Office of the Comptroller of the Currency, Treasury.
Notice of proposed rulemaking.
The Office of the Comptroller of the Currency (OCC) proposes to amend the formula it uses to assess independent credit card banks. A national bank is considered independent for purposes of this proposal if it engages primarily in credit card operations and is not affiliated with a full-service national bank. Under the revised assessment structure, all credit card banks would continue to be assessed based on balance sheet assets. Independent credit card banks would pay an additional assessment component based on the “receivables attributable” to credit card accounts owned by the bank. This additional assessment is intended to result in payment by these banks of a more appropriate share of the OCC's expenses than under the current book-asset assessment structure.
The OCC also proposes to raise the surcharge for all institutions with composite ratings of 3, 4, or 5 under the Uniform Financial Institutions Rating System (UFIRS) (also referred to as the CAMELS rating) and for Federal branches and agencies of foreign banks that receive a composite rating of 3, 4, or 5 under the ROCA rating system. This amendment will enable the OCC to allocate more equitably the expenses we incur in supervising institutions that are experiencing significant problems, which necessitate more extensive utilization of OCC resources. The ratings-based surcharge will apply to both the asset-based assessments and the independent credit card bank assessments. The proposal also applies the ratings-based surcharge to the independent trust bank assessment.
Comments must be received by May 4, 2001.
Comments should be directed to, and may be inspected and copied at: Communications Division, Office of the Comptroller of the Currency, 250 E Street, SW., Mailstop 1-5, Washington, DC 20219, Attention: Docket No. 01-05. In addition, comments may be sent via facsimile at (202) 874-4448 or via Internet at firstname.lastname@example.org.Start Further Info
FOR FURTHER INFORMATION CONTACT:
Mitchell E. Plave, Senior Attorney, Legislative and Regulatory Activities Division, (202) 874-5090; or Daniel L. Pearson, National Bank Examiner, Credit Risk, (202) 874-5170.End Further Info End Preamble Start Supplemental Information
The OCC charters, regulates, and supervises approximately 2,200 national banks and 58 Federal branches and agencies of foreign banks in the United States, accounting for nearly 60 percent of the nation's banking assets. Our mission is to ensure a safe, sound, and competitive national banking system that supports the citizens, communities, and economy of the United States.
The OCC funds the activities it undertakes to carry out this mission predominantly through assessments on institutions we regulate. The National Bank Act authorizes the OCC to collect assessments, fees, or other charges as necessary or appropriate to carry out the responsibilities of the OCC. 12 U.S.C. 482 (Supp. 1999). The statute requires that our charges be set to meet the Comptroller's expenses in carrying out authorized activities. Id. The OCC, under part 8, currently assesses national banks and Federal branches and agencies according to a formula based on factors such as a bank's size and condition and whether it is the “lead” bank or “non-lead” bank among national banks in a holding company. The OCC also imposes an additional assessment on independent trust banks based on the amount of trust assets they manage.
Independent Credit Card Banks
The OCC's assessment regulations do not currently distinguish independent credit card banks chartered by the OCC from other national banks. As a result, independent credit card banks pay assessments according to the same formula that applies to full-service national banks. That formula is comprised of a fixed component based solely on a bank's asset size plus a variable component derived by multiplying asset amounts in excess of certain thresholds by a series of declining marginal rates. The assessment amount that results from this computation may then be adjusted based on a bank's condition and on whether it is a “lead bank” or a “non-lead bank.” The amount of assets on a bank's balance sheet is, however, the most significant component of the current assessment computation.
The magnitude and complexity of the business of independent credit card banks is not fully reflected by the volume of assets reported on their balance sheets as of a particular date. For example, in order to comply with restrictions governing affiliate transactions, most private label credit card banks sell their receivables within twenty-four hours of their production. Other independent credit card banks regularly securitize substantial amounts of their receivables. A credit card bank's balance sheet, therefore, is not, by itself, a useful measure of the resources the OCC must expend to supervise this type of bank, nor is it a fair measure of the Start Printed Page 17822value of the national bank charter to the enterprise. As a result, the assessments the OCC currently applies to these banks do not represent the banks' fair share of the OCC's overall expenses. In contrast, credit card banks that are affiliated with full-service national banks typically already pay their fair share of the OCC's expenses when the organization is viewed as a whole. The OCC not only collects the book-asset based assessment from both the full-service and the credit card bank, but we also achieve efficiencies resulting from the coordinated supervision of the affiliated banks. The proposal would amend the OCC's assessment regulation to revise the formula for independent credit card banks to better align our assessment structure for these banks with the extent of the OCC's responsibilities and activities attributable to those banks.
Institutions With Composite Ratings of 3, 4, or 5 Under UFIRS or ROCA
The OCC adds a surcharge to the asset-based assessment for national banks and Federal branches and agencies that have composite ratings of 3, 4, or 5 under UFIRS (also referred to as the CAMELS rating)  or ROCA  , as appropriate. This surcharge reflects the greater supervisory resources demanded by the circumstances of these lower-rated institutions. The OCC's experience since 1997, when we introduced the surcharge, has shown that the current surcharge for these institutions does not adequately compensate the OCC for the additional demands on its resources given the substantial level of supervision these banks warrant. Therefore, the OCC proposes to raise the surcharge, commensurate with supervisory demands. The proposal differentiates between banks with UFIRS or ROCA ratings of 3 from those with ratings of 4 or 5, based on the comparative demands these institutions make on the OCC.
II. Discussion of the Proposal and Request for Comment
Independent Credit Card Bank Assessment
The proposal would amend 12 CFR 8.2 by adding a new paragraph (c) that increases assessments on independent credit card banks by adding an off-balance sheet “receivables attributable” component to the assessment structure for these banks. For purposes of this proposal, “independent credit card banks” are banks that primarily engage in credit card operations and are not affiliated with a full-service national bank. A bank will be considered “primarily engaged in credit card operations” if it is a bank described in section 2(c)(2)(F) of the Bank Holding Company Act (a so-called “CEBA credit card bank”), or if the ratio of its total gross receivables attributable to the bank's balance sheet assets exceeds 50%. A bank is a “full-service national bank” for purposes of this rule if more than 50% of its interest and non-interest income is generated by activities other than credit card operations or trust activities and the bank's charter permits it to conduct all authorized banking activities. The proposal uses the same test for affiliation (i.e., the definition of “affiliate” appearing in 12 U.S.C. 221a(b)) that was used in the recently adopted rule affecting independent trust banks.
“Receivables attributable” is the total amount of outstanding balances due on credit card accounts owned by an independent credit card bank (the receivables attributable to those accounts) on the last day of the assessment period. Receivables attributable is a measure of the volume of a credit card bank's business. Given that some credit card banks retain receivables on the bank's books, the proposal would allow independent credit card banks to deduct those on-book receivables from total gross receivables attributable in order to avoid assessing those assets twice. Independent credit card banks will report receivables attributable data to the OCC on a semiannual basis.
An independent credit card bank's assessment will be determined by adding to its book asset-based assessment an additional amount determined by its level of receivables attributable. The dollar amount of the additional assessment will be published each year in the Notice of Fees. The amounts of the additional assessment will be adjusted to reflect changes in the OCC's expenses. The OCC anticipates, however, that the initial semiannual charge to be paid in July, 2001, would be in the range of the following:
|If the bank's total off-balance sheet receivables attributable are||The additional semiannual assessment is Column C|
|Over Column A (million)||But less than Column B (million )|
Our supervisory experience indicates that an additional assessment component based on receivables attributable is appropriate because the volume of an independent credit card bank's off-balance sheet credit card business, together with the amount of its balance sheet assets, is a better indicator of the amount of resources expended by the OCC with respect to that bank than balance sheet assets alone.
We invite comment on an alternative to the receivables-attributable method that would be based on the transaction flow associated with a bank's credit card operations. “Transaction flow” means the total net amounts charged to cards issued by the bank during each semi-annual assessment period. Like receivables attributable, transaction flow is also a better measure of the volume and nature of an independent credit card bank's business than balance sheet assets as of a fixed date.
An assessment based on transaction flow would be calculated using the step approach we propose in this rule for receivables attributable—that is, the dollar amount of the additional assessment would be based on the amount of a bank's transaction flow. The transaction flow amounts would be set to recover an appropriate share of the OCC's costs attributable to these banks and would be in addition to the assessment calculated on balance sheet assets under 12 CFR 8.2. The specific rate schedule for transaction flow would be adjusted annually to reflect changes in the OCC's expenses.
We invite comment on the relative merits of the transaction-flow and receivables-attributable methods as measures of the volume and likely complexity of an independent credit card bank's business. We also invite comment on whether the information needed to compute an assessment is easier for banks to obtain and report for one method rather than the other. The OCC currently does not gather data on either total transaction flow or receivables attributable from credit card Start Printed Page 17823banks. Our supervisory experience indicates, however, that independent credit card banks maintain receivables-attributable information in the ordinary course of business or that this information would be readily available to independent credit card banks for purposes of calculating the receivables-attributable assessment. Under the proposal, the OCC would collect receivables-attributable data on a regular basis. Commenters are invited to suggest ways of minimizing the reporting burden for either the receivable attributable approach or the transaction flow alternative.
Assessment Surcharge for Institutions With Composite UFIRS or ROCA Ratings of 3, 4, or 5
OCC data show that there is a significant increase in the supervisory demands on the OCC once an institution's composite UFIRS or ROCA rating moves from 1 or 2 to 3, 4, or 5. Since introducing the surcharge in 1997, we have found that the demand placed on the OCC by these lower-rated institutions is greater than was anticipated in 1997. Not only have the supervisory needs increased for institutions with a 3 rating, we have found they are even greater when institutions are rated 4 or 5. Accordingly, we propose to increase the surcharge for all lower-rated institutions.
The surcharge is to be applied to all components of an institution's assessment, not only the asset-based assessment. Thus, for instance, an independent credit card bank will calculate its asset-based component and receivables attributable component, add those two together, and multiply the sum by the amount of the ratings-based surcharge. An independent trust bank would follow the same method, using the managed assets component.
Under the proposal, banks with composite UFIRS or ROCA ratings of 3 will be assessed a surcharge of 50%; banks with composite ratings of 4 or 5 will be assessed a 100% surcharge. By linking assessments with the condition of the banks supervised, a greater proportion of increased OCC resources attributable to banks whose condition requires additional attention is funded by those banks, rather than by the national banking system as a whole. This proposed approach would enable the OCC's assessment revenue to expand or contract in a way that responds to the changing demands on the OCC.
III. Comment Solicitation
The OCC requests comment on all aspects of this proposal, as well as on alternatives to the proposal. We also ask for comment on the impact of this proposal on small independent credit card banks and on community banks. The OCC recognizes that these banks operate with more limited resources than larger institutions and may present a different risk profile. Thus, the OCC specifically requests comment on the impact of the proposal on small banks' and community banks' current resources, and whether the goals of the proposal could be achieved, for these banks, through an alternative approach.
Finally, the OCC requests comment on whether the proposal is written clearly and is easy to understand. Section 722 of the Gramm-Leach-Bliley Act requires each federal agency to use plain language in all proposed and final rules published after January 1, 2000. The OCC invites comment on how to make this rule clearer. For example, you may wish to discuss:
(1) Whether we have organized the material to suit your needs;
(2) Whether the requirements of the rule are clear; or
(3) Whether there is something else we could do to make the rule easier to understand.
IV. Regulatory Flexibility Act
Under the Regulatory Flexibility Act (RFA), the OCC must either provide an Initial Regulatory Flexibility Analysis (IRFA) with a proposed rule or certify that the rule would not have a significant economic impact on a substantial number of small entities. For purposes of this Regulatory Flexibility Analysis and proposed regulation, the OCC defines “small independent credit card banks” to be those banks with less than $100 million in total assets.
What follows is an IRFA that addresses the increase in the lower-rated bank surcharge and invites the public's comments on the propose rule's impact on small entities. With respect to the increase in assessments for independent credit card banks, however, the OCC certifies that the proposed rule will not have a significant economic impact on a substantial number of small entities. The basis for this conclusion is that the rule will apply to a very small portion of national banks. The final rule will affect only nineteen small independent credit card banks, representing less than 1% of all national banks. The OCC does not believe this to be a substantial number of small entities.
A. Reasons for and Objectives of the Proposed Rule; Legal Basis for the Rule
The National Bank Act authorizes the OCC to collect assessments, fees, or other charges as necessary or appropriate to carry out the responsibilities of the OCC. 12 U.S.C. 482 (Supp. 1999). The OCC adds a surcharge to the asset-based assessment for national banks and Federal branches and agencies that have composite ratings of 3, 4, or 5 under UFIRS or ROCA. This surcharge reflects the greater OCC supervisory resources warranted by lower-rated institutions. We propose an increase in the surcharge because OCC's experience is that the current surcharge does not adequately compensate the OCC for the OCC's supervision of lower rated-institutions.
B. Requirements of the Proposed Rule; Effect on Small Businesses
The proposed rule would require that lower-rated banks, specifically those with UFIRS or ROCA ratings of 3, 4, or 5, pay a surcharge on their base assessments. The surcharge would be a percentage of the base assessment. Thus, for instance, a bank would calculate its asset-based component and, in the case of independent credit card or independent trust banks its separate component for receivables attributable and managed assets; add those components together; and then multiply the sum by the amount of the ratings-based surcharge.
Under the proposal, banks with composite UFIRS or ROCA ratings of 3 will be assessed a surcharge of 50%; banks with composite ratings of 4 or 5 will be assessed a 100% surcharge. For example, a bank with $100 million in book assets would pay a base assessment of $39,340. If it is a 3-rated bank, it would add to that base amount $19,670 (50% of base). If the bank is a 4 or 5-rated institution, it would pay a surcharge of $39,340 (100%). A bank would not pay a surcharge once it moves into one of the upper two ratings.
C. Alternatives to the Proposed Rule
As discussed supra, by statute, the OCC funds its operations through assessments on national banks and Federal branches and agencies. Therefore, there are no alternatives to charging banks an assessment to meet Start Printed Page 17824our supervisory responsibilities. The OCC sets assessments that reflect the nature of those responsibilities. At present, there is an imbalance in the surcharge between the level of our supervision of lower-rated banks and their contributions to the overall assessment pool—the current surcharge passes the burden of supervision beyond lower-rated institutions to better rated banks that consume far fewer OCC resources. The OCC considered the alternative of leaving the surcharge in place, but does not view that as appropriate, given the elevated level of supervisory attention required for these institutions.
V. Paperwork Reduction Act
For purposes of compliance with the Paperwork Reduction Act of 1995, 44 U.S.C. 3501 et seq., the OCC invites comment on:
(1) Whether the proposed collection of information contained in this notice of proposed rulemaking is necessary for the proper performance of the OCC's functions, including whether the information has practical utility;
(2) The accuracy of the OCC's estimate of the burden of the proposed information collection;
(3) Ways to enhance the quality, utility, and clarity of the information to be collected;
(4) Ways to minimize the burden of the information collection on the respondents, including the use of automated collection techniques or other forms of information technology; and
(5) Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information.
Respondents are not required to respond to this collection of information unless the final regulation displays a currently valid OMB control number. The collection of information requirements contained in this notice of proposed rulemaking have been submitted to the Office of Management and Budget for review under emergency processing procedures. The OCC is requesting OMB clearance by May 4, 2001. Comments on the collection of information should be sent to the Office of Information and Regulatory Affairs, Office of Management and Budget, Paperwork Reduction Project Number 1557-to be assigned, Washington, D.C. 20503, with copies to Jessie Dunaway, Legislative and Regulatory Activities Division, Office of the Comptroller of the Currency, 250 E Street, SW., Mailstop 8-4, Washington, DC 20219.
The information collection requirements contained in 12 CFR part 8 are contained in section 8.2(c). Under this section, the proposed regulation would require national banks to provide the OCC with “receivables-attributable” and, as an alternative, “transaction-flow” data from independent credit card banks, meaning national banks that primarily engage in credit card operations and are not affiliated with a full service national bank. “Receivables attributable” are the total amount of outstanding balances due on credit card accounts owned by an independent credit card bank (the receivables attributable to those accounts) on the last day of an assessment period. “Transaction flow” is the total net amount charged to credit cards issued by a bank during each semi-annual assessment period.
The OCC is contemplating amending its assessment regulation to increase the assessments on independent credit card banks, basing the increase either on receivables attributable or transaction flow. The OCC has data sufficient to establish an initial rate that independent credit card banks would pay under a formula based on receivables attributable. If the OCC chooses to adopt the transaction-flow method, however, it will need data to set the initial rate. Even if the OCC adopts the receivables-attributable method, the OCC will need receivables attributable information semiannually to refine the assessment formula as time goes on.
Estimated Number of Respondents: 35.
Estimated Total Annual Responses: 2.
Frequency of Response: Semiannually.
Estimated Hours per Response: 1 hour.
Estimated Annual Burden: 70 burden hours.
Estimated Number of Respondents: 35.
Estimated Total Annual Responses: 2.
Frequency of Response: Semiannually.
Estimated Hours per Response: 2 hours.
Estimated Annual Burden: 140 burden hours.
Total Estimated Annual Burden: 210 burden hours.
VI. Executive Order 12866
The OCC has determined that this proposal is not a significant regulatory action under Executive Order 12866.
VII. Unfunded Mandates Reform Act of 1995
Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L. 104-4 (2 U.S.C. 1532) (Unfunded Mandates Act), requires that an agency prepare a budgetary impact statement before promulgating any rule likely to result in a federal mandate that may result in the expenditure by state, local, and tribal governments, in the aggregate, or by the private sector of $100 million or more in any one year. If a budgetary impact statement is required, section 205 of the Unfunded Mandates Act also requires an agency to identify and consider a reasonable number of regulatory alternatives before promulgating a rule. The OCC has determined that the proposed rule will not result in expenditures by state, local, and tribal governments, or by the private sector, of $100 million or more in any one year. Accordingly, this rulemaking requires no further analysis under the Unfunded Mandates Act.Start List of Subjects
List of Subjects in 12 CFR Part 8End List of Subjects
Authority and Issuance
For the reasons set forth in the preamble, the OCC proposes to amend part 8 of chapter I of title 12 of the Code of Federal Regulations as follows:Start Part
PART 8—ASSESSMENT OF FEES; NATIONAL BANKS; DISTRICT OF COLUMBIA BANKS
1. The authority citation for part 8 continues to read as follows:
2. In § 8.2:
A. Paragraphs (a)(7) and (b)(5) are removed; and
B. New paragraphs (c) and (d) are added to read as follows:
(c) Additional assessment for independent credit card banks. (1) General rule. In addition to the assessment calculated according to § 8.2(a), each independent credit card bank will pay an assessment based on receivables attributable to credit card accounts owned by the bank. This assessment will be computed by adding to its book asset-based assessment an additional amount determined by its level of receivables attributable. The dollar amount of the additional assessment will be published each year in the “Notice of Comptroller of the Start Printed Page 17825Currency Notice of Fees,” described at § 8.8 of this part.
(2) Credit card banks affiliated with full-service national banks. The OCC will assess an independent credit card bank in accordance with paragraph (c)(1) of this section, notwithstanding that the bank is affiliated with a full-service national bank, if the OCC concludes that the affiliation is intended to evade the assessment regulation.
(3) Definitions. For purposes of paragraph (c) of this section, the following definitions apply:
(i) Affiliate has the same meaning as this term has in 12 U.S.C. 221a(b).
(ii) Engaged primarily in card operations means a bank described in section 2(c)(2)(F) of the Bank Holding Company Act (12 U.S.C. 1841(c)(2)(F)) or whose ratio of total gross receivables attributable to the bank's balance sheet assets exceeds 50%.
(iii) Full-service national bank is a national bank that generates more than 50% of its interest and non-interest income from activities other than credit card operations or trust activities and is authorized according to its charter to engage in all types of permissible banking activities.
(iv) Independent credit card bank is a national bank that engages primarily in credit card operations and is not affiliated with a full-service national bank.
(v) Receivables attributable is the total amount of outstanding balances due on credit card accounts owned by an independent credit card bank (the receivables attributable to those accounts) on the last day of the assessment period, minus receivables retained on the bank's balance sheet as of that day.
(4) Reports of receivables attributable. Independent credit card banks will report receivables attributable data to the OCC semiannually when specified by the OCC.
(d) Subject to any limit that the OCC prescribes in the Notice of the Comptroller of the Currency Fees, the OCC shall apply a surcharge to the semiannual assessment computed in accordance with paragraphs (a) through (c) of this section. This surcharge will be determined by multiplying the semiannual assessment computed in accordance with paragraphs (a) through (c) of this section by—
(1) 1.5, in the case of any bank that receives a composite rating of 3 under the Uniform Financial Institutions Rating System (UFIRS) and any Federal branch or agency that receives a composite rating of 3 under the ROCA rating system (which rates risk management, operational controls, compliance, and asset quality) at its most recent examination; and
(2) 2.0, in the case of any bank that receives a composite UFIRS rating of 4 or 5 and any Federal branch or agency that receives a composite rating of 4 or 5 under the ROCA rating system at its most recent examination.
3. In § 8.6:
A. A new paragraph (c)(1)(iii) is added; and
B. Paragraphs (c)(3)(ii) and (iii) are redesignated as (c)(3)(iii) and (c)(3)(iv) and a new paragraph (c)(3)(ii) is added to read as follows:
(c) * * *
(1) * * *
(iii) Surcharge based on condition of the bank. Subject to any limit that the OCC prescribes in the Notice of the Comptroller of the Currency Fees, the OCC shall adjust the semiannual assessment computed in accordance with paragraphs (c)(1)(i) and (ii) of this section by multiplying that figure by 1.5 for each independent trust bank that receives a composite rating of 3 under the Uniform Financial Institutions Rating System (UFIRS) at its most recent examination and by 2.0 for each bank that receives a composite UFIRS rating of 4 or 5 at such examination.
(3) * * *
(ii) Full-service national bank is a national bank that generates more than 50% of its interest and non-interest income from activities other than credit card operations or trust activities and is authorized according to its charter to engage in all types of permissible banking activities.
Dated: March 26, 2001.
John D. Hawke, Jr.,
Comptroller of the Currency.
1. A “lead bank” is the largest national bank controlled by a company, based on a comparison of the total assets held by each national bank controlled by that company as reported in each bank's most recent Consolidated Report of Condition (Including Domestic and Foreign Subsidiaries) (Call Report). 12 CFR 8.2(a)(6)(ii)(A).Back to Citation
2. 65 FR 75859 (December 5, 2000), to be codified at 12 CFR 8.6(c). An “independent trust bank” for purposes of § 8.6 is a national bank that (a) has trust powers, (b) does not primarily offer full-service banking, and (c) is not affiliated with a full-service national bank. A bank will be considered as not primarily offering full-service banking if it derives more than 50 percent of its interest and non-interest income from credit card operations or trust activities, or the terms of the bank's charter restrict its ability to engage in a full range of permissible banking activities.Back to Citation
3. The assessment formula is set out at 12 CFR 8.2. The elements of the formula, including the marginal rates, may change from year to year and are announced in the OCC's annual “Notice of Comptroller of the Currency Fees” (Notice of Fees). See 12 CFR 8.8.Back to Citation
4. CAMELS is an acronym that stands for capital, assets, management, earnings, liquidity, and sensitivity to market risk.Back to Citation
5. The ROCA rating system rates risk management, operational controls, compliance, and asset quality.Back to Citation
7. See Charters, Corporate Manual at 21-22 (1998) (describing credit card banks).Back to Citation
8. See 12 U.S.C. 1841(c)(2)(F) (excluding from the definition of the term “bank” in the Bank Holding Company Act (BHCA) an institution that engages only in credit card operations and satisfies certain other conditions). This provision was added to the BHCA by the Competitive Equality Banking Act of 1987.Back to Citation
9. This definition also applies for purposes of the independent trust bank rule. See supra, note 4.Back to Citation
12. The proposed regulation text permits the OCC to limit the amount of the surcharge. We currently contemplate, for example, that lower-rated full-service national banks would pay a surcharge only on the first $20 billion in book assets. The OCC will publish this limit and any similar limit that may apply to surcharges on lower-rated independent credit card or independent trust banks in the Notice of the Comptroller of the Currency Fees.Back to Citation
[FR Doc. 01-8204 Filed 4-3-01; 8:45 am]
BILLING CODE 4810-33-P