing the word ‘‘state’’ and
adding in its place the word ‘‘State’’;
and
■ iv. Removing the phrase ‘‘shall not’’
and adding in its place the phrase ‘‘may
not’’;
■ k. In paragraph (i), removing the
phrase ‘‘under (c) of this part’’ and
adding in its place ‘‘in the form
‘‘Federal Stock Charter’’ in paragraph (e)
of this section’’;
■ l. Revising paragraphs (j)(2) and (3);
■ m. In paragraph (j)(4), removing the
phrase ‘‘shall be’’ and adding in its
place the word ‘‘is’’:
■ n. Revising paragraphs (k)(1) through
(7);
■ o. Revising paragraphs (l)(1) through
(10);
■ p. In paragraph (m)(1) removing the
phrase ‘‘shall be a president’’ and
adding in its place the phrase ‘‘must
consist of a president’’; removing the
phrase ‘‘shall be elected’’ and adding in
its place the phrase ‘‘must be elected’’;
and removing the word ‘‘chairman’’ and
■
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adding in its place the word ‘‘chair’’;
and
■ q. In paragraph (m)(2) removing the
phrase ‘‘shall be’’ and adding in its
place the phrase ‘‘will be’’ and removing
the last sentence; and
■ r. Revising paragraph (n).
The addition and revisions read as
follows.
§ 5.22 Federal stock savings association
charter and bylaws.
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(e) * * *
Federal Stock Charter
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Section 5. Capital stock. The total
number of shares of all classes of the
capital stock that the association has the
authority to issue is __, all of which is
common stock of par [or if no par is
specified then shares have a stated]
value of __per share. The shares may be
issued from time to time as authorized
by the board of directors without the
approval of its shareholders, except as
otherwise provided in this Section 5 or
to the extent that such approval is
required by governing law, rule, or
regulation. The consideration for the
issuance of the shares must be paid in
full before their issuance and may not
be less than the par [or stated] value.
Neither promissory notes nor future
services may constitute payment or part
payment for the issuance of shares of
the association. The consideration for
the shares must be cash, tangible or
intangible property (to the extent direct
investment in such property would be
permitted to the association), labor, or
services actually performed for the
association, or any combination of the
foregoing. In the absence of actual fraud
in the transaction, the value of such
property, labor, or services, as
determined by the board of directors of
the association, is conclusive. Upon
payment of such consideration, such
shares are deemed to be fully paid and
nonassessable. In the case of a stock
dividend, that part of the retained
earnings of the association that is
transferred to common stock or paid-in
capital accounts upon the issuance of
shares as a stock dividend is deemed to
be the consideration for their issuance.
Except for shares issued in the initial
organization of the association or in
connection with the conversion of the
association from the mutual to stock
form of capitalization, no shares of
capital stock (including shares issuable
upon conversion, exchange, or exercise
of other securities) may be issued,
directly or indirectly, to officers,
directors, or controlling persons of the
association other than as part of a
general public offering or as qualifying
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shares to a director, unless the issuance
or the plan under which they would be
issued has been approved by a majority
of the total votes eligible to be cast at a
legal meeting. The holders of the
common stock exclusively possess all
voting power. Each holder of shares of
common stock is entitled to one vote for
each share held by such holder, except
as to the cumulation of votes for the
election of directors, unless the charter
provides that there will be no such
cumulative voting. Subject to any
provision for a liquidation account, in
the event of any liquidation,
dissolution, or winding up of the
association, the holders of the common
stock will be entitled, after payment or
provision for payment of all debts and
liabilities of the association, to receive
the remaining assets of the association
available for distribution, in cash or in
kind. Each share of common stock must
have the same relative rights as and be
identical in all respects with all the
other shares of common stock.
*
*
*
*
*
(f) * * *
(2) Form of filing—(i) Application
requirement. Except as provided in
paragraph (f)(2)(ii) of this section, a
Federal stock savings association must
file the proposed charter amendment
with, and obtain the prior approval of
the OCC.
(A) Expedited review. Except as
provided in paragraph (f)(2)(i)(B) of this
section, the charter amendment will be
deemed approved as of the 30th day
after filing, unless the OCC notifies the
filer that the amendment is denied or
that the amendment contains
procedures of the type described in
paragraph (f)(2)(ii)(B) of this section and
is not subject to expedited review,
provided the association follows the
requirements of its charter in adopting
the amendment.
(B) Amendments exempted from
expedited review. Expedited review is
not available for a charter amendment
that would render more difficult or
discourage a merger, tender offer, or
proxy contest, the assumption of control
by a holder of a block of the
association’s stock, the removal of
incumbent management, or involve a
significant issue of law or policy.
(ii) Notice requirement. No
application under paragraph (f)(2)(i) of
this section is required if the
amendment is contained within
paragraphs (e) or (g) of this section. In
such case, the Federal stock savings
association must submit a notice with
the charter amendment to the OCC
within 30 days after adoption.
(3) Effectiveness. A charter
amendment is effective after approval
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by the OCC, if required, and adoption by
the association, provided the association
follows the requirements of its charter
in adopting the amendments.
(g) Optional charter amendments. The
following charter amendments are
subject to the notice requirement in
paragraph (f)(2)(ii) of this section if
adopted without change:
*
*
*
*
*
(4) Capital stock. A Federal stock
association may amend its charter by
revising Section 5 to read as follows:
Section 5. Capital stock. The total
number of shares of all classes of capital
stock that the association has the
authority to issue is __, of which __is
common stock of par [or if no par value
is specified the stated] value of __per
share and of which [list the number of
each class of preferred and the par or if
no par value is specified the stated
value per share of each such class]. The
shares may be issued from time to time
as authorized by the board of directors
without further approval of
shareholders, except as otherwise
provided in this Section 5 or to the
extent that such approval is required by
governing law, rule, or regulation. The
consideration for the issuance of the
shares must be paid in full before their
issuance and may not be less than the
par [or stated] value. Neither promissory
notes nor future services may constitute
payment or part payment for the
issuance of shares of the association.
The consideration for the shares must be
cash, tangible or intangible property (to
the extent direct investment in such
property would be permitted), labor, or
services actually performed for the
association, or any combination of the
foregoing. In the absence of actual fraud
in the transaction, the value of such
property, labor, or services, as
determined by the board of directors of
the association, will be conclusive.
Upon payment of such consideration,
such shares will be deemed to be fully
paid and nonassessable. In the case of
a stock dividend, that part of the
retained earnings of the association that
is transferred to common stock or paidin capital accounts upon the issuance of
shares as a stock dividend will be
deemed to be the consideration for their
issuance.
Except for shares issued in the initial
organization of the association or in
connection with the conversion of the
association from the mutual to the stock
form of capitalization, no shares of
capital stock (including shares issuable
upon conversion, exchange, or exercise
of other securities) may be issued,
directly or indirectly, to officers,
directors, or controlling persons of the
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association other than as part of a
general public offering or as qualifying
shares to a director, unless their
issuance or the plan under which they
would be issued has been approved by
a majority of the total votes eligible to
be cast at a legal meeting.
Nothing contained in this Section 5
(or in any supplementary sections
hereto) entitles the holders of any class
of a series of capital stock to vote as a
separate class or series or to more than
one vote per share, except as to the
cumulation of votes for the election of
directors, unless the charter otherwise
provides that there will be no such
cumulative voting: Provided, That this
restriction on voting separately by class
or series does not apply:
i. To any provision which would
authorize the holders of preferred stock,
voting as a class or series, to elect some
members of the board of directors, less
than a majority thereof, in the event of
default in the payment of dividends on
any class or series of preferred stock;
ii. To any provision that would
require the holders of preferred stock,
voting as a class or series, to approve the
merger or consolidation of the
association with another corporation or
the sale, lease, or conveyance (other
than by mortgage or pledge) of
properties or business in exchange for
securities of a corporation other than the
association if the preferred stock is
exchanged for securities of such other
corporation: Provided, That no
provision may require such approval for
transactions undertaken with the
assistance or pursuant to the direction
of the OCC or the Federal Deposit
Insurance Corporation;
iii. To any amendment which would
adversely change the specific terms of
any class or series of capital stock as set
forth in this Section 5 (or in any
supplementary sections hereto),
including any amendment which would
create or enlarge any class or series
ranking prior thereto in rights and
preferences. An amendment which
increases the number of authorized
shares of any class or series of capital
stock, or substitutes the surviving
association in a merger or consolidation
for the association, is not considered to
be such an adverse change.
A description of the different classes
and series (if any) of the association’s
capital stock and a statement of the
designations, and the relative rights,
preferences, and limitations of the
shares of each class of and series (if any)
of capital stock are as follows:
A. Common stock. Except as provided
in this Section 5 (or in any
supplementary sections thereto) the
holders of the common stock
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exclusively possess all voting power.
Each holder of shares of the common
stock is entitled to one vote for each
share held by each holder, except as to
the cumulation of votes for the election
of directors, unless the charter
otherwise provides that there will be no
such cumulative voting.
Whenever there has been paid, or
declared and set aside for payment, to
the holders of the outstanding shares of
any class of stock having preference
over the common stock as to the
payment of dividends, the full amount
of dividends and of sinking fund,
retirement fund, or other retirement
payments, if any, to which such holders
are respectively entitled in preference to
the common stock, then dividends may
be paid on the common stock and on
any class or series of stock entitled to
participate therewith as to dividends
out of any assets legally available for the
payment of dividends.
In the event of any liquidation,
dissolution, or winding up of the
association, the holders of the common
stock (and the holders of any class or
series of stock entitled to participate
with the common stock in the
distribution of assets) will be entitled to
receive, in cash or in kind, the assets of
the association available for distribution
remaining after: (i) Payment or
provision for payment of the
association’s debts and liabilities; (ii)
distributions or provision for
distributions in settlement of its
liquidation account; and (iii)
distributions or provision for
distributions to holders of any class or
series of stock having preference over
the common stock in the liquidation,
dissolution, or winding up of the
association. Each share of common
stock will have the same relative rights
as and be identical in all respects with
all the other shares of common stock.
B. Preferred stock. The association
may provide in supplementary sections
to its charter for one or more classes of
preferred stock, which must be
separately identified. The shares of any
class may be divided into and issued in
series, with each series separately
designated so as to distinguish the
shares thereof from the shares of all
other series and classes. The terms of
each series must be set forth in a
supplementary section to the charter.
All shares of the same class must be
identical except as to the following
relative rights and preferences, as to
which there may be variations between
different series:
a. The distinctive serial designation
and the number of shares constituting
such series;
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b. The dividend rate or the amount of
dividends to be paid on the shares of
such series, whether dividends are
cumulative and, if so, from which
date(s), the payment date(s) for
dividends, and the participating or other
special rights, if any, with respect to
dividends;
c. The voting powers, full or limited,
if any, of shares of such series;
d. Whether the shares of such series
are redeemable and, if so, the price(s) at
which, and the terms and conditions on
which, such shares may be redeemed;
e. The amount(s) payable upon the
shares of such series in the event of
voluntary or involuntary liquidation,
dissolution, or winding up of the
association;
f. Whether the shares of such series
are entitled to the benefit of a sinking
or retirement fund to be applied to the
purchase or redemption of such shares,
and if so entitled, the amount of such
fund and the manner of its application,
including the price(s) at which such
shares may be redeemed or purchased
through the application of such fund;
g. Whether the shares of such series
are convertible into, or exchangeable
for, shares of any other class or classes
of stock of the association and, if so, the
conversion price(s) or the rate(s) of
exchange, and the adjustments thereof,
if any, at which such conversion or
exchange may be made, and any other
terms and conditions of such conversion
or exchange.
h. The price or other consideration for
which the shares of such series are
issued; and
i. Whether the shares of such series
which are redeemed or converted have
the status of authorized but unissued
shares of serial preferred stock and
whether such shares may be reissued as
shares of the same or any other series of
serial preferred stock.
Each share of each series of serial
preferred stock must have the same
relative rights as and be identical in all
respects with all the other shares of the
same series.
The board of directors has authority to
divide, by the adoption of
supplementary charter sections, any
authorized class of preferred stock into
series, and, within the limitations set
forth in this section and the remainder
of this charter, fix and determine the
relative rights and preferences of the
shares of any series so established.
Prior to the issuance of any preferred
shares of a series established by a
supplementary charter section adopted
by the board of directors, the association
must file with the OCC a dated copy of
that supplementary section of this
charter established and designating the
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series and fixing and determining the
relative rights and preferences thereof.
*
*
*
*
*
(7) Anti-takeover provisions following
mutual to stock conversion.
Notwithstanding the law of the State in
which the association is located, a
Federal stock association may amend its
charter by renumbering existing sections
as appropriate and adding a new section
8 as follows:
Section 8. Certain Provisions
Applicable for Five Years.
Notwithstanding anything contained in
the Association’s charter or bylaws to
the contrary, for a period of [specify
number of years up to five] years from
the date of completion of the conversion
of the Association from mutual to stock
form, the following provisions will
apply:
A. Beneficial Ownership Limitation.
No person may directly or indirectly
offer to acquire or acquire the beneficial
ownership of more than 10 percent of
any class of an equity security of the
association. This limitation does not
apply to a transaction in which the
association forms a holding company
without change in the respective
beneficial ownership interests of its
stockholders other than pursuant to the
exercise of any dissenter and appraisal
rights, the purchase of shares by
underwriters in connection with a
public offering, or the purchase of less
than 25 percent of a class of stock by a
tax-qualified employee stock benefit
plan as defined in 12 CFR 192.25.
In the event shares are acquired in
violation of this section 8, all shares
beneficially owned by any person in
excess of 10 percent will be considered
‘‘excess shares’’ and will not be counted
as shares entitled to vote and may not
be voted by any person or counted as
voting shares in connection with any
matters submitted to the stockholders
for a vote.
For purposes of this section 8, the
following definitions apply:
1. The term ‘‘person’’ includes an
individual, a group acting in concert, a
corporation, a partnership, an
association, a joint stock company, a
trust, an unincorporated organization or
similar company, a syndicate or any
other group formed for the purpose of
acquiring, holding or disposing of the
equity securities of the association.
2. The term ‘‘offer’’ includes every
offer to buy or otherwise acquire,
solicitation of an offer to sell, tender
offer for, or request or invitation for
tenders of, a security or interest in a
security for value.
3. The term ‘‘acquire’’ includes every
type of acquisition, whether effected by
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purchase, exchange, operation of law or
otherwise.
4. The term ‘‘acting in concert’’ means
(a) knowing participation in a joint
activity or parallel action towards a
common goal of acquiring control
whether or not pursuant to an express
agreement, or (b) a combination or
pooling of voting or other interests in
the securities of an issuer for a common
purpose pursuant to any contract,
understanding, relationship, agreement
or other arrangement, whether written
or otherwise.
B. Cumulative Voting Limitation.
Stockholders may not cumulate their
votes for election of directors.
C. Call for Special Meetings. Special
meetings of stockholders relating to
changes in control of the association or
amendments to its charter may be called
only upon direction of the board of
directors.
*
*
*
*
*
(j) * * *
(2) Form of filing—(i) Application
requirement. Except as provided in
paragraphs (j)(2)(ii) or (j)(2)(iii) of this
section, a Federal stock savings
association must file the proposed
bylaw amendment with, and obtain the
prior approval of, the OCC.
(A) Expedited review. Except as
provided in paragraph (j)(2)(i)(B) of this
section, the bylaw amendment will be
deemed approved as of the 30th day
after filing, unless the OCC notifies the
filer that the application is denied or
that the amendment contains
procedures of the type described in
paragraph (j)(2)(i)(B) of this section and
is not eligible for expedited review,
provided the association follows the
requirements of its charter and bylaws
in adopting the amendment.
(B) Amendments exempted from
expedited review. Expedited review is
not available for a bylaw amendment
that would:
(1) Render more difficult or
discourage a merger, tender offer, or
proxy contest, the assumption of control
by a holder of a large block of the
association’s stock, or the removal of
incumbent management; or
(2) Be inconsistent with paragraphs
(k) through (n) of this section, with
applicable laws, rules, regulations or the
association’s charter or involve a
significant issue of law or policy,
including indemnification, conflicts of
interest, and limitations on director or
officer liability.
(ii) Corporate governance election and
notice requirement. A Federal stock
association may elect to follow the
corporate governance procedures of:
The laws of the State where the home
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80443
office of the association is located; the
laws of the State where the association’s
holding company, if any, is
incorporated or chartered; Delaware
General Corporation law; or The Model
Business Corporation Act, provided that
such procedures may be elected to the
extent not inconsistent with applicable
Federal statutes and regulations and
safety and soundness, and such
procedures are not of the type described
in paragraph (j)(2)(i)(B) of this section.
If this election is selected, a Federal
stock association must designate in its
bylaws the provision or provisions from
the body or bodies of law selected for
its corporate governance procedures,
and must file a notice containing a copy
of such bylaws, within 30 days after
adoption. The notice must indicate,
where not obvious, why the bylaw
provisions meet the requirements stated
in paragraph (j)(2)(i)(B) of this section.
(iii) No filing required. No filing is
required for purposes of paragraph (j)(2)
of this section if a bylaw amendment
adopts the language of the OCC’s model
or optional bylaws without change.
(3) Effectiveness. A bylaw amendment
is effective after approval by the OCC,
if required, and adoption by the
association, provided that the
association follows the requirements of
its charter and bylaws in adopting the
amendment.
*
*
*
*
*
(k) * * *
(1) Shareholder meetings. (i) In
general. A meeting of the shareholders
of the association for the election of
directors and for the transaction of any
other business of the association must
be held annually within 150 days after
the end of the association’s fiscal year.
Unless otherwise provided in the
association’s charter, special meetings of
the shareholders may be called by the
board of directors or on the request of
the holders of 10 percent or more of the
shares entitled to vote at the meeting, or
by such other persons as may be
specified in the bylaws of the
association.
(ii) Location of shareholder meetings.
(A) In general. All annual and special
meetings of shareholders of the
association may be held at any
convenient place the board of directors
may designate. The association’s bylaws
may provide for the telephonic or
electronic participation of shareholders
in these meetings. Shareholders
participating in an annual or special
meeting telephonically or electronically
will be deemed present in person for
purposes of the quorum requirement in
paragraph (k)(5) of this section.
(B) Procedures for telephonic or
electronic participation. If the
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association’s bylaws provide for
telephonic or electronic participation in
shareholder meetings, the association
must elect to follow corporate
governance procedures for these
meetings pursuant to paragraph (j)(2)(ii)
of this section that include procedures
for telephonic or electronic
participation in shareholder meetings.
The association must indicate the use of
these elected procedures in its bylaws.
(2) Notice of shareholder meetings.
Written notice stating the place, day,
and hour of the meeting and the
purpose or purposes for which the
meeting is called must be delivered not
fewer than 20 nor more than 50 days
before the date of the meeting, either
personally or by mail, by or at the
direction of the chair of the board, the
president, the secretary, or the directors,
or other persons calling the meeting, to
each shareholder of record entitled to
vote at such meeting. If mailed, such
notice will be deemed to be delivered
when deposited in the mail, addressed
to the shareholder at the address
appearing on the stock transfer books or
records of the association as of the
record date prescribed in paragraph
(k)(3) of this section, with postage
thereon prepaid. When any
shareholders’ meeting, either annual or
special, is adjourned for 30 days or
more, notice of the adjourned meeting
must be given as in the case of an
original meeting. Notwithstanding
anything in this section, however, a
Federal stock association that is wholly
owned is not subject to the shareholder
notice requirement.
(3) Fixing of record date. For the
purpose of determining shareholders
entitled to notice of or to vote at any
meeting of shareholders or any
adjournment thereof, or shareholders
entitled to receive payment of any
dividend, or in order to make a
determination of shareholders for any
other proper purpose, the board of
directors must fix in advance a date as
the record date for any such
determination of shareholders. Such
date in any case may not be more than
60 days and, in case of a meeting of
shareholders, not less than 10 days prior
to the date on which the particular
action, requiring such determination of
shareholders, is to be taken. When a
determination of shareholders entitled
to vote at any meeting of shareholders
has been made as provided in this
section, such determination will apply
to any adjournment thereof.
(4) Voting lists. (i) At least 20 days
before each meeting of the shareholders,
the officer or agent having charge of the
stock transfer books for the shares of the
association must make a complete list of
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the stockholders of record entitled to
vote at such meeting, or any
adjournments thereof, arranged in
alphabetical order, with the address and
the number of shares held by each. This
list of shareholders must be kept on file
at the home office of the association and
is subject to inspection by any
shareholder of record or the
stockholder’s agent during the entire
time of the meeting. The original stock
transfer book will constitute prima facie
evidence of the stockholders entitled to
examine such list or transfer books or to
vote at any meeting of stockholders.
Notwithstanding anything in this
section, however, a Federal stock
association that is wholly owned is not
subject to the voting list requirements.
(ii) In lieu of making the shareholders
list available for inspection by any
shareholders as provided in paragraph
(k)(4)(i) of this section, the board of
directors may perform such acts as
required by paragraphs (a) and (b) of
Rule 14a–7 of the General Rules and
Regulations under the Securities and
Exchange Act of 1934 (17 CFR
240.14a–7) as may be duly requested in
writing, with respect to any matter
which may be properly considered at a
meeting of shareholders, by any
shareholder who is entitled to vote on
such matter and who must defray the
reasonable expenses to be incurred by
the association in performance of the act
or acts required.
(5) Shareholder quorum. A majority of
the outstanding shares of the association
entitled to vote, represented in person
or by proxy, constitutes a quorum at a
meeting of shareholders. The
shareholders present at a duly organized
meeting may continue to transact
business until adjournment,
notwithstanding the withdrawal of
enough shareholders to leave less than
a quorum. If a quorum is present, the
affirmative vote of the majority of the
shares represented at the meeting and
entitled to vote on the subject matter
will be the act of the stockholders,
unless the vote of a greater number of
stockholders voting together or voting
by classes is required by law or the
charter. Directors, however, are elected
by a plurality of the votes cast at an
election of directors.
(6) Shareholder voting—(i) Proxies.
Unless otherwise provided in the
association’s charter, at all meetings of
shareholders, a shareholder may vote in
person or by proxy executed in writing
by the shareholder or by a duly
authorized attorney in fact. Proxies may
be given telephonically or electronically
as long as the holder uses a procedure
for verifying the identity of the
shareholder. Proxies solicited on behalf
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of the management must be voted as
directed by the shareholder or, in the
absence of such direction, as
determined by a majority of the board of
directors. No proxy maybe valid more
than eleven months from the date of its
execution except for a proxy coupled
with an interest.
(ii) Shares controlled by association.
Neither treasury shares of its own stock
held by the association nor shares held
by another corporation, if a majority of
the shares entitled to vote for the
election of directors of such other
corporation are held by the association,
may be voted at any meeting or counted
in determining the total number of
outstanding shares at any given time for
purposes of any meeting.
(7) Nominations and new business
submitted by shareholders. Nominations
for directors and new business
submitted by shareholders must be
voted upon at the annual meeting if
such nominations or new business are
submitted in writing and delivered to
the secretary of the association at least
five days prior to the date of the annual
meeting. Ballots bearing the names of all
the persons nominated must be
provided for use at the annual meeting.
*
*
*
*
*
(l) * * *
(1) General powers and duties. The
business and affairs of the association
must be under the direction of its board
of directors. Directors need not be
stockholders unless the bylaws so
require.
(2) Number and term. The bylaws
must set forth a specific number of
directors, not a range. The number of
directors may not be fewer than five nor
more than fifteen, unless a higher or
lower number has been authorized by
the OTS prior to July 21, 2011 or the
OCC. Directors must be elected for a
term of one to three years and until their
successors are elected and qualified. If
a staggered board is chosen, the
directors must be divided into two or
three classes as nearly equal in number
as possible and one class must be
elected by ballot annually.
(3) Regular meetings. The board of
directors determines the place,
frequency, time and procedure for
notice of regular meetings. The bylaws
may provide for telephonic or electronic
participation at these meetings.
(4) Quorum. A majority of the number
of directors constitutes a quorum for the
transaction of business at any meeting of
the board of directors. The act of the
majority of the directors present at a
meeting at which a quorum is present
will be the act of the board of directors,
unless a greater number is prescribed by
regulation of the OCC.
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(5) Vacancies. Any vacancy occurring
in the board of directors may be filled
by the affirmative vote of a majority of
the remaining directors even with less
than a quorum of the board of directors.
A director elected to fill a vacancy may
serve only until the next election of
directors by the shareholders. Any
directorship to be filled by reason of an
increase in the number of directors may
be filled by election by the board of
directors for a term of office continuing
only until the next election of directors
by the shareholders.
(6) Removal or resignation of
directors. (i) At a meeting of
shareholders called expressly for that
purpose, any director may be removed
only for cause, as termination for cause
is defined in § 5.21(j)(2)(x)(B), by a vote
of the holders of a majority of the shares
then entitled to vote at an election of
directors. Associations may provide for
procedures regarding resignations in the
bylaws.
(ii) If less than the entire board is to
be removed, no one of the directors may
be removed if the votes cast against the
removal would be sufficient to elect a
director if then cumulatively voted at an
election of the class of directors of
which such director is a part.
(iii) Whenever the holders of the
shares of any class are entitled to elect
one or more directors by the provisions
of the charter or supplemental sections
thereto, the provisions of this section
apply, in respect to the removal of a
director or directors so elected, to the
vote of the holders of the outstanding
shares of that class and not to the vote
of the outstanding shares as a whole.
(7) Executive and other committees.
The board of directors, by resolution
adopted by a majority of the full board,
may designate from among its members
an executive committee and one or more
other committees. No committee may
have the authority of the board of
directors with reference to: The
declaration of dividends; the
amendment of the charter or bylaws of
the association; recommending to the
stockholders a plan of merger,
consolidation, or conversion; the sale,
lease, or other disposition of all, or
substantially all, of the property and
assets of the association otherwise than
in the usual and regular course of its
business; a voluntary dissolution of the
association; a revocation of any of the
foregoing; or the approval of a
transaction in which any member of the
executive committee, directly or
indirectly, has any material beneficial
interest. The designation of any
committee and the delegation of
authority thereto does not operate to
relieve the board of directors, or any
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director, of any responsibility imposed
by law or regulation.
(8) Notice of special meetings. Written
notice of at least 24 hours regarding any
special meeting of the board of directors
or of any committee designated thereby
must be given to each director in
accordance with the bylaws, although
such notice may be waived by the
director. The attendance of a director at
a meeting constitutes a waiver of notice
of such meeting, except where a director
attends a meeting for the express
purpose of objecting to the transaction
of any business because the meeting is
not lawfully called or convened. Neither
the business to be transacted at, nor the
purpose of, any meeting need be
specified in the notice or waiver of
notice of such meeting. The bylaws may
provide for telephonic or electronic
participation at a special meeting.
(9) Action without a meeting. Any
action required or permitted to be taken
by the board of directors at a meeting
may be taken without a meeting if a
consent in writing, setting forth the
actions so taken, is signed by all of the
directors.
(10) Presumption of assent. A director
of the association who is present at a
meeting of the board of directors at
which action on any association matter
is taken is presumed to have assented to
the action taken unless their dissent or
abstention is entered in the minutes of
the meeting or unless a written dissent
to such action is filed with the person
acting as the secretary of the meeting
before the adjournment thereof or is
forwarded by registered mail to the
secretary of the association within five
days after the date on which a copy of
the minutes of the meeting is received.
Such right to dissent does not apply to
a director who voted in favor of such
action.
*
*
*
*
*
(n) Certificates for shares and their
transfer—(1) Certificates for shares.
Certificates representing shares of
capital stock of the association must be
in such form as determined by the board
of directors and approved by the OCC.
The name and address of the person to
whom the shares are issued, with the
number of shares and date of issue,
must be entered on the stock transfer
books of the association. All certificates
surrendered to the association for
transfer must be cancelled and no new
certificate may be issued until the
former certificate for a like number of
shares has been surrendered and
cancelled, except that in the case of a
lost or destroyed certificate a new
certificate may be issued upon such
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terms and indemnity to the association
as the board of directors may prescribe.
(2) Transfer of shares. Transfer of
shares of capital stock of the association
may be made only on its stock transfer
books. Authority for such transfer may
be given only by the holder of record or
by a legal representative, who must
furnish proper evidence of such
authority, or by an attorney authorized
by a duly executed power of attorney
and filed with the association. The
transfer may be made only on surrender
for cancellation of the certificate for the
shares. The person in whose name
shares of capital stock stand on the
books of the association is deemed by
the association to be the owner for all
purposes.
■ 18. Amend § 5.23 by:
■ a. In paragraph (b)(2), removing the
phrase ‘‘an industrial bank or a credit
union, chartered in’’ and adding in its
place the phrase ‘‘an industrial bank, or
a credit union chartered in’’;
■ b. In paragraphs (c), (d)(2)(ii)
introductory text, (e), and (f)(1),
removing the word ‘‘shall’’ wherever it
appears and adding in its place the
word ‘‘must’’;
■ c. In paragraphs (c), (d)(1), and
(d)(2)(i), removing the word ‘‘applicant’’
wherever it appears and adding in its
place the word ‘‘filer’’;
■ d. In paragraph (c), removing the
phrase ‘‘Federal Deposit Insurance
Corporation (FDIC)’’ and adding in its
place the word ‘‘FDIC’’;
■ e. Removing paragraph (d)(2)(ii)(A),
redesignating paragraphs (d)(2)(ii)(B)
through (K) as paragraphs (d)(2)(ii)(A)
through (J), respectively and adding new
paragraphs (d)(2)(ii)(K) and (d)(2)(ii)(L);
■ f. In redesignated paragraph
(d)(2)(ii)(D), removing the phrase ‘‘statechartered’’ and adding in its place the
phrase ‘‘State-chartered’’ and removing
the word ‘‘state’’ and adding in its place
the word ‘‘State’’;
■ g. In redesignated paragraph
(d)(2)(ii)(F), removing the citations
‘‘§ 5.36, § 5.38’’ and adding in their
place ‘‘§ 5.38, § 5.58’’;
■ h. In redesignated paragraph
(d)(2)(ii)(G), removing the comma after
the phrase ‘‘engages in’’;
■ i. In redesignated paragraph
(d)(2)(ii)(I), removing the word ‘‘state’’
and adding in its place the word ‘‘State’’
wherever it appears and removing the
word ‘‘and’’ after the phrase ‘‘after
conversion;’’;
■ j. In redesignated paragraph
(d)(2)(ii)(J), removing the period after
the phrase ‘‘from the OCC’’ and adding
in its place a semicolon;
■ k. In paragraph (d)(2)(iii), removing
the word ‘‘HOLA’’ and adding in its
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place ‘‘Home Owners’ Loan Act (12
U.S.C. 1464(c))’’;
■ l. Redesignating paragraphs (d)(2)(iv)
through (v) as paragraphs (d)(2)(v)
through (vi) and adding a new
paragraph (d)(2)(iv);
■ m. In redesignated paragraph
(d)(2)(vi), removing the word
‘‘applicant’’ and adding in its place the
word ‘‘filer’’;
■ n. Revising paragraph (d)(4);
■ o. In paragraph (e), removing the
phrase ‘‘an applicant’’ and adding in its
place the phrase ‘‘a filer’’;
■ p. In paragraph (f)(1), removing the
word ‘‘state’’ and adding in its place the
word ‘‘State’’; and
■ q. In paragraph (g) removing the
phrase ‘‘shall continue’’ and adding in
its place the word ‘‘continues’’ and
removing the phrase ‘‘shall be’’ and
adding in its place the word ‘‘is’’.
The additions and revision read as
follows.
§ 5.23 Conversion to become a Federal
savings association
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*
*
*
*
*
(d) * * *
(2) * * *
(ii) * * *
(K) Include a list of directors and
senior executive officers, as defined in
§ 5.51, of the converting institution; and
(L) Include a list of individuals,
directors, and shareholders who directly
or indirectly, or acting in concert with
one or more persons or companies, or
together with members of their
immediate family, do or will own,
control, or hold 10 percent or more of
the institution’s voting stock.
*
*
*
*
*
(iv) The OCC may require directors
and senior executive officers of the
converting institution to submit the
Interagency Biographical and Financial
Report, available at www.occ.gov, and
legible fingerprints.
*
*
*
*
*
(4) Expedited review. An application
by an eligible bank to convert to a
Federal savings association charter is
deemed approved by the OCC as of the
45th day after the filing is received by
the OCC, unless the OCC notifies the
filer prior to that date that the filing has
been removed from expedited review, or
the expedited review process is
extended, under § 5.13(a)(2).
*
*
*
*
*
■ 19. Amend § 5.24 by:
■ a. In paragraphs (b), (c)(1), (c)(2), (d),
(e)(2) introductory text, and (e)(3),
removing the word ‘‘state’’ wherever it
appears and adding in its place the
word ‘‘State’’;
■ b. In paragraphs (b), (e)(2)
introductory text, and (f), removing the
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word ‘‘shall’’ wherever it appears and
adding in its place the word ‘‘must’’;
■ c. In paragraph (c)(2), removing the
word ‘‘state’’ and adding in its place the
word ‘‘State’’;
■ d. In paragraphs (d), and (e)(1),
removing the word ‘‘applicant’’
wherever it appears and adding in its
place the word ‘‘filer’’;
■ e. Removing paragraph (e)(2)(i) and
redesignating paragraphs (e)(2)(ii)
through (x) as paragraphs (e)(2)(i)
through (ix), respectively, and adding
paragraphs (e)(2)(x) and (xi);
■ f. In redesignated paragraphs (e)(2)(iv)
and (e)(2)(ix), removing the word
‘‘state’’ wherever it appears and adding
in its place the word ‘‘State’’;
■ g. At the end of redesignated
paragraph (e)(2)(viii), removing the
word ‘‘and’’;
■ h. At the end of redesignated
paragraph (e)(2)(ix), removing the
period and adding in its place a
semicolon;
■ i. Redesignating paragraphs (e)(4)
through (5) as paragraphs (e)(5) through
(6), respectively, and adding a new
paragraph (e)(4);
■ j. In redesignated paragraph (e)(6),
removing the word ‘‘applicant’’ and
adding the word ‘‘filer’’ in its place;
■ k. Revising paragraph (h); and
■ l. In paragraph (i):
■ i. In the first sentence, removing the
phrase ‘‘shall continue’’ and adding in
its place the word ‘‘continues’’; and
■ ii. In the second sentence, removing
the phrase ‘‘shall be’’ and adding in its
place the word ‘‘is’’.
The additions and revisions read as
follows.
§ 5.24
bank.
Conversion to become a national
*
*
*
*
*
(e) * * *
(2) * * *
(x) Include a list of directors and
senior executive officers, as defined in
§ 5.51, of the converting institution; and
(xi) Include a list of individuals,
directors, and shareholders who directly
or indirectly, or acting in concert with
one or more persons or companies, or
together with members of their
immediate family, do or will own,
control, or hold 10 percent or more of
the institution’s voting stock.
*
*
*
*
*
(4) The OCC may require directors
and senior executive officers of the
converting institution to submit the
Interagency Biographical and Financial
Report, available at www.occ.gov, and
legible fingerprints.
*
*
*
*
*
(h) Expedited review. An application
by an eligible savings association to
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convert to a national bank charter is
deemed approved by the OCC as of the
45th day after the filing is received by
the OCC, unless the OCC notifies the
filer prior to that date that the filing has
been removed from expedited review, or
the expedited review process is
extended, under § 5.13(a)(2).
*
*
*
*
*
§ 5.25
[Amended]
20. Amend § 5.25 by:
a. In the section heading and in
paragraphs (b), (c), (d)(1), (d)(2),
(d)(3)(i), and (d)(4), removing the word
‘‘state’’ wherever it appears and adding
in its place the word ‘‘State’’
■ b. In paragraphs (b), (d)(3)(i), and
(d)(3)(ii) introductory text, removing the
word ‘‘shall’’ wherever it appears and
adding in its place the word ‘‘must’’;
and
■ c. In paragraphs (d)(1) and (d)(3)(i),
removing the phrase ‘‘defined in 214(a)’’
wherever it appears and adding in its
place the phrase ‘‘defined in 12 U.S.C.
214(a)’’.
■ 21. Amend § 5.26 by:
■ a. In paragraph (a), removing the
phrase ‘‘12 U.S.C. 92a and’’ and adding
in its place the phrase ‘‘12 U.S.C. 92a,’’;
■ b. In paragraphs (b)(2) and (b)(4),
removing the phrase ‘‘Office of Thrift
Supervision’’ wherever it appears and
adding in its place the word ‘‘OTS’’;
■ c. In paragraphs (b)(3), (b)(4), (e)(1)(ii),
(e)(1)(iii), (e)(2)(i)(B), (e)(2)(i)(E), and
(e)(2)(iii)(B), removing the word ‘‘state’’
wherever it appears and adding in its
place the word ‘‘State’’; and
■ d. In paragraph (e)(2)(i) introductory
text, removing the word ‘‘shall’’ and
adding in its place the word ‘‘must’’;
■ e. Revising paragraph (e)(2)(i)(C);
■ f. In paragraph (e)(2)(ii), removing the
word ‘‘applicant’’ and adding in its
place the word ‘‘filer’’; and
■ g. Revising paragraphs (e)(3) and (6).
.
The revisions read as follows.
■
■
§ 5.26 Fiduciary powers of national banks
and Federal savings associations.
*
*
*
*
*
(e) * * *
(2) * * *
(i) * * *
(C) Sufficient biographical
information on proposed senior trust
management personnel, as identified by
the OCC, to enable the OCC to assess
their qualifications, including, if
requested by the OCC, legible
fingerprints and the Interagency
Biographical and Financial Report,
available at www.occ.gov;
*
*
*
*
*
(3) Expedited review. An application
by an eligible bank or eligible savings
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association to exercise fiduciary powers
is deemed approved by the OCC as of
the 30th day after the application is
received by the OCC, unless the OCC
notifies the bank or savings association
prior to that date that the filing has been
removed from expedited review, or the
expedited review process is extended,
under § 5.13(a)(2).
*
*
*
*
*
(6) Notice of fiduciary activities in
additional States. (i) Except as provided
in paragraphs (e)(6)(iii) through (iv) of
this section, a national bank or Federal
savings association with existing OCC
approval to exercise fiduciary powers
must provide written notice to the OCC
no later than 10 days after it begins to
engage in any of the activities specified
in § 9.7(d) of this chapter in a State in
addition to the State or States described
in the application for fiduciary powers
that the OCC has approved.
(ii) A notice submitted pursuant to
paragraph (e)(6)(i) of this section must
identify the new State or States
involved, identify the fiduciary
activities to be conducted, and describe
the extent to which the activities differ
materially from the fiduciary activities
the national bank or Federal savings
association previously conducted.
(iii) No notice under paragraph
(e)(6)(i) of this section is required if the
national bank or Federal savings
association provides the information
required by paragraph (e)(6)(ii) of this
section through other means, such as a
merger application.
(iv) No notice is required if the
national bank or Federal savings
association is conducting only activities
ancillary to its fiduciary business
through a trust representative office or
otherwise.
*
*
*
*
*
■ 22. Amend § 5.30 by:
■ a. In paragraphs (b), (f)(1), (f)(4), (g),
(h)(1), and (j), removing the word
‘‘shall’’ wherever it appears and adding
in its place the word ‘‘must’’;
■ b. In paragraph (c)(2), removing ‘‘12
CFR 5.24’’ and adding in its place
‘‘§ 5.24’’;
■ c. Revising paragraphs (d)(1)(i) and
(iii);
■ d. In paragraph (d)(2), removing the
word ‘‘state’’ and adding in its place the
word ‘‘State’’;
■ e. In paragraphs (d)(2), (d)(3), (g), and
(h)(4), removing the word ‘‘state’’
wherever it appears and adding in its
place the word ‘‘State’’;
■ f. In paragraph (d)(5), adding a
sentence after the second sentence;
■ g. In paragraph (f)(1), removing the
phrase ‘‘paragraph (f)(2)’’ and adding in
its place the phrase ‘‘paragraphs (f)(2) or
(f)(3)’’; and
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h. In paragraph (f)(6), removing the
phrase ‘‘is not eligible for expedited
review, or the expedited review process
is extended, under § 5.13(a)(2)’’ and
adding in its place the phrase ‘‘has been
removed from expedited review, or the
expedited review process is extended,
under § 5.13(a)(2)’’.
The revisions read as follows.
■
§ 5.30 Establishment, acquisition, and
relocation of a branch of a national bank.
*
*
*
*
*
(d) * * *
(1) * * *
(i) A branch established by a national
bank includes a seasonal agency
described in 12 U.S.C. 36(c), a mobile
facility, a temporary facility, an
intermittent facility, or a drop box.
*
*
*
*
*
(iii) A branch does not include a
remote service unit (RSU) as described
in 12 CFR 7.4003. This encompasses
RSUs that are automated teller machines
(ATMs), including interactive ATMs. A
branch also does not include a loan
production office, a deposit production
office, a trust office, an administrative
office, a data processing office, or any
other office that does not engage in at
least one of the activities in paragraph
(d)(1) of this section.
*
*
*
*
*
(5) * * * A mobile branch may be
stationed continuously at a single
location within the geographic area it is
approved to serve for a period of up to
four months. * * *
■ 23. Amend § 5.31 by:
■ a. In paragraph (a) removing the
period after ‘‘1464’’ and adding in its
place a comma; and adding a comma
after ‘‘2907’’;
■ b. In paragraphs (b), (f)(1)(i), (f)(3), (i),
(j)(2), and (k)(2)(ii) removing the word
‘‘shall’’ and adding in its place the word
‘‘must’’ wherever it appears;
■ c. In paragraph (c)(2), removing ‘‘12
CFR 5.23’’ and adding in its place
‘‘§ 5.23’’ and removing ‘‘12 CFR 5.33’’
and adding in its place ‘‘§ 5.33’’;
■ d. In paragraphs (c)(3) and paragraph
(j)(1), removing the word ‘‘HOLA’’ and
adding in its place the phrase ‘‘Home
Owners’ Loan Act’’ wherever it appears;
■ e. In paragraph (d)(1), removing the
word ‘‘office’’;
■ f. In paragraph (d)(2), removing the
word ‘‘state’’ and adding in its place the
word ‘‘State’’;
■ g. In paragraphs (d)(2), (g)(2), and
(j)(2), removing the word ‘‘state’’ and
adding in its place the word ‘‘State’’
wherever it appears;
■ h. In paragraph (f)(1)(iii), removing
the word ‘‘Federal’’ and removing the
phrase ‘‘is not eligible for expedited
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review, or the expedited review process
is extended, under § 5.13(a)(2)’’ and
adding in its place the phrase ‘‘has been
removed from expedited review, or the
expedited review process is extended,
under § 5.13(a)(2)’’;
■ i. In paragraph (f)(2)(ii), removing the
phrase ‘‘, as defined in § 5.3(l)’’;
■ j. In paragraph (f)(2)(iii) introductory
text, removing the phrase ‘‘as defined in
§ 5.3(g)’’;
■ k. In the heading to paragraph (j),
removing the word ‘‘HOLA’’ and adding
in its place ‘‘Home Owners’ Loan Act’’;
and
■ k. Adding paragraph (j)(3).
The addition reads as follows.
§ 5.31 Establishment, acquisition, and
relocation of a branch and establishment of
an agency office of a Federal savings
association.
*
*
*
*
*
(j) * * *
(3) For purposes of 12 U.S.C.
1464(m)(1), a branch in the District of
Columbia includes any location at
which accounts are opened, payments
are received, or withdrawals are made.
This includes an Automated Teller
Machine that performs one or more of
these functions.
*
*
*
*
*
§ 5.32
[Amended]
24. Amend § 5.32 by:
a. In paragraphs (c), (f), (h)(1), and
(h)(2), removing the word ‘‘shall’’ and
adding in its place the word ‘‘must’’
wherever it appears ;
■ b. In paragraph (d)(1), removing the
phrase ‘‘shall be’’ and adding in its
place the word ‘‘is’’;
■ c. In paragraph (d)(2)(i), removing the
word ‘‘shall’’ and adding in its place the
word ‘‘will’’;
■ d. In paragraph (e), removing the
phrase ‘‘his or her’’ and adding in its
place the word ‘‘their’’;
■ e. In paragraph (f), removing the word
Applicants’’ and adding in its place the
word ‘‘Filers’’; and
■ f. In paragraph (h)(1), removing the
phrase ‘‘An applicant’’ and adding in its
place the phrase ‘‘A filer’’; and
■ g. In paragraph (h)(2), removing the
word ‘‘applicant’’ and adding in its
place the word ‘‘filer’’.
■ 25. Revise § 5.33 to read as follows:
■
■
§ 5.33 Business combinations involving a
national bank or Federal savings
association.
(a) Authority. 12 U.S.C. 24(Seventh),
93a, 181, 214a, 214b, 215, 215a, 215a–
1, 215a–3, 215b, 215c, 1462a, 1463,
1464, 1467a, 1828(c), 1831u, 2903, and
5412(b)(2)(B).
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(b) Scope. This section sets forth the
provisions governing business
combinations and the standards for:
(1) OCC review and approval of an
application by a national bank or a
Federal savings association for a
business combination resulting in a
national bank or Federal savings
association; and
(2) Requirements of notices and other
procedures for national banks and
Federal savings associations involved in
other combinations in which a national
bank or Federal savings association is
not the resulting institution.
(c) Licensing requirements. As
prescribed by this section, a national
bank or Federal savings association
must submit an application and obtain
prior OCC approval for a business
combination when the resulting
institution is a national bank or Federal
savings association. As prescribed by
this section, a national bank or Federal
savings association must give notice to
the OCC prior to engaging in any other
combination where the resulting
institution will not be a national bank
or Federal savings association.1 A
national bank must submit an
application and obtain prior OCC
approval for any merger between the
national bank and one or more of its
nonbank affiliates.
(d) Definitions. For purposes of this
section:
(1) Bank means any national bank or
any State bank.
(2) Business combination means:
(i) Any merger or consolidation
between a national bank or a Federal
savings association and one or more
depository institutions or State trust
companies, in which the resulting
institution is a national bank or Federal
savings association;
(ii) In the case of a Federal savings
association, any merger or consolidation
with a credit union in which the
resulting institution is a Federal savings
association;
(iii) In the case of a national bank, any
merger between a national bank and one
or more of its nonbank affiliates;
(iv) The acquisition by a national
bank or a Federal savings association of
all, or substantially all, of the assets of
another depository institution; or
(v) The assumption by a national bank
or a Federal savings association of any
deposit liabilities of another insured
depository institution or any deposit
accounts or other liabilities of a credit
union or any other institution that will
1 Other combinations, as defined in paragraph
(d)(10) of this section, do not require an application
under this section. However, some may require an
application under § 5.53.
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become deposits at the national bank or
Federal savings association.
(3) Business reorganization means
either:
(i) A business combination between
eligible banks and eligible savings
associations, or between an eligible
bank or an eligible savings association
and an eligible depository institution,
that are controlled by the same holding
company or that will be controlled by
the same holding company prior to the
combination; or
(ii) A business combination between
an eligible bank or an eligible savings
association and an interim national
bank or interim Federal savings
association chartered in a transaction in
which a person or group of persons
exchanges its shares of the eligible bank
or eligible savings association for shares
of a newly formed holding company and
receives after the transaction
substantially the same proportional
share interest in the holding company as
it held in the eligible bank or eligible
savings association (except for changes
in interests resulting from the exercise
of dissenters’ rights), and the
reorganization involves no other
transactions involving the bank or
savings association.
(4) Company means a corporation,
limited liability company, partnership,
business trust, association, or similar
organization.
(5) For business combinations under
paragraphs (g)(4) and (5) of this section,
a company or shareholder is deemed to
control another company if:
(i) Such company or shareholder,
directly or indirectly, or acting through
one or more other persons owns,
controls, or has power to vote 25
percent or more of any class of voting
securities of the other company; or
(ii) Such company or shareholder
controls in any manner the election of
a majority of the directors or trustees of
the other company. No company is
deemed to own or control another
company by virtue of its ownership or
control of shares in a fiduciary capacity.
(6) Credit union means a financial
institution subject to examination by the
National Credit Union Administration
Board.
(7) Home State means, with respect to
a national bank, the State in which the
main office of the national bank is
located and, with respect to a State
bank, the State by which the bank is
chartered.
(8) Interim national bank or interim
Federal savings association means a
national bank or Federal savings
association that does not operate
independently but exists solely as a
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vehicle to accomplish a business
combination.
(9) Nonbank affiliate of a national
bank means any company (other than a
bank or Federal savings association) that
controls, is controlled by, or is under
common control with the national bank.
(10) Other combination means:
(i) Any merger or consolidation
between a national bank or a Federal
savings association and one or more
depository institutions or State trust
companies, in which the resulting
institution is not a national bank or
Federal savings association;
(ii) In the case of a Federal stock
savings association, any merger or
consolidation with a credit union in
which the resulting institution is a
credit union;
(iii) The transfer by a national bank or
a Federal savings association of any
deposit liabilities to another insured
depository institution, a credit union or
any other institution; or
(iv) The acquisition by a national
bank or a Federal savings association of
all, or substantially all, of the assets, or
the assumption of all or substantially all
of the liabilities, of any company other
than a depository institution.
(11) Savings association and State
savings association have the meaning
set forth in section 3(b) of the Federal
Deposit Insurance Act, 12 U.S.C.
1813(b).
(12) State trust company means a trust
company organized under State law that
is not engaged in the business of
receiving deposits, other than trust
funds.
(e) Policy and related filing
requirements—(1) Factors—(i) In
general. When the OCC evaluates any
application for a business combination,
the OCC considers the following factors:
(A) The capital level of any resulting
national bank or Federal savings
association;
(B) The conformity of the transaction
to applicable law, regulation, and
supervisory policies;
(C) The purpose of the transaction;
(D) The impact of the transaction on
safety and soundness of the national
bank or Federal savings association; and
(E) The effect of the transaction on the
national bank’s or Federal savings
association’s shareholders (or members
in the case of a mutual savings
association), depositors, other creditors,
and customers.
(ii) Bank Merger Act. When the OCC
evaluates an application for a business
combination under the Bank Merger
Act, the OCC also considers the
following factors:
(A) Competition. (1) The OCC
considers the effect of a proposed
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business combination on competition.
The filer must provide a competitive
analysis of the transaction, including a
definition of the relevant geographic
market or markets. A filer may refer to
the Comptroller’s Licensing Manual for
procedures to expedite its competitive
analysis.
(2) The OCC will deny an application
for a business combination if the
combination would result in a
monopoly or would be in furtherance of
any combination or conspiracy to
monopolize or attempt to monopolize
the business of banking in any part of
the United States. The OCC also will
deny any proposed business
combination whose effect in any section
of the United States may be
substantially to lessen competition, or
tend to create a monopoly, or which in
any other manner would be in restraint
of trade, unless the probable effects of
the transaction in meeting the
convenience and needs of the
community clearly outweigh the
anticompetitive effects of the
transaction. For purposes of weighing
against anticompetitive effects, a
business combination may have
favorable effects in meeting the
convenience and needs of the
community if the depository institution
being acquired has limited long-term
prospects, or if the resulting national
bank or Federal savings association will
provide significantly improved,
additional, or less costly services to the
community.
(B) Financial and managerial
resources and future prospects. The
OCC considers the financial and
managerial resources and future
prospects of the existing or proposed
institutions.
(C) Convenience and needs of
community. The OCC considers the
probable effects of the business
combination on the convenience and
needs of the community served. The
filer must describe these effects in its
application, including any planned
office closings or reductions in services
following the business combination and
the likely impact on the community.
The OCC also considers additional
relevant factors, including the resulting
national bank’s or Federal savings
association’s ability and plans to
provide expanded or less costly services
to the community.
(D) Money laundering. The OCC
considers the effectiveness of any
insured depository institution involved
in the business combination in
combating money laundering activities,
including in overseas branches.
(E) Financial stability. The OCC
considers the risk to the stability of the
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United States banking and financial
system.
(F) Deposit concentration limit. The
OCC will not approve a transaction that
would violate the deposit concentration
limit in 12 U.S.C. 1828(c)(13) for
interstate merger transactions, as
defined in 12 U.S.C. 1828(c)(13)(C)(i).
(iii) Community Reinvestment Act—
(A) In General. The OCC takes into
account the filer’s Community
Reinvestment Act (CRA) record of
performance in considering an
application for a business combination.
The OCC’s conclusion of whether the
CRA performance is or is not consistent
with approval of an application is
considered in conjunction with the
other factors of this section.
(B) Interstate mergers under 12 U.S.C.
1831u. The OCC considers the CRA
record of performance of the filer and its
resulting bank affiliates and the filer’s
record of compliance with applicable
State community reinvestment laws
when required by 12 U.S.C. 1831u(b)(3).
(C) CRA Sunshine. A filer must:
(1) Disclose whether it has entered
into and disclosed a covered agreement,
as defined in 12 CFR 35.2, in
accordance with 12 CFR 35.6 and 35.7;
and
(2) Provide summaries of, or
documents relating to, all substantive
discussions with respect to the
development of the content of a covered
agreement disclosed in (e)(1)(iii)(C)(1)
that include the names of participants,
dates, and synopsis of the discussions.
(iv) Interstate mergers under 12 U.S.C.
1831u. The OCC considers the standards
and requirements contained in 12 U.S.C.
1831u for interstate merger transactions
between insured banks, when
applicable.
(2) Acquisition and retention of
branches. A filer must disclose the
location of any branch it will acquire
and retain in a business combination,
including approved but unopened
branches. The OCC considers the
acquisition and retention of a branch
under the standards set out in § 5.30 or
§ 5.31, as applicable, but it does not
require a separate application.
(3) Subsidiaries. (i) A filer must
identify any subsidiary, financial
subsidiary investment, bank service
company investment, service
corporation investment, or other equity
investment to be acquired in a business
combination and state the activities of
each subsidiary or other company in
which the filer would be acquiring an
investment. The OCC does not require a
separate application or notice under
§§ 5.34, 5.35, 5.36, 5.38, 5.39, 5.58, and
5.59.
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(ii) A national bank filer proposing to
acquire, through a business
combination, a subsidiary, financial
subsidiary investment, bank service
company investment, service
corporation investment, or other equity
investment of any entity other than a
national bank must provide the same
information and analysis of the
subsidiary’s activities, or of the
investment, that would be required if
the filer were establishing the
subsidiary, or making such investment,
pursuant to §§ 5.34, 5.35, 5.36, or 5.39.
(iii) A Federal savings association filer
proposing to acquire, through a business
combination, a subsidiary, bank service
company investment, service
corporation investment, or other equity
investment of any entity other than a
Federal savings association must
provide the same information and
analysis of the subsidiary’s activities, or
of the investment, that would be
required if the filer were establishing
the subsidiary, or making such
investment, pursuant to §§ 5.35, 5.38,
5.58, or 5.59.
(4) Interim national bank or interim
Federal savings association—(i)
Application. A filer for a business
combination that plans to use an interim
national bank or interim Federal savings
association to accomplish the
transaction must file an application to
organize an interim national bank or
interim Federal savings association as
part of the application for the related
business combination.
(ii) Conditional approval. The OCC
grants conditional preliminary approval
to form an interim national bank or
interim Federal savings association
when it acknowledges receipt of the
application for the related business
combination.
(iii) Corporate status. An interim
national bank or interim Federal savings
association becomes a legal entity and
may enter into legally valid agreements
when it has filed, and the OCC has
accepted, the interim national bank’s
duly executed articles of association and
organization certificate or the Federal
savings association’s charter and
bylaws. OCC acceptance occurs:
(A) On the date the OCC advises the
interim national bank that its articles of
association and organization certificate
are acceptable or advises the interim
Federal savings association that its
charter and bylaws are acceptable; or
(B) On the date the interim national
bank files articles of association and an
organization certificate that conform to
the form for those documents provided
by the OCC in the Comptroller’s
Licensing Manual or the date the
interim Federal savings association files
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a charter and bylaws that conform to the
requirements set out in this part 5.
(iv) Other corporate procedures. A
filer should consult the Comptroller’s
Licensing Manual to determine what
other information is necessary to
complete the chartering of the interim
national bank as a national bank or the
interim Federal savings association as a
Federal savings association.
(5) Nonconforming assets. (i) A filer
must identify any nonconforming
activities and assets, including
nonconforming subsidiaries, of other
institutions involved in the business
combination that will not be disposed of
or discontinued prior to consummation
of the transaction. The OCC generally
requires a national bank or Federal
savings association to divest or conform
nonconforming assets, or discontinue
nonconforming activities, within a
reasonable time following the business
combination.
(ii) Any resulting Federal savings
association must conform to the
requirements of sections 5(c) and 10(m)
of the Home Owners’ Loan Act (12
U.S.C. 1464(c) and 1467a(m)) within the
time period prescribed by the OCC.
(6) Fiduciary powers. (i) A filer must
state whether the resulting national
bank or Federal savings association
intends to exercise fiduciary powers
pursuant to § 5.26(b).
(ii) If a filer intends to exercise
fiduciary powers after the combination
and requires OCC approval for such
powers, the filer must include the
information required under § 5.26(e)(2).
(7) Expiration of approval. Approval
of a business combination, and
conditional approval to form an interim
national bank or interim Federal savings
association, if applicable, expires if the
business combination is not
consummated within six months after
the date of OCC approval, unless the
OCC grants an extension of time.
(8) Adequacy of disclosure. (i) A filer
must inform shareholders of all material
aspects of a business combination and
must comply with any applicable
requirements of the Federal securities
laws and securities regulations of the
OCC. Accordingly, a filer must ensure
that all proxy and information
statements prepared in connection with
a business combination do not contain
any untrue or misleading statement of a
material fact, or omit to state a material
fact necessary in order to make the
statements made, in the light of the
circumstances under which they were
made, not misleading.
(ii) A national bank or Federal savings
association filer with one or more
classes of securities subject to the
registration provisions of section 12(b)
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or (g) of the Securities Exchange Act of
1934, 15 U.S.C. 78l(b) or 78l(g), must file
preliminary proxy material or
information statements for review with
the Director, Bank Advisory, OCC,
Washington, DC 20219. Any other filer
must submit the proxy materials or
information statements it uses in
connection with the combination to the
appropriate OCC licensing office no
later than when the materials are sent to
the shareholders.
(f) Exceptions to rules of general
applicability—(1) National bank or
Federal savings association filer—(i) In
general. Sections 5.8, 5.10, and 5.11 do
not apply to this section. However, if
the OCC concludes that an application
presents significant or novel policy,
supervisory, or legal issues, the OCC
may determine that some or all
provisions in §§ 5.8, 5.10 and 5.11
apply.
(ii) Statutory notice. If an application
is subject to the Bank Merger Act or to
another statute that requires notice to
the public, a national bank or Federal
savings association filer must follow the
public notice requirements contained in
12 U.S.C. 1828(c)(3) or the other statute
and §§ 5.8(b) through 5.8(e), 5.10, and
5.11.
(2) Interim national bank or interim
Federal savings association. Sections
5.8, 5.10, and 5.11 do not apply to an
application to organize an interim
national bank or interim Federal savings
association. However, if the OCC
concludes that an application presents
significant or novel policy, supervisory,
or legal issues, the OCC may determine
that any or all parts of §§ 5.8, 5.10, and
5.11 apply. The OCC treats an
application to organize an interim
national bank or interim Federal savings
association as part of the related
application to engage in a business
combination and does not require a
separate public notice and public
comment process.
(3) State bank, or State savings
association, State trust company, or
credit union as resulting institution.
Sections 5.7 through 5.13 do not apply
to transactions covered by paragraphs
(g)(7) through (g)(9) of this section.
(g) Provisions governing
consolidations and mergers with
different types of entities—(1)
Consolidations and mergers under 12
U.S.C. 215 or 215a of a national bank
with other national banks and State
banks as defined in 12 U.S.C. 215b(1)
resulting in a national bank. A national
bank entering into a consolidation or
merger authorized pursuant to 12 U.S.C.
215 or 215a, respectively, is subject to
the approval procedures and
requirements with respect to treatment
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of dissenting shareholders set forth in
those provisions.
(2) Interstate consolidations and
mergers under 12 U.S.C. 215a–1
resulting in a national bank—(i) With
the approval of the OCC, an insured
national bank may consolidate or merge
with an insured out-of-State bank, as
defined in 12 U.S.C. 1831u(g)(8), with
the national bank as the resulting
institution.
(ii) Unless it has elected to follow the
procedures set out in paragraph (h) of
this section, the resulting national bank
entering into the consolidation or
merger must comply with the
procedures of 12 U.S.C. 215 or 215a, as
applicable.
(iii) Unless it has elected to follow the
procedures applicable to State banks
under paragraph (h)(1)(i), any national
bank that will not be the resulting bank
in a consolidation or merger pursuant to
12 U.S.C. 215a–1 must comply with the
procedures of 12 U.S.C. 215 or 215a, as
applicable.
(iv) Corporate existence. The
corporate existence of each bank
participating in a consolidation or
merger continues in the resulting
national bank, and all the rights,
franchises, property, appointments,
liabilities, and other interests of the
participating bank are transferred to the
resulting national bank, as set forth in
12 U.S.C. 215(b), (e) and (f) or 12 U.S.C.
215a(a), (e), and (f), as applicable.
(3) Consolidations and mergers of a
national bank with Federal savings
associations under 12 U.S.C. 215c
resulting in a national bank. (i) With the
approval of the OCC, any national bank
and any Federal savings association may
consolidate or merge with a national
bank as the resulting institution by
complying with the following
procedures:
(A) Unless it has elected to follow the
procedures set out in paragraph (h) of
this section, a national bank entering
into the consolidation or merger must
follow the procedures of 12 U.S.C. 215
or 215a, respectively, as if the Federal
savings association were a national
bank.
(B)(1) A Federal savings association
entering into the consolidation or
merger must comply with the
requirements of paragraph (n) of this
section and follow the procedures set
out in paragraph (o) of this section.
(2) For purposes of this paragraph
(g)(3), a combination in which a
national bank acquires all or
substantially all of the assets, or
assumes all or substantially all of the
liabilities, of a Federal savings
association will be treated as a
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consolidation for the Federal savings
association.
(ii)(A) Unless the national bank has
elected to follow the procedures set out
in paragraph (h) of this section, national
bank shareholders who dissent from a
plan to consolidate may receive in cash
the value of their national bank shares
if they comply with the requirements of
12 U.S.C. 215 as if the Federal savings
association were a national bank.
(B) Unless the Federal savings
association has elected to follow the
procedures applicable to State savings
associations pursuant to paragraph
(o)(1)(i)(A) of this section, Federal
savings association shareholders who
dissent from a plan to consolidate or
merge may receive in cash the value of
their Federal savings association shares
if they comply with the requirements of
12 U.S.C. 215 or 215a as if the Federal
savings association were a national
bank.
(C) Unless the national bank or
Federal savings association has elected
to follow the procedures applicable to
State banks or State savings
associations, respectively, pursuant to
paragraph (h)(1)(i) or (o)(1)(i)(A) of this
section, respectively, the OCC will
conduct an appraisal or reappraisal of
the value of a national bank or Federal
savings association held by dissenting
shareholders in accordance with the
provisions of 12 U.S.C. 215 or 215a, as
applicable, except that the costs and
expenses of any appraisal or reappraisal
may be apportioned and assessed by the
Comptroller as he or she may deem
equitable against all or some of the
parties. In making this determination
the Comptroller will consider whether
any party has acted arbitrarily or not in
good faith in respect to the rights
provided by this paragraph.
(iii) The consolidation or merger
agreement must address the effect upon,
and the terms of the assumption of, any
liquidation account of any participating
institution by the resulting institution.
(4) Mergers of a national bank with its
nonbank affiliates under 12 U.S.C.
215a–3 resulting in a national bank. (i)
With the approval of the OCC, a
national bank may merge with one or
more of its nonbank affiliates, with the
national bank as the resulting
institution, in accordance with the
provisions of this paragraph, provided
that the law of the State or other
jurisdiction under which the nonbank
affiliate is organized allows the nonbank
affiliate to engage in such mergers. If the
national bank is an insured bank, the
transaction is also subject to approval by
the FDIC under the Bank Merger Act, 12
U.S.C. 1828(c).
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(ii) Unless it has elected to follow the
procedures set out in paragraph (h) of
this section, a national bank entering
into the merger must follow the
procedures of 12 U.S.C. 215a as if the
nonbank affiliate were a State bank,
except as otherwise provided herein.
(iii) A nonbank affiliate entering into
the merger must follow the procedures
for such mergers set out in the law of
the State or other jurisdiction under
which the nonbank affiliate is
organized.
(iv) The rights of dissenting
shareholders and appraisal of
dissenters’ shares of stock in the
nonbank affiliate entering into the
merger must be determined in the
manner prescribed by the law of the
State or other jurisdiction under which
the nonbank affiliate is organized.
(v) The corporate existence of each
institution participating in the merger
continues in the resulting national bank,
and all the rights, franchises, property,
appointments, liabilities, and other
interests of the participating institutions
are transferred to the resulting national
bank, as set forth in 12 U.S.C. 215a(a),
(e), and (f) in the same manner and to
the same extent as in a merger between
a national bank and a State bank under
12 U.S.C. 215a(a), as if the nonbank
affiliate were a State bank.
(5) Mergers of an uninsured national
bank with its nonbank affiliates under
12 U.S.C. 215a–3 resulting in a nonbank
affiliate. (i) With the approval of the
OCC, a national bank that is not an
insured bank as defined in 12 U.S.C.
1813(h) may merge with one or more of
its nonbank affiliates, with the nonbank
affiliate as the resulting entity, in
accordance with the provisions of this
paragraph, provided that the law of the
State or other jurisdiction under which
the nonbank affiliate is organized allows
the nonbank affiliate to engage in such
mergers.
(ii) Unless it has elected to follow the
procedures applicable to State banks
under paragraph (h)(1)(i) of this section,
a national bank entering into the merger
must follow the procedures of 12 U.S.C.
214a, as if the nonbank affiliate were a
State bank, except as otherwise
provided in this section.
(iii) A nonbank affiliate entering into
the merger must follow the procedures
for such mergers set out in the law of
the State or other jurisdiction under
which the nonbank affiliate is
organized.
(iv)(A) National bank shareholders
who dissent from an approved plan to
merge may receive in cash the value of
their national bank shares if they
comply with the requirements of 12
U.S.C. 214a as if the nonbank affiliate
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80451
were a State bank. The OCC may
conduct an appraisal or reappraisal of
dissenters’ shares of stock in a national
bank involved in the merger if all
parties agree that the determination is
final and binding on each party and
agree on how the total expenses of the
OCC in making the appraisal will be
divided among the parties and paid to
the OCC.
(B) The rights of dissenting
shareholders and appraisal of
dissenters’ shares of stock in the
nonbank affiliate involved in the merger
must be determined in the manner
prescribed by the law of the State or
other jurisdiction under which the
nonbank affiliate is organized.
(v) The corporate existence of each
entity participating in the merger
continues in the resulting nonbank
affiliate, and all the rights, franchises,
property, appointments, liabilities, and
other interests of the participating
national bank are transferred to the
resulting nonbank affiliate as set forth in
12 U.S.C. 214b, in the same manner and
to the same extent as in a merger
between a national bank and a State
bank under 12 U.S.C. 214a, as if the
nonbank affiliate were a State bank.
(6) Consolidations and mergers of a
Federal savings association with other
Federal savings associations, national
banks, State banks, State savings banks,
State savings associations, State trust
companies, or credit unions resulting in
a Federal savings association. (i) With
the approval of the OCC, a Federal
savings association may consolidate or
merge with another Federal savings
association, a national bank, a State
bank, a State savings association, a State
trust company, or a credit union with
the Federal savings association as the
resulting institution by complying with
the following procedures:
(A)(1) The filer Federal savings
association must comply with the
requirements of paragraph (n) of this
section and follow the procedures set
out in paragraph (o) of this section.
(2) For purposes of this paragraph
(g)(6), a combination in which a Federal
savings association acquires all or
substantially all of the assets, or
assumes all or substantially all of the
liabilities, of another other participating
institution will be treated as a
consolidation for the acquiring Federal
savings association and as a
consolidation by a Federal savings
association whose assets are acquired, if
any.
(B)(1) Unless it has elected to follow
the procedures applicable to State banks
under paragraph (h)(1)(i) of this section,
a national bank entering into a merger
or consolidation with a Federal savings
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association when the resulting
institution will be a Federal savings
association must comply with the
requirements of 12 U.S.C. 214a and 12
U.S.C. 214c as if the Federal savings
association were a State bank. However,
for these purposes the references in 12
U.S.C. 214c to ‘‘law of the State in
which such national banking
association is located’’ and ‘‘any State
authority’’ mean ‘‘laws and regulations
governing Federal savings associations’’
and ‘‘Office of the Comptroller of the
Currency’’ respectively.
(2) Unless the national bank has
elected to follow the procedures
applicable to State banks under
paragraph (h)(1)(i) of this section,
national bank shareholders who dissent
from a plan to merge or consolidate may
receive in cash the value of their
national bank shares if they comply
with the requirements of 12 U.S.C. 214a
as if the Federal savings association
were a State bank. The OCC will
conduct an appraisal or reappraisal of
the value of the national bank shares
held by dissenting shareholders in
accordance with the provisions of 12
U.S.C. 214a, except that the costs and
expenses of any appraisal or reappraisal
may be apportioned and assessed by the
Comptroller as he or she may deem
equitable against all or some of the
parties. In making this determination
the Comptroller will consider whether
any party has acted arbitrarily or not in
good faith in respect to the rights
provided by this paragraph.
(C)(1) A Federal savings association
entering into a merger or consolidation
with another Federal savings association
when the resulting institution will be
the other Federal savings association
must comply with the requirements of
paragraph (n) of this section and the
procedures of paragraph (o) of this
section.
(2) Unless the Federal savings
association has elected to follow the
procedures applicable to State savings
associations under paragraph
(o)(1)(i)(A), Federal savings association
shareholders who dissent from a plan to
merge or consolidate may receive in
cash the value of their Federal savings
association shares if they comply with
the requirements of 12 U.S.C. 214a as if
the other Federal savings association
were a State bank. The OCC will
conduct an appraisal or reappraisal of
the value of the Federal savings
association shares held by dissenting
shareholders in accordance with the
provisions of 12 U.S.C. 214a, except that
the costs and expenses of any appraisal
or reappraisal may be apportioned and
assessed by the Comptroller as he or she
may deem equitable against all or some
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of the parties. In making this
determination the Comptroller will
consider whether any party has acted
arbitrarily or not in good faith in respect
to the rights provided by this paragraph.
(3) Unless the Federal savings
association has elected to follow the
procedures applicable to State savings
associations under paragraph
(o)(1)(i)(A), the plan of merger or
consolidation must provide the manner
of disposing of the shares of the
resulting Federal savings association not
taken by the dissenting shareholders of
the Federal savings association.
(D)(1) A State bank, State savings
association, State trust company, or
credit union entering into a
consolidation or merger with a Federal
savings association when the resulting
institution will be a Federal savings
association must follow the procedures
for such consolidations or mergers set
out in the law of the State or other
jurisdiction under which the State bank,
State savings association, State trust
company, or credit union is organized.
(2) The rights of dissenting
shareholders and appraisal of
dissenters’ shares of stock in the State
bank, State savings association, or State
trust company, entering into the
consolidation or merger will be
determined in the manner prescribed by
the law of the State or other jurisdiction
under which the State bank, State
savings association, or State trust
company is organized.
(ii) The consolidation or merger
agreement must address the effect upon,
and the terms of the assumption of, any
liquidation account of any participating
institution by the resulting institution.
(7) Consolidations and mergers under
12 U.S.C. 214a of a national bank with
State banks resulting in a State bank as
defined in 12 U.S.C. 214(a)—(i) In
general. Prior OCC approval is not
required for the merger or consolidation
of a national bank with a State bank as
defined in 12 U.S.C. 214(a). Termination
of a national bank’s existence and status
as a national banking association is
automatic, and its charter cancelled,
upon completion of the statutory and
regulatory requirements for engaging in
the consolidation or merger and
consummation of the consolidation or
merger.
(ii) Procedures. A national bank
desiring to merge or consolidate with a
State bank as defined in 12 U.S.C. 214(a)
when the resulting institution will be a
State bank must comply with the
requirements and follow the procedures
of 12 U.S.C. 214a and 214c and must
provide notice to the OCC under
paragraph (k) of this section.
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(iii) Dissenters’ rights and appraisal
procedures. National bank shareholders
who dissent from a plan to merge or
consolidate may receive in cash the
value of their national bank shares if
they comply with the requirements of
12 U.S.C. 214a. The OCC conducts an
appraisal or reappraisal of the value of
the national bank shares held by
dissenting shareholders as provided for
in 12 U.S.C. 214a.
(iv) Liquidation account. The
consolidation or merger agreement must
address the effect upon, and the terms
of the assumption of, any liquidation
account of any participating institution
by the resulting institution.
(8) Interstate consolidations and
mergers between an insured national
bank and insured State banks resulting
in a State bank.—(i) In general. Prior
OCC approval is not required for the
merger or consolidation of an insured
national bank with an insured out-ofState State bank, as defined in 12 U.S.C.
1831u(g)(8), with the State bank as the
resulting institution, that has been
approved by the appropriate Federal
banking agency for the State bank.
Termination of a national bank’s
existence and status as a national
banking association is automatic, and its
charter cancelled, upon completion of
the statutory and regulatory
requirements for engaging in the
consolidation or merger and
consummation of the consolidation or
merger.
(ii) Procedures. Unless it has elected
to follow the procedures applicable to
State banks under paragraph (h)(1)(i) of
this section, the national bank entering
into the consolidation or merger must
comply with the procedures of 12 U.S.C.
214a, as applicable.
(iii) Notice. The national bank must
provide a notice to the OCC under
paragraph (k) of this section.
(9) Consolidations and mergers of a
Federal savings association with State
banks, State savings banks, State
savings associations, State trust
companies, or credit unions resulting in
a State bank, State savings bank, State
savings association, State trust
company, or credit union—(i) Policy.
Prior OCC approval is not required for
the merger or consolidation of a Federal
savings association with a State bank,
State savings bank, State savings
association, State trust company, or
credit union when the resulting
institution will be a State institution or
credit union. Termination of a national
bank’s or Federal savings association’s
existence and status as a national
banking association or Federal savings
association is automatic, and its charter
cancelled, upon completion of the
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statutory and regulatory requirements
for engaging in the consolidation or
merger and consummation of the
consolidation or merger.
(ii) Procedures. (A) A Federal savings
association desiring to merge or
consolidate with a State bank, State
savings bank, State savings association,
State trust company, or credit union
when the resulting institution will be a
State institution or credit union must
comply with the requirements of
paragraph (n) of this section and the
procedures of paragraph (o) of this
section and must provide notice to the
OCC under paragraph (k) of this section.
(B) For purposes of this paragraph
(g)(9), a combination in which a State
bank, State savings bank, State savings
association, State trust company, or
credit union acquires all or substantially
all of the assets, or assumes all or
substantially all of the liabilities, of a
Federal savings association must be
treated as a consolidation by the Federal
savings association.
(iii) Dissenters’ rights and appraisal
procedures. (A) Unless the Federal
savings association has elected to follow
the procedures applicable to State
savings associations under paragraph
(o)(1)(i)(A), Federal savings association
shareholders who dissent from a plan to
merge or consolidate may receive in
cash the value of their Federal savings
association shares if they comply with
the requirements of 12 U.S.C. 214a as if
the Federal savings association were a
national bank. The OCC conducts an
appraisal or reappraisal of the value of
the Federal savings association shares
held by dissenting shareholders only if
all parties agree that the determination
will be final and binding. The parties
also must agree on how the total
expenses of the OCC in making the
appraisal will be divided among the
parties and paid to the OCC.
(B) Unless the Federal savings
association has elected to follow the
procedures applicable to State savings
associations under paragraph
(o)(1)(i)(A), the plan of merger or
consolidation must provide the manner
of disposing of the shares of the
resulting State institution not taken by
the dissenting shareholders of the
Federal savings association.
(iv) Liquidation account. The
consolidation or merger agreement must
address the effect upon, and the terms
of the assumption of, any liquidation
account of any participating institution
by the resulting institution.
(h) Procedural requirements for
national bank combinations—(1)
Permissible elections. A national bank
participating in a combination pursuant
to paragraph (g)(2), (g)(3), (g)(4), (g)(5),
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(g)(6), or (g)(8) of this section may elect
to follow with respect to the
combination:
(i) The procedures applicable to a
State bank chartered by the State where
the national bank’s main office is
located; or
(ii) Paragraph (p) of this section, if
applicable.
(2) Rules of Construction. For
purposes of paragraph (h)(1) of this
section:
(i) Any references to a State agency in
the applicable State procedures should
be read as referring to the OCC; and
(ii) Unless otherwise specified in
Federal law, all filings required by the
applicable State procedures must be
made to the OCC.
(i) Expedited review for business
reorganizations and streamlined
applications. A filing that qualifies as a
business reorganization as defined in
paragraph (d)(3) of this section, or a
filing that qualifies as a streamlined
application as described in paragraph (j)
of this section, is deemed approved by
the OCC as of the 15th day after the
close of the comment period, unless the
OCC notifies the filer that the filing is
not eligible for expedited review, or the
expedited review process is extended,
under § 5.13(a)(2). An application under
this paragraph must contain all
necessary information for the OCC to
determine if it qualifies as a business
reorganization or streamlined
application.
(j) Streamlined applications. (1) A
filer may qualify for a streamlined
business combination application in the
following situations:
(i) At least one party to the transaction
is an eligible bank or eligible savings
association, and all other parties to the
transaction are eligible banks, eligible
savings associations, or eligible
depository institutions, the resulting
national bank or resulting Federal
savings association will be well
capitalized immediately following
consummation of the transaction, and
the total assets of the target institution
are no more than 50 percent of the total
assets of the acquiring bank or Federal
savings association, as reported in each
institution’s Consolidated Report of
Condition and Income filed for the
quarter immediately preceding the filing
of the application;
(ii) The acquiring bank or Federal
savings association is an eligible bank or
eligible savings association, the target
bank or savings association is not an
eligible bank, eligible savings
association, or an eligible depository
institution, the resulting national bank
or resulting Federal savings association
will be well capitalized immediately
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following consummation of the
transaction, and the filers in a prefiling
communication request and obtain
approval from the appropriate OCC
licensing office to use the streamlined
application;
(iii) The acquiring bank or Federal
savings association is an eligible bank or
eligible savings association, the target
bank or savings association is not an
eligible bank, eligible savings
association, or an eligible depository
institution, the resulting bank or
resulting Federal savings association
will be well capitalized immediately
following consummation of the
transaction, and the total assets acquired
do not exceed 10 percent of the total
assets of the acquiring national bank or
acquiring Federal savings association, as
reported in each institution’s
Consolidated Report of Condition and
Income filed for the quarter immediately
preceding the filing of the application;
or
(iv) In the case of a transaction under
paragraph (g)(4) of this section, the
acquiring bank is an eligible bank, the
resulting national bank will be well
capitalized immediately following
consummation of the transaction, the
filers in a prefiling communication
request and obtain approval from the
appropriate OCC licensing office to use
the streamlined application, and the
total assets acquired do not exceed 10
percent of the total assets of the
acquiring national bank, as reported in
the bank’s Consolidated Report of
Condition and Income filed for the
quarter immediately preceding the filing
of the application.
(2) Notwithstanding paragraph (j)(1)
of this section, a filer does not qualify
for a streamlined business combination
application if the transaction is part of
a conversion under part 192 of this
chapter.
(3) When a business combination
qualifies for a streamlined application,
the filer should consult the
Comptroller’s Licensing Manual to
determine the abbreviated application
information required by the OCC. The
OCC encourages prefiling
communications between the filers and
the appropriate OCC licensing office
before filing under paragraph (j) of this
section.
(k) Exit notice to OCC—(1) Notice
required. As provided in paragraphs
(g)(7)(ii), (g)(8)(iii), and (g)(9)(ii) of this
section, a national bank or Federal
savings association engaging in a
consolidation or merger in which it is
not the filer and the resulting institution
must file a notice rather than an
application to the appropriate OCC
licensing office advising of its intention.
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(2) Timing of notice. The national
bank or Federal savings association
must submit the notice at the time the
application to merge or consolidate is
filed with the responsible agency under
the Bank Merger Act, 12 U.S.C. 1828(c),
or if there is no such filing then no later
than 30 days prior to the effective date
of the merger or consolidation.
(3) Content of notice. The notice must
include the following:
(i)(A) A short description of the
material features of the transaction, the
identity of the acquiring institution, the
identity of the State or Federal regulator
to whom the application was made, and
the date of the application; or
(B) A copy of a filing made with
another Federal or State regulatory
agency seeking approval from that
agency for the transaction under the
Bank Merger Act or other applicable
statute;
(ii) The planned consummation date
for the transaction;
(iii) Information to demonstrate
compliance by the national bank or
Federal savings association with
applicable requirements to engage in the
transactions (e.g., board approval or
shareholder or accountholder
requirements); and
(iv) If the national bank or Federal
savings association submitting the
notice maintains a liquidation account
established pursuant to part 192 of this
chapter, the notice must state that the
resulting institution will assume such
liquidation account.
(4) Termination of status. The
national bank or Federal savings
association must advise the OCC when
the transaction is about to be
consummated. Termination of a
national bank’s or Federal savings
association’s existence and status as a
national banking association or Federal
savings association is automatic, and its
charter cancelled, upon completion of
the statutory and regulatory
requirements and consummation of the
consolidation or merger. When the
national bank or Federal savings
association files the notice under
paragraph (k)(1) of this section, the OCC
provides instructions to the national
bank or Federal savings association for
terminating its status as a national bank
or Federal savings association,
including surrendering its charter to the
OCC immediately after consummation
of the transaction.
(5) Expiration. If the action
contemplated by the notice is not
completed within six months after the
OCC’s receipt of the notice, a new notice
must be submitted to the OCC, unless
the OCC grants an extension of time.
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(l) Mergers and consolidations;
transfer of assets and liabilities to the
resulting institution. (1) In any
consolidation or merger in which the
resulting institution is a national bank
or Federal savings association, on the
effective date of the merger or
consolidation, all assets and property
(real, personal and mixed, tangible and
intangible, choses in action, rights, and
credits) then owned by each
participating institution or which would
inure to any of them, immediately by
operation of law and without any
conveyance, transfer, or further action,
become the property of the resulting
national bank or Federal savings
association. The resulting national bank
or Federal savings association is deemed
to be a continuation of the entity of each
participating institution, and will
succeed to such rights and obligations of
each participating institution and the
duties and liabilities connected
therewith.
(2) The authority in paragraph (l)(1) of
this section is in addition to any
authority granted by applicable statutes
for specific transactions and is subject to
the National Bank Act, the Home
Owners’ Loan Act, and other applicable
statutes.
(m) Certification of combination;
effective date. (1) When a national bank
or Federal savings association is the filer
and will be the resulting entity in a
consolidation or merger, after receiving
approval from the OCC, it must
complete any remaining steps needed to
complete the transaction, provide the
OCC with a certification that all other
required regulatory or shareholder
approvals have been obtained, and
inform the OCC of the planned
consummation date.
(2) When the transaction is
consummated, the filer must notify the
OCC of the consummation date. The
OCC will issue a letter certifying that
the combination was effective on the
date specified in the filer’s notice.
(n) Authority for and certain limits on
business combinations and other
transactions by Federal savings
associations. (1) Federal savings
associations may enter into business
combinations only in accordance with
this section, the Bank Merger Act, and
sections 5(d)(3)(A) and 10(s) of the
Home Owners’ Loan Act (12 U.S.C.
1464(d)(3)(A) and 1467a(s)).
(2) A Federal savings association may
consolidate or merge with another
depository institution, a State trust
company or a credit union, may engage
in another business combination listed
in paragraphs (d)(2)(iv) and (v) of this
section, or may engage in any other
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combination listed in paragraph (d)(10),
provided that:
(i) The combination is in compliance
with, and receives all approvals
required under, any applicable statutes
and regulations;
(ii) Any resulting Federal savings
association meets the requirements for
insurance of accounts; and
(iii) A consolidation or merger
involving a mutual savings association
or the transfer of all or substantially all
of the deposits of a mutual savings
association must result in a mutually
held depository institution that is
insured by the FDIC, unless:
(A) The transaction is approved under
part 192 governing mutual to stock
conversions;
(B) The transaction involves a mutual
holding company reorganization under
12 U.S.C. 1467a(o) or a similar
transaction under State law; or
(C) The transaction is part of a
voluntary liquidation for which the OCC
has provided non-objection under
§ 5.48.
(3) Where the resulting institution is
a Federal mutual savings association,
the OCC may approve a temporary
increase in the number of directors of
the resulting institution provided that
the association submits a plan for
bringing the board of directors into
compliance with the requirements of
§ 5.21(e) within a reasonable period of
time.
(4)(i) The Federal savings associations
described in paragraph (n)(4)(ii) of this
section below must provide affected
accountholders with a notice of a
proposed account transfer and an option
of retaining the account in the
transferring Federal savings association.
The notice must allow affected
accountholders at least 30 days to
consider whether to retain their
accounts in the transferring Federal
savings association.
(ii) The following savings associations
must provide the notices:
(A) A Federal mutual savings
association transferring account
liabilities to an institution the accounts
of which are not insured by the Deposit
Insurance Fund or the National Credit
Union Share Insurance Fund; and
(B) Any Federal mutual savings
association transferring account
liabilities to a stock form depository
institution.
(o) Procedural requirements for
Federal savings association approval of
combinations—(1) In general—(i)
Permissible elections. A Federal savings
association participating in a
combination may elect to follow the
applicable procedures with respect to
the combination:
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(A) The procedures applicable to a
State savings association chartered by
the State where the Federal savings
association’s home office is located: or
(B) The standard procedures provided
in paragraph (o)(2) of this section.
(ii) Rules of Construction. For
purposes of paragraph (o)(1)(i) of this
section:
(A) Any references to a State agency
in the applicable State procedures
should be read as referring to the OCC;
and
(B) Unless otherwise specified in
Federal law, all filings required by the
applicable State procedures must be
made to the OCC.
(2) Standard procedures—(i) Board
approval. Before a Federal savings
association files a notice or application
for any consolidation or merger, the
combination and combination
agreement must be approved by
majority vote of the entire board of each
constituent Federal savings association
in the case of Federal stock savings
associations or a two-thirds vote of the
entire board of each constituent Federal
savings association in the case of
Federal mutual savings associations.
(ii) Shareholder vote—(A) General
rule. Except as otherwise provided in
this paragraph (o)(2)(ii), an affirmative
vote of two-thirds of the outstanding
voting stock of any constituent Federal
stock savings association is required for
approval of a consolidation or merger. If
any class of shares is entitled to vote as
a class pursuant to § 5.22(g)(4), an
affirmative vote of a majority of the
shares of each voting class and twothirds of the total voting shares is
required. The required vote must be
taken at a meeting of the savings
association.
(B) General exception. Stockholders of
the resulting Federal stock savings
association need not authorize a
consolidation or merger if the
transaction meets the requirements of
paragraph (p) of this section.
(C) Exceptions for certain
combinations involving an interim
association. Stockholders of a Federal
stock savings association need not
authorize by a two-thirds affirmative
vote consolidations or mergers
involving an interim Federal savings
association or interim State savings
association when the resulting Federal
stock savings association is acquired
pursuant to the regulations of the Board
of Governors of the Federal Reserve
System at 12 CFR 238.15(e) (relating to
the creation of a savings and loan
holding company by a savings
association). In those cases, an
affirmative vote of 50 percent of the
shares of the outstanding voting stock of
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the Federal stock savings association
plus one affirmative vote is required. If
any class of shares is entitled to vote as
a class pursuant to the charter
provisions in § 5.22(g)(4), an affirmative
vote of 50 percent of the shares of each
voting class plus one affirmative vote is
required. The required votes must be
taken at a meeting of the association.
(3) Change of name or home office. If
the name of the resulting Federal
savings association or the location of the
home office of the resulting Federal
savings association will change as a
result of the business combination, the
resulting Federal savings association
must amend its charter accordingly.
(4) Mutual member vote.
Notwithstanding any other provision of
this section, the OCC may require that
a consolidation, merger or other
business combination be submitted to
the voting members of any mutual
savings association participating in the
proposed transaction at duly called
meetings and that the transaction, to be
effective, must be approved by such
voting members.
(p) Exception to voting requirements.
Shareholders of a resulting national
bank or Federal stock savings
association need not authorize a
consolidation or merger if:
(1) Either:
(i) The transaction does not involve
an interim bank or an interim savings
association; or
(ii) The transaction involves an
interim bank or an interim savings
association and the existing
shareholders of the national bank or
Federal stock savings association will
directly hold the shares of the resulting
national bank or Federal stock savings
association;
(2) The national bank’s articles of
association or the Federal stock savings
association’s charter, as applicable, is
not changed;
(3) Each share of stock outstanding
immediately prior to the effective date
of the consolidation or merger is to be
an identical outstanding share or a
treasury share of the resulting national
bank or Federal stock savings
association after such effective date; and
(4) Either:
(i) No shares of voting stock of the
resulting national bank or Federal stock
savings association and no securities
convertible into such stock are to be
issued or delivered under the plan of
combination; or
(ii) The authorized unissued shares or
the treasury shares of voting stock of the
resulting national bank or Federal stock
savings association to be issued or
delivered under the plan of merger or
consolidation, plus those initially
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issuable upon conversion of any
securities to be issued or delivered
under such plan, do not exceed 20
percent of the total shares of voting
stock of such national bank or Federal
stock savings association outstanding
immediately prior to the effective date
of the consolidation or merger.
■ 26. Amend § 5.34 by:
■ a. In paragraph (a), removing ‘‘3101 et
seq.’’ and adding in its place ‘‘and
3102(b).’’;
■ b. In paragraph (c), removing the
phrase ‘‘(e)(5)(i)(B) of this section shall
apply’’ and adding in its place the
phrase ‘‘(f)(2)(i)(C)(2) of this section
applies’’;
■ c. Revising paragraph (d);
■ d. In paragraphs (e)(1)(i)(B), (e)(3), and
(e)(4)(ii), removing the word ‘‘state’’ and
adding in its place the word ‘‘State’’
wherever it appears;
■ e. Revising paragraph (e)(2)(i)(A);
■ f. In paragraph (e)(2)(i)(C), removing
the phrase ‘‘generally accepted
accounting principles (GAAP)’’ and
adding in its place the word ‘‘GAAP’’;
■ g. In paragraph (e)(2)(ii) introductory
text, removing the phrase ‘‘following
subsidiaries’’ and adding in its place the
phrase ‘‘following entities’’;
■ h. In paragraph (e)(2)(ii)(A), removing
the phrase ‘‘part 24; and’’ and adding in
its place the phrase ‘‘12 CFR part 24;’’;
■ i. Removing the period and adding in
its place ‘‘; and’’ in paragraph
(e)(2)(ii)(B);
■ j. Adding paragraph (e)(2)(ii)(C);
■ k. In paragraph (e)(2)(iii)(B), removing
the word ‘‘shall’’ and adding in its place
the word ‘‘may’’;
■ l. In paragraphs (e)(4)(i) and (e)(4)(ii),
removing the word ‘‘shall’’ and adding
in its place the word ‘‘will’’;
■ m. Removing paragraph (e)(7);
■ n. Redesignating paragraphs (e)(5) and
(e)(6) as paragraphs (f) and (g),
respectively ; and
■ o. Revising redesignated paragraph (f).
The addition and revisions read as
follows.
§ 5.34
bank.
Operating subsidiaries of a national
*
*
*
*
*
(d) Definition. For purposes of this
section, authorized product means a
product that would be defined as
insurance under section 302(c) of the
Gramm-Leach-Bliley Act (15 U.S.C.
6712) that, as of January 1, 1999, the
OCC had determined in writing that
national banks may provide as principal
or national banks were in fact lawfully
providing the product as principal, and
as of that date no court of relevant
jurisdiction had, by final judgment,
overturned a determination by the OCC
that national banks may provide the
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product as principal. An authorized
product does not include title
insurance, or an annuity contract the
income of which is subject to treatment
under section 72 of the Internal Revenue
Code of 1986 (26 U.S.C. 72).
(e) * * *
(2) * * *
(i) * * *
(A) The bank has the ability to control
the management and operations of the
subsidiary, and no other person or
entity has the ability to exercise
effective control or influence over the
management or operations of the
subsidiary to an extent equal to or
greater than that of the bank or an
operating subsidiary thereof;
*
*
*
*
*
(ii) * * *
(C) A trust formed for purposes of
securitizing assets held by the bank as
part of its banking business.
*
*
*
*
*
(f) Procedures—(1) Application
required. (i) Except for an operating
subsidiary that qualifies for the notice
procedures in paragraph (f)(2) of this
section or is exempt from application or
notice requirements under paragraph
(f)(6) of this section, a national bank
must first submit an application to, and
receive prior approval from, the OCC to
establish or acquire an operating
subsidiary or to perform a new activity
in an existing operating subsidiary.
(ii) The application must explain, as
appropriate, how the bank ‘‘controls’’
the enterprise, describing in full detail
structural arrangements where control is
based on factors other than bank
ownership of more than 50 percent of
the voting interest of the subsidiary and
the ability to control the management
and operations of the subsidiary by
holding voting interests sufficient to
select the number of directors needed to
control the subsidiary’s board and to
select and terminate senior
management. In the case of a limited
partnership or limited liability company
that does not qualify for the notice
procedures set forth in paragraph (f)(2)
of this section, the bank must provide a
statement explaining why it is not
eligible. The application also must
include a complete description of the
bank’s investment in the subsidiary, the
proposed activities of the subsidiary, the
organizational structure and
management of the subsidiary, the
relations between the bank and the
subsidiary, and other information
necessary to adequately describe the
proposal. To the extent that the
application relates to the initial
affiliation of the bank with a company
engaged in insurance activities, the bank
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must describe the type of insurance
activity in which the company is
engaged and has present plans to
conduct. The bank must also list for
each State the lines of business for
which the company holds, or will hold,
an insurance license, indicating the
State where the company holds a
resident license or charter, as
applicable. The application must state
whether the operating subsidiary will
conduct any activity at a location other
than the main office or a previously
approved branch of the bank. The OCC
may require a filer to submit a legal
analysis if the proposal is novel,
unusually complex, or raises substantial
unresolved legal issues. In these cases,
the OCC encourages filers to have a
prefiling meeting with the OCC. Any
bank receiving approval under this
paragraph is deemed to have agreed that
the subsidiary will conduct the activity
in a manner consistent with published
OCC guidance.
(2) Notice process only for certain
qualifying filings. (i) Except for an
operating subsidiary that is exempt from
application or notice procedures under
paragraph (f)(6) of this section, a
national bank that is well capitalized
and well managed may establish or
acquire an operating subsidiary, or
perform a new activity in an existing
operating subsidiary, by providing the
appropriate OCC licensing office written
notice prior to, or within 10 days after,
acquiring or establishing the subsidiary,
or commencing the new activity, if:
(A) The activity is listed in paragraph
(f)(5) of this section or, except as
provided in paragraph (f)(2)(ii) of this
section, the activity is substantively the
same as a previously approved activity
and the activity will be conducted in
accordance with the same terms and
conditions applicable to the previously
approved activity;
(B) The entity is a corporation, limited
liability company, limited partnership,
or trust; and
(C) The bank or an operating
subsidiary thereof:
(1) Has the ability to control the
management and operations of the
subsidiary and no other person or entity
has the ability to exercise effective
control or influence over the
management or operations of the
subsidiary to an extent equal to or
greater than that of the bank or an
operating subsidiary thereof. The ability
to control the management and
operations means:
(i) In the case of a subsidiary that is
a corporation, the bank or an operating
subsidiary thereof holds voting interests
sufficient to select the number of
directors needed to control the
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subsidiary’s board and to select and
terminate senior management;
(ii) In the case of a subsidiary that is
a limited partnership, the bank or an
operating subsidiary thereof has the
ability to control the management and
operations of the subsidiary by
controlling the selection and
termination of senior management;
(iii) In the case of a subsidiary that is
a limited liability company, the bank or
an operating subsidiary thereof has the
ability to control the management and
operations of the subsidiary by
controlling the selection and
termination of senior management; or
(iv) In the case of a subsidiary that is
a trust, the bank or an operating
subsidiary thereof has the ability to
replace the trustee at will;
(2) Holds more than 50 percent of the
voting, or equivalent, interests in the
subsidiary and:
(i) In the case of a subsidiary that is
a limited partnership, the bank or an
operating subsidiary thereof is the sole
general partner of the limited
partnership, provided that under the
partnership agreement, limited partners
have no authority to bind the
partnership by virtue solely of their
status as limited partners;
(ii) In the case of a subsidiary that is
a limited liability company, the bank or
an operating subsidiary thereof is the
sole managing member of the limited
liability company, provided that under
the limited liability company
agreement, other limited liability
company members have no authority to
bind the limited liability company by
virtue solely of their status as members;
or
(iii) In the case of a subsidiary that is
a trust, the bank or an operating
subsidiary thereof is the sole beneficial
owner of the trust; and
(3) Is required to consolidate its
financial statements with those of the
subsidiary under GAAP.
(ii) A national bank must file an
application under paragraph (f)(1) of
this section if a State has or will charter
or license the proposed operating
subsidiary as a bank, trust company, or
savings association.
(iii) The written notice must include
a complete description of the bank’s
investment in the subsidiary and of the
activity conducted and a representation
and undertaking that the activity will be
conducted in accordance with OCC
policies contained in guidance issued
by the OCC regarding the activity. To
the extent that the notice relates to the
initial affiliation of the bank with a
company engaged in insurance
activities, the bank must describe the
type of insurance activity in which the
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company is engaged and has present
plans to conduct. The bank also must
list for each State the lines of business
for which the company holds, or will
hold, an insurance license, indicating
the State where the company holds a
resident license or charter, as
applicable. Any bank receiving approval
under this paragraph is deemed to have
agreed that the subsidiary will conduct
the activity in a manner consistent with
published OCC guidance.
(3) Exceptions to rules of general
applicability. Sections 5.8, 5.10, and
5.11 do not apply to this section.
However, if the OCC concludes that an
application presents significant or novel
policy, supervisory, or legal issues, the
OCC may determine that some or all
provisions in §§ 5.8, 5.10, and 5.11
apply.
(4) OCC review and approval. The
OCC reviews a national bank’s
application to determine whether the
proposed activities are legally
permissible under Federal banking laws
and to ensure that the proposal is
consistent with safe and sound banking
practices and OCC policy and does not
endanger the safety or soundness of the
parent national bank. As part of this
process, the OCC may request additional
information and analysis from the filer.
(5) Activities eligible for notice. The
following activities qualify for the
notice procedures in paragraph (f)(2) of
this section, provided the activity is
conducted pursuant to the same terms
and conditions as would be applicable
if the activity were conducted directly
by a national bank:
(i) Holding and managing assets
acquired by the parent bank or its
operating subsidiaries, including
investment assets and property acquired
by the bank through foreclosure or
otherwise in good faith to compromise
a doubtful claim, or in the ordinary
course of collecting a debt previously
contracted;
(ii) Providing services to or for the
bank or its affiliates, including
accounting, auditing, appraising,
advertising and public relations, and
financial advice and consulting;
(iii) Making loans or other extensions
of credit, and selling money orders,
savings bonds, and travelers checks;
(iv) Purchasing, selling, servicing, or
warehousing loans or other extensions
of credit, or interests therein;
(v) Providing courier services between
financial institutions;
(vi) Providing management
consulting, operational advice, and
services for other financial institutions;
(vii) Providing check guaranty,
verification and payment services;
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(viii) Providing data processing, data
warehousing and data transmission
products, services, and related activities
and facilities, including associated
equipment and technology, for the bank
or its affiliates;
(ix) Acting as investment adviser
(including an adviser with investment
discretion) or financial adviser or
counselor to governmental entities or
instrumentalities, businesses, or
individuals, including advising
registered investment companies and
mortgage or real estate investment
trusts, furnishing economic forecasts or
other economic information, providing
investment advice related to futures and
options on futures, and providing
consumer financial counseling;
(x) Providing tax planning and
preparation services;
(xi) Providing financial and
transactional advice and assistance,
including advice and assistance for
customers in structuring, arranging, and
executing mergers and acquisitions,
divestitures, joint ventures, leveraged
buyouts, swaps, foreign exchange,
derivative transactions, coin and
bullion, and capital restructurings;
(xii) Underwriting and reinsuring
credit related insurance to the extent
permitted under section 302 of the
Gramm-Leach-Bliley Act (15 U.S.C.
6712);
(xiii) Leasing of personal property and
acting as an agent or adviser in leases
for others;
(xiv) Providing securities brokerage or
acting as a futures commission
merchant, and providing related credit
and other related services;
(xv) Underwriting and dealing,
including making a market, in bank
permissible securities and purchasing
and selling as principal, asset backed
obligations;
(xvi) Acting as an insurance agent or
broker, including title insurance to the
extent permitted under section 303 of
the Gramm-Leach-Bliley Act (15 U.S.C.
6713);
(xvii) Reinsuring mortgage insurance
on loans originated, purchased, or
serviced by the bank, its subsidiaries, or
its affiliates, provided that if the
subsidiary enters into a quota share
agreement, the subsidiary assumes less
than 50 percent of the aggregate insured
risk covered by the quota share
agreement. A ‘‘quota share agreement’’
is an agreement under which the
reinsurer is liable to the primary
insurance underwriter for an agreed
upon percentage of every claim arising
out of the covered book of business
ceded by the primary insurance
underwriter to the reinsurer;
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(xviii) Acting as a finder pursuant to
12 CFR 7.1002 to the extent permitted
by published OCC precedent for
national banks; 2
(xix) Offering correspondent services
to the extent permitted by published
OCC precedent for national banks;
(xx) Acting as agent or broker in the
sale of fixed or variable annuities;
(xxi) Offering debt cancellation or
debt suspension agreements;
(xxii) Providing real estate settlement,
closing, escrow, and related services;
and real estate appraisal services for the
subsidiary, parent bank, or other
financial institutions;
(xxiii) Acting as a transfer or fiscal
agent;
(xxiv) Acting as a digital certification
authority to the extent permitted by
published OCC precedent for national
banks, subject to the terms and
conditions contained in that precedent;
(xxv) Providing or selling public
transportation tickets, event and
attraction tickets, gift certificates,
prepaid phone cards, promotional and
advertising material, postage stamps,
and Electronic Benefits Transfer (EBT)
script, and similar media, to the extent
permitted by published OCC precedent
for national banks, subject to the terms
and conditions contained in that
precedent;
(xxvi) Providing data processing, and
data transmission services, facilities
(including equipment, technology, and
personnel), databases, advice and access
to such services, facilities, databases
and advice, for the parent bank and for
others, pursuant to 12 CFR 7.5006 to the
extent permitted by published OCC
precedent for national banks;
(xxvii) Providing bill presentment,
billing, collection, and claimsprocessing services;
(xxviii) Providing safekeeping for
personal information or valuable
confidential trade or business
information, such as encryption keys, to
the extent permitted by published OCC
precedent for national banks;
(xxix) Providing payroll processing;
(xxx) Providing branch management
services;
(xxxi) Providing merchant processing
services except when the activity
involves the use of third parties to
solicit or underwrite merchants; and
(xxxii) Performing administrative
tasks involved in benefits
administration.
(6) No application or notice required.
A national bank may acquire or
2 See, e.g., the OCC’s monthly publication
‘‘Interpretations and Actions.’’ Beginning with the
May 1996 issue, electronic versions of
‘‘Interpretations and Actions’’ are available at
www.occ.gov.
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establish an operating subsidiary, or
perform a new activity in an existing
operating subsidiary, without filing an
application or providing notice to the
OCC, if the bank is well managed and
well capitalized and the:
(i) Activities of the new subsidiary are
limited to those activities previously
reported by the bank in connection with
the establishment or acquisition of a
prior operating subsidiary;
(ii) Activities in which the new
subsidiary will engage continue to be
legally permissible for the subsidiary;
(iii) Activities of the new subsidiary
will be conducted in accordance with
any conditions imposed by the OCC in
approving the conduct of these activities
for any prior operating subsidiary of the
bank; and
(iv) The standards set forth in
paragraphs (f)(2)(i)(B) and (C) of this
section are satisfied.
(7) Fiduciary powers. (i) If an
operating subsidiary proposes to accept
fiduciary appointments for which
fiduciary powers are required, such as
acting as trustee or executor, then the
national bank must have fiduciary
powers under 12 U.S.C. 92a and the
subsidiary also must have its own
fiduciary powers under the law
applicable to the subsidiary.
(ii) Unless the subsidiary is a
registered investment adviser, if an
operating subsidiary proposes to
exercise investment discretion on behalf
of customers or provide investment
advice for a fee, the national bank must
have prior OCC approval to exercise
fiduciary powers pursuant to § 5.26 and
12 CFR part 9.
(8) Expiration of approval. Approval
expires if the national bank has not
established or acquired the operating
subsidiary or commenced the new
activity in an existing operating
subsidiary within 12 months after the
date of the approval, unless the OCC
shortens or extends the time period.
*
*
*
*
*
■ 27. Amend § 5.35 by:
■ a. Revising the section heading;
■ b. In paragraph (a), adding the word
‘‘and’’ before ‘‘5412(b)(2)(B),’’
■ c. In paragraphs (b) and (d)(6),
removing the word ‘‘shall’’ and adding
in its place the word ‘‘must’’;
■ d. In paragraphs (d)(2), (d)(3), (g)(2),
and (g)(4), removing the word ‘‘state’’
and adding in its place the word ‘‘State’’
wherever it appears;
■ e. In paragraph (d)(2) removing the
phrase ‘‘section 3 of the Federal Deposit
Insurance Act’’ and adding in its place
the phrase ‘‘section 3(a)(3) of the
Federal Deposit Insurance Act, 12
U.S.C. 1813(a)(3)’’;
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f. In paragraph (d)(3):
i. After the words ‘‘an insured bank’’,
removing the phrase ‘‘(as defined in
section 3 of the Federal Deposit
Insurance Act)’’ and adding in its place
the phrase ‘‘(as defined in section 3(h)
of the Federal Deposit Insurance Act, 12
U.S.C. 1813(h))’’;
■ ii. After the words ‘‘a savings
association’’, removing the phrase ‘‘(as
defined in section 3 of the Federal
Deposit Insurance Act)’’ and adding in
its place the phrase ‘‘(as defined in
section 3(b)(1) of the Federal Deposit
Insurance Act, 12 U.S.C. 1813(b)(1))’’;
■ iii. Removing the phrase ‘‘Federal
Deposit Insurance Corporation’’ and
adding in its place the word ‘‘FDIC’’;
■ g. In paragraph (d)(4), removing the
phrase ‘‘section 3 of the Federal Deposit
Insurance Act’’ and adding in its place
the phrase ‘‘section 3(c)(2) of the
Federal Deposit Insurance Act, 12
U.S.C. 1813(c)(2)’’;
■ h. Revising paragraph (f)(2)(ii)(A);
■ i. In paragraph (f)(2)(ii)(B), removing
the phrase ‘‘§ 5.34(e)(5)(v) or
§ 5.38(e)(5)(v)’’ and adding in its place
the phrase ‘‘§ 5.34(f)(5) or § 5.38(f)(5)’’;
and
■ j. Revising paragraph (i).
The revision and addition read as
follows.
■
■
§ 5.35 Bank service company investments
by a national bank or Federal savings
association.
*
*
*
*
*
(f) * * *
(2) * * *
(ii) * * *
(A) The national bank or Federal
savings association is well capitalized
and well managed; and
*
*
*
*
*
(i) Investment limitations. A national
bank or Federal savings association
must comply with the investment
limitations specified in 12 U.S.C. 1862.
*
*
*
*
*
■ 28. Amend § 5.36 by:
■ a. In paragraph (a), removing the
phrase ‘‘and 93a.’’ and adding in its
place the phrase ‘‘93a, and 3101 et
seq.’’;
■ b. In paragraph (b), removing the
phrase ‘‘and 5.37’’ and adding in its
place the phrase ‘‘5.37, and 5.39’’;
■ c. Revising paragraph (c);
■ d. Revising paragraph (e) introductory
text;
■ e. In paragraph (e)(1), removing the
word ‘‘state’’ and adding in its place the
word ‘‘State’’ wherever it appears;
■ f. Revising paragraphs (e)(2) through
(4)
■ g. Revising paragraph (f);
■ h. Redesignating paragraphs (g)
through (i) as paragraph (h) through (j);
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i. Adding new paragraph (g);
j. In redesignated paragraph (h)(1),
removing ‘‘(g)(1)’’ wherever it appears
and adding in its place (h)(1);
■ k. Revising redesignated paragraphs
(i) and (j).
The addition and revisions read as
follows.
■
■
§ 5.36 Other equity investments by a
national bank.
*
*
*
*
*
(c) Definitions. For purposes of this
section:
(1) Enterprise means any corporation,
limited liability company, partnership,
trust, or similar business entity.
(2) Non-controlling investment means
an equity investment made pursuant to
12 U.S.C. 24(Seventh) that is not
governed by procedures prescribed by
another OCC rule. A non-controlling
investment does not include a national
bank holding interests in a trust formed
for the purposes of securitizing assets
held by the bank as part of its banking
business or for the purposes of holding
multiple legal titles of motor vehicles or
equipment in conjunction with lease
financing transactions.
*
*
*
*
*
(e) Non-controlling investments;
notice procedure. Except as provided in
paragraphs (f), (g), and (h) of this
section, a national bank may make a
non-controlling investment, directly or
through its operating subsidiary, in an
enterprise that engages in an activity
described in § 5.34(f)(5) or in an activity
that is substantively the same as a
previously approved activity by filing a
written notice. The bank must file this
written notice with the appropriate OCC
licensing office no later than 10 days
after making the investment. The
written notice must:
*
*
*
*
*
(2) State:
(i) Which paragraphs of § 5.34(f)(5)
describe the activity; or
(ii) If the activity is substantively the
same as a previously approved activity:
(A) How the activity is substantively
the same as a previously approved
activity;
(B) The citation to the applicable
precedent; and
(C) That the activity will be
conducted in accordance with the same
terms and conditions applicable to the
previously approved activity;
(3) Certify that the bank is well
capitalized and well managed at the
time of the investment;
(4) Describe how the bank has the
ability to prevent the enterprise from
engaging in activities that are not set
forth in § 5.34(f)(5) or not contained in
published OCC precedent for previously
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approved activities, or how the bank
otherwise has the ability to withdraw its
investment;
*
*
*
*
*
(f) Non-controlling investment;
application procedure—(1) In general. A
national bank must file an application
and obtain prior approval before making
or acquiring, either directly or through
an operating subsidiary, a noncontrolling investment in an enterprise
if the non-controlling investment does
not qualify for the notice procedure set
forth in paragraph (e) of this section
because the bank is unable to make the
representation required by paragraph
(e)(2) or the certifications required by
paragraphs (e)(3) or (e)(7) of this section.
The application must include the
information required in paragraphs
(e)(1) and (e)(4) through (e)(6) of this
section and, if possible, the information
required by paragraphs (e)(2), (e)(3), and
(e)(7) of this section. If the bank is
unable to make the representation set
forth in paragraph (e)(2) of this section,
the bank’s application must explain
why the activity in which the enterprise
engages is a permissible activity for a
national bank and why the filer should
be permitted to hold a non-controlling
investment in an enterprise engaged in
that activity. A bank may not make a
non-controlling investment if it is
unable to make the representations and
certifications specified in paragraphs
(e)(1) and (e)(4) through (e)(6) of this
section.
(2) Expedited review. An application
submitted by a national bank is deemed
approved by the OCC as of the 10th day
after the application is received by the
OCC if:
(i) The national bank makes the
representation required by paragraph
(e)(2) and the certification required by
paragraph (e)(3) of this section;
(ii) The book value of the national
bank’s non-controlling investment for
which the application is being
submitted is no more than 1% of the
bank’s capital and surplus;
(iii) No more than 50% of the
enterprise is owned or controlled by
banks or savings associations subject to
examination by an appropriate Federal
banking agency or credit unions insured
by the National Credit Union
Association; and
(iv) The OCC has not notified the
national bank that the application has
been removed from expedited review, or
the expedited review process is
extended, under § 5.13(a)(2).
(g) Non-controlling investment; no
application or notice required. A
national bank may make or acquire,
either directly or through an operating
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subsidiary, a non-controlling investment
in an enterprise without an application
or notice to the OCC, if the:
(1) Activities of the enterprise are
limited to those activities previously
reported by the bank in connection with
the making or acquiring of a noncontrolling investment;
(2) Activities of the enterprise
continue to be legally permissible for a
national bank;
(3) The bank’s non-controlling
investment will be made in accordance
with any conditions imposed by the
OCC in approving any prior noncontrolling investment in an enterprise
conducting these same activities; and
(4) The bank is able to make the
representations and certifications
specified in paragraphs (e)(3) through
(e)(7) of this section.
*
*
*
*
*
(i) Non-controlling investments by
Federal branches. A Federal branch that
is well capitalized and well managed
may make a non-controlling investment
in accordance with paragraph (e) of this
section in the same manner and subject
to the same conditions and
requirements as a national bank, and
subject to any additional requirements
that may apply under 12 CFR 28.10(c).
(j) Exceptions to rules of general
applicability. Sections 5.8, 5.9, 5.10, and
5.11 do not apply to this section.
However, if the OCC concludes that an
application presents significant or novel
policy, supervisory, or legal issues, the
OCC may determine that some or all
provisions in §§ 5.8, 5.9, 5.10, and 5.11
apply.
§ 5.37
[Amended]
29. Amend § 5.37 by:
a. In paragraph (a), removing ‘‘317d’’
and adding in its place ‘‘371d’’;
■ b. Removing paragraph (c)(3);
■ c. In paragraph (d)(1)(i) and (d)(3)(i),
removing the word ‘‘shall’’ and adding
in its place the word ‘‘must’’ it appears;
■ d. In paragraph (d)(1)(i), removing the
phrase ‘‘any corporation’’ and adding in
its place the phrase ‘‘any corporation,
partnership, or similar entity (e.g., a
limited liability company)’’;
■ e. In paragraph (d)(3)(i), removing the
phrase ‘‘as defined in 12 CFR part 6’’;
■ f. In paragraph (d)(4), removing ‘‘12
CFR 5.59’’ and adding in its place
‘‘§ 5.59’’; and
■ g. In paragraph (d)(5), adding ’’ 5.9,’’
after ‘‘5.8,’’ wherever it appears.
■ 30. Amend § 5.38 by:
■ a. In paragraph (a), adding the word
‘‘and’’ before ‘‘5412(b)(2)(B)’’;
■ b. In paragraph (b), adding ‘‘(12 U.S.C.
1828(m))’’ after the word ‘‘Act’’;
■ c. Removing and reserving paragraph
(d);
■
■
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80459
d. Revising paragraph (e)(2)(i)(A);
e. In paragraph (e)(2)(i)(C), removing
the phrase ‘‘generally accepted
accounting principles (GAAP)’’ and
adding in its place the word ‘‘GAAP’’;
■ f. In paragraph (e)(2)(iii) introductory
text, removing the phrase ‘‘following
subsidiaries’’ and adding in its place the
phrase ‘‘following entities’’;
■ g. Removing the word ‘‘and’’ at the
end of paragraph (e)(2)(iii)(A);
■ h. In paragraph (e)(2)(iii)(B), removing
the period and adding in its place ‘‘;
and’’;
■ i. Adding new paragraph (e)(2)(iii)(C);
■ j. In paragraph (e)(2)(iv)(B), removing
the word ‘‘shall’’ and adding in its place
the word ‘‘may’’;
■ k. In paragraph (e)(3), removing the
word ‘‘state’’ and adding in its place the
word ‘‘State’’;
■ l. In paragraph (e)(4)(i), removing the
word ‘‘shall’’ and adding in its place the
word ‘‘must’’;
■ m. Redesignating paragraphs (e)(5)
through (7) as paragraphs (f) through (h);
■ n. Revising redesignated paragraph (f);
and
■ o. In redesignated paragraph (h),
removing the word ‘‘shall’’ wherever it
appears and adding in its place the
word ‘‘may’’.
The addition and revisions read as
follows.
■
■
§ 5.38 Operating subsidiaries of a Federal
savings association.
*
*
*
*
*
(e) * * *
(2) * * *
(i) * * *
(A) The savings association has the
ability to control the management and
operations of the subsidiary, and no
other person or entity has the ability to
exercise effective control or influence
over the management or operations of
the subsidiary to an extent equal to or
greater than that of the savings
association or an operating subsidiary
thereof;
*
*
*
*
*
(iii) * * *
(C) A trust formed for purpose of
securitizing assets held by the savings
association as part of its business.
*
*
*
*
*
(f) Procedures—(1) Application
required. (i) A Federal savings
association must first submit an
application to, and receive prior
approval from, the OCC to establish or
acquire an operating subsidiary, or to
perform a new activity in an existing
operating subsidiary.
(ii) The application must explain, as
appropriate, how the savings association
‘‘controls’’ the enterprise, describing in
full detail structural arrangements
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where control is based on factors other
than savings association ownership of
more than 50 percent of the voting
interest of the subsidiary and the ability
to control the management and
operations of the subsidiary by holding
voting interests sufficient to select the
number of directors needed to control
the subsidiary’s board and to select and
terminate senior management. In the
case of a limited partnership or limited
liability company that does not qualify
for the expedited review procedure set
forth in paragraph (f)(2) of this section,
the savings association must provide a
statement explaining why it is not
eligible. The application also must
include a complete description of the
savings association’s investment in the
subsidiary, the proposed activities of the
subsidiary, the organizational structure
and management of the subsidiary, the
relations between the savings
association and the subsidiary, and
other information necessary to
adequately describe the proposal. To the
extent that the application relates to the
initial affiliation of the savings
association with a company engaged in
insurance activities, the savings
association must describe the type of
insurance activity in which the
company is engaged and has present
plans to conduct. The savings
association must also list for each State
the lines of business for which the
company holds, or will hold, an
insurance license, indicating the State
where the company holds a resident
license or charter, as applicable. The
application must state whether the
operating subsidiary will conduct any
activity at a location other than the
home office or a previously approved
branch of the savings association. The
OCC may require a filer to submit a legal
analysis if the proposal is novel,
unusually complex, or raises substantial
unresolved legal issues. In these cases,
the OCC encourages filers to have a
prefiling meeting with the OCC. Any
savings association receiving approval
under this paragraph is deemed to have
agreed that the subsidiary will conduct
the activity in a manner consistent with
published OCC guidance.
(2) Expedited review. (i) An
application to establish or acquire an
operating subsidiary, or to perform a
new activity in an existing operating
subsidiary, that meets the requirements
of this paragraph is deemed approved
by the OCC as of the 30th day after the
filing is received by the OCC, unless the
OCC notifies the filer prior to that date
that the filing has been removed from
expedited review, or the expedited
review process is extended under
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§ 5.13(a)(2). Any savings association
receiving approval under this paragraph
is deemed to have agreed that the
subsidiary will conduct the activity in a
manner consistent with published OCC
guidance.
(ii) An application is eligible for
expedited review if all of the following
requirements are met:
(A) The savings association is well
capitalized and well managed;
(B) The activity is listed in paragraph
(f)(5) this section or is substantively the
same as a previously approved activity
and the activity will be conducted in
accordance with the same terms and
conditions applicable to the previously
approved activity;
(C) The entity is a corporation, limited
liability company, limited partnership
or trust; and
(D) The savings association or an
operating subsidiary thereof:
(1) Has the ability to control the
management and operations of the
subsidiary and no other person or entity
has the ability to exercise effective
control or influence over the
management or operations of the
subsidiary to an extent equal to or
greater than that of the savings
association or an operating subsidiary
thereof. The ability to control the
management and operations means:
(i) In the case of a subsidiary that is
a corporation, the savings association or
an operating subsidiary thereof holds
voting interests sufficient to select the
number of directors needed to control
the subsidiary’s board and to select and
terminate senior management;
(ii) In the case of a subsidiary that is
a limited partnership, the savings
association or an operating subsidiary
thereof has the ability to control the
management and operations of the
subsidiary by controlling the selection
and termination of senior management;
(iii) In the case of a subsidiary that is
a limited liability company, the savings
association or an operating subsidiary
thereof has the ability to control the
management and operations of the
subsidiary by controlling the selection
and termination of senior management;
or
(iv) In the case of a subsidiary that is
a trust, the savings association or an
operating subsidiary thereof has the
ability to replace the trustee at will;
(2) Holds more than 50 percent of the
voting, or equivalent, interests in the
subsidiary, and:
(i) In the case of a subsidiary that is
a limited partnership, the savings
association or an operating subsidiary
thereof is the sole general partner of the
limited partnership, provided that
under the partnership agreement,
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limited partners have no authority to
bind the partnership by virtue solely of
their status as limited partners;
(ii) In the case of a subsidiary that is
a limited liability company, the savings
association or an operating subsidiary
thereof is the sole managing member of
the limited liability company, provided
that under the limited liability company
agreement, other limited liability
company members have no authority to
bind the limited liability company by
virtue solely of their status as members;
or
(iii) In the case of a subsidiary that is
a trust, the savings association or an
operating subsidiary thereof is the sole
beneficial owner of the trust; and
(3) Is required to consolidate its
financial statements with those of the
subsidiary under GAAP. A filer
proposing to qualify for expedited
review must include in the application
all necessary information showing the
application meets the requirements.
(3) Exceptions to rules of general
applicability. Sections 5.8, 5.10, and
5.11 do not apply to this section.
However, if the OCC concludes that an
application presents significant or novel
policy, supervisory, or legal issues, the
OCC may determine that some or all
provisions in §§ 5.8, 5.10, and 5.11
apply.
(4) OCC review and approval. The
OCC reviews a Federal savings
association’s application to determine
whether the proposed activities are
legally permissible under Federal
savings association law and to ensure
that the proposal is consistent with safe
and sound banking practices and OCC
policy and does not endanger the safety
or soundness of the parent Federal
savings association. As part of this
process, the OCC may request additional
information and analysis from the filer.
(5) Activities eligible for expedited
review. The following activities qualify
for the expedited review procedures in
paragraph (f)(2) of this section, provided
the activity is conducted pursuant to the
same terms and conditions as would be
applicable if the activity were
conducted directly by a Federal savings
association:
(i) Holding and managing assets
acquired by the parent savings
association or its operating subsidiaries,
including investment assets and
property acquired by the savings
association through foreclosure or
otherwise in good faith to compromise
a doubtful claim, or in the ordinary
course of collecting a debt previously
contracted;
(ii) Providing services to or for the
savings association or its affiliates,
including accounting, auditing,
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appraising, advertising and public
relations, and financial advice and
consulting;
(iii) Making loans or other extensions
of credit, and selling money orders and
travelers checks;
(iv) Purchasing, selling, servicing, or
warehousing loans or other extensions
of credit, or interests therein;
(v) Providing management consulting,
operational advice, and services for
other financial institutions;
(vi) Providing check payment
services;
(vii) Acting as investment adviser
(including an adviser with investment
discretion) or financial adviser or
counselor to governmental entities or
instrumentalities, businesses, or
individuals, including advising
registered investment companies and
mortgage or real estate investment
trusts;
(viii) Providing financial and
transactional advice and assistance,
including advice and assistance for
customers in structuring, arranging, and
executing mergers and acquisitions,
divestitures, joint ventures, leveraged
buyouts, swaps, foreign exchange,
derivative transactions, coin and
bullion, and capital restructurings;
(ix) Underwriting and reinsuring
credit life and disability insurance;
(x) Leasing of personal property;
(xi) Providing securities brokerage;
(xii) Underwriting and dealing,
including making a market, in savings
association permissible securities and
purchasing and selling as principal,
asset backed obligations;
(xiii) Acting as an insurance agent or
broker for credit life, disability, and
unemployment insurance; single
property interest insurance; and title
insurance;
(xiv) Offering correspondent services
to the extent permitted by published
OCC precedent for Federal savings
associations;
(xv) Acting as agent or broker in the
sale of fixed annuities;
(xvi) Offering debt cancellation or
debt suspension agreements;
(xvii) Providing escrow services;
(xviii) Acting as a transfer agent; and
(xix) Providing or selling postage
stamps.
(6) Redesignation. A Federal savings
association that proposes to redesignate
a service corporation as an operating
subsidiary must submit a notification to
the OCC at least 30 days prior to the
redesignation date. The notification
must include a description of how the
redesignated service corporation meets
all of the requirements of this section to
be an operating subsidiary, a resolution
of the savings association’s board of
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directors approving the redesignation,
and the proposed effective date of the
redesignation. The savings association
may effect the redesignation on the
proposed date unless the OCC notifies
the savings association otherwise prior
to that date. The OCC may require an
application if the redesignation presents
policy, supervisory, or legal issues.
(7) Fiduciary powers. (i) If an
operating subsidiary proposes to accept
fiduciary appointments for which
fiduciary powers are required, such as
acting as trustee or executor, then the
Federal savings association must have
fiduciary powers under section 5(n) of
the Home Owners’ Loan Act, 12 U.S.C.
1464(n), and the subsidiary also must
have its own fiduciary powers under the
law applicable to the subsidiary.
(ii) Unless the subsidiary is a
registered investment adviser, if an
operating subsidiary proposes to
exercise investment discretion on behalf
of customers or provide investment
advice for a fee, the Federal savings
association must have prior OCC
approval to exercise fiduciary powers
pursuant to § 5.26 (or a predecessor
provision) and 12 CFR part 150.
(8) Expiration of approval. Approval
expires if the Federal savings
association has not established or
acquired the operating subsidiary, or
commenced the new activity in an
existing operating subsidiary within 12
months after the date of the approval,
unless the OCC shortens or extends the
time period.
■ 31. Amend § 5.39 by:
■ a. Revising paragraph (a);
■ b. In paragraph (b), removing the
phrase ‘‘a notice’’ and adding in its
place the phrase ‘‘an application’’, and
removing ‘‘§ 5.34(e)(5)’’ and adding in
its place ‘‘§ 5.34(f)’’;
■ c. In paragraph (b) and paragraph
(e)(1) introductory text, removing ‘‘(12
U.S.C. 24a)’’ and adding in its place
‘‘(12 U.S.C. 24a(a)(2)(A)(i))’’;
■ d. In paragraphs (b), (h)(2), and
(j)(1)(ii), removing the word ‘‘shall’’ and
adding in its place the word ‘‘must’’
wherever it appears;
■ e. In paragraph (d)(1), removing the
phrase ‘‘shall have’’ and adding in its
place the word ‘‘has’’;
■ f. Removing paragraphs (d)(2), (d)(11)
and (d)(12) and redesignating
paragraphs (d)(3) through (d)(10) as
paragraphs (d)(2) through (d)(9);
■ g. In paragraphs (e)(1)(ii) and (j)(2),
removing the word ‘‘state’’ and adding
in its place the word ‘‘State’’ wherever
it appears;
■ h. In paragraph (f)(1), removing the
phrase ‘‘Gramm-Leach-Bliley Act
(GLBA)), 113 Stat. 1407–1409, (15
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U.S.C. 6712 or 15 U.S.C. 6713)’’ and
adding in its place the phrase ‘‘GrammLeach-Bliley Act, (15 U.S.C. 6712 or 15
U.S.C. 6713))’’;
■ i. In paragraph (f)(3), removing ‘‘(12
U.S.C. 1843) of the Bank Holding
Company Act’’ and adding in its place
‘‘of the Bank Holding Company Act (12
U.S.C. 1843(k)(4)(H) or (I))’’, and
removing the phrase ‘‘GLBA, 113 Stat.
1381’’ and adding in its place the phrase
‘‘Gramm-Leach-Bliley Act (12 U.S.C.
1843 note)’’;
■ j. In paragraph (h)(2), removing the
phrase ‘‘generally accepted accounting
principles’’ and adding in its place the
word ‘‘GAAP’’;
■ k. In paragraph (h)(5) introductory
text, removing the phrase ‘‘paragraph
(a)(6)’’ and adding the phrase
‘‘paragraph (d)(5)’’;
■ l. Revising paragraph (h)(5)(i);
■ m. Removing and reserving paragraph
(h)(5)(ii);
■ n. In paragraphs (h)(5)(vi), removing
the word ‘‘GLBA’’ and adding in its
place the phrase ‘‘Gramm-Leach-Bliley
Act’’;
■ o. Removing the phrase ‘‘shall be’’ and
adding in its place the word ‘‘is’’ in
paragraph (h)(6);
■ p. Revising paragraph (i);
■ q. In paragraph (j)(1)(i), removing the
phrase ‘‘OCC shall’’ and adding in its
place the phrase ‘‘OCC will’’ and
removing the phrase ‘‘shall be’’ and
adding in its place the word ‘‘is’’; and
■ r. In paragraph (k), removing the word
‘‘GLBA’’ and adding in its place the
phrase ‘‘Gramm-Leach-Bliley Act’’.
The revisions read as follows.
§ 5.39
bank.
Financial subsidiaries of a national
(a) Authority. 12 U.S.C. 24a and 93a.
*
*
*
*
(h) * * *
(5) * * *
(i) A financial subsidiary is deemed to
be an affiliate of the bank and is not
deemed to be a subsidiary of the bank;
*
*
*
*
*
(i) Procedures to engage in activities
through a financial subsidiary. A
national bank that intends, directly or
indirectly, to acquire control of, or hold
an interest in, a financial subsidiary, or
to commence a new activity in an
existing financial subsidiary, must
obtain OCC approval through the
procedures set forth in paragraph (i)(1)
or (i)(2) of this section.
(1) Certification with subsequent
application. (i) At any time, a national
bank may file a ‘‘Financial Subsidiary
Certification’’ with the appropriate OCC
licensing office listing the bank’s
depository institution affiliates and
certifying that the bank and each of
*
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those affiliates is well capitalized and
well managed.
(ii) Thereafter, at such time as the
bank seeks OCC approval to acquire
control of, or hold an interest in, a new
financial subsidiary, or commence a
new activity authorized under section
5136A(a)(2)(A)(i) of the Revised Statutes
(12 U.S.C. 24a(a)(2)(A)(i)) in an existing
subsidiary, the bank may file an
application with the appropriate OCC
licensing office at the time of acquiring
control of, or holding an interest in, a
financial subsidiary, or commencing
such activity in an existing subsidiary.
The application must be labeled
‘‘Financial Subsidiary Application’’ and
must:
(A) State that the bank’s Certification
remains valid;
(B) Describe the activity or activities
conducted by the financial subsidiary.
To the extent the application relates to
the initial affiliation of the bank with a
company engaged in insurance
activities, the bank should describe the
type of insurance activity that the
company is engaged in and has present
plans to conduct. The bank must also
list for each State the lines of business
for which the company holds, or will
hold, an insurance license, indicating
the State where the company holds a
resident license or charter, as
applicable;
(C) Cite the specific authority
permitting the activity to be conducted
by the financial subsidiary. (Where the
authority relied on is an agency order or
interpretation under section 4(c)(8) or
4(c)(13), respectively, of the Bank
Holding Company Act of 1956 (12
U.S.C. 1843(c)(8) or (c)(13)), a copy of
the order or interpretation should be
attached);
(D) Certify that the bank will be well
capitalized after making adjustments
required by paragraph (h)(1) of this
section;
(E) Demonstrate the aggregate
consolidated total assets of all financial
subsidiaries of the national bank do not
exceed the lesser of 45 percent of the
bank’s consolidated total assets or $50
billion (or the increased level
established by the indexing
mechanism); and
(F) If applicable, certify that the bank
meets the eligible debt requirement in
paragraph (g)(3) of this section.
(2) Combined certification and
application. A national bank may file a
combined certification and application
with the appropriate OCC licensing
office at least five business days prior to
acquiring control of, or holding an
interest in, a financial subsidiary, or
commencing a new activity authorized
pursuant to section 5136A(a)(2)(A)(i) of
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the Revised Statutes (12 U.S.C.
24a(a)(2)(A)(i)) in an existing subsidiary.
The written application must be labeled
‘‘Financial Subsidiary Certification and
Application’’ and must:
(i) List the bank’s depository
institution affiliates and certify that the
bank and each depository institution
affiliate of the bank is well capitalized
and well managed;
(ii) Describe the activity or activities
to be conducted in the financial
subsidiary. To the extent the application
relates to the initial affiliation of the
bank with a company engaged in
insurance activities, the bank should
describe the type of insurance activity
that the company is engaged in and has
present plans to conduct. The bank
must also list for each State the lines of
business for which the company holds,
or will hold, an insurance license,
indicating the State where the company
holds a resident license or charter, as
applicable;
(iii) Cite the specific authority
permitting the activity to be conducted
by the financial subsidiary. (Where the
authority relied on is an agency order or
interpretation under section 4(c)(8) or
4(c)(13), respectively, of the Bank
Holding Company Act of 1956 (12
U.S.C. 1843(c)(8) or (c)(13)), a copy of
the order or interpretation should be
attached);
(iv) Certify that the bank will remain
well capitalized after making the
adjustments required by paragraph
(h)(1) of this section;
(v) Demonstrate the aggregate
consolidated total assets of all financial
subsidiaries of the national bank do not
exceed the lesser of 45% of the bank’s
consolidated total assets or $50 billion
(or the increased level established by
the indexing mechanism); and
(vi) If applicable, certify that the bank
meets the eligible debt requirement in
paragraph (g)(3) of this section.
(3) Approval. An application is
deemed approved upon filing the
information required by paragraphs
(i)(1) or (i)(2) of this section within the
time frames provided therein.
(4) Exceptions to rules of general
applicability. Sections 5.8, 5.10, 5.11,
and 5.13 do not apply to activities
authorized under this section.
(5) Community Reinvestment Act
(CRA). A national bank may not apply
under this paragraph (i) to commence a
new activity authorized under section
5136A(a)(2)(A)(i) of the Revised Statutes
(12 U.S.C. 24a(a)(2)(A)(i)), or directly or
indirectly acquire control of a company
engaged in any such activity, if the bank
or any of its insured depository
institution affiliates received a CRA
rating of less than ‘‘satisfactory record of
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meeting community credit needs’’ on its
most recent CRA examination prior to
when the bank would file an application
under this section.
*
*
*
*
*
§ 5.40
[Amended]
32. Amend § 5.40 by:
a. In paragraph (a), adding a comma
after ‘‘2901–2907’’;
■ b. Removing the word ‘‘shall’’ and
adding in its place the word ‘‘must’’
wherever it appears in paragraphs (b),
(c)(1), (c)(2)(i), (c)(2)(ii), and (c)(3);
■ c. In paragraph (c)(2)(ii), adding the
phrase ‘‘or member’’ after the word
‘‘shareholder’’; and
■ d. In paragraph (c)(4), removing the
phrase ‘‘national bank’’ and adding in
its place the word ‘‘bank’’, removing the
phrase ‘‘Federal savings association’’
and adding in its place the phrase
‘‘savings association’’, and removing the
phrase ‘‘is not eligible for’’ and adding
in its place the phrase ‘‘has been
removed from’’.
■ 33. Section 5.42 is amended by:
■ a. In paragraphs (d)(1) and (d)(2),
removing the word ‘‘shall’’ and adding
in its place the word ‘‘must’’;
■ b. Revising paragraph (d)(3);
■ c. In paragraph (d)(4), removing
‘‘5.13(a)’’ and adding in its place ‘‘5.13’’
wherever it appears and removing the
word ‘‘application’’ and adding in its
place the word ‘‘notice’’.
The revision reads as follows.
■
■
§ 5.42 Corporate title of a national bank or
Federal savings association.
*
*
*
*
*
(d) * * *
(3) Amendment to charter. A Federal
savings association must amend its
charter in accordance with § 5.21 or
§ 5.22, as applicable, to change its title.
*
*
*
*
*
■ 34. Section 5.43 is added to read as
follows:
§ 5.43 National bank director residency
and citizenship waivers.
(a) Authority. 12 U.S.C. 72 and 93a.
(b) Scope. This section describes the
procedures for the OCC to waive the
residency and citizenship requirements
for national bank directors set forth at
12 U.S.C. 72.
(c) Application Procedures—(1)
Residency. A national bank may request
a waiver of the residency requirement
for any number of directors by filing a
written application with the OCC. The
OCC may grant a waiver on an
individual basis or for any number of
director positions. The waiver is valid
until the OCC revokes it in accordance
with paragraph (d) of this section, or, if
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granted on an individual basis, until the
individual no longer serves on the
board.
(2) Citizenship. A national bank may
request a waiver of the citizenship
requirements for individuals who
comprise up to a minority of the total
number of directors by filing a written
application with the OCC. The OCC may
grant a waiver on an individual basis. A
citizenship waiver is valid until the
individual no longer serves on the board
or the OCC revokes the waiver in
accordance with paragraph (d) of this
section.
(3) Biographical and Financial
Reports. (i) Each subject of a citizenship
waiver application must submit to the
appropriate OCC licensing office the
information prescribed in the
Interagency Biographical and Financial
Report, available at www.occ.gov.
(ii) The OCC may require additional
information about any subject of a
citizenship waiver application,
including legible fingerprints, if
appropriate. The OCC may waive any of
the information requirements of
paragraph (c)(3)(i) if the OCC
determines that doing so is in the public
interest.
(4) Exceptions to rules of general
applicability. Sections 5.8, 5.9, 5.10, and
5.11 do not apply to this section.
(d) Revocation of waiver—(1)
Procedure. The OCC may revoke a
residency or citizenship waiver. Before
revocation, the OCC will provide
written notice to the national bank and
affected director(s) of its intention to
revoke a residency or citizenship waiver
and the basis for its intention. The bank
and affected director(s) may respond in
writing to the OCC within 10 calendar
days, unless the OCC determines that a
shorter period is appropriate in light of
relevant circumstances. The OCC will
consider the written responses of the
bank and affected director(s), if any,
prior to deciding whether or not to
revoke a residency or citizenship
waiver. The OCC will notify the
national bank and the director of the
OCC’s decision to revoke a residency or
citizenship waiver in writing.
(2) Effective date. The OCC’s decision
to revoke a residency or citizenship
waiver is effective:
(i) If the director or national bank, or
both, appeals pursuant to paragraph (e)
of this section, upon the director’s
receipt of the decision of the
Comptroller, an authorized delegate, or
the appellate official, to uphold the
initial decision to revoke the residency
or citizenship waiver; or
(ii) If neither the director nor national
bank appeals pursuant to paragraph (e)
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of this section, upon the expiration of
the period to appeal.
(e) Appeal. (1) A director or national
bank, or both, may seek review by
appealing the OCC’s decision to revoke
a residency or citizenship waiver to the
Comptroller, or an authorized delegate,
within 15 days of the receipt of the
OCC’s written decision to revoke. The
director or national bank, or both, may
appeal on the grounds that the reasons
for revocation are contrary to fact or
arbitrary and capricious. The appellant
must submit all documents and written
arguments that the appellant wishes to
be considered in support of the appeal.
(2) The Comptroller, or an authorized
delegate, may designate an appellate
official who was not previously
involved in the decision leading to the
appeal at issue. The Comptroller, an
authorized delegate, or the appellate
official considers all information
submitted with the original application
for the residency or citizenship waiver,
the material before the OCC official who
made the initial decision, and any
information submitted by the appellant
at the time of appeal.
(3) The Comptroller, an authorized
delegate, or the appellate official will
independently determine whether the
reasons given for the initial decision to
revoke are contrary to fact or arbitrary
and capricious. If they determine either
to be the case, the Comptroller, an
authorized delegate, or the appellate
official may reverse the initial decision
to revoke the waiver.
(4) Upon completion of the review,
the Comptroller, an authorized delegate,
or the appellate official will notify the
appellant in writing of the decision. If
the initial decision is upheld, the
decision to revoke the waiver is
effective pursuant to paragraph (d)(2)(i)
of this section.
(f) Prior waivers. Any waiver granted
by the OCC before January 11, 2021
remains in effect unless revoked
pursuant to paragraph (d) of this section
or, for a waiver granted to an individual,
until the individual no longer serves on
the board.
§ 5.45
[Amended]
35. Amend § 5.45 by:
a. In paragraphs (b), (e)(1), and (g)(5),
removing the phrase ‘‘Federal savings
association’’ and adding in its place
‘‘Federal stock savings association’’;
■ b. In paragraph (f)(3), removing the
phrase ‘‘savings association’s’’ and
adding in its place ‘‘Federal stock
savings association’s’’;
■ c. In paragraph (g)(1) introductory
text, removing the phrase ‘‘the savings
association’’ and adding in its place
‘‘the Federal stock savings association’’;
■
■
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d. In paragraphs (g)(2)(iii), (g)(4)(i)
introductory text, (g)(4)(i)(C), (h), and
(i), removing the phrase ‘‘savings
association’’ and adding in its place
‘‘Federal stock savings association’’;
■ e. In paragraph (g)(4)(i) introductory
text and paragraphs (h) and (i),
removing the word ‘‘shall’’ and adding
in its place the word ‘‘must’’; and
■ f. In paragraph (h), removing the
number ‘‘197’’ and adding in its place
‘‘16’’.
■ 36. Amend § 5.46 by:
■ a. In paragraph (b), removing the word
‘‘shall’’ and adding in its place the word
‘‘must’’ in the first sentence and
removing the word ‘‘shall’’ and adding
in its place the word ‘‘may’’ in the
second sentence;
■ b. Revising paragraph (g)(1)(ii);
■ c. In paragraphs (g)(2), (i)(1)
introductory text, (i)(3)(i) introductory
text, (i)(4), (j), and (k), removing the
word ‘‘shall’’ and adding in its place the
word ‘‘must’’ wherever it appears;
■ d. In paragraph (g)(2), removing the
word ‘‘applicant’’ and adding in its
place the word ‘‘filer’’;
■ e. Revising paragraphs (h) and (i)(2);
■ f. In paragraph (i)(5), adding the
phrase, ‘‘ unless the OCC specifies a
longer period’’ after the word
‘‘approval’’;
■ g. In paragraph (i)(6)(i), removing the
phrase ‘‘U.S. generally accepted
accounting principles’’ and adding in its
place the word ‘‘GAAP’’; and
■ h. In paragraph (i)(6)(ii), removing the
word ‘‘U.S.’’.
The revisions read as follows.
■
§ 5.46 Changes in permanent capital of a
national bank.
*
*
*
*
*
(g) * * *
(1) * * *
(ii) Prior approval required. In
addition to a notice of capital increase
under paragraph (i)(3) of this section, a
national bank must submit an
application under paragraph (i)(1) or
(i)(2) of this section and obtain prior
OCC approval to increase its permanent
capital if the bank is:
(A) Required to receive OCC approval
pursuant to letter, order, directive,
written agreement, or otherwise;
(B) Selling common or preferred stock
for consideration other than cash; or
(C) Receiving a material noncash
contribution to capital surplus.
*
*
*
*
*
(h) Decreases in permanent capital. A
national bank must submit an
application and obtain prior approval
under paragraph (i)(1) or (i)(2) of this
section for any reduction of its
permanent capital. A national bank may
request approval for a reduction in
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capital for multiple quarters. The
request need only specify a total dollar
amount for the requested period and
need not specify amounts for each
quarter.
(i) * * *
(2) Expedited review. An eligible
bank’s application is deemed approved
by the OCC 15 days after the date the
OCC receives the application described
in paragraph (i)(1) of this section, unless
the OCC notifies the bank prior to that
date that the application has been
removed from expedited review, or the
expedited review process is extended,
under § 5.13(a)(2). An eligible bank
seeking to decrease its capital may
request OCC approval for up to four
consecutive quarters. The request need
only specify a total dollar amount for
the four-quarter period and need not
specify amounts for each quarter. An
eligible bank may decrease its capital
pursuant to such a plan only if the bank
maintains its eligible bank status before
and after each decrease in its capital.
*
*
*
*
*
■ 37. Amend § 5.47 by:
■ a. In paragraph (b), removing the
phrase ‘‘debt notes’’ and adding in its
place the word ‘‘debt’’;
■ b. Revising paragraph (c);
■ c. In paragraph (d)(1)(ii), removing the
phrase ‘‘Federal Deposit Insurance
Corporation (FDIC)’’ and adding in its
place the word ‘‘FDIC’’;
■ d. In paragraph (d)(1)(iv)(B), removing
the word ‘‘state’’ and adding in its place
the word ‘‘State’’;
■ e. In paragraph (d)(1)(vi), removing
the word ‘‘shall’’ and adding in its place
the word ‘‘must’’ the first time it
appears and removing the word ‘‘shall’’
and adding in its place the word ‘‘may’’
the second time it appears;
■ f. In paragraph (d)(vii), removing the
word ‘‘shall’’ and adding in its place the
word ‘‘may’’;
■ g. In paragraph (d)(2) introductory
text, removing the word ‘‘note’’ and
adding in its place the word
‘‘document’’;
■ h. In paragraph (d)(3)(ii)(C), adding
the phrase, ‘‘ if applicable to the
subordinated debt issuance’’ after the
word ‘‘default’’;
■ i. Adding paragraph (d)(3)(ii)(D);
■ j. In paragraph (e), removing the
phrase, ‘‘ including, for an advanced
approaches national bank, the
disclosure requirement in 12 CFR
3.20(d)(1)(xi)’’; and
■ k. Revising paragraphs (f), (g) and (h).
The addition and revisions read as
follows.
§ 5.47 Subordinated debt issued by a
national bank.
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(c) Definitions. The following
definitions apply to this section:
Capital plan means a plan describing
the means and schedule by which a
national bank will attain specified
capital levels or ratios, including a
capital restoration plan filed with the
OCC under 12 U.S.C. 1831o and 12 CFR
6.5.
Original maturity means the stated
maturity of the subordinated debt note.
If the subordinated debt note does not
have a stated maturity, then original
maturity means the earliest possible
date the subordinated debt note may be
redeemed, repurchased, prepaid,
terminated, or otherwise retired by the
national bank pursuant to the terms of
the subordinated debt note.
Payment on subordinated debt means
principal and interest, and premium, if
any.
Subordinated debt document means
any document pertaining to an issuance
of subordinated debt, and any renewal,
extension, amendment, modification, or
replacement thereof, including the
subordinated debt note and any global
note, pricing supplement, note
agreement, trust indenture, paying agent
agreement, or underwriting agreement.
Tier 2 capital has the same meaning
as set forth in 12 CFR 3.20(d).
(d) * * *
(3) * * *
(ii) * * *
(D) A statement that the obligation
may be fully subordinated to interests
held by the U.S. government in the
event that the national bank enters into
a receivership, insolvency, liquidation,
or similar proceeding.
*
*
*
*
*
(f) Process and procedures—(1)
Issuance of subordinated debt—(i)
Approval—(A) Eligible bank. An eligible
bank is required to receive prior
approval from the OCC to issue any
subordinated debt, in accordance with
paragraph (g)(1)(i) of this section, if:
(1) The national bank will not
continue to be an eligible bank after the
transaction;
(2) The OCC has previously notified
the national bank that prior approval is
required; or
(3) Prior approval is required by law.
(B) National bank not an eligible
bank. A national bank that is not an
eligible bank must receive prior OCC
approval to issue any subordinated debt,
in accordance with paragraph (g)(1)(i) of
this section.
(ii) Application to include
subordinated debt in tier 2 capital. A
national bank that intends to include
subordinated debt in tier 2 capital must
submit an application to the OCC for
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approval, in accordance with paragraph
(h) of this section, before or within ten
days after issuing the subordinated debt.
Where a national bank’s application to
issue subordinated debt has been
deemed to be approved, in accordance
with paragraph (g)(2)(i) of this section,
and the national bank does not
contemporaneously receive approval
from the OCC to include the
subordinated debt as tier 2 capital, the
national bank must submit an
application for approval to include
subordinated debt in tier 2 capital,
pursuant to paragraph (h) of this
section, after issuance of the
subordinated debt. A national bank may
not include subordinated debt in tier 2
capital unless the national bank has
filed the application with the OCC and
received approval from the OCC that the
subordinated debt issued by the
national bank qualifies as tier 2 capital.
(2) Prepayment of subordinated
debt—(i) Subordinated debt not
included in tier 2 capital—(A) Eligible
bank. An eligible bank is required to
receive prior approval from the OCC to
prepay any subordinated debt that is not
included in tier 2 capital (including
acceleration, repurchase, redemption
prior to maturity, and exercising a call
option), in accordance with paragraph
(g)(1)(ii) of this section, only if:
(1) The national bank will not be an
eligible bank after the transaction;
(2) The OCC has previously notified
the national bank that prior approval is
required;
(3) Prior approval is required by law;
or
(4) The amount of the proposed
prepayment is equal to or greater than
one percent of the national bank’s total
capital, as defined in 12 CFR 3.2.
(B) National bank not an eligible
bank. A national bank that is not an
eligible bank must receive prior OCC
approval to prepay any subordinated
debt that is not included in tier 2 capital
(including acceleration, repurchase,
redemption prior to maturity, and
exercising a call option), in accordance
with paragraph (g)(1)(ii) of this section.
(ii) Subordinated debt included in tier
2 capital. All national banks must
receive prior OCC approval to prepay
subordinated debt included in tier 2
capital, in accordance with paragraph
(g)(1)(ii) of this section.
(3) Material changes to existing
subordinated debt documents. A
national bank must receive prior
approval from the OCC in accordance
with paragraph (g)(1)(iii) of this section
prior to making a material change to an
existing subordinated debt document if
the bank would have been required to
receive OCC approval to issue the
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security under paragraph (f)(1)(i) of this
section or to include it in tier 2 capital
under paragraph (h) of this section.
(g) Prior approval procedure—(1)
Application—(i) Issuance of
subordinated debt. A national bank
required to obtain OCC approval before
issuing subordinated debt must submit
an application to the appropriate OCC
licensing office. The application must
include:
(A) A description of the terms and
amount of the proposed issuance;
(B) A statement of whether the
national bank is subject to a capital plan
or required to file a capital plan with the
OCC and, if so, how the proposed
change conforms to the capital plan;
(C) A copy of the proposed
subordinated note and any other
subordinated debt documents; and
(D) A statement that the subordinated
debt issue complies with all applicable
laws and regulations.
(ii) Prepayment of subordinated debt.
A national bank required to obtain OCC
approval before prepaying subordinated
debt, pursuant to paragraph (f)(2) of this
section, must submit an application to
the appropriate OCC licensing office.
The application must include:
(A) A description of the terms and
amount of the proposed prepayment;
(B) A statement of whether the
national bank is subject to a capital plan
or required to file a capital plan with the
OCC and, if so, how the proposed
change conforms to the capital plan;
(C) A copy of the subordinated debt
note the national bank is proposing to
prepay and any other subordinated debt
documents; and
(D) Either:
(1) A statement explaining why the
national bank believes that following
the proposed prepayment the national
bank would continue to hold an amount
of capital commensurate with its risk; or
(2) A description of the replacement
capital instrument that meets the
criteria for tier 1 or tier 2 capital under
12 CFR 3.20, including the amount of
such instrument, and the time frame for
issuance.
(iii) Material changes to existing
subordinated debt. A national bank
required to obtain OCC approval before
making a material change to an existing
subordinated debt document, pursuant
to paragraph (f)(3) of this section, must
submit an application to the appropriate
OCC licensing office. The application
must include:
(A) A description of all proposed
changes;
(B) A statement of whether the
national bank is subject to a capital plan
or required to file a capital plan with the
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OCC and, if so, how the proposed
change conforms to the capital plan;
(C) A copy of the revised
subordinated debt documents reflecting
all proposed changes; and
(D) A statement that the proposed
changes to the subordinated debt
documents complies with all applicable
laws and regulations.
(iv) Additional information. The OCC
reserves the right to request additional
relevant information, as appropriate.
(2) Approval—(i) General. The
application is deemed approved by the
OCC as of the 30th day after the filing
is received by the OCC, unless the OCC
notifies the national bank prior to that
date that the filing presents a significant
supervisory or compliance concern or
raises a significant legal or policy issue.
(ii) Prepayment. Notwithstanding this
paragraph (g)(2)(i) of this section, if the
application for prior approval is for
prepayment, the national bank must
receive affirmative approval from the
OCC. If the OCC requires the national
bank to replace the subordinated debt,
the national bank must receive
affirmative approval that the
replacement capital instrument meets
the criteria for tier 1 or tier 2 capital
under 12 CFR 3.20 and must issue the
replacement instrument prior to
prepaying the subordinated debt, or
immediately thereafter.4
(iii) Tier 2 capital. Following
notification to the OCC pursuant to
paragraph (f)(1)(ii) of this section that
the national bank has issued the
subordinated debt, the OCC will notify
the national bank whether the
subordinated debt qualifies as tier 2
capital.
(iv) Expiration of approval. Approval
expires if a national bank does not
complete the sale of the subordinated
debt within one year of approval.
(h) Application procedure for
inclusion in tier 2 capital. (1) A national
bank must submit an application to the
appropriate OCC licensing office in
writing before or within ten days after
issuing subordinated debt that it intends
to include in tier 2 capital. A national
bank may not include such
subordinated debt in tier 2 capital
unless the national bank has received
approval from the OCC that the
subordinated debt qualifies as tier 2
capital.
(2) The application must include:
(i) The terms of the issuance;
(ii) The amount or projected amount
and date or projected date of receipt of
funds;
4 A national bank may replace tier 2 capital
instruments concurrent with the redemption of
existing tier 2 capital instruments.
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(iii) The interest rate or expected
calculation method for the interest rate;
(iv) Copies of the final subordinated
debt documents; and
(v) A statement that the issuance
complies with all applicable laws and
regulations.
*
*
*
*
*
§ 5.48
[Amended]
38. Amend § 5.48 in paragraphs (b),
(e)(1), (e)(2)(i), (e)(3)(i) introductory text,
(e)(3)(ii), (e)(3)(iii), (e)(4), (e)(5), (e)(6),
and (f)(2)(ii) by removing the word
‘‘shall’’ and adding in its place the word
‘‘must’’ wherever it appears.
■ 39. Section 5.50 is amended by:
■ a. In paragraphs (b), (c)(3)(v)(B),
(f)(2)(i), (f)(2)(vii), (f)(3)(ii)(B),
(f)(3)(ii)(C), (g)(1) introductory text, (h),
(i)(1)(i), (i)(1)(ii), (i)(4)(ii), and (i)(5),
removing the word ‘‘shall’’ and adding
in its place the word ‘‘must’’ wherever
it appears;
■ b. In paragraph (c)(2)(iii), removing
the word ‘‘(HOLA)’’;
■ c. In paragraph (d)(1)(ii), removing the
phrase ‘‘shall be’’ and adding in its
place the word ‘‘is’’;
■ d. In paragraph (d)(5), removing the
phrase ‘‘his or her’’; and adding in its
place the word ‘‘their’’;
■ e. Removing paragraph (d)(8);
■ f. Redesignating paragraphs (d)(6)
through (7) as paragraphs (d)(7) through
(8);
■ g. Adding new paragraph (d)(6);
■ h. In redesignated paragraph (d)(7),
removing the word ‘‘HOLA’’ and adding
in its place the phrase ‘‘Home Owners’
Loan Act, 12 U.S.C. 1464’’;
■ i. In paragraph (f)(2)(ii) introductory
text, removing the phrase ‘‘shall be’’ and
adding in its place the word ‘‘are’’;
■ j. In paragraph (f)(2)(ii)(D), adding the
phrase ‘‘15 U.S.C. 78m or 78n,’’ after
‘‘1934,’’;
■ k. In paragraph (f)(2)(ii)(E), removing
the phrase ‘‘defined in § 192.25 of this
chapter shall’’ and adding in its place
the phrase ‘‘defined in 12 CFR 192.25
is’’;
■ l. In paragraph (f)(2)(iii)(A), removing
‘‘78l’’ and adding in its place ‘‘78l’’;
■ m. In paragraph (f)(2)(viii), removing
the word ‘‘shall’’ and adding in its place
the word ‘‘will’’;
■ n. In paragraph (f)(3)(i)(A), removing
the phrase ‘‘on the OCC’s internet web
page,’’ and adding in its place the word
‘‘at’’;
■ o. In paragraphs (f)(3)(ii)(A),
(f)(3)(ii)(B), (f)(3)(iii) introductory text,
and (g)(1) introductory text removing
the word ‘‘applicant’’ and adding in its
place the word ‘‘filer’’;
■ p. In paragraph (f)(3)(ii)(C), removing
the phrase ‘‘An applicant’’ and adding
in its place the phrase ‘‘A filer’’;
■
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q. Removing paragraph (f)(3)(iv);
r. Removing the phrase ‘‘of notice’’ in
the heading of paragraph (f)(5);
■ s. Revising paragraph (f)(6);
■ t. Revising paragraph (g)(2)(i);
■ u. In paragraph (i)(1)(iii), removing
the phrase ‘‘paragraph (h)(1)(i)’’ and
adding in its place the phrase
‘‘paragraph (i)(1)(i)’’; and
■ v. In paragraph (i)(3)(i), removing the
phrase ‘‘paragraph (h)(1)’’ and adding in
its place the phrase ‘‘paragraph (i)(1)’’.
The addition and revisions read as
follows.
■
■
§ 5.50 Change in control of a national bank
or Federal savings association; reporting of
stock loans.
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*
*
*
*
*
(d) * * *
(6) Depository institution means a
depository institution as defined in
section 3(c)(1) of the Federal Deposit
Insurance Act, 12 U.S.C. 1813(c)(1).
*
*
*
*
*
(f) * * *
(6) Notification of disapproval. (i)
Written notice by OCC. If the OCC
disapproves a notice, it will notify the
filer in writing within three days after
the decision. The OCC’s written
disapproval will contain a statement of
the basis for disapproval and indicate
that the filer may request a hearing.
(ii) Hearing Request. The filer may
request a hearing by the OCC within 10
days of receipt of disapproval, pursuant
to the procedures in 12 CFR part 19,
subpart H. Following final agency action
under 12 CFR part 19, further review by
the courts is available. (See 12 U.S.C.
1817(j)(5)).
(iii) Failure to request a hearing. If a
filer fails to request a hearing with a
timely request, the notice of disapproval
constitutes a final and unappealable
order.
*
*
*
*
*
(g) * * *
(2) * * *
(i) Upon the request of any person, the
OCC releases the information provided
in the public portion of the notice and
makes it available for public inspection
and copying as soon as possible after a
notice has been filed. In certain
circumstances the OCC may determine
that the release of the information
would not be in the public interest. In
addition, the OCC makes the date that
the notice is filed, the disposition of the
notice and the date thereof, and the
consummation date of the transaction, if
applicable, publicly available in the
OCC’s ‘‘Weekly Bulletin.’’
*
*
*
*
*
■ 40. Amend § 5.51 by:
■ a. Revising paragraph (a);
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b. In paragraph (c)(4), adding the
phrase ‘‘chief risk officer,’’ after the
phrase ‘‘chief investment officer,’’
■ c. In paragraph (c)(7)(ii), adding the
phrase ‘‘that requires action to improve
the financial condition of the national
bank or Federal savings association’’
after the word ‘‘agreement’’;
■ d. In paragraph (d) introductory text,
and paragraphs (e)(1), (e)(6)(i)(C),
(e)(6)(1)(D)(2), (e)(6)(i)(E), and (f)(1),
removing the word ‘‘shall’’ and adding
in its place the word ‘‘must’’ wherever
it appears;
■ e. In paragraph (e)(6)(i)(E), removing
the phrase ‘‘his or her’’ and adding in
its place the word ‘‘their’’;
■ f. In paragraph (e)(8), adding ‘‘5.9,’’
after ‘‘5.8,’’; and
■ g. In paragraphs (e)(8), (f)(3), and
(f)(4), removing the word ‘‘shall’’ and
adding in its place the word ‘‘will’’.
The revision reads as follows.
■
§ 5.51 Changes in directors and senior
executive officers of a national bank or
Federal savings association.
(a) Authority. 12 U.S.C. 1831i,
3102(b), and 5412(b)(2)(B).
*
*
*
*
*
§ 5.52
[Amended]
41. Amend § 5.52 by:
a. In paragraph (c)(1), removing the
word ‘‘shall’’ and adding in its place the
word ‘‘must’’; and
■ b. In paragraph (c)(2), removing
‘‘§ 5.40(b)’’ and adding in its place
‘‘§ 5.40(c)(1)’’.
■
■
§ 5.53
[Amended]
42. Amend § 5.53 by:
a. In paragraph (c)(2)(ii), removing ‘‘12
CFR 5.48’’ wherever it appears and
adding in its place ‘‘§ 5.48’’; and
■ b. In paragraph (d)(3)(i)(A), removing
the phrase ‘‘under paragraph (d)(1)’’ and
adding in its place ‘‘filed under
paragraph (d)(2)’’.
■ 43. Amend § 5.55 by:
■ a. In paragraph (b), removing the
phrase ‘‘or notice’’;
■ b. Removing paragraph (d)(2) and
redesignating paragraph (d)(3) as
paragraph (d)(2);
■ c. Adding a new paragraph (d)(3);
■ d. In paragraph (d)(4), removing the
phrase ‘‘generally accepted accounting
principles (GAAP)’’ and adding in its
place the word ‘‘GAAP’’;
■ e. Revising paragraphs (e), (f), (g), and
paragraph (h) introductory text;
■ f. Redesignating paragraphs (h)(1)
through (h)(3) as paragraphs (h)(1)(i)
through (h)(1)(iii);
■ g. Removing the last sentence of
redesignated paragraph (h)(1)(iii); and
■ h. Adding new paragraph (h)(1)
introductory text and paragraph (h)(2).
■
■
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The additions and revisions read as
follows.
§ 5.55 Capital distributions by Federal
savings associations.
*
*
*
*
*
(d) * * *
(3) Control has the same meaning as
in section 10(a)(2) of the Home Owners’
Loan Act (12 U.S.C. 1467a(a)(2)).
*
*
*
*
*
(e) Filing requirements—(1)
Application required. A Federal savings
association must file an application
with the OCC before making a capital
distribution if:
(i) The Federal savings association
would not be at least well capitalized or
would not otherwise remain an eligible
savings association following the
distribution;
(ii) The total amount of all of the
Federal savings association’s capital
distributions (including the proposed
capital distribution) for the applicable
calendar year exceeds its net income for
that year to date plus retained net
income for the preceding two years. If
the capital distribution is from retained
earnings, the aggregate limitation in this
paragraph may be calculated in
accordance with § 5.64(c)(2),
substituting ‘‘capital distributions’’ for
‘‘dividends’’ in that section;
(iii) The Federal savings association’s
proposed capital distribution would
reduce the amount of or retire any part
of its common or preferred stock or
retire any part of debt instruments such
as notes or debentures included in
capital under 12 CFR part 3 (other than
regular payments required under a debt
instrument approved under § 5.56);
(iv) The Federal savings association’s
proposed capital distribution is payable
in property other than cash;
(v) The Federal savings association is
directly or indirectly controlled by a
mutual savings and loan holding
company or by a company that is not a
savings and loan holding company; or
(vi) The Federal savings association’s
proposed capital distribution would
violate a prohibition contained in any
applicable statute, regulation, or
agreement between the Federal savings
association and the OCC or the OTS, or
violate a condition imposed on the
Federal savings association in an
application or notice approved by the
OCC or the OTS.
(2) No application required. A Federal
savings association may make a capital
distribution without filing an
application with the OCC if it does not
meet the filing requirements in
paragraph (e)(1) of this section.
(3) Informational copy of Federal
Reserve System notice required. If the
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Federal savings association is a
subsidiary of a savings and loan holding
company that is filing a notice with the
Board of Governors of the Federal
Reserve System (Board) for a dividend
solely under 12 U.S.C. 1467a(f) and not
also under 12 U.S.C. 1467a(o)(11), and
no application under paragraph (e)(1) of
this section is required, then the savings
association must provide an
informational copy to the OCC of the
notice filed with the Board, at the same
time the notice is filed with the Board.
(f) Application format—(1) Contents.
The application must:
(i) Be in narrative form;
(ii) Include all relevant information
concerning the proposed capital
distribution, including the amount,
timing, and type of distribution; and
(iii) Demonstrate compliance with
paragraph (h) of this section.
(2) Schedules. The application may
include a schedule proposing capital
distributions over a specified period.
(3) Combined filings. A Federal
savings association may combine the
application required under paragraph
(e)(1) of this section with any other
notice or application, if the capital
distribution is a part of, or is proposed
in connection with, another transaction
requiring a notice or application under
this chapter. If submitting a combined
filing, the Federal savings association
must state that the related notice or
application is intended to serve as an
application under this section.
(g) Filing procedures—(1)
Application. When a Federal savings
association is required to file an
application under paragraph (e)(1) of
this section, it must file the application
at least 30 days before the proposed
declaration of dividend or approval of
the proposed capital distribution by its
board of directors. Except as provided in
paragraph (g)(2) of this section, the OCC
is deemed to have approved an
application from an eligible savings
association upon the expiration of 30
days after the filing date of the
application unless, before the expiration
of that time period, the OCC notifies the
Federal savings association that:
(i) Additional information is required
to supplement the application;
(ii) The application has been removed
from expedited review, or the expedited
review process is extended, under
5.13(a)(2); or
(iii) The application is denied.
(2) Applications not subject to
expedited review. An application is not
subject to expedited review if:
(i) The Federal savings association is
not an eligible savings association;
(ii) The total amount of all of the
Federal savings association’s capital
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distributions (including the proposed
capital distribution) for the applicable
calendar year exceeds its net income for
that year to date plus retained net
income for the preceding two years;
(iii) The Federal savings association
would not be at least adequately
capitalized, as set forth in 12 CFR 6.4,
following the distribution; or
(iv) The Federal savings association’s
proposed capital distribution would
violate a prohibition contained in any
applicable statute, regulation, or
agreement between the savings
association and the OCC or the OTS, or
violate a condition imposed on the
savings association in an application or
notice approved by the OCC or the OTS.
(3) OCC filing office—(i) Appropriate
licensing office. Except as provided in
paragraph (g)(3)(ii) of this section, a
Federal savings association that is
required to file an application under
paragraph (e)(1) of this section or an
informational copy of a notice under
paragraph (e)(3) of this section must
submit the application or notice to the
appropriate OCC licensing office.
(ii) Appropriate supervisory office. A
Federal savings association that is
required to file an application under
paragraph (e)(1) of this section for
capital distributions involving solely a
cash dividend from retained earnings or
involving a cash dividend from retained
earnings and a concurrent cash
distribution from permanent capital
must submit the application to the
appropriate OCC supervisory office.
(h) OCC review of capital
distributions. After review of an
application submitted pursuant to
paragraph (e)(1) of this section:
(1) The OCC may deny the application
in whole or in part, if it makes any of
the following determinations:
*
*
*
*
*
(2) The OCC may approve the
application in whole or in part.
Notwithstanding paragraph (h)(1)(iii) of
this section, the OCC may waive any
waivable prohibition or condition to
permit a distribution.
*
*
*
*
*
■ 44. Amend § 5.56 by:
■ a. Revising paragraph (b);
■ b. In paragraph (d)(1)(i)(F), removing
the word ‘‘and’’;
■ c. In paragraph (d)(1)(i)(G), removing
the period and adding in its place ‘‘;
and’’;
■ d. Adding new paragraph (d)(1)(i)(H);
■ e. In paragraph (d)(2)(i), removing ‘‘12
CFR 197.4’’ and adding in its place ‘‘12
CFR 16.7’’ and removing the word
‘‘shall’’ and adding in its place the word
‘‘may’’;
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f. In paragraph (d)(2)(ii), removing ‘‘15
U.S.C. 77d(6)’’ and adding in its place
‘‘15 U.S.C. 77b(a)(15);
■ g. In paragraph (e)(1) introductory
text, removing the phrase ‘‘notices and’’;
■ h. In paragraphs (e)(2) and (i),
removing the phrase ‘‘or notice’’
wherever it appears; and
■ i. Revising paragraph (h).
The addition and revisions read as
follows.
■
§ 5.56 Inclusion of subordinated debt
securities and mandatorily redeemable
preferred stock as Federal savings
association supplementary (tier 2) capital.
*
*
*
*
*
(b) Application procedures—(1)
Application to include covered
securities in tier 2 capital—(i)
Application required. A Federal savings
association must file an application
seeking the OCC’s approval of the
inclusion of covered securities in tier 2
capital. The savings association may file
its application before or after it issues
covered securities, but may not include
covered securities in tier 2 capital until
the OCC approves the application and
the securities are issued.
(ii) Expedited review. The OCC is
deemed to have approved an
application from an eligible savings
association to include covered securities
in tier 2 capital upon the expiration of
30 days after the filing date of the
application unless, before the expiration
of that time period, the OCC notifies the
Federal savings association that:
(A) Additional information is required
to supplement the application;
(B) The application has been removed
from expedited review or the expedited
review process is extended under
§ 5.13(a)(2); or
(C) The OCC denies the application.
(iii) Securities offering rules. A
Federal savings association also must
comply with the securities offering rules
at 12 CFR part 16 by filing an offering
circular for a proposed issuance of
covered securities, unless the offering
qualifies for an exemption under that
part.
(2) Application required to prepay
covered securities included in tier 2
capital—(i) In general. A Federal
savings association must file an
application to, and receive prior
approval from, the OCC before
prepaying covered securities included
in tier 2 capital. The application must
include:
(A) A statement explaining why the
Federal savings association believes that
following the proposed prepayment the
savings association would continue to
hold an amount of capital
commensurate with its risk; or
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(B) A description of the replacement
capital instrument that meets the
criteria for tier 1 or tier 2 capital under
12 CFR 3.20, including the amount of
such instrument and the time frame for
issuance.
(ii) Replacement covered security. If
the OCC conditions approval of
prepayment on a requirement that a
Federal savings association must replace
the covered security with a covered
security of an equivalent amount that
satisfies the requirements for tier 1 or
tier 2 capital, the savings association
must file an application to issue the
replacement covered security and must
receive prior OCC approval.
*
*
*
*
*
(d) * * *
(1) * * *
(i) * * *
(H) State that the security may be
fully subordinated to interests held by
the U.S. government in the event that
the savings association enters into a
receivership, insolvency, liquidation, or
similar proceeding;
*
*
*
*
*
(h) Issuance of a replacement
regulatory capital instrument in
connection with prepaying a covered
security. The OCC may require a Federal
savings association seeking prior
approval to prepay a covered security
included in tier 2 capital to issue a
replacement covered security of an
equivalent amount that qualifies as tier
1 or tier 2 capital under 12 CFR 3.20. If
the OCC imposes such a requirement,
the savings association must complete
the sale of such covered security prior
to, or immediately after, the
prepayment.5
*
*
*
*
*
■ 45. Amend § 5.58 by:
■ a. In paragraph (a), adding ‘‘and’’
before ‘‘5412(b)(2)(B)’’;
■ b. Revising paragraph (d)(2) and
removing paragraph (d)(3);
■ c. Revising paragraph (e) introductory
text;
■ d. In paragraph (e)(1), removing the
word ‘‘state’’ wherever it appears and
adding in its place the word ‘‘State’’;
■ e. Revising paragraphs (e)(2) through
(4);
■ f. Revising paragraph (f)(1);
■ g. Redesignating paragraph (f)(2) as
paragraph (f)(3) and revising newly
redesignated paragraph (f)(3);
■ h. Adding a new paragraph (f)(2);
■ i. Redesignating paragraphs (g)
through (i) as paragraphs (h) through (j),
respectively and adding new paragraph
(g);
5 A Federal savings association may replace tier
2 capital instruments concurrent with the
redemption of existing tier 2 capital instruments.
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j. In the heading of redesignated
paragraph (h), removing the word
‘‘entities’’ and adding in its place the
word ‘‘enterprises’’;
■ k. In redesignated paragraph (h)
introductory text, removing the word
‘‘entity’’ and adding in its place the
word ‘‘enterprise’’;
■ l. In redesignated paragraph (h)(1),
removing the phrase ‘‘paragraph
(g)(1)(i)’’ wherever it appears and
adding in its place the phrase
‘‘paragraph (h)(1)’’;
■ m. In redesignated paragraph (i)(3),
removing the word ‘‘non-controlling’’
and adding in its place the word ‘‘passthrough’’; and
■ n. Revising redesignated paragraph (j).
The additions and revisions read as
follows.
■
§ 5.58 Pass-through investments by a
Federal savings association.
*
*
*
*
*
(d) * * *
(2) Pass-through investment means an
investment authorized under 12 CFR
160.32(a). A pass-through investment
does not include a Federal savings
association holding interests in a trust
formed for the purposes of securitizing
assets held by the savings association as
part of its business or for the purposes
of holding multiple legal titles of motor
vehicles or equipment in conjunction
with lease financing transactions.
(e) Pass-through investments; notice
procedure. Except as provided in
paragraphs (f) through (i) of this section,
a Federal savings association may make
a pass-through investment, directly or
through its operating subsidiary, in an
enterprise that engages in an activity
described in § 5.38(f)(5) or in an activity
that is substantively the same as a
previously approved activity by filing a
written notice. The Federal savings
association must file this written notice
with the appropriate OCC licensing
office no later than 10 days after making
the investment. The written notice
must:
*
*
*
*
*
(2) State:
(i) Which paragraphs of § 5.38(f)(5)
describe the activity; or
(ii) If the activity is substantively the
same as a previously approved activity:
(A) How, the activity is substantively
the same as a previously approved
activity;
(B) The citation to the applicable
precedent; and
(C) That the activity will be
conducted in accordance with the same
terms and conditions applicable to the
previously approved activity;
(3) Certify that the Federal savings
association is well capitalized and well
managed at the time of the investment;
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(4) Describe how the Federal savings
association has the ability to prevent the
enterprise from engaging in an activity
that is not set forth in § 5.38(f)(5) or not
contained in published OCC (including
published former OTS) precedent for
previously approved activities, or how
the savings association otherwise has
the ability to withdraw its investment;
*
*
*
*
*
(f) * * * (1) In general. A Federal
savings association must file an
application and obtain prior approval
before making or acquiring, either
directly or through an operating
subsidiary, a pass-through investment in
an enterprise if the pass-through
investment does not qualify for the
notice procedure set forth in paragraph
(e) of this section because the savings
association is unable to make the
representation required by paragraph
(e)(2) or the certification required by
paragraphs (e)(3) or (e)(7) of this section.
The application must include the
information required in paragraphs
(e)(1) and (e)(4) through (e)(6) of this
section and, if possible, paragraphs
(e)(2), (e)(3), and (e)(7) of this section. If
the Federal savings association is unable
to make the representation set forth in
paragraph (e)(2) of this section, the
savings association’s application must
explain why the activity in which the
enterprise engages is a permissible
activity for a Federal savings association
and why the filer should be permitted
to hold a pass-through investment in an
enterprise engaged in that activity. A
Federal savings association may not
make a pass-through investment if it is
unable to make the representations and
certifications specified in paragraphs
(e)(1) and (e)(4) through (e)(6) of this
section.
(2) Expedited review. An application
submitted by a Federal savings
association is deemed approved by the
OCC as of the 10th day after the
application is received by the OCC if:
(A) The Federal savings association
makes the representation required by
paragraph (e)(2) and the certification
required by paragraph (e)(3) of this
section;
(B) The book value of the Federal
savings association’s pass-through
investment for which the application is
being submitted is no more than 1% of
the savings association’s capital and
surplus;
(C) No more than 50% of the
enterprise is owned or controlled by
banks or savings associations subject to
examination by an appropriate Federal
banking agency or credit unions insured
by the National Credit Union
Association; and
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(D) The OCC has not notified the
Federal savings association that the
application has been removed from
expedited review, or the expedited
review process is extended, under
§ 5.13(a)(2).
(3) Investments requiring a filing
under 12 U.S.C. 1828(m).
Notwithstanding any other provision in
this section, if an enterprise in which a
Federal savings association proposes to
invest would be a subsidiary of the
Federal savings association for purposes
of 12 U.S.C. 1828(m) and the enterprise
would not be an operating subsidiary or
a service corporation, the Federal
savings association must file an
application with the OCC under
paragraph (f)(3) of this section at least
30 days prior to making the investment
and obtain prior approval from the OCC
before making the investment. The
application must include the
information required in paragraphs
(e)(1) and (e)(4) through (e)(6) of this
section and, if possible, paragraphs
(e)(2), (e)(3), and (e)(7) of this section. If
the Federal savings association is unable
to make the representation set forth in
paragraph (e)(2) of this section, the
savings association’s application must
explain why the activity in which the
enterprise engages is a permissible
activity for a Federal savings association
and why the filer should be permitted
to hold a pass-through investment in an
enterprise engaged in that activity. A
Federal savings association may not
make a pass-through investment if it is
unable to make the representations and
certifications specified in paragraphs
(e)(1) and (e)(4) through (e)(6) of this
section.
(g) Pass-through investments; no
application or notice required. A
Federal savings association may make or
acquire, either directly or through an
operating subsidiary, a pass-through
investment in an enterprise, without an
application or notice to the OCC, if:
(i) The activities of the enterprise are
limited to those to activities previously
reported by the savings association in
connection with the making or
acquiring of a pass-through investment;
(ii) The activities in the enterprise
continue to be legally permissible for a
Federal savings association;
(iii) The savings association’s passthrough investment will be made in
accordance with any conditions
imposed by the OCC or OTS in
approving any prior pass-through
investment conducting these activities;
(iv) The savings association is able to
make the representations and
certifications specified in paragraphs
(e)(3) through (e)(7) of this section; and
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(v) The enterprise will not be a
subsidiary for purposes of 12 U.S.C.
1828(m).
*
*
*
*
*
(j) Exceptions to rules of general
applicability. Sections 5.8, 5.9, 5.10, and
5.11 do not apply to this section.
However, if the OCC concludes that an
application presents significant or novel
policy, supervisory, or legal issues, the
OCC may determine that some or all
provisions in §§ 5.8, 5.9, 5.10, and 5.11
apply.
*
*
*
*
*
■ 46. Amend § 5.59 by:
■ a. In paragraph (a), removing ‘‘1464’’
and adding in its place ‘‘1464(c)(4)(B)’’
and adding ‘‘and’’ before ‘‘5412(b)(2)(B);
■ b. In paragraph (b) introductory text,
adding ‘‘(12 U.S.C. 1828(m))’’ after the
phrase ‘‘Insurance Act’’;
■ c. In paragraph (d)(2), removing the
phrase ‘‘generally accepted accounting
principles (GAAP)’’ and adding in its
place the word ‘‘GAAP’’;
■ d. In paragraphs (e)(1), (e)(2), (f)(6)(i),
and (h)(1)(ii), removing the word ‘‘state’’
and adding the word ‘‘State’’ wherever
it appears;
■ e. In paragraph (e)(1), removing the
phrase ‘‘state-chartered’’ and adding in
its place the phrase ‘‘State-chartered’’;
■ f. In paragraph (e)(4), removing the
word ‘‘HOLA’’ and adding in its place
the phrase ‘‘Home Owners’ Loan Act, 12
U.S.C. 1464(c)’’;
■ g. In paragraph (e)(9), removing the
word ‘‘shall’’ and adding in its place the
word ‘‘must’’ wherever it appears;
■ h. In paragraph (g)(1), removing the
word ‘‘HOLA’’ and adding in its place
the phrase ‘‘Home Owners’ Loan Act (12
U.S.C. 1464(c)(4)(B))’’;
■ i. In paragraph (g)(1), removing
‘‘§ 24.6 of this chapter’’ and adding in
its place ‘‘12 CFR part 24’’;
■ j. In paragraph (g)(2), removing the
phrase ‘‘HOLA and parts 5 and 160 of
this chapter’’ and adding in its place the
phrase ‘‘Home Owners’ Loan Act (12
U.S.C. 1464(c)), this part 5, and 12 CFR
part 160’’;
■ k. In paragraph (g)(3), removing the
word ‘‘paragraph,’’ and adding in its
place the phrase ‘‘paragraph (g),’’;
■ l. In paragraph (h)(1)(i) introductory
text, adding the phrase ‘‘(12 U.S.C.
1828(m))’’ after the word ‘‘Act’’;
■ m. In paragraph (h)(1)(ii), removing
the phrase ‘‘an applicant’’ and adding in
its place the phrase ‘‘a filer’’, and
removing the word ‘‘applicants’’ and
adding in its place the word ‘‘filers’’;
■ n. In paragraphs (h)(2)(i) and (h)(3),
removing the word ‘‘applicant’’ and
adding in its place the word ‘‘filer’’;
■ o. In paragraph (h)(2), removing the
phrase ‘‘is not eligible for expedited
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80469
review under 5.13(a)(2)’’ and adding in
its place the phrase ‘‘has been removed
from expedited review, or the expedited
review period is extended, under
§ 5.13(a)(2)’’
■ p. Revising paragraph (h)(2)(ii)(A);
and
■ q. In paragraph (h)(2)(ii)(B), removing
‘‘§ 5.59(f).’’ and adding in its place the
phrase ‘‘paragraph (f) of this section.’’.
The revision reads as follows:
§ 5.59 Service corporations of Federal
savings associations.
*
*
*
*
*
(h) * * *
(2) * * *
(ii) * * *
(A) The savings association is well
capitalized and well managed; and
*
*
*
*
*
§ 5.62
[Amended]
47. Section 5.62 is amended by
removing the word ‘‘shall’’ and adding
in its place the word ‘‘must’’.
■
§ 5.64
[Amended]
48. Section 5.64 is amended by:
a. In paragraph (c)(2)(i), removing the
word ‘‘shall’’ and adding in its place the
word ‘‘does’’;
■ b. In paragraph (c)(2)(iii), removing
the phrase ‘‘paragraph (c)(2)’’ and
adding in its place the phrase
‘‘paragraphs (c)(2)(i) and (c)(2)(ii)’’ and
removing the phrase ‘‘shall apply’’ and
adding in its place the word ‘‘applies’’;
■ c. In paragraph (c)(3), removing the
phrase ‘‘paragraph (c)’’ and adding in its
place the phrase ‘‘paragraphs (c)(1) and
(c)(2)’’ and removing the word ‘‘shall’’
and adding in its place the word
‘‘must’’; and
■ d. Removing paragraph (d).
■ 49. Revise § 5.66 to read as follows.
■
■
§ 5.66 Dividends payable in property other
than cash.
In addition to cash dividends,
directors of a national bank may declare
dividends payable in property, with the
approval of the OCC. A national bank
must submit a request for prior approval
of a noncash dividend to the
appropriate OCC licensing office. The
dividend is equivalent to a cash
dividend in an amount equal to the
actual current value of the property,
regardless of whether the book value is
higher or lower under GAAP. Before the
dividend is declared, the bank should
show the difference between actual
value and book value on the books of
the national bank as a gain or loss, as
applicable, and the dividend should
then be declared in the amount of the
actual current value of the property
being distributed.
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50. Revise § 5.67 to read as follows.
§ 5.67
Fractional shares.
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A national bank issuing additional
stock may adopt arrangements to
preclude the issuance of fractional
shares. The bank may remit the cash
equivalent of the fraction not being
issued to those to whom fractional
shares would otherwise be issued. The
cash equivalent is based on the market
value of the stock, if there is an
established and active market in the
national bank’s stock. In the absence of
such a market, the cash equivalent is
based on a reliable and disinterested
determination as to the fair market value
of the stock if such stock is available.
The bank may propose an alternate
method in the application for the stock
issuance filed with the OCC.
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51. Amend § 5.70 by:
a. In paragraphs (c)(1)(iv) and (c)(1)(v),
removing the word ‘‘state’’ and adding
in its place the word ‘‘State’’ wherever
it appears;
■ b. In paragraph (d)(1) and paragraph
(d)(2) introductory text, removing the
word ‘‘shall’’ and adding in its place the
word ‘‘must’’ wherever it appears; and
■ c. Adding new paragraph (d)(3).
The addition reads as follows.
■
■
§ 5.70
Federal branches and agencies.
*
*
*
*
*
(d) * * *
(3) Biographical and Financial
Reports. The OCC may require any
senior executive officer of a Federal
branch or agency submitting a filing to
submit an Interagency Biographical and
Financial Report, available at
www.occ.gov, and legible fingerprints.
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PART 7—ACTIVITIES AND
OPERATIONS
52. The authority citation for part 7
continues to read as follows:
■
Authority: 12 U.S.C. 1 et seq., 25b, 29, 71,
71a, 92, 92a, 93, 93a, 95(b)(1), 371, 371d, 481,
484, 1463, 1464, 1465, 1818, 1828(m) and
5412(b)(2)(B).
§ 7.2008
[Amended]
53. Amend § 7.2008(c) by removing
the phrase ‘‘12 CFR 5.3(c)’’ and adding
in its place the phrase ‘‘12 CFR 5.3’’.
■
Brian P. Brooks,
Acting Comptroller of the Currency.
[FR Doc. 2020–25595 Filed 12–10–20; 8:45 am]
BILLING CODE 4810–33–P
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]]>Agencies
[Federal Register Volume 85, Number 239 (Friday, December 11, 2020)]
[Rules and Regulations]
[Pages 80404-80470]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-25595]
[[Page 80403]]
Vol. 85
Friday,
No. 239
December 11, 2020
Part IV
Department of the Treasury
-----------------------------------------------------------------------
Office of the Comptroller of the Currency
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12 CFR Parts 3, 5 and 7
Licensing Amendments; Final Rule
Federal Register / Vol. 85 , No. 239 / Friday, December 11, 2020 /
Rules and Regulations
[[Page 80404]]
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Parts 3, 5, 7
[Docket ID OCC-2019-0024]
RIN 1557-AE71
Licensing Amendments
AGENCY: Office of the Comptroller of the Currency, Treasury.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Office of the Comptroller of the Currency (OCC) is
amending its rules relating to policies and procedures for corporate
activities and transactions involving national banks and Federal
savings associations to update and clarify the policies and procedures,
eliminate unnecessary requirements consistent with safety and
soundness, and make other technical and conforming changes.
DATES: The final rule is effective on January 11, 2021, except for
instruction 15g which is effective on December 11, 2020.
FOR FURTHER INFORMATION CONTACT: For additional information, contact
Christopher Crawford, Counsel, Valerie Song, Assistant Director, Heidi
M. Thomas, Special Counsel, or Rima Kundnani, Senior Attorney, Chief
Counsel's Office, (202) 649-5490; or Karen Marcotte, Director for
Licensing Activities, (202) 649-7297, Office of the Comptroller of the
Currency, 400 7th Street SW, Washington, DC 20219. For persons who are
deaf or hearing impaired, TTY, (202) 649-5597.
SUPPLEMENTARY INFORMATION:
I. Background
Twelve CFR part 5 sets forth the OCC's requirements for national
banks and Federal savings associations that seek to engage in certain
corporate transactions or activities. It addresses the range of an
institution's existence from chartering to dissolution and includes,
among other things, business combinations, branching matters, operating
subsidiaries, and dividend payments. In some cases, a national bank or
Federal savings association is required to apply to engage in a certain
transaction or activity while in other situations the bank or savings
association must submit a notice to the OCC either for informational
purposes or as a means for providing the OCC with the opportunity to
object to the transaction or activity. On March 5, 2020, the OCC issued
a notice of proposed rulemaking (proposal) to revise part 5.\1\ This
proposal is part of the OCC's continual review of its regulations to
eliminate outdated or otherwise unnecessary provisions and to clarify
or revise requirements imposed on national banks and Federal savings
associations where possible and when not inconsistent with safety and
soundness.\2\
---------------------------------------------------------------------------
\1\ The proposed rule was published in the Federal Register on
April 2, 2020. 85 FR 18728.
\2\ These periodic reviews are in addition to the OCC's
decennial review of its regulations as required by the Economic
Growth and Regulatory Paperwork Reduction Act (EGRPRA). Public Law
104-208 (1996), codified at 12 U.S.C. 3311(b). Section 2222 of
EGRPRA requires that, at least once every 10 years, the OCC along
with the other Federal banking agencies and the Federal Financial
Institutions Examination Council (FFIEC) conduct a review of their
regulations to identify outdated or otherwise unnecessary regulatory
requirements imposed on insured depository institutions.
Specifically, EGRPRA requires the agencies to categorize and publish
their regulations for comment, eliminate unnecessary regulations to
the extent that such action is appropriate, and submit a report to
Congress summarizing their review. The agencies completed their
second EGRPRA review on March 30, 2017 and published their report in
the Federal Register. 82 FR 15900 (March 30, 2017).
---------------------------------------------------------------------------
The OCC received six substantive written comments on this proposal.
These comments and the OCC's response are discussed in the next section
of this Supplementary Information.
II. Description of the Final Rule
Rules of General Applicability (Part 5, Subpart A)
Twelve CFR part 5, subpart A, sets forth the OCC's generally
applicable rules and procedures for corporate activities and
transactions of national banks and Federal savings associations. The
OCC proposed substantive and technical changes to subpart A as
explained below.
Rules of General Applicability (Sec. 5.2) Section 5.2(b) provides
that the OCC may adopt materially different procedures for a particular
filing or class of filings in exceptional circumstances or for unusual
transactions after providing notice to the applicant and any other
party that the OCC determines should receive notice. The proposal would
increase the OCC's flexibility to address unusual situations by
providing that the OCC may adopt materially different procedures as it
deems necessary and then using the term ``exceptional circumstances or
unusual transactions'' as examples, but not limitations, as to when the
OCC may deem it necessary to adopt materially different procedures. One
commenter expressed concern that the phrase ``as it deems necessary''
seemed vague and suggested the OCC note specific instances where
flexibility is needed to eliminate vagueness.
The OCC disagrees with this commenter. The final rule includes
examples--for exceptional circumstances or unusual transactions--that
are intended to explain when the OCC may act while not limiting its
ability in unforeseen cases where additional flexibility may be needed.
Therefore, the OCC adopts this change as proposed.
Definitions (Sec. 5.3) Section 5.3 defines terms that are used
throughout part 5. The OCC proposed several new definitions to this
section. First, the OCC proposed definitions for ``nonconforming
assets'' and ``nonconforming activities.'' The OCC uses, but does not
define, these terms in Sec. Sec. 5.23 and 5.24 (conversions to a
Federal savings association or national bank, respectively) and Sec.
5.33 (business combinations). The OCC proposed these definitions to
mean assets or activities that are impermissible for a national bank or
a Federal savings association, as applicable, to hold or conduct, or if
permissible, are nonetheless held or conducted in a manner that exceeds
limits applicable to national banks or Federal savings associations.
Under this proposed definition, the term ``assets'' includes a national
bank's or Federal savings association's investments in subsidiaries or
other entities. The OCC did not receive any comments on these
definitions and adopts them as proposed.
Second, the OCC proposed to define the term ``previously approved
activity'' to mean, in the case of a national bank, an activity
approved in published OCC precedent for a national bank, an operating
subsidiary of a national bank, or a non-controlling investment of a
national bank; and in the case of a Federal savings association, an
activity approved in published OCC or Office of Thrift Supervision
(OTS) precedent for a Federal savings association, an operating
subsidiary of a Federal savings association, or a pass-through
investment of a Federal savings association.\3\ The OCC proposed this
definition to provide more clarity given the repeated use of this
standard in Sec. Sec. 5.34, 5.36, 5.38, and 5.58. One commenter
discussed this definition. This commenter requested that the OCC
clarify that this definition includes a previous OCC approval for any
bank, not only the bank in question. The intention of this definition
is to apply to
[[Page 80405]]
all previously approved activities. To clarify this, the OCC has
changed ``an activity'' to ``any activity'' in this definition in the
final rule.
---------------------------------------------------------------------------
\3\ The OCC notes that this definition would not apply to an
activity that a statute, regulation, or court decision has
subsequently made impermissible.
---------------------------------------------------------------------------
The preamble to the proposed rule also noted that for references to
previously approved activities, national banks and Federal savings
associations may consult the OCC's publications Comparison of the
Powers of National Banks and Federal Savings Associations and
Activities Permissible for National Banks and Federal Savings
Associations, Cumulative.\4\ In response to the commenter, the OCC
clarifies that these documents are not exclusive examples of where to
find published OCC precedent. The OCC also publishes interpretive
letters and corporate decisions that may be used as precedent in its
monthly Interpretations and Actions.\5\ This commenter also suggested
that the OCC publish its unpublished interpretive letters regarding
permissible activities. The OCC notes that it endeavors to publish all
pertinent interpretive letters.
---------------------------------------------------------------------------
\4\ These references are available at https://www.occ.gov/publications-and-resources/publications/banker-education/files/pub-comparison-powers-national-banks-fed-sav-assoc.pdf and https://www.occ.gov/publications-and-resources/publications/banker-education/files/pub-activities-permissible-for-nat-banks-fed-saving.pdf.
\5\ See https://occ.gov/topics/charters-and-licensing/interpretations-and-actions/index-interpretations-and-actions.html.
---------------------------------------------------------------------------
Third, the OCC defines the term ``well capitalized'' differently in
various sections of part 5 by cross-referencing to other OCC rules. The
OCC proposed to add a definition of ``well capitalized'' to Sec. 5.3
that incorporates these cross-references so that the individual cross-
references in other sections are no longer needed. The OCC received no
comments on this change and adopts it in the final rule as proposed,
with one technical change to make a cross-reference citation more
specific. As noted in the preamble to the proposed rule, this new
definition does not make any substantive changes.
Fourth, the OCC proposed to add the term ``well managed'' to Sec.
5.3. Currently, part 5 contains two different definitions of ``well
managed.'' Consistent with section 5136A of the Revised Statutes (12
U.S.C. 24a), Sec. 5.39 generally defines ``well managed'' for purposes
of financial subsidiaries as a 1 or 2 composite rating under the
Uniform Financial Institutions Rating System and at least a rating of 2
for management. By contrast, Sec. Sec. 5.34 and 5.38, governing
national bank and Federal savings association operating subsidiaries,
respectively, generally define ``well managed'' as a 1 or 2 composite
rating without reference to the management rating. Sections 5.35 (bank
service company investments), 5.36 (other equity investments by a
national bank), and 5.58 (Federal savings association pass-through
investments) cross-reference to the Sec. Sec. 5.34 or 5.38 definition.
Additionally, Sec. 5.59(h)(2)(ii)(A) requires a Federal savings
association to be well managed to be eligible for expedited review when
acquiring or establishing a service corporation.
The OCC proposed a single definition of ``well managed'' applicable
throughout part 5 to eliminate confusion between the two definitions
and to further the OCC's supervisory objectives.\6\ The financial
subsidiary statute, 12 U.S.C. 24a, defines ``well managed'' to include
the management rating, and the OCC proposed to use this definition for
national banks and Federal savings associations. The proposal also
defined ``well managed'' for Federal branches and agencies of foreign
banks as meaning the composite ROCA supervisory rating (which rates
risk management, operational controls, compliance and assets quality)
of 1 or 2, and at least a rating of 2 for risk management.
---------------------------------------------------------------------------
\6\ There is one instance of the term ``well managed'' in
current part 5 that does not follow this definition. Specifically,
12 CFR 5.59(e)(7)(i) requires that each Federal savings association
``be well managed and operate safely and soundly.'' This provision
is not directly applicable to any filing procedures but is rather a
general statement of appropriate management and safety and soundness
standards. For example, pursuant to Sec. 5.59(e)(7)(ii) the OCC may
limit a Federal savings association's investment in a service
corporation, or limit or refuse to permit any activity of a service
corporation, for supervisory, legal, or safety or soundness reasons.
---------------------------------------------------------------------------
The OCC received one comment on this proposed definition. This
commenter opposed the inclusion of management rating in a definition of
``well managed,'' except as required by statute. It stated that the
financial subsidiary statutory definition of ``well managed'' was
intended for new non-traditional activities, not core banking
activities, and that using the new ``well managed'' definition could
cause some banks to conduct activities in the bank rather than the
subsidiary. The commenter noted that this could create safety and
soundness issues because the bank would no longer benefit from having
the activities conducted in a separate entity. In addition, this
commenter stated that, in any event, the CAMELS management rating is in
need of change.
The OCC disagrees with this commenter. As the OCC explained in the
preamble to the proposed rule, the OCC believes that a single
definition of ``well managed'' would enhance bank safety and soundness
and provide a clearer and more consistent standard for national banks
and Federal savings associations. In addition, the OCC finds that the
components reflected in an entity's management rating, such as bank
controls, are relevant to the establishment of operating subsidiaries,
investments in bank service companies, other equity investments of a
national bank and pass-through investments of a Federal savings
association, and Federal savings association investments in service
corporations. As explained in the preamble to the proposed rule, a
national bank, Federal savings association, or Federal branch or agency
with a 2 composite rating but a 3 management, or risk management,
rating warrants additional scrutiny. Further, the OCC notes that the
definition of ``well managed'' in Regulation K (international banking)
and Regulation Y (bank holding companies) of the Board of Governors of
the Federal Reserve System (Federal Reserve Board) also includes both
composite and management ratings.\7\
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\7\ See 12 CFR 211.2(z); 12 CFR 225.2(s). Additionally, the OCC
notes that the definition of ``well managed'' in Regulation Y
applies to both expedited processing, see, e.g., 12 CFR
225.14(c)(2), and for an entity qualifying to be a financial holding
company, see, e.g., 12 CFR 225.82. These are analogous, for example,
to the revised usage of ``well managed'' for processing procedures
to establish an operating subsidiary in Sec. 5.34 and for a
national bank qualifying to invest in a financial subsidiary in
Sec. 5.39, respectively.
---------------------------------------------------------------------------
This commenter also requested that if the OCC adopts the proposed
``well managed'' definition, the definition should include reasonable
exceptions to the associated filing requirements. However, the proposed
definition provides that it applies unless the OCC otherwise determines
in writing. This provision allows the OCC to make exceptions in certain
cases as warranted.
Finally, this commenter requested a transition period in event a
bank receives a new rating, noting that without such a transition
period a bank might be required to file an application where it already
has begun negotiating or entering into an agreement to, for example,
make a non-controlling investment, or otherwise relied on the fact that
only an after-the-fact notice would be required. Specifically, the
commenter recommended that the required ``compliance date'' of a new
rating, particularly if it creates new requirements for the bank,
should be several months after it is assigned or there should be an
exception for any agreement already entered into at the
[[Page 80406]]
time the rating is assigned. The OCC disagrees. For safety and
soundness reasons, a national bank's or Federal savings association's
rating should apply to all its activities as of the date the OCC issues
the rating. Furthermore, a national bank or Federal savings association
may mitigate any rating changes by including appropriate regulatory
approval clauses in agreements with third parties.
For the reasons discussed above, the OCC adopts the definition of
``well managed'' as proposed.
The proposed rule also noted that the OCC was considering an
amendment to the definition of ``short-distance relocation.''
Currently, moving the premises of a branch or main office of a national
bank or a branch or home office of a Federal savings association is a
short-distance relocation if the move is within: (1) A one-thousand
foot-radius of the site if the branch, main office, or home office is
located within a principal city of a metropolitan statistical area
(MSA); (2) a one-mile radius of the site if the branch, main office, or
home office is not located within a principal city but is located
within an MSA; or (3) a two-mile radius of the site if the branch, main
office, or home office is not located within an MSA. Under the branch
relocation provisions in Sec. 5.30 (national banks) and Sec. 5.31
(Federal savings associations) and the main office and home office
relocation provisions in Sec. 5.40, short-distance relocations have a
shorter public comment and OCC approval period than other relocations.
Additionally, the OCC finds the short-distance relocation provision to
be equivalent to a ``relocation'' for the purposes of branch closings
under section 42 of the Federal Deposit Insurance Act (FDI Act) (12
U.S.C. 1831r-1).
The preamble to the proposed rule noted that the OCC was
considering doubling the distances for short-distance relocations to
allow greater flexibility and to reduce regulatory burden for office
relocations. The preamble noted that any amended definition would not
apply to a branch that would be relocated from a low- or moderate-
income (LMI) area to a non-LMI area.
The OCC received three comments on this possible amendment. One
commenter supported the change and agreed that it would promote
flexibility and reduce regulatory burden without depriving customers of
appropriate notice. However, the commenter expressed concerns about
having a separate standard for LMI areas because it could affect
statistics on bank closures by more heavily weighing branch relocations
in LMI areas relative to relocation in non-LMI areas. Another commenter
stated that the expanded definitions for ``short distance relocations''
should not apply when the branch is relocated from an LMI tract to
another LMI tract in addition to the suggested exclusion for branches
relocated from an LMI tract to a non-LMI tract. The third commenter
stated that the suggested definition may disproportionately adversely
impact LMI persons and that the OCC should exempt branches in LMI areas
or that largely service LMI customers from the definition change.
Further, this commenter advocated no change to the definition, noting
that it is not only LMI customers who would be inconvenienced.
The OCC has decided not to expand the distances in the definition
of ``short-distance relocation'' in the final rule. In light of these
public comments and after further reviewing this suggestion, the OCC
believes that a bifurcated definition would increase burden on national
banks without providing a compensating benefit. In addition, the
exception may cause confusion for banks if a census tract LMI status
changes. However, any increase in distance without excluding LMI tracts
would negatively affect LMI communities. Therefore, the current
definition of ``short distance relocation'' remains unchanged.
Finally, the OCC proposed technical changes to Sec. 5.3. The OCC
received no comments on these technical changes and adopts them as
proposed. First, current Sec. 5.3 defines ``applicant'' as a ``person
or entity that submits a notice or application to the OCC under'' part
5. However, this usage of the term ``applicant'' is confusing because
it covers persons who submit an application or a notice. Accordingly,
the final rule changes the term ``applicant'' to ``filer'' to more
clearly cover both a person who files an application or a notice. The
final rule makes conforming changes throughout part 5.
Second, the final rule adds a new definition for ``Appropriate
Federal banking agency'' that cross-references the definition contained
in section 3(q) of the FDI Act, 12 U.S.C. 1813(q).
Third, the final rule adds a new definition clarifying that ``MSA''
means metropolitan statistical area as defined by the Director of the
Office of Management and Budget (OMB).\8\
---------------------------------------------------------------------------
\8\ According to the OMB,''[t]he general concept of a
metropolitan statistical area is that of an area containing a large
population nucleus and adjacent communities that have a high degree
of integration with that nucleus.'' 75 FR 37246 (June 28, 2010).
These standards are then applied to census data to delineate the
metropolitan statistical areas.
---------------------------------------------------------------------------
Fourth, part 5 currently defines ``notice'' to mean a submission
notifying the OCC that a national bank or Federal savings association
intends to engage in or has commenced certain activities or
transactions. The definition notes that the specific meaning depends on
context and ``may require the filer to obtain prior OCC approval before
engaging in the activity or transaction.'' As described later in this
Supplementary Information, the final rule generally changes the term
``notice'' to ``application'' for activities or transactions that
require prior OCC approval. Therefore, the final rule removes the
quoted language from the definition.
Fifth, the final rule adds abbreviations for the former OTS, the
Federal Deposit Insurance Corporation (FDIC), and generally accepted
accounting principles as used in the United States (GAAP) to make their
use consistent throughout part 5.
Finally, to reflect the more current regulatory drafting style, the
final rule removes the paragraph designations in Sec. 5.3 and makes
conforming changes to cross-references in Sec. 5.3 and other OCC
rules.
The final rule also makes additional technical corrections by
removing the phrase ``as defined in Sec. 5.3'' and related language
throughout part 5. The definitions in Sec. 5.3 apply to all of part 5
so these cross-references are not necessary.
Filing required (Sec. 5.4) Section 5.4 requires a depository
institution to file an application or notice with the OCC to engage in
certain corporate activities and transactions and provides general
information on this filing requirement. Section 5.4(f) currently
encourages a potential filer to contact the appropriate OCC licensing
office to determine the need for a prefiling meeting, and it
specifically provides that the OCC decides whether to require a
prefiling meeting on a case-by-case basis. The proposal included more
general guidance on when a filer should seek a prefiling meeting with
the OCC. Specifically, the OCC proposed to include a new sentence
advising potential filers with novel, complex, or unique proposals to
contact the appropriate OCC licensing office early in the development
of the proposal to help identify and consider relevant policy issues.
The OCC received no comments on this change and adopts it as proposed.
[[Page 80407]]
Additionally, the OCC proposed to move the certification
requirement in current Sec. 5.13(h) to new Sec. 5.4(g). Current Sec.
5.13(h) requires filers to certify that material submitted to the OCC
contains no material misrepresentations or omissions. The OCC also may
review and verify any information filed in connection with a notice or
an application. Section 5.13(h) further provides that material
misrepresentations or omissions may be subject to enforcement actions
and other penalties, including criminal penalties under 18 U.S.C. 1001.
As discussed below, the OCC proposed to revise Sec. 5.13(h) to clarify
the procedures regarding nullification of decisions. The certification
requirement in Sec. 5.13(h) does not fit well in the revised provision
so the OCC proposed to move it to Sec. 5.4 with other provisions
relating to the form of the filing, as new paragraph (g).
The OCC received one comment on new Sec. 5.4(g). This commenter
stated that because proposed Sec. 5.4(g) makes no mention of a legal
standard for culpability, it is unclear whether a filer would be
subject to criminal penalties even if a material misrepresentation or
omission were not made knowingly and willfully. The commenter suggested
that in order to provide clarity regarding the applicable legal
standard to which criminal penalties may apply when signing a
certification, the OCC should amend proposed Sec. 5.4(g) to qualify
that filers who ``knowingly and willfully'' make material
misrepresentations or omissions in a filing may be subject to
enforcement and criminal penalty under 18 U.S.C. 1001. The commenter
also suggested that the OCC update its standard forms accordingly.
However, the OCC is not the appropriate agency to make representations
about the specific elements of a criminal statute. Further, the OCC
notes that the existing phrasing of ``may be subject to enforcement
action and other penalties'' in the rule text indicates that section
1001 may or may not be applicable given the circumstances of a
particular case, and that every misrepresentation or omission will not
necessarily lead to a violation of section 1001. Section 1001 only
would be applicable if the misrepresentation or omission meets the
standard for a violation set forth in section 1001. Therefore, the OCC
declines to address this comment in Sec. 5.4(g).
Filing fees (Sec. 5.5) Section 5.5(a) provides the procedure for
submitting filing fees to the OCC. The current rule requires payment to
the OCC by check, money order, cashier's check, or wire transfer. The
OCC proposed updating this provision by providing that a filer can pay
the fees by check payable to the OCC or by other means acceptable to
the OCC. The OCC received no comments on this change and adopts it as
proposed. The OCC notes that it does not currently charge filing fees
for licensing filings and is not imposing any fees as part of this
final rule.
Investigations (Sec. 5.7) Section 5.7 provides the OCC with
examination and investigation authority related to a filing. As
discussed in the ``Background Investigations'' booklet of the
Comptroller's Licensing Manual, the OCC routinely engages in background
investigations of filers and other individuals involved in filings for
new charters, changes in bank control, and changes in directors and
senior executive officers. As part of these background investigations,
the OCC collects fingerprints and submits them to the Federal Bureau of
Investigation for a national criminal history background check. The OCC
proposed adding a new paragraph (b) to Sec. 5.7 to codify this
procedure. The OCC also proposed conforming changes to other sections
in part 5 to clarify when it collects fingerprints. The OCC received
one comment in support of these changes. The final rule includes these
changes as proposed.
Public availability, Comments, and Hearings and other meetings
(Sec. Sec. 5.9, 5.10, 5.11) Section 5.9 addresses the public
availability and confidential treatment of filings. Section 5.10
provides the process for public comment periods and the submission of
public comments. Section 5.11 provides the process for hearings and
public and private meetings. The OCC proposed changing the terms
``application'' to ``filing'' and ``applicant'' to ``filer'' in these
sections to reflect the more general terminology proposed in this rule.
Furthermore, each of these sections currently uses the term
``interested persons'' to refer to persons other than the filer who
seek to interact with a filing or related procedure. The OCC
understands the term ``interested persons'' to mean any person who is
or may wish to be involved in the licensing process. Such a person may,
but need not, have particular financial, pecuniary, or other interest
in the transaction itself, the filer, or other party to the
transaction. In the proposal, the OCC invited comment about whether the
term ``interested persons'' is sufficiently clear, or whether a change
in terminology would be helpful to indicate the breadth of this
provision. The OCC received no comments on changing the terms
``application'' to ``filing'' and ``applicant'' to ``filer'' and adopts
these changes in the final rule. Further the OCC received no comments
in the term ``interested persons'' and so does not change this term in
the final rule.
Decisions (Sec. 5.13) Section 5.13 contains the OCC's procedures
for acting on a filing. Paragraph (a)(2) of this section provides the
procedures for the OCC's expedited review, including extending the time
frame for reviewing or removing a filing from expedited review.
Specifically, the OCC may change the expedited review procedures if it
concludes that the filing, or an adverse comment regarding the filing,
presents a significant supervisory, Community Reinvestment Act (CRA)
\9\ (if applicable), or compliance concern or raises a significant
legal or policy issue requiring additional OCC review. Paragraph
(a)(2)(ii) of Sec. 5.13 provides that the OCC will not change the
expedited procedures if it determines, among other things, that an
adverse comment does not raise a significant supervisory, CRA (if
applicable), or compliance concern or a significant legal or policy
issue, or is frivolous or filed primarily as a means of delaying action
on the filing. The OCC proposed adding non-substantive comments to this
list to better align the regulation with OCC policy. The proposal
stated that the OCC considers a comment to be ``non-substantive'' if it
is: (1) A generalized opinion that a filing should or should not be
approved; or (2) a conclusory statement, lacking factual or analytical
support.
---------------------------------------------------------------------------
\9\ 12 U.S.C. 2901 et seq.
---------------------------------------------------------------------------
The OCC received three comments on this proposed change. One
commenter supported the addition of ``non-substantive'' to the list of
items that do not remove a filing from expedited processing stating
that this change would provide commenters with a clear standard and
reduce unfair or unnecessary delays where a comment lacks factual or
analytical support.
Another commenter opposed this change stating that it would
increase the risk that the OCC could arbitrarily classify comments as
non-substantive. The OCC disagrees with this commenter. For example, in
the analogous context of informal rulemaking under the Administrative
Procedure Act (APA),\10\ agencies need only ``consider and respond to
significant comments'' received during the public comment period.\11\
Courts have not interpreted the APA as requiring agencies to respond to
[[Page 80408]]
insubstantial comments.\12\ As stated by the Supreme Court,
``administrative proceedings should not be a game or a forum to engage
in unjustified obstructionism by making cryptic and obscure reference
to matters that `ought to be' considered and then, after failing to do
more to bring the matter to the agency's attention, seeking to have
that agency determination vacated on the ground that the agency failed
to consider matters `forcefully presented.' '' \13\
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\10\ 5 U.S.C. 551 et seq.
\11\ See, e.g., Perez v. Mortg. Bankers Ass'n, 575 U.S. 92, 96
(2015).
\12\ See Thompson v. Clark, 741 F.2d 401, 408-09 (D.C. Cir.
1984); Auto. Parts & Accessories Ass'n v. Boyd, 407 F.2d 330, 338
(D.C. Cir.1968).
\13\ Vermont Yankee Nuclear Power Corp. v. Natural Res. Def.
Council, Inc., 435 U.S. 519, 553-54 (1978). See also, e.g.,
Interstate Natural Gas Ass'n of Am. v. Fed. Energy Regulatory
Comm'n, 494 F.3d 1092, 1096 (D.C. Cir. 2007) (```[C]omments must be
significant enough to step over a threshold requirement of
materiality before any lack of agency response or consideration
becomes of concern' . . . and `[t]he APA requirement of agency
responsiveness to comments is subject to the common-sense rule that
a response be necessary.'''(quoting Portland Cement Ass'n v.
Ruckelshaus, 486 F.2d 375, 294 (D.C. Cir. 1973) and Natural Res.
Def. Council, Inc. v. U.S. Envtl. Prot. Agency, 859 F.2d 156, 188
(D.C. Cir. 1988) (per curiam)).
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The regulation's requirement that a party seeking relief must
provide sufficient and supported information to warrant review of its
claim is fully consistent with established principles that wholly
speculative or unsupported comments need not be addressed.\14\ Further,
the receipt of a large number of comments that set forth a particular
view regarding a proposal does not necessarily render those comments
``significant'' or material \15\ if they do not contain the requisite
level of analytical or substantive content.
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\14\ See Home Box Office, Inc. v. Fed'l Commc'ns Comm'n, 567
F.2d 9, 35 n.58 (D.C. Cir. 1977) (``Moreover, comments which
themselves are purely speculative and do not disclose the factual or
policy basis on which they rest require no response. There must be
some basis for thinking a position taken in opposition to the agency
is true.'').
\15\ See Hillsdale Envtl. Loss Prevention, Inc. v. U.S. Army
Corps of Eng'rs, 702 F.3d 1156, 1181-82 (10th Cir. 2012) (Holding
that ``[e]ven if 90% of the comments . . . were negative, this
merely demonstrates public opposition, not a substantial dispute''
concerning the factors that the agency had to consider per the
statute).
---------------------------------------------------------------------------
The situation also may be analogized with the standards applicable
to setting forth minimally viable claims in litigation. A Federal
plaintiff has an ``obligation to provide the `grounds' of his
`entitle[ment] to relief' [that] requires more than labels and
conclusions, and a formulaic recitation of the elements of a cause of
action will not do.'' \16\ ``Threadbare recitals of the elements of a
cause of action, supported by mere conclusory statements, do not
suffice.'' \17\
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\16\ Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)
(quoting Fed. R. Civ. P. 8(a)(2) (first alteration in original)).
\17\ Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
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The OCC believes that either of these standards, as expressed by
the Supreme Court, are analogous to those proposed for a comment on a
licensing filing to warrant a change to expedited procedures. The
requirement that a comment not be ``non-substantive'' to be considered
reflects that the OCC will not ``accept as true a legal conclusion
couched as a factual allegation.'' \18\ Similarly, the requirement is
consistent with the APA's provisions governing formal rulemaking
proceedings.\19\ Thus, a comment containing merely a conclusory
statement would not be sufficient to change the expedited processing
procedures. It is appropriate for the OCC to require that a comment
must have factual and analytical support to allow the OCC to determine
that one of the concerns set forth in Sec. 5.13(a)(1) has indeed been
raised, thus warranting additional OCC review.\20\
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\18\ Papsan v. Allain, 478 U.S. 265, 286 (1986).
\19\ See 5 U.S.C. 556(d) (permitting agency officials or
administrative law judges overseeing formal rulemaking proceedings
to exclude ``irrelevant, immaterial, or unduly repetitious
evidence'').
\20\ Cf. Twombly, 550 U.S. at 556 (requiring that an antitrust
complaint contain ``enough fact to raise a reasonable expectation
that discovery will reveal evidence of illegal agreement'').
---------------------------------------------------------------------------
Accordingly, the OCC believes that the criteria for being ``non-
substantive'' set forth in the amendment provides a clear standard for
when the OCC will consider a comment to be non-substantive and provides
commenters with guidance on submitting views on a filing. Further, the
OCC notes that if a commenter believes that the OCC inadequately
considered a comment, they may have grounds to challenge the OCC's
licensing decision under the APA.
This commenter also stated that the final rule should describe the
procedure by which the OCC would notify the commenter if the OCC
determines a comment to be non-substantive and the procedure for re-
submission of the comment. The OCC also disagrees with this comment.
The OCC does not intend to notify a commenter that it finds its comment
non-substantive. As indicated above, the OCC believes the provision as
proposed adequately explains the OCC's standards for non-substantive
comments and that these standards should inform commenters when the OCC
would find a comment to be non-substantive.
Another commenter requested the OCC to define and explain the term
``significant'' as used in the current rule to describe supervisory,
CRA, and compliance concerns and to provide the criteria it would use
to determine the significance of concerns. In response to this comment,
the OCC intends ``significant'' as used in the current and final rule
to mean a ``substantive'' comment that raises material concerns
requiring a longer review period to determine the impact on the
application. A ``substantive'' comment is one that includes specific,
concrete statements raising an issue on the relevant subject with
supporting argument and material. A comment may be ``substantive'' but
not ``significant'' if it does not raise concerns for which the OCC
would need a longer time period to review to determine their impact on
the application (e.g., they are relatively minor or can be addressed in
other ways). The OCC notes that it considers all comments received.
This commenter also requested that the final rule clarify whether a
``prior filing'' means a filing from the current filer or a different
bank that shares the same assessment area. This provision is referring
to the current filer. As requested by the commenter, the final rule
includes language to clarify this point.
Current Sec. 5.13(a)(2)(ii) also provides that the OCC will not
change the expedited procedures if the adverse comment raises a CRA
concern that the OCC determines has been satisfactorily resolved. The
current rule states that the OCC considers a CRA concern to be
satisfactorily resolved if the OCC previously reviewed (e.g., in an
examination or application) a concern presenting substantially the same
issue in substantially the same assessment area during substantially
the same time, and the OCC determines that the concern would not
warrant denial or imposition of a condition on approval of the
application. The OCC proposed amending this provision to expand what is
meant by ``previously reviewed'' to include other supervisory activity,
in addition to an examination, and a prior filing, which includes
notices and applications.
One commenter read this proposed amendment to mean that the OCC
would not consider a comment to be substantive if it addresses an issue
the OCC previously resolved during an examination or application and as
such opposed this change, noting that it would increase the
arbitrariness of the OCC's rulings. However, the commenter misreads the
proposal. The proposal does not classify an already addressed issue as
non-substantive. Instead, a CRA concern that has been satisfactorily
resolved is currently, and remains in the final rule, a separate basis
for not changing expedited processing under
[[Page 80409]]
Sec. 5.13(a)(2). The only proposed change to this provision was to
broaden the types of activities in which the concern had already been
addressed. The commenter does not address this aspect of the proposal.
Further, as stated in the ``Public Notice and Comments'' booklet of the
Comptroller's Licensing Manual, ``[t]he OCC construes these standards
[for satisfactorily resolved CRA concerns] narrowly. The OCC may
consider a CRA concern to be unresolved, for example, if the agency
receives new information on a matter that it reviewed previously.''
\21\
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\21\ ``Public Notice and Comments'' booklet of the Comptroller's
Licensing Manual, Version 1.1, Nov. 2017, p. 8. The OCC note's that
one commenter requested that this language regarding new information
be included in the regulatory text. However, the OCC believes that
it is not necessary to include this language in the rule, and that
the inclusion of this language in the Supplementary Information of
this final rule and in the Licensing Manual provides adequate
explanation for how OCC construes as ``previously reviewed.''
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The OCC also proposed amending the introductory text to paragraph
(a)(2) to reflect that some expedited review procedures in part 5 do
not require the national bank or Federal savings association to be an
eligible bank or eligible savings association, as defined in Sec. 5.3.
In addition, the OCC proposed clarifying paragraphs (a)(2)(i) and (ii)
by revising the punctuation and sentence structure so that it is easier
to read.
For these reasons, the OCC adopts these proposed amendments to
Sec. 5.13 (a)(2) with the change discussed above. Additionally, the
OCC is making additional technical amendments to paragraph (a)(2)(iii)
to conform with the general change in terminology from ``application''
to ``filing'' in rules of general applicability.
Paragraph (h) of Sec. 5.13 provides that the OCC may nullify a
decision on a filing if: (1) The OCC discovers a material
misrepresentation or omission after the OCC has rendered a decision on
the filing; (2) the decision is contrary to law, regulation, or OCC
policy; or (3) the OCC granted the decision due to clerical or
administrative error or a material mistake of law or fact. The OCC's
decisions on filings generally contain a statement that the ``OCC may
modify, suspend or rescind this approval if a material change in the
information on which the OCC relied occurs prior to the date of the
transaction to which the decision pertains.'' The OCC proposed revising
paragraph (h) to clarify that the OCC may nullify a decision on a
filing either prior to or after consummation of the transaction and
that the OCC may nullify a decision based on a material
misrepresentation or omission in any information provided to the OCC in
the filing or supporting materials. Additionally, the OCC proposed
adding a new paragraph (i) that would provide that the OCC may modify,
suspend, or rescind a decision on a filing if a material change in the
information or circumstance on which the OCC relied occurs prior to the
date of the consummation of the transaction to which the decision
pertains. The OCC received no comments on these amendments to Sec.
5.13(g) and new Sec. 5.13(i) and adopts them as proposed. As explained
in the preamble to the proposed rule, these revisions are intended to
clarify that nullification is based on the facts, law, and policy as
they existed at the time of the OCC's decision. By contrast,
modification, suspension, or rescission is based on a change in facts
or circumstance from the time of the OCC's decision until consummation
of the transaction to which the decision pertains.
As indicated previously in this Supplementary Information, the
final rule moves the provisions in current Sec. 5.13(h) regarding
certification of the submitted filing and penalties for material
misrepresentation and omissions in a filing to new paragraph Sec.
5.4(g).
Organizing a National Bank or Federal Savings Association (Sec. 5.20)
Section 5.20 provides the procedures and requirements involved in
organizing a de novo national bank or Federal savings association. The
OCC proposed two new definitions to Sec. 5.20(d). First, the OCC
proposed defining ``principal shareholder'' as a person who directly or
indirectly or acting in concert with one or more persons or companies,
or together with members of their immediate family, will own, control,
or hold 10 percent or more of the stock of the proposed national bank
or Federal savings association. This definition is consistent with the
definition used in the ``Background Investigations'' booklet of the
Comptroller's Licensing Manual and the instructions for the Interagency
Biographical and Financial Report.\22\ The OCC proposed this definition
in conjunction with provisions related to background checks and
fingerprint collections in Sec. 5.20(i)(3), discussed below.
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\22\ The Interagency Biographical and Financial Report is
available on the OCC's website at https://www.occ.gov/static/licensing/form-ia-biographical-financial-report.pdf.
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Second, the OCC proposed clarifying that the term ``organizer''
means a member of the organizing group. This definition is not clearly
stated in current Sec. 5.20.
The OCC received no comments on these new definitions and adopts
them as proposed.
Paragraph (i) contains procedures for filing a charter application.
The OCC proposed a new paragraph (i)(3) requiring each proposed
organizer, director, executive officer, or principal shareholder to
submit to the OCC the information prescribed in the Interagency
Biographical and Financial Report and legible fingerprints. New
paragraph (i)(3) permits the OCC to request additional information, if
appropriate, and waive the requirements of that paragraph if the OCC
determines it to be in the public interest. The OCC received no
comments on this provision and adopts it as proposed. As discussed in
the ``Charters'' booklet of the Comptroller Licensing Manual, the OCC
generally conducts routine background checks on insiders, including
proposed organizers, directors, executive officers, and controlling
shareholders. This revision to Sec. 5.20(i), which is consistent with
the final rule's background investigation changes in Sec. 5.7(b),
codifies this process and authorizes the collection of fingerprints for
charter applications.
The OCC also proposed a number of technical changes to Sec. 5.20.
First, in the definition of ``organizing group'' in Sec. 5.20(d)(7),
the OCC proposed to change the term ``persons'' to ``individuals'' to
more accurately reflect who may make up an organizing group. One
commenter stated that further clarity is needed for changing this term.
The OCC proposed this change to clarify that only individuals and not
entities may serve in the organizing group, as provided by 12 U.S.C.
21. Section 21 states that ``[a]ssociations for carrying on the
business of banking . . . . may be formed by any number of natural
persons, not less in any case than five.'' However, to be as consistent
as possible with this statute, the final rule instead changes the term
``persons'' to ``natural persons.'' Although 12 U.S.C. 21 only applies
to national banks, this definitional change applies to both national
banks and Federal savings associations. Second, in Sec.
5.20(g)(4)(ii), the OCC proposed to change the phrase ``withdrawal of
preliminary approval'' to ``nullification or rescission of preliminary
approval'' to align with the terminology in proposed Sec. Sec. 5.13(h)
and (i). Third, in Sec. 5.20(i), the OCC proposed to change the term
``spokesperson'' to ``contact person'' in redesignated paragraph (i)(5)
to conform to the use of this term in other paragraphs of this section.
Fourth, in redesignated
[[Page 80410]]
paragraph (i)(5), the OCC proposed to change the term ``interested
parties'' to ``relevant parties,'' which more accurately describes who
the OCC should notify of its decision on an application. Lastly, the
OCC proposed to remove the reference to 12 CFR part 197 in Sec.
5.20(i), redesignated paragraph (i)(6)(iii), because the OCC has
removed this regulation. The remaining citation, 12 CFR part 16, now
applies to both national banks and Federal savings associations. The
OCC received no comments on these technical changes and therefore
adopts them as proposed, with an additional technical correction of
cross-references in redesignated paragraph (i)(6)(i).
The final rule makes one new technical correction to Sec. 5.20. It
removes the reference to 12 CFR part 195, the Federal savings
association CRA rule, in Sec. 5.20(e)(2)(ii) as of December 11, 2020.
The OCC recently amended 12 CFR part 25 to include Federal savings
associations and removed 12 CFR part 195 as of October 1, 2020.\23\
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\23\ See 85 CFR 34734 (June 5, 2020).
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Federal Mutual Savings Association Charter and Bylaws (Sec. 5.21)
Section 5.21 governs the procedures and requirements for charters
and bylaws of Federal mutual savings associations. Pursuant to
paragraph (f)(2), charter amendments are generally subject to prior
approval by the OCC although, under paragraph (g), most applications
for charter amendments are subject to expedited review and deemed
approved as of the 30th day after filing unless the OCC notifies the
filer that it has denied the amendment, or the amendment is not
eligible for expedited review. An application is not eligible for
expedited review if the charter amendment would render more difficult
or discourage a merger, proxy contest, the assumption of control by a
mutual account holder of the association, or the removal of incumbent
management or involves a significant issue of law or policy. Paragraph
(g) further provides that a notice is required within 30 days after
adoption if the filer adopts the optional charter amendments contained
in paragraph (g) without change.
The OCC proposed to reorganize these provisions to clarify the
procedures Federal mutual savings associations must follow in adopting
charter amendments, to align the terminology in Sec. 5.21 with general
usage in part 5, and to make other clarifying changes. As indicated in
the preamble to the proposed rule, the OCC does not intend these
changes to be substantive. The OCC received no comments on these
amendments to Sec. 5.21 and adopts them as proposed, with technical
amendments. Specifically, the final rule amends paragraphs (j)(2) to
reflect the changes made by the OCC's interim final rule on Director,
Shareholder, and Member Meetings.\24\ These amendments do not make any
substantive changes to paragraph (j)(2) as proposed.
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\24\ See 85 FR 31943 (May 28, 2020). Because the final rule
includes the changes made by the interim final rule, the OCC is not
issuing a separate rulemaking to finalize the part 5 changes made by
the interim final rule. Among other things, this interim final rule
amended Sec. Sec. 5.21 and 5.22 to permit an association's bylaws
to provide for telephonic or electronic participation of members and
shareholders, as applicable, at both annual and special meetings.
These amendments also provide that members or shareholders
participating telephonically or electronically at these meetings
will be deemed present in person for purposes of the quorum
requirement in Sec. Sec. 5.21(j)(2)(v) or 5.22(k)(5), as
applicable. In addition, this interim final rule requires Federal
savings associations to have procedures in place for telephonic and
electronic participation and provides associations with a choice of
procedures to follow based on elected State corporate governance
procedures, the Delaware General Corporation Law, or the Model
Business Corporation Act. Further, this interim final rule clarifies
that stock Federal savings associations may provide for telephonic
or electronic participation at all board of directors meetings, as
currently provided for mutual Federal savings associations. The OCC
received one substantive comment letter on this interim final rule,
which supported its amendments. In response to a request for comment
in the preamble to this interim final rule, this commenter opposed
any new risk management standards to mitigate any security risks
arising from telephonic or electronic meetings, noting that new
standards would be unnecessary given current safeguards and
regulatory requirements. The OCC is not imposing any new risk
management standards for telephonic or electronic meetings through
this part 5 final rule.
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As a result of the final rule, all of this section's procedural
requirements for adopting charter amendments are located in paragraph
(f)(2). These amendments clarify that charter amendments are subject to
a three-part regime: Application with expedited review, standard
application, or notice. As a result, revised paragraph (g) now only
contains provisions relating to optional charter amendments.
Additionally, the final rule adds a new paragraph (f)(3) specifying
that a charter amendment is effective once it is: (1) Approved by the
OCC, if approval is required under paragraph (f)(2); and (2) adopted by
the association provided the association follows the requirements of
its charter in adopting the amendment. The final rule also makes a
clarifying amendment to paragraph (g)(2) to reflect that change of a
Federal savings association's title does not require prior OCC notice
under Sec. 5.42, as is implied by the current paragraph (g)(2).\25\
The OCC intends no substantive change with this amendment.
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\25\ When provisions for Federal savings associations were added
to Sec. 5.42, the OCC did not include the prior rule's advance
notice requirement. See 80 FR 28383 (May 15, 2015).
---------------------------------------------------------------------------
Current paragraph (j) of Sec. 5.21 governs the bylaws for Federal
mutual savings associations. Paragraph (j)(2)(viii) requires the bylaws
to specify that the Federal mutual association's board of directors
consist of no fewer than five nor more than fifteen members unless the
OCC has authorized a higher or lower number. However, unlike the
corresponding provision for Federal stock savings associations, 12 CFR
5.22(l)(2), paragraph (j)(2)(viii) does not explicitly address numbers
of directors authorized by the former OTS. Accordingly, the final rule
revises this paragraph to explicitly acknowledge that authorizations by
the former OTS remain effective.
Current paragraph (j)(3) contains the filing requirements for
changes to Federal mutual savings association bylaws. Currently, all
bylaw amendments require some sort of filing with the OCC. As with the
charter amendments discussed above, the OCC reorganizes these
provisions in the final rule to clarify the procedures Federal mutual
savings associations must follow in adopting bylaw amendments and to
align the terminology with that used in part 5. The OCC also is
eliminating the filing requirement for savings associations that adopt
without change the OCC's model or optional bylaws, thereby reducing
burden for these Federal mutual savings associations. As a result,
these amendments specify that bylaw amendments are subject to a four-
part regime: Application with expedited review, standard application,
notice, and no filing required. As with the charter amendments, the
final rule provides that a bylaw amendment is effective after approval
by the OCC, if required, and adoption by the association, provided that
the association follows the requirements of its charter and bylaws in
adopting the amendment. Additionally, the final rule makes two
additional technical changes. First it corrects a cross reference in
paragraph (j)(3)(i)(A) to correctly refer to paragraph (j)(3)(i)(B).
Second, it changes the heading of proposed paragraph (j)(3)(ii) from
``Notice requirement'' to ``Corporate governance election and notice
requirement'' to better reflect the subject of this paragraph.
As discussed later in this Supplementary Information, the OCC
proposed technical changes throughout part 5, including replacing the
word ``shall'' with another appropriate word or words. These technical
changes, as well as other minor proposed wording changes, are included
in the model charter and bylaw provisions provided
[[Page 80411]]
in revised Sec. 5.21. As indicated in the preamble to the proposed
rule, the OCC does not intend these technical changes to require any
changes on the part of Federal mutual savings associations that use the
current model language. Further, the OCC does not intend these
technical changes to have any effect on the provisions or effectiveness
of a Federal mutual savings association's current charter or bylaws.
Federal Stock Savings Association Charter and Bylaws (Sec. 5.22)
Section 5.22 governs the procedures and requirements for Federal
stock savings association charters and bylaws. Section 5.22 generally
parallels Sec. 5.21, which applies to Federal mutual savings
association charters and bylaws. The OCC proposed equivalent changes to
Sec. 5.22 as proposed for Sec. 5.21. The OCC also proposed two
additional technical amendments to Sec. 5.22. Section 5.22 contains
sample charter and bylaw provisions, and paragraph (g)(7) provides an
optional ``Section 8'' for Federal stock savings association charters
following mutual to stock conversions. This optional section contains a
definition of ``acting in concert.'' The OCC proposed minor wording
changes to this definition for consistency with the definition of this
term in the OCC's change in bank control regulation, Sec. 5.50. The
OCC also proposed correcting a cross-reference to 12 CFR part 192 in
paragraph (e). The OCC received no comments on the revisions to Sec.
5.22 and adopts them as proposed, with additional technical amendments.
First, as discussed above regarding Sec. 5.21, the final rule amends
paragraph (g)(1) to reflect that change of a Federal savings
association's title does not require prior OCC notice under Sec. 5.42.
Second, the final rule corrects the cross-reference in paragraph (i) to
the form ``Federal stock charter.'' Third, the final rule changes the
heading in proposed paragraph (j)(2)(ii) from ``Notice requirement'' to
``Corporate governance election and notice requirement'' to better
reflect the subject of this paragraph. Fourth, the final rule amends
paragraphs (k)(1) and (l)(3) and (8) to reflect the changes made by the
OCC's interim final rule on Director, Shareholder, and Member
Meetings.\26\ Fifth, the final rule corrects cross-references in
paragraphs (k)(2) and (k)(4)(ii). Finally, the final rule amends
paragraph (m)(2) to remove the sentence that provides that employment
contracts shall conform with 12 CFR 163.39 because the OCC removed
Sec. 163.39 in a separate final rule.\27\
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\26\ See 85 FR 31943 (May 28, 2020).
\27\ See 85 FR 42630 (July 14, 2020).
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Conversion To Become a Federal Savings Association (Sec. 5.23) and
Conversion To Become a National Bank (Sec. 5.24)
Sections 5.23 and 5.24 are largely parallel rules that provide the
procedures and standards for OCC review and approval of an application
by an institution to convert to a Federal savings association or
national bank, respectively. The OCC proposed a number of amendments to
these sections and did not receive any comments. Therefore, the OCC
adopts these amendments as proposed.
First, Sec. 5.23(d)(2)(ii)(A) and 5.24(e)(2)(i) each require the
president or other duly authorized officer to sign the conversion
application. OCC applications also require an authorized signature.
However, these sections are the only provisions in part 5 that require
an authorized officer to sign the application. The final rule removes
Sec. Sec. 5.23(d)(2)(ii)(A) and 5.24(e)(2)(i) because the OCC does not
find it necessary to specify this signature requirement in a
regulation.
Second, the ``Conversions to Federal Charter'' booklet of the
Comptroller's Licensing Manual indicates that filers should include a
list of directors and senior executive officers of the converting
institution as well as a list of individuals, directors, and
shareholders who directly or indirectly, or acting in concert with one
or more persons or companies, or together with members of their
immediate family, do or will own, control, or hold 10 percent or more
of the converting institution's stock. It is necessary for the OCC to
have a complete list of these individuals because the OCC generally
conducts routine background investigations as part of the application
process. The final rule codifies these requirements in Sec. Sec.
5.23(d)(2)(ii) and 5.24(e)(2). Additionally, the final rule makes a
technical change to redesignated Sec. 5.23(d)(2)(ii)(F) to correctly
reference Sec. 5.58 for Federal savings association equity
investments, rather than Sec. 5.36, which applies to national banks.
Furthermore, as proposed, the final rule adds a new paragraph to
each of these rules, Sec. Sec. 5.23(d)(2)(iv) and 5.24(e)(4),
providing that the OCC may require directors and senior executive
officers of the converting institution to submit the Interagency
Biographical and Financial Report and legible fingerprints. This
amendment codifies the background investigation process set forth in
the ``Conversions to Federal Charter'' booklet of the Comptroller's
Licensing Manual and specifically authorizes the collection of
fingerprints for conversion applications, consistent with the
background investigation changes proposed to other sections in this
final rule.
Sections 5.23(d)(4) and 5.24(h) provide for expedited review for
conversion from an eligible national bank to a Federal savings
association, and vice versa. Currently, this conversion application is
deemed approved as of the 60th day after the OCC receives the filing.
As noted in the preamble to the proposed rule, the OCC believes that it
can review and decide these conversion applications in a shorter period
because it already supervises an entity eligible to use the expedited
review process. Accordingly, the final rule decreases the time period
for the expedited review to 45 days. The final rule also makes a
technical change to Sec. 5.23(d)(4) to remove the modifier
``national'' before bank as the defined term in Sec. 5.3 is ``eligible
bank.'' This deletion does not change the scope of institutions
eligible for expedited review as only a national bank, and not a State
bank, may be an eligible bank under the definition in Sec. 5.3.
Fiduciary Powers of National Banks and Federal Savings Associations
(Sec. 5.26)
Section 5.26 contains the application requirements and processes
for a national bank or Federal savings association to engage in the
exercise of fiduciary powers. Paragraph (e)(2)(i)(C) requires a
national bank or Federal savings association to submit sufficient
biographical information on proposed trust management personnel as part
of an application for fiduciary powers. The OCC proposed two changes to
this paragraph and did not receive any comments. Therefore, the OCC
adopts them as proposed. Because the scope of the term ``trust
management personnel'' in paragraph (e)(2)(i)(C) is unclear, the final
rule clarifies that the biographical information is required for
proposed senior trust management personnel, as identified by the OCC.
The final rule also provides that the application required in paragraph
(e)(2)(i)(C) include, if requested by the OCC, the Interagency
Biographical and Financial Report and legible fingerprints for these
individuals, consistent with the background investigation changes made
to other sections of part 5 by this final rule.
Section 5.26(e)(6) requires a national bank or Federal savings
association to submit a written notice to the OCC no later than 10 days
after it begins
[[Page 80412]]
previously approved fiduciary activities in additional States. The OCC
proposed to reorganize this paragraph with no substantive changes. No
commenters discussed this reorganization and the OCC adopts it as
proposed. Under the final rule, paragraph (e)(6)(i) generally requires
a written notice after the national bank or Federal savings association
begins any of the activities specified in 12 CFR 9.7(d) in a new State.
Paragraph (e)(6)(ii) requires the notice to include the new States, the
fiduciary activities to be conducted, and the extent to which the
activities differ materially from the fiduciary activities currently
conducted. Paragraph (e)(6)(iii) provides that no notice is required if
the information required by paragraph (e)(6)(ii) is provided by other
means, such as in a merger application. Finally, the final rule
redesignates current paragraph (iii), which provides that no notice is
required if the national bank or Federal savings association is
conducting only activities ancillary to its fiduciary business through
a trust representative office or otherwise, as paragraph (iv).
One commenter discussed Sec. 5.26(e)(5), which the OCC did not
propose to amend. This provision requires a national bank or Federal
savings association that has ceased to conduct previously approved
fiduciary powers for 18 consecutive months to provide the OCC with a
new notice as set forth by this section 60 days prior to commencing any
fiduciary activity. The commenter requested that the OCC change this 18
month time period to five years. The commenter noted that five years
would be consistent with 12 U.S.C. 92a(k), which allows the OCC to
revoke the authority to engage in fiduciary activities if the national
bank has not exercised it for five consecutive years. The OCC disagrees
with this commenter's recommendation and continues to believe, as
discussed when the OCC originally adopted this requirement in 2015,
that an 18-month time period is appropriate to ensure that the
management and condition of a national bank or Federal savings
association has not changed since the OCC's original approval of the
fiduciary activities.\28\ Further, this 18-month notification period
enables the OCC to allocate supervisory resources to evaluate the
institution when it resumes fiduciary activities. Lastly, Sec.
5.26(e)(5) requires notice to the OCC, and not OCC approval. Therefore,
the OCC does not find this requirement to be overly burdensome.
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\28\ See 80 FR 28345, at 28365 (May 18, 2015).
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Establishment, Acquisition, and Relocation of a Branch of a National
Bank (Sec. 5.30)
Section 5.30 describes the application procedures to establish and
relocate a national bank branch. Paragraph (d) provides definitions
applicable to Sec. 5.30. The OCC proposed two amendments to paragraph
(d). First, paragraph (d)(1)(i) lists certain types of facilities that
are considered branches. The OCC proposed to reorder this list so that
the reference to 12 U.S.C. 36(c) applies only to seasonal agencies and
not to the other types of facilities. Second, paragraph (d)(1)(iii)
specifies that remote service units (RSUs) and certain types of offices
are not within the definition of ``branch.'' The OCC proposed to
clarify this provision by adding both a cross-reference to the
description of RSUs contained in 12 CFR 7.4003 \29\ and a reference to
automated teller machines (ATMs), including interactive ATMs, codifying
OCC Interpretive Letter No. 1165 (August 2019).\30\ As discussed in
this interpretive letter, a national bank establishment of an
interactive ATM does not constitute establishing a branch if the
machine meets the definition of an ATM used for purposes of 12 U.S.C.
36 consistent with OCC interpretations, and the nature of the
interactions between the customer and remote bank personnel are
delimited as would be the case with an RSU. The OCC received no
comments on these amendments and adopts them as proposed.
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\29\ The OCC notes that it has proposed to renumber 12 CFR
7.4003 to 12 CFR 7.1027 in a separate rulemaking. See 85 FR 40794
(July 7, 2020). The OCC will update this cross-reference in Sec.
5.30 if it finalizes this renumbering.
\30\ OCC Interpretive Letter No. 1165, Legal Requirements for
the Establishment of Interactive Automated Teller Machines (August
2019), available at https://www.occ.gov/topics/charters-and-licensing/interpretations-and-actions/2019/int1165.pdf.
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One commenter requested that the OCC amend the definition of
``mobile branch'' in Sec. 5.30(d)(5) to clarify that a mobile branch
may be located at one location for up to four months without requiring
an application for a temporary branch. Currently, paragraph (d)(5)
defines ``mobile branch'' as a branch of a national bank, other than a
messenger service branch, that does not have a single, permanent site,
and includes a vehicle that travels to various public locations to
enable customers to conduct their banking business. Pursuant to this
definition, a mobile branch may provide services at various regularly
scheduled locations or it may be open at irregular times and locations
such as at county fairs, sporting events, or school registration
periods. The OCC agrees that the rule does not clearly indicate how
long a mobile branch may serve one location before losing its status as
a mobile branch and that clarity and uniformity on this point would be
helpful. Further, the OCC finds that locating a mobile branch at one
location for a limited period of time without having to continuously
move it back and forth to this location to prevent it from losing its
status as a mobile branch would be useful in certain circumstances,
especially during emergency situations such as weather-related
emergencies or during the current COVID-19 pandemic. Therefore, the OCC
is clarifying in the final rule that a mobile branch may be stationed
continuously at a single location within the geographic area it is
approved to serve for a period of up to four months. The OCC views this
new language as interpretive. The OCC notes that a mobile branch is
only permitted in States where a State bank is permitted to establish a
mobile branch. Because State statutes restricting mobile branch
locations are applicable to national banks, if a State statute
restricts how long a mobile branch could serve a given location, that
restriction is applicable to national bank mobile branches in that
State.
In the preamble to the proposed rule, the OCC noted that it is
considering one additional change to the definition of ``branch'' in
paragraph (d). Paragraph (d)(1)(ii)(B) provides that a facility is not
a branch if it is located at the site, or is an extension, of an
approved main office or branch office of the national bank. The rule
further provides that the OCC determines whether a facility is an
extension of an existing main office or branch office on a case-by-case
basis. However, the rule deems a drive-in or pedestrian facility
located within 500 feet of a public entrance to an existing main office
or branch office to be an extension of the existing main office or
branch office, provided the functions performed at the drive-in or
pedestrian facility are limited to functions that are ordinarily
performed at a teller window, without the OCC's case-by case analysis.
The OCC requested comment on expanding this 500 foot distance to 1,500
feet. One commenter supported this increase. However, after further
review, the OCC has concluded that 500 feet is a more appropriate limit
for a facility to have the benefit of automatic treatment as an
extension of the main office or branch.\31\ Furthermore, a
[[Page 80413]]
facility at a distance greater than 500 feet may still be considered an
extension of the main office or branch based on the OCC's case-by-case
analysis. The OCC believes this current rule provides adequate
flexibility without the need to increase the regulatory distance
threshold.
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\31\ The OCC also stated that it was considering the same change
for a drive-in or pedestrian office of a Federal savings
association, in 12 CFR 5.31. To maintain consistency between
national bank and Federal association rules, the OCC also declines
to move forward with expanding the 500 foot distance rule to 1,500
feet in Sec. 5.31.
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Finally, the OCC proposed a technical change to paragraph (f),
which provides the procedures for establishing a national bank branch.
Paragraph (f)(1) requires each national bank that proposes to establish
a branch to submit an application to the OCC, except in the case of
messenger services as specified in paragraph (f)(2). However, paragraph
(f)(3) provides that if a national bank proposes to establish a branch
jointly with one or more national banks or other depository
institutions, only one of the national banks must submit a branch
application and this bank may act as agent for the other institutions.
Even if a single application is submitted for a joint branch, the OCC
still considers the relevant factors for each national bank. The OCC
proposed including paragraph (f)(3) as an additional exception to the
application requirement in paragraph (f)(1), thereby conforming these
two paragraphs. The OCC received no comments on this change and adopts
it as proposed.
Establishment, Acquisition, and Relocation of a Branch and
Establishment of an Agency Office of a Federal Savings Association
(Sec. 5.31)
Section 5.31 describes application and notice procedures for the
establishment, acquisition, or relocation of a Federal savings
association branch. Paragraph (j), implementing section 5(m) of the
Home Owners' Loan Act (HOLA) (12 U.S.C. 1464(m)), requires a Federal or
State savings association to obtain prior OCC approval to establish or
move a branch or move its principal office in the District of Columbia.
The OCC proposed to add a new paragraph (j)(3) to clarify that a branch
in the District of Columbia includes any location at which accounts are
opened, payments are received, or withdrawals made, including ATMs that
perform one or more of these functions. This amendment implements court
opinions finding that ATMs that accept deposits or disburse funds
against a customer's account constitute a branch.\32\ Although Congress
amended 12 U.S.C. 36(j) to remove ATMs and RSUs from the definition of
a national bank ``branch,'' Congress has not similarly amended section
5(m) of the HOLA. Therefore, the OCC and OTS have long taken the
position that an ATM established by a savings association in the
District of Columbia constitutes a branch requiring approval. The OCC
did not receive any comments on this proposed amendment and adopts it
as proposed. Because new paragraph (j)(3) codifies the OCC's existing
legal interpretation, the OCC believes that this amendment does not add
any regulatory burden to savings associations.
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\32\ See Independent Bankers Ass'n of New York State, Inc. v.
Marine Midland Bank, N.A., 757 F.2d 453, 458 (2d Cir. 1985)
(collecting cases).
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Business Combinations Involving a National Bank or Federal Savings
Association (Sec. 5.33)
Section 5.33 provides the application requirements and procedures
for business combinations involving national banks and Federal savings
associations, such as mergers, consolidations, and certain purchase and
assumption transactions. The OCC proposed several changes to this
section.
Paragraph (e) of Sec. 5.33 sets forth policies the OCC considers
when evaluating business combinations. Paragraph (e)(1)(ii)(F) provides
that the OCC will not approve a transaction that would violate the
deposit concentration limit in 12 U.S.C. 1828(c)(13). Only interstate
merger transactions as defined 12 U.S.C. 1828(c)(13)(C)(i) are subject
to this deposit concentration limit. The OCC proposed adding a
reference to 12 U.S.C. 1828(c)(13)(C)(i) in paragraph (e)(1)(ii)(F) for
clarity. The OCC did not receive any comments on this change and adopts
it as proposed.
Paragraph (e)(1)(iii) provides the OCC's policy for evaluating
business combinations under the CRA. Under 12 U.S.C. 2903(a)(2), the
OCC must evaluate an insured national bank's or Federal savings
association's CRA record when evaluating its application for a business
combination. The OCC proposed three changes to paragraph (e)(1)(iii).
First, the OCC proposed a new paragraph (e)(1)(iii)(A) to better
describe the OCC's review of a business combination and to more closely
track the statutory language under which the OCC is required to assess
the track record of the applicant. This paragraph specifies that the
OCC takes into account the filer's CRA record of performance in
considering an application for a business combination. It also states
that the OCC's conclusion of whether the CRA performance is or is not
consistent with approval of an application is considered in conjunction
with the other factors in Sec. 5.33, codifying the OCC's practice of
evaluating all policy factors in light of the whole application as set
forth in the OCC's Policies and Procedures Manual (PPM-6300-2).
One commenter supported the clarification that the OCC will
consider the institution's CRA's performance in conjunction with the
other factors in Sec. 5.33, stating that this change is consistent
with statutory requirements and codifies existing OCC practice. Another
commenter said that it would break with precedent to remove the
provision providing that the OCC will take into account the CRA record
of the target institution. This commenter also stated that this change
would impair the public's ability to comment and render the OCC unable
to fully consider the public benefit of the proposed merger as required
by the CRA statute. The commenter stated that only a review of the CRA
performance of both the target and the acquiring bank provides a full
understanding of likely future CRA performance and the resultant bank's
ability to meet the convenience and needs of the communities it serves.
The OCC disagrees with this commenter. The OCC's review of an
institution's CRA performance is retrospective, while the OCC's review
of a business combination application is prospective. As noted in the
preamble to the proposed rule, OCC practice is to consider and evaluate
a filer's record of performance under the CRA and, more broadly, the
filer's plans and ability to enable the combined organization to serve
the convenience and needs of its communities. Thus, the target's CRA
record will inform the convenience and needs analysis but is not in of
itself a factor in the OCC's review of the application. Additionally,
the OCC notes that public benefit is not a statutory factor the OCC
must consider despite the comment's reference to it as such. \33\ The
OCC therefore adopts this new paragraph (e)(1)(iii)(A) as proposed.
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\33\ See 12 U.S.C. 1828(c)(5).
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Second, the OCC proposed a new paragraph (e)(1)(iii)(B) to
recognize the expanded community reinvestment compliance review
required by 12 U.S.C. 1831u(b)(3) when the filing national bank would
have a branch or bank affiliate immediately following the transaction
in any State in which the filer had no branch or bank affiliate
immediately before the transaction. Specifically, this new paragraph
provides that the OCC considers the CRA record of performance of the
filer and its resulting bank affiliates and the filer's record of
compliance with
[[Page 80414]]
applicable State community reinvestment laws when required by 12 U.S.C.
1831(b)(3). The OCC received no comments on this new paragraph and
adopts it as proposed.
Third, the OCC proposed a new paragraph (e)(1)(iii)(C) requiring
the filer to disclose whether it has entered into and disclosed a
covered agreement, as defined in 12 CFR 35.2, in accordance with 12 CFR
35.6 and 35.7. These regulations implement the CRA sunshine
requirements of section 48 of the FDI Act, 12 U.S.C. 1831y. Requiring
disclosure of any covered agreements will better permit the OCC to
review the filer's CRA record and any CRA-related comments on the
filing. One commenter supported the disclosure of these covered
agreements. Therefore, the OCC adopts this new paragraph as proposed.
The final rule also includes a technical amendment that changes the
heading of paragraph (e) from ``Policy'' to ``Policy and related filing
requirements'' to better reflect the contents of this paragraph.
This commenter also stated that the regulators should work with
community groups and banks on the development of a process for
recognizing these agreements during the merger application process and
for their implementation to become a factor on CRA performance
evaluations. The OCC agrees that these agreements may provide the OCC
with context on the credit needs of the community served during the
application process. However, the OCC and the other Federal banking
regulators have long held the position that these agreements are
private agreements between depository institutions and private parties.
Therefore, the Federal banking regulators do not monitor compliance
with, nor enforce, these agreements.\34\ Because they are private
agreements, a bank's compliance with these agreements should not be a
factor in the OCC's decision on an application.
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\34\ See the Interagency Questions and Answers Regarding
Community Reinvestment, Q&A Sec. __.29(b)--2, 81 FR 48506 (July 25,
2016).
---------------------------------------------------------------------------
The OCC noted in the preamble to the proposed rule that it is
considering whether to require a filer to memorialize and publish any
discussion between the filer and any third party with respect to the
development of any community reinvestment plan, community benefit plan,
or similar plan in connection with a business combination. Two
commenters opposed this idea. One commenter stated that the requirement
to memorialize discussions would be burdensome, frivolous, and
extraneous because all relevant information is included in the final
plan. This commenter also stated that such a requirement may cause
disagreements about what is covered and what constitutes an acceptable
level of memorialization. In addition, this commenter noted that this
requirement would discourage community participation in discussions for
these agreements. The second commenter stated that this requirement
could have a chilling effect on discussions between filers and third
parties causing them to be less candid during these discussions,
reducing the likelihood of reaching an agreement. This commenter also
stated that the filer and third party may disagree in the way in which
the discussion has been memorialized. Lastly this commenter noted that
this requirement would duplicate the CRA sunshine requirements in 12
CFR part 35, which provides the circumstances under which these
discussions should be made public.
The OCC disagrees with these comments and is adding a new paragraph
in the final rule requiring that the national bank or Federal savings
association submitting a business combination filing must provide
summaries of, or documents relating to, all substantive discussions
with respect to the development of the content of a covered agreement
submitted pursuant to new paragraph (e)(1)(iii)(C)(1). This summary
must include the names of participants, dates, and synopsis of these
discussions. The OCC believes that memorializing and disclosing
discussions between a national bank or Federal savings association and
a community group during the development of an agreement promotes
transparency and results in a fairer and more robust agreement for both
the financial institution and the community served by the institution,
furthering the intent of the CRA Sunshine statute as well as providing
the OCC with additional context during the application process on the
credit needs of the community served. The OCC does not expect minor or
trivial communications to be memorialized; for example, discussions
regarding scheduling or staffing need not be documented. However,
national banks and Federal savings associations will need to
memorialize and disclose substantive discussions pertaining to the
content of a plan. This documentation may consist of summaries or
transcripts of the discussions, or work product produced to further the
negotiations, such as summaries of suggested terms of the plan.
Further, to avoid conflicts between the institution and the community
group, the institution may share the documentation with the community
group prior to disclosure. Because national banks and Federal savings
associations already should be documenting these discussions in the
course of normal business operations, and because many of the documents
are already produced as part of the negotiating process, the OCC
believes that any additional burden placed on banks and savings
associations will be minimal and will be outweighed by the benefit of
ensuring transparency in the development of these plans in connection
with a business combination.
The OCC also proposed a new paragraph (e)(1)(iv) to state that the
OCC considers the standards and requirements contained in 12 U.S.C.
1831u for interstate merger transactions between insured banks, when
applicable. Current paragraph (h) describes the application of 12
U.S.C. 1831u to combinations between insured banks with different home
states. As part of the reorganization of paragraphs (g) and (h),
discussed below, the OCC proposed instead to include its review of the
12 U.S.C. 1831u factors in paragraph (e)(1) for clarity. The OCC
received no comments on this change and adopts it as proposed.
Paragraph (e)(8)(ii) requires a national bank or Federal savings
association with one or more classes of securities subject to
registration under sections 12(b) or (g) of the Securities Exchange Act
of 1934 to file preliminary proxy material or information statements
with the Director, Securities and Corporate Practices Division (SCP) of
the OCC. As a result of an internal reorganization, the OCC proposed
replacing the reference to SCP in paragraph (e)(8)(ii) with the OCC
Chief Counsel's Office. The OCC received no comments on this change and
adopts it as proposed.
Paragraph (g) provides procedures for different types of
consolidations and mergers. Paragraph (o) provides general procedures
for approval of Federal savings association business combinations.
These paragraphs provide detailed procedures for national banks and
Federal savings associations engaging in several different types of
business combinations. Some of these requirements are imposed by
statute. Specifically, 12 U.S.C. 215 and 215a provide procedures for
consolidations and mergers, respectively, between national banks and
State or national banks located in the same State resulting in a
national bank. Similarly, 12 U.S.C. 214 through 214d provide procedures
for consolidations and
[[Page 80415]]
mergers between national banks and State banks located in the same
State resulting in a State bank. Other consolidation and merger
transactions described in Sec. 5.33 do not have any statutory
procedures, including interstate consolidations and mergers involving a
national bank under 12 U.S.C. 215a-1; consolidations and mergers of
national banks and Federal savings associations under 12 U.S.C. 215c
and 1467a(s); consolidations and mergers of Federal savings
associations and State banks, State savings associations, State trust
companies, or credit unions under 12 U.S.C. 1464(d)(3)(A) and 1467a(s);
and mergers of national banks with their non-bank affiliates under 12
U.S.C. 215a-3.
In order to increase flexibility and reduce regulatory burden for
national banks and Federal savings associations involved in business
combinations for which procedural requirements are not specified by
statute, the OCC proposed a number of changes to these procedural
provisions. First, the OCC proposed that a national bank may follow the
procedures for mergers and consolidations under sections 2 and 3 of the
National Bank Consolidation and Merger Act (NBCMA) currently provided
in paragraph (g) for the specific transaction.
Second, the OCC proposed that a national bank or Federal savings
association may elect to follow the procedures applicable to a State
bank or State savings association, respectively, chartered by the State
in which the national bank's main office or the Federal savings
association's home office is located. In connection with this election,
the OCC proposed rules of construction so that the State procedures
function logically for national banks and Federal savings associations.
Specifically, any references to a State agency in the applicable State
procedures would be read as referring to the OCC. Additionally, unless
otherwise specified in Federal law, all filings required by the
applicable State procedures would be made to the OCC. Requiring filings
prescribed by State law to be made with the OCC, rather than a State
agency, is consistent with past OCC practice for certain transactions
under State corporate governance procedures adopted pursuant to 12 CFR
7.2000.\35\
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\35\ See, e.g., OCC Conditional Approval No. 859 (July 2008).
---------------------------------------------------------------------------
Third, the OCC proposed that the national bank or Federal savings
association that is the acquiring institution in a transaction may
follow a de minimis procedure that does not require a shareholder vote
pursuant to proposed Sec. 5.33(p) if certain criteria are met.
Proposed Sec. 5.33(p) is similar to the de minimis exception to
general shareholder voting requirements for Federal stock savings
associations in current Sec. 5.33(o)(3)(ii), which applies if the
transaction does not involve an interim savings association; the
Federal savings association charter does not change; each share of
stock outstanding will be identical to an outstanding share or treasury
share after the effective date of the transaction; and either no stock
or securities convertible into stock will be issued or delivered under
the plan of combination, or the authorized unissued shares or treasury
shares of the resulting Federal savings association to be issued or
delivered, plus those initially issuable upon conversion of any
securities to be issued or delivered, do not exceed 15 percent of the
total shares of voting stock outstanding immediately prior to the
effective date of the consolidation or merger.
The OCC proposed making this de minimis exception available to a
national bank engaging in transactions not subject to statutory
procedural requirements as well as a Federal stock savings association
in new paragraph (p) with two revisions. First, the OCC proposed
permitting certain combinations involving an interim bank or savings
association. Specifically, a national bank or Federal stock savings
association engaging in a transaction involving an interim bank or
interim saving association would potentially be able to use the
procedures in paragraph (p) if the existing shareholders of the
national bank or Federal stock savings association would directly hold
the shares of the resulting national bank or Federal stock savings
association. In promulgating an amendment to the predecessor to current
Sec. 5.33(o)(3)(ii), the Federal Home Loan Bank Board, the predecessor
to OTS, stated that ``[a]lthough the ownership interests of
shareholders of a reorganizing association generally do not undergo
substantive change upon a reorganization into holding company form, the
Board believes that shareholders should, nevertheless, be given an
opportunity to approve or disapprove a plan of reorganization.'' \36\
The OCC believes that in a transaction involving reorganization into a
holding company structure, shareholders of the national bank or Federal
stock savings association should have the opportunity to vote. However,
the OCC believes that a national bank or Federal stock savings
association may engage in transactions involving interim banks or
savings association that do not involve holding company reorganizations
where shareholder votes are not necessary, if the rest of the
requirements of proposed paragraph (p) are met.
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\36\ 47 FR 17797 at 17799 (Apr. 26, 1982).
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Second, to provide additional flexibility, the OCC also proposed
increasing the maximum issuance of shares eligible under this procedure
for both national banks and Federal savings associations from 15
percent of total outstanding shares to 20 percent. This change mirrors
the 20 percent threshold in similar procedures under Delaware law.\37\
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\37\ See Del. Code Ann. tit. 8, Sec. 251(f).
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The new procedural options described above would apply to: (1)
Consolidations and mergers of national banks and Federal savings
associations under 12 U.S.C. 215c and 1467a(s), resulting in either a
national bank or Federal savings association; (2) consolidations and
mergers of Federal savings associations and State banks, State savings
associations, State trust companies, or credit unions under 12 U.S.C.
1464(d)(3)(A) and 1467a(s), resulting in either a Federal savings
association or another entity; and (3) mergers of national banks with
their non-bank affiliates under 12 U.S.C. 215a-3, resulting in either a
national bank or a non-bank affiliate.
The new procedural options also would apply to interstate
consolidations and mergers involving a national bank under 12 U.S.C.
215a-1 based on a revised analysis of the NBCMA. As indicated in the
preamble to the proposed rule, the OCC formerly opined in licensing
decisions that 12 U.S.C. 215a-1 incorporates the provisions of 12
U.S.C. 215 for consolidations and 12 U.S.C. 215a for mergers.\38\
Twelve U.S.C. 215a-1 is the codification of section 4 of the NBCMA,
which was enacted by section 102(b)(4)(D) of the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994.\39\ Twelve U.S.C. 215 and
215a are codifications of sections 2 and 3 of the NBCMA, respectively.
Section 4 of the NBCMA states that ``a national bank may engage in a
consolidation or merger under this Act with an out-of-State bank if the
consolidation or merger is approved'' (emphasis added) \40\ under 12
U.S.C. 1831u, which sets out requirements for interstate mergers of
insured banks. In prior licensing decisions, the OCC interpreted
``under this Act'' to mean that an interstate
[[Page 80416]]
consolidation or merger authorized under section 4 of the NBCMA is a
consolidation or merger under section 2 or 3 of the NBCMA,
respectively, and thus subject to the procedural provisions of those
sections with respect to shareholder vote, dissenter's rights, and
other matters as well as the substantive provisions addressing
corporate succession, transfer of assets, liabilities, property, rights
and interests including fiduciary appointments, and the status of the
resulting bank (collectively ``corporate succession provisions''). In
other words, section 4 extended sections 2 and 3, which cover
consolidations and mergers between banks located in the same state, to
also cover consolidations and mergers between banks with different home
states. The OCC therefore implemented the NBCMA in Sec. 5.33(h) by
applying these provisions of sections 2 and 3 of the NBCMA to
transactions authorized under section 4 of the NBCMA.
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\38\ See, e.g., OCC CRA Decision No. 94 (June 1999).
\39\ Public Law 103-328, 108 Stat. 2338, 2351.
\40\ 12 U.S.C. 215a-1(a).
---------------------------------------------------------------------------
However, after further analysis, the OCC believes that the proper
reading of section 4 of the NBCMA is that it does not directly
incorporate any provisions of sections 2 or 3 of the NBCMA. As noted
above, the OCC previously focused on the phrase ``under this Act'' as
imposing the requirements of sections 2 and 3 on a merger conducted
under section 4. However, the statutory language is ambiguous and does
not require the OCC to incorporate any of the provisions in sections 2
or 3 of the NBCMA. Upon further consideration, the OCC believes the
text taken in its entirety may be read as merely specifying the source
of the authority and imposing the requirement that the consolidation or
merger be approved under section 1831u, but not imposing additional
requirements or conditions with which the bank must comply. As there
are no other sections of the NBCMA under which an interstate merger
between banks with different home States could be conducted in cases in
which the acquiring bank does not have branches in the same State as
the target bank, \41\ ``under this Act'' can be read to refer only to
section 4 itself. Since section 4 of the NBCMA, 12 U.S.C. 215a-1, does
not contain any substantive or procedural provisions, there are no
statutory procedures for interstate bank mergers under 12 U.S.C. 215a-1
resulting in a national bank. Therefore, the new proposed procedures
described above apply to these section 4 transactions.
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\41\ An acquiring bank that has branches in the same State as
the target bank but has a different home State than the target bank
is also ``located'' in the same State as the target bank for
purposes of sections 2 or 3. In this case, while the banks have
different home states, the transaction can be conducted either under
section 4 or under sections 2 or 3. See Ghiglieri v. NationsBank of
Texas, N.A., 1998 U.S. Dist. LEXIS 6637 (N.D. Texas, May 6, 1998);
OCC Corporate Decision No. 98-19 (April 2, 1998).
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In addition to new paragraph (p), the OCC proposed implementing the
changes discussed above through revisions to paragraphs (g), (h), and
(o). Specifically, the OCC proposed redesignating current paragraphs
(g)(2), (g)(3), (g)(6), and (g)(7) as paragraphs (g)(3), (g)(6),
(g)(7), and (g)(9), respectively. The proposal included new paragraph
(g)(2) that provides procedures for interstate consolidations and
mergers under 12 U.S.C. 215a-1 resulting in a national bank and
paragraph (g)(8) providing procedures for interstate mergers between an
insured national bank and an insured State bank resulting in a State
bank. Procedures for these transactions are currently contained in
paragraph (h). New paragraphs (g)(2) and (g)(8) include an option to
follow the procedures for intrastate mergers resulting in a national
bank or State bank in paragraphs (g)(1) and redesignated paragraph
(g)(7), respectively. The proposal also included in new and
redesignated paragraphs (g)(2), (g)(3), (g)(4), (g)(5), (g)(6), and
(g)(8) a reference to a national bank making an election under
paragraph (h). Revised paragraph (h) would permit a national bank to
elect to follow the procedures of the laws of the State which the
national bank association has elected to follow pursuant to 12 CFR
7.2000(b) or to use the de minimis procedure in new paragraph (p) if
applicable. Further, the proposal included a new corporate succession
provision in new paragraph (g)(2)(iv) for interstate mergers resulting
in a national bank to ensure that the resulting bank succeeds to the
rights, franchises, and interests, including the fiduciary
appointments, of the consolidating or merging banks. The proposal also
included coordinating revisions to cross-references to paragraph (g).
For Federal savings associations, the OCC proposed reorganizing
paragraph (o) to contain the election procedures. Revised paragraph
(o)(1)(i) permits a Federal savings association to follow the
procedures applicable to a State savings association chartered by the
State where the Federal savings association's home office is located or
to follow the standard procedures in revised paragraph (o)(2). As
discussed above for national banks, revised paragraph (o)(1)(ii) would
direct Federal savings associations to read references to State
agencies as the OCC and to make filings generally with the OCC.
Revised paragraph (o)(2) would contain the procedures in current
paragraphs (o)(1) and (o)(3) governing board and shareholder votes,
respectively. The proposal changed the de minimis exception to the
shareholder voting requirement in current paragraph (o)(3)(ii),
redesignated by the proposal as paragraph (o)(2)(ii)(B), to a cross-
reference to new paragraph (p) and redesignated current paragraph
(o)(2) regarding the Federal savings association's change in name or
home office as paragraph (o)(3). Finally, the OCC proposed a technical
amendment to revised paragraph (o)(2)(ii)(A), replacing the citation to
12 CFR 152.4 with the current citation, 12 CFR 5.22.
The OCC received one comment on these proposed procedures, which
focused on national bank business combinations conducted under section
4 of the NBCMA. This commenter stated that the proposal contradicts
prior OCC public precedent. The OCC acknowledges this is a reversal of
the OCC's prior interpretation of section 4. However, an agency is
permitted to change its position on an interpretation of law.\42\ As
noted above, the statutory language is ambiguous. The OCC's change of
position is based on the OCC's belief, after further review, that
reading the language in section 4 of the NBCMA in its entirety as
authorizing a consolidation or merger with an out-of-State bank under
the NBCMA if it is approved pursuant 12 U.S.C. 1831u, but not importing
the substantive or procedural requirements of sections 2 and 3 into
section 4 through oblique terminology is more in accordance with the
statutory language. Moreover, the OCC notes that this commenter did not
identify any reliance concerns implicated by the change in position,
nor did the OCC receive any such comments from OCC-regulated entities
[[Page 80417]]
that could conceivably have such an interest.
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\42\ See, e.g., Perez v. Mortgage Bankers Association, 575 U.S.
92 (2015); Federal Communications Commission v. Fox Television
Stations, 556 U.S. 502 (2009) (an agency must provide a reasonable
explanation for the change in position. The depth of explanation
depends on the degree of the change. The agency also should take
into account the reliance interests of parties who have relied on
the agency's prior interpretation.) See also National Cable &
Telecommunications Association v. Brand X internet Services., 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); Motor Vehicle
Manufacturers Association of the U.S., Inc. v. State Farm Mutual
Automobile Insurance Company, 463 U.S. 29, 43 (1983) (``agency must
examine the relevant data and articulate a satisfactory explanation
for its action including a `rational connection between the facts
found and the choice made' '').
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This commenter also stated that the proposal contradicts prior OCC
licensing decisions and has contradictory results, arguing that if
sections 2 and 3 of the NBCMA cannot now be used to authorize a
combination of a national bank with an out-of-State bank, then the OCC
would need to reverse its prior interpretation set forth in previous
business combination approvals that a bank is located in a State for
purposes of sections 2 and 3 by virtue of having a branch in that
State. The OCC disagrees with this point. As noted above, sections 2
and 3 authorize consolidations and mergers between insured banks that
are located in the same State. Section 4 authorizes mergers between
insured banks with different home States if the merger is approved
under 12 U.S.C. 1831u. It stands on its own and is not tied to sections
2 and 3. However, the OCC is not changing its interpretation of
sections 2 and 3 that was involved in the prior business combination
approvals to which the commenter refers, namely, that an acquiring bank
that has a different home State than the target bank but that has a
branch in the target bank's State is located in the target bank's State
for purposes of section 2 and 3.\43\ The OCC continues to believe such
banks could engage in the transaction under the authority of section 2
or 3 or, alternatively, could engage in the transaction under section
4. Neither the revised interpretation of section 4 nor the prior
interpretation affects the applicability of sections 2 or 3 to such
transactions. An interstate merger that must be conducted under section
4 because the acquiring bank is not located in the same State as the
target bank would be conducted under the procedures that apply for
transactions under section 4 at the time of the application (whether
the procedures of section 2 or 3 of the NBCMA as under the current rule
or the procedures available under the proposed rule). Thus, the
commenter failed to distinguish between a transaction conducted under
section 4 and following the procedures of sections 2 or 3, as in the
OCC's prior interpretation of section 4, and a transaction conducted
under sections 2 or 3.
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\43\ See Ghiglieri v. NationsBank of Texas, N.A., 1998 U.S.
Dist. LEXIS 6637 (N.D. Texas, May 6, 1998); OCC Corporate Decision
No. 98-19 (April 2, 1998). The prior OCC decisions referred to by
the commenter, Corporate Decision No. 2001-29 (September 28, 2001);
Conditional Approval No. 687 (April 25, 2005); Conditional Approval
No. 1105 (Aug. 11, 2014), were instances of such transactions and
were conducted under the authority of section 3, not under section
4.
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In addition, this commenter argues that the proposed change may
raise issues with respect to the Tenth Amendment, citing Hopkins
Federal Savings & Loan Association v. Cleary,\44\ noting that section 4
does not contain a ``not in contravention of State law'' provision.
Sections 2 and 3 contain such a provision, and under the OCC's prior
interpretation of section 4, that provision would have been
incorporated into section 4. Under the OCC's new interpretation, this
provision is not incorporated, and the commenter claims that raises an
issue. The OCC does not agree that such language is needed in Section
4. Sections 2 and 3 include State banks within their scope, authorizing
them to consolidate or merge with a national bank, but by virtue of a
non-contravention provision in those sections, a State bank may not
engage in a business combination pursuant to sections 2 and 3 with a
national bank if it would contravene State law. However, section 4
(interpreted as a stand-alone provision, not incorporating sections 2
and 3) is directed only at national banks; it does not refer to State
banks. Therefore, the OCC's proposal with respect to transactions
authorized under section 4 does not affect State banks. A State bank
can engage in an interstate merger with a national bank if the State
bank has authority to do so under State law.
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\44\ 296 U.S. 315, 337 (1935) (ruling that a statute allowing
State-chartered institutions to convert to Federal charters without
regard to State law violated the Tenth Amendment).
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The commenter similarly suggests that failure to include a ``not in
contravention of State law'' provision with respect to corporate
succession in mergers conducted under section 4 raises issues under
Hopkins. However, as noted, an interstate merger of a national bank and
a State bank under section 4, resulting in a national bank, would occur
only if the State bank had authority to engage in the merger under
State law. Moreover, a Federal law providing for corporate succession
and the transfer of property, fiduciary appointments, and other
relationships in a merger with a resulting national bank does not raise
the same concerns as a Federal law purporting to authorize a State bank
to convert into a Federal institution, as in Hopkins.
Lastly, this commenter stated that the OCC did not adequately
explain the proposed change regarding interim transactions appropriate
for de minimis transactions. Per proposed Sec. 5.33(g) and (o), a
national bank or Federal savings association that is the acquiring
institution in a transaction may elect not to have a shareholder vote
if a vote is not required by statute and certain criteria are met,
including the de minimis nature of the transaction. The proposed de
minimis procedures in Sec. 5.33(p) are similar to existing Federal
savings association de minimis procedures except for two changes.
First, they permit the use of the procedures for transactions that use
interim charters that are not holding company reorganizations provided
that the existing shareholders of the national bank or Federal savings
association will directly hold the shares of the resulting national
bank or Federal savings association and the national bank's articles or
Federal savings association's charter is not changed. Second, they
increase the maximum issuance of shares under this procedure from 15%
total outstanding shares to 20%. The current Federal savings
association regulation for de minimis transactions excludes those
involving an interim because such transactions were commonly used in a
reorganization to form a holding company and the OCC believes that
shareholders in these transactions should have a vote. However, it is
possible to have a transaction that involves an interim in which the
existing institution and its shareholders continue as the surviving
institution after the transaction in a manner that meets the
requirements set out in the rule that the existing shareholders of the
national bank or Federal savings association directly hold the shares
of the resulting national bank or Federal savings association and the
national bank's articles or Federal savings association's charter is
not changed. In this case, there is no reason not to allow the
acquiring institution to use the procedures in proposed paragraph (p).
For the reasons stated above, the OCC adopts the proposed
procedures that a national bank or Federal savings association may
elect for business combinations for which there are no statutory
procedural requirements.
Current paragraph (k) of Sec. 5.33 requires a national bank or
Federal savings association engaging in a consolidation or merger in
which it is not the filer and the resulting institution to file a
notice with the OCC advising of its intention. This requirement
currently applies even when the surviving institution is another
national bank or Federal savings association. Because the OCC already
supervises the surviving institution and has acted on the application
for consolidation or merger, the OCC proposed removing
[[Page 80418]]
this requirement for the disappearing national bank or Federal savings
association in this type of transaction and making a conforming
revisions to paragraph (g). In such a case, the OCC already has the
information that it needs to process termination and ensure that the
disappearing national bank or Federal savings association has met all
applicable requirements. The OCC received one comment on this
provision, which supported the change. The OCC therefore adopts this
change as proposed. The final rule also makes technical amendments to
cross-references in paragraph (k)(4).
Current paragraph (n) provides authority for, and limits on,
certain business combinations for Federal savings associations. In
addition to consolidations, mergers, and other specified forms of
business combinations, this paragraph addresses ``other combinations,''
the definition of which in Sec. 5.33(d)(10) includes the transfer of
any deposit liabilities to another insured depository institution,
credit union, or other institution. Paragraph (n)(2)(iii) provides
special requirements for mutual savings associations. Specifically, if
any combining savings association is a mutual savings association, the
resulting institution must be a mutually held depository institution
insured by the FDIC, unless the transaction is approved under 12 CFR
part 192 governing mutual to stock conversions or the transaction
involves a mutual holding company organization under 12 U.S.C. 1467a(o)
or a similar transaction under State law. Under the definition of
``other combination,'' Sec. 5.33(n)(2)(iii) applies to any transfer of
deposit liabilities, such as the sale of a branch, even if the mutual
savings association still exists as an ongoing institution after the
transaction. Accordingly, a branch sale would not be permissible unless
the sale is to an insured mutual institution or either the mutual to
stock or mutual holding company reorganization exception applied. The
OCC proposed revising paragraph (n)(2)(iii) to state that a
consolidation or merger involving a mutual savings association or the
transfer of all or substantially all of the deposits of a mutual
savings association must result in a mutually held depository
institution insured by the FDIC unless one of the exceptions applies.
As noted in the preamble to the proposed rule, the OCC did not
intend paragraph (n)(2)(iii) to apply to this type of transfer of
deposit liabilities when it last amended this provision in 2015 (2015
Final Rule).\45\ In fact, Sec. 5.33(n)(4), which requires mutual
savings associations to provide notice to accountholders of a proposed
account transfer and to give them the option of retaining the account
in the transferring Federal savings association if the account
liabilities are transferred to an uninsured institution, contemplates
just such an account transfer. In addition, the anomalous reading of
Sec. 5.33(n)(2)(iii) was not present in the pre-integration version of
the Federal savings association combination rules.\46\ Former 12 CFR
146.2(a)(4) contained a similar restriction on the resulting
institution being a mutually held savings association with similar
exceptions. However, Sec. 146.2(a) applied to combinations, which was
defined in 12 CFR 152.13(b)(1) as a merger or consolidation with
another depository institution, or an acquisition of all or
substantially all of the assets or assumption of all or substantially
all of the liabilities of a depository institution by another
depository institution. Accordingly, a branch purchase or other
transfer of less than substantially all deposits was not a combination
and thus not subject to the restrictions in Sec. 146.2(a)(4).
Furthermore, in the preamble to the 2015 Final Rule, the OCC did not
describe paragraph (n)(2)(iii) as applying to transfers of less than
substantially all deposits.\47\
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\45\ 80 FR 28346 (May 18, 2015).
\46\ The 2015 Final Rule integrated many licensing rules that
apply to national banks and Federal savings associations.
\47\ The OCC stated, ``in a merger or consolidation with a
mutual Federal savings association, a mutual savings association
must be the resulting institution.'' 80 FR 28346 at 28374 (May 18,
2015).
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The OCC did not receive any comments on this change to paragraph
(n)(2)(iii) and adopts it as proposed.
The OCC also proposed adding an additional exception to paragraph
(n)(2)(iii), as new paragraph (n)(2)(iii)(C). The OCC and OTS have
permitted transactions where a mutual savings association transferred
all of its deposits to a non-mutual savings association institution
followed by the voluntarily liquidation of the mutual savings
association. These transactions are subject to approvals or non-
objections by the OCC. However, the literal reading of Sec.
5.33(n)(2)(iii) may not permit such transactions. Accordingly, the OCC
proposed adding a new exception to the requirement that the resulting
institution be an insured mutual institution when the transaction is
part of a voluntary liquidation for which the OCC has provided non-
objection under Sec. 5.48. The OCC received no comments on this change
and adopts it as proposed.
Finally, the OCC proposed technical amendments to paragraph (l) to
correct a typographical error and to revise paragraph (o)(2)(ii)(A) to
replace the citation to 12 CFR 152.4 with the current citation, 12 CFR
5.22. The OCC received no comments on these technical amendments and
adopts them as proposed. The final rule makes additional technical
amendments to paragraphs (o)(2)(ii)(A) and (o)(2)(ii)(C) to correct
cross-references, paragraphs (f)(3) and (g)(6) to properly reflect the
reorganization of paragraph (g), and paragraph (g) to conform headings
to the plural form.
Two commenters suggested changes to Sec. 5.33 that were not
included in the proposed rule. One of these commenters suggested that
prefiling discussions between the OCC and national banks filing to
engage in a business combination be memorialized and made public after
the bank submits its application. The OCC notes that Sec. 5.33 does
not contain a requirement for prefiling meetings but that these
meetings may occur. This commenter asserts that publication of these
discussions would promote fairness and transparency and deter the OCC
from giving unfair advantage to certain banks. The OCC disagrees with
this commenter. Prefiling discussions generally concern confidential
business and often supervisory information, which may not be disclosed.
The OCC therefore is not including this suggestion in its final rule.
The other commenter suggested a change to Sec. 5.33(e)(1)(ii),
which lists the policies that the OCC considers when evaluating a
business combination under the Bank Merger Act. Specifically, this
commenter requested a change to paragraph (e)(1)(ii)(D), which states
that the OCC considers the effectiveness of any insured depository
institution involved in the business combination in combating money
laundering activities, including in overseas branches. This commenter
requested that the OCC change this provision to provide that, as the
OCC proposed with respect to CRA, the OCC's conclusion of whether the
filer's effectiveness in combatting money laundering activities is
consistent with approval of an application be considered in conjunction
with the other factors in Sec. 5.33. The OCC disagrees with the
commenter. CRA is a separate statute and is not included in the Bank
Merger Act. However, 12 U.S.C. 1828(c)(11) requires the OCC to
consider, among other factors, the effectiveness of insured depository
[[Page 80419]]
institutions' efforts in combating money laundering when evaluating
proposals subject to the Bank Merger Act. The current regulatory text
repeats this statutory requirement. In addition, banks with significant
Bank Secrecy Act deficiencies may not have the capability to put in
place sufficient controls to mitigate additional money laundering or
terrorist financing risks associated with significant corporate
activities.
Operating Subsidiaries of a National Bank (Sec. 5.34)
Section 5.34 provides the licensing requirements for a national
bank's acquisition or establishment of an operating subsidiary or
commencement of a new activity in an existing operating subsidiary.
Paragraph (e)(2)(i) specifies what entities may qualify as an operating
subsidiary. Paragraph (e)(2)(i)(A) requires that the national bank must
have the ability to control the management and operations of the
subsidiary and no other person or entity exercises effective operating
control over the subsidiary or has the ability to influence the
subsidiary's operations to an extent equal to or greater than that of
the bank. The OCC proposed to clarify this provision by requiring that
no other person or entity has the ability to exercise effective control
or influence over the management or operations of the subsidiary to an
extent equal to or greater than that of the bank or an operating
subsidiary thereof. The OCC also proposed conforming amendments to
current Sec. 5.34(e)(5)(A)(3)(i), redesignated by the proposed rule as
Sec. 5.34(f)(2)(i)(C)(l), which contains a parallel requirement for
operating subsidiary filings. Redesignated Sec. 5.34(f)(2)(i)(C)(l)
provides additional requirements for how the national bank must
effectively control the operating subsidiary to be eligible to submit a
notice to the OCC instead of an application to establish or engage in
an activity in an operating subsidiary. The OCC received no comments on
these changes and adopts them as proposed.
Section 5.34(e)(2)(ii) identifies certain subsidiaries that are not
operating subsidiaries for purposes of Sec. 5.34. The OCC proposed to
replace the word ``subsidiaries'' with ``entities'' to further clarify
the exclusion. The OCC received no comments on this change and adopts
it as proposed.
The OCC also proposed a new paragraph (e)(2)(ii)(C) to specify that
a trust formed for purposes of securitizing assets held by the bank as
part of its banking business would not be considered an operating
subsidiary. This proposal would codify the OCC's position that
securitization trusts generally do not qualify as operating
subsidiaries because of the bank's limited control over the trust and
because beneficial interests in trusts lack many of the indicia of
traditional equity. The OCC received two comments on this new
paragraph. One commenter supported removing securitization trusts from
the definition of operating subsidiary, but also proposed excluding
trusts formed for the purpose of holding securities, off-lease
property, real estate, and other assets held in satisfaction of debt
previously contracted (DPC assets) from this definition. The OCC does
not agree with this suggested change. The parent bank likely will have
actual control and management of trusts holding securities, off-lease
property, real estate, and other DPC assets. Therefore, the reasons for
excluding securitization trusts from the definition of operating
subsidiary are unlikely to be present for these trusts identified by
the commenter.
A second commenter disagreed with the proposed change asserting
that the OCC has not indicated any authority for the proposition that
securitization trusts are not operating subsidiaries or non-controlling
investments. The commenter also stated that the OCC has not adequately
discussed the intent or expected impact of the proposal. As indicted
above, the OCC generally has not treated the securitization trust as an
operating subsidiary. The interests in securitization trusts typically
are not the equivalent of ``equity'' for purposes of 12 CFR 5.34, 5.36,
5.38, and 5.58, and do not provide indicia of ``control'' for purposes
of 12 CFR 5.34 and 5.38. Rather, the beneficial interest or any other
interests retained in a securitization trust are more akin to economic
interests than to traditional equity interests. The beneficial
interests do not give rise to traditional voting power associated with
equity interests in a corporation or LLC. Furthermore, securitization
trusts are generally structured simply as a set of instructions for
administering the securitization that are difficult to change. Given
these factors, the bank does not control the trust in the traditional
sense of directing its operations.
For the reasons discussed above, the OCC adopts new paragraph
(e)(2)(ii)(C) as proposed.
Paragraph (e)(5) of Sec. 5.34 provides the procedures for
operating subsidiary filings. The OCC proposed to redesignate the
majority of paragraph (e)(5) as paragraph (f) and to redesignate
current paragraph (e)(6), addressing grandfathered operating
subsidiaries, as paragraph (g). The OCC also proposed conforming
revisions to cross-references. The OCC received no comments on these
technical changes and adopts them as proposed.
Redesignated Sec. 5.34(f)(2) contains the requirements for a
national bank to qualify for the notice process for operating
subsidiary filings. In addition to meeting additional control
requirements and being well capitalized and well managed, paragraph
(f)(2)(i)(A) permits a national bank to file a notice instead of an
application if the activity is listed in paragraph (e)(5), redesignated
by the proposal as paragraph (f)(5). The OCC proposed to expand the
scope of this requirement to include any activity that is substantively
the same as a previously approved activity and that will be conducted
in accordance with the same terms and conditions applicable to the
previously approved activity. As discussed previously in this
Supplementary Information, the OCC proposed to define ``previously
approved activity'' in Sec. 5.3 to mean, for national banks, any
activity approved in published OCC precedent for a national bank, an
operating subsidiary of a national bank, or a non-controlling
investment of a national bank.\48\ The OCC noted in the preamble to the
proposed rule that the expansion of the notice requirement to
activities that are substantively the same as previously approved
activities does not relieve the national bank from the requirement to
ensure that the operating subsidiary is only conducting permissible
activities and would not affect the OCC's ability to take action if the
OCC finds that the activities are not permissible or are conducted in
an unsafe or unsound manner.
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\48\ As discussed, the final rule changes ``an activity
approved'' to ``any activity approved.''
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The proposal also raised as an alternative removing all filing
requirements for national bank operating subsidiaries noting that a
filing would not be required if the activity was conducted in the bank.
Under this alternative, a national bank would be able to acquire or
establish an operating subsidiary or commence a new activity in an
existing operating subsidiary without filing a notice or application if
the activity to be engaged in by the operating subsidiary is a
permissible bank activity, provided the operating subsidiary meets the
ownership and structural aspects currently required for notice and the
national bank is well capitalized and well managed.
One commenter supported this alternative noting that no filing
would be required if the activity were performed in the bank and
contending
[[Page 80420]]
that there are safety and soundness reasons to reduce regulatory
obstacles to conducting an activity in an operating subsidiary.\49\
However, upon further consideration, the OCC has determined not to
pursue this alternative at this time. The OCC would like experience
with the new notice provision for an activity that is substantively the
same as a previously approved activity before making a decision on
removing all filings for operating subsidiaries. Therefore, the OCC is
not including this change in the final rule.
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\49\ This commenter also discussed having this alternative
amendment apply to Federal savings associations. However, this
alternative would not permissible for Federal savings associations
because section 18(m) of the FDI Act (12 U.S.C. 1828(m)) requires a
Federal savings associations to file a notice with the OCC when
establishing, acquiring, or conducting a new activity in an
operating subsidiary.
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This commenter also argued that the OCC should extend the proposal
to fiduciary powers, stating that operating subsidiaries should be able
to rely on the fiduciary powers of the parent national bank or Federal
savings association without notifying or seeking approval from the OCC,
so long as the parent national bank or Federal savings association was
not required to notify or seek approval from the OCC prior to engaging
in permissible bank activities. The commenter argued that this change
would also obviate the need for many national banks and Federal savings
associations to register an operating subsidiary as an investment
adviser under the Investment Advisers Act of 1940 (Advisers Act) when
the subsidiary is exercising its investment discretion on behalf of its
customers or providing investment advice for a fee under 12 CFR part 9
and therefore would substantially reduce regulatory burden.
The OCC disagrees with this comment. Regardless of the OCC's
decision regarding the alternative proposal, the provision regarding
fiduciary powers and investment advice activity is special and
distinct. Current Sec. 5.34(e)(5)(vii)(B) does not require an
investment advisory subsidiary to be registered. Rather, the provision
provides that if the subsidiary is registered, the national bank or
Federal savings association need not have fiduciary powers, but if the
subsidiary is not registered, then the national bank or Federal savings
association must have fiduciary powers. This requirement is necessary
to ensure that there will be some applicable law that will govern the
conduct of the subsidiary, whether it is the Advisers Act or 12 CFR
part 9.
The commenter further recommended that if the OCC does not
eliminate filings for operating subsidiary fiduciary activities, the
OCC should add the exercise of fiduciary powers to the list of
activities for which no advance filing is required under 12 CFR
5.34(e)(5)(vi). The OCC disagrees with this recommendation because the
proposal to expand the activities eligible for notice under Sec.
5.34(e)(5)(v) to include all previously approved activities would
already include most national bank subsidiary fiduciary activities.
The commenter also argues that subsidiaries engaging in the
activities listed in Sec. 5.34(e)(5)(v) are an example of why a bank's
ability to establish an operating subsidiary should not be tied to the
bank's management rating, as required by the proposed definition of
``well managed.'' The commenter contends that if a bank is well
capitalized and has a satisfactory composite rating, it should be able
to establish, without a separate regulatory approval, a subsidiary to
engage in activities listed in Sec. 5.34(e)(5)(v), such as the
management and disposition of DPC assets. The commenter requests that
the OCC retain the existing definition of ``well managed'' for this
section, instead of the proposed definition which includes the
management rating. The OCC disagrees with this comment. If a bank is
not ``well managed'' it may lack sufficient internal controls and
processes to properly manage an operating subsidiary, such as one
managing DPC assets. As such, an application should be required. If the
bank is well managed and well capitalized, it need only file a notice
once, as it can rely on the provision in current Sec. 5.34(e)(5)(vi)
to form additional subsidiaries engaging in the same activity without
any additional filing.
The commenter also suggests that, in the event that the OCC decides
to retain some filing requirements, the OCC use a notice rather than an
application when a national bank intends to acquire as an operating
subsidiary an entity that engages in de minimis activities not
permissible for a national bank. The OCC does not agree with this
comment. Although de minimis-type provisions did exist in the past, all
were removed after the passage of the Gramm-Leach-Bliley Act, Public
Law 105-102. In addition, a financial subsidiary provides an
alternative existing mechanism if a national bank wishes to use a
subsidiary to conduct limited activities not permissible for a national
bank.
For the reasons discussed above, the OCC adopts redesignated Sec.
5.34(f) as proposed, with two technical amendments. First, the final
rule removes unnecessary cross-references to Sec. 5.3 for the
definitions of ''well capitalized,'' ``well managed, '' and
``previously approved activity.'' As indicated above, the definitions
in Sec. 5.3 apply to all of part 5 so these cross-references are
unnecessary. Additionally, the final rule corrects a cross-reference to
redesignated Sec. 5.34(f) in Sec. 5.34(c) regarding ownership
requirements applying to a foreign bank rather than its Federal branch.
The OCC inadvertently did not adjust the current cross-reference in
Sec. 5.34(c) to Sec. 5.34(e)(5)(i)(B) when it restructured the rule
in 2008.\50\ The final rule restores the cross-reference to the
ownership requirement to file a notice under Sec. 5.34, as was
originally promulgated in 2001.\51\
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\50\ See 73 FR 22216, 22238 (Apr. 24, 2008).
\51\ See 12 CFR 5.34(c), (e)(5)(i)(B) (2002).
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Current paragraph (e)(7) requires national banks to file an annual
report with the OCC describing operating subsidiaries that do business
directly with consumers. The OCC publishes this information on its
website. The OCC proposed to remove this requirement to reduce burden
and because it generally duplicates information contained elsewhere,
such as the FFIEC's National Information Center (NIC). In addition, the
majority of the operating subsidiaries reported are now subject to the
jurisdiction of the Consumer Financial Protection Bureau, and not the
OCC, for most consumer law issues. The OCC received one comment on this
proposal. The commenter supported the proposal and agreed that the
existing regulation is redundant. The final rule therefore removes the
requirement as proposed.
Bank Service Company Investments by a National Bank or Federal Savings
Association (Sec. 5.35)
Section 5.35 addresses national bank and Federal savings
association investments in bank service companies as authorized by the
Bank Service Company Act (BSCA) (12 U.S.C. 1861-1867). Pursuant to
section 2 of the BSCA (12 U.S.C. 1862), paragraph (i) of Sec. 5.35
provides that a national bank or Federal savings association may not
invest more than 10 percent of its capital and surplus in a bank
service company. In addition, paragraph (i) also provides that the
national bank's or Federal savings association's total investments in
all bank service companies may not exceed five percent of the national
bank's or Federal savings association's total assets. However, section
2 of the BSCA also specifies that the investment
[[Page 80421]]
limitations in section 5(c)(4)(B) of the HOLA apply to Federal savings
associations with regard to bank service company investments. This
limitation is not currently included in paragraph (i). Accordingly, the
OCC proposed to revise paragraph (i) to directly reference the
limitations in section 2 of the BSCA. The OCC also proposed a technical
correction to the title of this section that would remove the
extraneous word ``investment.'' The OCC received no comments on the
changes it proposed to Sec. 5.35 and adopts them in the final rule as
proposed with additional technical changes. Specifically, the final
rule does not include the unnecessary cross reference to Sec. 5.3 for
the definitions of ``well capitalized'' and ``well managed'' in
paragraph (f). The final rule also corrects a reference to the FDI Act
in paragraph (d)(3).
Other Equity Investments by a National Bank (Sec. 5.36)
Section 5.36 provides the procedures for national banks to make
certain types of equity investments. Paragraphs (e) and (f) provide the
procedures and requirements for a national bank to make a non-
controlling investment that is not prescribed by other OCC rules. The
OCC proposed to clarify the types of national bank equity investments
that are subject to Sec. 5.36 by adding a new definition to paragraph
(c) that would define ``non-controlling investment'' to mean an equity
investment made pursuant to 12 U.S.C. 24(Seventh) that is not governed
by procedures prescribed by another OCC rule. Additionally, the OCC
proposed to specify in the definition that the term ``non-controlling
investment'' does not include a national bank holding interests in a
trust formed for the purposes of securitizing assets held by the bank
as part of its banking business or for the purposes of holding multiple
legal titles of motor vehicles or equipment in conjunction with lease
financing transactions. This would codify the OCC's interpretation that
these interests do not have sufficient indicia of ownership and control
to qualify as an equity investment for purposes of Sec. 5.36. The OCC
also proposed a conforming change to paragraphs (e) and (f). The OCC
received no comments to the new definition and conforming amendments
and adopts them in the final rule as proposed.
For a national bank to make a noncontrolling investment, current
Sec. 5.36 requires a filing with the OCC that: (1) Describes the
structure of the investment and the activity or activities conducted by
the enterprise in which the bank is investing; (2) describes how the
bank has the ability to prevent the enterprise from engaging in
impermissible activities or has the ability to withdraw its investment;
(3) describes how the investment is convenient and useful to the bank
in carrying out its business and not a mere passive investment; (4)
certifies that the bank's loss exposure is limited; and (5) certifies
that the enterprise agrees to be subject to OCC supervision and
examination, subject to the limitations and requirements of section 45
of the FDI Act (12 U.S.C. 1831v) and section 115 of the Gramm-Leach-
Bliley Act (12 U.S.C. 1820a).
A national bank must file an application with the OCC to make a
non-controlling investment unless it qualifies for the notice procedure
in Sec. 5.36(e). A national bank may file a notice if: (1) The
investment meets the above requirements; (2) the enterprise engages in
activities that are listed in Sec. 5.34(e)(5)(v) (permissible
operating subsidiary activities) or an activity that is substantively
the same as that contained in published OCC precedent approving a non-
controlling investment by a national bank or its operating subsidiary;
and (3) the bank is well managed and well capitalized. As with
operating subsidiary notices, the OCC proposed to expand the activities
eligible for notice for non-controlling investments to all previously
approved activities, as defined in proposed Sec. 5.3. This definition
includes activities approved for national banks and their operating
subsidiaries, in addition to previously approved non-controlling
investments. The proposal also reorganized paragraph (e) and made
conforming changes to paragraphs (e)(2) and (e)(4). Additionally, the
OCC stated that it is considering an alternative amendment removing the
filing requirement for non-controlling investments in enterprises
engaging in bank permissible activities, as discussed above for
national bank operating subsidiaries.
The OCC received one comment relating to Sec. 5.36(e), supporting
the alternative amendment. However, for the reasons noted in the
discussion on Sec. 5.34, Operating subsidiaries, the OCC declines to
include this alternative in the final rule.
This commenter also recommended that if the OCC retains the notice
requirements and limits the use of a notice to banks meeting the
proposed definition to ``well managed'' in Sec. 5.3, the OCC should
make exceptions to these filing requirements for investments that help
to meet the credit needs of the community and for investments below a
specified threshold. As noted above in its discussion of comments on
the definition of ``well managed'' in Sec. 5.3, the OCC finds that the
components reflected in an entity's management rating, such as bank
controls, are relevant to the establishment of other equity investments
of a national bank and that a national bank with a 2 composite rating
but a 3 management, or risk management, rating warrants additional
scrutiny. This rationale is generally applicable, regardless of the
size of the investment, including for investments that help meet the
credit needs of the community.
For these reasons, the OCC adopts these changes to Sec. 5.36(e) as
proposed, with technical amendments to remove unnecessary cross-
references to Sec. 5.3.
As noted, whether a national bank is filing a notice under
paragraph (e) or an application under paragraph (f), the current rule
requires the enterprise in which the bank will make a non-controlling
investment to agree to OCC supervision and examination. The OCC
proposed to amend paragraph (f), redesignated as paragraph (f)(1), to
permit national banks to file an application for prior approval to
invest in an enterprise that has not agreed to be subject to OCC
supervision and examination. Additionally, the OCC proposed a new
paragraph (f)(2) to provide for expedited review of certain
applications for investments in enterprises that do not agree to OCC
supervision and examination that pose minimal risk to the national
bank's safety and soundness. An application under proposed paragraph
(f)(2) would be deemed approved by the OCC within 10 days after the
application is received if five additional requirements are met. First,
the enterprise must engage in permissible bank activities as described
in proposed paragraph (e) of this section. Second, the national bank
must be well managed and well capitalized. These two requirements
parallel the requirements for filing a notice. Third, the book value of
the national bank's non-controlling investment for which the
application is submitted must not be more than 1% of the bank's capital
and surplus. Fourth, no more than 50% of the enterprise may be owned or
controlled by banks or savings associations subject to examination by
an appropriate Federal banking agency or credit unions insured by the
National Credit Union Association. Many enterprises in which national
banks make non-controlling investments are owned by a consortium of
banks and savings associations and provide services to their owners and
others. Given the potentially complex
[[Page 80422]]
interactions between these enterprises and their owners and the
additional risks posed to the owners, the OCC believes that OCC
supervision and examination of these enterprises is necessary for the
safety and soundness of the investing national banks and Federal
savings associations. Accordingly, the proposed rule did not permit
investments in these entities without their commitment to OCC
supervision and examination, and therefore expedited review of these
investments would not be available. Finally, the OCC must not have
notified the national bank that the application has been removed from
expedited review, or that the expedited review process has been
extended, pursuant to the standards contained in Sec. 5.13(a)(2).
The OCC received one comment on these proposed amendments to Sec.
5.36(f), which supported the proposed changes. The OCC therefore adopts
these amendments to paragraph (f) as proposed, with one technical
change in wording for clarity. As explained in the preamble to the
proposed rule, the OCC believes that these amendments will give
national banks greater flexibility to make permissible non-controlling
investments, while giving the OCC an opportunity for an in-depth review
of the proposed investment to ensure there is no inappropriate risk to
the national bank's safety and soundness. Furthermore, the OCC believes
that this added flexibility will in particular facilitate national bank
investments in financial technology (fintech) companies, which will
enhance the ability of national banks to enter into strategic
partnerships and to develop innovative products, services, and
processes while ensuring the OCC receives adequate information to
supervise the attendant banking activities.\52\
---------------------------------------------------------------------------
\52\ Notwithstanding this amendment, if the enterprise in which
the national bank invests also provides services to the national
bank, it may be subject to the examination and regulation under the
Bank Service Company Act. See 12 U.S.C. 1867(c).
---------------------------------------------------------------------------
In addition, the OCC proposed adding a new paragraph (g) to Sec.
5.36 to permit a national bank to make a non-controlling investment
without a filing to the OCC in certain circumstances. Specifically, a
national bank would be permitted to make a non-controlling investment
without an application or notice if the activities of the enterprise
are limited to those activities previously reported by the bank in
connection with making or acquiring a non-controlling investment; the
activities in the enterprise continue to be legally permissible for a
national bank; the bank's non-controlling investment will be made in
accordance with any conditions imposed by the OCC in approving any
prior non-controlling investment in an enterprise conducting these same
activities; and the bank is able to make the representations and
certifications specified in amended Sec. Sec. 5.36(e)(3) through
(e)(7). As a conforming amendment, the OCC proposed to redesignate
current paragraphs (g) through (i) as paragraphs (h) through (j),
respectively.
The OCC received no comments on new paragraph (g) and the
conforming amendments and adopts the revisions as proposed, with two
technical changes to correct a cross-reference in paragraph (h)(1) to
reflect the redesignation and to remove an unnecessary cross-reference
to Sec. 5.3 in redesignated paragraph (i). As stated in the preamble
to the proposed rule, the national bank would already have a non-
controlling investment in an entity conducting particular activities,
and the OCC finds that there would be little risk in the bank making an
additional non-controlling investment in an entity conducting the same
activities. Furthermore, the OCC finds that non-controlling investments
pose similar risks to national banks as operating subsidiaries, and new
paragraph (g) would parallel current Sec. 5.34(e)(5)(vi), redesignated
in the final rule as Sec. 5.34(f)(6), which permits national banks to
make investments in operating subsidiaries without a filing. Therefore,
the OCC believes that the revisions to paragraph (g) will reduce burden
without jeopardizing the national bank's safety and soundness.
Redesignated paragraph (j) provides exceptions to the rules of
general applicability. The OCC proposed to remove the exception to
Sec. 5.9, public availability, because some of these investments may
be of public interest. Further, the proposal would permit the OCC to
determine that some or all provisions in Sec. Sec. 5.8, 5.10, and 5.11
apply if it concludes that an application presents significant or novel
policy, supervisory, or legal issues. This proposed paragraph (j) would
parallel the equivalent provision for operating subsidiary filings in
current Sec. 5.34(e)(5)(iii). The OCC received one comment to these
changes to paragraph (j). The commenter opposed making the public
availability requirements of Sec. 5.9 applicable to non-controlling
investment filings on the grounds that the information included in
those filings could be competitive information and the commenter
contended that a bank cannot rely on the OCC deeming this information
confidential. Therefore, the commenter argued that the proposed change
would have a chilling effect on equity investments by banks. The
commenter also stated that the public will learn about bank
noncontrolling investments when the bank or firm in which the bank
invested announces the investment.
The OCC has reconsidered this proposed amendment in light of this
comment. A noncontrolling investment filing differs from an operating
subsidiary filing. Although confidential information can be redacted in
both of these types of filings when made available to the public, the
fact that a national bank is making a noncontrolling investment in an
entity may itself be considered confidential information until the
national bank or entity announces the investment. Therefore, the OCC is
not removing the exception to Sec. 5.9, public availability, for Sec.
5.36 filings as proposed. However, the OCC is adopting in the final
rule the proposed provision that permits the OCC to determine that some
or all of the provisions in Sec. Sec. 5.8, 5.10, and 5.11 apply if it
concludes that an application presents significant or novel policy,
supervisory, or legal issues, with the addition of Sec. 5.9 to this
sentence.
Investment in National Bank or Federal Savings Association Premises
(Sec. 5.37)
Section 5.37 describes the procedures for national bank and Federal
savings association investment in bank premises. Paragraph (d)(1)(i)
provides that the procedures of Sec. 5.37 are applicable to
investments in the stocks, bonds, debentures, or other obligations of
any corporation holding the premises of the national bank or Federal
savings association in addition to direct investments in the bank
premises. Twelve CFR 7.1000 provides the authority for national bank
and Federal savings association investments in bank premises.\53\ In
addition to the investments listed in Sec. 5.37(d)(1)(i), Sec.
7.1000(a)(3) provides that national banks and Federal savings
associations may hold bank premises through a subsidiary organized as a
corporation, partnership, or similar entity (e.g., a limited liability
company). The OCC proposed to revise Sec. 5.37(d)(1)(i) to recognize
the permissibility of holding bank premises through partnerships and
similar entities, such as limited liability companies, so that it is
consistent with Sec. 7.1000(a)(3). In addition, the OCC proposed to
remove the definition of ``capital and surplus'' in Sec. 5.37 as it is
redundant with the definition of this
[[Page 80423]]
term in Sec. 5.3. The OCC also proposed adding Sec. 5.9, public
availability, to the exceptions to rules of general applicability in
Sec. 5.37(d)(5). Finally, the OCC proposed to correct a technical
error in paragraph (a), replacing ``12 U.S.C. 317d'' with ``12 U.S.C.
371d.''
---------------------------------------------------------------------------
\53\ The OCC notes that it has proposed to redesignate 12 CFR
7.1000 as 12 CFR 7.1024 in a separate rulemaking. See 85 FR 40794
(July 7, 2020).
---------------------------------------------------------------------------
The OCC received no comments on these changes and adopts them as
proposed, with two technical changes to remove an unnecessary cross-
reference to Sec. 5.3 in paragraph (d)(3)(i) and to conform a cross-
reference in paragraph (d)(4).
Operating Subsidiaries of a Federal Savings Association (Sec. 5.38)
Section 5.38 provides the application requirements for a Federal
savings association's acquisition or establishment of an operating
subsidiary or commencement of a new activity in an existing operating
subsidiary when required by section 18(m) of the FDI Act (12 U.S.C.
1828(m)). Section 5.38 is largely parallel to Sec. 5.34 for national
bank operating subsidiaries, except that where a national bank would
file a notice, a Federal savings association would file an application
eligible for expedited review. Accordingly, the OCC proposed
coordinating revisions to Sec. 5.38 including: (1) Revising the
standard for qualifying subsidiaries in paragraph (e)(2)(i)(A); (2)
excluding securitization trusts from the scope of the section in new
paragraph (e)(2)(iii)(C); (3) redesignating paragraphs (e)(5), (e)(6),
and (e)(7) as paragraphs (f), (g), and (h), respectively; (4) expanding
the activities eligible for expedited review to include activities
substantially the same as a previously approved activity (as proposed
to be defined in Sec. 5.3) and conducted in accordance with the same
terms and conditions applicable to the previously approved activity, in
redesignated paragraph (f)(2)(ii)(B); (5) expanding the entities
eligible for expedited review to include certain trusts where the
Federal savings association or its operating subsidiary is the sole
beneficiary and has the ability to replace the trustee at will, in
redesignated paragraphs (f)(2)(ii)(C) and (D); and (6) explicitly
recognizing that the control required by redesignated paragraphs
(f)(2)(ii)(D) may be met through an operating subsidiary of the Federal
savings association. In addition, the OCC proposed technical changes
that would remove the definitions of ``well capitalized'' and ``well
managed'' from Sec. 5.38, as with Sec. 5.34, and replace the word
``subsidiary'' with the more appropriate word ``entity'' in the
introductory text of paragraph (e)(2)(iii). The OCC received no
comments on these proposed amendments and the OCC adopts them as
proposed, with one technical change to remove unnecessary cross-
references to Sec. 5.3 in paragraph (f).
In addition, the OCC proposed to correct an inadvertent omission in
the 2015 Final Rule by amending redesignated Sec.
5.38(f)(2)(ii)(D)(1), which contains requirements for how a Federal
savings association must effectively control an operating subsidiary to
be eligible for expedited review of an application. Although the OCC
made changes in the 2015 Final Rule to current Sec. Sec.
5.34(e)(2)(i)(A), 5.34(e)(5)(ii)(A)(3)(i), and 5.38(e)(2)(i)(A) to
address commenter's concerns regarding the application of the rule to
joint ventures,\54\ the OCC did not make corresponding conforming
changes to current Sec. 5.38(e)(5)(ii)(B)(4)(i), redesignated in the
proposal as Sec. 5.38(f)(2)(ii)(D)(1). However, all of these
provisions should contain parallel language. Accordingly, the OCC
proposed to revise redesignated Sec. 5.38(f)(2)(ii)(D)(1) so that it
parallels current Sec. 5.34(e)(5)(ii)(A)(3)(i), redesignated in this
proposal as Sec. 5.34(f)(2)(i)(C)(1). The OCC received no comments on
this change and adopts it as proposed.
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\54\ See 80 FR 28346, at 28375 (May 18, 2015).
---------------------------------------------------------------------------
Financial Subsidiaries of a National Bank (Sec. 5.39)
Section 5.39 describes the procedures for national bank acquisition
of, and conduct of activities in, a financial subsidiary pursuant to
section 5136A of the Revised Statutes.\55\ Paragraph (h)(5)(ii) of
Sec. 5.39 specifies that the restrictions contained in section
23A(a)(1)(A) of the Federal Reserve Act \56\ do not apply to a covered
transaction between a bank and its financial subsidiary. However,
section 609 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act removed this section 23A exclusion. Accordingly, the OCC
proposed to remove paragraph (h)(5)(ii).
---------------------------------------------------------------------------
\55\ 12 U.S.C. 24a.
\56\ 12 U.S.C. 371c(a)(1)(A).
---------------------------------------------------------------------------
The OCC also proposed to clarify the approval process for financial
subsidiary activities. First, consistent with other changes in part 5,
the OCC proposed to change the terminology for filings under Sec. 5.39
from notice to application. The OCC did not intend any substantive
change in standards or procedures as a result of this proposal.
Second, as the OCC recognized in the initial proposal for Sec.
5.39, section 24a states that OCC approval shall be based solely upon
statutory factors.\57\ Accordingly, the OCC initially proposed the
current procedures for Sec. 5.39 upon the understanding that the
approval may occur upon a bank's submission of information
demonstrating satisfaction of the statutory criteria.\58\ In the
current proposal, the OCC proposed to add a new paragraph (i)(3)
specifying that an application is deemed approved upon filing of the
information required by the procedures of paragraphs (i)(1) or (i)(2)
within the time frames provided.
---------------------------------------------------------------------------
\57\ 65 FR 3159 (Jan. 20, 2000).
\58\ Id.
---------------------------------------------------------------------------
Finally, the OCC proposed technical changes to paragraph (d) that
would remove the definitions of ``appropriate Federal banking agency,''
``well capitalized,'' and ``well managed.''
The OCC received no comments specific to the amendments it proposed
to Sec. 5.39 and adopts them as proposed with technical changes that
remove an unnecessary cross-reference to Sec. 5.3 in paragraph (g) and
correct a cross-reference in paragraph (h)(5), and with other technical
changes to citations.
Change in Location of a Main Office of a National Bank or Home Office
of a Federal Savings Association (Sec. 5.40)
The final rule makes a technical correction to Sec. 5.40. Among
other things, Sec. 5.40(c)(2)(ii) requires a Federal savings
association to obtain shareholder approval required under its charter
if relocating its home office outside the limits of its city, town, or
village, and must amend its charter. Because this provision applies to
both Federal stock savings associations and Federal mutual savings
associations, the OCC is amending this provision to include member
approval as Federal mutual savings associations have members and not
shareholders.
National Bank Director Residency and Citizenship Waivers (New Sec.
5.43)
The OCC proposed a new Sec. 5.43 to provide procedures for waivers
of the national bank director residency and citizenship requirements.
Section 5146 of the Revised Statues (12 U.S.C. 72) requires every
director of a national bank to be a citizen of the United States and
that a majority of the directors reside in the State, Territory, or
District where the national bank is located, or within one hundred
miles of the location of the office of the bank. These requirements
reflect the principle of local ownership and control of national banks.
Twelve U.S.C. 72 provides the Comptroller the discretion to waive the
residency requirement and to waive the citizenship requirement for not
more than a minority of the total number of directors.
[[Page 80424]]
The OCC has processed requests for waivers of the residency and
citizenship requirements for many years. The ``National Bank Director
Waivers'' booklet of the Comptroller's Licensing Manual currently
describes the procedures for requesting and granting waivers. The OCC
proposed codifying these procedures in a new 12 CFR 5.43 to better
clarify and structure the waiver process. The OCC received no comments
on this new section and adopts these provisions as proposed, with the
changes discussed below.
Specifically, paragraph (a) of Sec. 5.43 sets forth the authority
for the regulation, 12 U.S.C. 72 and 93a, the latter of which grants
the OCC general rulemaking authority. Paragraph (b) sets forth the
scope of the section as describing the procedures for the OCC to waive
the residency and citizenship requirements.
Paragraph (c) sets forth the application procedures. Under
paragraph (c)(1), a national bank would file a written application with
the OCC to request a waiver of the residency requirement. Paragraph
(c)(1) also provides that the OCC may grant this waiver for individual
directors or for any number of director positions. The OCC typically
grants residency waivers for a certain number of directors on the board
rather than to specific individuals, but the final rule increases
flexibility by permitting either procedure. As a clarifying change, the
final rule provides that the waiver is valid until the OCC revokes it
in accordance with paragraph (d) of this section, or, if granted on an
individual basis, until the individual no longer serves on the board.
Under paragraph (c)(2), a national bank may request a waiver of the
citizenship requirements for individuals who comprise up to a minority
of the total number of directors by filing a written application with
the OCC. Paragraph (c)(2) also provides that the OCC may grant a waiver
on an individual basis. Given the more prescriptive nature of the
citizenship requirement and the greater background investigation that
the OCC undertakes on proposed non-citizen directors, OCC practice is
to grant waivers to individuals and not to a designated number of
directors. Accordingly, the final rule specifies in paragraph (c)(2)
that a citizenship waiver is valid until the individual leaves the
board or the OCC revokes the waiver in accordance with paragraph (d),
discussed below.
Paragraph (c)(3)(i) requires the subject of a citizenship waiver
application to submit the information prescribed in the Interagency
Biographical and Financial Report. Paragraph (c)(3)(ii) provides that
the OCC may require additional information about the subject of a
citizenship waiver application, including legible fingerprints, if
appropriate. This paragraph also permits the OCC to waive any of the
information requirements if the OCC determines that doing so is in the
public interest. The final rule makes a technical correction to the
cross-reference in this paragraph.
Paragraph (c)(4) provides exceptions to the rules of general
applicability. Specifically, Sec. Sec. 5.8 (public notice), 5.9
(public availability), 5.10 (comments), and 5.11 (hearings and other
meetings) do not apply to applications for citizenship waivers. As
noted in the preamble to the proposed rule, the OCC believes the
applications will largely consist of information specific to a bank's
internal practice as well as private information about the individuals
subject to the waiver applications. Accordingly, these applications
should not be publicly available nor subject to public notice, comment,
or hearings.
Paragraph (d) provides procedures for the OCC's revocation of a
residency or citizenship waiver. Under these procedures, the OCC will
provide written notice before a revocation to the national bank and
affected director(s) of its intention to revoke the waiver and the
basis for its intention. The OCC recognizes that discretion in revoking
residency and citizenship waivers is premised upon the guarantee of due
process. Accordingly, this paragraph provides the bank and the affected
director(s) the opportunity to respond in writing to the OCC's
intention to revoke a waiver within 10 calendar days, unless the OCC
determines that a shorter period is appropriate in light of relevant
circumstances. The OCC will consider the written responses of the bank
and affected director(s), if any, prior to deciding whether or not to
revoke a residency or citizenship waiver. The OCC will notify the
national bank and the director of the OCC's decision to revoke a
residency or citizenship waiver in writing. If the director appeals
pursuant to paragraph (e), this waiver decision is effective upon the
director's receipt of the decision of the Comptroller, an authorized
delegate, or the appellate official, to uphold the initial decision to
revoke the residency or citizenship waiver. If the director does not
appeal, the revocation is effective at the expiration of the period to
appeal. As stated in the preamble to the proposed rule, the OCC
believes the decision to revoke a waiver is consistent with the
Comptroller's authority to grant a waiver even though 12 U.S.C. 72 does
not contain any specific provisions for revoking a waiver. Absent this
authority many residency waivers effectively would be perpetual as the
OCC generally grants residency waivers for a designated number of
director positions. Further, changing geo-political circumstances may
in some circumstances warrant the revocation of citizenship waivers,
particularly if foreign governments are unduly influencing directors'
activities with regard to a national bank.
Paragraph (e) provides an appeals process for a director whose
residency or citizenship waiver the OCC has decided to revoke. This
appeals process parallels the appeals process provided for disapprovals
of directors and senior executive officers in 12 CFR 5.51, and provides
review by the Comptroller, an authorized delegate, or a designated
appellate official. As proposed, a director may appeal on the grounds
that the reasons for the initial decision to revoke were contrary to
fact or arbitrary and capricious. The final rule provides that either
the director or the national bank, or both, may make this appeal. This
change corrects an inadvertent omission in the proposed rule and is
consistent with the language in Sec. 5.51. The Comptroller, an
authorized delegate, or the appellate official will independently
determine whether the reasons given for the initial decision to revoke
are contrary to fact or arbitrary and capricious. If they determine
either to be the case, the Comptroller, an authorized delegate, or the
appellate official may reverse the initial decision to revoke the
waiver. The final rule also corrects the cross-reference in paragraph
(e)(4) for the effective date of a revocation.
Paragraph (f) provides that waivers outstanding on the effective
date of the final rule remain in effect, unless revoked pursuant to
paragraph (d). The OCC adopts this provision as proposed with a
technical change for clarity. The final rule removes the language
``notwithstanding paragraph (c)(2)'' and instead adds a reference to a
waiver no longer being in effect because the individual is no longer on
the board, as provided in paragraph (c).
Increases in Permanent Capital of a Federal Stock Savings Association
(Sec. 5.45)
Section 5.45 sets out the OCC's rules addressing increases in
permanent capital by a Federal savings association organized in stock
form. The OCC proposed two technical amendments to this section. The
OCC received no
[[Page 80425]]
comments to these technical changes and adopts them as proposed.
Specifically, the final rule changes the term ``Federal savings
association'' or ``savings association'' to ``Federal stock savings
association'' each time it appears, except as used in the defined term
``eligible savings association,'' to more accurately reflect the scope
of this section. Second, the final rule replaces the reference to 12
CFR part 197 in paragraph (h) with 12 CFR part 16, which now applies to
Federal savings associations.
The OCC invited comment on another possible change to Sec. 5.45.
Under the current rule, Federal savings associations that meet the
criteria for an eligible savings association described in Sec. 5.3 may
have their applications for capital increases, when required, reviewed
under an expedited process. The OCC requested comment on whether it
should amend its regulations so that only well capitalized and well
managed Federal savings associations are eligible to request expedited
review of their applications for capital increases. The preamble to the
proposed rule explained that if the OCC makes this change to Sec. 5.45
in the final rule, it would also amend its other capital filing-related
rules in part 5 based on this same rationale, Sec. Sec. 5.46 (Changes
in permanent capital of a national bank), 5.47 (Subordinated debt
issued by a national bank), 5.55 (Capital distributions by Federal
savings associations), and 5.56 (Inclusion of subordinated debt
securities and mandatorily redeemable preferred stock as Federal
savings association supplementary (tier 2) capital).
The OCC received no comments specifically on the changes proposed
or suggested for Sec. 5.45. As discussed further below regarding Sec.
5.46, the OCC believes that the current standard for evaluating capital
filings, including the compliance rating, is appropriate. Therefore,
the OCC adopts the amendments to Sec. 5.45 as proposed.
Changes in Permanent Capital of a National Bank (Sec. 5.46)
Section 5.46 sets out the OCC's rules addressing changes in
permanent capital for a national bank. Paragraph (g)(1)(ii) provides
that prior OCC approval is required for an increase in permanent
capital in certain cases. In addition, pursuant to 12 U.S.C. 57,
paragraph (i)(3) of Sec. 5.46 requires a bank to submit a notice to
the appropriate licensing office after it completes an increase in
capital, regardless of whether prior approval is required. The OCC
proposed to clarify these procedures for increases in capital requiring
prior approval by referencing paragraph (i)(3) in the introductory text
of paragraph (g)(1)(ii) and removing it from paragraph (g)(1)(ii)(C).
The OCC also proposed to clarify the introductory text of paragraph
(g)(1)(ii) to specifically indicate that an application to increase a
national bank's permanent capital may be eligible for expedited review
under paragraph (i)(2). The OCC received no comments to these changes.
Paragraph (h) provides that a national bank must apply and obtain
the OCC's prior approval for any reduction in its permanent capital.
Paragraph (i)(2) provides expedited review procedures and currently
provides that an eligible bank may request approval for decreasing its
capital for up to four consecutive quarters. The OCC proposed a number
of amendments to paragraphs (h) and (i) to add flexibility for national
banks and to clarify procedures. First, the OCC proposed to amend
paragraph (h) to permit a national bank to request approval in a
standard application for a reduction in capital for multiple quarters.
The request need only specify a total dollar amount for the requested
period and need not specify amounts for each quarter. As a result, a
national bank may request approval for a reduction in permanent capital
over more than four consecutive quarters. However, this request would
not be eligible for expedited review so that the OCC may have the time
to carefully review the request. Second, the OCC proposed to add
flexibility to the expedited process in paragraph (i)(2) by specifying
that an eligible national bank need only state the total dollar amount
rather than per-quarter reductions in requests for four-quarter
decreases. As a conforming change, the OCC proposed to amend paragraph
(i)(5) to clarify that the OCC's approval of a capital change does not
expire within one year of the date of the approval if the OCC specifies
a longer period.
The OCC received one comment on this proposal, which supported the
proposed amendments. This commenter also recommended amending the
criteria for an eligible bank in the context of requesting approval for
decreasing its capital for four consecutive quarters. The commenter
recommended adopting a single eligibility standard for all part 5
filings and other procedures that takes into account the criteria that
are most relevant to the activity at hand, which, in this section,
would relate to the bank's capital levels. However, the commenter
stated that if a uniform standard is not adopted, then the OCC should
not require a bank to receive a consumer compliance rating (or any
other single component rating) of at least 2 in order to meet the
eligible bank standard for changes to its permanent capital through the
expedited review process. The commenter recommended that the OCC
instead employ a standard for eligibility that relates to the bank's
capital levels.
The OCC disagrees with this commenter's recommendation. The OCC
believes that a consistent definition of ``eligible bank'' is
appropriate across part 5. Further, ``eligible bank'' status only
results in expedited processing. Since a bank has to file an
application regardless of whether it is an ``eligible bank,'' the
suggested change does not reduce burden. Finally, the OCC believes that
expedited treatment for a bank with a consumer compliance rating lower
than 2 is not appropriate when considering a capital reduction. For the
reasons discussed above, the OCC has not made any changes to the final
rule in response to this comment and adopts the amendments to Sec.
5.46 as proposed.
Subordinated Debt Issued by a National Bank (Sec. 5.47)
Section 5.47 describes the requirements applicable to a national
bank's issuance of subordinated debt, including subordinated debt
intended for inclusion in tier 2 capital. The OCC proposed numerous
changes to this section. Specifically, the OCC proposed to add a new
definition of ``subordinated debt document'' to Sec. 5.47(c) to mean
any document pertaining to an issuance of subordinated debt, and any
renewal, extension, amendment, modification, or replacement thereof,
including the subordinated debt note, and any global note, pricing
supplement, note agreement, trust indenture, paying agent agreement, or
underwriting agreement. The OCC also proposed conforming revisions
throughout Sec. 5.47 to better reflect this terminology. The OCC
received one comment on this new definition stating that the definition
of ``subordinated debt document'' is broad. The OCC disagrees with this
comment because the ``subordinated debt document'' definition is
intended to capture the scope of documents that could impact a bank's
compliance with the OCC's regulatory requirements. Therefore, the OCC
adopts this definition as proposed. This change clarifies that a
national bank should submit with their applications all material
documents needed for the OCC to review the application for compliance
with its regulatory requirements. The OCC reviews ancillary securities
[[Page 80426]]
documents to ensure that they do not contain language that conflicts
with required disclosures or statements made in the subordinated debt
note. The OCC notes that this list of documents in the definition is
illustrative and not exclusive. The final rule makes a conforming
change in paragraph (c) to remove the proposed numbering of the
definitions.
Paragraph (d)(3)(ii) contains a list of statements and descriptions
that a national bank must clearly and accurately disclose in the
subordinated debt note. The OCC proposed adding language to paragraph
(d)(3)(ii)(C) to clarify that a national bank is only required to
disclose the OCC's authority under 12 CFR 3.11 to limit certain
distributions if the disclosure requirement is applicable to the
subordinated debt issuance. The OCC received no comments on this new
language and adopts it as proposed. Under the final rule, a national
bank is only required to incorporate this disclosure language into a
subordinated debt note if the issuing bank, or any successor
institution to the issuing bank, would have discretion under the terms
of the subordinated debt to permanently or temporarily suspend payments
without triggering an event of default. The OCC believes that this
amendment will provide flexibility and reduce burden by permitting
national banks to omit the provisions when warranted.
The OCC also proposed to add a new paragraph (d)(3)(ii)(D) that
would require a national bank to disclose in a subordinated debt note
that the subordinated debt obligation may be fully subordinated to
interests held by the U.S. government in the event that the national
bank enters into a receivership, insolvency, liquidation, or similar
proceeding. This proposed requirement mirrors the language in 12 CFR
3.20(d)(1)(xi), which requires advanced approaches banks to disclose
this information in the governing agreement, offering circular, or
prospectus of an instrument to be included in tier 2 capital. The
proposal also made a conforming change to the paragraph (e)
introductory text to remove the reference to advanced approaches
national banks. The OCC received no comments on this new paragraph or
the conforming change and adopts them as proposed. As stated in the
preamble to the proposal, the OCC believes that disclosing this
information to potential investors in subordinated debt is beneficial
for all national banks, even those that are not advanced approaches
banks or that do not intend to include the debt in tier 2 capital.
Paragraphs (f)(1)(ii) and (h) govern the procedures for a national
bank to include subordinated debt in tier 2 capital. Currently, these
provisions provide that a national bank may not include subordinated
debt as tier 2 capital unless it has filed a notice with the OCC and
received notification from the OCC that the subordinated debt qualifies
as tier 2 capital. The OCC proposed to make these paragraphs consistent
with the general usage in part 5 by changing the terminology from
notice to application. The OCC also proposed clarifying changes to
these paragraphs. The OCC received no comments on these changes and
adopts then as proposed. The OCC does not intend these changes to be
substantive.
Additionally, the OCC proposed to provide explicit regulatory
authority for a national bank to seek approval to include subordinated
debt as tier 2 capital before issuance of the subordinated debt in
paragraphs (f)(1)(ii) and (h)(1). National banks routinely seek
confirmation from the OCC that subordinated debt will qualify as tier 2
capital prior to issuance to mitigate the risk of issuing nonqualifying
subordinated debt. This paragraph codifies this practice. Relatedly,
the OCC proposed a conforming revision to paragraph (h)(2)(ii), which
requires the application to include the amount and date of receipt of
funds, to permit submission of the projected amount and date of
receipt. The OCC also proposed to add a new paragraph (h)(2)(iii)
requiring the application to include the interest rate or expected
calculation method for the interest rate for the subordinated debt.
This paragraph would assist the OCC in reviewing applications for
inclusion of the subordinated debt in tier 2 capital. The OCC received
no comments on these changes and adopts them as proposed. Under the
final rule, and as with current practice, the OCC will not provide
final approval that the subordinated debt qualifies as tier 2 capital
until after the debt is issued and final pricing is available.
Paragraphs (f)(2)(ii) and (g)(1)(ii) require OCC approval for a
national bank to prepay subordinated debt. The approval requirements
for prepayment of subordinated debt include specific additional
requirements for prepayment that is in the form of a call option.
Specifically, a national bank seeking to prepay subordinated debt in
the form of a call option is required to provide: (1) A statement
explaining why the national bank believes that following the proposed
prepayment the national bank would continue to hold an amount of
capital commensurate with its risk; or (2) a description of the
replacement capital instrument that meets the criteria for tier 1 or
tier 2 capital under 12 CFR 3.20, including the amount of such
instrument, and the time frame for issuance. As noted in the preamble
to the proposed rule, the OCC has found that the distinction between
prepayment and prepayment in the form of a call option is immaterial to
OCC review, that the additional requirements are generally satisfied in
most prepayment applications, and that the additional information is
helpful for the OCC to determine the impact of the prepayment on the
national bank's capital levels and safety and soundness. Accordingly,
the OCC proposed having a single procedure for the prepayment of
subordinated debt that would incorporate the requirements for
prepayment in the form of a call option. The proposal contained a
coordinating revision to paragraph (g)(2)(ii) regarding OCC approval.
The OCC received no comments on these changes and adopts them as
proposed.
Currently, Sec. 5.47 does not explicitly require a national bank
to make a filing with the OCC if the national bank makes a material
change to its outstanding subordinated debt note or any related
subordinated debt documents. The OCC proposed to add new paragraphs
(f)(3) and (g)(1)(iii) to ensure that subordinated debt issuances
remain compliant with OCC regulatory requirements, including the
requirements for inclusion in tier 2 capital. These revisions would
require OCC approval for a material change to an existing subordinated
debt document if the bank would have been required to receive OCC
approval to issue the security under paragraph (f)(1) or to include it
in tier 2 capital under paragraph (h). An application to make a
material change would include: (1) A description of the proposed
changes; (2) a statement of whether the national bank is subject to or
required to file a capital plan with the OCC, and if so, how the
proposed change conforms to the capital plan; (3) a copy of the revised
subordinated debt documents reflecting all proposed changes; and (4) a
statement that the proposed changes to the subordinated debt documents
comply with all applicable laws and regulations.
The OCC received one comment letter suggesting that the OCC not
implement this OCC approval requirement for material changes to
subordinated debt documents. The commenter stated that the ``material
change'' standard is imprecise, the ``subordinated debt document''
definition is broad, and the overall requirement would increase
[[Page 80427]]
burden. The commenter also argued against tying the application
requirements to the bank's consumer compliance rating, which is a
component of whether a bank is an ``eligible bank'' under 12 CFR 5.3
and therefore subject to certain procedural requirements.
The OCC disagrees with this comment and is finalizing the OCC
approval requirement for material changes as proposed. The OCC reviews
subordinated debt documents for compliance with the OCC's licensing
requirements at 12 CFR 5.47 and the OCC's capital component eligibility
criteria at 12 CFR 3.20. The OCC reviews ancillary securities documents
to ensure that they do not contradict the statements and disclosures
made in the primary documents. As previously explained, the
``subordinated debt document'' definition is intended to capture the
scope of documents that could impact a bank's compliance with the OCC's
regulatory requirements.
The OCC uses the ``eligible bank'' criteria as a proxy for
determining the appropriate level of review for subordinated debt
issuance and prepayment actions. As discussed elsewhere in this
Supplementary Information, the OCC believes that expedited treatment
for a bank with a consumer compliance rating lower than 2 is not
appropriate. Because the terms of a subordinated debt document govern
the rights and obligations of the issuing bank throughout the lifetime
of the security, the OCC's supervisory interest in reviewing
subordinated debt documents for regulatory compliance extends past the
security's date of issuance.
The commenter also requested, in the event the OCC finalized this
provision as proposed, that the OCC confirm that approval would only be
required in the event that the bank would have been required to receive
approval to issue the security under 12 CFR 5.47(f)(1) or to include it
in tier 2 capital under 12 CFR 5.47(h). In response, the OCC notes that
a bank would only have to seek OCC approval of a change to a
subordinated debt document if: (1) The change is material and (2) at
the time of issuance of the security, the bank would have been required
to receive OCC approval to issue the security under 12 CFR 5.47(f)(1)
or to include it in tier 2 capital under 12 CFR 5.47(h). In response to
the comment that the ``material change'' standard is imprecise, the OCC
notes that it would not consider a change to a subordinated debt
document to be material if it consists entirely of technical or
administrative changes to the subordinated debt document, such as a
change to a filing address or filing procedure. The OCC would consider
a change to be material if it pertains to subjects covered by the OCC
regulatory requirements at 12 CFR 3.20 and 12 CFR 5.47, such as pricing
and maturity, rights and obligations of the lender and borrowers, and
required regulatory disclosures.
Finally, the OCC proposed to make certain stylistic changes to the
rule text of Sec. 5.47 that are not intended to impact the substantive
requirements applicable to national banks. The OCC received no comments
on these changes and adopts them as proposed.
Change in Control of a National Bank or Federal Savings Association;
Reporting of Stock Loans (Sec. 5.50)
Section 5.50 sets forth the procedures and standards for changes in
control of national banks and Federal savings associations. Paragraph
(d)(8) contains a definition of insured depository institution.
However, that term is not used within Sec. 5.50. Accordingly, the OCC
proposed to replace that definition with the definition of ``depository
institution,'' to mean a depository institution as defined in section
3(c)(1) of the FDI Act (12 U.S.C. 1813(c)(1)).
Paragraph (f)(3)(iv) states that an applicant may request a hearing
by the OCC within 10 days of receipt of a notice disapproving a change
in control and that following final agency action under 12 CFR part 19,
further review by the courts is available. Paragraph (f)(6) provides
that the OCC will notify the proposed acquiror in writing of a
disapproval within three days and will indicate the basis of its
disapproval. For clarity, the OCC proposed combining these provisions
in a revised paragraph (f)(6). The OCC also proposed to add language
stating that this disapproval notice will inform the filer of the
availability of a hearing. Additionally, the OCC proposed a new
paragraph (f)(6)(iii) specifying that if a filer fails to request a
hearing with a timely request, the notice of disapproval constitutes a
final and unappealable order. This language is currently included in 12
CFR 19.161 and the OCC stated in the preamble to the proposal that it
believes the language also should be included in Sec. 5.50 to put
filers on notice of the implications of failure to request a hearing in
a timely manner.
Finally, paragraph (g)(2)(i) provides procedures for the OCC's
release of information related to a change in control notice, including
publication of information in the OCC's Weekly Bulletin. The OCC
proposed revising this provision to reflect the information that the
OCC publishes in the Weekly Bulletin in practice, namely the date of
filing, the disposition of the notice and date thereof, and the
consummation date of the transaction, if applicable.
The OCC received no comments on these changes to Sec. 5.50 and
adopts them as proposed.
Changes in Directors and Senior Executive Officers of a National Bank
or Federal Savings Association (Sec. 5.51)
Section 5.51 implements section 914 of the Financial Institutions
Reform, Recovery, and Enforcement of 1989 (12 U.S.C. 1831i). Section
914 requires a national bank or Federal savings association to provide
prior notice to the OCC of the proposed addition of any individual to
the board of directors or the employment of any individual as a senior
executive officer of a bank if, among other things, the bank is in
troubled condition. Paragraph (c)(4) defines ``senior executive
officer'' to mean the president, chief executive officer, chief
operating officer, chief financial officer, chief lending officer,
chief investment officer, and any other individual the OCC identifies
in writing to the national bank or Federal savings association who
exercises significant influence over, or participates in, major policy
making decisions of the bank or savings association without regard to
title, salary, or compensation. The term also includes employees of
entities retained by a national bank or Federal savings association to
perform functions in lieu of directly hiring the individuals, and the
individual functioning as the chief managing official of the Federal
branch of a foreign bank. The OCC proposed to add chief risk officer to
the definition of senior executive officer given the increase in that
role at many national banks and Federal savings associations. The OCC
received no comments to this change and adopts it as proposed.
Paragraph (c)(7) provides the definition of ``troubled condition,''
which is one of the circumstances in which a national bank or Federal
savings association is required to file a notice under Sec. 5.51.
Pursuant to paragraph (c)(7)(ii), this definition includes a national
bank or Federal savings association that is subject to a cease and
desist order, a consent order, or a formal written agreement, unless
otherwise informed in writing by the OCC. The OCC proposed to amend
paragraph (c)(7)(ii) to specify that the cease and desist order,
consent order, or formal written agreement must require the bank or
savings association to improve its financial condition for the
institution to be considered in ``troubled condition'' solely as a
result of the
[[Page 80428]]
enforcement action. The OCC expects to inform a bank in writing when an
enforcement action does not require action to improve the financial
condition of the bank. The OCC's general policy is not to apply
troubled condition status to national banks or Federal savings
associations solely as a result of cease and desist orders, consent
orders, or formal written agreements that do not require improvement in
the financial condition of the bank or savings association, such as
enforcement actions that address certain compliance-related
deficiencies that do not affect the financial condition of the bank or
savings association. Typically, the OCC has noted in these actions that
the bank or savings association is not in troubled condition as a
result of the action. The proposal updated the definition of troubled
condition in Sec. 5.51 to align with the OCC's current supervisory
practice. The OCC noted in the preamble to the proposal that this
practice is consistent with that of the Federal Reserve Board and the
FDIC, and the proposed revision would align the OCC's regulations with
the Federal Reserve Board's and FDIC's regulations implementing section
914.\59\ The OCC received a comment in response to this proposed
amendment that strongly supported the revised definition of ``troubled
condition.'' Therefore, the OCC finalizes this definition as proposed.
---------------------------------------------------------------------------
\59\ See 12 CFR 225.71(d) (Board); 12 CFR 303.101(c) (FDIC).
---------------------------------------------------------------------------
Capital Distributions by Federal Savings Associations (Sec. 5.55)
Section 5.55 provides standards and procedures for capital
distributions made by Federal savings associations. Paragraph (d)(2)
defines ``capital'' as total capital, computed under 12 CFR part 3. The
OCC proposed to delete this definition as unnecessary because all
references to ``capital'' are either in relation to the defined term
``capital distribution'' or contain an explicit reference to
calculations under 12 CFR part 3. Additionally, the OCC proposed a new
definition of ``control,'' to have the same meaning as in section
10(a)(2) of the HOLA (12 U.S.C. 1467a(a)(2)), and to use this term to
describe control relationships, rather than the current use of the term
``subsidiary'' in Sec. 5.55. The OCC did not receive any comments on
these updated definitions and adopts them as proposed.
Current paragraph (e)(1) of Sec. 5.55 requires a Federal savings
association to file an application if it is not an eligible savings
association. Current paragraphs (e)(2) and (g)(2) of Sec. 5.55 require
eligible savings associations to file a notice if certain requirements
are met. Consistent with other changes in part 5, the OCC proposed to
change the terminology for notice to application and to make
corresponding changes throughout Sec. 5.55. As a result, filings that
are currently notices would be applications subject to expedited
review. In addition, the OCC proposed to reorganize paragraphs (e) and
(g) to clarify the procedures; however no substantive change is
intended. The OCC also proposed additional stylistic revisions to
current paragraph (e)(4) of Sec. 5.55 to clarify that the notice
mentioned in this paragraph is that of the notice filed with the
Federal Reserve Board. The OCC did not receive any comments on these
changes and adopts them as proposed with clarifying technical changes.
The OCC proposed a substantive change to the application
procedures. Current paragraph (e)(1)(ii) requires a Federal savings
association to file an application if the total amount of all its
capital distributions (including the proposed capital distribution) for
the applicable calendar year exceeds its net income for that year to
date plus retained net income for the preceding two years. Under 12 CFR
5.64(c)(2), a national bank may calculate its dividends in excess of a
single year's current net income by offsetting certain excess dividends
against retained net income from each of the prior two years, with the
potential to incorporate net income from up to four years prior to the
current year when determining the maximum dividend payout possible
without prior OCC approval. To provide additional flexibility, the OCC
proposed to permit a Federal savings association to conduct this
calculation when determining whether this application requirement
applies. Specifically, if the capital distribution is from retained
earnings, a Federal savings association would be able to calculate the
aggregate limitation for a capital distribution in accordance with 12
CFR 5.64(c)(2), substituting ``capital distributions'' for
``dividends'' in that section. The OCC did not receive any comments on
this change to the application procedures and adopts it as proposed
with a confirming change to a citation.
Paragraph (f)(2) provides that the capital distribution application
may include a schedule proposing capital distributions over a specified
period, not to exceed 12 months. The OCC proposed to remove this 12-
month limitation to allow a Federal savings association more
flexibility for its distributions and to align this provision with the
analogous national bank provision, 12 CFR 5.46(i)(1)(ii). The OCC did
not receive any comments on the removal of this 12-month limitation and
adopts it as proposed.
Additionally, the OCC proposed a new paragraph (g)(3) to clarify
the appropriate OCC filing office for capital distribution applications
and notices. In general, a Federal savings association would file with
the appropriate OCC licensing office. However, the Federal savings
association must submit the application to the appropriate OCC
supervisory office if the application involves solely a cash dividend
from retained earnings or involves a cash dividend from retained
earnings and a concurrent cash distribution from permanent capital. The
OCC did not receive any comments on this change, and the OCC adopts it
as proposed.
Finally, the OCC proposed to reorganize paragraph (h), which
addresses OCC review of an application, by providing separate
paragraphs for OCC denials and approvals. As a result, paragraph (h)(1)
would address OCC denials and include the majority of current paragraph
(h) and paragraph (h)(2) would address OCC approvals. In doing so, the
proposal clarified that the OCC may approve an application in whole or
in part and that the OCC may waive any waivable prohibition or
condition to permit a distribution. The proposal also changed the
cross-reference in the current introductory text to the more
appropriate paragraph (e)(1). The OCC did not receive any comments on
these changes to paragraph (h) of Sec. 5.55 and adopts them as
proposed.
Inclusion of Subordinated Debt Securities and Mandatorily Redeemable
Preferred Stock as Federal Savings Association Supplementary (Tier 2)
Capital (Sec. 5.56)
Section 5.56 provides the requirements and procedures for a Federal
savings association to include subordinated debt and mandatorily
redeemable preferred stock (collectively, ``covered securities'') in
tier 2 capital. Paragraph (b) provides the filing procedures, including
the application and notice procedures. Under Sec. 5.56, the OCC must
approve an application or notice before a Federal savings association
may include covered securities as tier 2 capital. As with Sec. 5.47,
the OCC proposed to make this process consistent with the general usage
in part 5 by changing the terminology from notice to application where
appropriate throughout Sec. 5.56. The proposal also clarified that a
savings association may not include covered securities in tier 2
capital until the OCC approves the application and
[[Page 80429]]
the securities are issued. This change is not intended to be
substantive.
Paragraph (b)(2) requires an application and prior approval from
the OCC for a Federal savings association to prepay covered securities
included in tier 2 capital. Similar to the national bank requirement in
Sec. 5.47, paragraphs (b)(2)(ii) and (h) of Sec. 5.56 contain
additional application requirements for OCC review of prepayments in
the form of a call option. As provided in the discussion for Sec. 5.47
in this Supplemental Information, and for the same reasons, the OCC
proposed to incorporate the application requirements currently
applicable to prepayment in the form of a call option to all prepayment
applications. The OCC also proposed one additional technical change in
Sec. 5.56(b)(2) to replace a reference to ``a tier 1 or tier 2
instrument'' to refer to ``tier 1 or tier 2 capital.''
Paragraph (d)(1) contains disclosure requirements for covered
securities. The OCC proposed to add a new paragraph (d)(1)(i)(H) to
require the covered security to state that it may be fully subordinated
to interests held by the U.S. government in the event that the savings
association enters into a receivership, insolvency, liquidation, or
similar proceeding. As discussed above regarding Sec. 5.47, a Federal
savings association that is an advanced approaches institution must
make this disclosure under 12 CFR 3.20(d)(1)(xi). As stated in the
preamble to the proposed rule, the OCC believes that disclosing this
information to potential investors in the covered security is
beneficial for all Federal savings associations, even those that are
not advanced approaches Federal savings associations or that do not
intend to include the debt in tier 2 capital.
In addition, the OCC proposed to replace the reference to 12 CFR
part 197 in paragraphs (b)(1)(iii) and (d)(2)(i) of Sec. 5.56 with 12
CFR part 16, which now applies to Federal savings associations. The OCC
also proposed to make certain purely stylistic changes to the rule text
of Sec. 5.56 that are not intended to impact the substantive
requirements applicable to Federal savings associations.
The OCC received no comments to any changes proposed to Sec. 5.56
and adopts them as proposed. The final rule also makes a technical
correction to the statutory reference to the definition of accredited
investor in paragraph (d)(2)(ii).
Pass-Through Investments by a Federal Savings Association (Sec. 5.58)
Section 5.58 provides the licensing procedures for Federal savings
associations making pass-through investments. Although based on
different authority, Sec. 5.58 is largely analogous to the provisions
in Sec. 5.36 governing national bank non-controlling investments.
Accordingly, the OCC proposed amendments to Sec. 5.58 similar to those
proposed for Sec. 5.36, and for the same reasons.
First, the OCC proposed to amend paragraph (d), Definitions, by
defining ``pass-through investment'' as an investment authorized under
12 CFR 160.32(a). As discussed in this Supplemental Information for the
proposed definition of ``non-controlling investment'' in Sec. 5.36,
the proposed definition for ``pass-through investment'' would exclude a
Federal savings association holding interests in a trust formed for the
purposes of securitizing assets held by the bank as part of its
business or for the purposes of holding multiple legal titles of motor
vehicles or equipment in conjunction with lease financing transactions.
The OCC received no comments on the proposed definition of ``pass-
through investment'' and adopts it as proposed.
The OCC also proposed to amend paragraph (d) by removing the
definitions of ``well capitalized'' and ``well managed'' because the
proposed rule defined these terms in Sec. 5.3. The OCC received no
comments on these changes and adopts them as proposed, with a technical
change that removes unnecessary cross-references to Sec. 5.3 in
paragraph (e).
Second, the OCC proposed to expand the activities eligible for
notice to include activities that are substantially the same as
previously approved activities, as proposed to be defined in Sec. 5.3.
In making this change, the proposal reorganized paragraph (e) and made
conforming changes to paragraphs (e)(2) and (e)(4). Additionally, the
OCC stated in the preamble to the proposed rule that it is considering
removing the filing requirement for pass-through investments in
enterprises engaging in activities permissible for a Federal savings
association, as discussed above for national bank operating
subsidiaries and non-controlling investments. Under the alternative,
the OCC would not remove the filing requirement if the enterprise would
be a subsidiary of the Federal savings association for purposes of
section 18(m) of the FDIA Act (12 U.S.C. 1828(m)), which generally
requires a Federal savings association to provide 30-days prior notice
to the OCC before establishing or acquiring a subsidiary defined in
section 3(w)(4) of the FDI Act (12 U.S.C. 1813(w)(4)).
The OCC received no comments to the alternative proposal in Sec.
5.58 directly, but did receive comments to the similar alternative
proposal for operating subsidiaries, Sec. 5.34, and noncontrolling
investments of national banks, Sec. 5.36. For the reasons noted in the
discussion on Sec. 5.34, Operating subsidiaries in this Supplemental
Information, the OCC declines to include this alternative in the final
rule.
Third, the OCC proposed to revise paragraph (f)(1) of Sec. 5.58 to
permit a Federal savings association to file an application to make a
pass-through investment in an entity that does not agree to OCC
supervision and examination. The proposal redesignated paragraph (f)(2)
as paragraph (f)(3) and added a new paragraph (f)(2) providing for
expedited review for certain applications. The qualifications for
expedited review are equivalent to those in proposed Sec. 5.36(f). The
OCC received no direct responses to this proposal but as discussed in
this Supplemental Information received one comment in support of the
similar proposal for noncontrolling investments of national banks under
Sec. 5.36. The OCC adopts these proposed changes to Sec. 5.58(f),
with clarifying technical changes, for the same reasons discussed in
the corresponding change to Sec. 5.36. The final rule also makes
conforming changes to redesignated paragraph (f)(3) to reflect that a
Federal savings association may make a pass-through investment
requiring a filing under 12 U.S.C. 1828(m) in an entity that has not
agreed to OCC supervision and examination.
Fourth, the OCC proposed to add a new paragraph (g) that would
permit a Federal savings association to make a pass-through investment
without a notice or application to the OCC. The standards would be
equivalent to those in proposed Sec. 5.36(g) except that the
enterprise must not be a subsidiary of the Federal savings association
for purposes of section 18(m) of the FDI Act. In such a case, an
application would be required under Sec. 5.58(f)(2). The OCC received
no comments on new paragraph (g) and adopts it as proposed.
Additionally, the final rule corrects a cross-reference in redesignated
paragraph (h)(1).
Finally, the OCC proposed to amend redesignated paragraph (j) to
provide exceptions to the rules of general applicability in the same
manner as proposed Sec. 5.36(j). As with this amendment to Sec. 5.36,
the OCC has not removed the proposed exception to public availability,
Sec. 5.9, in the final rule. However, as with Sec. 5.36, the OCC is
adopting in the final rule the proposed provision that permits the OCC
to determine that some or all of
[[Page 80430]]
these rules of general applicability apply if it concludes that the
application presents significant or novel policy, supervisory, or legal
issues, with the addition of Sec. 5.9 to this sentence.
Sec. 5.59 Service Corporations of Federal Savings Associations.
Section 5.59 provides procedures governing OCC review and approval
of filings by Federal savings associations to establish or acquire, or
to conduct new activities in existing, service corporations pursuant to
the authority provided in section 5(c)(4)(B) of the HOLA, 12 U.S.C.
1464(c)(4)(B). An application under this section is eligible for
expedited review if, among other things, the Federal savings
association is ``well capitalized'' and ``well managed.'' However, this
section currently does not define ``well managed.'' The proposal
applied the proposed definition of ``well managed'' in Sec. 5.3 to
this term as used in Sec. 5.59. The final rule adopts this amendment
as proposed, with one technical change that removes the cross-reference
to Sec. 5.3 in paragraph (h)(2)(ii)(A). As indicated elsewhere in this
SUPLEMENTARY INFORMATION, because the definitions in Sec. 5.3 apply to
all of part 5, this cross-reference is not necessary.
Earnings Limitation Under 12 U.S.C. 60 (Sec. 5.64)
Section 5.64 describes the calculations for earnings available for
dividends under 12 U.S.C. 60. Paragraph (d) provides special rules for
what the OCC referred to as ``surplus surplus,'' which is an amount in
capital surplus in excess of capital stock that the national bank can
demonstrate came from earnings in prior periods. A national bank had
been required to retain a certain percentage of net income as capital
surplus whenever it paid dividends. In addition, a variety of statutes
and regulations established limits for banks based on permanent
capital, including capital surplus, and ignored any amounts in retained
earnings, which provided an incentive for banks to shift earnings into
permanent capital. After Congress revised the statutes to provide more
flexibility to include retained earnings as capital for purposes of the
statutory limits, the OCC permitted banks to distribute these surplus
surplus funds as dividends rather than as reductions in permanent
capital given the surplus surplus funds' origin as earnings rather than
paid in capital. As these statutory and regulatory changes occurred
decades ago, national banks have not needed to create new surplus
surplus for many years but may still incur recordkeeping burden
associated with identifying regulatory surplus surplus within capital
surplus. Accordingly, the OCC proposed to remove the concept of surplus
surplus and associated procedures described in paragraph (d). The OCC
received no comments on these proposed changes and finalizes them as
proposed. The OCC notes that removal of paragraph (d) will not prevent
a bank from distributing amounts contained in the capital surplus
accounts. A national bank may make an appropriate filing under 12 CFR
5.46 for a reduction in capital to distribute these funds.
Dividends Payable in Property Other Than Cash (Sec. 5.66)
Section 5.66 provides procedures for payment of dividends in non-
cash property by national banks. This section currently provides that
these dividends are equivalent to a cash dividend in an amount equal to
the actual current value of the property, even if the bank previously
has charged down or written off the property. Before the dividend is
declared, the bank should show the excess of the actual value over book
value on its books as a recovery and should declare the dividend in the
amount of the full book value (equivalent to the actual current value)
of the property being distributed. The OCC proposed to revise this
section to clarify that the dividend is equivalent to a cash dividend
in an amount equal to the actual current value of the property,
regardless of whether the book value is higher or lower under GAAP. The
OCC also proposed to apply this valuation methodology to all non-cash
dividends, not just those for property that has been charged down or
written off. Further, the amendment would provide that the bank should
show the difference between the actual value and book value on its
books as gain or loss, as applicable, prior to recording the non-cash
dividend reflecting the actual value of the property. The OCC received
no comments on these changes and adopts them as proposed. As stated in
the preamble to the proposed rule, the OCC believes this approach
better reflects the value of the property being distributed from the
bank, particularly in cases where the non-cash property was recorded at
historical cost under GAAP.
Fractional Shares (Sec. 5.67)
Section 5.67 provides a number of potential arrangements that a
national bank may adopt to avoid the issuance of fractional shares. The
OCC proposed to simplify this section for a national bank by retaining
only one of these options, the remittance of the cash equivalent of the
fraction not being issued to those to whom fractional shares would
otherwise be issued. The OCC believes this procedure is the simplest
and is the predominant method of disposing of fractional shares today.
Other options in the current rule include issuing warrants for
fractional shares or permitting shareholders to purchase additional
fractions up to one whole share. While the OCC permitted these methods
historically, these methods can create significant recordkeeping costs
today when bank stock may be traded in ``round lots'' of 100 shares or
more. The OCC received no comments on this change and adopts it as
proposed. Because a transaction that would result in the issuance of
fractional shares will generally require an application with the OCC,
revised Sec. 5.67 maintains flexibility for banks by permitting the
bank to propose an alternate method in the application for the stock
issuance, which could include one of the options being removed from the
rule.
Federal Branches and Agencies (Sec. 5.70)
Section 5.70 provides the filing procedures for corporate
activities and transactions involving Federal branches and agencies of
foreign banks. Consistent with the background investigation changes
proposed to other sections, the OCC proposed adding a new paragraph
(d)(3) to explicitly permit the OCC to require any senior executive
officer of a Federal branch or agency submitting a filing to submit an
Interagency Biographical and Financial Report and legible fingerprints.
The OCC received no comments to this new paragraph and adopts it as
proposed.
Additional Issues and General Comments
Digital and remote filings. One commenter encouraged the OCC to
advance digital and remote filing procedures, such as digital
signatures and virtual notarization. The OCC has already updated its
licensing regulation to encourage the use of electronic filings,
including permitting digital signatures in the OCC's Central
Application Tracking System (CATS). Further, the OCC is unable to
update to virtual notarization because notarization is governed by
State law.
Public input. One commenter generally opposed the proposed changes
for procedures outlining public input. The commenter further expressed
that it is more difficult for community organizations to offer
meaningful input under these proposed procedures, which limits the
OCC's ability to determine whether an application
[[Page 80431]]
achieves a public benefit. The OCC disagrees with this comment. The OCC
notes that ``public benefit'' is not a factor for any licensing
filings, rather the OCC is seeking public comments that provide
meaningful and substantive information about a bank's CRA performance.
Only such comments can assist the OCC in its evaluation of a
transaction.
CRA ratings. Generally, the OCC requires a rating of at least
``Satisfactory'' for approval of a filing. In response to the CRA
ratings used in Sec. Sec. 5.30, 5.31, 5.33, 5.40, one commenter
suggested that a CRA rating of less than ``Satisfactory'' should not
automatically preclude approval of a filing. The OCC is not adopting
this commenter's recommendation. OCC policy provides that if an
applicant bank has an overall less than ``Satisfactory'' rating, the
OCC provides enhanced scrutiny of covered applications by the bank.
Further, proposed Sec. 5.33(e)(1)(iii)(A) makes clear that the CRA
consideration is in conjunction with the other factors.
One commenter requested that the OCC codify the policies in PPM
5000-43 and Bulletin 2018-23 regarding CRA downgrades. The commenter
also asserted that the OCC should allow expedited reexamination if a
bank believes it has remediated a CRA concern. The OCC notes that this
comment is outside the scope of this rulemaking.
Public comment period. One commenter questioned the proposed rule's
compliance with the notice requirements of the APA noting that the
Notice of Proposed Rulemaking was published on the OCC website on March
5, 2020, but not in the Federal Register until April 2, 2020, with the
comment period ending May 4, 2020.\60\ The commenter is incorrect about
the requirements of the APA. The OCC notes that the APA does not
provide a minimum comment period and that the generally recommended
time for comment is 60 days.\61\ Here, the public had notice of the
proposal for 60 days beginning on March 5 when the OCC provided notice
of the proposal on its website and issued a news release and OCC
Bulletin on the proposal. Moreover, the proposal was published in the
Federal Register for 32 days.\62\
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\60\ This commenter also objected to the OCC issuing the
rulemaking during the COVID-19 pandemic. However, the OCC believes
that it is important to move forward with updating its rules so that
national banks and Federal savings associations can better address
current economic issues. Furthermore the pandemic should not prevent
the OCC from meeting its obligations to provide oversight and ensure
the safety and soundness of OCC regulated banks and the Federal
banking system.
\61\ See E.O. 12866, section 6(a).
\62\ The OCC, as well as the FDIC and Federal Reserve Board,
have published other rules in the Federal Register for only 30 days.
See e.g., 84 FR 9940 (Mar. 19, 2019), 84 FR 24296 (May 24, 2019),
and 84 FR 59970 (Nov. 7, 2019).
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General Technical Changes
The OCC proposed numerous technical changes throughout 12 CFR part
5. The OCC received no comments on these changes and adopts them as
proposed, with additional conforming changes. Specifically, the final
rule:
Replaces the word ``shall'' with ``must,'' ``will,'' or
other appropriate language, which is the more current rule writing
convention for imposing an obligation and is the recommended drafting
style of the Federal Register;
Generally replaces the term ``notice'' with the term
``application'' where prior OCC approval is required, thereby
conforming the terminology to the licensing action provided in the
provision (notices would continue to include informational filings to
the OCC as well as certain transactions that the OCC has the power to
disapprove, such as changes in control);
Amends the expedited review provisions throughout part 5
to refer to the OCC removing a filing from expedited review rather than
making a determination that the filing is not eligible for expedited
review to accord with the language and procedure in Sec. 5.13(a)(2).
Revises citations to the U.S. Code and the Code of Federal
Regulations by adjusting cross-references, making citations more
specific, and using consistent style;
Updates and standardizes references to the OCC website;
Simplifies gender references by replacing ``his or her''
with the neutral ``their;''
Uniformly capitalizes the word ``State,'' in conformance
with Federal Register drafting style; and
Replaces the terms ``bank'' and ``savings association''
with ``national bank'' or ``Federal savings association,''
respectively, where appropriate.
The OCC also is adopting in this final rule additional corrections
to cross-references and citations throughout part 5. Further, the OCC
is adopting technical changes that update the cross-reference to the
Sec. 5.3 definition of ``eligible bank'' in 12 CFR 3.701(f)(1)(vi) and
the cross-reference to the Sec. 5.3 definition of ``appropriate OCC
licensing office'' in 12 CFR 7.2008(c).
III. Regulatory Analyses
A. Paperwork Reduction Act
Paperwork Reduction Act
Certain provisions of the proposed rulemaking contain ``collection
of information'' requirements within the meaning of the Paperwork
Reduction Act (PRA) of 1995 (44 U.S.C. 3501-3521). In accordance with
the requirements of the PRA, the OCC may not conduct or sponsor, and a
respondent is not required to respond to, an information collection
unless it displays a currently valid Office of Management and Budget
(OMB) control number.
The OCC reviewed the final rule and determined that it revises
certain information collection requirements previously cleared by OMB
under OMB Control No. 1557-0014. The OCC submitted the information
collection requirements at the proposed rule stage. OMB neither
approved nor disapproved the submission, requiring OCC to resubmit the
collection at the final rule stage. Therefore, the OCC has submitted
the revised information collection to OMB for review under section
3507(d) of the PRA (44 U.S.C. 3507(d)) and section 1320.11 of the OMB's
implementing regulations (5 CFR 1320).
Current Actions
The final rule:
Adds new definitions to add clarity and consistency across
part 5. This includes proposing a single definition well managed
applicable throughout part 5. 12 CFR 5.3.
Requires each proposed organizer, director, executive
officer, or principal shareholder to submit information prescribed in
the Interagency Biographical and Financial Report and legible
fingerprints. This amendment merely codifies current application
requirements and will not result in a change in burden. 12 CFR 5.20.
Eliminates the bylaw amendment notice requirement for
Federal savings associations that adopt without change the OCC's model
or optional bylaws set forth in the rule. 12 CFR 5.21, 5.22.
Requires that applications to convert to a Federal savings
association or national bank include: A list of directors and senior
executive officers of the converting institution; and a list of
individuals, directors, and shareholders who directly or indirectly, or
acting in concert with one or more persons or companies, or together
with members of their immediate family, do or will own, control, or
hold 10 percent or more of the converting institution's stock. This
amendment merely codifies current
[[Page 80432]]
application requirements and will not result in a change in burden. 12
CFR 5.23(d)(2)(ii), 5.24(e)(2).
Permits the OCC to require directors and senior executive
officers of a converting institution to submit the Interagency
Biographical and Financial Report and legible fingerprints. This
amendment merely codifies current application requirements and will not
result in a change in burden. 12 CFR 5.23, 5.24.
Requires that applications for national banks or Federal
savings associations that wish to engage in the exercise of fiduciary
powers include, if requested by the OCC, the Interagency Biographical
and Financial Report and legible fingerprints. 12 CFR 5.26.
Requires a filer of a business combination application
under CRA to disclose whether it has entered into and disclosed a
covered agreement, as defined in 12 CFR 35.2. A filer must also provide
summaries of, or documents related to, all substantive discussions with
respect to the development of the content of a CRA sunshine agreement.
12 CFR 5.33(e)(1)(iii).
Removes the requirement that a disappearing national bank
or Federal savings association consolidating or merging with another
OCC-supervised institution provide a notice to the OCC. Sec. 5.33(g),
(k).
For national bank operating subsidiaries, expands the
after the fact notice for national banks to activities that are
substantially the same as previously approved activities that will be
conducted in accordance with the same terms and conditions applicable
to the previously approved activity. Expands the list of eligible
entities to include trusts provided that the bank or operating
subsidiary has the ability to replace the trustee at will and be the
sole beneficial owner of the trust. 12 CFR 5.34.
Removes the requirement for a national bank to file an
annual report identifying its operating subsidiaries that do business
directly with consumers and are not functionally regulated. 12 CFR
5.34.
For national bank non-controlling investments and Federal
savings association pass-through investments, expands the activities
eligible for notice to activities that are substantially the same as
previously approved activities. 12 CFR 5.36, 5.58.
Allows national banks and Federal savings associations to
file an application to make a non-controlling investment or a pass-
through investment, respectively, in an enterprise that has not agreed
to be subject to OCC supervision and examination. 12 CFR 5.36(f),
5.58(f).
Allows national banks and Federal savings associations to
make non-controlling investments or a pass-through investments,
respectively, without a filing if the activities of the enterprise are
limited to those previously reported to the OCC in connection with a
prior investment. 12 CFR 5.36, 5.58.
For Federal savings association operating subsidiaries,
expands the expedited approval process for Federal savings associations
to include activities that are substantially the same as previously
approved activities that will be conducted in accordance with the same
terms and conditions applicable to the previously approved activity.
Expands the list of eligible entities to include trusts provided that
the Federal savings association or operating subsidiary has the ability
to replace the trustee at will and be the sole beneficial owner of the
trust. 12 CFR 5.38.
Permits national banks to request approval for a reduction
in permanent capital for multiple quarters. 12 CFR 5.46.
Regarding subordinated debt notes, allows national banks
to omit inapplicable provisions when warranted, and require national
banks to disclose in subordinated debt notes that the subordinated debt
obligation may be fully subordinated to interests held by the U.S.
government in the event that the national bank enters into a
receivership, insolvency, liquidation, or similar proceeding. 12 CFR
5.47.
Revises the standard for when prior approval is required
for a national bank's issuance of subordinated debt and for prepayment
of any subordinated debt that is not included in tier 2 capital 12 CFR
5.47(f).
Requires OCC approval for a material change to an existing
subordinated debt document if the national bank would have been
required to receive OCC approval to issue the security under Sec.
5.47(f)(1) or to include it in tier 2 capital under Sec. 5.47(h). 12
CFR 5.47.
Adds the position of chief risk officer to the definition
of senior executive officer. This change requires prior OCC approval
for the employment of an individual as a chief risk officer by a
national bank or Federal savings association in troubled condition. 12
CFR 5.51.
Requires a covered security (inclusion of subordinated
debt and mandatorily redeemable preferred stock) issued by a Federal
savings association to state that it may be fully subordinated to
interests held by the U.S. government in the event that the savings
association enters into a receivership, insolvency, liquidation, or
similar proceeding. 12 CFR 5.56.
Permits the OCC to require any senior executive officer of
a Federal branch or agency submitting a filing to submit an Interagency
Biographical and Financial Report and legible fingerprints. This
amendment merely codifies current application requirements and will not
result in a change in burden. 12 CFR 5.70.
Title of Information Collection: Licensing Manual.
Frequency: Event generated.
Affected Public: Businesses or other for-profit.
Estimated number of respondents: 3,698.
Total estimated annual burden: 12,981 hours.
Comments are invited on:
a. Whether the collections of information are necessary for the
proper performance of the agencies' functions, including whether the
information has practical utility;
b. The accuracy or the estimate of the burden of the information
collections, including the validity of the methodology and assumptions
used;
c. Ways to enhance the quality, utility, and clarity of the
information to be collected;
d. Ways to minimize the burden of the information collections on
respondents, including through the use of automated collection
techniques or other forms of information technology; and
e. Estimates of capital or startup costs and costs of operation,
maintenance, and purchase of services to provide information.
All comments will become a matter of public record. Comments on
aspects of this notice that may affect reporting, recordkeeping, or
disclosure requirements and burden estimates should be sent to the
addresses listed in the ADDRESSES section of this document. A copy of
the comments may also be submitted to the OMB desk officer by mail to
U.S. Office of Management and Budget, 725 17th Street NW, #10235,
Washington, DC 20503; facsimile to (202) 395-6974; or email to
[email protected], Attention, Federal Banking Agency Desk
Officer.
B. Regulatory Flexibility Act Analysis
In general, the Regulatory Flexibility Act (5 U.S.C. 601 et seq.)
requires an agency, in connection with a final rule, to prepare a
Regulatory Flexibility Analysis describing the impact of the rule on
small entities (defined by the SBA for purposes of the RFA to include
commercial banks and savings
[[Page 80433]]
institutions with total assets of $600 million or less and trust
companies with total revenue of $41.5 million or less). However, under
section 605(b) of the RFA, this analysis is not required if an agency
certifies that the rule would not have a significant economic impact on
a substantial number of small entities and publishes its certification
and a short explanatory statement in the Federal Register along with
its rule.
The OCC currently supervises approximately 1,163 institutions
(commercial banks, trust companies, Federal savings associations, and
branches or agencies of foreign banks, collectively banks), of which
745 are small entities.\63\ To measure whether a rule will have a
``significant economic impact,'' the OCC focuses on the potential costs
of the rule to OCC-supervised small entities, consistent with guidance
on the RFA published by the Office of Advocacy of the Small Business
Administration.\64\ Because the rule applies to all OCC-supervised
depository institutions, the final rule would affect all small OCC-
supervised entities, and thus a substantial number of them.
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\63\ The OCC bases its estimate of the number of small entities
on the SBA's size thresholds for commercial banks and savings
institutions, and trust companies, which are $600 million and $41.5
million, respectively. Consistent with the General Principles of
Affiliation 13 CFR 121.103(a), the OCC counts the assets of
affiliated financial institutions when determining if it should
classify an institution as a small entity. The OCC used December 31,
2019, 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 U.S. Small Business Administration's Table of
Standards.
\64\ See, ``A Guide for Government Agencies; How to Comply with
the Regulatory Flexibility Act,'' (pp. 18-20), available at: https://www.sba.gov/sites/default/files/advocacy/How-to-Comply-with-the-RFA-WEB.pdf.
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The OCC classifies the economic impact of total costs on an OCC-
regulated entity as significant if the total costs for the entity in a
single year are greater than 5 percent of total salaries and benefits,
or greater than 2.5 percent of total non-interest expense. The OCC
estimates that the monetized direct cost of this rulemaking will range
from a low of approximately $4,600 per bank (40 hours x $115 per hour
\65\) to a high of approximately $18,400 per bank (160 hours x $115 per
hour).\66\ Using the upper bound average direct cost per bank, the OCC
finds the compliance costs will have a significant economic impact on
no more than 18 small banks, which is not a substantial number.\67\
Therefore, the OCC finds that this final rule does not have a
significant economic impact on a substantial number of small entities
supervised by the OCC. Accordingly, a Regulatory Flexibility Analysis
is not required.
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\65\ This per hour dollar amount is based on the U.S. Bureau of
Labor Statistics data for wages (by industry and occupation).
\66\ The OCC believes that substantially all of banks' direct
costs will be associated with reviewing the final rule and, when
necessary, modifying policies and procedures to correct any
inconsistencies between banks' internal policies and the final
modified rules. The overall impact estimate of the final rule is a
conservative one because it is difficult to monetize the potential
offsetting benefits associated with the final changes. Benefits from
these changes will accrue over the long-term and are therefore more
difficult to monetize for purposes of this estimate.
\67\ The OCC's threshold for a substantial number of small
entities is five percent of OCC-supervised small entities, or 37 as
of December 31, 2019.
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C. Unfunded Mandates Reform Act of 1995
The OCC has analyzed the final rule under the factors in the
Unfunded Mandates Reform Act of 1995 (UMRA) (2 U.S.C. 1501 et seq.).
Under this analysis, the OCC considered whether the final 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
(currently $157 million). The UMRA does not apply to regulations that
incorporate requirements specifically set forth in law.
Based on the OCC estimate that the monetized direct cost of this
rulemaking would range from a low of approximately $4,600 per bank to a
high of approximately $18,400 per bank, the OCC's overall estimate of
the total effect of the final rule ranges from approximately $5.4
million to approximately $21.4 million for the approximately 1,163
institutions supervised by the OCC. Therefore, the OCC finds that the
final rule does not trigger the UMRA cost threshold. Accordingly, the
OCC has not prepared the written statement described in section 202 of
the UMRA.
D. Riegle Community Development and Regulatory Improvement Act of 1994
Pursuant to section 302(a) of the Riegle Community Development and
Regulatory Improvement Act of 1994 (RCDRIA) (12 U.S.C. 4802(a)), in
determining the effective date and administrative compliance
requirements for new regulations that impose additional reporting,
disclosure, or other requirements on insured depository institutions,
the OCC must consider, consistent with the principles of safety and
soundness and the public interest: (1) Any administrative burdens that
the rule would place on depository institutions, including small
depository institutions and customers of depository institutions; and
(2) the benefits of the rule. The has considered the changes made by
this final rule and believes that the overall effective date of January
11, 2021 will provide OCC-regulated institutions with adequate time to
comply with the rule.\68\ With respect to administrative compliance
requirements, the OCC has considered the administrative burdens and the
benefits of this final rule and believes that any burdens are necessary
for safety and soundness and proper OCC supervision. The final rule's
benefits include increased flexibility for filing procedures,
elimination of redundant or unnecessary reporting requirements
consistent with safety and soundness, and updated policies and
procedures that increase clarity and reduce ambiguity for banks seeking
compliance with 12 CFR part 5 requirements. Further discussion of the
consideration by the OCC of these administrative compliance
requirements is found in other sections of the final rule's
SUPPLEMENTARY INFORMATION section.
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\68\ The OCC is making one technical change that takes effect on
December 11, 2020. This amendment removes the reference to 12 CFR
part 195, the Federal savings association CRA rule, in Sec.
5.20(e)(2)(ii) because the OCC recently amended 12 CFR part 25 to
include Federal savings associations and removed 12 CFR part 195 as
of this date.
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E. Effective Date
The APA \69\ requires that a substantive rule must be published not
less than 30 days before its effective date, except for: (1)
Substantive rules which grant or recognize an exemption or relieve a
restriction; (2) interpretative rules and statements of policy; or (3)
as otherwise provided by the agency for good cause.\70\ The January 11,
2021 effective date of this final rule for all but one of its
amendments meets the APA effective date requirements, as it will take
effect at least 30 days after its publication date of December 11,
2020. One technical amendment takes effect on December 11, 2020. This
amendment removes the reference to 12 CFR part 195, the Federal savings
association CRA rule, in Sec. 5.20(e)(2)(ii) because the OCC recently
amended 12 CFR part 25 to include Federal savings associations and
removed 12 CFR part 195 as of October 1, 2020.\71\ Because this is a
technical amendment that aligns Sec. 5.20(e)(2)(ii) with revised part
25, the OCC believes
[[Page 80434]]
it has good cause to issue this rule without a delayed effective date.
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\69\ Codified at 5 U.S.C. 551 et seq.
\70\ 5 U.S.C. 553(d).
\71\ See 85 CFR 34734 (June 5, 2020).
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Pursuant to section 553(b)(B) of the APA, general notice and the
opportunity for public comment are not required with respect to a
rulemaking when an ``agency for good cause finds (and incorporates the
finding and a brief statement of reasons therefor in the rules issued)
that notice and public procedure thereon are impracticable,
unnecessary, or contrary to the public interest.'' \72\ As described in
the final rule's SUPPLEMENTARY INFORMATION section, the final rule
includes a number of technical, clarifying, or conforming amendments
that the OCC did not include in its proposed rule. Because these
amendments are not substantive and merely correct or clarify the rule,
update the rule to reflect current law, or fix citation and regulatory
text format, the OCC believes that public notice of these changes is
unnecessary and therefore that it has good cause to adopt these changes
without notice and comment.
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\72\ 5 U.S.C. 553(b)(3)(A).
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F. Congressional Review Act
For purposes of the Congressional Review Act, the Office of
Management and Budget (OMB) makes a determination as to whether a final
rule constitutes a ``major rule.'' \73\ If a rule is deemed a ``major
rule'' by OMB, the Congressional Review Act generally provides that the
rule may not take effect until at least 60 days following its
publication.\74\
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\73\ 5 U.S.C. 801 et seq.
\74\ 5 U.S.C. 801(a)(3).
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The Congressional Review Act defines a ``major rule'' as any rule
that the Administrator of the Office of Information and Regulatory
Affairs of the OMB finds has resulted in or is likely to result in: (1)
An annual effect on the economy of $100,000,000 or more; (2) a major
increase in costs or prices for consumers, individual industries,
Federal, State, or local government agencies, or geographic regions; or
(3) a significant adverse effects on competition, employment,
investment, productivity, innovation, or on the ability of United
States-based enterprises to compete with foreign-based enterprises in
domestic and export markets.\75\
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\75\ 5 U.S.C. 804(2).
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OMB has determined that this final rule is not a major rule. As
required by the Congressional Review Act, the OCC will submit the final
rule and other appropriate reports to Congress and the Government
Accountability Office for review.
List of Subjects
12 CFR Part 3
Administrative practice and procedure, Capital, National banks,
Federal savings associations, Risk.
12 CFR Part 5
Administrative practice and procedure, Federal savings
associations, National banks, Reporting and recordkeeping requirements,
Securities.
12 CFR Part 7
Computer technology, Credit, Derivatives, Federal savings
associations, Insurance, Investments, Metals, National banks, Reporting
and recordkeeping requirements, Securities, Security bonds.
For the reasons set out in the preamble, the OCC proposes to amend
12 CFR chapter I as follows:
PART 3--CAPITAL ADEQUACY STANDARDS
0
1. The authority citation for part 3 continues to read as follows:
Authority: 12 U.S.C. 93a, 161, 1462, 1462a, 1463, 1464, 1818,
1828(n), 1828 note, 1831n note, 1835, 3907, 3909, 5412(b)(2)(B), and
Pub. L. 116-136, 134 Stat. 281.134 Stat. 281.
Sec. 3.701 [Amended]
0
2. Amend Sec. 3.701(f)(1)(vi) by removing the phrase ``12 CFR 5.3(g)''
and adding in its place the phrase ``12 CFR 5.3''.
PART 5--RULES, POLICIES, AND PROCEDURES FOR CORPORATE ACTIVITIES
0
3. The authority citation for part 5 is revised to read as follows:
Authority: 12 U.S.C. 1 et seq., 24a, 35, 93a, 214a, 215, 215a,
215a-1, 215a-2, 215a-3, 215c, 371d, 481, 1462a, 1463, 1464, 1817(j),
1831i, 1831u, 2901 et seq., 3101 et seq., 3907, and 5412(b)(2)(B).
Sec. 5.2 [Amended]
0
4. Amend Sec. 5.2 by:
0
a. In paragraph (b), removing the word ``filings,'' and adding in its
place the phrase ``filings as it deems necessary, for example,'' and
removing the word ``applicant'' and adding in its place the word
``filer''; and
0
b. In paragraph (c), removing the phrase ``on the OCC's Internet Web
page''.
0
5. Revise Sec. 5.3 to read as follows.
Sec. 5.3 Definitions.
As used in this part:
Application means a submission requesting OCC approval to engage in
various corporate activities and transactions.
Appropriate Federal banking agency has the meaning set forth in
section 3(q) of the Federal Deposit Insurance Act, 12 U.S.C. 1813(q).
Appropriate OCC licensing office means the OCC office that is
responsible for processing applications or notices to engage in various
corporate activities or transactions, as described at www.occ.gov.
Appropriate OCC supervisory office means the OCC office that is
responsible for the supervision of a national bank or Federal savings
association, as described in subpart A of 12 CFR part 4.
Capital and surplus means:
(1) For qualifying community banking organizations that have
elected to use the community bank leverage ratio framework, as set
forth under the OCC's Capital Adequacy Standards at part 3 of this
chapter:
(i) A qualifying community banking organization's tier 1 capital,
as used under Sec. 3.12 of this chapter; plus
(ii) A qualifying community banking organization's allowance for
loan and lease losses or adjusted allowances for credit losses, as
applicable, as reported in the national bank's or Federal savings
association's Consolidated Report of Condition and Income (Call
Report); or
(2) For all other national banks and Federal savings associations:
(i) A national bank's or Federal savings association's tier 1 and
tier 2 capital calculated under the OCC's risk-based capital standards
set forth in part 3 of this chapter, as applicable, as reported in the
Call Report, respectively; plus
(ii) The balance of the national bank's or Federal savings
association's allowance for loan and lease losses or adjusted
allowances for credit losses, as applicable, not included in the
institution's tier 2 capital, for purposes of the calculation of risk-
based capital described in paragraph (2)(i) of this definition, as
reported in the Call Report.
Depository institution means any bank or savings association.
Eligible bank or eligible savings association means a national bank
or Federal savings association that:
(1) Is well capitalized under Sec. 5.3;
(2) Has a composite rating of 1 or 2 under the Uniform Financial
Institutions Rating System (CAMELS);
(3) Has a Community Reinvestment Act (CRA), 12 U.S.C. 2901 et seq.,
rating of ``Outstanding'' or ``Satisfactory,'' if applicable;
(4) Has a consumer compliance rating of 1 or 2 under the Uniform
Interagency
[[Page 80435]]
Consumer Compliance Rating System; and
(5) Is not subject to a cease and desist order, consent order,
formal written agreement, or Prompt Corrective Action directive (see 12
CFR part 6, subpart B) or, if subject to any such order, agreement, or
directive, is informed in writing by the OCC that the bank or savings
association may be treated as an ``eligible bank or eligible savings
association'' for purposes of this part.
Eligible depository institution means:
(1) With respect to a national bank, a State bank or a Federal or
State savings association that meets the criteria for an ``eligible
bank or eligible savings association'' under Sec. 5.3 and is FDIC-
insured; and
(2) With respect to a Federal savings association, a State or
national bank or a State savings association that meets the criteria
for an ``eligible bank or eligible savings association'' under Sec.
5.3 and is FDIC-insured.
FDIC means the Federal Deposit Insurance Corporation.
Filer means a person or entity that submits a notice or application
to the OCC under this part.
Filing means an application or notice submitted to the OCC under
this part.
GAAP means generally accepted accounting principles as used in the
United States.
MSA means metropolitan statistical area as defined by the Director
of the Office of Management and Budget.
Nonconforming assets and nonconforming activities mean assets or
activities, respectively, that are impermissible for national banks or
Federal savings associations to hold or conduct, as applicable, or, if
permissible, are held or conducted in a manner that exceeds limits
applicable to national banks or Federal savings associations, as
applicable. Assets include investments in subsidiaries or other
entities.
Notice, in general, means a submission notifying the OCC that a
national bank or Federal savings association intends to engage in or
has commenced certain corporate activities or transactions. The
specific meaning of notice depends on the context of the rule in which
it is used and may provide the OCC with authority to disapprove the
notice or may be informational requiring no official OCC action.
OTS means the former Office of Thrift Supervision.
Previously approved activity means:
(1) In the case of a national bank, any activity approved in
published OCC precedent for a national bank, an operating subsidiary of
a national bank, or a non-controlling investment of a national bank;
and
(2) In the case of a Federal savings association, any activity
approved in published OCC or OTS precedent for a Federal savings
association, an operating subsidiary of a Federal savings association,
or a pass-through investment of a Federal savings association.
Principal city means an area designated as a ``principal city'' by
the Office of Management and Budget.
Short-distance relocation means moving the premises of a branch or
main office of a national bank or a branch or home office of a Federal
savings association within a:
(1) One thousand foot-radius of the site if the branch, main
office, or home office is located within a principal city of an MSA;
(2) One-mile radius of the site if the branch, main office, or home
office is not located within a principal city, but is located within an
MSA; or
(3) Two-mile radius of the site if the branch, main office, or home
office is not located within an MSA.
Well capitalized means:
(1) In the case of a national bank or Federal savings association,
the capital level described in 12 CFR 6.4(b)(1);
(2) In the case of a Federal branch or agency, the capital level
described in 12 CFR 4.7(b)(1)(iii); or
(3) In the case of another depository institution, the capital
level designated as ``well capitalized'' by the institution's
appropriate Federal banking agency pursuant to section 38 of the
Federal Deposit Insurance Act (12 U.S.C. 1831o).
Well managed means:
(1) In the case of a national bank or Federal savings association:
(i) Unless otherwise determined in writing by the OCC, the national
bank or Federal savings association has received a composite rating of
1 or 2 under the Uniform Financial Institutions Rating System in
connection with its most recent examination, and at least a rating of 2
for management, if such a rating is given; or
(ii) In the case of a national bank or Federal savings association
that has not been examined by the OCC, the existence and use of
managerial resources that the OCC determines are satisfactory.
(2) In the case of a Federal branch or agency of a foreign bank:
(i) Unless determined otherwise in writing by the OCC, the Federal
branch or agency has received a composite ROCA supervisory rating
(which rates risk management, operational controls, compliance, and
asset quality) of 1 or 2 at its most recent examination, and at least a
rating of 2 for risk management, if such a rating is given; or
(ii) In the case of a Federal branch or agency that has not been
examined by the OCC, the existence and use of managerial resources that
the OCC determines are satisfactory.
(3) In the case of another depository institution:
(i) Unless otherwise determined in writing by the appropriate
Federal banking agency, the institution has received a composite rating
of 1 or 2 under the Uniform Financial Institutions Rating System (or an
equivalent rating under an equivalent rating system) in connection with
the most recent examination or subsequent review of the depository
institution and, at least a rating of 2 for management, if such a
rating is given; or
(ii) In the case of another depository institution that has not
been examined by its appropriate Federal banking agency, the existence
and use of managerial resources that the appropriate Federal banking
agency determines are satisfactory.
0
6. Amend Sec. 5.4 by:
0
a. In paragraph (a), removing the word ``shall'' and adding in its
place the word ``must'';
0
b. In paragraph (b), removing the phrase ``on the OCC's Internet Web
page'';
0
c. In paragraph (c), removing the word ``applicant'' wherever it
appears and adding in its place the word ``filer'';
0
d. In paragraph (d):
0
i. Removing the phrases ``An applicant'' and ``an applicant'' and
adding in their place the phrases ``A filer'' and ``a filer'',
respectively; and
0
ii. Removing the phrase ``the OCC's Internet Web page at'';
0
e. In paragraph (e), removing the phrase ``An applicant'' and adding in
its place the phrase ``A filer'';
0
f. Revising paragraph (f); and
0
g. Adding paragraph (g).
The addition and revision read as follows:
Sec. 5.4 Filing required.
* * * * *
(f) Prefiling meeting. Before submitting a filing to the OCC, a
potential filer is encouraged to contact the appropriate OCC licensing
office to determine the need for a prefiling meeting. The OCC decides
whether to require a prefiling meeting on a case-by-case basis.
Submission of a draft business plan or other relevant information
before any prefiling meeting may expedite the filing review process. A
potential filer considering a novel,
[[Page 80436]]
complex, or unique proposal is encouraged to contact the appropriate
OCC licensing office to schedule a prefiling meeting early in the
development of its proposal for the early identification and
consideration of policy issues. Information on model business plans can
be found in the Comptroller's Licensing Manual.
(g) Certification. A filer must certify that any filing or
supporting material submitted to the OCC contains no material
misrepresentations or omissions. The OCC may review and verify any
information filed in connection with a notice or an application. Any
person responsible for any material misrepresentation or omission in a
filing or supporting materials may be subject to enforcement action and
other penalties, including criminal penalties provided in 18 U.S.C.
1001.
0
7. Amend Sec. 5.5 by revising paragraph (a) to read as follows:
Sec. 5.5 Filing fees.
(a) Procedure. A filer must submit the appropriate filing fee, if
any, in connection with its filing. Filing fees must be paid by check
payable to the OCC or by other means acceptable to the OCC. Additional
information on filing fees, including where to file, can be found in
the Comptroller's Licensing Manual. The OCC generally does not refund
the filing fees.
* * * * *
0
8. Amend Sec. 5.7 by redesignating paragraph (b) as paragraph (c) and
adding a new paragraph (b) to read as follows:
Sec. 5.7 Investigations.
* * * * *
(b) Fingerprints. For certain filings, the OCC collects
fingerprints for submission to the Federal Bureau of Investigation for
a national criminal history background check.
* * * * *
Sec. 5.8 [Amended]
0
9. Amend Sec. 5.8 by:
0
a. In paragraph (a), removing the phrase ``An applicant shall publish''
and adding in its place the phrase ``A filer must publish'' and
removing the phrase ``the applicant proposes'' and adding in its place
the phrase ``the filer proposes'';
0
b. In paragraphs (a) and (b), removing the word ``shall'' and adding in
its place the word ``must'';
0
c. In paragraphs (b) and (g)(1), removing the word ``applicant'' and
adding in its place the word ``filer'';
0
d. In paragraphs (c) and (d), removing the phrase ``applicant shall''
and adding in its place the phrase ``filer must''; and
0
e. In paragraphs (e) and (g) introductory text, removing the phrase
``an applicant'' and adding in its place the phrase ``a filer''.
Sec. 5.9 [Amended]
0
10. Amend Sec. 5.9 by:
0
a. In paragraph (b), in the second sentence, removing the word
``Applicants'' and adding in its place the word ``Filers''; and
0
b. In paragraph (c), in the first sentence, removing the word
``applicant'' and adding in its place the word ``filer''.
Sec. 5.10 [Amended]
0
11. Amend Sec. 5.10 by:
0
a. In paragraphs (b)(2)(i) and (b)(3), removing the word ``applicant''
and adding in its place the word ``filer'';
0
b. In paragraph (b)(2)(ii), removing the word ``application'' and
adding in its place the word ``filing''; and
0
c. In paragraph (b)(3), revising the paragraph heading by removing the
word ``Applicant'' and adding in its place the word ``Filer''.
Sec. 5.11 [Amended]
0
12. Amend Sec. 5.11 by:
0
a. In paragraphs (a), (e), and (g)(2), removing the word ``shall''
wherever it appears and adding in its place the word ``must'';
0
b. In paragraphs (a), (d)(1), (e), (g)(1), and (g)(2), removing the
word ``applicant'' and adding in its place the word ``filer'';
0
c. In paragraph (c), removing the word ``shall'' and adding in its
place the word ``will'';
0
d. In paragraphs (e) and (f), removing the phrase ``his or her'' and
adding in its place the word ``their'';
0
e. In paragraph (h), removing the word ``applicant's'' and adding in
its place the word ``filer's''; and
0
f. In paragraph (i)(1) removing the phrase ``an application'' and
adding in its place the phrase ``a filing'' and removing the phrase
``the application'' and adding in its place the phrase ``the filing'';
and
0
g. In paragraph (i)(2), removing the phrase ``an applicant'' and adding
in its place the phrase ``a filer''.
Sec. 5.12 [Amended]
0
13. Amend Sec. 5.12 by removing the phrase ``an application'' and
adding in its place the phrase ``a filing''.
0
14. Amend Sec. 5.13 by:
0
a. In paragraphs (a) introductory text and (b)(1), (d), and (g),
removing the phrase ``the applicant'' wherever it appears and adding in
its place the phrase ``the filer'';
0
b. Revising paragraph (a)(2);
0
c. In paragraph (b)(3), removing the phrase ``The applicant'' and
adding in its place the phrase ``The filer'';
0
d. In paragraph (c), removing the phrase ``an applicant'' and adding in
its place the phrase ``a filer'';
0
e. In paragraph (f), removing the phrase ``An applicant'' and adding in
its place the phrase ``A filer'';
0
f. In paragraph (g), removing the word ``applicant's'' and adding in
its place the word filer's'';
0
g. Revising paragraph (h); and
0
h. Adding paragraph (i).
The revisions and addition read as follows:
Sec. 5.13 Decisions.
(a) * * *
(2) Expedited review. The OCC grants qualifying national banks and
Federal savings associations expedited review within a specified time
after filing or commencement of the public comment period for certain
filings.
(i) The OCC may extend the expedited review period or remove a
filing from expedited review procedures if it concludes that the
filing, or an adverse comment regarding the filing, presents a
significant supervisory, CRA (if applicable), or compliance concern or
raises a significant legal or policy issue requiring additional OCC
review. The OCC will provide the filer with a written explanation if it
decides not to process an application from a qualifying national bank
or Federal savings association under expedited review pursuant to this
paragraph.
(ii) Adverse comments that the OCC determines do not raise a
significant supervisory, CRA (if applicable), or compliance concern or
a significant legal or policy issue; are frivolous, non-substantive, or
filed primarily as a means of delaying action on the filing; or raise a
CRA concern that has been satisfactorily resolved do not affect the
OCC's decision under paragraph (a)(2)(i) of this section. The OCC
considers a comment to be non-substantive if it is a generalized
opinion that a filing should or should not be approved or a conclusory
statement, lacking factual or analytical support. The OCC considers a
CRA concern to have been satisfactorily resolved if the OCC previously
reviewed (e.g., in an examination, other supervisory activity, or a
prior filing made by the current filer) a concern presenting
substantially the same issue in substantially the same assessment area
during substantially the same time, and the OCC determines that the
[[Page 80437]]
concern would not warrant denial or imposition of a condition on
approval of the application.
(iii) If a bank or savings association makes a filing for any
activity or transaction that is dependent upon the approval of another
filing under this part, or if requests for approval for more than one
activity or transaction are combined in a single filing under
applicable sections of this part, none of the subject filings may be
deemed approved upon expiration of the applicable time periods, unless
all of the filings are subject to expedited review procedures and the
longest of the time periods expires without the OCC issuing a decision
or notifying the bank or savings association that the filings are not
eligible for expedited review under the standards in paragraph
(a)(2)(i) of this section.
* * * * *
(h) Nullifying a decision. The OCC may nullify any decision on a
filing either prior to or after consummation of the transaction if:
(1) The OCC discovers a material misrepresentation or omission in
any information provided to the OCC in the filing or supporting
materials;
(2) The decision is contrary to law, regulation, or OCC policy
thereunder; or
(3) The decision was granted due to clerical or administrative
error, or a material mistake of law or fact.
(i) Modifying, Suspending, or Rescinding a Decision. The OCC may
modify, suspend, or rescind a decision on a filing if a material change
in the information or circumstance on which the OCC relied occurs prior
to the date of the consummation of the transaction to which the
decision pertains.
0
15. Amend Sec. 5.20 by:
0
a. In paragraph (b), paragraph (e)(1)(iii) introductory text, and
paragraphs (h)(1)(i), (h)(2), (h)(3)(i), (h)(5)(i), (h)(5)(ii),
(h)(5)(iii), (h)(7), (i)(2), (k)(1), (l)(1), and (l)(2), removing the
word ``shall'' wherever it appears and adding in its place the word
``must'';
0
b. In paragraph (d)(2), removing the phrase ``section 2'' and adding in
its place ``section 2(a)(2)'' and removing the phrase ``section 10''
and adding in its place ``section 10(a)(2)'';
0
c. Redesignating paragraphs (d)(7) and (8) as paragraphs (d)(8) and
(9), respectively, and adding new paragraphs (d)(7) and (d)(10);
0
d. In redesignated paragraph (d)(8), adding the word ``natural'' before
the word ``persons''; and
0
e. In redesignated paragraph (d)(9), removing the phrase ``an
applicant'' and adding in its place the phrase ``a filer'';
0
f. In paragraph (e)(1)(ii)(A), removing the word ``applicants'' and
adding in its place the word ``filers'';
0
g. Effective December 11, 2020, revising paragraph (e)(2);
0
h. In paragraph (e)(3), removing the phrase ``Federal Deposit Insurance
Corporation (FDIC)'' and adding in its place the word ``FDIC'';
0
i. In paragraph (g)(4)(ii), removing the word ``shall'' and adding in
its place the word ``may'' and removing the phrase ``withdrawal of
preliminary approval'' and adding in its place the phrase
``nullification or rescission of a preliminary approval'';
0
j. In paragraphs (i)(1) and (j)(2), removing the word ``applicant'' and
adding in its place the word ``filer'';
0
k. Redesignating paragraphs (i)(3) through (5) as paragraphs (i)(4)
through (i)(6) and adding a new paragraph (i)(3);
0
l. In redesignated paragraph (i)(4), removing the word ``shall''
wherever it appears and adding in its place the word ``must'';
0
m. In redesignated paragraph (i)(5), removing the phrase ``spokesperson
and other interested persons'' and adding in its place the phrase
``contact person and other relevant parties'';
0
n. In redesignated paragraph (i)(6)(i), removing the phrase ``paragraph
(i)(5)(iii)'' wherever it appears and adding in its place the phrase
``paragraph (i)(6)(iii)'';
0
o. In redesignated paragraphs (i)(6)(ii)(A) and (B), and (iii) and
(iv), removing the word ``shall'' wherever it appears and adding in its
place the word ``must'';
0
p. In redesignated paragraph (i)(6)(iii), removing the phrase ``or part
197'';
0
q. Revising paragraph (j)(1); and
0
r. In paragraphs (k)(2) and (l)(1), removing the phrase ``An
applicant'' wherever it appears and adding in its place the phrase ``A
filer''.
The additions and revision read as follows:
Sec. 5.20 Organizing a national bank or Federal savings association.
* * * * *
(d) * * *
(7) Organizer means a member of the organizing group.
* * * * *
(10) Principal shareholder means a person who directly or
indirectly or acting in concert with one or more persons or companies,
or together with members of their immediate family, will own, control,
or hold 10 percent or more of the voting stock of the proposed national
bank or Federal savings association.
(e) * * *
(2) Community Reinvestment Act. Twelve CFR part 25 requires the OCC
to take into account a proposed insured national bank's or Federal
savings association's description of how it will meet its CRA
objectives.
* * * * *
(i) * * *
(3) Biographical and financial reports--(i) Each proposed
organizer, director, executive officer, or principal shareholder must
submit to the appropriate OCC licensing office:
(A) The information prescribed in the Interagency Biographical and
Financial Report, available at www.occ.gov; and
(B) Legible fingerprints.
(ii) The OCC may require additional information about any proposed
organizer, director, executive officer, or principal shareholder, if
appropriate. The OCC may waive any of the information requirements of
this paragraph if the OCC determines that it is in the public interest.
* * * * *
(j) * * *
(1) Notifies the filer prior to that date that the filing has been
removed from expedited review, or the expedited review process is
extended, under Sec. 5.13(a)(2); or
* * * * *
0
16. Amend Sec. 5.21 by:
0
a. In paragraph (d), removing the word ``shall'' and adding in its
place the word ``do'';
0
b. In paragraph (e) introductory text, removing the word ``shall'' and
adding in its place the word ``must'' in the first and second sentence;
and removing the word ``shall'' and adding in its place the word
``will'' in the last sentence;
0
c. In the form ``Federal Mutual Charter'' following paragraph (e):
0
i. Removing the phrase ``shall be'' and adding in its place the word
``is'' in Section 2 and Section 7;
0
ii. In Section 6:
0
A. Removing the phrase ``shall be permitted'' and adding in its place
the phrase ``is permitted'';
0
B. Removing the phrase ``shall cast'' and adding in its place the
phrase ``may cast''; and
0
C. Removing the phrase ``accounts shall be'' and adding in its place
the phrase ``accounts are'';
0
iii. In Section 7:
0
A. Removing the phrase ``shall be'' and adding in its place the word
``is'';
0
B. Removing the phrase ``shall not'' and adding in its place the phrase
``may not''; and
0
iv. Removing the word ``shall'' and adding in its place the word
``will'' wherever it appears in Section 8 and Section 9;
0
d. Revising paragraph (f)(2) and adding paragraph (f)(3);
[[Page 80438]]
0
e. Revising paragraph (g) introductory text;
0
f. Revising paragraph (g)(1):
0
g. In paragraph (g)(2), removing the phrase ``has complied'' and adding
in its place the word ``complies'';
0
h. Revising paragraph (i); and
0
g. Revising paragraph (j).
The revisions and addition read as follows.
Sec. 5.21 Federal mutual savings association charter and bylaws.
* * * * *
(f) * * *
(2) Form of filing--(i) Application requirement. Except as provided
in paragraph (f)(2)(ii) of this section, a Federal mutual savings
association must file the proposed charter amendment with, and obtain
the prior approval of, the OCC.
(A) Expedited review. Except as provided in paragraph (f)(2)(i)(B)
of this section, the charter amendment will be deemed approved as of
the 30th day after filing, unless the OCC notifies the filer that the
amendment is denied or that the amendment contains procedures of the
type described in paragraph (f)(2)(i)(B) of this section and is not
eligible for expedited review, provided the association follows the
requirements of its charter in adopting the amendment.
(B) Amendments exempted from expedited review. Expedited review is
not available for a charter amendment that would render more difficult
or discourage a merger, proxy contest, the assumption of control by a
mutual account holder of the association, or the removal of incumbent
management; or involve a significant issue of law or policy.
(ii) Notice requirement. No application under paragraph (f)(2)(i)
of this section is required if the text of the amendment is contained
within paragraphs (e) or (g) of this section. In such case, the Federal
mutual savings association must submit a notice with the charter
amendment to the OCC within 30 days after adoption.
(3) Effectiveness. A charter amendment is effective after approval
by the OCC, if required pursuant to paragraph (f)(2) of this section,
and adoption by the association, provided the association follows the
requirements of its charter in adopting the amendment.
(g) Optional charter amendments. The following charter amendments
are subject to the notice requirement in paragraph (f)(2)(ii) of this
section if adopted without change:
(1) Purpose and powers. Add a second paragraph to section 4, as
follows:
Section 4. Purpose and powers. * * * The association has the
express power: (i) To act as fiscal agent of the United States when
designated for that purpose by the Secretary of the Treasury, under
such regulations as the Secretary may prescribe, to perform all such
reasonable duties as fiscal agent of the United States as may be
required, and to act as agent for any other instrumentality of the
United States when designated for that purpose by any such
instrumentality; (ii) To sue and be sued, complain and defend in any
court of law or equity; (iii) To have a corporate seal, affixed by
imprint, facsimile or otherwise; (iv) To appoint officers and agents as
its business requires and allow them suitable compensation; (v) To
adopt bylaws not inconsistent with the Constitution or laws of the
United States and rules and regulations adopted thereunder and under
this Charter; (vi) To raise unlimited capital by accepting payments on
savings, demand, or other accounts, as are authorized by rules and
regulations made by the OCC, and the holders of all such accounts or
other accounts as will, to such extent as may be provided by such rules
and regulations, be members of the association and will have such
voting rights and such other rights as are thereby provided; (vii) To
issue notes, bonds, debentures, or other obligations, or securities,
provided by or under any provision of Federal statute as from time to
time is in effect; (viii) To provide for redemption of insured
accounts; (ix) To borrow money without limitation and pledge and
otherwise encumber any of its assets to secure its debts; (x) To lend
and otherwise invest its funds as authorized by statute and the rules
and regulations of the OCC; (xi) To wind up and dissolve, merge,
consolidate, convert, or reorganize; (xii) To purchase, hold, and
convey real estate and personalty consistent with its objects,
purposes, and powers; (xiii) To mortgage or lease any real estate and
personalty and take such property by gift, devise, or bequest; and
(xiv) To exercise all powers conferred by law. In addition to the
foregoing powers expressly enumerated, this association has the power
to do all things reasonably incident to the accomplishment of its
express objects and the performance of its express powers.
* * * * *
(i) Availability of chartering documents. A Federal mutual savings
association must make available a true copy of its charter and bylaws
and all amendments thereto to accountholders at all times in each
office of the savings association, and must upon request deliver to any
accountholders a copy of such charter and bylaws or amendments thereto.
(j) Bylaws for Federal mutual savings associations--(1) In general.
A Federal mutual savings association must operate under bylaws that
contain provisions that comply with all requirements specified by the
OCC in this paragraph and that are not otherwise inconsistent with the
provisions of this paragraph; the association's charter; and all other
applicable laws, rules, and regulations provided that, a bylaw
provision inconsistent with the provisions of this paragraph may be
adopted with the approval of the OCC. Bylaws may be adopted, amended or
repealed by a majority of the votes cast by the members at a legal
meeting or a majority of the association's board of directors. The
bylaws for a Federal mutual savings bank must substitute the term
``savings bank'' for ``association''. The term ``trustee'' may be
substituted for the term ``director''.
(2) Requirements. The following requirements are applicable to
Federal mutual savings associations:
(i) Annual meetings of members. (A) An association must provide for
and conduct an annual meeting of its members for the election of
directors and at which any other business of the association may be
conducted. Such meeting must be held at any convenient place the board
of directors may designate, and at a date and time within 150 days
after the end of the association's fiscal year. The association's
bylaws may provide for telephonic or electronic participation of
members at an annual meeting. Members participating in an annual
meeting telephonically or electronically will be deemed present in
person for purposes of the quorum requirement in paragraph (j)(2)(v) of
this section.
(B) At each annual meeting, the officers must make a full report of
the financial condition of the association and of its progress for the
preceding year and must outline a program for the succeeding year.
(C) If the association's bylaws provide for telephonic or
electronic participation in member meetings, the association must
follow the procedures for telephonic or electronic participation of the
State corporate governance procedures it is permitted to elect pursuant
to paragraph (j)(3)(ii) of this section, if those State corporate
governance procedures include telephonic or electronic participation
procedures; the Delaware General Corporation Law, Del. Code Ann. Tit. 8
(1991, as amended 1994, and as
[[Page 80439]]
amended thereafter) (with ``member'' substituting for ``stockholder'');
or the Model Business Corporation Act (with ``member'' substituting for
``shareholder''), provided, however, that such procedures are not
inconsistent with applicable Federal statutes and regulations and
safety and soundness. The association must indicate the use of these
procedures in its bylaws.
(ii) Special meetings of members. Procedures for calling any
special meeting of the members and for conducting such a meeting must
be set forth in the bylaws. The board of directors of the association
or the holders of 10 percent or more of the voting capital must be
entitled to call a special meeting. The association's bylaws may
provide for telephonic or electronic participation of members at a
special meeting pursuant to the procedures specified in paragraph
(j)(2)(i)(C) of this section. Members participating in a special
meeting telephonically or electronically will be deemed present in
person for purposes of the quorum requirement in paragraph (j)(2)(v) of
this section. For purposes of this paragraph, ``voting capital'' means
FDIC-insured deposits as of the voting record date.
(iii) Notice of meeting of members. Notice specifying the date,
time, and place of the annual or any special meeting and adequately
describing any business to be conducted must be published for two
successive weeks immediately prior to the week in which such meeting
will convene in a newspaper of general circulation in the city or
county in which the principal place of business of the association is
located, or mailed postage prepaid at least 15 days and not more than
45 days prior to the date on which such meeting will convene to each of
its members of record. A similar notice must be posted in a conspicuous
place in each of the offices of the association during the 14 days
immediately preceding the date on which such meeting will convene. The
bylaws may permit a member to waive in writing any right to receive
personal delivery of the notice. When any meeting is adjourned for 30
days or more, notice of the adjournment and reconvening of the meeting
must be given as in the case of the original meeting.
(iv) Fixing of record date. The bylaws must provide for the fixing
of a record date and a method for determining from the books of the
association the members entitled to vote. Such date may not be more
than 60 days nor fewer than 10 days prior to the date on which the
action, requiring such determination of members, is to be taken. The
same determination must apply to any adjourned meeting.
(v) Member quorum. Any number of members present and voting,
represented in person or by proxy, at a regular or special meeting of
the members constitutes a quorum. A majority of all votes cast at any
meeting of the members determines any question, unless otherwise
required by regulation. At any adjourned meeting, any business may be
transacted that might have been transacted at the meeting as originally
called. Members present at a duly constituted meeting may continue to
transact business until adjournment.
(vi) Voting by proxy. Procedures must be established for voting at
any annual or special meeting of the members by proxy pursuant to the
rules and regulations of the OCC. Proxies may be given telephonically
or electronically as long as the holder uses a procedure for verifying
the identity of the member. All proxies with a term greater than eleven
months or solicited at the expense of the association must run to the
board of directors as a whole, or to a committee appointed by a
majority of such board.
(vii) Communications between members. Provisions relating to
communications between members must be consistent with Sec. 144.8 of
this chapter. No member, however, may have the right to inspect or copy
any portion of any books or records of a Federal mutual savings
association containing:
(A) A list of depositors in or borrowers from such association;
(B) Their addresses;
(C) Individual deposit or loan balances or records; or
(D) Any data from which such information could be reasonably
constructed.
(viii) Number of directors, membership. The bylaws must set forth a
specific number of directors, not a range. The number of directors may
not be fewer than five nor more than fifteen, unless a higher or lower
number has been authorized by the OTS prior to July 21, 2011 or by the
OCC. Each director of the association must be a member of the
association. Directors may be elected for periods of one to three years
and until their successors are elected and qualified, but if a
staggered board is chosen, provision must be made for the election of
approximately one-third or one-half of the board each year, as
appropriate. State-chartered savings banks converting to Federal
savings banks may include alternative provisions for the election and
term of office of directors so long as such provisions are authorized
by the OCC, and provide for compliance with the standard provisions of
this paragraph no later than six years after the conversion to a
Federal savings association.
(ix) Meetings of the board. The board of directors determines the
place, frequency, time, procedure for notice, which must be at least 24
hours unless waived by the directors, and waiver of notice for all
regular and special meetings. The board also may permit telephonic or
electronic participation at meetings. The bylaws may provide for action
to be taken without a meeting if unanimous written consent is obtained
for such action. A majority of the authorized directors constitutes a
quorum for the transaction of business. The act of a majority of the
directors present at any meeting at which there is a quorum will be the
act of the board.
(x) Officers, employees and agents. (A) The bylaws must contain
provisions regarding the officers of the association, their functions,
duties, and powers. The officers of the association must consist of a
president, one or more vice presidents, a secretary, and a treasurer or
comptroller, each of whom must be elected annually by the board of
directors. Such other officers and assistant officers and agents as may
be deemed necessary may be elected or appointed by the board of
directors or chosen in such other manner as may be prescribed in the
bylaws. Any two or more offices may be held by the same person, except
the offices of president and secretary.
(B) Any officer may be removed by the board of directors with or
without cause, but such removal, other than for cause, must be without
prejudice to the contractual rights, if any, of the person so removed.
Termination for cause, for purposes of this section and Sec. 5.22,
includes termination because of the person's personal dishonesty;
incompetence; willful misconduct; breach of fiduciary duty involving
personal profit; intentional failure to perform stated duties; willful
violation of any law, rule, or regulation (other than traffic
violations or similar offenses) or final cease and desist order; or
material breach of any provision of an employment contract.
(xi) Vacancies, resignation or removal of directors. In the event
of a vacancy on the board, the board of directors may, by its
affirmative vote, fill such vacancy, even if the remaining directors
constitute less than a quorum. A director elected to fill a vacancy may
serve only until the next election of directors by the members. The
bylaws must set out the procedure for the resignation of a director.
Directors may be removed only for cause, as defined in
[[Page 80440]]
paragraph (j)(2)(x)(B) of this section, by a vote of the holders of a
majority of the shares then entitled to vote at an election of
directors.
(xii) Powers of the board. The board of directors has the power to
exercise any and all of the powers of the association not expressly
reserved by the charter to the members.
(xiii) Nominations for directors. The bylaws must provide that
nominations for directors may be made at the annual meeting by any
member and must be voted upon, except, however, the bylaws may require
that nominations by a member must be submitted to the secretary and
then prominently posted in the principal place of business at least 10
days prior to the date of the annual meeting. However, if such
provision is made for prior submission of nominations by a member, then
the bylaws must provide for a nominating committee, which, except in
the case of a nominee substituted as a result of death or other
incapacity, must submit nominations to the secretary and have such
nominations similarly posted at least 15 days prior to the date of the
annual meeting.
(xiv) New business. The bylaws must provide procedures for the
introduction of new business at the annual meeting.
(xv) Amendment. Bylaws may include any provision for their
amendment that would be consistent with applicable law, rules, and
regulations and adequately addresses its subject and purpose.
(A) Amendments will be effective:
(1) After approval by a majority vote of the authorized board, or
by a majority of the vote cast by the members of the association at a
legal meeting; and
(2) After receipt of any applicable regulatory approval.
(B) When an association fails to meet its quorum requirement,
solely due to vacancies on the board, the bylaws may be amended by an
affirmative vote of a majority of the sitting board.
(xvi) Miscellaneous. The bylaws also may address any other subjects
necessary or appropriate for effective operation of the association.
(3) Form of filing--(i) Application requirement. Except as provided
in paragraphs (j)(3)(ii) or (j)(3)(iii) of this section, a Federal
mutual savings association must file the proposed bylaw amendment with,
and obtain the prior approval of, the OCC.
(A) Expedited review. Except as provided in paragraph (j)(3)(i)(B)
of this section, the bylaw amendment will be deemed approved as of the
30th day after filing, unless the OCC notifies the filer that the bylaw
amendment is denied or that the amendment contains procedures of the
type described in paragraph (j)(3)(i)(B) of this section and is not
eligible for expedited review, provided the association follows the
requirements of its charter and bylaws in adopting the amendment.
(B) Amendments not subject to expedited review. A bylaw amendment
is not subject to expedited review if it would render more difficult or
discourage a merger, proxy contest, the assumption of control by a
mutual account holder of the association, or the removal of incumbent
management; involve a significant issue of law or policy, including
indemnification, conflicts of interest, and limitations on director or
officer liability; or be inconsistent with the requirements of this
paragraph or with applicable laws, rules, regulations, or the
association's charter.
(ii) Corporate governance election and notice requirement. A
Federal mutual association may elect to follow the corporate governance
procedures of the laws of the State where the home office of the
institution is located, provided that such procedures are not
inconsistent with applicable Federal statutes, regulations, and safety
and soundness, and such procedures are not of the type described in
paragraph (j)(3)(i)(B) of this section. If this election is selected, a
Federal mutual association must designate in its bylaws the provision
or provisions from the body of law selected for its corporate
governance procedures, and must submit a notice containing a copy of
such bylaws, within 30 days after adoption. The notice must indicate,
where not obvious, why the bylaw provisions meet the requirements
stated in paragraph (j)(3)(i)(B) of this section.
(iii) No filing required. No filing is required for purposes of
paragraph (j)(3) of this section if a bylaw amendment adopts the
language of the OCC's model or optional bylaws without change.
(4) Effectiveness. A bylaw amendment is effective after approval by
the OCC, if required, and adoption by the association, provided that
the association follows the requirements of its charter and bylaws in
adopting the amendment.
(5) Effect of subsequent charter or bylaw change. Notwithstanding
any subsequent change to its charter or bylaws, the authority of a
Federal mutual savings association to engage in any transaction is
determined only by the association's charter or bylaws then in effect.
0
17. Amend Sec. 5.22 by:
0
a. In paragraph (d), removing the word ``shall'' and adding in its
place the word ``do'';
0
b. In paragraph (e) introductory text removing the word ``shall''
wherever it appears and adding in its place the word ``must'' and
removing ``Sec. 192.3(c)(13)'' and adding in its place ``Sec.
192.485'';
0
c. In the form ``Federal Stock Charter'' following paragraph (e):
0
i. In Section 2, removing the phrase ``shall be'' and adding in its
place the word ``is'';
0
ii. Revising Section 5;
0
iii. In Section 6, removing the phrase ``shall not be entitled'' and
adding in its place the phrase ``are not entitled'';
0
iv. In Section 7, removing the phrase ``shall be'' and adding in its
place the phrase ``will be'' and removing the phrase ``shall not be''
and adding in its place the phrase ``may not be''; and
0
v. In Section 8, removing the phrase ``shall be'' and adding in its
place ``may be'';
0
d. Revising paragraph (f)(2) and adding paragraph (f)(3);
0
e. Revising paragraph (g) introductory text;
0
f. In paragraph (g)(1), removing the phrase ``has complied'' and adding
in its place the word ``complies'';
0
g. Revising paragraph (g)(4);
0
h. Removing the word ``shall'' wherever it appears and adding in its
place the word ``will'' in paragraph (g)(6); and
0
i. Revising paragraph (g)(7);
0
j. In paragraph (h):
0
i. Removing the phrase ``shall file'' and adding in its place the word
``files'';
0
ii. Removing the phrase ``for approval'' and adding in its place the
phrase ``pursuant to paragraph (f)(2)(i) of this section'';
0
iii. Removing the word ``state'' and adding in its place the word
``State''; and
0
iv. Removing the phrase ``shall not'' and adding in its place the
phrase ``may not'';
0
k. In paragraph (i), removing the phrase ``under (c) of this part'' and
adding in its place ``in the form ``Federal Stock Charter'' in
paragraph (e) of this section'';
0
l. Revising paragraphs (j)(2) and (3);
0
m. In paragraph (j)(4), removing the phrase ``shall be'' and adding in
its place the word ``is'':
0
n. Revising paragraphs (k)(1) through (7);
0
o. Revising paragraphs (l)(1) through (10);
0
p. In paragraph (m)(1) removing the phrase ``shall be a president'' and
adding in its place the phrase ``must consist of a president'';
removing the phrase ``shall be elected'' and adding in its place the
phrase ``must be elected''; and removing the word ``chairman'' and
[[Page 80441]]
adding in its place the word ``chair''; and
0
q. In paragraph (m)(2) removing the phrase ``shall be'' and adding in
its place the phrase ``will be'' and removing the last sentence; and
0
r. Revising paragraph (n).
The addition and revisions read as follows.
Sec. 5.22 Federal stock savings association charter and bylaws.
* * * * *
(e) * * *
Federal Stock Charter
* * * * *
Section 5. Capital stock. The total number of shares of all classes
of the capital stock that the association has the authority to issue is
__, all of which is common stock of par [or if no par is specified then
shares have a stated] value of __per share. The shares may be issued
from time to time as authorized by the board of directors without the
approval of its shareholders, except as otherwise provided in this
Section 5 or to the extent that such approval is required by governing
law, rule, or regulation. The consideration for the issuance of the
shares must be paid in full before their issuance and may not be less
than the par [or stated] value. Neither promissory notes nor future
services may constitute payment or part payment for the issuance of
shares of the association. The consideration for the shares must be
cash, tangible or intangible property (to the extent direct investment
in such property would be permitted to the association), labor, or
services actually performed for the association, or any combination of
the foregoing. In the absence of actual fraud in the transaction, the
value of such property, labor, or services, as determined by the board
of directors of the association, is conclusive. Upon payment of such
consideration, such shares are deemed to be fully paid and
nonassessable. In the case of a stock dividend, that part of the
retained earnings of the association that is transferred to common
stock or paid-in capital accounts upon the issuance of shares as a
stock dividend is deemed to be the consideration for their issuance.
Except for shares issued in the initial organization of the
association or in connection with the conversion of the association
from the mutual to stock form of capitalization, no shares of capital
stock (including shares issuable upon conversion, exchange, or exercise
of other securities) may be issued, directly or indirectly, to
officers, directors, or controlling persons of the association other
than as part of a general public offering or as qualifying shares to a
director, unless the issuance or the plan under which they would be
issued has been approved by a majority of the total votes eligible to
be cast at a legal meeting. The holders of the common stock exclusively
possess all voting power. Each holder of shares of common stock is
entitled to one vote for each share held by such holder, except as to
the cumulation of votes for the election of directors, unless the
charter provides that there will be no such cumulative voting. Subject
to any provision for a liquidation account, in the event of any
liquidation, dissolution, or winding up of the association, the holders
of the common stock will be entitled, after payment or provision for
payment of all debts and liabilities of the association, to receive the
remaining assets of the association available for distribution, in cash
or in kind. Each share of common stock must have the same relative
rights as and be identical in all respects with all the other shares of
common stock.
* * * * *
(f) * * *
(2) Form of filing--(i) Application requirement. Except as provided
in paragraph (f)(2)(ii) of this section, a Federal stock savings
association must file the proposed charter amendment with, and obtain
the prior approval of the OCC.
(A) Expedited review. Except as provided in paragraph (f)(2)(i)(B)
of this section, the charter amendment will be deemed approved as of
the 30th day after filing, unless the OCC notifies the filer that the
amendment is denied or that the amendment contains procedures of the
type described in paragraph (f)(2)(ii)(B) of this section and is not
subject to expedited review, provided the association follows the
requirements of its charter in adopting the amendment.
(B) Amendments exempted from expedited review. Expedited review is
not available for a charter amendment that would render more difficult
or discourage a merger, tender offer, or proxy contest, the assumption
of control by a holder of a block of the association's stock, the
removal of incumbent management, or involve a significant issue of law
or policy.
(ii) Notice requirement. No application under paragraph (f)(2)(i)
of this section is required if the amendment is contained within
paragraphs (e) or (g) of this section. In such case, the Federal stock
savings association must submit a notice with the charter amendment to
the OCC within 30 days after adoption.
(3) Effectiveness. A charter amendment is effective after approval
by the OCC, if required, and adoption by the association, provided the
association follows the requirements of its charter in adopting the
amendments.
(g) Optional charter amendments. The following charter amendments
are subject to the notice requirement in paragraph (f)(2)(ii) of this
section if adopted without change:
* * * * *
(4) Capital stock. A Federal stock association may amend its
charter by revising Section 5 to read as follows:
Section 5. Capital stock. The total number of shares of all classes
of capital stock that the association has the authority to issue is __,
of which __is common stock of par [or if no par value is specified the
stated] value of __per share and of which [list the number of each
class of preferred and the par or if no par value is specified the
stated value per share of each such class]. The shares may be issued
from time to time as authorized by the board of directors without
further approval of shareholders, except as otherwise provided in this
Section 5 or to the extent that such approval is required by governing
law, rule, or regulation. The consideration for the issuance of the
shares must be paid in full before their issuance and may not be less
than the par [or stated] value. Neither promissory notes nor future
services may constitute payment or part payment for the issuance of
shares of the association. The consideration for the shares must be
cash, tangible or intangible property (to the extent direct investment
in such property would be permitted), labor, or services actually
performed for the association, or any combination of the foregoing. In
the absence of actual fraud in the transaction, the value of such
property, labor, or services, as determined by the board of directors
of the association, will be conclusive. Upon payment of such
consideration, such shares will be deemed to be fully paid and
nonassessable. In the case of a stock dividend, that part of the
retained earnings of the association that is transferred to common
stock or paid-in capital accounts upon the issuance of shares as a
stock dividend will be deemed to be the consideration for their
issuance.
Except for shares issued in the initial organization of the
association or in connection with the conversion of the association
from the mutual to the stock form of capitalization, no shares of
capital stock (including shares issuable upon conversion, exchange, or
exercise of other securities) may be issued, directly or indirectly, to
officers, directors, or controlling persons of the
[[Page 80442]]
association other than as part of a general public offering or as
qualifying shares to a director, unless their issuance or the plan
under which they would be issued has been approved by a majority of the
total votes eligible to be cast at a legal meeting.
Nothing contained in this Section 5 (or in any supplementary
sections hereto) entitles the holders of any class of a series of
capital stock to vote as a separate class or series or to more than one
vote per share, except as to the cumulation of votes for the election
of directors, unless the charter otherwise provides that there will be
no such cumulative voting: Provided, That this restriction on voting
separately by class or series does not apply:
i. To any provision which would authorize the holders of preferred
stock, voting as a class or series, to elect some members of the board
of directors, less than a majority thereof, in the event of default in
the payment of dividends on any class or series of preferred stock;
ii. To any provision that would require the holders of preferred
stock, voting as a class or series, to approve the merger or
consolidation of the association with another corporation or the sale,
lease, or conveyance (other than by mortgage or pledge) of properties
or business in exchange for securities of a corporation other than the
association if the preferred stock is exchanged for securities of such
other corporation: Provided, That no provision may require such
approval for transactions undertaken with the assistance or pursuant to
the direction of the OCC or the Federal Deposit Insurance Corporation;
iii. To any amendment which would adversely change the specific
terms of any class or series of capital stock as set forth in this
Section 5 (or in any supplementary sections hereto), including any
amendment which would create or enlarge any class or series ranking
prior thereto in rights and preferences. An amendment which increases
the number of authorized shares of any class or series of capital
stock, or substitutes the surviving association in a merger or
consolidation for the association, is not considered to be such an
adverse change.
A description of the different classes and series (if any) of the
association's capital stock and a statement of the designations, and
the relative rights, preferences, and limitations of the shares of each
class of and series (if any) of capital stock are as follows:
A. Common stock. Except as provided in this Section 5 (or in any
supplementary sections thereto) the holders of the common stock
exclusively possess all voting power. Each holder of shares of the
common stock is entitled to one vote for each share held by each
holder, except as to the cumulation of votes for the election of
directors, unless the charter otherwise provides that there will be no
such cumulative voting.
Whenever there has been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of stock
having preference over the common stock as to the payment of dividends,
the full amount of dividends and of sinking fund, retirement fund, or
other retirement payments, if any, to which such holders are
respectively entitled in preference to the common stock, then dividends
may be paid on the common stock and on any class or series of stock
entitled to participate therewith as to dividends out of any assets
legally available for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of the
association, the holders of the common stock (and the holders of any
class or series of stock entitled to participate with the common stock
in the distribution of assets) will be entitled to receive, in cash or
in kind, the assets of the association available for distribution
remaining after: (i) Payment or provision for payment of the
association's debts and liabilities; (ii) distributions or provision
for distributions in settlement of its liquidation account; and (iii)
distributions or provision for distributions to holders of any class or
series of stock having preference over the common stock in the
liquidation, dissolution, or winding up of the association. Each share
of common stock will have the same relative rights as and be identical
in all respects with all the other shares of common stock.
B. Preferred stock. The association may provide in supplementary
sections to its charter for one or more classes of preferred stock,
which must be separately identified. The shares of any class may be
divided into and issued in series, with each series separately
designated so as to distinguish the shares thereof from the shares of
all other series and classes. The terms of each series must be set
forth in a supplementary section to the charter. All shares of the same
class must be identical except as to the following relative rights and
preferences, as to which there may be variations between different
series:
a. The distinctive serial designation and the number of shares
constituting such series;
b. The dividend rate or the amount of dividends to be paid on the
shares of such series, whether dividends are cumulative and, if so,
from which date(s), the payment date(s) for dividends, and the
participating or other special rights, if any, with respect to
dividends;
c. The voting powers, full or limited, if any, of shares of such
series;
d. Whether the shares of such series are redeemable and, if so, the
price(s) at which, and the terms and conditions on which, such shares
may be redeemed;
e. The amount(s) payable upon the shares of such series in the
event of voluntary or involuntary liquidation, dissolution, or winding
up of the association;
f. Whether the shares of such series are entitled to the benefit of
a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such fund
and the manner of its application, including the price(s) at which such
shares may be redeemed or purchased through the application of such
fund;
g. Whether the shares of such series are convertible into, or
exchangeable for, shares of any other class or classes of stock of the
association and, if so, the conversion price(s) or the rate(s) of
exchange, and the adjustments thereof, if any, at which such conversion
or exchange may be made, and any other terms and conditions of such
conversion or exchange.
h. The price or other consideration for which the shares of such
series are issued; and
i. Whether the shares of such series which are redeemed or
converted have the status of authorized but unissued shares of serial
preferred stock and whether such shares may be reissued as shares of
the same or any other series of serial preferred stock.
Each share of each series of serial preferred stock must have the
same relative rights as and be identical in all respects with all the
other shares of the same series.
The board of directors has authority to divide, by the adoption of
supplementary charter sections, any authorized class of preferred stock
into series, and, within the limitations set forth in this section and
the remainder of this charter, fix and determine the relative rights
and preferences of the shares of any series so established.
Prior to the issuance of any preferred shares of a series
established by a supplementary charter section adopted by the board of
directors, the association must file with the OCC a dated copy of that
supplementary section of this charter established and designating the
[[Page 80443]]
series and fixing and determining the relative rights and preferences
thereof.
* * * * *
(7) Anti-takeover provisions following mutual to stock conversion.
Notwithstanding the law of the State in which the association is
located, a Federal stock association may amend its charter by
renumbering existing sections as appropriate and adding a new section 8
as follows:
Section 8. Certain Provisions Applicable for Five Years.
Notwithstanding anything contained in the Association's charter or
bylaws to the contrary, for a period of [specify number of years up to
five] years from the date of completion of the conversion of the
Association from mutual to stock form, the following provisions will
apply:
A. Beneficial Ownership Limitation. No person may directly or
indirectly offer to acquire or acquire the beneficial ownership of more
than 10 percent of any class of an equity security of the association.
This limitation does not apply to a transaction in which the
association forms a holding company without change in the respective
beneficial ownership interests of its stockholders other than pursuant
to the exercise of any dissenter and appraisal rights, the purchase of
shares by underwriters in connection with a public offering, or the
purchase of less than 25 percent of a class of stock by a tax-qualified
employee stock benefit plan as defined in 12 CFR 192.25.
In the event shares are acquired in violation of this section 8,
all shares beneficially owned by any person in excess of 10 percent
will be considered ``excess shares'' and will not be counted as shares
entitled to vote and may not be voted by any person or counted as
voting shares in connection with any matters submitted to the
stockholders for a vote.
For purposes of this section 8, the following definitions apply:
1. The term ``person'' includes an individual, a group acting in
concert, a corporation, a partnership, an association, a joint stock
company, a trust, an unincorporated organization or similar company, a
syndicate or any other group formed for the purpose of acquiring,
holding or disposing of the equity securities of the association.
2. The term ``offer'' includes every offer to buy or otherwise
acquire, solicitation of an offer to sell, tender offer for, or request
or invitation for tenders of, a security or interest in a security for
value.
3. The term ``acquire'' includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise.
4. The term ``acting in concert'' means (a) knowing participation
in a joint activity or parallel action towards a common goal of
acquiring control whether or not pursuant to an express agreement, or
(b) a combination or pooling of voting or other interests in the
securities of an issuer for a common purpose pursuant to any contract,
understanding, relationship, agreement or other arrangement, whether
written or otherwise.
B. Cumulative Voting Limitation. Stockholders may not cumulate
their votes for election of directors.
C. Call for Special Meetings. Special meetings of stockholders
relating to changes in control of the association or amendments to its
charter may be called only upon direction of the board of directors.
* * * * *
(j) * * *
(2) Form of filing--(i) Application requirement. Except as provided
in paragraphs (j)(2)(ii) or (j)(2)(iii) of this section, a Federal
stock savings association must file the proposed bylaw amendment with,
and obtain the prior approval of, the OCC.
(A) Expedited review. Except as provided in paragraph (j)(2)(i)(B)
of this section, the bylaw amendment will be deemed approved as of the
30th day after filing, unless the OCC notifies the filer that the
application is denied or that the amendment contains procedures of the
type described in paragraph (j)(2)(i)(B) of this section and is not
eligible for expedited review, provided the association follows the
requirements of its charter and bylaws in adopting the amendment.
(B) Amendments exempted from expedited review. Expedited review is
not available for a bylaw amendment that would:
(1) Render more difficult or discourage a merger, tender offer, or
proxy contest, the assumption of control by a holder of a large block
of the association's stock, or the removal of incumbent management; or
(2) Be inconsistent with paragraphs (k) through (n) of this
section, with applicable laws, rules, regulations or the association's
charter or involve a significant issue of law or policy, including
indemnification, conflicts of interest, and limitations on director or
officer liability.
(ii) Corporate governance election and notice requirement. A
Federal stock association may elect to follow the corporate governance
procedures of: The laws of the State where the home office of the
association is located; the laws of the State where the association's
holding company, if any, is incorporated or chartered; Delaware General
Corporation law; or The Model Business Corporation Act, provided that
such procedures may be elected to the extent not inconsistent with
applicable Federal statutes and regulations and safety and soundness,
and such procedures are not of the type described in paragraph
(j)(2)(i)(B) of this section. If this election is selected, a Federal
stock association must designate in its bylaws the provision or
provisions from the body or bodies of law selected for its corporate
governance procedures, and must file a notice containing a copy of such
bylaws, within 30 days after adoption. The notice must indicate, where
not obvious, why the bylaw provisions meet the requirements stated in
paragraph (j)(2)(i)(B) of this section.
(iii) No filing required. No filing is required for purposes of
paragraph (j)(2) of this section if a bylaw amendment adopts the
language of the OCC's model or optional bylaws without change.
(3) Effectiveness. A bylaw amendment is effective after approval by
the OCC, if required, and adoption by the association, provided that
the association follows the requirements of its charter and bylaws in
adopting the amendment.
* * * * *
(k) * * *
(1) Shareholder meetings. (i) In general. A meeting of the
shareholders of the association for the election of directors and for
the transaction of any other business of the association must be held
annually within 150 days after the end of the association's fiscal
year. Unless otherwise provided in the association's charter, special
meetings of the shareholders may be called by the board of directors or
on the request of the holders of 10 percent or more of the shares
entitled to vote at the meeting, or by such other persons as may be
specified in the bylaws of the association.
(ii) Location of shareholder meetings. (A) In general. All annual
and special meetings of shareholders of the association may be held at
any convenient place the board of directors may designate. The
association's bylaws may provide for the telephonic or electronic
participation of shareholders in these meetings. Shareholders
participating in an annual or special meeting telephonically or
electronically will be deemed present in person for purposes of the
quorum requirement in paragraph (k)(5) of this section.
(B) Procedures for telephonic or electronic participation. If the
[[Page 80444]]
association's bylaws provide for telephonic or electronic participation
in shareholder meetings, the association must elect to follow corporate
governance procedures for these meetings pursuant to paragraph
(j)(2)(ii) of this section that include procedures for telephonic or
electronic participation in shareholder meetings. The association must
indicate the use of these elected procedures in its bylaws.
(2) Notice of shareholder meetings. Written notice stating the
place, day, and hour of the meeting and the purpose or purposes for
which the meeting is called must be delivered not fewer than 20 nor
more than 50 days before the date of the meeting, either personally or
by mail, by or at the direction of the chair of the board, the
president, the secretary, or the directors, or other persons calling
the meeting, to each shareholder of record entitled to vote at such
meeting. If mailed, such notice will be deemed to be delivered when
deposited in the mail, addressed to the shareholder at the address
appearing on the stock transfer books or records of the association as
of the record date prescribed in paragraph (k)(3) of this section, with
postage thereon prepaid. When any shareholders' meeting, either annual
or special, is adjourned for 30 days or more, notice of the adjourned
meeting must be given as in the case of an original meeting.
Notwithstanding anything in this section, however, a Federal stock
association that is wholly owned is not subject to the shareholder
notice requirement.
(3) Fixing of record date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or shareholders entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the board of directors must
fix in advance a date as the record date for any such determination of
shareholders. Such date in any case may not be more than 60 days and,
in case of a meeting of shareholders, not less than 10 days prior to
the date on which the particular action, requiring such determination
of shareholders, is to be taken. When a determination of shareholders
entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination will apply to any
adjournment thereof.
(4) Voting lists. (i) At least 20 days before each meeting of the
shareholders, the officer or agent having charge of the stock transfer
books for the shares of the association must make a complete list of
the stockholders of record entitled to vote at such meeting, or any
adjournments thereof, arranged in alphabetical order, with the address
and the number of shares held by each. This list of shareholders must
be kept on file at the home office of the association and is subject to
inspection by any shareholder of record or the stockholder's agent
during the entire time of the meeting. The original stock transfer book
will constitute prima facie evidence of the stockholders entitled to
examine such list or transfer books or to vote at any meeting of
stockholders. Notwithstanding anything in this section, however, a
Federal stock association that is wholly owned is not subject to the
voting list requirements.
(ii) In lieu of making the shareholders list available for
inspection by any shareholders as provided in paragraph (k)(4)(i) of
this section, the board of directors may perform such acts as required
by paragraphs (a) and (b) of Rule 14a-7 of the General Rules and
Regulations under the Securities and Exchange Act of 1934 (17 CFR
240.14a-7) as may be duly requested in writing, with respect to any
matter which may be properly considered at a meeting of shareholders,
by any shareholder who is entitled to vote on such matter and who must
defray the reasonable expenses to be incurred by the association in
performance of the act or acts required.
(5) Shareholder quorum. A majority of the outstanding shares of the
association entitled to vote, represented in person or by proxy,
constitutes a quorum at a meeting of shareholders. The shareholders
present at a duly organized meeting may continue to transact business
until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum. If a quorum is present, the
affirmative vote of the majority of the shares represented at the
meeting and entitled to vote on the subject matter will be the act of
the stockholders, unless the vote of a greater number of stockholders
voting together or voting by classes is required by law or the charter.
Directors, however, are elected by a plurality of the votes cast at an
election of directors.
(6) Shareholder voting--(i) Proxies. Unless otherwise provided in
the association's charter, at all meetings of shareholders, a
shareholder may vote in person or by proxy executed in writing by the
shareholder or by a duly authorized attorney in fact. Proxies may be
given telephonically or electronically as long as the holder uses a
procedure for verifying the identity of the shareholder. Proxies
solicited on behalf of the management must be voted as directed by the
shareholder or, in the absence of such direction, as determined by a
majority of the board of directors. No proxy maybe valid more than
eleven months from the date of its execution except for a proxy coupled
with an interest.
(ii) Shares controlled by association. Neither treasury shares of
its own stock held by the association nor shares held by another
corporation, if a majority of the shares entitled to vote for the
election of directors of such other corporation are held by the
association, may be voted at any meeting or counted in determining the
total number of outstanding shares at any given time for purposes of
any meeting.
(7) Nominations and new business submitted by shareholders.
Nominations for directors and new business submitted by shareholders
must be voted upon at the annual meeting if such nominations or new
business are submitted in writing and delivered to the secretary of the
association at least five days prior to the date of the annual meeting.
Ballots bearing the names of all the persons nominated must be provided
for use at the annual meeting.
* * * * *
(l) * * *
(1) General powers and duties. The business and affairs of the
association must be under the direction of its board of directors.
Directors need not be stockholders unless the bylaws so require.
(2) Number and term. The bylaws must set forth a specific number of
directors, not a range. The number of directors may not be fewer than
five nor more than fifteen, unless a higher or lower number has been
authorized by the OTS prior to July 21, 2011 or the OCC. Directors must
be elected for a term of one to three years and until their successors
are elected and qualified. If a staggered board is chosen, the
directors must be divided into two or three classes as nearly equal in
number as possible and one class must be elected by ballot annually.
(3) Regular meetings. The board of directors determines the place,
frequency, time and procedure for notice of regular meetings. The
bylaws may provide for telephonic or electronic participation at these
meetings.
(4) Quorum. A majority of the number of directors constitutes a
quorum for the transaction of business at any meeting of the board of
directors. The act of the majority of the directors present at a
meeting at which a quorum is present will be the act of the board of
directors, unless a greater number is prescribed by regulation of the
OCC.
[[Page 80445]]
(5) Vacancies. Any vacancy occurring in the board of directors may
be filled by the affirmative vote of a majority of the remaining
directors even with less than a quorum of the board of directors. A
director elected to fill a vacancy may serve only until the next
election of directors by the shareholders. Any directorship to be
filled by reason of an increase in the number of directors may be
filled by election by the board of directors for a term of office
continuing only until the next election of directors by the
shareholders.
(6) Removal or resignation of directors. (i) At a meeting of
shareholders called expressly for that purpose, any director may be
removed only for cause, as termination for cause is defined in Sec.
5.21(j)(2)(x)(B), by a vote of the holders of a majority of the shares
then entitled to vote at an election of directors. Associations may
provide for procedures regarding resignations in the bylaws.
(ii) If less than the entire board is to be removed, no one of the
directors may be removed if the votes cast against the removal would be
sufficient to elect a director if then cumulatively voted at an
election of the class of directors of which such director is a part.
(iii) Whenever the holders of the shares of any class are entitled
to elect one or more directors by the provisions of the charter or
supplemental sections thereto, the provisions of this section apply, in
respect to the removal of a director or directors so elected, to the
vote of the holders of the outstanding shares of that class and not to
the vote of the outstanding shares as a whole.
(7) Executive and other committees. The board of directors, by
resolution adopted by a majority of the full board, may designate from
among its members an executive committee and one or more other
committees. No committee may have the authority of the board of
directors with reference to: The declaration of dividends; the
amendment of the charter or bylaws of the association; recommending to
the stockholders a plan of merger, consolidation, or conversion; the
sale, lease, or other disposition of all, or substantially all, of the
property and assets of the association otherwise than in the usual and
regular course of its business; a voluntary dissolution of the
association; a revocation of any of the foregoing; or the approval of a
transaction in which any member of the executive committee, directly or
indirectly, has any material beneficial interest. The designation of
any committee and the delegation of authority thereto does not operate
to relieve the board of directors, or any director, of any
responsibility imposed by law or regulation.
(8) Notice of special meetings. Written notice of at least 24 hours
regarding any special meeting of the board of directors or of any
committee designated thereby must be given to each director in
accordance with the bylaws, although such notice may be waived by the
director. The attendance of a director at a meeting constitutes a
waiver of notice of such meeting, except where a director attends a
meeting for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened.
Neither the business to be transacted at, nor the purpose of, any
meeting need be specified in the notice or waiver of notice of such
meeting. The bylaws may provide for telephonic or electronic
participation at a special meeting.
(9) Action without a meeting. Any action required or permitted to
be taken by the board of directors at a meeting may be taken without a
meeting if a consent in writing, setting forth the actions so taken, is
signed by all of the directors.
(10) Presumption of assent. A director of the association who is
present at a meeting of the board of directors at which action on any
association matter is taken is presumed to have assented to the action
taken unless their dissent or abstention is entered in the minutes of
the meeting or unless a written dissent to such action is filed with
the person acting as the secretary of the meeting before the
adjournment thereof or is forwarded by registered mail to the secretary
of the association within five days after the date on which a copy of
the minutes of the meeting is received. Such right to dissent does not
apply to a director who voted in favor of such action.
* * * * *
(n) Certificates for shares and their transfer--(1) Certificates
for shares. Certificates representing shares of capital stock of the
association must be in such form as determined by the board of
directors and approved by the OCC. The name and address of the person
to whom the shares are issued, with the number of shares and date of
issue, must be entered on the stock transfer books of the association.
All certificates surrendered to the association for transfer must be
cancelled and no new certificate may be issued until the former
certificate for a like number of shares has been surrendered and
cancelled, except that in the case of a lost or destroyed certificate a
new certificate may be issued upon such terms and indemnity to the
association as the board of directors may prescribe.
(2) Transfer of shares. Transfer of shares of capital stock of the
association may be made only on its stock transfer books. Authority for
such transfer may be given only by the holder of record or by a legal
representative, who must furnish proper evidence of such authority, or
by an attorney authorized by a duly executed power of attorney and
filed with the association. The transfer may be made only on surrender
for cancellation of the certificate for the shares. The person in whose
name shares of capital stock stand on the books of the association is
deemed by the association to be the owner for all purposes.
0
18. Amend Sec. 5.23 by:
0
a. In paragraph (b)(2), removing the phrase ``an industrial bank or a
credit union, chartered in'' and adding in its place the phrase ``an
industrial bank, or a credit union chartered in'';
0
b. In paragraphs (c), (d)(2)(ii) introductory text, (e), and (f)(1),
removing the word ``shall'' wherever it appears and adding in its place
the word ``must'';
0
c. In paragraphs (c), (d)(1), and (d)(2)(i), removing the word
``applicant'' wherever it appears and adding in its place the word
``filer'';
0
d. In paragraph (c), removing the phrase ``Federal Deposit Insurance
Corporation (FDIC)'' and adding in its place the word ``FDIC'';
0
e. Removing paragraph (d)(2)(ii)(A), redesignating paragraphs
(d)(2)(ii)(B) through (K) as paragraphs (d)(2)(ii)(A) through (J),
respectively and adding new paragraphs (d)(2)(ii)(K) and (d)(2)(ii)(L);
0
f. In redesignated paragraph (d)(2)(ii)(D), removing the phrase
``state-chartered'' and adding in its place the phrase ``State-
chartered'' and removing the word ``state'' and adding in its place the
word ``State'';
0
g. In redesignated paragraph (d)(2)(ii)(F), removing the citations
``Sec. 5.36, Sec. 5.38'' and adding in their place ``Sec. 5.38,
Sec. 5.58'';
0
h. In redesignated paragraph (d)(2)(ii)(G), removing the comma after
the phrase ``engages in'';
0
i. In redesignated paragraph (d)(2)(ii)(I), removing the word ``state''
and adding in its place the word ``State'' wherever it appears and
removing the word ``and'' after the phrase ``after conversion;'';
0
j. In redesignated paragraph (d)(2)(ii)(J), removing the period after
the phrase ``from the OCC'' and adding in its place a semicolon;
0
k. In paragraph (d)(2)(iii), removing the word ``HOLA'' and adding in
its
[[Page 80446]]
place ``Home Owners' Loan Act (12 U.S.C. 1464(c))'';
0
l. Redesignating paragraphs (d)(2)(iv) through (v) as paragraphs
(d)(2)(v) through (vi) and adding a new paragraph (d)(2)(iv);
0
m. In redesignated paragraph (d)(2)(vi), removing the word
``applicant'' and adding in its place the word ``filer'';
0
n. Revising paragraph (d)(4);
0
o. In paragraph (e), removing the phrase ``an applicant'' and adding in
its place the phrase ``a filer'';
0
p. In paragraph (f)(1), removing the word ``state'' and adding in its
place the word ``State''; and
0
q. In paragraph (g) removing the phrase ``shall continue'' and adding
in its place the word ``continues'' and removing the phrase ``shall
be'' and adding in its place the word ``is''.
The additions and revision read as follows.
Sec. 5.23 Conversion to become a Federal savings association
* * * * *
(d) * * *
(2) * * *
(ii) * * *
(K) Include a list of directors and senior executive officers, as
defined in Sec. 5.51, of the converting institution; and
(L) Include a list of individuals, directors, and shareholders who
directly or indirectly, or acting in concert with one or more persons
or companies, or together with members of their immediate family, do or
will own, control, or hold 10 percent or more of the institution's
voting stock.
* * * * *
(iv) The OCC may require directors and senior executive officers of
the converting institution to submit the Interagency Biographical and
Financial Report, available at www.occ.gov, and legible fingerprints.
* * * * *
(4) Expedited review. An application by an eligible bank to convert
to a Federal savings association charter is deemed approved by the OCC
as of the 45th day after the filing is received by the OCC, unless the
OCC notifies the filer prior to that date that the filing has been
removed from expedited review, or the expedited review process is
extended, under Sec. 5.13(a)(2).
* * * * *
0
19. Amend Sec. 5.24 by:
0
a. In paragraphs (b), (c)(1), (c)(2), (d), (e)(2) introductory text,
and (e)(3), removing the word ``state'' wherever it appears and adding
in its place the word ``State'';
0
b. In paragraphs (b), (e)(2) introductory text, and (f), removing the
word ``shall'' wherever it appears and adding in its place the word
``must'';
0
c. In paragraph (c)(2), removing the word ``state'' and adding in its
place the word ``State'';
0
d. In paragraphs (d), and (e)(1), removing the word ``applicant''
wherever it appears and adding in its place the word ``filer'';
0
e. Removing paragraph (e)(2)(i) and redesignating paragraphs (e)(2)(ii)
through (x) as paragraphs (e)(2)(i) through (ix), respectively, and
adding paragraphs (e)(2)(x) and (xi);
0
f. In redesignated paragraphs (e)(2)(iv) and (e)(2)(ix), removing the
word ``state'' wherever it appears and adding in its place the word
``State'';
0
g. At the end of redesignated paragraph (e)(2)(viii), removing the word
``and'';
0
h. At the end of redesignated paragraph (e)(2)(ix), removing the period
and adding in its place a semicolon;
0
i. Redesignating paragraphs (e)(4) through (5) as paragraphs (e)(5)
through (6), respectively, and adding a new paragraph (e)(4);
0
j. In redesignated paragraph (e)(6), removing the word ``applicant''
and adding the word ``filer'' in its place;
0
k. Revising paragraph (h); and
0
l. In paragraph (i):
0
i. In the first sentence, removing the phrase ``shall continue'' and
adding in its place the word ``continues''; and
0
ii. In the second sentence, removing the phrase ``shall be'' and adding
in its place the word ``is''.
The additions and revisions read as follows.
Sec. 5.24 Conversion to become a national bank.
* * * * *
(e) * * *
(2) * * *
(x) Include a list of directors and senior executive officers, as
defined in Sec. 5.51, of the converting institution; and
(xi) Include a list of individuals, directors, and shareholders who
directly or indirectly, or acting in concert with one or more persons
or companies, or together with members of their immediate family, do or
will own, control, or hold 10 percent or more of the institution's
voting stock.
* * * * *
(4) The OCC may require directors and senior executive officers of
the converting institution to submit the Interagency Biographical and
Financial Report, available at www.occ.gov, and legible fingerprints.
* * * * *
(h) Expedited review. An application by an eligible savings
association to convert to a national bank charter is deemed approved by
the OCC as of the 45th day after the filing is received by the OCC,
unless the OCC notifies the filer prior to that date that the filing
has been removed from expedited review, or the expedited review process
is extended, under Sec. 5.13(a)(2).
* * * * *
Sec. 5.25 [Amended]
0
20. Amend Sec. 5.25 by:
0
a. In the section heading and in paragraphs (b), (c), (d)(1), (d)(2),
(d)(3)(i), and (d)(4), removing the word ``state'' wherever it appears
and adding in its place the word ``State''
0
b. In paragraphs (b), (d)(3)(i), and (d)(3)(ii) introductory text,
removing the word ``shall'' wherever it appears and adding in its place
the word ``must''; and
0
c. In paragraphs (d)(1) and (d)(3)(i), removing the phrase ``defined in
214(a)'' wherever it appears and adding in its place the phrase
``defined in 12 U.S.C. 214(a)''.
0
21. Amend Sec. 5.26 by:
0
a. In paragraph (a), removing the phrase ``12 U.S.C. 92a and'' and
adding in its place the phrase ``12 U.S.C. 92a,'';
0
b. In paragraphs (b)(2) and (b)(4), removing the phrase ``Office of
Thrift Supervision'' wherever it appears and adding in its place the
word ``OTS'';
0
c. In paragraphs (b)(3), (b)(4), (e)(1)(ii), (e)(1)(iii), (e)(2)(i)(B),
(e)(2)(i)(E), and (e)(2)(iii)(B), removing the word ``state'' wherever
it appears and adding in its place the word ``State''; and
0
d. In paragraph (e)(2)(i) introductory text, removing the word
``shall'' and adding in its place the word ``must'';
0
e. Revising paragraph (e)(2)(i)(C);
0
f. In paragraph (e)(2)(ii), removing the word ``applicant'' and adding
in its place the word ``filer''; and
0
g. Revising paragraphs (e)(3) and (6). .
The revisions read as follows.
Sec. 5.26 Fiduciary powers of national banks and Federal savings
associations.
* * * * *
(e) * * *
(2) * * *
(i) * * *
(C) Sufficient biographical information on proposed senior trust
management personnel, as identified by the OCC, to enable the OCC to
assess their qualifications, including, if requested by the OCC,
legible fingerprints and the Interagency Biographical and Financial
Report, available at www.occ.gov;
* * * * *
(3) Expedited review. An application by an eligible bank or
eligible savings
[[Page 80447]]
association to exercise fiduciary powers is deemed approved by the OCC
as of the 30th day after the application is received by the OCC, unless
the OCC notifies the bank or savings association prior to that date
that the filing has been removed from expedited review, or the
expedited review process is extended, under Sec. 5.13(a)(2).
* * * * *
(6) Notice of fiduciary activities in additional States. (i) Except
as provided in paragraphs (e)(6)(iii) through (iv) of this section, a
national bank or Federal savings association with existing OCC approval
to exercise fiduciary powers must provide written notice to the OCC no
later than 10 days after it begins to engage in any of the activities
specified in Sec. 9.7(d) of this chapter in a State in addition to the
State or States described in the application for fiduciary powers that
the OCC has approved.
(ii) A notice submitted pursuant to paragraph (e)(6)(i) of this
section must identify the new State or States involved, identify the
fiduciary activities to be conducted, and describe the extent to which
the activities differ materially from the fiduciary activities the
national bank or Federal savings association previously conducted.
(iii) No notice under paragraph (e)(6)(i) of this section is
required if the national bank or Federal savings association provides
the information required by paragraph (e)(6)(ii) of this section
through other means, such as a merger application.
(iv) No notice is required if the national bank or Federal savings
association is conducting only activities ancillary to its fiduciary
business through a trust representative office or otherwise.
* * * * *
0
22. Amend Sec. 5.30 by:
0
a. In paragraphs (b), (f)(1), (f)(4), (g), (h)(1), and (j), removing
the word ``shall'' wherever it appears and adding in its place the word
``must'';
0
b. In paragraph (c)(2), removing ``12 CFR 5.24'' and adding in its
place ``Sec. 5.24'';
0
c. Revising paragraphs (d)(1)(i) and (iii);
0
d. In paragraph (d)(2), removing the word ``state'' and adding in its
place the word ``State'';
0
e. In paragraphs (d)(2), (d)(3), (g), and (h)(4), removing the word
``state'' wherever it appears and adding in its place the word
``State'';
0
f. In paragraph (d)(5), adding a sentence after the second sentence;
0
g. In paragraph (f)(1), removing the phrase ``paragraph (f)(2)'' and
adding in its place the phrase ``paragraphs (f)(2) or (f)(3)''; and
0
h. In paragraph (f)(6), removing the phrase ``is not eligible for
expedited review, or the expedited review process is extended, under
Sec. 5.13(a)(2)'' and adding in its place the phrase ``has been
removed from expedited review, or the expedited review process is
extended, under Sec. 5.13(a)(2)''.
The revisions read as follows.
Sec. 5.30 Establishment, acquisition, and relocation of a branch of a
national bank.
* * * * *
(d) * * *
(1) * * *
(i) A branch established by a national bank includes a seasonal
agency described in 12 U.S.C. 36(c), a mobile facility, a temporary
facility, an intermittent facility, or a drop box.
* * * * *
(iii) A branch does not include a remote service unit (RSU) as
described in 12 CFR 7.4003. This encompasses RSUs that are automated
teller machines (ATMs), including interactive ATMs. A branch also does
not include a loan production office, a deposit production office, a
trust office, an administrative office, a data processing office, or
any other office that does not engage in at least one of the activities
in paragraph (d)(1) of this section.
* * * * *
(5) * * * A mobile branch may be stationed continuously at a single
location within the geographic area it is approved to serve for a
period of up to four months. * * *
0
23. Amend Sec. 5.31 by:
0
a. In paragraph (a) removing the period after ``1464'' and adding in
its place a comma; and adding a comma after ``2907'';
0
b. In paragraphs (b), (f)(1)(i), (f)(3), (i), (j)(2), and (k)(2)(ii)
removing the word ``shall'' and adding in its place the word ``must''
wherever it appears;
0
c. In paragraph (c)(2), removing ``12 CFR 5.23'' and adding in its
place ``Sec. 5.23'' and removing ``12 CFR 5.33'' and adding in its
place ``Sec. 5.33'';
0
d. In paragraphs (c)(3) and paragraph (j)(1), removing the word
``HOLA'' and adding in its place the phrase ``Home Owners' Loan Act''
wherever it appears;
0
e. In paragraph (d)(1), removing the word ``office'';
0
f. In paragraph (d)(2), removing the word ``state'' and adding in its
place the word ``State'';
0
g. In paragraphs (d)(2), (g)(2), and (j)(2), removing the word
``state'' and adding in its place the word ``State'' wherever it
appears;
0
h. In paragraph (f)(1)(iii), removing the word ``Federal'' and removing
the phrase ``is not eligible for expedited review, or the expedited
review process is extended, under Sec. 5.13(a)(2)'' and adding in its
place the phrase ``has been removed from expedited review, or the
expedited review process is extended, under Sec. 5.13(a)(2)'';
0
i. In paragraph (f)(2)(ii), removing the phrase ``, as defined in Sec.
5.3(l)'';
0
j. In paragraph (f)(2)(iii) introductory text, removing the phrase ``as
defined in Sec. 5.3(g)'';
0
k. In the heading to paragraph (j), removing the word ``HOLA'' and
adding in its place ``Home Owners' Loan Act''; and
0
k. Adding paragraph (j)(3).
The addition reads as follows.
Sec. 5.31 Establishment, acquisition, and relocation of a branch and
establishment of an agency office of a Federal savings association.
* * * * *
(j) * * *
(3) For purposes of 12 U.S.C. 1464(m)(1), a branch in the District
of Columbia includes any location at which accounts are opened,
payments are received, or withdrawals are made. This includes an
Automated Teller Machine that performs one or more of these functions.
* * * * *
Sec. 5.32 [Amended]
0
24. Amend Sec. 5.32 by:
0
a. In paragraphs (c), (f), (h)(1), and (h)(2), removing the word
``shall'' and adding in its place the word ``must'' wherever it appears
;
0
b. In paragraph (d)(1), removing the phrase ``shall be'' and adding in
its place the word ``is'';
0
c. In paragraph (d)(2)(i), removing the word ``shall'' and adding in
its place the word ``will'';
0
d. In paragraph (e), removing the phrase ``his or her'' and adding in
its place the word ``their'';
0
e. In paragraph (f), removing the word Applicants'' and adding in its
place the word ``Filers''; and
0
f. In paragraph (h)(1), removing the phrase ``An applicant'' and adding
in its place the phrase ``A filer''; and
0
g. In paragraph (h)(2), removing the word ``applicant'' and adding in
its place the word ``filer''.
0
25. Revise Sec. 5.33 to read as follows:
Sec. 5.33 Business combinations involving a national bank or Federal
savings association.
(a) Authority. 12 U.S.C. 24(Seventh), 93a, 181, 214a, 214b, 215,
215a, 215a-1, 215a-3, 215b, 215c, 1462a, 1463, 1464, 1467a, 1828(c),
1831u, 2903, and 5412(b)(2)(B).
[[Page 80448]]
(b) Scope. This section sets forth the provisions governing
business combinations and the standards for:
(1) OCC review and approval of an application by a national bank or
a Federal savings association for a business combination resulting in a
national bank or Federal savings association; and
(2) Requirements of notices and other procedures for national banks
and Federal savings associations involved in other combinations in
which a national bank or Federal savings association is not the
resulting institution.
(c) Licensing requirements. As prescribed by this section, a
national bank or Federal savings association must submit an application
and obtain prior OCC approval for a business combination when the
resulting institution is a national bank or Federal savings
association. As prescribed by this section, a national bank or Federal
savings association must give notice to the OCC prior to engaging in
any other combination where the resulting institution will not be a
national bank or Federal savings association.\1\ A national bank must
submit an application and obtain prior OCC approval for any merger
between the national bank and one or more of its nonbank affiliates.
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\1\ Other combinations, as defined in paragraph (d)(10) of this
section, do not require an application under this section. However,
some may require an application under Sec. 5.53.
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(d) Definitions. For purposes of this section:
(1) Bank means any national bank or any State bank.
(2) Business combination means:
(i) Any merger or consolidation between a national bank or a
Federal savings association and one or more depository institutions or
State trust companies, in which the resulting institution is a national
bank or Federal savings association;
(ii) In the case of a Federal savings association, any merger or
consolidation with a credit union in which the resulting institution is
a Federal savings association;
(iii) In the case of a national bank, any merger between a national
bank and one or more of its nonbank affiliates;
(iv) The acquisition by a national bank or a Federal savings
association of all, or substantially all, of the assets of another
depository institution; or
(v) The assumption by a national bank or a Federal savings
association of any deposit liabilities of another insured depository
institution or any deposit accounts or other liabilities of a credit
union or any other institution that will become deposits at the
national bank or Federal savings association.
(3) Business reorganization means either:
(i) A business combination between eligible banks and eligible
savings associations, or between an eligible bank or an eligible
savings association and an eligible depository institution, that are
controlled by the same holding company or that will be controlled by
the same holding company prior to the combination; or
(ii) A business combination between an eligible bank or an eligible
savings association and an interim national bank or interim Federal
savings association chartered in a transaction in which a person or
group of persons exchanges its shares of the eligible bank or eligible
savings association for shares of a newly formed holding company and
receives after the transaction substantially the same proportional
share interest in the holding company as it held in the eligible bank
or eligible savings association (except for changes in interests
resulting from the exercise of dissenters' rights), and the
reorganization involves no other transactions involving the bank or
savings association.
(4) Company means a corporation, limited liability company,
partnership, business trust, association, or similar organization.
(5) For business combinations under paragraphs (g)(4) and (5) of
this section, a company or shareholder is deemed to control another
company if:
(i) Such company or shareholder, directly or indirectly, or acting
through one or more other persons owns, controls, or has power to vote
25 percent or more of any class of voting securities of the other
company; or
(ii) Such company or shareholder controls in any manner the
election of a majority of the directors or trustees of the other
company. No company is deemed to own or control another company by
virtue of its ownership or control of shares in a fiduciary capacity.
(6) Credit union means a financial institution subject to
examination by the National Credit Union Administration Board.
(7) Home State means, with respect to a national bank, the State in
which the main office of the national bank is located and, with respect
to a State bank, the State by which the bank is chartered.
(8) Interim national bank or interim Federal savings association
means a national bank or Federal savings association that does not
operate independently but exists solely as a vehicle to accomplish a
business combination.
(9) Nonbank affiliate of a national bank means any company (other
than a bank or Federal savings association) that controls, is
controlled by, or is under common control with the national bank.
(10) Other combination means:
(i) Any merger or consolidation between a national bank or a
Federal savings association and one or more depository institutions or
State trust companies, in which the resulting institution is not a
national bank or Federal savings association;
(ii) In the case of a Federal stock savings association, any merger
or consolidation with a credit union in which the resulting institution
is a credit union;
(iii) The transfer by a national bank or a Federal savings
association of any deposit liabilities to another insured depository
institution, a credit union or any other institution; or
(iv) The acquisition by a national bank or a Federal savings
association of all, or substantially all, of the assets, or the
assumption of all or substantially all of the liabilities, of any
company other than a depository institution.
(11) Savings association and State savings association have the
meaning set forth in section 3(b) of the Federal Deposit Insurance Act,
12 U.S.C. 1813(b).
(12) State trust company means a trust company organized under
State law that is not engaged in the business of receiving deposits,
other than trust funds.
(e) Policy and related filing requirements--(1) Factors--(i) In
general. When the OCC evaluates any application for a business
combination, the OCC considers the following factors:
(A) The capital level of any resulting national bank or Federal
savings association;
(B) The conformity of the transaction to applicable law,
regulation, and supervisory policies;
(C) The purpose of the transaction;
(D) The impact of the transaction on safety and soundness of the
national bank or Federal savings association; and
(E) The effect of the transaction on the national bank's or Federal
savings association's shareholders (or members in the case of a mutual
savings association), depositors, other creditors, and customers.
(ii) Bank Merger Act. When the OCC evaluates an application for a
business combination under the Bank Merger Act, the OCC also considers
the following factors:
(A) Competition. (1) The OCC considers the effect of a proposed
[[Page 80449]]
business combination on competition. The filer must provide a
competitive analysis of the transaction, including a definition of the
relevant geographic market or markets. A filer may refer to the
Comptroller's Licensing Manual for procedures to expedite its
competitive analysis.
(2) The OCC will deny an application for a business combination if
the combination would result in a monopoly or would be in furtherance
of any combination or conspiracy to monopolize or attempt to monopolize
the business of banking in any part of the United States. The OCC also
will deny any proposed business combination whose effect in any section
of the United States may be substantially to lessen competition, or
tend to create a monopoly, or which in any other manner would be in
restraint of trade, unless the probable effects of the transaction in
meeting the convenience and needs of the community clearly outweigh the
anticompetitive effects of the transaction. For purposes of weighing
against anticompetitive effects, a business combination may have
favorable effects in meeting the convenience and needs of the community
if the depository institution being acquired has limited long-term
prospects, or if the resulting national bank or Federal savings
association will provide significantly improved, additional, or less
costly services to the community.
(B) Financial and managerial resources and future prospects. The
OCC considers the financial and managerial resources and future
prospects of the existing or proposed institutions.
(C) Convenience and needs of community. The OCC considers the
probable effects of the business combination on the convenience and
needs of the community served. The filer must describe these effects in
its application, including any planned office closings or reductions in
services following the business combination and the likely impact on
the community. The OCC also considers additional relevant factors,
including the resulting national bank's or Federal savings
association's ability and plans to provide expanded or less costly
services to the community.
(D) Money laundering. The OCC considers the effectiveness of any
insured depository institution involved in the business combination in
combating money laundering activities, including in overseas branches.
(E) Financial stability. The OCC considers the risk to the
stability of the United States banking and financial system.
(F) Deposit concentration limit. The OCC will not approve a
transaction that would violate the deposit concentration limit in 12
U.S.C. 1828(c)(13) for interstate merger transactions, as defined in 12
U.S.C. 1828(c)(13)(C)(i).
(iii) Community Reinvestment Act--(A) In General. The OCC takes
into account the filer's Community Reinvestment Act (CRA) record of
performance in considering an application for a business combination.
The OCC's conclusion of whether the CRA performance is or is not
consistent with approval of an application is considered in conjunction
with the other factors of this section.
(B) Interstate mergers under 12 U.S.C. 1831u. The OCC considers the
CRA record of performance of the filer and its resulting bank
affiliates and the filer's record of compliance with applicable State
community reinvestment laws when required by 12 U.S.C. 1831u(b)(3).
(C) CRA Sunshine. A filer must:
(1) Disclose whether it has entered into and disclosed a covered
agreement, as defined in 12 CFR 35.2, in accordance with 12 CFR 35.6
and 35.7; and
(2) Provide summaries of, or documents relating to, all substantive
discussions with respect to the development of the content of a covered
agreement disclosed in (e)(1)(iii)(C)(1) that include the names of
participants, dates, and synopsis of the discussions.
(iv) Interstate mergers under 12 U.S.C. 1831u. The OCC considers
the standards and requirements contained in 12 U.S.C. 1831u for
interstate merger transactions between insured banks, when applicable.
(2) Acquisition and retention of branches. A filer must disclose
the location of any branch it will acquire and retain in a business
combination, including approved but unopened branches. The OCC
considers the acquisition and retention of a branch under the standards
set out in Sec. 5.30 or Sec. 5.31, as applicable, but it does not
require a separate application.
(3) Subsidiaries. (i) A filer must identify any subsidiary,
financial subsidiary investment, bank service company investment,
service corporation investment, or other equity investment to be
acquired in a business combination and state the activities of each
subsidiary or other company in which the filer would be acquiring an
investment. The OCC does not require a separate application or notice
under Sec. Sec. 5.34, 5.35, 5.36, 5.38, 5.39, 5.58, and 5.59.
(ii) A national bank filer proposing to acquire, through a business
combination, a subsidiary, financial subsidiary investment, bank
service company investment, service corporation investment, or other
equity investment of any entity other than a national bank must provide
the same information and analysis of the subsidiary's activities, or of
the investment, that would be required if the filer were establishing
the subsidiary, or making such investment, pursuant to Sec. Sec. 5.34,
5.35, 5.36, or 5.39.
(iii) A Federal savings association filer proposing to acquire,
through a business combination, a subsidiary, bank service company
investment, service corporation investment, or other equity investment
of any entity other than a Federal savings association must provide the
same information and analysis of the subsidiary's activities, or of the
investment, that would be required if the filer were establishing the
subsidiary, or making such investment, pursuant to Sec. Sec. 5.35,
5.38, 5.58, or 5.59.
(4) Interim national bank or interim Federal savings association--
(i) Application. A filer for a business combination that plans to use
an interim national bank or interim Federal savings association to
accomplish the transaction must file an application to organize an
interim national bank or interim Federal savings association as part of
the application for the related business combination.
(ii) Conditional approval. The OCC grants conditional preliminary
approval to form an interim national bank or interim Federal savings
association when it acknowledges receipt of the application for the
related business combination.
(iii) Corporate status. An interim national bank or interim Federal
savings association becomes a legal entity and may enter into legally
valid agreements when it has filed, and the OCC has accepted, the
interim national bank's duly executed articles of association and
organization certificate or the Federal savings association's charter
and bylaws. OCC acceptance occurs:
(A) On the date the OCC advises the interim national bank that its
articles of association and organization certificate are acceptable or
advises the interim Federal savings association that its charter and
bylaws are acceptable; or
(B) On the date the interim national bank files articles of
association and an organization certificate that conform to the form
for those documents provided by the OCC in the Comptroller's Licensing
Manual or the date the interim Federal savings association files
[[Page 80450]]
a charter and bylaws that conform to the requirements set out in this
part 5.
(iv) Other corporate procedures. A filer should consult the
Comptroller's Licensing Manual to determine what other information is
necessary to complete the chartering of the interim national bank as a
national bank or the interim Federal savings association as a Federal
savings association.
(5) Nonconforming assets. (i) A filer must identify any
nonconforming activities and assets, including nonconforming
subsidiaries, of other institutions involved in the business
combination that will not be disposed of or discontinued prior to
consummation of the transaction. The OCC generally requires a national
bank or Federal savings association to divest or conform nonconforming
assets, or discontinue nonconforming activities, within a reasonable
time following the business combination.
(ii) Any resulting Federal savings association must conform to the
requirements of sections 5(c) and 10(m) of the Home Owners' Loan Act
(12 U.S.C. 1464(c) and 1467a(m)) within the time period prescribed by
the OCC.
(6) Fiduciary powers. (i) A filer must state whether the resulting
national bank or Federal savings association intends to exercise
fiduciary powers pursuant to Sec. 5.26(b).
(ii) If a filer intends to exercise fiduciary powers after the
combination and requires OCC approval for such powers, the filer must
include the information required under Sec. 5.26(e)(2).
(7) Expiration of approval. Approval of a business combination, and
conditional approval to form an interim national bank or interim
Federal savings association, if applicable, expires if the business
combination is not consummated within six months after the date of OCC
approval, unless the OCC grants an extension of time.
(8) Adequacy of disclosure. (i) A filer must inform shareholders of
all material aspects of a business combination and must comply with any
applicable requirements of the Federal securities laws and securities
regulations of the OCC. Accordingly, a filer must ensure that all proxy
and information statements prepared in connection with a business
combination do not contain any untrue or misleading statement of a
material fact, or omit to state a material fact necessary in order to
make the statements made, in the light of the circumstances under which
they were made, not misleading.
(ii) A national bank or Federal savings association filer with one
or more classes of securities subject to the registration provisions of
section 12(b) or (g) of the Securities Exchange Act of 1934, 15 U.S.C.
78l(b) or 78l(g), must file preliminary proxy material or information
statements for review with the Director, Bank Advisory, OCC,
Washington, DC 20219. Any other filer must submit the proxy materials
or information statements it uses in connection with the combination to
the appropriate OCC licensing office no later than when the materials
are sent to the shareholders.
(f) Exceptions to rules of general applicability--(1) National bank
or Federal savings association filer--(i) In general. Sections 5.8,
5.10, and 5.11 do not apply to this section. However, if the OCC
concludes that an application presents significant or novel policy,
supervisory, or legal issues, the OCC may determine that some or all
provisions in Sec. Sec. 5.8, 5.10 and 5.11 apply.
(ii) Statutory notice. If an application is subject to the Bank
Merger Act or to another statute that requires notice to the public, a
national bank or Federal savings association filer must follow the
public notice requirements contained in 12 U.S.C. 1828(c)(3) or the
other statute and Sec. Sec. 5.8(b) through 5.8(e), 5.10, and 5.11.
(2) Interim national bank or interim Federal savings association.
Sections 5.8, 5.10, and 5.11 do not apply to an application to organize
an interim national bank or interim Federal savings association.
However, if the OCC concludes that an application presents significant
or novel policy, supervisory, or legal issues, the OCC may determine
that any or all parts of Sec. Sec. 5.8, 5.10, and 5.11 apply. The OCC
treats an application to organize an interim national bank or interim
Federal savings association as part of the related application to
engage in a business combination and does not require a separate public
notice and public comment process.
(3) State bank, or State savings association, State trust company,
or credit union as resulting institution. Sections 5.7 through 5.13 do
not apply to transactions covered by paragraphs (g)(7) through (g)(9)
of this section.
(g) Provisions governing consolidations and mergers with different
types of entities--(1) Consolidations and mergers under 12 U.S.C. 215
or 215a of a national bank with other national banks and State banks as
defined in 12 U.S.C. 215b(1) resulting in a national bank. A national
bank entering into a consolidation or merger authorized pursuant to 12
U.S.C. 215 or 215a, respectively, is subject to the approval procedures
and requirements with respect to treatment of dissenting shareholders
set forth in those provisions.
(2) Interstate consolidations and mergers under 12 U.S.C. 215a-1
resulting in a national bank--(i) With the approval of the OCC, an
insured national bank may consolidate or merge with an insured out-of-
State bank, as defined in 12 U.S.C. 1831u(g)(8), with the national bank
as the resulting institution.
(ii) Unless it has elected to follow the procedures set out in
paragraph (h) of this section, the resulting national bank entering
into the consolidation or merger must comply with the procedures of 12
U.S.C. 215 or 215a, as applicable.
(iii) Unless it has elected to follow the procedures applicable to
State banks under paragraph (h)(1)(i), any national bank that will not
be the resulting bank in a consolidation or merger pursuant to 12
U.S.C. 215a-1 must comply with the procedures of 12 U.S.C. 215 or 215a,
as applicable.
(iv) Corporate existence. The corporate existence of each bank
participating in a consolidation or merger continues in the resulting
national bank, and all the rights, franchises, property, appointments,
liabilities, and other interests of the participating bank are
transferred to the resulting national bank, as set forth in 12 U.S.C.
215(b), (e) and (f) or 12 U.S.C. 215a(a), (e), and (f), as applicable.
(3) Consolidations and mergers of a national bank with Federal
savings associations under 12 U.S.C. 215c resulting in a national bank.
(i) With the approval of the OCC, any national bank and any Federal
savings association may consolidate or merge with a national bank as
the resulting institution by complying with the following procedures:
(A) Unless it has elected to follow the procedures set out in
paragraph (h) of this section, a national bank entering into the
consolidation or merger must follow the procedures of 12 U.S.C. 215 or
215a, respectively, as if the Federal savings association were a
national bank.
(B)(1) A Federal savings association entering into the
consolidation or merger must comply with the requirements of paragraph
(n) of this section and follow the procedures set out in paragraph (o)
of this section.
(2) For purposes of this paragraph (g)(3), a combination in which a
national bank acquires all or substantially all of the assets, or
assumes all or substantially all of the liabilities, of a Federal
savings association will be treated as a
[[Page 80451]]
consolidation for the Federal savings association.
(ii)(A) Unless the national bank has elected to follow the
procedures set out in paragraph (h) of this section, national bank
shareholders who dissent from a plan to consolidate may receive in cash
the value of their national bank shares if they comply with the
requirements of 12 U.S.C. 215 as if the Federal savings association
were a national bank.
(B) Unless the Federal savings association has elected to follow
the procedures applicable to State savings associations pursuant to
paragraph (o)(1)(i)(A) of this section, Federal savings association
shareholders who dissent from a plan to consolidate or merge may
receive in cash the value of their Federal savings association shares
if they comply with the requirements of 12 U.S.C. 215 or 215a as if the
Federal savings association were a national bank.
(C) Unless the national bank or Federal savings association has
elected to follow the procedures applicable to State banks or State
savings associations, respectively, pursuant to paragraph (h)(1)(i) or
(o)(1)(i)(A) of this section, respectively, the OCC will conduct an
appraisal or reappraisal of the value of a national bank or Federal
savings association held by dissenting shareholders in accordance with
the provisions of 12 U.S.C. 215 or 215a, as applicable, except that the
costs and expenses of any appraisal or reappraisal may be apportioned
and assessed by the Comptroller as he or she may deem equitable against
all or some of the parties. In making this determination the
Comptroller will consider whether any party has acted arbitrarily or
not in good faith in respect to the rights provided by this paragraph.
(iii) The consolidation or merger agreement must address the effect
upon, and the terms of the assumption of, any liquidation account of
any participating institution by the resulting institution.
(4) Mergers of a national bank with its nonbank affiliates under 12
U.S.C. 215a-3 resulting in a national bank. (i) With the approval of
the OCC, a national bank may merge with one or more of its nonbank
affiliates, with the national bank as the resulting institution, in
accordance with the provisions of this paragraph, provided that the law
of the State or other jurisdiction under which the nonbank affiliate is
organized allows the nonbank affiliate to engage in such mergers. If
the national bank is an insured bank, the transaction is also subject
to approval by the FDIC under the Bank Merger Act, 12 U.S.C. 1828(c).
(ii) Unless it has elected to follow the procedures set out in
paragraph (h) of this section, a national bank entering into the merger
must follow the procedures of 12 U.S.C. 215a as if the nonbank
affiliate were a State bank, except as otherwise provided herein.
(iii) A nonbank affiliate entering into the merger must follow the
procedures for such mergers set out in the law of the State or other
jurisdiction under which the nonbank affiliate is organized.
(iv) The rights of dissenting shareholders and appraisal of
dissenters' shares of stock in the nonbank affiliate entering into the
merger must be determined in the manner prescribed by the law of the
State or other jurisdiction under which the nonbank affiliate is
organized.
(v) The corporate existence of each institution participating in
the merger continues in the resulting national bank, and all the
rights, franchises, property, appointments, liabilities, and other
interests of the participating institutions are transferred to the
resulting national bank, as set forth in 12 U.S.C. 215a(a), (e), and
(f) in the same manner and to the same extent as in a merger between a
national bank and a State bank under 12 U.S.C. 215a(a), as if the
nonbank affiliate were a State bank.
(5) Mergers of an uninsured national bank with its nonbank
affiliates under 12 U.S.C. 215a-3 resulting in a nonbank affiliate. (i)
With the approval of the OCC, a national bank that is not an insured
bank as defined in 12 U.S.C. 1813(h) may merge with one or more of its
nonbank affiliates, with the nonbank affiliate as the resulting entity,
in accordance with the provisions of this paragraph, provided that the
law of the State or other jurisdiction under which the nonbank
affiliate is organized allows the nonbank affiliate to engage in such
mergers.
(ii) Unless it has elected to follow the procedures applicable to
State banks under paragraph (h)(1)(i) of this section, a national bank
entering into the merger must follow the procedures of 12 U.S.C. 214a,
as if the nonbank affiliate were a State bank, except as otherwise
provided in this section.
(iii) A nonbank affiliate entering into the merger must follow the
procedures for such mergers set out in the law of the State or other
jurisdiction under which the nonbank affiliate is organized.
(iv)(A) National bank shareholders who dissent from an approved
plan to merge may receive in cash the value of their national bank
shares if they comply with the requirements of 12 U.S.C. 214a as if the
nonbank affiliate were a State bank. The OCC may conduct an appraisal
or reappraisal of dissenters' shares of stock in a national bank
involved in the merger if all parties agree that the determination is
final and binding on each party and agree on how the total expenses of
the OCC in making the appraisal will be divided among the parties and
paid to the OCC.
(B) The rights of dissenting shareholders and appraisal of
dissenters' shares of stock in the nonbank affiliate involved in the
merger must be determined in the manner prescribed by the law of the
State or other jurisdiction under which the nonbank affiliate is
organized.
(v) The corporate existence of each entity participating in the
merger continues in the resulting nonbank affiliate, and all the
rights, franchises, property, appointments, liabilities, and other
interests of the participating national bank are transferred to the
resulting nonbank affiliate as set forth in 12 U.S.C. 214b, in the same
manner and to the same extent as in a merger between a national bank
and a State bank under 12 U.S.C. 214a, as if the nonbank affiliate were
a State bank.
(6) Consolidations and mergers of a Federal savings association
with other Federal savings associations, national banks, State banks,
State savings banks, State savings associations, State trust companies,
or credit unions resulting in a Federal savings association. (i) With
the approval of the OCC, a Federal savings association may consolidate
or merge with another Federal savings association, a national bank, a
State bank, a State savings association, a State trust company, or a
credit union with the Federal savings association as the resulting
institution by complying with the following procedures:
(A)(1) The filer Federal savings association must comply with the
requirements of paragraph (n) of this section and follow the procedures
set out in paragraph (o) of this section.
(2) For purposes of this paragraph (g)(6), a combination in which a
Federal savings association acquires all or substantially all of the
assets, or assumes all or substantially all of the liabilities, of
another other participating institution will be treated as a
consolidation for the acquiring Federal savings association and as a
consolidation by a Federal savings association whose assets are
acquired, if any.
(B)(1) Unless it has elected to follow the procedures applicable to
State banks under paragraph (h)(1)(i) of this section, a national bank
entering into a merger or consolidation with a Federal savings
[[Page 80452]]
association when the resulting institution will be a Federal savings
association must comply with the requirements of 12 U.S.C. 214a and 12
U.S.C. 214c as if the Federal savings association were a State bank.
However, for these purposes the references in 12 U.S.C. 214c to ``law
of the State in which such national banking association is located''
and ``any State authority'' mean ``laws and regulations governing
Federal savings associations'' and ``Office of the Comptroller of the
Currency'' respectively.
(2) Unless the national bank has elected to follow the procedures
applicable to State banks under paragraph (h)(1)(i) of this section,
national bank shareholders who dissent from a plan to merge or
consolidate may receive in cash the value of their national bank shares
if they comply with the requirements of 12 U.S.C. 214a as if the
Federal savings association were a State bank. The OCC will conduct an
appraisal or reappraisal of the value of the national bank shares held
by dissenting shareholders in accordance with the provisions of 12
U.S.C. 214a, except that the costs and expenses of any appraisal or
reappraisal may be apportioned and assessed by the Comptroller as he or
she may deem equitable against all or some of the parties. In making
this determination the Comptroller will consider whether any party has
acted arbitrarily or not in good faith in respect to the rights
provided by this paragraph.
(C)(1) A Federal savings association entering into a merger or
consolidation with another Federal savings association when the
resulting institution will be the other Federal savings association
must comply with the requirements of paragraph (n) of this section and
the procedures of paragraph (o) of this section.
(2) Unless the Federal savings association has elected to follow
the procedures applicable to State savings associations under paragraph
(o)(1)(i)(A), Federal savings association shareholders who dissent from
a plan to merge or consolidate may receive in cash the value of their
Federal savings association shares if they comply with the requirements
of 12 U.S.C. 214a as if the other Federal savings association were a
State bank. The OCC will conduct an appraisal or reappraisal of the
value of the Federal savings association shares held by dissenting
shareholders in accordance with the provisions of 12 U.S.C. 214a,
except that the costs and expenses of any appraisal or reappraisal may
be apportioned and assessed by the Comptroller as he or she may deem
equitable against all or some of the parties. In making this
determination the Comptroller will consider whether any party has acted
arbitrarily or not in good faith in respect to the rights provided by
this paragraph.
(3) Unless the Federal savings association has elected to follow
the procedures applicable to State savings associations under paragraph
(o)(1)(i)(A), the plan of merger or consolidation must provide the
manner of disposing of the shares of the resulting Federal savings
association not taken by the dissenting shareholders of the Federal
savings association.
(D)(1) A State bank, State savings association, State trust
company, or credit union entering into a consolidation or merger with a
Federal savings association when the resulting institution will be a
Federal savings association must follow the procedures for such
consolidations or mergers set out in the law of the State or other
jurisdiction under which the State bank, State savings association,
State trust company, or credit union is organized.
(2) The rights of dissenting shareholders and appraisal of
dissenters' shares of stock in the State bank, State savings
association, or State trust company, entering into the consolidation or
merger will be determined in the manner prescribed by the law of the
State or other jurisdiction under which the State bank, State savings
association, or State trust company is organized.
(ii) The consolidation or merger agreement must address the effect
upon, and the terms of the assumption of, any liquidation account of
any participating institution by the resulting institution.
(7) Consolidations and mergers under 12 U.S.C. 214a of a national
bank with State banks resulting in a State bank as defined in 12 U.S.C.
214(a)--(i) In general. Prior OCC approval is not required for the
merger or consolidation of a national bank with a State bank as defined
in 12 U.S.C. 214(a). Termination of a national bank's existence and
status as a national banking association is automatic, and its charter
cancelled, upon completion of the statutory and regulatory requirements
for engaging in the consolidation or merger and consummation of the
consolidation or merger.
(ii) Procedures. A national bank desiring to merge or consolidate
with a State bank as defined in 12 U.S.C. 214(a) when the resulting
institution will be a State bank must comply with the requirements and
follow the procedures of 12 U.S.C. 214a and 214c and must provide
notice to the OCC under paragraph (k) of this section.
(iii) Dissenters' rights and appraisal procedures. National bank
shareholders who dissent from a plan to merge or consolidate may
receive in cash the value of their national bank shares if they comply
with the requirements of 12 U.S.C. 214a. The OCC conducts an appraisal
or reappraisal of the value of the national bank shares held by
dissenting shareholders as provided for in 12 U.S.C. 214a.
(iv) Liquidation account. The consolidation or merger agreement
must address the effect upon, and the terms of the assumption of, any
liquidation account of any participating institution by the resulting
institution.
(8) Interstate consolidations and mergers between an insured
national bank and insured State banks resulting in a State bank.--(i)
In general. Prior OCC approval is not required for the merger or
consolidation of an insured national bank with an insured out-of-State
State bank, as defined in 12 U.S.C. 1831u(g)(8), with the State bank as
the resulting institution, that has been approved by the appropriate
Federal banking agency for the State bank. Termination of a national
bank's existence and status as a national banking association is
automatic, and its charter cancelled, upon completion of the statutory
and regulatory requirements for engaging in the consolidation or merger
and consummation of the consolidation or merger.
(ii) Procedures. Unless it has elected to follow the procedures
applicable to State banks under paragraph (h)(1)(i) of this section,
the national bank entering into the consolidation or merger must comply
with the procedures of 12 U.S.C. 214a, as applicable.
(iii) Notice. The national bank must provide a notice to the OCC
under paragraph (k) of this section.
(9) Consolidations and mergers of a Federal savings association
with State banks, State savings banks, State savings associations,
State trust companies, or credit unions resulting in a State bank,
State savings bank, State savings association, State trust company, or
credit union--(i) Policy. Prior OCC approval is not required for the
merger or consolidation of a Federal savings association with a State
bank, State savings bank, State savings association, State trust
company, or credit union when the resulting institution will be a State
institution or credit union. Termination of a national bank's or
Federal savings association's existence and status as a national
banking association or Federal savings association is automatic, and
its charter cancelled, upon completion of the
[[Page 80453]]
statutory and regulatory requirements for engaging in the consolidation
or merger and consummation of the consolidation or merger.
(ii) Procedures. (A) A Federal savings association desiring to
merge or consolidate with a State bank, State savings bank, State
savings association, State trust company, or credit union when the
resulting institution will be a State institution or credit union must
comply with the requirements of paragraph (n) of this section and the
procedures of paragraph (o) of this section and must provide notice to
the OCC under paragraph (k) of this section.
(B) For purposes of this paragraph (g)(9), a combination in which a
State bank, State savings bank, State savings association, State trust
company, or credit union acquires all or substantially all of the
assets, or assumes all or substantially all of the liabilities, of a
Federal savings association must be treated as a consolidation by the
Federal savings association.
(iii) Dissenters' rights and appraisal procedures. (A) Unless the
Federal savings association has elected to follow the procedures
applicable to State savings associations under paragraph (o)(1)(i)(A),
Federal savings association shareholders who dissent from a plan to
merge or consolidate may receive in cash the value of their Federal
savings association shares if they comply with the requirements of 12
U.S.C. 214a as if the Federal savings association were a national bank.
The OCC conducts an appraisal or reappraisal of the value of the
Federal savings association shares held by dissenting shareholders only
if all parties agree that the determination will be final and binding.
The parties also must agree on how the total expenses of the OCC in
making the appraisal will be divided among the parties and paid to the
OCC.
(B) Unless the Federal savings association has elected to follow
the procedures applicable to State savings associations under paragraph
(o)(1)(i)(A), the plan of merger or consolidation must provide the
manner of disposing of the shares of the resulting State institution
not taken by the dissenting shareholders of the Federal savings
association.
(iv) Liquidation account. The consolidation or merger agreement
must address the effect upon, and the terms of the assumption of, any
liquidation account of any participating institution by the resulting
institution.
(h) Procedural requirements for national bank combinations--(1)
Permissible elections. A national bank participating in a combination
pursuant to paragraph (g)(2), (g)(3), (g)(4), (g)(5), (g)(6), or (g)(8)
of this section may elect to follow with respect to the combination:
(i) The procedures applicable to a State bank chartered by the
State where the national bank's main office is located; or
(ii) Paragraph (p) of this section, if applicable.
(2) Rules of Construction. For purposes of paragraph (h)(1) of this
section:
(i) Any references to a State agency in the applicable State
procedures should be read as referring to the OCC; and
(ii) Unless otherwise specified in Federal law, all filings
required by the applicable State procedures must be made to the OCC.
(i) Expedited review for business reorganizations and streamlined
applications. A filing that qualifies as a business reorganization as
defined in paragraph (d)(3) of this section, or a filing that qualifies
as a streamlined application as described in paragraph (j) of this
section, is deemed approved by the OCC as of the 15th day after the
close of the comment period, unless the OCC notifies the filer that the
filing is not eligible for expedited review, or the expedited review
process is extended, under Sec. 5.13(a)(2). An application under this
paragraph must contain all necessary information for the OCC to
determine if it qualifies as a business reorganization or streamlined
application.
(j) Streamlined applications. (1) A filer may qualify for a
streamlined business combination application in the following
situations:
(i) At least one party to the transaction is an eligible bank or
eligible savings association, and all other parties to the transaction
are eligible banks, eligible savings associations, or eligible
depository institutions, the resulting national bank or resulting
Federal savings association will be well capitalized immediately
following consummation of the transaction, and the total assets of the
target institution are no more than 50 percent of the total assets of
the acquiring bank or Federal savings association, as reported in each
institution's Consolidated Report of Condition and Income filed for the
quarter immediately preceding the filing of the application;
(ii) The acquiring bank or Federal savings association is an
eligible bank or eligible savings association, the target bank or
savings association is not an eligible bank, eligible savings
association, or an eligible depository institution, the resulting
national bank or resulting Federal savings association will be well
capitalized immediately following consummation of the transaction, and
the filers in a prefiling communication request and obtain approval
from the appropriate OCC licensing office to use the streamlined
application;
(iii) The acquiring bank or Federal savings association is an
eligible bank or eligible savings association, the target bank or
savings association is not an eligible bank, eligible savings
association, or an eligible depository institution, the resulting bank
or resulting Federal savings association will be well capitalized
immediately following consummation of the transaction, and the total
assets acquired do not exceed 10 percent of the total assets of the
acquiring national bank or acquiring Federal savings association, as
reported in each institution's Consolidated Report of Condition and
Income filed for the quarter immediately preceding the filing of the
application; or
(iv) In the case of a transaction under paragraph (g)(4) of this
section, the acquiring bank is an eligible bank, the resulting national
bank will be well capitalized immediately following consummation of the
transaction, the filers in a prefiling communication request and obtain
approval from the appropriate OCC licensing office to use the
streamlined application, and the total assets acquired do not exceed 10
percent of the total assets of the acquiring national bank, as reported
in the bank's Consolidated Report of Condition and Income filed for the
quarter immediately preceding the filing of the application.
(2) Notwithstanding paragraph (j)(1) of this section, a filer does
not qualify for a streamlined business combination application if the
transaction is part of a conversion under part 192 of this chapter.
(3) When a business combination qualifies for a streamlined
application, the filer should consult the Comptroller's Licensing
Manual to determine the abbreviated application information required by
the OCC. The OCC encourages prefiling communications between the filers
and the appropriate OCC licensing office before filing under paragraph
(j) of this section.
(k) Exit notice to OCC--(1) Notice required. As provided in
paragraphs (g)(7)(ii), (g)(8)(iii), and (g)(9)(ii) of this section, a
national bank or Federal savings association engaging in a
consolidation or merger in which it is not the filer and the resulting
institution must file a notice rather than an application to the
appropriate OCC licensing office advising of its intention.
[[Page 80454]]
(2) Timing of notice. The national bank or Federal savings
association must submit the notice at the time the application to merge
or consolidate is filed with the responsible agency under the Bank
Merger Act, 12 U.S.C. 1828(c), or if there is no such filing then no
later than 30 days prior to the effective date of the merger or
consolidation.
(3) Content of notice. The notice must include the following:
(i)(A) A short description of the material features of the
transaction, the identity of the acquiring institution, the identity of
the State or Federal regulator to whom the application was made, and
the date of the application; or
(B) A copy of a filing made with another Federal or State
regulatory agency seeking approval from that agency for the transaction
under the Bank Merger Act or other applicable statute;
(ii) The planned consummation date for the transaction;
(iii) Information to demonstrate compliance by the national bank or
Federal savings association with applicable requirements to engage in
the transactions (e.g., board approval or shareholder or accountholder
requirements); and
(iv) If the national bank or Federal savings association submitting
the notice maintains a liquidation account established pursuant to part
192 of this chapter, the notice must state that the resulting
institution will assume such liquidation account.
(4) Termination of status. The national bank or Federal savings
association must advise the OCC when the transaction is about to be
consummated. Termination of a national bank's or Federal savings
association's existence and status as a national banking association or
Federal savings association is automatic, and its charter cancelled,
upon completion of the statutory and regulatory requirements and
consummation of the consolidation or merger. When the national bank or
Federal savings association files the notice under paragraph (k)(1) of
this section, the OCC provides instructions to the national bank or
Federal savings association for terminating its status as a national
bank or Federal savings association, including surrendering its charter
to the OCC immediately after consummation of the transaction.
(5) Expiration. If the action contemplated by the notice is not
completed within six months after the OCC's receipt of the notice, a
new notice must be submitted to the OCC, unless the OCC grants an
extension of time.
(l) Mergers and consolidations; transfer of assets and liabilities
to the resulting institution. (1) In any consolidation or merger in
which the resulting institution is a national bank or Federal savings
association, on the effective date of the merger or consolidation, all
assets and property (real, personal and mixed, tangible and intangible,
choses in action, rights, and credits) then owned by each participating
institution or which would inure to any of them, immediately by
operation of law and without any conveyance, transfer, or further
action, become the property of the resulting national bank or Federal
savings association. The resulting national bank or Federal savings
association is deemed to be a continuation of the entity of each
participating institution, and will succeed to such rights and
obligations of each participating institution and the duties and
liabilities connected therewith.
(2) The authority in paragraph (l)(1) of this section is in
addition to any authority granted by applicable statutes for specific
transactions and is subject to the National Bank Act, the Home Owners'
Loan Act, and other applicable statutes.
(m) Certification of combination; effective date. (1) When a
national bank or Federal savings association is the filer and will be
the resulting entity in a consolidation or merger, after receiving
approval from the OCC, it must complete any remaining steps needed to
complete the transaction, provide the OCC with a certification that all
other required regulatory or shareholder approvals have been obtained,
and inform the OCC of the planned consummation date.
(2) When the transaction is consummated, the filer must notify the
OCC of the consummation date. The OCC will issue a letter certifying
that the combination was effective on the date specified in the filer's
notice.
(n) Authority for and certain limits on business combinations and
other transactions by Federal savings associations. (1) Federal savings
associations may enter into business combinations only in accordance
with this section, the Bank Merger Act, and sections 5(d)(3)(A) and
10(s) of the Home Owners' Loan Act (12 U.S.C. 1464(d)(3)(A) and
1467a(s)).
(2) A Federal savings association may consolidate or merge with
another depository institution, a State trust company or a credit
union, may engage in another business combination listed in paragraphs
(d)(2)(iv) and (v) of this section, or may engage in any other
combination listed in paragraph (d)(10), provided that:
(i) The combination is in compliance with, and receives all
approvals required under, any applicable statutes and regulations;
(ii) Any resulting Federal savings association meets the
requirements for insurance of accounts; and
(iii) A consolidation or merger involving a mutual savings
association or the transfer of all or substantially all of the deposits
of a mutual savings association must result in a mutually held
depository institution that is insured by the FDIC, unless:
(A) The transaction is approved under part 192 governing mutual to
stock conversions;
(B) The transaction involves a mutual holding company
reorganization under 12 U.S.C. 1467a(o) or a similar transaction under
State law; or
(C) The transaction is part of a voluntary liquidation for which
the OCC has provided non-objection under Sec. 5.48.
(3) Where the resulting institution is a Federal mutual savings
association, the OCC may approve a temporary increase in the number of
directors of the resulting institution provided that the association
submits a plan for bringing the board of directors into compliance with
the requirements of Sec. 5.21(e) within a reasonable period of time.
(4)(i) The Federal savings associations described in paragraph
(n)(4)(ii) of this section below must provide affected accountholders
with a notice of a proposed account transfer and an option of retaining
the account in the transferring Federal savings association. The notice
must allow affected accountholders at least 30 days to consider whether
to retain their accounts in the transferring Federal savings
association.
(ii) The following savings associations must provide the notices:
(A) A Federal mutual savings association transferring account
liabilities to an institution the accounts of which are not insured by
the Deposit Insurance Fund or the National Credit Union Share Insurance
Fund; and
(B) Any Federal mutual savings association transferring account
liabilities to a stock form depository institution.
(o) Procedural requirements for Federal savings association
approval of combinations--(1) In general--(i) Permissible elections. A
Federal savings association participating in a combination may elect to
follow the applicable procedures with respect to the combination:
[[Page 80455]]
(A) The procedures applicable to a State savings association
chartered by the State where the Federal savings association's home
office is located: or
(B) The standard procedures provided in paragraph (o)(2) of this
section.
(ii) Rules of Construction. For purposes of paragraph (o)(1)(i) of
this section:
(A) Any references to a State agency in the applicable State
procedures should be read as referring to the OCC; and
(B) Unless otherwise specified in Federal law, all filings required
by the applicable State procedures must be made to the OCC.
(2) Standard procedures--(i) Board approval. Before a Federal
savings association files a notice or application for any consolidation
or merger, the combination and combination agreement must be approved
by majority vote of the entire board of each constituent Federal
savings association in the case of Federal stock savings associations
or a two-thirds vote of the entire board of each constituent Federal
savings association in the case of Federal mutual savings associations.
(ii) Shareholder vote--(A) General rule. Except as otherwise
provided in this paragraph (o)(2)(ii), an affirmative vote of two-
thirds of the outstanding voting stock of any constituent Federal stock
savings association is required for approval of a consolidation or
merger. If any class of shares is entitled to vote as a class pursuant
to Sec. 5.22(g)(4), an affirmative vote of a majority of the shares of
each voting class and two-thirds of the total voting shares is
required. The required vote must be taken at a meeting of the savings
association.
(B) General exception. Stockholders of the resulting Federal stock
savings association need not authorize a consolidation or merger if the
transaction meets the requirements of paragraph (p) of this section.
(C) Exceptions for certain combinations involving an interim
association. Stockholders of a Federal stock savings association need
not authorize by a two-thirds affirmative vote consolidations or
mergers involving an interim Federal savings association or interim
State savings association when the resulting Federal stock savings
association is acquired pursuant to the regulations of the Board of
Governors of the Federal Reserve System at 12 CFR 238.15(e) (relating
to the creation of a savings and loan holding company by a savings
association). In those cases, an affirmative vote of 50 percent of the
shares of the outstanding voting stock of the Federal stock savings
association plus one affirmative vote is required. If any class of
shares is entitled to vote as a class pursuant to the charter
provisions in Sec. 5.22(g)(4), an affirmative vote of 50 percent of
the shares of each voting class plus one affirmative vote is required.
The required votes must be taken at a meeting of the association.
(3) Change of name or home office. If the name of the resulting
Federal savings association or the location of the home office of the
resulting Federal savings association will change as a result of the
business combination, the resulting Federal savings association must
amend its charter accordingly.
(4) Mutual member vote. Notwithstanding any other provision of this
section, the OCC may require that a consolidation, merger or other
business combination be submitted to the voting members of any mutual
savings association participating in the proposed transaction at duly
called meetings and that the transaction, to be effective, must be
approved by such voting members.
(p) Exception to voting requirements. Shareholders of a resulting
national bank or Federal stock savings association need not authorize a
consolidation or merger if:
(1) Either:
(i) The transaction does not involve an interim bank or an interim
savings association; or
(ii) The transaction involves an interim bank or an interim savings
association and the existing shareholders of the national bank or
Federal stock savings association will directly hold the shares of the
resulting national bank or Federal stock savings association;
(2) The national bank's articles of association or the Federal
stock savings association's charter, as applicable, is not changed;
(3) Each share of stock outstanding immediately prior to the
effective date of the consolidation or merger is to be an identical
outstanding share or a treasury share of the resulting national bank or
Federal stock savings association after such effective date; and
(4) Either:
(i) No shares of voting stock of the resulting national bank or
Federal stock savings association and no securities convertible into
such stock are to be issued or delivered under the plan of combination;
or
(ii) The authorized unissued shares or the treasury shares of
voting stock of the resulting national bank or Federal stock savings
association to be issued or delivered under the plan of merger or
consolidation, plus those initially issuable upon conversion of any
securities to be issued or delivered under such plan, do not exceed 20
percent of the total shares of voting stock of such national bank or
Federal stock savings association outstanding immediately prior to the
effective date of the consolidation or merger.
0
26. Amend Sec. 5.34 by:
0
a. In paragraph (a), removing ``3101 et seq.'' and adding in its place
``and 3102(b).'';
0
b. In paragraph (c), removing the phrase ``(e)(5)(i)(B) of this section
shall apply'' and adding in its place the phrase ``(f)(2)(i)(C)(2) of
this section applies'';
0
c. Revising paragraph (d);
0
d. In paragraphs (e)(1)(i)(B), (e)(3), and (e)(4)(ii), removing the
word ``state'' and adding in its place the word ``State'' wherever it
appears;
0
e. Revising paragraph (e)(2)(i)(A);
0
f. In paragraph (e)(2)(i)(C), removing the phrase ``generally accepted
accounting principles (GAAP)'' and adding in its place the word
``GAAP'';
0
g. In paragraph (e)(2)(ii) introductory text, removing the phrase
``following subsidiaries'' and adding in its place the phrase
``following entities'';
0
h. In paragraph (e)(2)(ii)(A), removing the phrase ``part 24; and'' and
adding in its place the phrase ``12 CFR part 24;'';
0
i. Removing the period and adding in its place ``; and'' in paragraph
(e)(2)(ii)(B);
0
j. Adding paragraph (e)(2)(ii)(C);
0
k. In paragraph (e)(2)(iii)(B), removing the word ``shall'' and adding
in its place the word ``may'';
0
l. In paragraphs (e)(4)(i) and (e)(4)(ii), removing the word ``shall''
and adding in its place the word ``will'';
0
m. Removing paragraph (e)(7);
0
n. Redesignating paragraphs (e)(5) and (e)(6) as paragraphs (f) and
(g), respectively ; and
0
o. Revising redesignated paragraph (f).
The addition and revisions read as follows.
Sec. 5.34 Operating subsidiaries of a national bank.
* * * * *
(d) Definition. For purposes of this section, authorized product
means a product that would be defined as insurance under section 302(c)
of the Gramm-Leach-Bliley Act (15 U.S.C. 6712) that, as of January 1,
1999, the OCC had determined in writing that national banks may provide
as principal or national banks were in fact lawfully providing the
product as principal, and as of that date no court of relevant
jurisdiction had, by final judgment, overturned a determination by the
OCC that national banks may provide the
[[Page 80456]]
product as principal. An authorized product does not include title
insurance, or an annuity contract the income of which is subject to
treatment under section 72 of the Internal Revenue Code of 1986 (26
U.S.C. 72).
(e) * * *
(2) * * *
(i) * * *
(A) The bank has the ability to control the management and
operations of the subsidiary, and no other person or entity has the
ability to exercise effective control or influence over the management
or operations of the subsidiary to an extent equal to or greater than
that of the bank or an operating subsidiary thereof;
* * * * *
(ii) * * *
(C) A trust formed for purposes of securitizing assets held by the
bank as part of its banking business.
* * * * *
(f) Procedures--(1) Application required. (i) Except for an
operating subsidiary that qualifies for the notice procedures in
paragraph (f)(2) of this section or is exempt from application or
notice requirements under paragraph (f)(6) of this section, a national
bank must first submit an application to, and receive prior approval
from, the OCC to establish or acquire an operating subsidiary or to
perform a new activity in an existing operating subsidiary.
(ii) The application must explain, as appropriate, how the bank
``controls'' the enterprise, describing in full detail structural
arrangements where control is based on factors other than bank
ownership of more than 50 percent of the voting interest of the
subsidiary and the ability to control the management and operations of
the subsidiary by holding voting interests sufficient to select the
number of directors needed to control the subsidiary's board and to
select and terminate senior management. In the case of a limited
partnership or limited liability company that does not qualify for the
notice procedures set forth in paragraph (f)(2) of this section, the
bank must provide a statement explaining why it is not eligible. The
application also must include a complete description of the bank's
investment in the subsidiary, the proposed activities of the
subsidiary, the organizational structure and management of the
subsidiary, the relations between the bank and the subsidiary, and
other information necessary to adequately describe the proposal. To the
extent that the application relates to the initial affiliation of the
bank with a company engaged in insurance activities, the bank must
describe the type of insurance activity in which the company is engaged
and has present plans to conduct. The bank must also list for each
State the lines of business for which the company holds, or will hold,
an insurance license, indicating the State where the company holds a
resident license or charter, as applicable. The application must state
whether the operating subsidiary will conduct any activity at a
location other than the main office or a previously approved branch of
the bank. The OCC may require a filer to submit a legal analysis if the
proposal is novel, unusually complex, or raises substantial unresolved
legal issues. In these cases, the OCC encourages filers to have a
prefiling meeting with the OCC. Any bank receiving approval under this
paragraph is deemed to have agreed that the subsidiary will conduct the
activity in a manner consistent with published OCC guidance.
(2) Notice process only for certain qualifying filings. (i) Except
for an operating subsidiary that is exempt from application or notice
procedures under paragraph (f)(6) of this section, a national bank that
is well capitalized and well managed may establish or acquire an
operating subsidiary, or perform a new activity in an existing
operating subsidiary, by providing the appropriate OCC licensing office
written notice prior to, or within 10 days after, acquiring or
establishing the subsidiary, or commencing the new activity, if:
(A) The activity is listed in paragraph (f)(5) of this section or,
except as provided in paragraph (f)(2)(ii) of this section, the
activity is substantively the same as a previously approved activity
and the activity will be conducted in accordance with the same terms
and conditions applicable to the previously approved activity;
(B) The entity is a corporation, limited liability company, limited
partnership, or trust; and
(C) The bank or an operating subsidiary thereof:
(1) Has the ability to control the management and operations of the
subsidiary and no other person or entity has the ability to exercise
effective control or influence over the management or operations of the
subsidiary to an extent equal to or greater than that of the bank or an
operating subsidiary thereof. The ability to control the management and
operations means:
(i) In the case of a subsidiary that is a corporation, the bank or
an operating subsidiary thereof holds voting interests sufficient to
select the number of directors needed to control the subsidiary's board
and to select and terminate senior management;
(ii) In the case of a subsidiary that is a limited partnership, the
bank or an operating subsidiary thereof has the ability to control the
management and operations of the subsidiary by controlling the
selection and termination of senior management;
(iii) In the case of a subsidiary that is a limited liability
company, the bank or an operating subsidiary thereof has the ability to
control the management and operations of the subsidiary by controlling
the selection and termination of senior management; or
(iv) In the case of a subsidiary that is a trust, the bank or an
operating subsidiary thereof has the ability to replace the trustee at
will;
(2) Holds more than 50 percent of the voting, or equivalent,
interests in the subsidiary and:
(i) In the case of a subsidiary that is a limited partnership, the
bank or an operating subsidiary thereof is the sole general partner of
the limited partnership, provided that under the partnership agreement,
limited partners have no authority to bind the partnership by virtue
solely of their status as limited partners;
(ii) In the case of a subsidiary that is a limited liability
company, the bank or an operating subsidiary thereof is the sole
managing member of the limited liability company, provided that under
the limited liability company agreement, other limited liability
company members have no authority to bind the limited liability company
by virtue solely of their status as members; or
(iii) In the case of a subsidiary that is a trust, the bank or an
operating subsidiary thereof is the sole beneficial owner of the trust;
and
(3) Is required to consolidate its financial statements with those
of the subsidiary under GAAP.
(ii) A national bank must file an application under paragraph
(f)(1) of this section if a State has or will charter or license the
proposed operating subsidiary as a bank, trust company, or savings
association.
(iii) The written notice must include a complete description of the
bank's investment in the subsidiary and of the activity conducted and a
representation and undertaking that the activity will be conducted in
accordance with OCC policies contained in guidance issued by the OCC
regarding the activity. To the extent that the notice relates to the
initial affiliation of the bank with a company engaged in insurance
activities, the bank must describe the type of insurance activity in
which the
[[Page 80457]]
company is engaged and has present plans to conduct. The bank also must
list for each State the lines of business for which the company holds,
or will hold, an insurance license, indicating the State where the
company holds a resident license or charter, as applicable. Any bank
receiving approval under this paragraph is deemed to have agreed that
the subsidiary will conduct the activity in a manner consistent with
published OCC guidance.
(3) Exceptions to rules of general applicability. Sections 5.8,
5.10, and 5.11 do not apply to this section. However, if the OCC
concludes that an application presents significant or novel policy,
supervisory, or legal issues, the OCC may determine that some or all
provisions in Sec. Sec. 5.8, 5.10, and 5.11 apply.
(4) OCC review and approval. The OCC reviews a national bank's
application to determine whether the proposed activities are legally
permissible under Federal banking laws and to ensure that the proposal
is consistent with safe and sound banking practices and OCC policy and
does not endanger the safety or soundness of the parent national bank.
As part of this process, the OCC may request additional information and
analysis from the filer.
(5) Activities eligible for notice. The following activities
qualify for the notice procedures in paragraph (f)(2) of this section,
provided the activity is conducted pursuant to the same terms and
conditions as would be applicable if the activity were conducted
directly by a national bank:
(i) Holding and managing assets acquired by the parent bank or its
operating subsidiaries, including investment assets and property
acquired by the bank through foreclosure or otherwise in good faith to
compromise a doubtful claim, or in the ordinary course of collecting a
debt previously contracted;
(ii) Providing services to or for the bank or its affiliates,
including accounting, auditing, appraising, advertising and public
relations, and financial advice and consulting;
(iii) Making loans or other extensions of credit, and selling money
orders, savings bonds, and travelers checks;
(iv) Purchasing, selling, servicing, or warehousing loans or other
extensions of credit, or interests therein;
(v) Providing courier services between financial institutions;
(vi) Providing management consulting, operational advice, and
services for other financial institutions;
(vii) Providing check guaranty, verification and payment services;
(viii) Providing data processing, data warehousing and data
transmission products, services, and related activities and facilities,
including associated equipment and technology, for the bank or its
affiliates;
(ix) Acting as investment adviser (including an adviser with
investment discretion) or financial adviser or counselor to
governmental entities or instrumentalities, businesses, or individuals,
including advising registered investment companies and mortgage or real
estate investment trusts, furnishing economic forecasts or other
economic information, providing investment advice related to futures
and options on futures, and providing consumer financial counseling;
(x) Providing tax planning and preparation services;
(xi) Providing financial and transactional advice and assistance,
including advice and assistance for customers in structuring,
arranging, and executing mergers and acquisitions, divestitures, joint
ventures, leveraged buyouts, swaps, foreign exchange, derivative
transactions, coin and bullion, and capital restructurings;
(xii) Underwriting and reinsuring credit related insurance to the
extent permitted under section 302 of the Gramm-Leach-Bliley Act (15
U.S.C. 6712);
(xiii) Leasing of personal property and acting as an agent or
adviser in leases for others;
(xiv) Providing securities brokerage or acting as a futures
commission merchant, and providing related credit and other related
services;
(xv) Underwriting and dealing, including making a market, in bank
permissible securities and purchasing and selling as principal, asset
backed obligations;
(xvi) Acting as an insurance agent or broker, including title
insurance to the extent permitted under section 303 of the Gramm-Leach-
Bliley Act (15 U.S.C. 6713);
(xvii) Reinsuring mortgage insurance on loans originated,
purchased, or serviced by the bank, its subsidiaries, or its
affiliates, provided that if the subsidiary enters into a quota share
agreement, the subsidiary assumes less than 50 percent of the aggregate
insured risk covered by the quota share agreement. A ``quota share
agreement'' is an agreement under which the reinsurer is liable to the
primary insurance underwriter for an agreed upon percentage of every
claim arising out of the covered book of business ceded by the primary
insurance underwriter to the reinsurer;
(xviii) Acting as a finder pursuant to 12 CFR 7.1002 to the extent
permitted by published OCC precedent for national banks; \2\
---------------------------------------------------------------------------
\2\ See, e.g., the OCC's monthly publication ``Interpretations
and Actions.'' Beginning with the May 1996 issue, electronic
versions of ``Interpretations and Actions'' are available at
www.occ.gov.
---------------------------------------------------------------------------
(xix) Offering correspondent services to the extent permitted by
published OCC precedent for national banks;
(xx) Acting as agent or broker in the sale of fixed or variable
annuities;
(xxi) Offering debt cancellation or debt suspension agreements;
(xxii) Providing real estate settlement, closing, escrow, and
related services; and real estate appraisal services for the
subsidiary, parent bank, or other financial institutions;
(xxiii) Acting as a transfer or fiscal agent;
(xxiv) Acting as a digital certification authority to the extent
permitted by published OCC precedent for national banks, subject to the
terms and conditions contained in that precedent;
(xxv) Providing or selling public transportation tickets, event and
attraction tickets, gift certificates, prepaid phone cards, promotional
and advertising material, postage stamps, and Electronic Benefits
Transfer (EBT) script, and similar media, to the extent permitted by
published OCC precedent for national banks, subject to the terms and
conditions contained in that precedent;
(xxvi) Providing data processing, and data transmission services,
facilities (including equipment, technology, and personnel), databases,
advice and access to such services, facilities, databases and advice,
for the parent bank and for others, pursuant to 12 CFR 7.5006 to the
extent permitted by published OCC precedent for national banks;
(xxvii) Providing bill presentment, billing, collection, and
claims-processing services;
(xxviii) Providing safekeeping for personal information or valuable
confidential trade or business information, such as encryption keys, to
the extent permitted by published OCC precedent for national banks;
(xxix) Providing payroll processing;
(xxx) Providing branch management services;
(xxxi) Providing merchant processing services except when the
activity involves the use of third parties to solicit or underwrite
merchants; and
(xxxii) Performing administrative tasks involved in benefits
administration.
(6) No application or notice required. A national bank may acquire
or
[[Page 80458]]
establish an operating subsidiary, or perform a new activity in an
existing operating subsidiary, without filing an application or
providing notice to the OCC, if the bank is well managed and well
capitalized and the:
(i) Activities of the new subsidiary are limited to those
activities previously reported by the bank in connection with the
establishment or acquisition of a prior operating subsidiary;
(ii) Activities in which the new subsidiary will engage continue to
be legally permissible for the subsidiary;
(iii) Activities of the new subsidiary will be conducted in
accordance with any conditions imposed by the OCC in approving the
conduct of these activities for any prior operating subsidiary of the
bank; and
(iv) The standards set forth in paragraphs (f)(2)(i)(B) and (C) of
this section are satisfied.
(7) Fiduciary powers. (i) If an operating subsidiary proposes to
accept fiduciary appointments for which fiduciary powers are required,
such as acting as trustee or executor, then the national bank must have
fiduciary powers under 12 U.S.C. 92a and the subsidiary also must have
its own fiduciary powers under the law applicable to the subsidiary.
(ii) Unless the subsidiary is a registered investment adviser, if
an operating subsidiary proposes to exercise investment discretion on
behalf of customers or provide investment advice for a fee, the
national bank must have prior OCC approval to exercise fiduciary powers
pursuant to Sec. 5.26 and 12 CFR part 9.
(8) Expiration of approval. Approval expires if the national bank
has not established or acquired the operating subsidiary or commenced
the new activity in an existing operating subsidiary within 12 months
after the date of the approval, unless the OCC shortens or extends the
time period.
* * * * *
0
27. Amend Sec. 5.35 by:
0
a. Revising the section heading;
0
b. In paragraph (a), adding the word ``and'' before ``5412(b)(2)(B),''
0
c. In paragraphs (b) and (d)(6), removing the word ``shall'' and adding
in its place the word ``must'';
0
d. In paragraphs (d)(2), (d)(3), (g)(2), and (g)(4), removing the word
``state'' and adding in its place the word ``State'' wherever it
appears;
0
e. In paragraph (d)(2) removing the phrase ``section 3 of the Federal
Deposit Insurance Act'' and adding in its place the phrase ``section
3(a)(3) of the Federal Deposit Insurance Act, 12 U.S.C. 1813(a)(3)'';
0
f. In paragraph (d)(3):
0
i. After the words ``an insured bank'', removing the phrase ``(as
defined in section 3 of the Federal Deposit Insurance Act)'' and adding
in its place the phrase ``(as defined in section 3(h) of the Federal
Deposit Insurance Act, 12 U.S.C. 1813(h))'';
0
ii. After the words ``a savings association'', removing the phrase
``(as defined in section 3 of the Federal Deposit Insurance Act)'' and
adding in its place the phrase ``(as defined in section 3(b)(1) of the
Federal Deposit Insurance Act, 12 U.S.C. 1813(b)(1))'';
0
iii. Removing the phrase ``Federal Deposit Insurance Corporation'' and
adding in its place the word ``FDIC'';
0
g. In paragraph (d)(4), removing the phrase ``section 3 of the Federal
Deposit Insurance Act'' and adding in its place the phrase ``section
3(c)(2) of the Federal Deposit Insurance Act, 12 U.S.C. 1813(c)(2)'';
0
h. Revising paragraph (f)(2)(ii)(A);
0
i. In paragraph (f)(2)(ii)(B), removing the phrase ``Sec.
5.34(e)(5)(v) or Sec. 5.38(e)(5)(v)'' and adding in its place the
phrase ``Sec. 5.34(f)(5) or Sec. 5.38(f)(5)''; and
0
j. Revising paragraph (i).
The revision and addition read as follows.
Sec. 5.35 Bank service company investments by a national bank or
Federal savings association.
* * * * *
(f) * * *
(2) * * *
(ii) * * *
(A) The national bank or Federal savings association is well
capitalized and well managed; and
* * * * *
(i) Investment limitations. A national bank or Federal savings
association must comply with the investment limitations specified in 12
U.S.C. 1862.
* * * * *
0
28. Amend Sec. 5.36 by:
0
a. In paragraph (a), removing the phrase ``and 93a.'' and adding in its
place the phrase ``93a, and 3101 et seq.'';
0
b. In paragraph (b), removing the phrase ``and 5.37'' and adding in its
place the phrase ``5.37, and 5.39'';
0
c. Revising paragraph (c);
0
d. Revising paragraph (e) introductory text;
0
e. In paragraph (e)(1), removing the word ``state'' and adding in its
place the word ``State'' wherever it appears;
0
f. Revising paragraphs (e)(2) through (4)
0
g. Revising paragraph (f);
0
h. Redesignating paragraphs (g) through (i) as paragraph (h) through
(j);
0
i. Adding new paragraph (g);
0
j. In redesignated paragraph (h)(1), removing ``(g)(1)'' wherever it
appears and adding in its place (h)(1);
0
k. Revising redesignated paragraphs (i) and (j).
The addition and revisions read as follows.
Sec. 5.36 Other equity investments by a national bank.
* * * * *
(c) Definitions. For purposes of this section:
(1) Enterprise means any corporation, limited liability company,
partnership, trust, or similar business entity.
(2) Non-controlling investment means an equity investment made
pursuant to 12 U.S.C. 24(Seventh) that is not governed by procedures
prescribed by another OCC rule. A non-controlling investment does not
include a national bank holding interests in a trust formed for the
purposes of securitizing assets held by the bank as part of its banking
business or for the purposes of holding multiple legal titles of motor
vehicles or equipment in conjunction with lease financing transactions.
* * * * *
(e) Non-controlling investments; notice procedure. Except as
provided in paragraphs (f), (g), and (h) of this section, a national
bank may make a non-controlling investment, directly or through its
operating subsidiary, in an enterprise that engages in an activity
described in Sec. 5.34(f)(5) or in an activity that is substantively
the same as a previously approved activity by filing a written notice.
The bank must file this written notice with the appropriate OCC
licensing office no later than 10 days after making the investment. The
written notice must:
* * * * *
(2) State:
(i) Which paragraphs of Sec. 5.34(f)(5) describe the activity; or
(ii) If the activity is substantively the same as a previously
approved activity:
(A) How the activity is substantively the same as a previously
approved activity;
(B) The citation to the applicable precedent; and
(C) That the activity will be conducted in accordance with the same
terms and conditions applicable to the previously approved activity;
(3) Certify that the bank is well capitalized and well managed at
the time of the investment;
(4) Describe how the bank has the ability to prevent the enterprise
from engaging in activities that are not set forth in Sec. 5.34(f)(5)
or not contained in published OCC precedent for previously
[[Page 80459]]
approved activities, or how the bank otherwise has the ability to
withdraw its investment;
* * * * *
(f) Non-controlling investment; application procedure--(1) In
general. A national bank must file an application and obtain prior
approval before making or acquiring, either directly or through an
operating subsidiary, a non-controlling investment in an enterprise if
the non-controlling investment does not qualify for the notice
procedure set forth in paragraph (e) of this section because the bank
is unable to make the representation required by paragraph (e)(2) or
the certifications required by paragraphs (e)(3) or (e)(7) of this
section. The application must include the information required in
paragraphs (e)(1) and (e)(4) through (e)(6) of this section and, if
possible, the information required by paragraphs (e)(2), (e)(3), and
(e)(7) of this section. If the bank is unable to make the
representation set forth in paragraph (e)(2) of this section, the
bank's application must explain why the activity in which the
enterprise engages is a permissible activity for a national bank and
why the filer should be permitted to hold a non-controlling investment
in an enterprise engaged in that activity. A bank may not make a non-
controlling investment if it is unable to make the representations and
certifications specified in paragraphs (e)(1) and (e)(4) through (e)(6)
of this section.
(2) Expedited review. An application submitted by a national bank
is deemed approved by the OCC as of the 10th day after the application
is received by the OCC if:
(i) The national bank makes the representation required by
paragraph (e)(2) and the certification required by paragraph (e)(3) of
this section;
(ii) The book value of the national bank's non-controlling
investment for which the application is being submitted is no more than
1% of the bank's capital and surplus;
(iii) No more than 50% of the enterprise is owned or controlled by
banks or savings associations subject to examination by an appropriate
Federal banking agency or credit unions insured by the National Credit
Union Association; and
(iv) The OCC has not notified the national bank that the
application has been removed from expedited review, or the expedited
review process is extended, under Sec. 5.13(a)(2).
(g) Non-controlling investment; no application or notice required.
A national bank may make or acquire, either directly or through an
operating subsidiary, a non-controlling investment in an enterprise
without an application or notice to the OCC, if the:
(1) Activities of the enterprise are limited to those activities
previously reported by the bank in connection with the making or
acquiring of a non-controlling investment;
(2) Activities of the enterprise continue to be legally permissible
for a national bank;
(3) The bank's non-controlling investment will be made in
accordance with any conditions imposed by the OCC in approving any
prior non-controlling investment in an enterprise conducting these same
activities; and
(4) The bank is able to make the representations and certifications
specified in paragraphs (e)(3) through (e)(7) of this section.
* * * * *
(i) Non-controlling investments by Federal branches. A Federal
branch that is well capitalized and well managed may make a non-
controlling investment in accordance with paragraph (e) of this section
in the same manner and subject to the same conditions and requirements
as a national bank, and subject to any additional requirements that may
apply under 12 CFR 28.10(c).
(j) Exceptions to rules of general applicability. Sections 5.8,
5.9, 5.10, and 5.11 do not apply to this section. However, if the OCC
concludes that an application presents significant or novel policy,
supervisory, or legal issues, the OCC may determine that some or all
provisions in Sec. Sec. 5.8, 5.9, 5.10, and 5.11 apply.
Sec. 5.37 [Amended]
0
29. Amend Sec. 5.37 by:
0
a. In paragraph (a), removing ``317d'' and adding in its place
``371d'';
0
b. Removing paragraph (c)(3);
0
c. In paragraph (d)(1)(i) and (d)(3)(i), removing the word ``shall''
and adding in its place the word ``must'' it appears;
0
d. In paragraph (d)(1)(i), removing the phrase ``any corporation'' and
adding in its place the phrase ``any corporation, partnership, or
similar entity (e.g., a limited liability company)'';
0
e. In paragraph (d)(3)(i), removing the phrase ``as defined in 12 CFR
part 6'';
0
f. In paragraph (d)(4), removing ``12 CFR 5.59'' and adding in its
place ``Sec. 5.59''; and
0
g. In paragraph (d)(5), adding '' 5.9,'' after ``5.8,'' wherever it
appears.
0
30. Amend Sec. 5.38 by:
0
a. In paragraph (a), adding the word ``and'' before ``5412(b)(2)(B)'';
0
b. In paragraph (b), adding ``(12 U.S.C. 1828(m))'' after the word
``Act'';
0
c. Removing and reserving paragraph (d);
0
d. Revising paragraph (e)(2)(i)(A);
0
e. In paragraph (e)(2)(i)(C), removing the phrase ``generally accepted
accounting principles (GAAP)'' and adding in its place the word
``GAAP'';
0
f. In paragraph (e)(2)(iii) introductory text, removing the phrase
``following subsidiaries'' and adding in its place the phrase
``following entities'';
0
g. Removing the word ``and'' at the end of paragraph (e)(2)(iii)(A);
0
h. In paragraph (e)(2)(iii)(B), removing the period and adding in its
place ``; and'';
0
i. Adding new paragraph (e)(2)(iii)(C);
0
j. In paragraph (e)(2)(iv)(B), removing the word ``shall'' and adding
in its place the word ``may'';
0
k. In paragraph (e)(3), removing the word ``state'' and adding in its
place the word ``State'';
0
l. In paragraph (e)(4)(i), removing the word ``shall'' and adding in
its place the word ``must'';
0
m. Redesignating paragraphs (e)(5) through (7) as paragraphs (f)
through (h);
0
n. Revising redesignated paragraph (f); and
0
o. In redesignated paragraph (h), removing the word ``shall'' wherever
it appears and adding in its place the word ``may''.
The addition and revisions read as follows.
Sec. 5.38 Operating subsidiaries of a Federal savings association.
* * * * *
(e) * * *
(2) * * *
(i) * * *
(A) The savings association has the ability to control the
management and operations of the subsidiary, and no other person or
entity has the ability to exercise effective control or influence over
the management or operations of the subsidiary to an extent equal to or
greater than that of the savings association or an operating subsidiary
thereof;
* * * * *
(iii) * * *
(C) A trust formed for purpose of securitizing assets held by the
savings association as part of its business.
* * * * *
(f) Procedures--(1) Application required. (i) A Federal savings
association must first submit an application to, and receive prior
approval from, the OCC to establish or acquire an operating subsidiary,
or to perform a new activity in an existing operating subsidiary.
(ii) The application must explain, as appropriate, how the savings
association ``controls'' the enterprise, describing in full detail
structural arrangements
[[Page 80460]]
where control is based on factors other than savings association
ownership of more than 50 percent of the voting interest of the
subsidiary and the ability to control the management and operations of
the subsidiary by holding voting interests sufficient to select the
number of directors needed to control the subsidiary's board and to
select and terminate senior management. In the case of a limited
partnership or limited liability company that does not qualify for the
expedited review procedure set forth in paragraph (f)(2) of this
section, the savings association must provide a statement explaining
why it is not eligible. The application also must include a complete
description of the savings association's investment in the subsidiary,
the proposed activities of the subsidiary, the organizational structure
and management of the subsidiary, the relations between the savings
association and the subsidiary, and other information necessary to
adequately describe the proposal. To the extent that the application
relates to the initial affiliation of the savings association with a
company engaged in insurance activities, the savings association must
describe the type of insurance activity in which the company is engaged
and has present plans to conduct. The savings association must also
list for each State the lines of business for which the company holds,
or will hold, an insurance license, indicating the State where the
company holds a resident license or charter, as applicable. The
application must state whether the operating subsidiary will conduct
any activity at a location other than the home office or a previously
approved branch of the savings association. The OCC may require a filer
to submit a legal analysis if the proposal is novel, unusually complex,
or raises substantial unresolved legal issues. In these cases, the OCC
encourages filers to have a prefiling meeting with the OCC. Any savings
association receiving approval under this paragraph is deemed to have
agreed that the subsidiary will conduct the activity in a manner
consistent with published OCC guidance.
(2) Expedited review. (i) An application to establish or acquire an
operating subsidiary, or to perform a new activity in an existing
operating subsidiary, that meets the requirements of this paragraph is
deemed approved by the OCC as of the 30th day after the filing is
received by the OCC, unless the OCC notifies the filer prior to that
date that the filing has been removed from expedited review, or the
expedited review process is extended under Sec. 5.13(a)(2). Any
savings association receiving approval under this paragraph is deemed
to have agreed that the subsidiary will conduct the activity in a
manner consistent with published OCC guidance.
(ii) An application is eligible for expedited review if all of the
following requirements are met:
(A) The savings association is well capitalized and well managed;
(B) The activity is listed in paragraph (f)(5) this section or is
substantively the same as a previously approved activity and the
activity will be conducted in accordance with the same terms and
conditions applicable to the previously approved activity;
(C) The entity is a corporation, limited liability company, limited
partnership or trust; and
(D) The savings association or an operating subsidiary thereof:
(1) Has the ability to control the management and operations of the
subsidiary and no other person or entity has the ability to exercise
effective control or influence over the management or operations of the
subsidiary to an extent equal to or greater than that of the savings
association or an operating subsidiary thereof. The ability to control
the management and operations means:
(i) In the case of a subsidiary that is a corporation, the savings
association or an operating subsidiary thereof holds voting interests
sufficient to select the number of directors needed to control the
subsidiary's board and to select and terminate senior management;
(ii) In the case of a subsidiary that is a limited partnership, the
savings association or an operating subsidiary thereof has the ability
to control the management and operations of the subsidiary by
controlling the selection and termination of senior management;
(iii) In the case of a subsidiary that is a limited liability
company, the savings association or an operating subsidiary thereof has
the ability to control the management and operations of the subsidiary
by controlling the selection and termination of senior management; or
(iv) In the case of a subsidiary that is a trust, the savings
association or an operating subsidiary thereof has the ability to
replace the trustee at will;
(2) Holds more than 50 percent of the voting, or equivalent,
interests in the subsidiary, and:
(i) In the case of a subsidiary that is a limited partnership, the
savings association or an operating subsidiary thereof is the sole
general partner of the limited partnership, provided that under the
partnership agreement, limited partners have no authority to bind the
partnership by virtue solely of their status as limited partners;
(ii) In the case of a subsidiary that is a limited liability
company, the savings association or an operating subsidiary thereof is
the sole managing member of the limited liability company, provided
that under the limited liability company agreement, other limited
liability company members have no authority to bind the limited
liability company by virtue solely of their status as members; or
(iii) In the case of a subsidiary that is a trust, the savings
association or an operating subsidiary thereof is the sole beneficial
owner of the trust; and
(3) Is required to consolidate its financial statements with those
of the subsidiary under GAAP. A filer proposing to qualify for
expedited review must include in the application all necessary
information showing the application meets the requirements.
(3) Exceptions to rules of general applicability. Sections 5.8,
5.10, and 5.11 do not apply to this section. However, if the OCC
concludes that an application presents significant or novel policy,
supervisory, or legal issues, the OCC may determine that some or all
provisions in Sec. Sec. 5.8, 5.10, and 5.11 apply.
(4) OCC review and approval. The OCC reviews a Federal savings
association's application to determine whether the proposed activities
are legally permissible under Federal savings association law and to
ensure that the proposal is consistent with safe and sound banking
practices and OCC policy and does not endanger the safety or soundness
of the parent Federal savings association. As part of this process, the
OCC may request additional information and analysis from the filer.
(5) Activities eligible for expedited review. The following
activities qualify for the expedited review procedures in paragraph
(f)(2) of this section, provided the activity is conducted pursuant to
the same terms and conditions as would be applicable if the activity
were conducted directly by a Federal savings association:
(i) Holding and managing assets acquired by the parent savings
association or its operating subsidiaries, including investment assets
and property acquired by the savings association through foreclosure or
otherwise in good faith to compromise a doubtful claim, or in the
ordinary course of collecting a debt previously contracted;
(ii) Providing services to or for the savings association or its
affiliates, including accounting, auditing,
[[Page 80461]]
appraising, advertising and public relations, and financial advice and
consulting;
(iii) Making loans or other extensions of credit, and selling money
orders and travelers checks;
(iv) Purchasing, selling, servicing, or warehousing loans or other
extensions of credit, or interests therein;
(v) Providing management consulting, operational advice, and
services for other financial institutions;
(vi) Providing check payment services;
(vii) Acting as investment adviser (including an adviser with
investment discretion) or financial adviser or counselor to
governmental entities or instrumentalities, businesses, or individuals,
including advising registered investment companies and mortgage or real
estate investment trusts;
(viii) Providing financial and transactional advice and assistance,
including advice and assistance for customers in structuring,
arranging, and executing mergers and acquisitions, divestitures, joint
ventures, leveraged buyouts, swaps, foreign exchange, derivative
transactions, coin and bullion, and capital restructurings;
(ix) Underwriting and reinsuring credit life and disability
insurance;
(x) Leasing of personal property;
(xi) Providing securities brokerage;
(xii) Underwriting and dealing, including making a market, in
savings association permissible securities and purchasing and selling
as principal, asset backed obligations;
(xiii) Acting as an insurance agent or broker for credit life,
disability, and unemployment insurance; single property interest
insurance; and title insurance;
(xiv) Offering correspondent services to the extent permitted by
published OCC precedent for Federal savings associations;
(xv) Acting as agent or broker in the sale of fixed annuities;
(xvi) Offering debt cancellation or debt suspension agreements;
(xvii) Providing escrow services;
(xviii) Acting as a transfer agent; and
(xix) Providing or selling postage stamps.
(6) Redesignation. A Federal savings association that proposes to
redesignate a service corporation as an operating subsidiary must
submit a notification to the OCC at least 30 days prior to the
redesignation date. The notification must include a description of how
the redesignated service corporation meets all of the requirements of
this section to be an operating subsidiary, a resolution of the savings
association's board of directors approving the redesignation, and the
proposed effective date of the redesignation. The savings association
may effect the redesignation on the proposed date unless the OCC
notifies the savings association otherwise prior to that date. The OCC
may require an application if the redesignation presents policy,
supervisory, or legal issues.
(7) Fiduciary powers. (i) If an operating subsidiary proposes to
accept fiduciary appointments for which fiduciary powers are required,
such as acting as trustee or executor, then the Federal savings
association must have fiduciary powers under section 5(n) of the Home
Owners' Loan Act, 12 U.S.C. 1464(n), and the subsidiary also must have
its own fiduciary powers under the law applicable to the subsidiary.
(ii) Unless the subsidiary is a registered investment adviser, if
an operating subsidiary proposes to exercise investment discretion on
behalf of customers or provide investment advice for a fee, the Federal
savings association must have prior OCC approval to exercise fiduciary
powers pursuant to Sec. 5.26 (or a predecessor provision) and 12 CFR
part 150.
(8) Expiration of approval. Approval expires if the Federal savings
association has not established or acquired the operating subsidiary,
or commenced the new activity in an existing operating subsidiary
within 12 months after the date of the approval, unless the OCC
shortens or extends the time period.
0
31. Amend Sec. 5.39 by:
0
a. Revising paragraph (a);
0
b. In paragraph (b), removing the phrase ``a notice'' and adding in its
place the phrase ``an application'', and removing ``Sec. 5.34(e)(5)''
and adding in its place ``Sec. 5.34(f)'';
0
c. In paragraph (b) and paragraph (e)(1) introductory text, removing
``(12 U.S.C. 24a)'' and adding in its place ``(12 U.S.C.
24a(a)(2)(A)(i))'';
0
d. In paragraphs (b), (h)(2), and (j)(1)(ii), removing the word
``shall'' and adding in its place the word ``must'' wherever it
appears;
0
e. In paragraph (d)(1), removing the phrase ``shall have'' and adding
in its place the word ``has'';
0
f. Removing paragraphs (d)(2), (d)(11) and (d)(12) and redesignating
paragraphs (d)(3) through (d)(10) as paragraphs (d)(2) through (d)(9);
0
g. In paragraphs (e)(1)(ii) and (j)(2), removing the word ``state'' and
adding in its place the word ``State'' wherever it appears;
0
h. In paragraph (f)(1), removing the phrase ``Gramm-Leach-Bliley Act
(GLBA)), 113 Stat. 1407-1409, (15 U.S.C. 6712 or 15 U.S.C. 6713)'' and
adding in its place the phrase ``Gramm-Leach-Bliley Act, (15 U.S.C.
6712 or 15 U.S.C. 6713))'';
0
i. In paragraph (f)(3), removing ``(12 U.S.C. 1843) of the Bank Holding
Company Act'' and adding in its place ``of the Bank Holding Company Act
(12 U.S.C. 1843(k)(4)(H) or (I))'', and removing the phrase ``GLBA, 113
Stat. 1381'' and adding in its place the phrase ``Gramm-Leach-Bliley
Act (12 U.S.C. 1843 note)'';
0
j. In paragraph (h)(2), removing the phrase ``generally accepted
accounting principles'' and adding in its place the word ``GAAP'';
0
k. In paragraph (h)(5) introductory text, removing the phrase
``paragraph (a)(6)'' and adding the phrase ``paragraph (d)(5)'';
0
l. Revising paragraph (h)(5)(i);
0
m. Removing and reserving paragraph (h)(5)(ii);
0
n. In paragraphs (h)(5)(vi), removing the word ``GLBA'' and adding in
its place the phrase ``Gramm-Leach-Bliley Act'';
0
o. Removing the phrase ``shall be'' and adding in its place the word
``is'' in paragraph (h)(6);
0
p. Revising paragraph (i);
0
q. In paragraph (j)(1)(i), removing the phrase ``OCC shall'' and adding
in its place the phrase ``OCC will'' and removing the phrase ``shall
be'' and adding in its place the word ``is''; and
0
r. In paragraph (k), removing the word ``GLBA'' and adding in its place
the phrase ``Gramm-Leach-Bliley Act''.
The revisions read as follows.
Sec. 5.39 Financial subsidiaries of a national bank.
(a) Authority. 12 U.S.C. 24a and 93a.
* * * * *
(h) * * *
(5) * * *
(i) A financial subsidiary is deemed to be an affiliate of the bank
and is not deemed to be a subsidiary of the bank;
* * * * *
(i) Procedures to engage in activities through a financial
subsidiary. A national bank that intends, directly or indirectly, to
acquire control of, or hold an interest in, a financial subsidiary, or
to commence a new activity in an existing financial subsidiary, must
obtain OCC approval through the procedures set forth in paragraph
(i)(1) or (i)(2) of this section.
(1) Certification with subsequent application. (i) At any time, a
national bank may file a ``Financial Subsidiary Certification'' with
the appropriate OCC licensing office listing the bank's depository
institution affiliates and certifying that the bank and each of
[[Page 80462]]
those affiliates is well capitalized and well managed.
(ii) Thereafter, at such time as the bank seeks OCC approval to
acquire control of, or hold an interest in, a new financial subsidiary,
or commence a new activity authorized under section 5136A(a)(2)(A)(i)
of the Revised Statutes (12 U.S.C. 24a(a)(2)(A)(i)) in an existing
subsidiary, the bank may file an application with the appropriate OCC
licensing office at the time of acquiring control of, or holding an
interest in, a financial subsidiary, or commencing such activity in an
existing subsidiary. The application must be labeled ``Financial
Subsidiary Application'' and must:
(A) State that the bank's Certification remains valid;
(B) Describe the activity or activities conducted by the financial
subsidiary. To the extent the application relates to the initial
affiliation of the bank with a company engaged in insurance activities,
the bank should describe the type of insurance activity that the
company is engaged in and has present plans to conduct. The bank must
also list for each State the lines of business for which the company
holds, or will hold, an insurance license, indicating the State where
the company holds a resident license or charter, as applicable;
(C) Cite the specific authority permitting the activity to be
conducted by the financial subsidiary. (Where the authority relied on
is an agency order or interpretation under section 4(c)(8) or 4(c)(13),
respectively, of the Bank Holding Company Act of 1956 (12 U.S.C.
1843(c)(8) or (c)(13)), a copy of the order or interpretation should be
attached);
(D) Certify that the bank will be well capitalized after making
adjustments required by paragraph (h)(1) of this section;
(E) Demonstrate the aggregate consolidated total assets of all
financial subsidiaries of the national bank do not exceed the lesser of
45 percent of the bank's consolidated total assets or $50 billion (or
the increased level established by the indexing mechanism); and
(F) If applicable, certify that the bank meets the eligible debt
requirement in paragraph (g)(3) of this section.
(2) Combined certification and application. A national bank may
file a combined certification and application with the appropriate OCC
licensing office at least five business days prior to acquiring control
of, or holding an interest in, a financial subsidiary, or commencing a
new activity authorized pursuant to section 5136A(a)(2)(A)(i) of the
Revised Statutes (12 U.S.C. 24a(a)(2)(A)(i)) in an existing subsidiary.
The written application must be labeled ``Financial Subsidiary
Certification and Application'' and must:
(i) List the bank's depository institution affiliates and certify
that the bank and each depository institution affiliate of the bank is
well capitalized and well managed;
(ii) Describe the activity or activities to be conducted in the
financial subsidiary. To the extent the application relates to the
initial affiliation of the bank with a company engaged in insurance
activities, the bank should describe the type of insurance activity
that the company is engaged in and has present plans to conduct. The
bank must also list for each State the lines of business for which the
company holds, or will hold, an insurance license, indicating the State
where the company holds a resident license or charter, as applicable;
(iii) Cite the specific authority permitting the activity to be
conducted by the financial subsidiary. (Where the authority relied on
is an agency order or interpretation under section 4(c)(8) or 4(c)(13),
respectively, of the Bank Holding Company Act of 1956 (12 U.S.C.
1843(c)(8) or (c)(13)), a copy of the order or interpretation should be
attached);
(iv) Certify that the bank will remain well capitalized after
making the adjustments required by paragraph (h)(1) of this section;
(v) Demonstrate the aggregate consolidated total assets of all
financial subsidiaries of the national bank do not exceed the lesser of
45% of the bank's consolidated total assets or $50 billion (or the
increased level established by the indexing mechanism); and
(vi) If applicable, certify that the bank meets the eligible debt
requirement in paragraph (g)(3) of this section.
(3) Approval. An application is deemed approved upon filing the
information required by paragraphs (i)(1) or (i)(2) of this section
within the time frames provided therein.
(4) Exceptions to rules of general applicability. Sections 5.8,
5.10, 5.11, and 5.13 do not apply to activities authorized under this
section.
(5) Community Reinvestment Act (CRA). A national bank may not apply
under this paragraph (i) to commence a new activity authorized under
section 5136A(a)(2)(A)(i) of the Revised Statutes (12 U.S.C.
24a(a)(2)(A)(i)), or directly or indirectly acquire control of a
company engaged in any such activity, if the bank or any of its insured
depository institution affiliates received a CRA rating of less than
``satisfactory record of meeting community credit needs'' on its most
recent CRA examination prior to when the bank would file an application
under this section.
* * * * *
Sec. 5.40 [Amended]
0
32. Amend Sec. 5.40 by:
0
a. In paragraph (a), adding a comma after ``2901-2907'';
0
b. Removing the word ``shall'' and adding in its place the word
``must'' wherever it appears in paragraphs (b), (c)(1), (c)(2)(i),
(c)(2)(ii), and (c)(3);
0
c. In paragraph (c)(2)(ii), adding the phrase ``or member'' after the
word ``shareholder''; and
0
d. In paragraph (c)(4), removing the phrase ``national bank'' and
adding in its place the word ``bank'', removing the phrase ``Federal
savings association'' and adding in its place the phrase ``savings
association'', and removing the phrase ``is not eligible for'' and
adding in its place the phrase ``has been removed from''.
0
33. Section 5.42 is amended by:
0
a. In paragraphs (d)(1) and (d)(2), removing the word ``shall'' and
adding in its place the word ``must'';
0
b. Revising paragraph (d)(3);
0
c. In paragraph (d)(4), removing ``5.13(a)'' and adding in its place
``5.13'' wherever it appears and removing the word ``application'' and
adding in its place the word ``notice''.
The revision reads as follows.
Sec. 5.42 Corporate title of a national bank or Federal savings
association.
* * * * *
(d) * * *
(3) Amendment to charter. A Federal savings association must amend
its charter in accordance with Sec. 5.21 or Sec. 5.22, as applicable,
to change its title.
* * * * *
0
34. Section 5.43 is added to read as follows:
Sec. 5.43 National bank director residency and citizenship waivers.
(a) Authority. 12 U.S.C. 72 and 93a.
(b) Scope. This section describes the procedures for the OCC to
waive the residency and citizenship requirements for national bank
directors set forth at 12 U.S.C. 72.
(c) Application Procedures--(1) Residency. A national bank may
request a waiver of the residency requirement for any number of
directors by filing a written application with the OCC. The OCC may
grant a waiver on an individual basis or for any number of director
positions. The waiver is valid until the OCC revokes it in accordance
with paragraph (d) of this section, or, if
[[Page 80463]]
granted on an individual basis, until the individual no longer serves
on the board.
(2) Citizenship. A national bank may request a waiver of the
citizenship requirements for individuals who comprise up to a minority
of the total number of directors by filing a written application with
the OCC. The OCC may grant a waiver on an individual basis. A
citizenship waiver is valid until the individual no longer serves on
the board or the OCC revokes the waiver in accordance with paragraph
(d) of this section.
(3) Biographical and Financial Reports. (i) Each subject of a
citizenship waiver application must submit to the appropriate OCC
licensing office the information prescribed in the Interagency
Biographical and Financial Report, available at www.occ.gov.
(ii) The OCC may require additional information about any subject
of a citizenship waiver application, including legible fingerprints, if
appropriate. The OCC may waive any of the information requirements of
paragraph (c)(3)(i) if the OCC determines that doing so is in the
public interest.
(4) Exceptions to rules of general applicability. Sections 5.8,
5.9, 5.10, and 5.11 do not apply to this section.
(d) Revocation of waiver--(1) Procedure. The OCC may revoke a
residency or citizenship waiver. Before revocation, the OCC will
provide written notice to the national bank and affected director(s) of
its intention to revoke a residency or citizenship waiver and the basis
for its intention. The bank and affected director(s) may respond in
writing to the OCC within 10 calendar days, unless the OCC determines
that a shorter period is appropriate in light of relevant
circumstances. The OCC will consider the written responses of the bank
and affected director(s), if any, prior to deciding whether or not to
revoke a residency or citizenship waiver. The OCC will notify the
national bank and the director of the OCC's decision to revoke a
residency or citizenship waiver in writing.
(2) Effective date. The OCC's decision to revoke a residency or
citizenship waiver is effective:
(i) If the director or national bank, or both, appeals pursuant to
paragraph (e) of this section, upon the director's receipt of the
decision of the Comptroller, an authorized delegate, or the appellate
official, to uphold the initial decision to revoke the residency or
citizenship waiver; or
(ii) If neither the director nor national bank appeals pursuant to
paragraph (e) of this section, upon the expiration of the period to
appeal.
(e) Appeal. (1) A director or national bank, or both, may seek
review by appealing the OCC's decision to revoke a residency or
citizenship waiver to the Comptroller, or an authorized delegate,
within 15 days of the receipt of the OCC's written decision to revoke.
The director or national bank, or both, may appeal on the grounds that
the reasons for revocation are contrary to fact or arbitrary and
capricious. The appellant must submit all documents and written
arguments that the appellant wishes to be considered in support of the
appeal.
(2) The Comptroller, or an authorized delegate, may designate an
appellate official who was not previously involved in the decision
leading to the appeal at issue. The Comptroller, an authorized
delegate, or the appellate official considers all information submitted
with the original application for the residency or citizenship waiver,
the material before the OCC official who made the initial decision, and
any information submitted by the appellant at the time of appeal.
(3) The Comptroller, an authorized delegate, or the appellate
official will independently determine whether the reasons given for the
initial decision to revoke are contrary to fact or arbitrary and
capricious. If they determine either to be the case, the Comptroller,
an authorized delegate, or the appellate official may reverse the
initial decision to revoke the waiver.
(4) Upon completion of the review, the Comptroller, an authorized
delegate, or the appellate official will notify the appellant in
writing of the decision. If the initial decision is upheld, the
decision to revoke the waiver is effective pursuant to paragraph
(d)(2)(i) of this section.
(f) Prior waivers. Any waiver granted by the OCC before January 11,
2021 remains in effect unless revoked pursuant to paragraph (d) of this
section or, for a waiver granted to an individual, until the individual
no longer serves on the board.
Sec. 5.45 [Amended]
0
35. Amend Sec. 5.45 by:
0
a. In paragraphs (b), (e)(1), and (g)(5), removing the phrase ``Federal
savings association'' and adding in its place ``Federal stock savings
association'';
0
b. In paragraph (f)(3), removing the phrase ``savings association's''
and adding in its place ``Federal stock savings association's'';
0
c. In paragraph (g)(1) introductory text, removing the phrase ``the
savings association'' and adding in its place ``the Federal stock
savings association'';
0
d. In paragraphs (g)(2)(iii), (g)(4)(i) introductory text,
(g)(4)(i)(C), (h), and (i), removing the phrase ``savings association''
and adding in its place ``Federal stock savings association'';
0
e. In paragraph (g)(4)(i) introductory text and paragraphs (h) and (i),
removing the word ``shall'' and adding in its place the word ``must'';
and
0
f. In paragraph (h), removing the number ``197'' and adding in its
place ``16''.
0
36. Amend Sec. 5.46 by:
0
a. In paragraph (b), removing the word ``shall'' and adding in its
place the word ``must'' in the first sentence and removing the word
``shall'' and adding in its place the word ``may'' in the second
sentence;
0
b. Revising paragraph (g)(1)(ii);
0
c. In paragraphs (g)(2), (i)(1) introductory text, (i)(3)(i)
introductory text, (i)(4), (j), and (k), removing the word ``shall''
and adding in its place the word ``must'' wherever it appears;
0
d. In paragraph (g)(2), removing the word ``applicant'' and adding in
its place the word ``filer'';
0
e. Revising paragraphs (h) and (i)(2);
0
f. In paragraph (i)(5), adding the phrase, `` unless the OCC specifies
a longer period'' after the word ``approval'';
0
g. In paragraph (i)(6)(i), removing the phrase ``U.S. generally
accepted accounting principles'' and adding in its place the word
``GAAP''; and
0
h. In paragraph (i)(6)(ii), removing the word ``U.S.''.
The revisions read as follows.
Sec. 5.46 Changes in permanent capital of a national bank.
* * * * *
(g) * * *
(1) * * *
(ii) Prior approval required. In addition to a notice of capital
increase under paragraph (i)(3) of this section, a national bank must
submit an application under paragraph (i)(1) or (i)(2) of this section
and obtain prior OCC approval to increase its permanent capital if the
bank is:
(A) Required to receive OCC approval pursuant to letter, order,
directive, written agreement, or otherwise;
(B) Selling common or preferred stock for consideration other than
cash; or
(C) Receiving a material noncash contribution to capital surplus.
* * * * *
(h) Decreases in permanent capital. A national bank must submit an
application and obtain prior approval under paragraph (i)(1) or (i)(2)
of this section for any reduction of its permanent capital. A national
bank may request approval for a reduction in
[[Page 80464]]
capital for multiple quarters. The request need only specify a total
dollar amount for the requested period and need not specify amounts for
each quarter.
(i) * * *
(2) Expedited review. An eligible bank's application is deemed
approved by the OCC 15 days after the date the OCC receives the
application described in paragraph (i)(1) of this section, unless the
OCC notifies the bank prior to that date that the application has been
removed from expedited review, or the expedited review process is
extended, under Sec. 5.13(a)(2). An eligible bank seeking to decrease
its capital may request OCC approval for up to four consecutive
quarters. The request need only specify a total dollar amount for the
four-quarter period and need not specify amounts for each quarter. An
eligible bank may decrease its capital pursuant to such a plan only if
the bank maintains its eligible bank status before and after each
decrease in its capital.
* * * * *
0
37. Amend Sec. 5.47 by:
0
a. In paragraph (b), removing the phrase ``debt notes'' and adding in
its place the word ``debt'';
0
b. Revising paragraph (c);
0
c. In paragraph (d)(1)(ii), removing the phrase ``Federal Deposit
Insurance Corporation (FDIC)'' and adding in its place the word
``FDIC'';
0
d. In paragraph (d)(1)(iv)(B), removing the word ``state'' and adding
in its place the word ``State'';
0
e. In paragraph (d)(1)(vi), removing the word ``shall'' and adding in
its place the word ``must'' the first time it appears and removing the
word ``shall'' and adding in its place the word ``may'' the second time
it appears;
0
f. In paragraph (d)(vii), removing the word ``shall'' and adding in its
place the word ``may'';
0
g. In paragraph (d)(2) introductory text, removing the word ``note''
and adding in its place the word ``document'';
0
h. In paragraph (d)(3)(ii)(C), adding the phrase, `` if applicable to
the subordinated debt issuance'' after the word ``default'';
0
i. Adding paragraph (d)(3)(ii)(D);
0
j. In paragraph (e), removing the phrase, `` including, for an advanced
approaches national bank, the disclosure requirement in 12 CFR
3.20(d)(1)(xi)''; and
0
k. Revising paragraphs (f), (g) and (h).
The addition and revisions read as follows.
Sec. 5.47 Subordinated debt issued by a national bank.
* * * * *
(c) Definitions. The following definitions apply to this section:
Capital plan means a plan describing the means and schedule by
which a national bank will attain specified capital levels or ratios,
including a capital restoration plan filed with the OCC under 12 U.S.C.
1831o and 12 CFR 6.5.
Original maturity means the stated maturity of the subordinated
debt note. If the subordinated debt note does not have a stated
maturity, then original maturity means the earliest possible date the
subordinated debt note may be redeemed, repurchased, prepaid,
terminated, or otherwise retired by the national bank pursuant to the
terms of the subordinated debt note.
Payment on subordinated debt means principal and interest, and
premium, if any.
Subordinated debt document means any document pertaining to an
issuance of subordinated debt, and any renewal, extension, amendment,
modification, or replacement thereof, including the subordinated debt
note and any global note, pricing supplement, note agreement, trust
indenture, paying agent agreement, or underwriting agreement.
Tier 2 capital has the same meaning as set forth in 12 CFR 3.20(d).
(d) * * *
(3) * * *
(ii) * * *
(D) A statement that the obligation may be fully subordinated to
interests held by the U.S. government in the event that the national
bank enters into a receivership, insolvency, liquidation, or similar
proceeding.
* * * * *
(f) Process and procedures--(1) Issuance of subordinated debt--(i)
Approval--(A) Eligible bank. An eligible bank is required to receive
prior approval from the OCC to issue any subordinated debt, in
accordance with paragraph (g)(1)(i) of this section, if:
(1) The national bank will not continue to be an eligible bank
after the transaction;
(2) The OCC has previously notified the national bank that prior
approval is required; or
(3) Prior approval is required by law.
(B) National bank not an eligible bank. A national bank that is not
an eligible bank must receive prior OCC approval to issue any
subordinated debt, in accordance with paragraph (g)(1)(i) of this
section.
(ii) Application to include subordinated debt in tier 2 capital. A
national bank that intends to include subordinated debt in tier 2
capital must submit an application to the OCC for approval, in
accordance with paragraph (h) of this section, before or within ten
days after issuing the subordinated debt. Where a national bank's
application to issue subordinated debt has been deemed to be approved,
in accordance with paragraph (g)(2)(i) of this section, and the
national bank does not contemporaneously receive approval from the OCC
to include the subordinated debt as tier 2 capital, the national bank
must submit an application for approval to include subordinated debt in
tier 2 capital, pursuant to paragraph (h) of this section, after
issuance of the subordinated debt. A national bank may not include
subordinated debt in tier 2 capital unless the national bank has filed
the application with the OCC and received approval from the OCC that
the subordinated debt issued by the national bank qualifies as tier 2
capital.
(2) Prepayment of subordinated debt--(i) Subordinated debt not
included in tier 2 capital--(A) Eligible bank. An eligible bank is
required to receive prior approval from the OCC to prepay any
subordinated debt that is not included in tier 2 capital (including
acceleration, repurchase, redemption prior to maturity, and exercising
a call option), in accordance with paragraph (g)(1)(ii) of this
section, only if:
(1) The national bank will not be an eligible bank after the
transaction;
(2) The OCC has previously notified the national bank that prior
approval is required;
(3) Prior approval is required by law; or
(4) The amount of the proposed prepayment is equal to or greater
than one percent of the national bank's total capital, as defined in 12
CFR 3.2.
(B) National bank not an eligible bank. A national bank that is not
an eligible bank must receive prior OCC approval to prepay any
subordinated debt that is not included in tier 2 capital (including
acceleration, repurchase, redemption prior to maturity, and exercising
a call option), in accordance with paragraph (g)(1)(ii) of this
section.
(ii) Subordinated debt included in tier 2 capital. All national
banks must receive prior OCC approval to prepay subordinated debt
included in tier 2 capital, in accordance with paragraph (g)(1)(ii) of
this section.
(3) Material changes to existing subordinated debt documents. A
national bank must receive prior approval from the OCC in accordance
with paragraph (g)(1)(iii) of this section prior to making a material
change to an existing subordinated debt document if the bank would have
been required to receive OCC approval to issue the
[[Page 80465]]
security under paragraph (f)(1)(i) of this section or to include it in
tier 2 capital under paragraph (h) of this section.
(g) Prior approval procedure--(1) Application--(i) Issuance of
subordinated debt. A national bank required to obtain OCC approval
before issuing subordinated debt must submit an application to the
appropriate OCC licensing office. The application must include:
(A) A description of the terms and amount of the proposed issuance;
(B) A statement of whether the national bank is subject to a
capital plan or required to file a capital plan with the OCC and, if
so, how the proposed change conforms to the capital plan;
(C) A copy of the proposed subordinated note and any other
subordinated debt documents; and
(D) A statement that the subordinated debt issue complies with all
applicable laws and regulations.
(ii) Prepayment of subordinated debt. A national bank required to
obtain OCC approval before prepaying subordinated debt, pursuant to
paragraph (f)(2) of this section, must submit an application to the
appropriate OCC licensing office. The application must include:
(A) A description of the terms and amount of the proposed
prepayment;
(B) A statement of whether the national bank is subject to a
capital plan or required to file a capital plan with the OCC and, if
so, how the proposed change conforms to the capital plan;
(C) A copy of the subordinated debt note the national bank is
proposing to prepay and any other subordinated debt documents; and
(D) Either:
(1) A statement explaining why the national bank believes that
following the proposed prepayment the national bank would continue to
hold an amount of capital commensurate with its risk; or
(2) A description of the replacement capital instrument that meets
the criteria for tier 1 or tier 2 capital under 12 CFR 3.20, including
the amount of such instrument, and the time frame for issuance.
(iii) Material changes to existing subordinated debt. A national
bank required to obtain OCC approval before making a material change to
an existing subordinated debt document, pursuant to paragraph (f)(3) of
this section, must submit an application to the appropriate OCC
licensing office. The application must include:
(A) A description of all proposed changes;
(B) A statement of whether the national bank is subject to a
capital plan or required to file a capital plan with the OCC and, if
so, how the proposed change conforms to the capital plan;
(C) A copy of the revised subordinated debt documents reflecting
all proposed changes; and
(D) A statement that the proposed changes to the subordinated debt
documents complies with all applicable laws and regulations.
(iv) Additional information. The OCC reserves the right to request
additional relevant information, as appropriate.
(2) Approval--(i) General. The application is deemed approved by
the OCC as of the 30th day after the filing is received by the OCC,
unless the OCC notifies the national bank prior to that date that the
filing presents a significant supervisory or compliance concern or
raises a significant legal or policy issue.
(ii) Prepayment. Notwithstanding this paragraph (g)(2)(i) of this
section, if the application for prior approval is for prepayment, the
national bank must receive affirmative approval from the OCC. If the
OCC requires the national bank to replace the subordinated debt, the
national bank must receive affirmative approval that the replacement
capital instrument meets the criteria for tier 1 or tier 2 capital
under 12 CFR 3.20 and must issue the replacement instrument prior to
prepaying the subordinated debt, or immediately thereafter.\4\
---------------------------------------------------------------------------
\4\ A national bank may replace tier 2 capital instruments
concurrent with the redemption of existing tier 2 capital
instruments.
---------------------------------------------------------------------------
(iii) Tier 2 capital. Following notification to the OCC pursuant to
paragraph (f)(1)(ii) of this section that the national bank has issued
the subordinated debt, the OCC will notify the national bank whether
the subordinated debt qualifies as tier 2 capital.
(iv) Expiration of approval. Approval expires if a national bank
does not complete the sale of the subordinated debt within one year of
approval.
(h) Application procedure for inclusion in tier 2 capital. (1) A
national bank must submit an application to the appropriate OCC
licensing office in writing before or within ten days after issuing
subordinated debt that it intends to include in tier 2 capital. A
national bank may not include such subordinated debt in tier 2 capital
unless the national bank has received approval from the OCC that the
subordinated debt qualifies as tier 2 capital.
(2) The application must include:
(i) The terms of the issuance;
(ii) The amount or projected amount and date or projected date of
receipt of funds;
(iii) The interest rate or expected calculation method for the
interest rate;
(iv) Copies of the final subordinated debt documents; and
(v) A statement that the issuance complies with all applicable laws
and regulations.
* * * * *
Sec. 5.48 [Amended]
0
38. Amend Sec. 5.48 in paragraphs (b), (e)(1), (e)(2)(i), (e)(3)(i)
introductory text, (e)(3)(ii), (e)(3)(iii), (e)(4), (e)(5), (e)(6), and
(f)(2)(ii) by removing the word ``shall'' and adding in its place the
word ``must'' wherever it appears.
0
39. Section 5.50 is amended by:
0
a. In paragraphs (b), (c)(3)(v)(B), (f)(2)(i), (f)(2)(vii),
(f)(3)(ii)(B), (f)(3)(ii)(C), (g)(1) introductory text, (h), (i)(1)(i),
(i)(1)(ii), (i)(4)(ii), and (i)(5), removing the word ``shall'' and
adding in its place the word ``must'' wherever it appears;
0
b. In paragraph (c)(2)(iii), removing the word ``(HOLA)'';
0
c. In paragraph (d)(1)(ii), removing the phrase ``shall be'' and adding
in its place the word ``is'';
0
d. In paragraph (d)(5), removing the phrase ``his or her''; and adding
in its place the word ``their'';
0
e. Removing paragraph (d)(8);
0
f. Redesignating paragraphs (d)(6) through (7) as paragraphs (d)(7)
through (8);
0
g. Adding new paragraph (d)(6);
0
h. In redesignated paragraph (d)(7), removing the word ``HOLA'' and
adding in its place the phrase ``Home Owners' Loan Act, 12 U.S.C.
1464'';
0
i. In paragraph (f)(2)(ii) introductory text, removing the phrase
``shall be'' and adding in its place the word ``are'';
0
j. In paragraph (f)(2)(ii)(D), adding the phrase ``15 U.S.C. 78m or
78n,'' after ``1934,'';
0
k. In paragraph (f)(2)(ii)(E), removing the phrase ``defined in Sec.
192.25 of this chapter shall'' and adding in its place the phrase
``defined in 12 CFR 192.25 is'';
0
l. In paragraph (f)(2)(iii)(A), removing ``78l'' and adding in its
place ``78l'';
0
m. In paragraph (f)(2)(viii), removing the word ``shall'' and adding in
its place the word ``will'';
0
n. In paragraph (f)(3)(i)(A), removing the phrase ``on the OCC's
internet web page,'' and adding in its place the word ``at'';
0
o. In paragraphs (f)(3)(ii)(A), (f)(3)(ii)(B), (f)(3)(iii) introductory
text, and (g)(1) introductory text removing the word ``applicant'' and
adding in its place the word ``filer'';
0
p. In paragraph (f)(3)(ii)(C), removing the phrase ``An applicant'' and
adding in its place the phrase ``A filer'';
[[Page 80466]]
0
q. Removing paragraph (f)(3)(iv);
0
r. Removing the phrase ``of notice'' in the heading of paragraph
(f)(5);
0
s. Revising paragraph (f)(6);
0
t. Revising paragraph (g)(2)(i);
0
u. In paragraph (i)(1)(iii), removing the phrase ``paragraph
(h)(1)(i)'' and adding in its place the phrase ``paragraph (i)(1)(i)'';
and
0
v. In paragraph (i)(3)(i), removing the phrase ``paragraph (h)(1)'' and
adding in its place the phrase ``paragraph (i)(1)''.
The addition and revisions read as follows.
Sec. 5.50 Change in control of a national bank or Federal savings
association; reporting of stock loans.
* * * * *
(d) * * *
(6) Depository institution means a depository institution as
defined in section 3(c)(1) of the Federal Deposit Insurance Act, 12
U.S.C. 1813(c)(1).
* * * * *
(f) * * *
(6) Notification of disapproval. (i) Written notice by OCC. If the
OCC disapproves a notice, it will notify the filer in writing within
three days after the decision. The OCC's written disapproval will
contain a statement of the basis for disapproval and indicate that the
filer may request a hearing.
(ii) Hearing Request. The filer may request a hearing by the OCC
within 10 days of receipt of disapproval, pursuant to the procedures in
12 CFR part 19, subpart H. Following final agency action under 12 CFR
part 19, further review by the courts is available. (See 12 U.S.C.
1817(j)(5)).
(iii) Failure to request a hearing. If a filer fails to request a
hearing with a timely request, the notice of disapproval constitutes a
final and unappealable order.
* * * * *
(g) * * *
(2) * * *
(i) Upon the request of any person, the OCC releases the
information provided in the public portion of the notice and makes it
available for public inspection and copying as soon as possible after a
notice has been filed. In certain circumstances the OCC may determine
that the release of the information would not be in the public
interest. In addition, the OCC makes the date that the notice is filed,
the disposition of the notice and the date thereof, and the
consummation date of the transaction, if applicable, publicly available
in the OCC's ``Weekly Bulletin.''
* * * * *
0
40. Amend Sec. 5.51 by:
0
a. Revising paragraph (a);
0
b. In paragraph (c)(4), adding the phrase ``chief risk officer,'' after
the phrase ``chief investment officer,''
0
c. In paragraph (c)(7)(ii), adding the phrase ``that requires action to
improve the financial condition of the national bank or Federal savings
association'' after the word ``agreement'';
0
d. In paragraph (d) introductory text, and paragraphs (e)(1),
(e)(6)(i)(C), (e)(6)(1)(D)(2), (e)(6)(i)(E), and (f)(1), removing the
word ``shall'' and adding in its place the word ``must'' wherever it
appears;
0
e. In paragraph (e)(6)(i)(E), removing the phrase ``his or her'' and
adding in its place the word ``their'';
0
f. In paragraph (e)(8), adding ``5.9,'' after ``5.8,''; and
0
g. In paragraphs (e)(8), (f)(3), and (f)(4), removing the word
``shall'' and adding in its place the word ``will''.
The revision reads as follows.
Sec. 5.51 Changes in directors and senior executive officers of a
national bank or Federal savings association.
(a) Authority. 12 U.S.C. 1831i, 3102(b), and 5412(b)(2)(B).
* * * * *
Sec. 5.52 [Amended]
0
41. Amend Sec. 5.52 by:
0
a. In paragraph (c)(1), removing the word ``shall'' and adding in its
place the word ``must''; and
0
b. In paragraph (c)(2), removing ``Sec. 5.40(b)'' and adding in its
place ``Sec. 5.40(c)(1)''.
Sec. 5.53 [Amended]
0
42. Amend Sec. 5.53 by:
0
a. In paragraph (c)(2)(ii), removing ``12 CFR 5.48'' wherever it
appears and adding in its place ``Sec. 5.48''; and
0
b. In paragraph (d)(3)(i)(A), removing the phrase ``under paragraph
(d)(1)'' and adding in its place ``filed under paragraph (d)(2)''.
0
43. Amend Sec. 5.55 by:
0
a. In paragraph (b), removing the phrase ``or notice'';
0
b. Removing paragraph (d)(2) and redesignating paragraph (d)(3) as
paragraph (d)(2);
0
c. Adding a new paragraph (d)(3);
0
d. In paragraph (d)(4), removing the phrase ``generally accepted
accounting principles (GAAP)'' and adding in its place the word
``GAAP'';
0
e. Revising paragraphs (e), (f), (g), and paragraph (h) introductory
text;
0
f. Redesignating paragraphs (h)(1) through (h)(3) as paragraphs
(h)(1)(i) through (h)(1)(iii);
0
g. Removing the last sentence of redesignated paragraph (h)(1)(iii);
and
0
h. Adding new paragraph (h)(1) introductory text and paragraph (h)(2).
The additions and revisions read as follows.
Sec. 5.55 Capital distributions by Federal savings associations.
* * * * *
(d) * * *
(3) Control has the same meaning as in section 10(a)(2) of the Home
Owners' Loan Act (12 U.S.C. 1467a(a)(2)).
* * * * *
(e) Filing requirements--(1) Application required. A Federal
savings association must file an application with the OCC before making
a capital distribution if:
(i) The Federal savings association would not be at least well
capitalized or would not otherwise remain an eligible savings
association following the distribution;
(ii) The total amount of all of the Federal savings association's
capital distributions (including the proposed capital distribution) for
the applicable calendar year exceeds its net income for that year to
date plus retained net income for the preceding two years. If the
capital distribution is from retained earnings, the aggregate
limitation in this paragraph may be calculated in accordance with Sec.
5.64(c)(2), substituting ``capital distributions'' for ``dividends'' in
that section;
(iii) The Federal savings association's proposed capital
distribution would reduce the amount of or retire any part of its
common or preferred stock or retire any part of debt instruments such
as notes or debentures included in capital under 12 CFR part 3 (other
than regular payments required under a debt instrument approved under
Sec. 5.56);
(iv) The Federal savings association's proposed capital
distribution is payable in property other than cash;
(v) The Federal savings association is directly or indirectly
controlled by a mutual savings and loan holding company or by a company
that is not a savings and loan holding company; or
(vi) The Federal savings association's proposed capital
distribution would violate a prohibition contained in any applicable
statute, regulation, or agreement between the Federal savings
association and the OCC or the OTS, or violate a condition imposed on
the Federal savings association in an application or notice approved by
the OCC or the OTS.
(2) No application required. A Federal savings association may make
a capital distribution without filing an application with the OCC if it
does not meet the filing requirements in paragraph (e)(1) of this
section.
(3) Informational copy of Federal Reserve System notice required.
If the
[[Page 80467]]
Federal savings association is a subsidiary of a savings and loan
holding company that is filing a notice with the Board of Governors of
the Federal Reserve System (Board) for a dividend solely under 12
U.S.C. 1467a(f) and not also under 12 U.S.C. 1467a(o)(11), and no
application under paragraph (e)(1) of this section is required, then
the savings association must provide an informational copy to the OCC
of the notice filed with the Board, at the same time the notice is
filed with the Board.
(f) Application format--(1) Contents. The application must:
(i) Be in narrative form;
(ii) Include all relevant information concerning the proposed
capital distribution, including the amount, timing, and type of
distribution; and
(iii) Demonstrate compliance with paragraph (h) of this section.
(2) Schedules. The application may include a schedule proposing
capital distributions over a specified period.
(3) Combined filings. A Federal savings association may combine the
application required under paragraph (e)(1) of this section with any
other notice or application, if the capital distribution is a part of,
or is proposed in connection with, another transaction requiring a
notice or application under this chapter. If submitting a combined
filing, the Federal savings association must state that the related
notice or application is intended to serve as an application under this
section.
(g) Filing procedures--(1) Application. When a Federal savings
association is required to file an application under paragraph (e)(1)
of this section, it must file the application at least 30 days before
the proposed declaration of dividend or approval of the proposed
capital distribution by its board of directors. Except as provided in
paragraph (g)(2) of this section, the OCC is deemed to have approved an
application from an eligible savings association upon the expiration of
30 days after the filing date of the application unless, before the
expiration of that time period, the OCC notifies the Federal savings
association that:
(i) Additional information is required to supplement the
application;
(ii) The application has been removed from expedited review, or the
expedited review process is extended, under 5.13(a)(2); or
(iii) The application is denied.
(2) Applications not subject to expedited review. An application is
not subject to expedited review if:
(i) The Federal savings association is not an eligible savings
association;
(ii) The total amount of all of the Federal savings association's
capital distributions (including the proposed capital distribution) for
the applicable calendar year exceeds its net income for that year to
date plus retained net income for the preceding two years;
(iii) The Federal savings association would not be at least
adequately capitalized, as set forth in 12 CFR 6.4, following the
distribution; or
(iv) The Federal savings association's proposed capital
distribution would violate a prohibition contained in any applicable
statute, regulation, or agreement between the savings association and
the OCC or the OTS, or violate a condition imposed on the savings
association in an application or notice approved by the OCC or the OTS.
(3) OCC filing office--(i) Appropriate licensing office. Except as
provided in paragraph (g)(3)(ii) of this section, a Federal savings
association that is required to file an application under paragraph
(e)(1) of this section or an informational copy of a notice under
paragraph (e)(3) of this section must submit the application or notice
to the appropriate OCC licensing office.
(ii) Appropriate supervisory office. A Federal savings association
that is required to file an application under paragraph (e)(1) of this
section for capital distributions involving solely a cash dividend from
retained earnings or involving a cash dividend from retained earnings
and a concurrent cash distribution from permanent capital must submit
the application to the appropriate OCC supervisory office.
(h) OCC review of capital distributions. After review of an
application submitted pursuant to paragraph (e)(1) of this section:
(1) The OCC may deny the application in whole or in part, if it
makes any of the following determinations:
* * * * *
(2) The OCC may approve the application in whole or in part.
Notwithstanding paragraph (h)(1)(iii) of this section, the OCC may
waive any waivable prohibition or condition to permit a distribution.
* * * * *
0
44. Amend Sec. 5.56 by:
0
a. Revising paragraph (b);
0
b. In paragraph (d)(1)(i)(F), removing the word ``and'';
0
c. In paragraph (d)(1)(i)(G), removing the period and adding in its
place ``; and'';
0
d. Adding new paragraph (d)(1)(i)(H);
0
e. In paragraph (d)(2)(i), removing ``12 CFR 197.4'' and adding in its
place ``12 CFR 16.7'' and removing the word ``shall'' and adding in its
place the word ``may'';
0
f. In paragraph (d)(2)(ii), removing ``15 U.S.C. 77d(6)'' and adding in
its place ``15 U.S.C. 77b(a)(15);
0
g. In paragraph (e)(1) introductory text, removing the phrase ``notices
and'';
0
h. In paragraphs (e)(2) and (i), removing the phrase ``or notice''
wherever it appears; and
0
i. Revising paragraph (h).
The addition and revisions read as follows.
Sec. 5.56 Inclusion of subordinated debt securities and mandatorily
redeemable preferred stock as Federal savings association supplementary
(tier 2) capital.
* * * * *
(b) Application procedures--(1) Application to include covered
securities in tier 2 capital--(i) Application required. A Federal
savings association must file an application seeking the OCC's approval
of the inclusion of covered securities in tier 2 capital. The savings
association may file its application before or after it issues covered
securities, but may not include covered securities in tier 2 capital
until the OCC approves the application and the securities are issued.
(ii) Expedited review. The OCC is deemed to have approved an
application from an eligible savings association to include covered
securities in tier 2 capital upon the expiration of 30 days after the
filing date of the application unless, before the expiration of that
time period, the OCC notifies the Federal savings association that:
(A) Additional information is required to supplement the
application;
(B) The application has been removed from expedited review or the
expedited review process is extended under Sec. 5.13(a)(2); or
(C) The OCC denies the application.
(iii) Securities offering rules. A Federal savings association also
must comply with the securities offering rules at 12 CFR part 16 by
filing an offering circular for a proposed issuance of covered
securities, unless the offering qualifies for an exemption under that
part.
(2) Application required to prepay covered securities included in
tier 2 capital--(i) In general. A Federal savings association must file
an application to, and receive prior approval from, the OCC before
prepaying covered securities included in tier 2 capital. The
application must include:
(A) A statement explaining why the Federal savings association
believes that following the proposed prepayment the savings association
would continue to hold an amount of capital commensurate with its risk;
or
[[Page 80468]]
(B) A description of the replacement capital instrument that meets
the criteria for tier 1 or tier 2 capital under 12 CFR 3.20, including
the amount of such instrument and the time frame for issuance.
(ii) Replacement covered security. If the OCC conditions approval
of prepayment on a requirement that a Federal savings association must
replace the covered security with a covered security of an equivalent
amount that satisfies the requirements for tier 1 or tier 2 capital,
the savings association must file an application to issue the
replacement covered security and must receive prior OCC approval.
* * * * *
(d) * * *
(1) * * *
(i) * * *
(H) State that the security may be fully subordinated to interests
held by the U.S. government in the event that the savings association
enters into a receivership, insolvency, liquidation, or similar
proceeding;
* * * * *
(h) Issuance of a replacement regulatory capital instrument in
connection with prepaying a covered security. The OCC may require a
Federal savings association seeking prior approval to prepay a covered
security included in tier 2 capital to issue a replacement covered
security of an equivalent amount that qualifies as tier 1 or tier 2
capital under 12 CFR 3.20. If the OCC imposes such a requirement, the
savings association must complete the sale of such covered security
prior to, or immediately after, the prepayment.\5\
---------------------------------------------------------------------------
\5\ A Federal savings association may replace tier 2 capital
instruments concurrent with the redemption of existing tier 2
capital instruments.
---------------------------------------------------------------------------
* * * * *
0
45. Amend Sec. 5.58 by:
0
a. In paragraph (a), adding ``and'' before ``5412(b)(2)(B)'';
0
b. Revising paragraph (d)(2) and removing paragraph (d)(3);
0
c. Revising paragraph (e) introductory text;
0
d. In paragraph (e)(1), removing the word ``state'' wherever it appears
and adding in its place the word ``State'';
0
e. Revising paragraphs (e)(2) through (4);
0
f. Revising paragraph (f)(1);
0
g. Redesignating paragraph (f)(2) as paragraph (f)(3) and revising
newly redesignated paragraph (f)(3);
0
h. Adding a new paragraph (f)(2);
0
i. Redesignating paragraphs (g) through (i) as paragraphs (h) through
(j), respectively and adding new paragraph (g);
0
j. In the heading of redesignated paragraph (h), removing the word
``entities'' and adding in its place the word ``enterprises'';
0
k. In redesignated paragraph (h) introductory text, removing the word
``entity'' and adding in its place the word ``enterprise'';
0
l. In redesignated paragraph (h)(1), removing the phrase ``paragraph
(g)(1)(i)'' wherever it appears and adding in its place the phrase
``paragraph (h)(1)'';
0
m. In redesignated paragraph (i)(3), removing the word ``non-
controlling'' and adding in its place the word ``pass-through''; and
0
n. Revising redesignated paragraph (j).
The additions and revisions read as follows.
Sec. 5.58 Pass-through investments by a Federal savings association.
* * * * *
(d) * * *
(2) Pass-through investment means an investment authorized under 12
CFR 160.32(a). A pass-through investment does not include a Federal
savings association holding interests in a trust formed for the
purposes of securitizing assets held by the savings association as part
of its business or for the purposes of holding multiple legal titles of
motor vehicles or equipment in conjunction with lease financing
transactions.
(e) Pass-through investments; notice procedure. Except as provided
in paragraphs (f) through (i) of this section, a Federal savings
association may make a pass-through investment, directly or through its
operating subsidiary, in an enterprise that engages in an activity
described in Sec. 5.38(f)(5) or in an activity that is substantively
the same as a previously approved activity by filing a written notice.
The Federal savings association must file this written notice with the
appropriate OCC licensing office no later than 10 days after making the
investment. The written notice must:
* * * * *
(2) State:
(i) Which paragraphs of Sec. 5.38(f)(5) describe the activity; or
(ii) If the activity is substantively the same as a previously
approved activity:
(A) How, the activity is substantively the same as a previously
approved activity;
(B) The citation to the applicable precedent; and
(C) That the activity will be conducted in accordance with the same
terms and conditions applicable to the previously approved activity;
(3) Certify that the Federal savings association is well
capitalized and well managed at the time of the investment;
(4) Describe how the Federal savings association has the ability to
prevent the enterprise from engaging in an activity that is not set
forth in Sec. 5.38(f)(5) or not contained in published OCC (including
published former OTS) precedent for previously approved activities, or
how the savings association otherwise has the ability to withdraw its
investment;
* * * * *
(f) * * * (1) In general. A Federal savings association must file
an application and obtain prior approval before making or acquiring,
either directly or through an operating subsidiary, a pass-through
investment in an enterprise if the pass-through investment does not
qualify for the notice procedure set forth in paragraph (e) of this
section because the savings association is unable to make the
representation required by paragraph (e)(2) or the certification
required by paragraphs (e)(3) or (e)(7) of this section. The
application must include the information required in paragraphs (e)(1)
and (e)(4) through (e)(6) of this section and, if possible, paragraphs
(e)(2), (e)(3), and (e)(7) of this section. If the Federal savings
association is unable to make the representation set forth in paragraph
(e)(2) of this section, the savings association's application must
explain why the activity in which the enterprise engages is a
permissible activity for a Federal savings association and why the
filer should be permitted to hold a pass-through investment in an
enterprise engaged in that activity. A Federal savings association may
not make a pass-through investment if it is unable to make the
representations and certifications specified in paragraphs (e)(1) and
(e)(4) through (e)(6) of this section.
(2) Expedited review. An application submitted by a Federal savings
association is deemed approved by the OCC as of the 10th day after the
application is received by the OCC if:
(A) The Federal savings association makes the representation
required by paragraph (e)(2) and the certification required by
paragraph (e)(3) of this section;
(B) The book value of the Federal savings association's pass-
through investment for which the application is being submitted is no
more than 1% of the savings association's capital and surplus;
(C) No more than 50% of the enterprise is owned or controlled by
banks or savings associations subject to examination by an appropriate
Federal banking agency or credit unions insured by the National Credit
Union Association; and
[[Page 80469]]
(D) The OCC has not notified the Federal savings association that
the application has been removed from expedited review, or the
expedited review process is extended, under Sec. 5.13(a)(2).
(3) Investments requiring a filing under 12 U.S.C. 1828(m).
Notwithstanding any other provision in this section, if an enterprise
in which a Federal savings association proposes to invest would be a
subsidiary of the Federal savings association for purposes of 12 U.S.C.
1828(m) and the enterprise would not be an operating subsidiary or a
service corporation, the Federal savings association must file an
application with the OCC under paragraph (f)(3) of this section at
least 30 days prior to making the investment and obtain prior approval
from the OCC before making the investment. The application must include
the information required in paragraphs (e)(1) and (e)(4) through (e)(6)
of this section and, if possible, paragraphs (e)(2), (e)(3), and (e)(7)
of this section. If the Federal savings association is unable to make
the representation set forth in paragraph (e)(2) of this section, the
savings association's application must explain why the activity in
which the enterprise engages is a permissible activity for a Federal
savings association and why the filer should be permitted to hold a
pass-through investment in an enterprise engaged in that activity. A
Federal savings association may not make a pass-through investment if
it is unable to make the representations and certifications specified
in paragraphs (e)(1) and (e)(4) through (e)(6) of this section.
(g) Pass-through investments; no application or notice required. A
Federal savings association may make or acquire, either directly or
through an operating subsidiary, a pass-through investment in an
enterprise, without an application or notice to the OCC, if:
(i) The activities of the enterprise are limited to those to
activities previously reported by the savings association in connection
with the making or acquiring of a pass-through investment;
(ii) The activities in the enterprise continue to be legally
permissible for a Federal savings association;
(iii) The savings association's pass-through investment will be
made in accordance with any conditions imposed by the OCC or OTS in
approving any prior pass-through investment conducting these
activities;
(iv) The savings association is able to make the representations
and certifications specified in paragraphs (e)(3) through (e)(7) of
this section; and
(v) The enterprise will not be a subsidiary for purposes of 12
U.S.C. 1828(m).
* * * * *
(j) Exceptions to rules of general applicability. Sections 5.8,
5.9, 5.10, and 5.11 do not apply to this section. However, if the OCC
concludes that an application presents significant or novel policy,
supervisory, or legal issues, the OCC may determine that some or all
provisions in Sec. Sec. 5.8, 5.9, 5.10, and 5.11 apply.
* * * * *
0
46. Amend Sec. 5.59 by:
0
a. In paragraph (a), removing ``1464'' and adding in its place
``1464(c)(4)(B)'' and adding ``and'' before ``5412(b)(2)(B);
0
b. In paragraph (b) introductory text, adding ``(12 U.S.C. 1828(m))''
after the phrase ``Insurance Act'';
0
c. In paragraph (d)(2), removing the phrase ``generally accepted
accounting principles (GAAP)'' and adding in its place the word
``GAAP'';
0
d. In paragraphs (e)(1), (e)(2), (f)(6)(i), and (h)(1)(ii), removing
the word ``state'' and adding the word ``State'' wherever it appears;
0
e. In paragraph (e)(1), removing the phrase ``state-chartered'' and
adding in its place the phrase ``State-chartered'';
0
f. In paragraph (e)(4), removing the word ``HOLA'' and adding in its
place the phrase ``Home Owners' Loan Act, 12 U.S.C. 1464(c)'';
0
g. In paragraph (e)(9), removing the word ``shall'' and adding in its
place the word ``must'' wherever it appears;
0
h. In paragraph (g)(1), removing the word ``HOLA'' and adding in its
place the phrase ``Home Owners' Loan Act (12 U.S.C. 1464(c)(4)(B))'';
0
i. In paragraph (g)(1), removing ``Sec. 24.6 of this chapter'' and
adding in its place ``12 CFR part 24'';
0
j. In paragraph (g)(2), removing the phrase ``HOLA and parts 5 and 160
of this chapter'' and adding in its place the phrase ``Home Owners'
Loan Act (12 U.S.C. 1464(c)), this part 5, and 12 CFR part 160'';
0
k. In paragraph (g)(3), removing the word ``paragraph,'' and adding in
its place the phrase ``paragraph (g),'';
0
l. In paragraph (h)(1)(i) introductory text, adding the phrase ``(12
U.S.C. 1828(m))'' after the word ``Act'';
0
m. In paragraph (h)(1)(ii), removing the phrase ``an applicant'' and
adding in its place the phrase ``a filer'', and removing the word
``applicants'' and adding in its place the word ``filers'';
0
n. In paragraphs (h)(2)(i) and (h)(3), removing the word ``applicant''
and adding in its place the word ``filer'';
0
o. In paragraph (h)(2), removing the phrase ``is not eligible for
expedited review under 5.13(a)(2)'' and adding in its place the phrase
``has been removed from expedited review, or the expedited review
period is extended, under Sec. 5.13(a)(2)''
0
p. Revising paragraph (h)(2)(ii)(A); and
0
q. In paragraph (h)(2)(ii)(B), removing ``Sec. 5.59(f).'' and adding
in its place the phrase ``paragraph (f) of this section.''.
The revision reads as follows:
Sec. 5.59 Service corporations of Federal savings associations.
* * * * *
(h) * * *
(2) * * *
(ii) * * *
(A) The savings association is well capitalized and well managed;
and
* * * * *
Sec. 5.62 [Amended]
0
47. Section 5.62 is amended by removing the word ``shall'' and adding
in its place the word ``must''.
Sec. 5.64 [Amended]
0
48. Section 5.64 is amended by:
0
a. In paragraph (c)(2)(i), removing the word ``shall'' and adding in
its place the word ``does'';
0
b. In paragraph (c)(2)(iii), removing the phrase ``paragraph (c)(2)''
and adding in its place the phrase ``paragraphs (c)(2)(i) and
(c)(2)(ii)'' and removing the phrase ``shall apply'' and adding in its
place the word ``applies'';
0
c. In paragraph (c)(3), removing the phrase ``paragraph (c)'' and
adding in its place the phrase ``paragraphs (c)(1) and (c)(2)'' and
removing the word ``shall'' and adding in its place the word ``must'';
and
0
d. Removing paragraph (d).
0
49. Revise Sec. 5.66 to read as follows.
Sec. 5.66 Dividends payable in property other than cash.
In addition to cash dividends, directors of a national bank may
declare dividends payable in property, with the approval of the OCC. A
national bank must submit a request for prior approval of a noncash
dividend to the appropriate OCC licensing office. The dividend is
equivalent to a cash dividend in an amount equal to the actual current
value of the property, regardless of whether the book value is higher
or lower under GAAP. Before the dividend is declared, the bank should
show the difference between actual value and book value on the books of
the national bank as a gain or loss, as applicable, and the dividend
should then be declared in the amount of the actual current value of
the property being distributed.
[[Page 80470]]
0
50. Revise Sec. 5.67 to read as follows.
Sec. 5.67 Fractional shares.
A national bank issuing additional stock may adopt arrangements to
preclude the issuance of fractional shares. The bank may remit the cash
equivalent of the fraction not being issued to those to whom fractional
shares would otherwise be issued. The cash equivalent is based on the
market value of the stock, if there is an established and active market
in the national bank's stock. In the absence of such a market, the cash
equivalent is based on a reliable and disinterested determination as to
the fair market value of the stock if such stock is available. The bank
may propose an alternate method in the application for the stock
issuance filed with the OCC.
0
51. Amend Sec. 5.70 by:
0
a. In paragraphs (c)(1)(iv) and (c)(1)(v), removing the word ``state''
and adding in its place the word ``State'' wherever it appears;
0
b. In paragraph (d)(1) and paragraph (d)(2) introductory text, removing
the word ``shall'' and adding in its place the word ``must'' wherever
it appears; and
0
c. Adding new paragraph (d)(3).
The addition reads as follows.
Sec. 5.70 Federal branches and agencies.
* * * * *
(d) * * *
(3) Biographical and Financial Reports. The OCC may require any
senior executive officer of a Federal branch or agency submitting a
filing to submit an Interagency Biographical and Financial Report,
available at www.occ.gov, and legible fingerprints.
PART 7--ACTIVITIES AND OPERATIONS
0
52. The authority citation for part 7 continues to read as follows:
Authority: 12 U.S.C. 1 et seq., 25b, 29, 71, 71a, 92, 92a, 93,
93a, 95(b)(1), 371, 371d, 481, 484, 1463, 1464, 1465, 1818, 1828(m)
and 5412(b)(2)(B).
Sec. 7.2008 [Amended]
0
53. Amend Sec. 7.2008(c) by removing the phrase ``12 CFR 5.3(c)'' and
adding in its place the phrase ``12 CFR 5.3''.
Brian P. Brooks,
Acting Comptroller of the Currency.
[FR Doc. 2020-25595 Filed 12-10-20; 8:45 am]
BILLING CODE 4810-33-P
