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Proposed Rule

Integration of National Bank and Federal Savings Association Regulations: Licensing Rules

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AGENCY:

Office of the Comptroller of the Currency, Treasury.

ACTION:

Notice of proposed rulemaking.

SUMMARY:

The Office of the Comptroller of the Currency (OCC) is proposing to integrate its rules relating to policies and procedures for corporate activities and transactions involving national banks and Federal savings associations, to revise some of these rules in order to eliminate unnecessary requirements consistent with safety and soundness, and to make other technical and conforming changes. The OCC also is proposing amendments to update its rules for agency organization and function.

DATES:

Comments must be received on or before August 11, 2014.

ADDRESSES:

You may submit comments to the OCC by any of the methods set forth below. Paper mail in Washington, DC and at the OCC may be subject to delay, however, and the OCC encourages commenters to submit comments through the Federal eRulemaking Portal or by email. For comments submitted to the OCC, please use the title “Integration of National Bank and Savings Association Regulations: Licensing Rules” to facilitate the organization and distribution of these comments.

  • Federal eRulemaking Portal: Go to www.regulations.gov, enter “Docket ID OCC-2014-0007” in the Search Box, and click “Search”. You can filter results by using the filtering tools on the left side of the screen. Click on “Comment Now” to submit public comments. Alternatively, click on the “Help” tab on the site's home page to get information on using this site, including instructions for submitting public comments.
  • Email: Submit comments at regs.comments@occ.treas.gov.
  • Paper Mail: Legislative and Regulatory Activities Division, Office of the Comptroller of the Currency, 400 7th Street SW., Suite 3E-218, Mail Stop 9W-11, Washington, DC 20219.
  • Hand Delivery/Courier: 400 7th Street SW., Suite 3E-218, Mail Stop 9W-11, Washington, DC 20219.
  • Fax: (571) 465-4326.

Instructions: Include “OCC” as the agency name and “Docket ID OCC-2014-0007” in each comment. In general, the OCC will enter each comment received into the docket and publish each comment on the Regulations.gov Web site without change, including any business or personal information, name and address, email addresses, and phone numbers. Comments received, including attachments and other supporting material, are part of the public record and subject to public disclosure. Do not enclose any information in a comment or supporting material that is confidential or inappropriate for public disclosure.

You may review all comments received by the OCC and related materials by the following methods:

  • Viewing Comments Electronically: Go to www.regulations.gov, enter “Docket ID OCC-2014-0007” in the Search box, and click “Search”. Comments can be filtered using the filtering tools on the left side of the screen. Alternatively, click on the “Help” tab on the site's home page to get information on using this site, including instructions for viewing public comments, other supporting and related material, and the complete docket after the close of the comment period.
  • Viewing Comments in Person: You may inspect and photocopy comments in person at the OCC, 400 7th Street SW., Washington, DC 20219. For security reasons, you first must call (202) 649-6700 to make an appointment. Upon arrival at the OCC, you must present a valid government-issued photo identification and submit to a security screening.
  • Docket: You may also view or request available background documents and project summaries using the methods described above.
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FOR FURTHER INFORMATION CONTACT:

For additional information, contact Heidi Thomas, Special Counsel; Melissa Lisenbee, Law Clerk; or Stuart Feldstein, Director, Legislative and Regulatory Activities Division, (202) 649-5490, for persons who are deaf or hard of hearing, TTY, (202) 649-5597; or Kevin Corcoran, Assistant Director, or Richard Cleva, Senior Counsel, Bank Activities and Structure, (202) 649-5500, or Stephen Lybarger, Deputy Comptroller for Licensing, (202) 649-6319, Office of the Comptroller of the Currency, 400 7th Street SW., Washington, DC 20219.

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SUPPLEMENTARY INFORMATION:

I. Background

Title III of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), Public Law 111-203, 124 Stat. 1376 (2010), transferred to the OCC all functions of the former Office of Thrift Supervision (OTS) and the Director of the OTS relating to Federal savings associations. As a result, the OCC is now responsible for the ongoing examination, supervision, and regulation of Federal savings associations, in addition to national banks and Federal branches and agencies. With a few exceptions, the OCC has one set of rules applicable to national banks and another set of rules applicable to Federal savings associations, or, where appropriate, to all savings associations.[1] The OCC is now reviewing its rules to determine whether it is appropriate to integrate them into a single set of rules for both national banks and savings associations, taking into account consistency with the underlying statutes that apply to each type of institution. The key objectives of this review are to reduce regulatory duplication, promote fairness in supervision, eliminate unnecessary burden consistent with safety and soundness, and create efficiencies for both national banks and savings associations, as well as the OCC.[2] In Start Printed Page 33261addition, the OCC is in the latter stages of developing an electronic applications filing system capable of handling applications and other filings from both national banks and Federal savings associations. Accordingly, another important objective of this proposal is to complete the integration of our licensing rules expeditiously so that we can include these integrated rules in this new applications system.

Based on this review of our national bank and savings association rules, the OCC is proposing to integrate its rules relating to corporate activities and transactions involving national banks and Federal savings associations (licensing rules).[3] This integration would create, where possible, filing parity for all activities and transactions addressed in the OCC's licensing rules. The OCC believes that it is more equitable and efficient to have a single filing and review process for corporate activities and transactions of national banks and Federal savings associations.

II. Review Pursuant to the Economic Growth and Regulatory Paperwork Reduction Act of 1996

The OCC also will be participating in an interagency review of regulations pursuant to section 2222 of the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA).[4] EGRPRA requires the Federal Financial Institutions Examination Council (FFIEC) and the OCC, the FDIC, and the Board of Governors of the Federal Reserve System (Federal Reserve Board) (collectively, the Agencies) to conduct a review of all their regulations to identify outdated, unnecessary, or unduly burdensome regulations applicable to insured depository institutions. The FFIEC and the Agencies must conduct this review at least once every 10 years, and the next review must be completed by December 31, 2016. Over the next two years the OCC, FDIC and Federal Reserve Board will issue joint notices requesting comments on their rules pursuant to EGRPRA. The EGRPRA contemplates that the Agencies will initiate appropriate rulemakings to change or eliminate outdated, unnecessary, or unduly burdensome rules, as appropriate, based on the comments received.

The Agencies published the first EGRPRA notice on June 4, 2014.[5] This interagency notice requests comments on three categories of rules, including the Agencies' licensing rules. Thus, the timing of the OCC's licensing integration review and the EGRPRA review of licensing rules overlaps. To ensure that the OCC's final licensing rules take account of all comments we receive, the OCC will consider comments received on both this Notice of Proposed Rulemaking (NPRM) and this first EGRPRA notice when finalizing its licensing integration rule.

To minimize the potential for overlap and confusion going forward, and to afford the OCC the benefit of public comment through the EGRPRA process on potential ways to streamline and reduce burden for all of our rules, the OCC does not intend to publish further integration-specific proposals until the Agencies have completed the EGRPRA notice process. However, as has been the practice since the OCC assumed supervisory oversight of Federal savings associations, the OCC will continue to evaluate whether to integrate rules as they are otherwise revised (for example, as we did when amending the OCC's lending limits rules to conform to the Dodd-Frank Act).[6]

III. Overview of the Proposal

Part 5 sets forth the OCC's rules, policies and procedures for national bank corporate activities and transactions. Subpart A sets forth the generally applicable rules and procedures, while subparts B through D contain the rules for national bank initial activities, the expansion of activities, and other changes in activities and operations. Subpart E addresses a national bank's payment of dividends, and subpart F addresses Federal branches and agencies. The OCC's equivalent rules, policies and procedures for Federal savings associations are dispersed throughout parts 100-199, with the generally applicable rules and procedures in part 116. The OCC proposes to revise part 5 to include the rules applicable to Federal savings associations and, to the extent appropriate, to delete the corresponding provisions found in parts 100 through 199.

The proposal would consolidate most licensing provisions for Federal savings associations into the existing national bank rule in part 5 of the OCC's regulations and would eliminate parts 116, 146, 152, 159, 174 and the corresponding provision in parts 143, 144, 145, 150, 160, and 163. These combined rules would be as follows:

  • Rules of general applicability (subpart A)
  • Organizing a national bank or Federal savings association (§ 5.20)
  • Conversion from a national bank or Federal savings association (§ 5.25)
  • Fiduciary powers of national banks or Federal savings associations (§ 5.26)
  • Business combinations involving a national bank or Federal savings association (§ 5.33)
  • Bank service company investments of a national bank or Federal savings association (§ 5.35)
  • Investment in national bank or Federal savings association premises (§ 5.37)
  • Change in location of a main office of a national bank or home office of Federal savings association (§ 5.40)
  • Corporate title of a national bank or Federal savings association (§ 5.42)
  • Voluntary liquidation of a national bank or Federal savings association (§ 5.48)
  • Change in control of a national bank or Federal savings association; reporting of stock loans (§ 5.50)
  • Changes in directors and senior executive officers of a national bank or Federal savings association (§ 5.51)
  • Change of address of national bank or Federal savings association (§ 5.52)
  • Substantial asset change by a national bank or Federal savings association (§ 5.53)

In other cases, we propose separate rules for national banks and Federal savings association in part 5 because the rules do not apply to both charters, are better organized as separate rules, or because their differences and complexity make integration difficult. The new Federal savings association rules would be as follows:

  • Federal mutual savings association charters and bylaws (§ 5.21)
  • Federal stock savings association charters and bylaws (§ 5.22)
  • Conversion to become a Federal savings association (§ 5.23)Start Printed Page 33262
  • Establishment, acquisition, and relocation of a branch of a Federal savings association (§ 5.31)
  • Operating subsidiaries of a Federal savings association (§ 5.38)
  • Increases in permanent capital of a Federal savings association (§ 5.45)
  • Capital distributions by a Federal savings association (§ 5.55)
  • Inclusion of subordinated debt securities and mandatorily redeemable preferred stock as supplementary (tier 2) capital (§ 5.56)
  • Pass-through investments by a Federal savings association (§ 5.58)
  • Service corporations of a Federal savings association (§ 5.59)

The remaining rules in part 5 would continue to be applicable only to national banks, with the exception of subpart E. (Subpart E applies only to Federal branches and agencies, and we do not propose to amend it in this proposal.) We propose to revise some of these rules to be consistent with the changes proposed for Federal savings associations, revise the titles of some of these rules to reflect the inclusion of rules applicable to Federal savings associations in part 5, and to make other technical changes. These national bank-only rules would be as follows:

  • Establishment, acquisition, and relocation of a branch of a national bank (§ 5.30)
  • Expedited procedures for certain reorganizations of a national bank (§ 5.32)
  • Operating subsidiaries of a national bank (§ 5.34)
  • Other equity investments by a national bank (§ 5.36)
  • Financial subsidiaries of a national bank (§ 5.39)
  • Changes in permanent capital of a national bank (§ 5.46)
  • National bank subordinated debt as capital (§ 5.47)
  • Conversion to become a national bank (§ 5.24)
  • Payment of Dividends by National Banks, Subpart E

In addition to the placement and integration of Federal savings association rules, this proposal would make substantive changes to the OCC's licensing rules in order to eliminate unnecessary requirements or further the safe and sound operation of the institutions the OCC supervises. Furthermore, the proposal would make conforming and technical changes to the rules in parts 5, 7, and 34 and in various provisions of parts 100 through 199 to reflect the movement of the licensing rules for savings associations to part 5, to adjust section titles, and to conform cross-references. In particular, the OCC is proposing to replace, where appropriate, references to “bank” with “national bank,” the term that parallels “Federal savings association.” Finally, the proposal would amend the OCC's licensing rules to make consistent the OCC office to which a national bank or Federal savings association must file its notice or application. Specifically, the proposal would amend each rule in part 5 to direct such filings to the institution's appropriate OCC licensing office or appropriate OCC supervisory office, as applicable, and, in clarifying amendments, would update the description of the OCC's supervisory structure in part 4.

A detailed description of each amendment in this NPRM is set forth below in Section IV of the preamble. Section V of the preamble summarizes the significant changes for national banks and Federal savings associations that would result from this NPRM. Section VIII of the preamble contains a redesignation table that indicates changes in the numbering of the rules as proposed. Sections V and VIII may be used as a quick-reference guide to our rulemaking and are intended to assist national banks and Federal savings associations, especially community institutions, in understanding the changes we propose.

IV. Description of the Proposed Rule

A. Part 4—District Offices (§ 4.5)

Part 4 comprises regulations on a range of topics, including regulations pertaining to the OCC's organizational structure. Section 4.4 describes the role of the OCC's Washington office. Section 4.5 describes the role of the OCC's district and field offices and sets forth the address of, and the geographical area covered by, each district office. However, § 4.4 and § 4.5 do not completely describe all of the OCC's supervisory offices. The OCC proposes to amend 12 CFR part 4 by restructuring 12 CFR 4.5 to reflect more accurately the current supervisory structure for national banks and Federal savings associations. Specifically, the proposal revises § 4.5 to include a description and address of the OCC's Midsize Bank Supervision program, and to provide that the district offices supervise community banks not otherwise supervised by the Washington office or Midsize Bank Supervision. The proposal also replaces the outdated reference to “duty stations” with the currently used “field office satellite offices.”

B. Part 5—Rules, Policies, and Procedures for Corporate Activities Rules of General Applicability (Part 5, Subpart A)

Twelve CFR part 5, subpart A, and 12 CFR part 116 set forth the OCC's generally applicable rules and procedures for processing filings [7] related to corporate activities and transactions of national banks and Federal savings associations, respectively. Both sets of regulations include filing requirements and explain where and how to file. The OCC believes that it is more efficient to have a single filing process for national banks and Federal savings associations, where possible, and proposes to amend subpart A to apply to both sets of institutions and to remove part 116. The OCC also proposes additional substantive and technical subpart A changes, as explained below.

§ 5.2 Rules of General Applicability. Current rules differ with respect to the scope and applicability of the generally applicable licensing procedures for national banks and Federal savings associations. The national bank rule at 12 CFR 5.2(a) states that the subpart A procedures apply to all part 5 filings, unless otherwise stated.[8] Section 5.2(b) states that the OCC may adopt materially different procedures if it provides notice to affected parties. In contrast, the Federal savings association rule at § 116.1 states that the part 116 prefiling and filing procedures and the rules on OCC review apply to all required filings related to Federal savings associations, but that the publication requirements and the comment and meeting procedures apply only when an OCC regulation specifically incorporates these procedures or the OCC otherwise requires. Section 116.1(b) also specifies that part 116 does not apply to filings related to transactions under sections 13(c) or (k) of the Federal Deposit Insurance Act (FDI Act); [9] certain final agency action requests; certain requests related to litigation, enforcement proceedings, or supervisory directives or agreements; or applications filed Start Printed Page 33263under an OCC regulation that prescribes other application processing procedures and time frames.

As proposed, all subpart A procedures would apply to all part 5 OCC filings, unless the substantive rule specifically exempts the filing or the OCC states otherwise. This change would create filing parity for all national banks and Federal savings association activities and transactions addressed in proposed part 5. The effect of this change on a specific activity or transaction is discussed below, in the context of that activity or transaction.

Section 5.2(c) also states that the Comptroller's Licensing Manual (Manual) provides additional filing information and is available on-line and, for a fee, in print. The OCC proposes to revise this provision to state only that the Manual is available on-line. This proposed revision reflects the OCC's decision to stop printing the Manual in hard copy, in order to reduce paper consumption and to ensure that the public receives only the most up-to-date information. The OCC also is in the process of updating the Manual, as well as filing forms, to contain information on both national bank and Federal savings association filings. As indicated earlier in this preamble discussion, we also anticipate updating our electronic filing system so that a single system can receive filings from both national banks and Federal savings associations.

Finally, § 5.2(d) states that the OCC may permit electronic filing for any class of filings. In order to reflect the agency's move toward the more efficient and less costly electronic filings, we propose to revise this provision to state that the OCC encourages all filings to be made electronically.

§ 5.3 Definitions. Section 5.3 contains definitions of terms used throughout part 5. The OCC is proposing amendments to this section as part of the proposal to address both national bank and Federal savings association filings in part 5. For example, we propose to amend the definition of “capital and surplus” to include reference to Federal savings associations.[10]

The OCC also proposes to amend the § 5.3 definition of “eligible bank” to add “eligible savings associations.” Currently, an “eligible bank” is a national bank that (1) is well capitalized under the OCC's Prompt Corrective Action (PCA) regulations, (2) has a composite rating of 1 or 2 under the Uniform Financial Institutions Rating System (CAMELS), (3) has an “Outstanding” or “Satisfactory” CRA rating, and (4) is not subject to a cease and desist order, consent order, formal written agreement, or PCA directive, or, if it is, the OCC has informed the bank that it may nonetheless be treated as an “eligible bank.” Under certain of the substantive activity or transaction rules in part 5, an eligible bank may receive expedited review of a filing in the manner set out in the rule. Section 5.13(a)(2) sets out additional information about the expedited review process.

Part 116 also has an expedited review process for certain filings. Specifically, § 116.5 provides that a Federal savings association filing will receive expedited treatment unless: (1) It has a composite or compliance rating below 2 or a CRA rating of Needs to Improve or Substantial Noncompliance, (2) it fails any part 3 or 167 capital requirement, as applicable, and has been notified that it is in troubled condition,[11] (3) it does not have a composite, compliance, or CRA rating, or (4) the applicable regulation does not specifically state that expedited treatment is available.

The OCC proposes to amend § 5.3 by defining “eligible bank or eligible savings association” (instead of “eligible bank”) and by adding an OCC compliance rating of 1 or 2 to the eligibility requirements for all institutions. This proposal will create parity for all OCC filings with respect to the criteria that a filing must satisfy to receive expedited processing. Furthermore, because some limited purpose banks, such as trust banks, are not subject to the CRA, the proposal also would clarify that the CRA rating component applies only if the CRA is applicable to the institution.

The addition of the OCC compliance rating would be a change for national banks, but not for Federal savings associations. The OCC believes that a bank's compliance with statutes and regulations, particularly consumer-related laws, should be a factor imposed by regulation in determining whether a bank may qualify for expedited treatment. Furthermore, as explained in greater detail below, because § 5.13(a)(2) permits the OCC to remove a filing from expedited review if it raises certain issues, including compliance concerns,[12] this proposal would not be a significant change for national banks and would in fact provide more certainty regarding their eligibility for expedited review.

With respect to Federal savings associations, the proposal may result in changes for some filings because the criteria in §§ 5.3 and 116.5 are not identical. Under the current rules, the two tests are similar in that they both require a composite CAMELS rating of 1 or 2 and a CRA rating of outstanding or satisfactory. In addition, if an institution has not received a rating, it is not eligible for expedited treatment under either set of current rules and would remain ineligible under the proposed rule. However, there are some differences. The first difference involves the capital requirement. Under the current savings association rule, both well and adequately capitalized institutions are eligible for expedited treatment. Under the proposal, only savings associations that are well capitalized would qualify for expedited review. The OCC proposes to apply the well capitalized requirement to savings associations because, in the OCC's experience, national banks and Federal savings associations that are less than well capitalized are more likely than other institutions to present supervisory concerns such that expedited review is not necessarily appropriate. This requirement may exclude some savings associations that qualify for expedited treatment under the current rule.

A second difference involves the supervisory condition of the savings association. Under the current savings association rule, the institution must not have been notified it is in troubled condition, while under the proposal, an eligible savings association must not be subject to certain orders, agreements or directives. Although different, these supervisory condition tests generally should have similar outcomes.

The OCC also proposes to amend the definition of “eligible depository institution” to address the fact that either a national bank or a Federal savings association may enter into a transaction with an eligible depository institution, consistent with the changes proposed to 12 CFR 5.33 and discussed elsewhere in this rulemaking.

Another proposed change is to the § 5.3 definition of “notice.” Section 5.3 defines a notice as a submission informing the OCC that a national bank intends to engage in or has commenced certain corporate activities or Start Printed Page 33264transactions. Under § 5.3, an “application” is a submission requesting prior OCC approval to engage in various corporate activities and transactions. The two definitions suggest that a “notice” does not require OCC approval. However, the rules use the term “notice” in several different ways. In some rules, a “notice” is the same as an application in that the filer must obtain prior OCC approval before engaging in the activity or transaction. In other rules, a “notice” is similar to an application in that, while the OCC does not “approve” the filing, the OCC may disapprove it. In still other rules, the notice only informs the OCC that the filer intends to engage in or has engaged in a transaction. The OCC may review the notice, but there is no requirement of prior OCC approval. Some of the latter notices can be filed after-the-fact. We propose to add provisions to § 5.3(j) to clarify the scope of “notice,” as well as adding Federal savings associations to § 5.3(j).

The OCC also proposes to strike the § 5.3 definition of “appropriate district office” and, instead, to define “appropriate OCC licensing office” as described at OCC.gov and “appropriate OCC supervisory office” as described in subpart A of 12 CFR part 4. This change will eliminate confusion caused by the current definition with respect to where a filing should be made. Conforming changes are proposed throughout part 5.

Another proposed change is to the current definition of “short-distance relocation,” a term that is used in current national bank branch and main office relocations regulations.[13] The OCC proposes to amend this definition to reference both national bank main office relocations and Federal savings association home office relocations, consistent with the changes proposed in 12 CFR 5.40 and discussed elsewhere in this rulemaking.[14]

The current “short-distance relocation” definition also references whether a branch is located within a “central city of a MSA (metropolitan statistical area).” The Office of Management and Budget (OMB), which designates MSAs, uses the term “principal city” in describing MSAs.[15] The OCC proposes to amend its current rule to use the term “principal city,” thereby bringing the rule into conformity with the MSA terminology used by OMB. In addition, we propose to strike the § 5.3 definition of “central city” and add a definition of “principal city.” “Principal city” will be defined as an area designated as such by OMB. These changes have no material effect. Under this proposal, this definition will apply to Federal savings associations without any other change to the current regulatory language. The current Federal savings association regulation uses the term “principal city.”

Under this proposal, other definitions also will apply to Federal savings association filings without any language changes. These include the definitions of “applicant,” “application,” “depository institution,” and “filing.” Other non-substantive and technical changes are proposed to § 5.3. As noted above, the effect, if any, of a proposed § 5.3 change is discussed in the context of the substantive provision at issue.

§ 5.4 Filing required. Section 5.4(a) directs a depository institution to file an application or notice with the OCC to engage in national bank activities and transactions described in part 5. As a result of the other proposed changes to part 5, this directive would apply to Federal savings associations with respect to part 5 transactions and activities. No change is needed to the regulatory language in § 5.4 to achieve this result.

Section 5.4(b) states that forms and instructions for filings are available in the Manual or from an OCC district office. The OCC proposes to revise this section to reflect the fact that the Manual is now available only on-line. As noted above, the OCC will be updating this Manual and it will contain information on both national bank and Federal savings association filings.

Section 5.4(c) states that, at a filer's request, the OCC may accept another agency's form or filing if it contains substantially the same information required by the OCC. Section 116.25(c), which allows the OCC to waive certain filing requirements, has been used for this same purpose with respect to Federal savings association filings. Under proposed § 5.4(c), this option will remain available for both national banks and Federal savings associations with no changes to the regulatory text.

Section 5.4(d) directs a filer to submit a filing or other submission to the OCC's Director for District Licensing at the appropriate district office, unless directed otherwise in a pre-filing communication. For Federal savings associations, § 116.40(a) directs filings to the Director for District Licensing at the appropriate OCC licensing office or the OCC licensing office at OCC headquarters. In addition, under § 116.40(b), if a filing involves significant issues of law or policy, or if the applicable regulation or form so directs, the applicant must also file copies at the OCC headquarters licensing office.

As proposed, § 5.4(d) directs that part 5 filings and related submissions be addressed to the appropriate OCC licensing or appropriate OCC supervisory office (unless the OCC advises otherwise through a pre-filing communication) and states that the relevant addresses are on the OCC's Internet Web page, www.OCC.gov.

Furthermore, the OCC's current rules do not specify the number of copies of a filing that must be provided to the OCC. This information generally is stated on the form itself or in the Manual. In contrast, § 116.40(a) states that Federal savings association filers must submit to the appropriate licensing office or the OCC licensing office at headquarters the original form plus the number of copies specified on the application. If none is specified, § 116.40(a) directs applicants to submit the original plus two copies. The OCC is removing this requirement and, instead, directs Federal savings association filers to consult the appropriate form and the Manual for information on the number of required copies.

Section 5.4(e) permits an applicant to incorporate by reference relevant, current information contained in another OCC application or filing, provided that the material (1) is attached to the application, (2) is current, and (3) is responsive to the requested information. The filing must clearly indicate that the information is incorporated and include a cross-reference to the incorporated information. With respect to Federal savings association filings, § 116.25(c), which allows the OCC to waive certain filing requirements, is currently used to allow incorporation by reference. Moreover, the Federal savings association filing forms themselves typically provide for incorporating by reference other documents. As proposed, § 5.4(e) would apply to all filings with the OCC, without any change to the regulatory language and with no material change to affected institutions or persons.

Finally, § 116.15(b)(2) encourages all applicants to contact the appropriate OCC licensing office to determine whether the applicant must attend a prefiling meeting or whether the submission of a draft business plan or other information would expedite the application review process. Section 116.20 describes the required contents Start Printed Page 33265of a draft business plan.[16] In contrast, part 5, subpart A does not include rules on prefiling meetings, although specific activity or transaction rules may address these meetings,[17] and the OCC may request such a meeting on a case-by-case basis under § 5.2(b). Subpart A also does not address the submission of business plans to the OCC.

The OCC has found that prefiling meetings, as well as the submission of business plans or other information before such meetings, often result in a more efficient review process. In order to highlight this opportunity, the OCC proposes to revise subpart A by adding a new § 5.4(f) that encourages application filers to contact the OCC to determine the need for a prefiling meeting, regardless of whether a prefiling meeting is specifically required by another regulation. This new provision also states that the OCC will decide on a case-by-case basis whether a meeting is necessary and states that the prior submission of a draft business plan or other relevant information may expedite the process. Unlike part 116, however, the proposal does not specify what must be included in a draft business plan because the OCC does not believe that this level of detail is necessary in regulatory text. The proposed rule does note, however, that information on model business plans can be found in the Manual.

§ 5.5 Filing fees. Section § 5.5 states that an applicant shall submit filing fees in the form of a check made payable to the OCC. The rule also states that the OCC publishes a fee schedule annually and does not generally refund filing fees. Section 116.45(a)(3) addresses the payment of Federal savings association filings fees, directing applicants to submit fees to the appropriate OCC licensing office and permitting fees to be paid by check, money order, cashier's check, or wire transfer.

Under this proposal, § 5.5 will apply to all fees paid to the OCC and will be revised to state that fees may be paid by check, money order, cashier's check, or wire transfer. This statement is consistent with both the current Federal savings association rule and the OCC's ability to accept these forms of payment from all filers. The section also will state that additional filing fee information, including where to submit the fee, can be found in the Manual. Finally, as a technical amendment, the OCC proposes to remove the word “annually” from the § 5.5 description of when it publishes a fee schedule, to clarify that, as stated in 12 CFR 8.8, the OCC may publish an interim or amended filing fee schedule, in addition to its annual publication.

§ 5.7 Investigations. Section 5.7 states that the OCC may examine or investigate and evaluate facts related to a filing to the extent necessary to reach an informed decision. Section 116.230 has a somewhat narrower scope and time frame, providing that the OCC may conduct an eligibility examination at any time before it deems an application complete. As proposed, § 5.7 would apply to all filings received by the OCC, including those related to Federal savings associations, because the OCC believes that the more flexible approach in § 5.7 is preferable.

Section 5.7 also states that, as described in 12 CFR 8.6, the OCC has the authority to assess fees for special examinations and investigations. Section 8.6 is currently applicable to both national banks and Federal savings associations and related filings, as a result of the July 21, 2011 final rule,[18] discussed above. As a result, the application of § 5.7 under this proposal to Federal savings association filings will be a technical change only.

§ 5.8 Public notice. Under § 5.8(a), on the date of filing or as soon as practicable before or after filing, a national bank applicant shall publish a public notice in a general circulation newspaper in the community in which the applicant proposes to engage in business. The rules do not specify the language in which the notice must be published.

Under § 116.60, a Federal savings association applicant shall publish notice no earlier than seven days before and no later than the date of the filing. Under § 116.80, this notice must be published in an English-language newspaper unless the OCC determines that the primary language of a significant number of adult residents of the community is not English, in which case the agency may require the applicant simultaneously to publish one or more additional notices in the appropriate language or languages.

Under this proposal, § 5.8(a) would apply to all applicants. As a result, Federal savings associations would no longer have to publish a public notice within the seven days before the filing date but may publish as soon as practicable before or after filing, unless otherwise required.[19] This change would provide Federal savings association filers with the same flexibility that national bank filers have with respect to when to publish a public notice while still providing the public with timely notice.

In addition, the OCC proposes to add to § 5.8(a) the requirements in § 116.80 that notices must be published in English and, if the OCC determines it is necessary, also in other languages. As a result, national bank filers would be required to publish their notices in English and may be required simultaneously to publish in languages other than English, as is currently the case for Federal savings associations. This change will further ensure that interested persons have meaningful access to the § 5.8(a) notice.

Section 5.8(b) now states that a public notice must include: (1) A statement that a filing is being made, (2) the date of the filing, (3) the applicant's name, (4) the subject matter of the filing, (5) a statement that the public may submit comments to the OCC and where such comments should be sent, (6) the comment period closing date, and (7) any other information that the OCC requires. Section § 116.55 requires that similar, but not identical, information be included in a public notice.

The OCC proposes to revise § 5.8(b) to include Federal savings associations and to add some requirements to the notice included in § 116.55. As a result, in addition to what § 5.8(b) currently requires, a public notice related to a national bank filing also would be required to include (1) the name of the institution that is the subject of the filing, (2) a statement that the public portion of the filing is available on request, and (3) the address of the applicant. The public notice also would need to state that the public may submit comments to the appropriate OCC licensing office and provide the address of this office. A public notice related to a Federal savings association filing, in addition to the information currently required under § 116.55, also would need to include a specific statement that a filing is being made and the date of the filing. The OCC believes that proposed § 5.8(b) would provide the public with the full range of helpful information and treat all part 5 filings consistently, while requiring negligible additional work from filers. We also propose other minor technical changes to § 5.8(b).Start Printed Page 33266

Section 5.8(c) currently requires a filer to confirm that the § 5.8(a) notice has been published by delivering to the OCC a statement of the date of publication, the name and address of the paper in which notice was published, and a copy of the notice. Federal savings association filers are required to do the same, although this requirement is set forth on the application itself and not included in the regulatory text. The OCC proposes to apply § 5.8(c) to both national bank and Federal savings association filings pursuant to part 5.

Section 5.8(d) currently states that the OCC may consider more than one transaction, or a series of transactions, to be a single filing for purposes of the publication requirements of this section. When filing a single public notice for multiple transactions, the filer shall explain in the notice how the transactions are related. Although this is not specifically permitted under part 116, it has been an accepted practice for Federal savings association filings. Under this rulemaking, both national banks and Federal savings associations may continue to engage in this practice, which eliminates unnecessary publications while ensuring that the public's need for notice is met.

Under § 5.8(e), upon the request of an applicant for a transaction subject to a public notice requirement of both the OCC and another Federal agency, the OCC may accept publication of a single joint notice containing the information required by both the OCC and the other Federal agency, provided that the notice states that comments must be submitted to both the OCC and, if applicable, the other Federal agency. For example, a merger filing where there is an application to the OCC for approval of the merger and a filing with the FDIC for approval under the Bank Merger Act when the merger is between an insured national bank and an entity that is not FDIC-insured. Although there is no specific part 116 provision addressing this practice, the OCC has permitted such joint notices for Federal savings associations. As part of the integration of Federal savings associations into part 5, the OCC also will accept joint public notices for both national bank and Federal savings association transaction or activity applications. This provision would benefit filers and serve the public's needs.

Section 5.8(f) allows the OCC to require or give public notice and request comment on any filing and in any manner that it determines is appropriate for a particular filing. There is no specific equivalent to this provision in part 116. As part of this proposal, this provision would apply to both national banks and Federal savings association filings, allowing the OCC to ensure that the notice provided to the public is appropriate for each filing.

Finally, § 116.240(b) provides that, prior to the end of the applicable review period, if the OCC determines that an issue of law or change in circumstances has arisen that will substantially affect an application, it may require an applicant to publish, among other things, a new public notice. Although no specific national bank rule provides for this result, the OCC has a similar practice for national bank filings. In order to codify and clarify this practice, the OCC proposes to add a new § 5.8(g) that states that the OCC, at its discretion, may require an applicant to publish a new public notice if (1) the applicant submits either a revised filing or new or additional information related to a filing, (2) there is a major issue of law or a change in circumstances arises after a filing, or (3) the agency determines that a new public notice is appropriate. This provision does not represent a material change for either national bank or Federal savings association filers.

§ 5.9 Public availability. Section 5.9 addresses both access to the public portion of a filing and the confidential treatment that may be provided to certain information in a filing. Specifically, § 5.9(a) states that the OCC will provide a copy of the public portion of a pending filing in response to a written request made to the appropriate district office. A person may submit a written request to the OCC's Communication's Division for a copy of the public portion of a decided or closed application. In either case, the OCC may impose a fee for the copy. Section 5.9(b) explains that a public file consists of the portions of the filing, supporting data, supplementary information, and information submitted by interested persons to the extent that these items have not been afforded confidential treatment.

Section 5.9(c) addresses the confidential treatment of information included in a filing, explaining both that an applicant and an interested person submitting information may request that specific information be treated as confidential under the Freedom of Information Act (FOIA) (5 U.S.C. 552) and how to make this request. The provision also states that if the OCC does not consider the information to be confidential, the agency may include that information in the public portion of a filing after providing notice to the submitter. It also permits the OCC to determine, on its own initiative, that certain information should be treated as confidential and to withhold that information from the public file.

Section 116.35 addresses the public and confidential aspects of a Federal savings association filing. Paragraph (a) states that the OCC generally makes part 116 submissions available to the public but may keep portions confidential. Section 116.35(b) provides that an applicant may request confidential treatment of certain portions of a filing and explains specifically how to make this request. It also states that the OCC will not treat as confidential the portion of a filing that describes how an applicant plans to meet its CRA objectives and notes that the agency will advise an applicant before it makes information designated as confidential available to the public.

Under this proposal, § 5.9 would apply to all filings made pursuant to part 5, as revised. This revision is not intended to result in material changes for either national bank or Federal savings association filings. It should be noted that although § 5.9 does not explicitly address the OCC's treatment of filing information about how a filer plans to meet its CRA objectives, the OCC does not treat this information as confidential. The proposal contains other minor changes to §§ 5.9(a) and (c), including which OCC office a request should be submitted either to obtain the public portion of a decided or closed application or to withhold information from a public file.

§ 5.10 Comments. Section 5.10(a) provides that during the comment period, any person may submit a comment to the appropriate district office. Section 5.10(b)(1) provides that, unless otherwise stated, the comment period runs for 30 days after publication of the § 5.8(a) public notice. Under § 5.10(b)(2), the OCC may extend the comment period if an applicant either fails to file in a timely manner all required publicly available information or makes a request for confidential treatment that is not granted by the OCC and that delays the public availability of information. The comment period also may be extended to develop factual information needed to consider the application or if the OCC determines that other extenuating circumstances exist. In addition, the rule provides that the OCC may give an applicant an opportunity to respond to comments received during the comment period.

The Federal savings association rules are much more detailed, particularly with respect to application comments. Section 116.110 provides that any person may comment on a filing and § 116.120(a) states that a comment Start Printed Page 33267should include all relevant facts supporting the commenter's position. It further provides that a comment should address at least one reason why the OCC may deny the application under relevant law, recite facts and data supporting these reasons, and discuss how the approval could harm the commenter or any community. Under § 116.120(b), any request for a meeting must be included with the comment. Section 116.130 states that a commenter must file with the appropriate OCC licensing office and further directs that a copy of any written comment shall simultaneously be provided to the applicant. Under § 116.140, a commenter must file a comment within 30 days after publication of the initial public notice and further states that the OCC may consider later filed comments if the comment will assist in the disposition of the application.

The OCC has found that the less detailed and prescriptive approach in the current part 5 rules works well for both filers and the public and proposes to apply § 5.10 to all filings received by the OCC, with one clarification. This application would result in two changes with respect to Federal savings association filings. First, the proposal does not specify what information should be included in a comment. Second, a commenter on a Federal savings association filing would not be required to provide a copy of the comment to the Federal savings association. Instead, the Federal savings association would obtain a copy of the public portion of any comment from the OCC. The proposal would clarify that comments relating to either a national bank or a Federal savings association should be submitted to the appropriate OCC licensing office, as provided in the current Federal savings association rule.

As both sets of current rules include a 30-day comment period that begins when the public notice is published, the proposal generally does not affect the length of the comment period. In addition, although neither current nor proposed § 5.10(b) expressly states that the OCC can consider late-filed comments, as is stated in § 116.140, the OCC's practice generally has been to consider all comments, including late-filed comments.

The OCC proposes other changes to § 5.10 that would affect both national banks and Federal savings associations. First, as revised, § 5.10(b)(1) would provide that the OCC may require a new comment period of up to 30 days if a new public notice is required under proposed § 5.8(g). This change is necessary to provide interested parties with an opportunity to comment when a new notice is published, which, as explained in the discussion of proposed § 5.8(g), may be required in certain circumstances. Finally, a minor change is proposed to § 5.10(b)(2) to clarify that the OCC can extend any comment period, either an original or a new comment period.

§ 5.11 Hearings and other meetings. Pursuant to § 5.11(a), any person can request a hearing on a filing by submitting to the appropriate district office a description of the issues or facts to be presented and explaining why a written submission is not adequate. The requestor must simultaneously provide the request to the applicant. As noted above, under § 116.120(b), a request for a meeting must be included in a comment and explain why written submissions are insufficient. Also under § 116.130, this comment and hearing request must be filed with the appropriate OCC licensing office, with a copy to the applicant.

As proposed, § 5.11(a) would apply to all OCC hearing requests. Therefore, a person seeking a hearing on a filing pertaining to a Federal savings association would no longer be required to request a hearing as part of a comment submission, and a hearing request would be submitted to the appropriate OCC office. This revision would provide added flexibility to those requesting hearings related to Federal savings association filings.

Section 5.11(b) states that the OCC may grant or deny a hearing request, limit the issues to those it deems relevant or material, and order a hearing in the public's interest. Under § 5.11(c), if the OCC denies a hearing request, the agency will notify the requestor of the reason for the denial. Sections 116.170(a) and (b) are substantively the same as §§ 5.11(b) and (c). Under this proposal, §§ 5.11(b) and (c) would apply to all hearings with no substantive change for affected parties.

Section § 5.11(d) describes the OCC's pre-hearing procedures. Specifically, under § 5.11(d)(1), if the OCC decides to hold a hearing, it sends a Notice of Hearing to the applicant, the person requesting the hearing, and anyone else who requests a copy. The Notice states the subject and date of the filing, the time and place of the hearing, and the issues to be addressed at the hearing. Section 5.11(d)(2) states that the OCC appoints a presiding officer to conduct a hearing.

There are no equivalent provisions in the Federal savings association regulations. Instead, § 116.170(a) states that the OCC may either grant a meeting request or hold one on its own initiative, and it may limit the issues considered at a meeting to those it deems relevant or material. Under this proposal, § 5.11(d)(1) will apply to all part 5 OCC hearings and all interested persons will receive a Notice of Hearing when a hearing is scheduled. This revision ensures that all interested parties are notified of an upcoming hearing. The OCC also proposes to amend § 5.11(d)(1) to state, as in § 116.170(a), that the agency may limit the issues considered at a hearing to those it determines are relevant or material.

Section 5.11(e) states that a person who wishes to appear at a hearing shall notify the appropriate district office within 10 days of when the OCC issues a Notice of Hearing. It also requires, at least five days before the hearing, that each participant submit the names of witnesses and one copy of each exhibit to be presented, to the OCC, the applicant, and any other person the OCC requires. There are no equivalent rules in the Federal savings association regulations. As proposed, § 5.11(e) would be applicable to all persons who wish to appear at an OCC hearing. Section 5.11(e) allows the OCC and other persons to prepare for a hearing and yields a more efficient and productive hearing.

Section 5.11(f) explains that the OCC arranges for a hearing transcript and states that the person requesting a hearing generally bears the cost of one copy of the transcript. There is no equivalent part 116 provision. The OCC proposes to apply this provision to all OCC hearings and also to replace the “generally bears” phrase with “may be required to bear.” This change reflects the fact that the OCC generally has not passed this cost onto a hearing requestor but, in certain cases, may find it appropriate to do so. Although this is a technical change with respect to national bank filers, a person requesting a hearing on a filing pertaining to a Federal savings association should be aware that, under this proposal, a hearing transcript will be prepared and that the requestor may be required to pay its cost.

Section 5.11(g) explains how a part 5 hearing is conducted, providing generally that the applicant and participants may make opening statements and present witnesses, material, and data. It also requires a copy of any documentary material to be provided to the OCC, the applicant, and each participant. In contrast, the § 116.180 procedures for Federal savings association hearings provide that the OCC may conduct a meeting in any format, including telephone conferences, face-to-face meetings, or Start Printed Page 33268formal meeting. In addition, both §§ 5.11(g) and 116.180 provide that the Administrative Procedure Act, the Federal Rules of Evidence, the Federal Rules of Civil Procedure, and the OCC's relevant rules of practice and procedure (12 CFR part 19 and part 109, respectively) do not apply to these hearings.

Under this proposal, § 5.11(g) would apply to all subpart A hearings. As a result, all applicants and hearing participants may be permitted to make opening statements and to present witnesses, material, and data. Any person presenting documentary material at a hearing must furnish a copy to the OCC, the applicant, and each participant.

The OCC also proposes to add a new paragraph § 5.11(g)(4), stating that the OCC may conduct a meeting in any format that it determines is appropriate, including a telephone conference, a face-to-face meeting, or a more formal meeting. This new provision, which mirrors § 116.180(a), is not a change to what is permissible for the OCC, but rather highlights the options available to the agency.

Under § 5.11(h), at an applicant's or participant's request, the OCC may keep the hearing record open for up to 14 days following its receipt of the hearing transcript. The agency resumes processing the filing after the record closes. Section 116.190 states that if the OCC conducts a meeting, it may suspend the applicable filing time frames. If suspended, the time period will resume when the OCC determines that the record has been sufficiently developed to support a determination on the issue(s) considered at the meeting.

Under this proposal, § 5.11(h) will apply with respect to all filings on which a hearing is held. As a result, all applicants, commenters, and other interested persons should be aware that the hearing record may be kept open for up to 14 days following receipt of the transcript, after which the OCC will resume processing the filing. The OCC believes that the public and affected parties benefit from knowing how long the record will remain open, following a hearing.

Finally, § 5.11(i) addresses meetings other than hearings that the OCC may hold in connection with an application. Section 5.11(i)(1) states that the OCC may hold a public meeting, either in response to a written request received during the comment period or on its own initiative. These public meetings are arranged and presided over by a presiding officer. Alternatively, under § 5.11(i)(2), the OCC may arrange a private meeting with an applicant or other interested parties to clarify and narrow the issues and to facilitate the resolution of the issues. As noted above, § 116.180 states that the OCC may conduct meetings related to Federal savings association filings in any format.

Under this proposal, § 5.11(i) would apply to all applications received by the OCC and does not represent a change from what is currently permitted for filings related to Federal savings associations. In addition, the OCC proposes to add paragraph (i)(3) to § 5.11, stating that the OCC may limit the issues considered at a meeting to those it determines to be relevant or material. This provision is substantively the same as the provision the agency proposes to add to § 5.11(d) (regarding hearings) and permits the agency to ensure that meetings are meaningful and efficient. The OCC also proposes minor, clarifying changes to § 5.11(i).

Section 116.185 states that the OCC will not approve or deny an application at a meeting. Although no similar language is included in either current or proposed § 5.11, it is the OCC's practice not to decide on applications at hearings or other meetings. While hearings and meetings provide an opportunity for interested persons to share information with the OCC, the OCC considers information obtained at a hearing together with other materials and information pertaining to the application, before rendering a decision. Decisions on filings are discussed in greater detail below.

In addition, § 116.190 explains that if the OCC decides to conduct a meeting, it may suspend the application processing time frames. Although the part 5, subpart A, rules do not state this directly, current and proposed § 5.10(b)(2) allow the OCC to extend a comment period when necessary, current and proposed § 5.11(h) allow the OCC to keep a hearing record open for 14 days after a hearing and resume processing the filing only when the record closes, and proposed § 5.13(a)(2) allows the OCC to extend the expedited review period in certain circumstances or remove a filing from expedited review when necessary. These provisions provide the OCC with the tools it needs to adjust the processing time frames when appropriate, while balancing the need for interested persons to have a predictable set of procedures on which to rely.

§ 5.12 Computation of time. In computing the relevant time periods related to a national bank filing, the OCC includes the day of the act or event (e.g., the date an application is received by the OCC) and the last day of a time period, regardless of whether that day is a Saturday, Sunday, or legal holiday. Under § 116.10, in computing the relevant time period with respect to a Federal savings association filing, the OCC does not include the day of the act or the event that commences the time period. When the last day is a Saturday, Sunday or Federal holiday, the time period runs until the end of the next day that is not a Saturday, Sunday or Federal holiday.

Efficiency would be promoted by a single set of time computation rules for OCC filings. Accordingly, the OCC proposes to change § 5.12 to mirror the current Federal savings association rule. As a result, when computing time for national bank filings, the day of the act would no longer be included and the time period would no longer end on a Saturday, Sunday, or Federal holiday but would end on the next day that is not a Saturday, Sunday or Federal holiday. It also should be noted that proposed § 5.12 replaces “legal holiday” with “Federal holiday,” consistent with the current Federal savings association rule, to eliminate confusion when a legal state holiday is not also a Federal holiday.

§ 5.13 Decisions. Under § 5.13(a), the OCC may approve or deny a national bank filing based on its review and consideration of the record, including the activities, resources, or condition of a filer's affiliate to the extent relevant. Under § 5.13(a)(1), it may impose conditions on an approval, including to address significant supervisory, CRA (if applicable), or compliance concerns.

Section 5.13(a)(2) explains the OCC expedited review process for filings concerning “eligible” banks, as defined in § 5.3. Specifically, these filings are deemed approved a certain number of days after the filing date or the close of the public comment period (or extension of the comment period under § 5.10), unless, prior to this date, the OCC notifies the filer otherwise. The number of days after which a particular filing is deemed approved varies depending on the activity or transaction at issue and is set out in the substantive part 5 rule for that particular activity or transaction.[20]

Under § 5.13(a)(2)(i), the OCC may extend the expedited review period for filings subject to CRA up to 10 days if the OCC receives comments containing certain assertions about the bank's CRA Start Printed Page 33269performance. Section 5.13(a)(2)(ii) states that the OCC will remove a filing from expedited review if a filing or a comment raises a significant supervisory, CRA (if applicable), compliance, legal, or policy concern or issue. If this removal happens, the OCC will provide a written explanation. Section 5.13(a)(2)(iii) explains that not all adverse comments cause the OCC to extend the expedited review period or remove a filing from expedited review.

Finally, § 5.13(a)(2)(iv) provides that if a filing is dependent upon the approval of another filing, or if multiple requests for approval are combined in a single application, none of the filings is deemed approved unless all of the applications are subject to expedited review procedures and the longest time period expires without the OCC issuing a decision or notifying the bank that the filings are not eligible for expedited review.

Filings that are not eligible for or do not receive expedited review are considered under the standard review process. The process and timeframes associated with the standard review process vary depending on the nature and circumstances of a filing and are set forth in the applicable substantive activity or transaction rule.

Section 5.13(b) explains that the OCC may deny a filing if a significant supervisory, CRA, compliance, legal, or policy concern exists or if an applicant fails to provide the OCC with information that it requests. Pursuant to § 5.13(c), a filing must contain the information required in the applicable substantive part 5 activity or transaction rule, and the OCC may require additional information as well. Section 5.13(c) further provides that the OCC may deem a filing abandoned if information that is required or requested is not provided within a specified time period and may return a filing found to be materially deficient.

Section 5.13(d) explains that the OCC will notify a filer and other interested party (or parties) of the final disposition of a filing, including a notification confirming expedited review. If a filing is denied, the OCC will explain why. Under § 5.13(e), the OCC will make a decision public if it represents new or changed policy or issues of general interest. In rendering decisions, the OCC also may elect not to disclose information that it deems to be private or confidential.

Section 5.13(f) explains that a filer can appeal a decision by writing to the Deputy Comptroller for Licensing or the OCC Ombudsman (or, in some cases, to the Chief Counsel). Section § 5.13(g) explains that when the OCC approves or conditionally approves a filing, the agency generally gives the filer a specified period of time in which to commence the activity and generally does not grant extensions.

Finally, § 5.13(h) states that the OCC can nullify a filing decision if, for example, it discovers a misrepresentation or omission in a filing or supporting material after it renders a filing decision. A person responsible for a material misrepresentation or omission may be subject to various sanctions, including criminal penalties. The OCC also may nullify a filing decision that is contrary to law, regulation, or OCC policy or that was granted due to clerical or administrative error or a material mistake of law or fact.

Pursuant to part 116, a savings association filing may receive either expedited treatment or standard treatment. If a filer is eligible for expedited treatment, as determined under § 116.5, it may file its application in the form of a notice. Pursuant to § 116.200, 30 days after filing a notice, the filer may engage in the proposed activity or transaction unless the OCC (1) requests additional information,[21] (2) determines that standard treatment is appropriate, (3) suspends the applicable time frame under § 116.190, or (4) disapproves the notice.

Pursuant to § 116.25, a filer files a standard application if it is not eligible for expedited treatment. Under § 116.210, within 30 calendar days after receiving a standard application, the OCC will (1) notify the applicant that the application is complete and review will commence, (2) request more information, or (3) determine that the application is materially deficient, in which case, the OCC will not process the filing. If the OCC takes no action, an application is deemed complete and the review period begins. Under § 116.270, this review period is generally 60 calendar days after an application is complete but may be extended. For example, under § 116.270(c), the OCC may extend the review period for up to 30 days for any reason or for as long as needed if the application presents a significant issue of law or policy requiring additional time to resolve. In either situation, the OCC must provide a written notification of any extension.

Section 116.280 explains that the OCC will approve or deny an application before the end of the applicable review period and will notify applicants of the decision. If the OCC fails to notify an applicant, under § 116.280(b), the application is approved.

Section 116.220 provides a detailed explanation of how the OCC will process an application if it requests more information to complete a filing, including the time frames within which certain actions must be taken. Section 116.240(a) explains that even if an application is deemed complete under § 116.210, the OCC may still require the filer to provide additional information to resolve or clarify an issue presented by the application. Or, if the OCC determines that a major issue or law or change of circumstances has arisen, it may notify the filer that the application is now incomplete and require a new public notice to be filed under § 116.250. Under § 116.290, an application that is not approved or denied within two calendar years of filing is deemed withdrawn, subject to certain exceptions.

As is clear, the OCC has two different, albeit similar, sets of application processing procedures. In order to gain the efficiencies inherent in administering a single set of procedures and to create parity for OCC-regulated institutions, the OCC proposes to apply § 5.13 to all OCC filings. As a result, Federal savings association filers will need to determine whether a filing is eligible for expedited review under subpart A based on the proposed § 5.3(h) definition of “eligible bank or eligible savings association.” The OCC does not anticipate that there will be a significant difference in which filings are eligible for expedited review under the current and proposed rules because, as explained above, the criteria in § 5.3 and § 116.5 are substantively similar.

Unlike § 116.200, part 5, subpart A, does not state the applicable expedited review time frames. These time frames are unique to the type of activity or transaction and set out in the relevant part 5 section detailing that activity or transaction. If a filing is not eligible for expedited review, the filer will have to follow the standard review procedures set out in the rules applicable to the particular activity or transaction at issue.

In addition, as part of this rulemaking, the OCC is proposing other changes to § 5.13, which would apply to filings related to both national banks and Federal savings associations. Specifically, it proposes to add a statement to the § 5.13(a) introductory language providing that when reviewing a filing, the OCC may consider information available from any source, including any comments submitted by interested parties or views expressed by Start Printed Page 33270interested parties at meetings with the OCC.

With respect to § 5.13(a)(2) concerning expedited review, the OCC proposes to strike the § 5.13(a)(2) clause that states that the OCC grants eligible banks expedited review within a specified time, “including any extension of the comment period granted pursuant to § 5.10.” This change reflects the fact that when the OCC grants an extension of the comment period under § 5.10, a filing is no longer considered under the expedited review procedures. The circumstances that lead to an extended comment period are generally not compatible with expedited review.

In addition, as discussed above, § 5.13(a)(2)(i) provides that the OCC may extend the expedited review period for a filing subject to CRA for up to 10 days if a comment makes certain assertions about CRA and § 5.13(a)(2)(ii) provides that the OCC will remove a filing from expedited review if the filing presents significant supervisory, CRA, compliance, legal or policy concerns or issues and explains specifically what constitutes a significant CRA concern in this context. The OCC proposes to combine §§ 5.13(a)(2)(i) and (ii) into proposed § 5.13(a)(2)(i) that addresses both extending the expedited review period and removing a filing from expedited review and to strike the description of CRA-related assertions in comments and what constitutes a significant CRA concern. These changes would simplify § 5.13(a)(2) and are not intended to have a substantive effect on expedited review procedures. Comments and concerns about CRA will continue to be given the same weight. Other minor, technical, or conforming changes are also proposed to § 5.13.

Finally, as part of this rulemaking, the OCC proposes to delete part 116 in its entirety. Organizing a National Bank or Federal Savings Association; Federal Savings Association Charters and Bylaws (§ 5.20, new § 5.21, new § 5.22)

Twelve CFR 5.20 sets forth the requirements and procedures involved in organizing a de novo national bank. Specifically, § 5.20(e) provides that the OCC will verify that organizers have fulfilled certain statutory requirements such as filing articles of association with the OCC, § 5.20(f) sets forth policy considerations that the OCC considers in evaluating an application, § 5.20(g) discusses the OCC's requirements with respect to the organizing group, § 5.20(h) lists requirements for the organizers' business plan or operating plan, § 5.20(i) lists the procedures that the organizers must follow, § 5.20(j) specifies the requirements for expedited review of an application, and § 5.20(l) lists requirements for the establishment of special purpose banks.

Corresponding rules applicable to organizing Federal savings associations are set forth in three CFR parts: Part 143, Federal Mutual Savings Associations—Incorporation, Organization, and Conversion; part 144, Federal Mutual Savings Associations—Charter and Bylaws; and part 152, Federal Stock Associations—Incorporation, Organization, and Conversion. In addition, § 163.1 imposes certain rules concerning a Federal savings association's charter and bylaws.

Part 143 sets forth the requirements and procedures for organizing a Federal mutual savings association. For example, §§ 143.2 and 143.3 describe the requirements for applying for a Federal mutual savings association charter and the factors the OCC will consider in such an application. Section 143.4 provides that the OCC's approval of the application constitutes the issuance of a charter and § 143.5 specifies the initial steps the organizers must undertake after issuance of the charter. Certain provisions of part 143 set forth rules and prohibitions, such as § 143.1(a), which prohibits a Federal savings association from adopting a title that misrepresents the nature of the institution or the services it offers, and § 143.6, which prohibits a Federal savings association from transacting any business other than as provided in part 143. Finally, § 143.7 clarifies that part 143 does not apply to a Federal savings association chartered in connection with a Federal savings association in default or in danger of default.

Part 144 covers the charter and bylaws of Federal mutual savings associations. Section 144.1 sets forth the form and required provisions of the charter, § 144.2 lists the requirements for amending a charter, and § 144.4 states that the issuance of a Federal mutual savings association charter constitutes the incorporation of that association. Section 144.5 sets forth the required provisions of the bylaws and §§ 144.6 and 144.7 set forth rules with respect to the effect of a change to a charter or bylaws subsequent to a Federal mutual savings association's transaction; and the availability of the charter and bylaws.

Part 152 sets forth the requirements and procedures for organizing a Federal stock savings association and also contains the requirements for the charter and bylaws of Federal stock savings associations, as well as related matters including shareholders, board of directors, and officers. More specifically, § 152.1 describes the initial steps organizers must take in establishing a Federal stock savings association and also indicates the factors the OCC will consider in such an application; § 152.3 sets forth the form and required provisions of the charter; § 152.4 lists the requirements for amending a charter; § 152.5 covers the bylaws of Federal stock savings associations; §§ 152.6, 152.7 and 152.8 address shareholders, the board of directors, and officers, respectively; and § 152.9 covers certificates for shares and their transfer.

Section 163.1 requires a de novo Federal savings association to file its charter and bylaws with the OCC prior to commencing operations and requires a Federal savings association to make its charter and bylaws available to accountholders.

Many of the procedures organizers must follow to charter a national bank or Federal savings association are substantively similar, with only minor differences. With respect to many of these regulations, the OCC believes these rules should be coordinated and harmonized in order to promote consistency and equal treatment between the two types of institutions and to remove unnecessary regulatory burden where possible. These goals are accomplished by amending § 5.20 to include Federal savings associations, adding to § 5.20 some provisions that address the organizing process currently in parts 143 and 152, and removing other provisions in part 143, 152, and 163 that address the organizing process (§§ 143.2 through 143.7, 152.1 and 152.2, and 163.1).

The regulations for national banks and those for Federal savings associations treat the provisions related to “organizing documents” (organization certificate and articles of association for national banks, charter for Federal savings associations, and bylaws) differently.[22] For national banks, there are several applicable statutes, but few regulations.[23] For Start Printed Page 33271Federal savings associations, there are no statutory requirements, but §§ 144.1 and 152.3 contain specific language and requirements to be used for the charter of Federal mutual savings associations and Federal stock savings associations, respectively, and §§ 144.2 and 152.4 contain specific requirements for the bylaws of Federal mutual savings associations and Federal stock savings associations, respectively. Also, the charter provisions for Federal mutual savings associations are substantially different from national banks and Federal stock savings associations. These differences stem from the unique characteristics of Federal mutual charters, such as the inability of members to communicate directly with each other (because membership is based on the depository relationship) under § 144.8, the use of “running proxies,” and the potential that certain charter or bylaw provisions could later affect a mutual-to-stock conversion by the association. These characteristics require a need to place greater controls over changes to the Federal mutual charter in order to prevent the inappropriate transfer of the association's equity and to prevent the introduction of provisions that may impede a mutual-to-stock conversion.

In order to preserve the enforceability of the Federal savings association charter and bylaw requirements and to ensure the necessary controls unique to the Federal mutual savings association charter, the OCC believes it is necessary and appropriate to continue to include separate provisions concerning a Federal savings association's charter and bylaws.

Therefore, the OCC proposes to amend 12 CFR part 5, subpart B, by: (1) Revising § 5.20 to apply to both national banks and Federal savings associations and to make certain other changes as described below; (2) adding a new § 5.21 (based on part 144) to specify the language and requirements for the Federal mutual savings association charter, bylaws, and charter amendments and to require a Federal mutual savings association to make its charter and bylaws available to accountholders; and (3) adding a new § 5.22 (based on §§ 152.3 through 152.11) to specify the language and requirements for the Federal stock savings association charter, bylaws, charter amendments, and related matters. In addition, the OCC proposes to amend parts 143, 144, 152, and 163 by rescinding various provisions in those parts concerning charters and bylaws.

As a result of this rulemaking, organizers of de novo Federal savings associations and national banks and existing Federal savings associations and national banks should be aware of the proposed changes that are detailed below.

Applying Existing National Bank Requirements to Federal Savings Associations. The majority of the proposed changes to § 5.20 apply existing requirements for organizing a national bank to organizing a Federal savings association by inserting “Federal savings association” where appropriate. Most of these amendments will result in little or no change to existing practices concerning an application to charter a Federal savings association. However, potential organizers should carefully review the following amendments that would change the current process.

First, under the proposal, an application to charter a Federal savings association would be subject to the two-part approval process contained in § 5.20(i)(5). Based on statute and longstanding practice, the OCC uses a two-part approval process for de novo national bank charters. After an application is filed, if the OCC determines it meets the applicable standards, the OCC issues a “preliminary approval.” Once it has received this approval, the national bank in organization proceeds to take the steps needed to organize, raise capital, obtain any other regulatory approvals, and generally become ready to commence business. Many of these steps are not specified in § 5.20 but instead are provided in the OCC's preliminary approval and in the Charters Booklet of the Comptroller's Licensing Manual. The OCC issues a “final approval” and the national bank's charter only after all these steps are concluded, including compliance with any conditions imposed in the preliminary approval. Under the current Federal savings association rule, the OCC issues only one approval before it issues the charter but this approval is subject to the institution completing various post-approval organizational steps and other requirements before it can commence business. These steps and requirements are specified in §§ 143.4, 143.5, 143.6, and 152.1(c) through 152.1(i). We propose to remove these provisions because they will no longer be necessary since final approval will be granted only after all organizational steps and other requirements are met. The two processes in practice may not be different, but use of a formal two-part approval framework provides more certainty and reduces any risk of an institution inadvertently operating before it has completed all required steps. Applying the bank rule's two-step approval process to savings associations also will enhance consistency between the chartering application process for national banks and Federal savings associations.

Second, § 5.20(i)(5)(iv) provides that preliminary approval expires if the national bank has not raised the required capital within twelve months or has not commenced business within eighteen months. Sections 143.5(d) and 152.1(i) provide that a Federal savings association's charter becomes void if organization is not completed within six months after approval. The proposal would amend § 5.20(i)(5)(iv) to apply the same twelve- and eighteen-month expiration periods to Federal savings associations, rather than the six-month period.

Third, the OCC proposes to amend § 5.20(j), which allows for expedited review of an application to establish a full-service national bank filed by a bank holding company with a lead depository institution that is an eligible depository institution. We propose to add Federal savings associations and savings and loan holding companies. The current regulations for chartering a de novo Federal savings association do not have a comparable expedited review process. We also propose to limit the availability of this expedited review to applications to charter a national bank or Federal savings association where the existing lead depository institution is an eligible national bank or eligible Federal savings association. In those cases, the OCC will have knowledge and experience of the holding company's and lead institution's operations. In cases where a state institution is the lead depository institution, the OCC would not have that knowledge and experience, and we believe expedited review would not be appropriate.

Fourth, the proposal would add Federal savings associations to § 5.20(k)(3), which addresses investments in bankers' banks and § 5.20(l), which addresses chartering special purpose institutions. These provisions reflect authority that national banks and Federal savings associations possess.

Fifth, parts 143, 144, 152, and 163 contain various filing procedural matters. As discussed above, this proposed rule amends part 5, subpart A, rules of general applicability, to include filing rules and procedures for Federal savings associations for all matters Start Printed Page 33272covered by part 5. Thus, once Federal savings associations are included in § 5.20 and new §§ 5.21 and 5.22 are added to part 5, filings related to the organizing process and to charters and bylaws will be governed by the filing provisions in subpart A. We therefore have not included the filing procedures provisions in parts 143, 144, 152, and 163 in the amendments to § 5.20, or in new §§ 5.21 and 5.22.

Amendments that Specifically Cover Federal Savings Association Matters. The OCC is proposing to incorporate certain provisions contained in parts 143 and 152 into § 5.20. Specifically, with respect to an application to organize a Federal savings association, section 5(e) of the Home Owners' Loan Act (HOLA) [24] requires the OCC to consider whether: (1) The applicants are of good character and responsibility; (2) there is a need for the association in the community to be served; (3) there is a reasonable probability of usefulness and success; and (4) there will be undue injury to existing local thrift and home financing institutions. These criteria are included in § 143.2(g)(1) and § 152.1(b)(1), and this proposed rule adds them to § 5.20(e).

Sections 143.2(g)(2)(i) and 152.1(b)(3)(i) provide that approval of an application to organize a Federal mutual or stock savings association, respectively, is conditioned on OCC receipt of written confirmation from the FDIC that accounts will be insured. Similar requirements appear in §§ 143.5(c) and 152.1(f) (when a charter is issued, a Federal savings association, or a Federal stock savings association, respectively, must promptly meet all requirements necessary to obtain FDIC insurance of its accounts), as well as §§ 143.5(d) and 152.1(h)(1) (organization of a Federal savings association, or a Federal stock savings association, respectively, is complete when, among other things, the OCC receives confirmation of FDIC insurance).

For these reasons, the OCC is proposing in § 5.20(e)(3) to retain the requirement that all Federal savings associations be insured by the FDIC. Nonetheless, we invite further comment on this matter.

Proposals to Apply Federal Savings Association Application Requirements to National Bank Applications. The OCC is proposing to amend § 5.20 to apply certain requirements applicable to Federal savings associations to both national banks and Federal savings associations. First, § 143.1(a) prohibits a Federal savings association from adopting a title that misrepresents the nature of the institution or the services it offers. The OCC believes that incorporating such a provision in a regulation is good public policy because it protects both customers and the institution. Therefore, the OCC proposes to amend § 5.20(e)(1) to apply this requirement to both Federal savings associations and national banks.

Second, § 143.3(b)(1) requires that all securities of a particular class in an initial offering must be sold at the same price. The proposal would amend § 5.20(i)(5)(iii) to apply this requirement to both Federal savings associations and national banks. Such a requirement promotes fairness and uniformity, does not allow insiders to gain an unfair advantage over other shareholders, and discourages the formation of an institution for speculative purposes. Moreover, the FDIC also imposes this requirement in determining whether to approve an application for deposit insurance.[25]

Third, §§ 143.5(d) and § 152.1(i) require that, in the event the organization of a Federal savings association is not completed, all cash collected on subscriptions shall be returned. The proposal would amend § 5.20(i)(5)(iv) to apply this requirement to both Federal savings associations and national banks.

Proposals to Eliminate Certain Federal Savings Association Approval Criteria. Sections 143.2(g)(1) and 152.1(b)(1) require the OCC to consider whether the Federal savings association will provide credit for housing in a safe and sound manner and whether the factors in § 143.3 (regarding capitalization, business and investment plans, the board of directors, management) will be met. These approval criteria are not statutorily required. In most cases, these factors are similar to factors the OCC currently considers either under § 5.20 or as a matter of practice. Moreover, provision of housing credit also is addressed by the lending and investment provisions of 12 U.S.C. 1464(c) and the qualified thrift lender test of 12 U.S.C. 1467a(m). Therefore, the OCC is not proposing to include these provisions in § 5.20.

The OCC is proposing to rescind provisions of parts 143 and 152 that are redundant, unnecessary, or no longer appropriate. For example, the OCC is proposing to rescind §§ 143.7 and 152.17, which exempt from the requirements of parts 143 and 157 Federal stock associations created in connection with an association in default or in danger of default. These provisions are not necessary in light of the FDIC's authority, as part of the resolution process, to create new and bridge Federal savings associations under 12 U.S.C. 1821(m) and (n).

Similarly, the OCC proposes to rescind § 143.3(f), which provides that the normal requirements that apply to an application to charter a Federal savings association do not apply to a supervisory transaction. This provision is not necessary because the OCC has the ability to waive such requirements under 12 CFR 5.2(b). Also, the OCC proposes to rescind the requirements in §§ 143.5(c) and 152.1(f) for a proposed Federal savings association to promptly qualify as a member of a Federal Home Loan Bank. The HOLA no longer requires such membership.

Proposals to Reflect Current OCC Policy or Practice. The OCC is proposing several amendments that would update § 5.20 to reflect current OCC policy or practice. Specifically, the proposal would amend § 5.20(f)(1) to update the OCC's general policy in making determinations regarding charter applications to reflect the OCC's statutory mission as amended in section 314 of the Dodd-Frank Act.[26]

Second, § 5.20(g)(2) notes that, as a condition of a charter approval, the OCC retains the right to object to the hiring of any officer or appointment or election of any director for a two-year period from the date the institution commences business. We propose to clarify that, in appropriate instances, the OCC may impose this condition for a longer period. This regulatory change reflects current authority and practice.

Third, § 5.20(g)(3)(ii) requires a proposed director to be able to supply or have a realistic plan to enable the institution to obtain capital when needed. The OCC is proposing to clarify that this requirement applies to the proposed directors as a group, rather than each director individually.

Federal Mutual Savings Association Charter, Bylaws and Related Provisions. As discussed above, the OCC believes it is necessary and appropriate to continue to include separate regulations setting forth the provisions concerning a Federal savings association's charter and bylaws. With respect to Federal mutual savings associations, these provisions are currently in part 144. The OCC is proposing to add a new § 5.21, “Federal Mutual Savings Associations Charters and Bylaws,” which will incorporate most of part 144.

Proposed § 5.21(d) sets forth exceptions to the rules of general Start Printed Page 33273applicability. More specifically, it provides that §§ 5.8 through 5.11 do not apply to this section. These sections provide for public notice, public availability, comments and hearings on an application. The OCC believes it is not appropriate to subject the charter and bylaws requirements to these provisions. This belief is consistent with current requirements for Federal mutual savings associations as well as national banks.

Proposed § 5.21(e) prescribes the language and requirements for a Federal mutual savings association charter and is substantively identical to § 144.1. Proposed §§ 5.21(f) through (h) cover matters related to charter amendments and are substantively identical to § 144.2. Proposed § 5.21(i) requires a Federal mutual savings association to make its charter, bylaws, and all amendments available to accountholders at all times in each savings association office, and to deliver to any accountholders a copy of the charter, bylaws or amendments, upon request. This provision is substantively identical to § 144.7.[27]

Proposed § 5.21(j) would specify the language and requirements for Federal mutual savings association bylaws. This proposed new paragraph reflects the provisions in § 144.5.

Section 144.5(b)(11) provides that directors may only be removed “for cause” as defined in § 163.39 of this chapter, by a vote of the holders of a majority of the shares then entitled to vote at an election of directors,” and § 144.5(b)(10) provides that “[a]ny officer may be removed by the board of directors with or without cause, but such removal, other than for cause, shall be without prejudice to the contractual rights, if any of the person so removed.” For ease of use, the OCC is proposing to include the definition of “for cause” in proposed § 5.21(j)(1)(x)(B), the first time it appears in § 5.21, rather than cross-referencing § 163.39. Where the term “cause” is used elsewhere in § 5.21, and in § 5.22, for Federal stock savings associations, the regulation references the definition at § 5.21(j)(1)(x)(B).

The OCC believes that many of the bylaw provisions in § 144.5 are unnecessarily detailed or self-evident. Therefore, the proposal does not include the following provisions.[28]

Section 144.5(b)(1) discusses the annual meeting of members. It provides, among other things, that the meeting be held “as designated by its board of directors, at a location within the state that constitutes the principal place of business of the association, or at any other any convenient place the board of directors may designate.” Proposed § 5.21(j)(1)(i) does not include the requirement that the meeting be held in the state that constitutes the principal place of business of the association. The OCC believes that this requirement introduces unnecessary detail into the regulation, and that in certain cases there may be locations outside the state constituting the association's principal place of business at which the annual meeting may be held that are appropriately convenient to members.

Section 144.5(b)(2) provides, among other things, that the subject matter of a special shareholder meeting must be established in the notice for such meeting. The OCC believes this provision is self-evident and unnecessarily detailed and proposes not to include this requirement in § 5.21(j).

Section 144.5(b)(3) covers the requirements for providing notice of meetings to members. Among other things, it provides that notice must be provided at a member's last address appearing on the books of the association. The OCC believes this provision merely states the obvious and proposes not to include this requirement in § 5.21(j)(1)(iii).

Section 144.5(b)(4) states that the purpose of determining the record date is to determine the “members entitled to notice of or to vote at any meeting of members or any adjournment thereof, or in order to make a determination of members for any other proper purpose.” The OCC believes this provision is self-evident and proposes not to include this requirement in § 5.21(j)(1)(iv).

Section 144.5(b)(6) provides that procedures must be established for voting by proxy pursuant to the rules and regulations of the OCC, “including the placing of such proxies on file with the secretary of the association, for verification, prior to the convening of such meeting.” The OCC believes the inclusion language is self-evident and unnecessarily detailed and proposes not to include this requirement in § 5.21(j)(1)(vi).

Section 144.5(b)(9) provides that board of director meetings “shall be under the direction of a chairman, appointed annually by the board; or in the absence of the chairman, the meetings shall be under the direction of the president.” The OCC believes this provision is unnecessarily detailed and proposes not to include this requirement in § 5.21(j)(1)(ix).

Section 144.5(b)(10) provides, among other things, that “[a]ll officers and agents of the association, as between themselves and the association, shall have such authority and perform such duties in the management of the association as may be provided in the bylaws, or as may be determined by resolution of the board of directors not inconsistent with the bylaws. In the absence of any such provision, officers shall have such powers and duties as generally pertain to their respective offices.” The OCC believes this provision is unnecessary and self-evident and proposes not to include this requirement in § 5.21(j)(1)(x).

Section 144.5(b)(11) covers vacancies, resignation, and removal of directors. Proposed § 5.21(j)(1)(xi) does not include the requirements in § 144.5(b)(11) that directors be elected by ballot and that resignation of a director be by written notice. The OCC believes that these provisions are self-evident.

Section 144.5(b)(12) covers the powers of the board of directors. It provides, among other things, that a board may, by resolution, “appoint from among its members and remove an executive committee and one or more other committees, which committee[s] shall have and may exercise all the powers of the board between the meetings or the board; but no such committee shall have the authority of the board to amend the charter or bylaws, adopt a plan of merger, consolidation, dissolution, or provide for the disposition of all or substantially all the property and assets of the association. Such committee shall not operate to relieve the board, or any member thereof, of any responsibility imposed by law.” This section further provides that a board may fix the compensation of directors, officers, and employees. The OCC believes these provisions are self-evident and unnecessarily detailed and therefore proposes not to include these requirements in § 5.21(j)(1)(xii).

Section 144.5(b)(14) provides in part that procedures for the introduction of new business at the annual meeting may require that such new business be stated in writing and filed with the secretary prior to the annual meeting at least 30 days prior to the date of the annual meeting. The OCC believes this provision is overly detailed and unnecessary. Accordingly, the OCC is proposing not to include this provision in § 5.21(j)(1)(xiv).

Finally, § 144.5(b)(16) provides that the bylaws may address age limitations for directors or officers as long as they are consistent with applicable Federal Start Printed Page 33274law, rules or regulations. The OCC believes this provision is self-evident and unnecessary and therefore is proposing not to include this provision in § 5.21(j)(1)(xvi).

Federal Stock Savings Association Charter, Bylaws and Related Provisions. The provisions concerning the charter and bylaws of a Federal stock savings association, as well as related provisions, are currently in §§ 152.3 through 152.9. The OCC is proposing to add a new § 5.22, “Federal Stock Savings Associations Charters and Bylaws,” which will incorporate most of §§ 152.3 through 152.9.

Proposed § 5.22(d) sets forth exceptions to the rules of general applicability. More specifically, it provides that §§ 5.8 through 5.11 do not apply to this section. These sections provide for public notice, public availability, comments and hearings on an application. The OCC believes it is not appropriate to subject the charter and bylaws requirements to these provisions. This belief is consistent with current requirements for Federal savings associations as well as national banks.

Proposed § 5.22(e) prescribes the language and requirements for a Federal stock savings association charter and is substantively identical to § 152.3. Proposed §§ 5.22 (f) through (i) cover matters related to charter amendments and are substantively identical to § 152.4, with the addition of one provision. Section 152.4(b)(8) provides that a Federal stock savings association may amend its charter by adding certain anti-takeover provisions following mutual to stock conversions. One such provision is a prohibition on a person acquiring more than 10 percent of any class of equity securities of the association, unless “the purchase of shares [is] by a tax-qualified employee stock benefit plan which is exempt from the approval requirements under § 174.3(c)(2)(i)(D) of the OCC's regulations.” The OCC proposes to eliminate the cross-reference and include the appropriate language in § 5.22(g)(8). The OCC does not intend for this amendment to have any substantive effect.

Proposed § 5.22(j) would specify the requirements for adopting and filing Federal stock savings association bylaws. This proposed new paragraph reflects the provisions in § 152.5 with two exceptions. The first sentence of § 152.5(a) provides that “[a]t its first organizational meeting, the board of directors of a Federal stock association shall adopt a set of bylaws for the administration and regulation of its affairs.” The third sentence requires the bylaws to contain sufficient provisions to govern the association in accordance with the requirements of other sections of part 152 and prohibits the bylaws from containing a provision that is inconsistent with those sections or with applicable laws, rules, regulations or the association's charter. The OCC believes that these two provisions are unnecessarily detailed and self-evident and is therefore proposing not to include these provisions in proposed § 5.22(i).

The OCC is proposing to add a new § 5.22(k) to address shareholder meetings and related matters. This proposed new paragraph reflects the provisions in § 152.6 with two exceptions. Section 152.6(a) provides, among other things, that shareholder meetings must be held in the state in which the association has its principal place of business. With respect to shareholder voting by proxy, § 152.6(f) provides, in part, that a “proxy may designate as holder a corporation, partnership or company as defined in part 174 of this chapter, or other person.” Proposed § 5.22(k) does not include these provisions because the OCC believes they are unnecessary.[29]

The OCC is proposing to add a new § 5.22(l) addressing matters involving a Federal stock savings association's board of directors. This proposed new paragraph reflects the provisions in § 152.7, with certain exceptions. Section 152.7(b) sets forth the permissible number and terms of directors to be included in an association's bylaws. It provides, among other things, that in “the case of a converting or newly chartered association where all directors shall be elected at the first election of directors, if a staggered board is chosen, the terms shall be staggered in length from one to three years.” Section 152.7(g) addresses matters concerning executive and other committees of a board of directors. It provides in pertinent part that each committee, to the extent provided in the resolution or bylaws of the association, shall have and may exercise all of the authority of the board of directors, subject to certain exceptions. The OCC believes these provisions are overly detailed and unnecessary. Accordingly, proposed §§ 5.22(l)(2) and (7), respectively, do not include these provisions.

The OCC is proposing to add a new § 5.22(m) addressing matters involving a Federal stock savings association's officers. This proposed new paragraph is substantively identical to § 152.8, with one exception. Section 152.8 mandates that a Federal stock savings association have certain officers. It further provides that the “board of directors may also elect or authorize the appointment of such other officers as the business of the association may require. The officers shall have such authority and perform such duties as the board of directors may from time to time authorize or determine. In the absence of action by the board of directors, the officers shall have such powers and duties as generally pertain to their respective offices.” The OCC believes that the quoted provision is self-evident and unnecessary and therefore is not including it in new § 5.22(m).

The OCC is proposing to add a new § 5.22(n) concerning stock certificates. This proposed new paragraph is substantively identical to § 152.9, with one exception. Section 152.9(a) provides in pertinent part that the “certificates shall be signed by the chief executive officer or by any other officer of the association authorized by the board of directors, attested by the secretary or an assistant secretary, and sealed with the corporate seal or a facsimile thereof. The signatures of such officers upon a certificate may be facsimiles if the certificate is manually signed on behalf of a transfer agent or a registrar other than the association itself or one of its employees. Each certificate for shares of capital stock shall be consecutively numbered or otherwise identified.” The OCC believes this provision is overly detailed and is proposing not to include it in new § 5.22(n)(1).

Federal Savings Association Charter and Bylaws Availability Requirement. Section 163.1(b) requires each Federal savings association to cause a true copy of its charter and bylaws and all amendments thereto to be available to accountholders at all times in each office of the savings association, and to deliver to any accountholders a copy of such charter and bylaws or amendments thereto, upon request. As discussed above, § 144.7 imposes the same requirement, but is applicable only to Federal mutual savings associations.

There is no comparable requirement for national banks and the OCC believes this provision is no longer necessary for Federal stock savings associations, as this information is relatively easy for accountholders of these types of institutions to obtain. Conversely, accountholders of Federal mutual savings associations may not have easy access to these documents in light of the inability of accountholders to communicate directly with each other under § 144.8. Accordingly, the proposal would continue applying this requirement only with respect to Start Printed Page 33275Federal mutual savings associations under new § 5.21(i).

Disposition of current Federal savings association organization, charter, and bylaws provisions. The proposed amendments discussed above would remove from Title 12 of the Code of Federal Regulations §§ 143.2 through 143.7, all of part 144 except § 144.8, § 152.1(b)(1), §§ 152.1(c) through 152.1(i), §§ 152.2 through 152.9, § 152.17, § 163.1(b), and §§ 163.22(b)(1)(ii) and (b)(2).

Section 144.8, which addresses communication between members of a Federal mutual savings association, is not a licensing regulation and does not involve an application process. The OCC proposes leaving it unchanged. Because it will be the only section that remains in part 144, the OCC proposes renaming part 144 as part 144—Federal mutual savings associations—communication between members.

Other provisions of § 152.2, which provides procedures for the organization of interim Federal savings associations, are addressed in revisions to the business combinations regulation—§ 5.33, described below. The remaining provisions of part 143, part 152, and part 163 contain other provisions applicable to Federal mutual and stock savings associations. The OCC is proposing to rescind some of these provisions elsewhere in this proposal.

Charter Conversions (New § 5.23, § 5.24, New § 5.25)

Twelve CFR 5.24 sets forth the rules and procedures that a state bank, state savings association, or Federal savings association must follow to convert to a national bank and for a national bank to convert to a state bank or Federal or state savings association. The OCC's rules for a mutual depository institution to convert to a Federal mutual savings association are at 12 CFR 143.8 through 143.14 and the rules for a stock form depository institution to convert to a Federal stock savings association are at 12 CFR 152.18. The rules for a Federal savings association to convert to a national bank or state bank are set forth at 12 CFR 152.19 and 163.22(b)(1)(ii) and (b)(2). While there are some differences in procedures, as discussed below, the rules for national banks and Federal savings associations are substantively similar.

The OCC proposes to simplify this regulatory framework by (1) revising § 5.24 to include only rules for converting into a national bank, (2) placing all rules for converting into a Federal savings association (either stock or mutual) in new § 5.23, and (3) placing rules for conversion from national bank and Federal savings association charters in new § 5.25. The agency also proposes additional substantive and technical changes to these rules. The substantive changes include provisions implementing section 612 of the Dodd-Frank Act, which prohibits conversions from state to Federal charter, or Federal to state charter, in certain circumstances and adds requirements to the conversion process. The changes to the OCC's regulations implementing section 612 are discussed as a group later in the preamble.

Conversion to a national bank charter. As part of the reorganization of the conversion rules, the OCC proposes to move the rules governing a national bank converting to a state bank or Federal savings association from § 5.24 to a new § 5.25. As a result, § 5.24 would apply only to conversions to become a national bank. The OCC also proposes to make several other changes in § 5.24.

Specifically, the proposal adds “stock state savings associations” to the description of the types of institutions that can apply to convert to a national bank and the word “stock” before the phrase “Federal savings associations” throughout revised § 5.24. Stock state savings associations currently are included in the rule because they are within the definition of “state bank” incorporated from 12 U.S.C. 214(a). We are proposing to add the express term both in the interest of eliminating any confusion and because section 612 added the term “state savings association” to 12 U.S.C. 35. We are adding the term “stock” to Federal savings association for clarity as well. National banks are corporate bodies, and so a mutual institution cannot become a national bank unless it has first changed into corporate form under other law. These changes merely clarify the existing regulation and would have no substantive impact.

In § 5.24(d), which states the OCC's policy for approving and disapproving conversions to national bank charters, the proposal adds a statement that the institution seeking to convert to a national bank charter must obtain all necessary regulatory and shareholder approvals. Although this requirement is not new, it was not previously stated in § 5.24. There is a similar provision in the current Federal savings association regulation, § 143.8(a)(2). The OCC is continuing it for Federal savings associations in proposed § 5.23, and has determined it would be helpful to include it for national banks as well.

The proposal also clarifies the information the applicant must include in the application. First, proposed § 5.24(e)(2)(vii) would add bank service company investments and other equity investments to the current requirement to identify subsidiaries. This requirement reflects the current practice of the OCC to review the legal permissibility for the converted national bank to continue to hold these other investments when evaluating a conversion application. Second, proposed § 5.24(e)(2)(ix) would require the application to include a business plan if the converting institution has been operating for less than three years, plans to make significant changes to its business after the conversion, or at the request of the OCC. The OCC currently requests this information on a case-by-case basis. However, the OCC believes this requirement should be applied to all such applications, as it would provide valuable information about the financial institution's safety and soundness, thereby allowing the OCC to make a more informed decision as to whether to grant the application. Appendix G of the “Charters” booklet of the Comptroller's Licensing Manual (Significant Deviations after Opening) contains a discussion of what constitutes a “significant change.”

Section 5.24 currently addresses the OCC's authority to permit a national bank to retain nonconforming assets of a converting state bank, subject to the requirements in 12 U.S.C. 35. The proposal would add language to this provision (which would be paragraph (e)(4) in the revised regulation) clarifying that a converted national bank also may be permitted to retain nonconforming activities of a state bank or stock state savings association and nonconforming assets or activities of a Federal stock savings association for a transition period after conversion. The OCC believes such retention is appropriate to facilitate the transition from a state institution or Federal savings association to a national bank. These additions also reflect current OCC practice.

The OCC also proposes to amend § 5.24(g) which allows for expedited review of a conversion application filed by an eligible depository institution. We propose to limit the availability of expedited review to applications by institutions already supervised by the OCC (i.e., conversions from a Federal savings association to a national bank or from a national bank to a Federal savings association). In those cases, the OCC is already familiar with the institution. In cases where a state institution is the applicant, the OCC would require more time to review the institution's condition and proposal, and we believe expedited review would Start Printed Page 33276not be appropriate. We are also proposing to extend the expedited review period from 30 days to 60 days. The expedited review provision in proposed § 5.23(d)(4) is similar.

In addition, the proposal adds a new paragraph (h) to § 5.24 codifying that the resulting national bank after a conversion is the same business and corporate entity as the converting institution, and all assets, rights, liabilities, obligations, and other business of the converting institution continue in the resulting national bank by operation of law. This paragraph reflects longstanding case law under 12 U.S.C. 35 and is similar to statutory provisions in 12 U.S.C. 214b (continuation in conversion of national bank to state bank or merger of national bank into state bank) and 12 U.S.C. 215(e) and 215a(e) (continuation in consolidation or merger of national or state bank into national bank). The specific language is based on 12 U.S.C. 214b and on current provisions governing Federal savings associations at §§ 146.14 (Federal mutual savings associations) and 152.18(b) (Federal stock savings associations).

Finally, the proposal adds provisions to § 5.24 to implement section 612 of the Dodd-Frank Act, which are discussed below, and makes several technical or housekeeping changes to § 5.24 to make it easier to read.

Conversion to a Federal savings association charter. As noted above, the OCC proposes to create a new § 5.23 to address conversions of a mutual depository institution to a Federal mutual savings association or of a stock depository institution to a Federal stock savings association. This new section is similar to the proposed § 5.24 rules applicable to converting to a national bank, except that references to national banking laws are replaced by references to the HOLA, including the statutory criteria in section 5(e) of the HOLA for granting a Federal savings association charter. The requirements of proposed § 5.23 include many of the requirements in the current Federal savings association conversion regulations. However, the OCC is proposing not to continue certain provisions in parts 143 and 152 for which there is no statutory requirement in the HOLA. These include the confidentiality provisions set forth at § 143.8, which the OCC believes are addressed under its general confidentiality regulations, 12 CFR part 4, and the public notice and inspection requirements set forth at § 143.9(a)(2) (incorporating § 143.2(d)), which the OCC believes generally are unnecessary in the case of conversions. We note that if there are instances where the OCC believes publication is warranted, the OCC could require publication under § 5.2(b), which allows the OCC to require materially different procedures for a particular filing. We also are not continuing in the regulation a number of provisions included in § 143.9 that advise applicants of the various steps in the process. Instead, the OCC addresses this information through its guidance to applicants in the Comptroller's Licensing Manual, application forms, and the application process.

There are four significant differences between proposed § 5.24 and proposed § 5.23. First, the definition of “depository institution” for purposes of § 5.23, which is based on the definition in §§ 143.8(a) and 152.13, includes credit unions, unlike the definition in § 5.3(f) applicable to § 5.24. Second, as included in the §§ 143.8(a)(1) and 152.18(a) and because all Federal savings associations are required to be FDIC-insured, paragraph (c) of proposed § 5.23 provides that the converting institution must have deposits insured by the FDIC or, if it is not so insured, must obtain insurance before converting. Third, proposed paragraph (d)(2)(ii)(K) of § 5.23, would require a converting institution that does not meet the qualified thrift lender test of 12 U.S.C. 1467a(m) to include a plan to achieve compliance within a reasonable period of time and to request an exception from the OCC in the application. This requirement reflects agency practice but is not expressly included in the current regulation. Fourth, paragraph (e) of § 5.23 includes certain provisions contained in § 143.10 that are unique to conversions of a mutual depository institution to a Federal mutual savings association. These provisions reflect the unique organizational structure of mutual depository institutions, which are largely member based.

Finally, the proposal includes provisions in § 5.23 to implement section 612 of the Dodd-Frank Act, as discussed below.

Conversion from a national bank or Federal savings association charter. Proposed § 5.25 sets forth a new provision that addresses conversions from a national bank or Federal savings association to another charter. Specifically, paragraph (d) covers conversions from a national bank or Federal savings association to a state bank or state savings association charter, while paragraph (e) covers conversions between a national bank and a Federal savings association. The provisions concerning a national bank conversion to a different charter mostly reflect current provisions in § 5.24(e) that are being moved to § 5.25. Because section 612 of the Dodd-Frank Act applies to conversions from Federal to state charters, but does not apply to conversions between different Federal charters, § 5.25 applies different provisions for these different transactions.

Consistent with § 5.24(e), proposed § 5.25(d) provides that converting from a Federal charter does not require prior OCC approval.[30] Instead, the institution must file only a notice with the OCC. This process would be a change for some Federal savings associations. Under the current regulations, Federal savings associations that are not eligible for expedited treatment must file an application to convert to a national bank or state bank.[31] Under the proposal, this notice must contain a copy of its conversion application to the regulator to which it is applying for approval to convert (as required by section 612 of the Dodd-Frank Act), a showing of its compliance with applicable requirements for converting from the charter, and a discussion of any issues regarding the permissibility of the conversion under section 612 of Dodd-Frank Act. This section also would require the institution to file a copy of its conversion application with the Federal banking agency that would become its appropriate Federal banking agency after the conversion, pursuant to section 612 of the Dodd-Frank Act, as discussed below.

For conversions between a national bank and a Federal savings association, proposed § 5.25(e) requires the institution planning to convert to file a notice for the conversion-out aspect of the transaction with the OCC. Currently, Federal savings associations must file an application, unless they qualify for expedited review. This notice must contain a showing of its compliance with applicable requirements for converting from the Federal charter. As discussed in footnote 29 of this preamble, the applicable “converting-in” regulation (§§ 5.24 or 5.23) would require the institution to file an application with the OCC with respect Start Printed Page 33277to the “converting-in” aspect of the transaction.

Implementation of section 612 of the Dodd-Frank Act. Section 612 of the Dodd-Frank Act added several provisions to Federal law regarding conversions. First, section 612(b) amended 12 U.S.C. 35 to provide that the OCC may not approve an application by a state bank or a state savings association to convert to a national bank or Federal savings association during any period in which the state bank or state savings association is subject to a cease and desist order (or other formal enforcement order) issued by, or a memorandum of understanding entered into with, a state banking supervisor or the appropriate Federal banking agency with respect to a significant supervisory matter or a final enforcement action by a state Attorney General. The OCC does not need to amend its regulations to implement this basic prohibition; the current and proposed regulations already include compliance with applicable law among the criteria for approval or denial.[32] Proposed §§ 5.24(e)(2)(x) and 5.23(d)(2)(ii)(J) require the conversion application to include information about enforcement actions and other supervisory criticisms and the applicant's analysis of whether conversion is permissible under 12 U.S.C. 35, as amended by section 612. The OCC would use this information to assess the permissibility of the proposed conversion under section 35, including the possibility of using the exception to the prohibition on conversions provided in section 612.[33] The information also will assist in making the OCC aware of the condition of the applicant.

Second, section 612(b) added a new section 12 U.S.C. 214d prohibiting a national bank from converting to a state bank or state savings association during any period in which the national bank is subject to a cease and desist order (or other formal enforcement order) issued by, or a memorandum of understanding entered into with, the OCC with respect to a significant supervisory matter. Section 612(c) similarly added a new paragraph (6) to the end of the HOLA [34] prohibiting a Federal savings association from converting to a state bank or state savings association during any period in which the Federal savings association is subject to a cease and desist order (or other formal enforcement order) issued by, or a memorandum of understanding entered into with, the OTS or the OCC with respect to a significant supervisory matter. The exception to the prohibitions on conversions in section 612(d), discussed above, applies to the prohibitions in sections 214d and 1464(i)(6). Proposed § 5.25(d)(3) would require that the information that must be submitted to the OCC when a national bank or Federal savings association plans to convert to a state bank or state savings association must include a discussion of the impact of any enforcement action on the permissibility of the conversion under 12 U.S.C. 214d or 1464(i)(6). This discussion will assist the OCC in monitoring compliance with these statutes.

Third, paragraph (e)(1) of section 612 requires that at the time an insured depository institution files a conversion application, it must transmit a copy of the conversion application to both the appropriate Federal banking agency for the institution and the Federal banking agency that would become the appropriate Federal banking agency for the institution after the proposed conversion. Reflecting this statutory requirement, as noted above, the proposal adds to our regulations at §§ 5.24(e)(2), 5.23(d)(2)(ii), 5.25(d)(3)(i)(last sentence), and 5.25(d)(3)(ii)(A) a requirement to send a copy of the conversion application to the appropriate Federal banking agencies. Including the requirement in our regulations will help ensure applicants are aware of this requirement.

Disposition of current Federal savings association conversion regulations. Sections 5.23 and 5.25 will replace most of the current Federal savings association regulations on conversions. Accordingly, this proposal removes §§ 143.8, 143.9, 143.10, 143.14, 152.18, and 152.19.[35] We also propose to remove § 143.11, which provides for an organizational plan for governance during the first six years after a state mutual savings bank converts to a Federal charter. The OCC believes it can provide this oversight of the process for the converting institution to come into compliance with the requirements for Federal mutual savings banks through the application process.

Question 1: The OCC requests comment on the benefit to converting institutions of retaining this organizational governance provision in § 143.11 as a regulation.

Section 143.12, which implements section 5(i)(4) of the HOLA,[36] addresses grandfathered authority of certain Federal savings associations. It is not a licensing regulation and does not involve an application process. The OCC proposes leaving it unchanged. As a result of other changes in this rulemaking, it will be the only section that remains in part 143. Therefore, the OCC proposes renaming part 143 as part 143—Federal Savings Associations—Grandfathered Authority.

Fiduciary Powers (§ 5.26)

Twelve 12 CFR 5.26 contains the application requirements and processes for national banks that wish to engage in the exercise of fiduciary powers. Twelve CFR part 150, subpart A (§§ 150.70 through 150.125) addresses the application requirements and processes for Federal savings associations that wish to engage in the exercise of fiduciary powers. We propose to consolidate the application and notice filing procedures for fiduciary powers for national banks and Federal savings associations by revising § 5.26 to cover Federal savings associations, incorporating certain provisions from part 150 in § 5.26, amending § 150.70 to remove the current language regarding filing requirements and direct Federal savings associations to § 5.26 for the application and notice procedures they should Start Printed Page 33278follow, and deleting §§ 150.80 through 150.125, which contain additional current Federal savings association filing requirements.

In general, the proposal would revise § 5.26 by adding language that will make it applicable to both national banks and Federal savings associations. The proposal also would make the following revisions to the application requirements in § 5.26.

First, we propose to add § 5.26(e)(2)(iii) that would provide examples of factors the OCC will consider when reviewing an application to exercise fiduciary powers. These factors include financial condition, adequacy of capital, character and ability of proposed trust management, the adequacy of any proposed business plan, and the needs of the community served.

These factors will help clarify the standard of review that will be used by the OCC. Three of the factors are requirements found in both the National Bank Act [37] and the HOLA: [38] capital adequacy, requiring that the needs of the community be served, and providing that the OCC may consider any other factors or circumstances that the agency considers proper. A review of the financial condition of the national bank or Federal savings association, the experience and character of the management of the institution, and the adequacy of any proposed business plan are all factors that the OCC already takes into account when reviewing an application submitted by a national bank or Federal savings association to conduct fiduciary powers. In addition, the Federal savings association rule, § 150.100, includes the factors requiring assessment of the financial condition, the overall performance, and the proposed supervision of the Federal savings association.

Second, we propose to add a new paragraph (e)(5) to § 5.26. This amendment would require a national bank or a Federal savings association that has not conducted previously approved fiduciary powers for 18 consecutive months to provide a notice to the OCC containing the information required by § 5.26 (e)(2)(i) 60 days in advance of commencing the activities. This amendment is similar to the requirement in the Federal savings association rule at § 150.560, which requires filing a notice if the savings association has not conducted the fiduciary activity for five years after it was approved to engage in the activity. We have determined, however, that 18 months is a more appropriate timeframe for this notice because the management and condition of a national bank or Federal savings association may change in a shorter period of time. This amendment will ensure that both a national bank and a Federal savings association previously granted fiduciary powers would still have the financial ability and managerial expertise necessary to conduct fiduciary activities in a safe and sound manner. This transfer also is consistent with the National Bank Act [39] and the HOLA,[40] which provide that if a national bank or Federal savings association, respectively, has not exercised previously granted fiduciary powers, the OCC may use specified procedures to revoke the authorized fiduciary powers. The OCC also believes this notification is important because it will enable the agency to allocate supervisory resources needed to evaluate the institution when it resumes fiduciary activities it has not engaged in for a long period of time.

Third, we propose adding a new § 5.26(e)(1)(iv) that specifies that a national bank or Federal savings association that has received approval from the OCC to offer limited fiduciary services and desires to offer full fiduciary services must apply to the OCC. This reflects current practice for national banks. An applicant can apply for approval for limited powers (authority for one or more specific type of fiduciary powers described in the application) or for full powers (authority to exercise all powers authorized under the law). If an institution that had previously been approved only for certain powers planned to begin exercising others, it would need to apply. However, an institution that had applied, and been approved, for full powers could add to the activities it engages in without additional application.

In addition, incorporating Federal savings associations in the application framework of § 5.26 also results in some other minor changes or clarifications of requirements for Federal savings associations. New paragraphs (b)(2) and (4) of § 5.26 set out circumstances in which a Federal savings association does not need to apply for fiduciary powers in connection with certain mergers. The new provision in § 5.26(e)(1)(iv), discussed above, requiring an application when an institution previously approved only to exercise specified limited powers planned to exercise more powers would replace a current provision requiring a Federal savings association to apply if it planned to conduct fiduciary activities that are “materially different” from those previously approved, regardless of whether the prior approval had been for limited or full powers. Section 5.26(e)(3) provides for expedited review of applications by eligible national banks and eligible Federal savings associations. Part 150 does not provide for expedited treatment of fiduciary powers applications by Federal savings associations.

Establishment, Acquisition, and Relocation of a Branch (§ 5.30 and § 5.31)

Overview. Section 5.30 of the OCC's rules addresses the establishment, acquisition, and relocation of branch offices of national banks. Sections 145.92, 145.93, 145.95 and 145.96 address these subjects, as well as agency offices, for Federal savings associations.[41] While these national bank and Federal savings association rules address a common subject there are two important differences between them, namely the definition of “branch” (and many provisions related to the definition) and the scope of the requirement for prior OCC approval.[42] As discussed below, these differences stem from the statutes applicable to national banks and Federal savings associations. At this time, the OCC is proposing to retain these differences. Accordingly, we are not proposing to add Federal savings associations to 12 CFR 5.30. Instead, we propose to add a new § 5.31 to part 5 in order to bring the establishment and relocation of branches by a Federal savings association within the licensing procedures of part 5. Section 5.31 would be similar in format to § 5.30, but would include provisions based on §§ 145.92 and 145.93 regarding the definition of “branch” and the scope of the application requirements. Section 5.31 also would include the provisions of § 145.96 regarding agency offices. We then also propose to remove 12 CFR 145.93, 145.95 and 145.96, and make a conforming change to § 145.92. Under this proposal, national banks and Start Printed Page 33279Federal savings associations generally would continue to be subject to different branching application provisions and requirements.

As an alternative to this proposal, the OCC is considering whether to harmonize the treatment of the branch licensing regulations of national banks and Federal savings associations in order to simplify our licensing procedures and provide for comparable treatment of national banks and Federal savings associations. As a second alternative approach, we also are considering whether to adopt an after-the-fact branch notice requirement for Federal savings associations. These alternatives are discussed below, and the OCC invites comment on the desirability of adopting one of them rather than the proposal.

For national banks, the term “branch” is defined by statute. The McFadden Act defines a “branch” as an office “at which deposits are received, or checks paid, or money lent.” [43] Over the years, the meaning of the term in various contexts has been addressed extensively in case law and regulatory interpretation. The OCC codified much of that interpretive explanation in § 5.30 and in a number of provisions in part 7 that specify what constitutes a branching activity and what does not. For Federal savings associations, the HOLA does not have a general definition of “branch.” [44] Consideration of whether an office of a Federal savings association is a branch office has focused only on activities involving deposit accounts, not lending. Furthermore, there is little in the regulations specifying which activities are branching activities and which are not. The proposal retains this difference between national banks and Federal savings associations. In the alternative, harmonized approach, discussed below, the regulation would apply the national bank definition to Federal savings associations, and Federal savings associations would be added to all the provisions in § 5.30 and part 7 that address branching.

In addition, the statutes authorizing a national bank to establish a branch require that it obtain approval from the OCC.[45] Accordingly, the OCC licensing regulations at 12 CFR 5.30 require national banks to file an application and obtain OCC approval for every branch. The HOLA does not have a general provision requiring approval for a Federal savings association to establish a branch.[46] By regulation, at § 145.93, the OCC (continuing a provision originally adopted by the OTS) requires an application for a Federal savings association to establish or relocate a branch, but this rule also provides certain exceptions. The proposal also retains this difference between national banks and Federal savings associations. In the first alternative approach below, the regulation would require Federal savings associations to file applications to establish or relocate a branch without exceptions. The second alternative approach would require Federal savings to file an after-the-fact notice instead of an application.

Branches of national banks (§ 5.30). We are proposing several minor substantive clarifications in § 5.30. First, the proposal would revise § 5.30(c), the scope section, to divide it into paragraphs. Second, § 5.30(c)(2) (formerly part of § 5.30(c)) would continue to provide that the standards of § 5.30 (governing review and approval of applications by the OCC) and, as applicable, 12 U.S.C. 36(b), would apply to branches acquired or retained in a conversion approved under § 5.24 or a business combination approved under § 5.33, but such branches would be subject only to the application procedures set forth in §§ 5.24 or 5.33. The addition of branches acquired or retained in a conversion under § 5.24 to this section reflects current practice.

Third, the OCC is proposing revisions to portions of the definition of “branch.” Section 5.30(d)(1)(ii)(B), which currently excepts from the definition of “branch” a facility that is located at the site of, or is an extension of, an approved main office or branch office of the national bank, would be amended to state that the OCC will consider a drive-in or pedestrian facility located within 500 feet of a public entrance to an existing main office or branch office to be such an extension, provided the functions performed at the drive-in or pedestrian facility are limited to functions ordinarily performed at a teller window. This “bright-line” 500-foot test for national banks that a facility is an extension of an existing branch rather than a new, separate branch is consistent with § 145.93(b)(1), which provides an exception to the application requirement for branches for such a facility for Federal savings associations. The proposal also adds new § 5.30(d)(1)(iii) to describe more clearly what is not a branch, including ATMs and remote service units,[47] as well as loan production offices, deposit production offices, administrative offices, and any other office that does not engage in any of the activities set out in paragraph (d)(1).

Fourth, the proposal updates § 5.30(e), relating to the principles that guide the OCC in making determinations on applications under this section, to reflect the OCC's statutory mission as amended in section 314 of the Dodd-Frank Act.[48]

Finally, the proposal amends § 5.30(f)(6), which sets forth the procedures for expedited review of applications by eligible national banks, to clarify that the time period for review of an application for a short-distance relocation is the 15th day after the close of the comment period or the 30th day after the filing is received by the OCC, whichever is later, to be consistent with the shorter comment period for applications for short-distance relocations (15 days rather than the standard 30 days).

Branches and agency offices of Federal savings associations (§ 5.31). The OCC is proposing to add a new § 5.31 to address the establishment or relocation of branches, or the establishment of agency offices, by Federal savings associations. Its format follows that of § 5.30, but it does not include provisions from § 5.30 that apply only to national banks.

Section 5.31(a) recites the statutory authority under which the rule is issued. Section 5.31(b) sets out the basic requirement that a Federal savings association must file an application to establish or relocate a branch, unless the transaction would qualify for one of the exceptions in the rule.

Section 5.31(c), the scope section, generally describes what the section covers—namely, the procedures and standards for review and approval of applications to establish or relocate a branch, the circumstances in which an application is not required, and the authority to establish agency offices. Section 5.31(c)(2) (similar to proposed § 5.30(c)(2) and part of current § 5.30(c)) provides that the standards of § 5.31 Start Printed Page 33280(governing review and approval of applications by the OCC) would apply to branches acquired or retained in a conversion approved under § 5.23 or a business combination approved under § 5.33, but that such branches would be subject only to the application procedures set forth in §§ 5.23 or 5.33. Section 5.31(c)(3) says that § 5.31 also implements section 5(m) of the HOLA,[49] which addresses branching by Federal and state savings associations in the District of Columbia.

In § 5.31(d), we are proposing to add a definition of “branch office” for Federal savings associations for purposes of § 5.31 by referring to the definition in 12 CFR 145.92(a). We are also proposing to include a definition of “home state”—the state in which the association's home office is located.

In § 5.31(e) we are proposing the policy principles that guide the OCC's review of an application to establish or relocate a branch. These principles reflect the OCC's statutory mission as amended in section 314 of the Dodd-Frank Act, and are identical to those principles set forth in § 5.30(e) for the OCC's review of a national bank branch application or relocation.[50]

Paragraph (f)(1) of § 5.31 sets out the general requirement that each Federal savings association that wants to establish or relocate a branch must submit a separate application for each proposed branch, unless the transaction qualifies for one of the exceptions in paragraph (f)(2). Sections 145.93 and 145.95 contain a number of provisions regarding the filing of notices and applications with the OCC as well as notices to the public. These provisions will no longer be necessary once Federal savings association branch filings are subject to part 5 and part 5's corresponding procedural provisions. One of the provisions in § 145.93—paragraph (e)—does not have an analogue in § 5.30, and the OCC does not propose to include it in § 5.31. Under § 145.93(e), a Federal savings association may not file an application or notice, or use any of the exceptions, to establish a branch if the association has filed an application to merge or otherwise surrender its charter and the application has been pending for less than six months.

Paragraph (f)(2) of § 5.31 would carry forward three of the exceptions to the requirement to file an application that are now included in § 145.93(b).[51] Paragraph (f)(2)(i) continues the exception for the establishment of a drive-in or pedestrian office that is located within 500 feet of an existing home or branch office. Paragraph (f)(2)(ii) continues the exception for a short-distance relocation of a branch. Paragraph (f)(2)(iii) continues the exception for the establishment or relocation of a branch by highly-rated Federal savings associations. Under § 145.93(b)(3), certain highly-rated Federal savings associations are not required to file an application to change the permanent location of an existing branch or to establish a new branch if it meets certain requirements. Those requirements are: (1) The Federal savings association is eligible for expedited treatment, (2) it publishes notice, at a time period specified in the rule, of its intent to establish or relocate a branch, (3) in the case of a relocation, it posts notice of its intent to relocate the branch at the existing branch, and (4) no person files a comment opposing the action, or if a comment is filed, the OCC determines the comment raises issues that are not relevant to the standards for approving a branch application. The proposal continues this exception and these requirements except that, as with other sections in part 5, the condition for qualifying is that the Federal savings association is an “eligible savings association” rather than eligible for expedited treatment. As discussed earlier in this preamble, there are some differences in these tests.

Paragraph (d) of § 145.93 addresses maintenance of branches following a conversion or business combination and provides that such branches may be maintained after the conversion or combination unless the approval of the transaction specifies otherwise. The proposal does not retain this provision in § 5.31. In part 5, retention of branches in a conversion or business combination is addressed in the conversion and business combination regulations (in this proposal, § 5.23 for conversions to become a Federal savings association and § 5.33 for business combinations resulting in a Federal savings association).

Paragraph (g) of § 5.31 would set out exceptions to the rules of general applicability for applications by a Federal savings association to establish or relocate a branch. Specifically, the OCC would be able to waive or reduce the public notice and comment period in certain emergency situations or with respect to certain temporary branches.

Paragraph (h) of § 5.31 would provide that the OCC's approval of a branch expires if the branch has not commenced business within 18 months, unless the OCC grants an extension. This period is longer than the current twelve month expiration period for branch approvals for Federal savings associations under § 145.95(c).

Paragraph (i) of § 5.31 would provide that Federal savings associations must comply with the portions of 12 U.S.C. 1831r-1 that apply to Federal savings associations with respect to branch closings.

The proposal would add § 5.31(j) to implement section 5(m)(1) of the HOLA.[52] Section 5(m)(1), which applies to both Federal and state savings associations, provides that no savings association incorporated under the laws of the District of Columbia or organized in the District or doing business in the District shall establish any branch or move its principal office or any branch without the Comptroller's prior written approval and that no savings association shall establish any branch in the District or move its principal office or any branch in the District without the Comptroller's prior written approval. Section 145.93(c) currently provides prior approval for any savings association branch that would be subject to section 5(m)(1), if the association meets the requirements of § 145.93(b) for an exception to the branch application filing requirement. After reconsideration, the OCC believes requiring an application and issuing a prior written approval for each application is more consistent with the statutory language of section 5(m)(1). Accordingly, we are changing the provisions implementing section 5(m)(1) of the HOLA to require an application. The proposal provides a short paraphrase of the statutory provision and instructs savings associations requiring approval under section 5(m)(1) to follow the application procedures of 12 CFR 5.31.

Question 2: The OCC invites commenters' views on whether section 5(m) is outdated.

Finally, we are proposing to add paragraph (k) to § 5.31, which would include provisions currently in § 145.96 regarding agency offices.

Alternative approaches to harmonize licensing rules for branching. As Start Printed Page 33281mentioned above, the OCC also is considering whether it would be preferable to integrate the licensing rules for establishing branches by adding Federal savings associations to § 5.30. Under this approach, both national banks and Federal savings associations would be required to file an application and obtain prior OCC approval to establish or relocate a branch. This requirement would be a change from the current rule for Federal savings associations, which provides that certain highly-rated Federal savings associations are not required to file an application to change the permanent location of an existing branch or to establish a new branch if it meets certain requirements and no person files a relevant comment opposing the action.

We note, however, that under this alternative approach even though these highly-rated institutions would have to file an application, they most likely would qualify for expedited review of their applications. Moreover, the alternative approach would grandfather branches in existence as of the date the final rule would be published in the Federal Register.

The alternative approach also would apply the definition of “branch” in § 5.30(d) to both national banks and Federal savings associations.[53] As a result of this change, Federal savings associations would be subject to all the provisions in § 5.30 that interpret, explain, or apply the definition of “branch” or that address when various activities are or are not branching activities. In addition, because this definition of “branch” (an office at which deposits are received, checks paid, or money lent) is established by statute,[54] the meaning of “branch” has an extensive case law and regulatory history that also may apply to Federal savings associations. This alternative proposal also would describe more clearly what is not a branch, including ATMs, electronic means or facilities used in providing financial services, loan production offices, deposit production offices, administrative offices, and any other office that does not engage in any of the activities set out in § 5.30(d)(1).

Because of the application of the branch definition to Federal savings associations, a Federal savings association agency office at which loan proceeds are disbursed in the manner described in 12 CFR 7.1003(a) would be a branch,[55] but an agency office that conducts its lending related activities in such a manner as to be a loan production office would not be a branch. However, this alternative would grandfather existing agency offices that were in existence on the date the final rule would be published in the Federal Register and that engaged in the disbursal of loan proceeds in the manner described in 12 CFR 7.1003(a) as of that date and continue to do so, provided they do not engage in any other branching activity. (We note that such an office could alter the manner in which it conducts business so that it would be a loan production office rather than a grandfathered Federal savings association agency office or a branch.) If a Federal savings association with a grandfathered Federal savings association agency office were to convert to or merge into a national bank or be acquired by or merge into another Federal savings association, or if the grandfathered Federal savings association agency office itself were acquired by a national bank or another Federal savings association, the agency office would lose its grandfathered status. The alternative proposal also would remove § 145.96 so that Federal savings associations would not be required to obtain OCC approval for offices to conduct permitted activities that are not considered branching activities, unless approval is required under some other provision.

Finally, this alternative proposal would amend §§ 7.1003, 7.1004, 7.1005, 7.1012, 7.1014, 7.4003, 7.4004, and 7.4005, which interpret, explain, or apply the definition of “branch,” or that address when various activities are or are not branching activities, to apply them to Federal savings associations as well as national banks. These activities currently are permitted in Federal savings association agency offices.

The OCC notes that the additional application requirement of the alternative approach described above could strengthen the ability of the OCC to monitor Federal savings association branching activity. In particular, branch applications could allow the OCC to identify emerging issues that have not yet affected the institution's rating and allow the OCC to put into place appropriate safeguards that address those risks before they might be exacerbated by the establishment of the branch. Moreover, a branch application requirement would mean the proposed establishment of a branch would be an application listed in the OCC's Weekly Bulletin. This would provide those who may be interested in commenting on a proposal to establish a branch another form of notice in addition to the publication of notice by the association. A branch application requirement also would enable the OCC to maintain comprehensive supervisory and structural data for Federal savings associations, in addition to national banks. Because the current rule requires Federal savings associations to comply with a public notice process for each new branch, the OCC believes that filing an application with the OCC at the time of this notice may add only incremental time and burden to the process of opening a new branch, especially for the majority of Federal savings associations that would qualify for expedited review of the application.

However, there is no statutory requirement that Federal savings associations seek approval from the OCC to open a new branch, and the OCC is mindful that the imposition of this requirement on Federal savings associations could be perceived as unnecessary and burdensome, especially given the fact that the last EGRPRA review of savings association rules resulted in the elimination of the branch application requirement for 1- and 2-rated savings associations.[56] Furthermore, the OCC is able to obtain some branch information through other sources, such as through the examination process and from the FDIC's annual Summary of Deposits.[57] In addition, the OCC notes that CRA rules require institutions to maintain a list of their branches, their street addresses, and geographies, as well as a list of branches opened or closed during the current year and each of the prior two calendar years.[58]

Question 3: The OCC specifically requests comment on whether the alternative integrated rule approach should be adopted as the final rule.

As a second alternative approach, the OCC could require Federal savings associations to submit an after-the-fact notice, either as an amendment to § 5.31 as proposed in this rulemaking or in lieu of an application in the alternative approach of an integrated rule, described above. Under this after-the-Start Printed Page 33282fact notice alternative, a Federal savings association would be required to provide a written notice to the OCC no later than 10 days after the opening or relocation of a branch. The written notice would identify the address of the branch, the date of opening the branch, and the type of branch. Such a notice would enable the OCC to obtain timely information on Federal savings association branching activity without requiring a 1- or 2-rated Federal savings association to obtain prior OCC approval to engage in an activity that they now may do without approval.

Question 4: The OCC specifically requests comment on whether the final rule should include in § 5.31 an after-the-fact notice for Federal savings associations, or, if the alternative integrated rule approach is adopted, whether such an after-the-fact notice should be required in lieu of an application requirement for savings associations.

Expedited Procedures for Certain Reorganizations (§ 5.32)

Twelve CFR 5.32 provides the procedures for OCC review and approval of a national bank's reorganization to become a subsidiary of a bank holding company or a company that will, upon consummation of such reorganization, become a bank holding company. Section 5.32 currently does not expressly exempt such reorganizations from the general procedures in part 5 for public notice, public availability, and hearings and other meetings (§§ 5.8, 5.9, and 5.11). When originally adopted, it was not the OCC's intent to apply these procedures to these reorganizations, and, in general, the OCC has not required national banks to comply with these procedures. The proposal would amend § 5.32 to make clear in the regulation that these procedural requirements do not apply unless the OCC concludes that an application presents significant and novel policy, supervisory, or other legal issues. This is consistent with procedural exceptions for conversions (§ 5.23), fiduciary powers (§ 5.26), operating subsidiaries (§ 5.34), bank service companies (§ 5.35), and change in asset composition (§ 5.53).

Business Combinations (§ 5.33)

Business combinations include mergers and consolidations, as well as certain purchase and assumption transactions. The OCC's regulations governing the application requirements and procedures for national banks engaging in business combinations are contained in 12 CFR 5.33. The regulations governing the application requirements and procedures for Federal savings associations engaging in business combinations are contained in 12 CFR 163.22. The statutes governing mergers and consolidations by national banks contain extensive specifications for their authority, the procedures the bank must follow, and the effect of the merger or consolidation.[59] Thus, there are few OCC regulations on these matters. By contrast, the statutes governing mergers and consolidations by Federal savings associations contain few provisions addressing these matters.[60] Accordingly, the OCC (and its predecessor regulators of Federal savings associations) has adopted extensive regulations addressing the authority of Federal savings associations to engage in mergers and consolidations, the procedures the savings association must follow, and the effect of the merger or consolidation. These rules are contained in 12 CFR part 146 for Federal mutual savings associations and in 12 CFR 152.13, 152.14, and 152.15 for Federal stock savings associations.

While these rules address a common subject there are a number of differences between them. We are proposing to harmonize the treatment of the business combination activities of national banks and Federal savings associations where consistent with the underlying statutory authorities of each type of institution and to consolidate our regulations by amending 12 CFR 5.33 to apply to Federal savings associations and by removing 12 CFR part 146 and 12 CFR 152.13, 152.14, 152.15, and 163.22.[61] This harmonization is intended to reduce regulatory duplication and promote fairness in supervision. We also propose to include in § 5.33 some provisions from the Federal savings association application requirements and procedures, to make several other substantive changes in § 5.33, and to make a number of clarifying or technical amendments. Under this proposal, as explained below, national banks and Federal savings associations generally would be subject to the same application requirements and procedures. In addition, we propose to add to § 5.33 new paragraphs, based on 12 CFR part 146 and 12 CFR 152.13 and 152.14, to continue to provide regulations addressing the authority of Federal savings associations to engage in mergers and consolidations, the procedures the savings association must follow, and the effect of the merger or consolidation.

Specifically, we propose to modify the scope section, § 5.33(b), to remove the reference to a merger between a national bank and its nonbank affiliate, as those transactions are now covered in the revised definition of “business combination,” discussed below. We also propose to revise the language regarding notices to the OCC when a national bank or Federal savings association is not the resulting institution to address situations in which the merger is with an entity that is not a “depository institution” as defined for purposes of § 5.33.[62] We also propose to add a footnote to the licensing requirements section indicating that some of the transactions that do not require an application under § 5.33 may require an application under 12 CFR 5.53 for a substantial asset change.

Section 5.33(d) contains definitions. The OCC is proposing to revise the definition of “business combination” in several ways. First, we propose to include consolidations and mergers of Federal savings associations with state trust companies in the definition. A consolidation or merger of a state trust company with a national bank is included in current § 5.33(g)(1) because 5.33(g)(1) covers merger and consolidations with a state bank as defined in 12 U.S.C. 215b, and that definition includes state trust companies. Second, new § 5.33(d)(2)(ii) includes mergers and consolidations between a Federal savings association and a credit union in the definition of business combinations. Federal savings associations have this authority, but national banks do not. Third, new § 5.33(d)(2)(iii) includes mergers between a national bank and its nonbank affiliate. National banks have this authority, but Federal savings associations do not.

Fourth, new § 5.33(d)(2)(v) revises an existing provision in § 5.33(d)(2), which currently includes in the definition only the assumption of deposit liabilities from another depository institution, to also include the assumption, from a credit union or any other institution that is not FDIC-insured, of deposit accounts or other liabilities that will become deposits at the assuming national bank or Federal savings association. Section 163.22(c) requires an application by a Federal savings association in such cases.[63] We propose to keep the requirement and extend it to national Start Printed Page 33283banks. This requirement will assist the OCC in monitoring acquisitions of deposit liabilities from outside the FDIC-insured system.

Fifth, new § 5.33(d)(2)(vi) includes in the definition purchase and assumption transactions which involve 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 companies in addition to depository institutions, including credit unions, nonbank affiliates, or any other company (a “whole entity purchase and assumption”). This definition is intended to cover a whole entity purchase and assumption with an entity other than a depository institution (which is covered by proposed § 5.33(d)(2)(iv), continuing a provision in the current rule). Currently, a Federal savings association has authority to engage in such transactions only with an entity with which it could engage in a consolidation or merger (i.e., a bank, savings association, or credit union), not a nonbank affiliate or other company. A Federal savings association is required to file an application for such transactions. A national bank has authority to engage in a whole entity purchase and assumption transaction without regard to whether it has authority to consolidate or merge with the counterparty. The purchase and assumption of bank-permissible assets and liabilities is an exercise of a bank's power to engage in the business of banking under 12 U.S.C. 24(Seventh), not the power to combine organically with another institution, as in a merger. The OCC proposes to adopt the same position regarding the power of a Federal savings association to engage in purchase and assumption transactions. Thus, a Federal savings association would have the authority to engage in a whole entity purchase and assumption without regard to whether it has authority to consolidate or merge with the counterparty. While national banks have had this authority, there has not been a requirement to apply to the OCC for approval of a whole entity purchase and assumption other than one with a depository institution. The OCC believes such transactions with parties other than depository institutions can have an impact on the acquiring national bank or Federal savings association if they are material, and so should have regulatory review. The OCC proposes to require an application if the whole entity purchase and assumption would result in an increase in the asset size of the bank or savings association of 25 percent or more.

Question 5: The OCC requests comment on whether an increase in asset size of 25 percent or more is the appropriate threshold for materiality for whole entity purchase and assumption transactions or whether there are there other possible measures of materiality.

We are proposing to add a new term “other combination” in § 5.33(d)(10). It would be used in § 5.33 to refer to those combinations that do not require application to the OCC under § 5.33 (i.e., those in which a national bank or Federal savings association is not the resulting institution). The OCC also is proposing to add definitions of “credit union,” “savings association” and “state savings association,” and “state trust company” in § 5.33(d)(6), (11), and (12), respectively.

The OCC is proposing expressly to include in § 5.33(e)(1)(i) the factors the OCC uses to evaluate all business combination applications, including both those the OCC reviews under the Bank Merger Act and those the OCC does not. These factors are: The institution's capital level; the conformity of the transaction to applicable law, regulation, and supervisory policies; the purpose of the transaction; the impact of the transaction on safety and soundness; and the effect of the transaction on the institution's shareholders, depositors, other creditors, and customers. These factors all reflect current practice. Some of them are included in § 5.33(g)(4) and (5) now for a merger with a nonbank affiliate, in which the OCC does not have Bank Merger Act review. Others are included in the Federal savings association regulations at § 163.22(d). Section 163.22(d)(1)(vi) also has a factor relating to the fairness of the transaction, disclosure regarding the transaction, and equitable treatment that includes a detailed presentation of considerations involved in assessing the factor. The OCC believes it is not necessary to include this detailed material in the regulation. We believe the factor in § 5.33(e)(1)(i)(E) regarding the effect of the transaction on the institution's shareholders, depositors, other creditors, and customers is sufficient to provide a basis to review such matters in appropriate cases.

We are proposing to include three additional factors in § 5.33(e)(1)(ii) for applications in which the OCC reviews the transaction under the Bank Merger Act. First, we are moving the money laundering factor included in current § 5.33(e)(1)(iii) to the Bank Merger Act paragraph because it is a factor in the Bank Merger Act. We are adding the other two factors, financial stability and deposit concentration limit, because the Dodd-Frank Act added these factors to the Bank Merger Act.[64]

The proposal also would clarify the information the applicant must include in the application. Section 5.33(e)(2) currently requires an applicant to disclose the location of any branch it will acquire and retain in a business combination. We propose to amend this requirement to clarify that this disclosure include the location of any branches that are approved but not yet opened. Proposed § 5.33(e)(3) would add a financial subsidiary investment, bank service company investment, service corporation investment, and other equity investment to the current requirement to identify subsidiaries and provide an analysis of the permissibility for the national bank or Federal savings association to hold the subsidiary or investment. This requirement reflects the current practice of the OCC to review the legal permissibility for the resulting national bank or Federal savings association to continue to hold these other investments when evaluating a business combination application.

In the provision regarding retention of nonconforming assets for a limited period of time after consummation of a business combination, § 5.33(e)(5), we propose to add Federal savings associations to the current provision and to add a new paragraph (e)(5)(ii) applicable to Federal savings associations to address provisions in the HOLA regarding certain nonconforming assets.

In the provision regarding the exercise of fiduciary powers by the resulting national bank or Federal savings association, § 5.33(e)(6), we propose to add a new paragraph (e)(6)(ii) clarifying that if the applicant intends to exercise fiduciary powers after the combination and requires OCC approval for such powers, it must include in the business combination application the information required in § 5.26 for a request for fiduciary powers. This requirement reflects current practice.

In the provision regarding the expiration of approval, § 5.33(e)(7), we propose to shorten the time within which an approval expires if the transaction has not been consummated from one year to six months and add a provision under which the OCC can extend the six month period.

Section 5.33(f) contains the exceptions to the rules of general applicability for filings under § 5.33. Paragraph (f)(1) addresses filings in which a national bank (and, as Start Printed Page 33284proposed, a Federal savings association) is the applicant. We propose to amend paragraph (f)(1) to clarify that the requirement of public notice and comment would apply only when the application is subject to a public notice requirement under the Bank Merger Act or other applicable statute that requires notice to the public. In such cases, the statutory requirements apply. In other cases, the public notice and comment provisions in §§ 5.8, 5.10 and 5.11 would not apply unless the OCC concludes a particular application presents significant or novel policy, supervisory, or legal issues.[65] This publication requirement would not be a change for national banks or Federal savings associations.

In addition, another change for Federal savings associations would be the frequency and timing of publication for transactions that are subject to the Bank Merger Act. Section 163.22(e)(1)(i) requires an initial publication and then publication on a weekly basis during the public comment period. For national banks, the OCC requires an initial publication and two subsequent publications at intervals during the standard 30 day public comment period.

Paragraph (f)(1)(ii) continues the current provisions under which a merger between a national bank and its nonbank affiliate is excepted from public notice and comment. Such mergers are merely internal reorganizations of the company's existing operations.

Section 5.33(f)(3) addresses filings in which a national bank (and as revised, a Federal savings association) is the target company and will not be the resulting institution. We are clarifying this provision so that it no longer includes a Federal savings association as a resulting institution, as Federal savings associations now apply to the OCC under proposed § 5.33(g)(3). We also are adding credit unions, as a merger or consolidation of a Federal savings association into a credit union will be within the scope of § 5.33. In addition, we propose to remove § 5.2 (rules of general applicability) and § 5.5 (fees) from the list of sections excepted. They include provisions that may be useful to apply in some situations.

We are proposing to amend § 5.33(g)(1) (merger or consolidation of a national bank or a state bank into a national bank) to require that a national bank that will not be the resulting bank in a merger or consolidation with another national bank must file a notice to the OCC under § 5.33(k). This notice, which would also be required whenever a national bank or Federal savings association merges or consolidates into another institution, provides the OCC information about the target national bank's compliance with requirements to “merge-out” and sets in motion the steps for the disappearing national bank to end its separate existence. Section 5.33(k) is discussed further below.

We are proposing to amend § 5.33(g)(2) (merger or consolidation of a Federal savings association into a national bank) to reflect the fact that the OCC now is the regulator of Federal savings associations. First, requirements similar to those in 12 CFR part 146 and 12 CFR 152.13 and 163.22 would now be required in § 5.33(g)(2)(i)(B) (referring to §§ 5.33(n) and (o)), replacing current § 5.33(g)(2)(i)(B). In addition, proposed § 5.33(g)(2)(i)(B) also would include a provision under which a whole purchase and assumption of the target Federal savings association would be treated as a consolidation for the Federal savings association, so that the procedural requirements in paragraph (o) would apply. The current regulations, at 12 CFR part 146 and 12 CFR 152.13, apply these requirements to such transactions now through the definition of “combination” in § 152.13(b)(1), which includes a whole purchase and assumption transaction between depository institutions, in addition to a consolidation and a merger.

Second, the provision in § 5.33(g)(2)(ii), under which the OCC may conduct an appraisal of dissenters' shares of stock in a national bank involved in a consolidation with a Federal savings association if all the parties agree, would be changed in proposed § 5.33(g)(2)(ii)(A) from a voluntary to a required process, as the OCC has regulatory authority over both the national bank and the Federal savings association. Third, proposed § 5.33(g)(2)(ii)(B) and (C) would set out the process for appraisal of dissenters' shares of stock in a Federal stock savings association involved in a consolidation or merger into a national bank. Mergers and consolidations of Federal savings associations into national banks are authorized under 12 U.S.C. 215c, but the statute has no provisions addressing dissenters' rights. The OCC is proposing to apply the statutory provisions governing national bank dissenters' rights in 12 U.S.C. 215 and 215a to transactions in which a Federal savings association is merging or consolidating into a national bank, rather than continuing the regulatory dissenters' rights provision in 12 CFR 152.14. Applications in which there are dissenting shareholders and the appraisal process is used are rare. The basic frameworks of the national bank and Federal savings association processes are similar. In the interest of simplicity of administration and similar treatment for each type of institution, the OCC prefers to use only one dissenters' rights process. We propose to use the process for national banks because it is mandated by statutes for the transactions covered by those statutes. However, since we would be applying the dissenters' rights process based on regulation, not statute, to the transactions covered by § 5.33(g)(2), we propose to include one element from § 152.14 that is different from the national bank statutes. Under the statutes, the bank is required to bear all costs.[66] Under § 152.14(c)(9), the OCC may apportion costs. When we apply the national bank process to transactions to which it is not applicable by statute, we propose to include the authority to apportion costs for both participating Federal savings associations and participating national banks. Thus, in proposed § 5.33(g)(2)(ii)(C), we propose to do so for the type of consolidation or merger subject to § 5.33(g)(2).

In § 5.33(g)(2)(iii), we propose to include a requirement that the consolidation or merger agreement must address the effect upon, and the terms of the assumption of, any liquidation account of any other participating institution by the resulting institution. This requirement is based on provisions in §§ 146.2(b)(9) and 152.13(f)(9). Although not currently in § 5.33, it is a requirement for national banks as discussed in the OCC Licensing Manual.

We propose to add a new § 5.33(g)(3) addressing consolidations and mergers of other institutions into a Federal savings association.[67] The proposed section would require application to the OCC and, in § 5.33(g)(3)(i)(A) (referring to §§ 5.33(n) and (o)), would require the Start Printed Page 33285Federal savings association to comply with requirements and procedures similar to those in 12 CFR part 146 and 12 CFR 152.13 and 163.22. Proposed § 5.33(g)(3)(i)(A) also would provide that if a combination involves a whole purchase and assumption of a Federal savings association, then the combination would be treated as a consolidation for participating Federal savings associations, so that the procedural requirements in paragraph (o) would apply. As discussed above, the current regulations, at 12 CFR part 146 and 12 CFR 152.13, apply these requirements to such transactions now through the definition of “combination” in § 152.13(b)(1), which includes a whole purchase and assumption transaction between depository institutions, in addition to a consolidations and a merger.

Section 5.33(g)(3)(i)(B)(1) would continue the provisions in current § 5.33(g)(3)(iii)(A) requiring a target national bank to follow the procedures of 12 U.S.C. 214a and 12 U.S.C. 214c, as if the Federal savings association were a state bank. Section 5.33(g)(3)(i)(B)(2) would continue the provisions in current § 5.33(g)(3)(iii)(B), under which the OCC may conduct an appraisal of dissenters' shares of stock in a target national bank involved in a merger or consolidation with a Federal savings association if all the parties agree. However, the proposal would make the appraisal of dissenters' rights in proposed § 5.33(g)(3)(i)(B)(2) a required process, as the OCC has regulatory authority over both the national bank and the Federal savings association as a result of the Dodd-Frank Act. As above, because we are applying this process by regulation to types of transactions that do not have statutory dissenters' rights provisions, we propose to include a cost allocation provision for both national banks and Federal savings associations.

Section 5.33(g)(3)(i)(C) would set out the process for appraisal of dissenters' shares of stock in a Federal stock savings association involved in a consolidation or merger into another Federal savings association. In applications in which a Federal savings association is merging into another Federal savings association, the OCC is proposing to apply the statutory provisions governing national bank dissenters' rights in 12 U.S.C. 214a to Federal savings associations, as if the Federal savings association were a national bank merging into a state bank under section 214a. We are proposing to use the national bank dissenters' right process rather than continuing the regulatory dissenters' rights provision in 12 CFR 152.14 for the reasons discussed above. As above, because the process is being applied in these situations by regulation, not statute, we propose to include a cost allocation provision. We are also proposing to include the requirement from 12 U.S.C. 214a(b) that 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. This requirement is a change from § 152.14(c)(11), under which such shares shall have the status of authorized and unissued shares of the resulting association. The plan of merger or consolidation could still provide such status for these shares, but such status no longer would be mandatory.

In § 5.33(g)(3)(i)(D), we propose to provide that a state bank, state savings association or credit union that engages in a consolidation or merger into a Federal savings association would follow the procedures and dissenters' rights process set out for such transactions in the law of the state or other jurisdiction under which it is organized. This provision is similar to the current provisions in § 5.33(g)(4) and (g)(5) for mergers between a national bank and its nonbank affiliate.

In § 5.33(g)(3)(ii), we propose to include a requirement that the consolidation or merger agreement must address the effect upon and the terms of the assumption of, any liquidation account of any other participating institution by the resulting institution. This is based on provisions in §§ 146.2(b)(9) and 152.13(f)(9). Although not currently in § 5.33, it is a requirement for national banks as discussed in the OCC Licensing Manual.

Sections 5.33(g)(4) and (g)(5) address mergers between a national bank and its nonbank subsidiary or affiliate. Section 5.33(g)(4) covers mergers into the national bank; § 5.33(g)(5) covers mergers into the nonbank subsidiary or affiliate. They implement a statute applicable only to national banks, not Federal savings associations.[68] In § 5.33(g)(4), we propose to add a clarification that the transaction is subject to review by the FDIC under the Bank Merger Act only when the national bank is insured. We also are removing the factors the OCC considers in reviewing these applications from § 5.33(g)(4)(i) and § 5.33(g)(5)(i). These factors would no longer be needed in these provisions as we have included them in proposed § 5.33(e)(1)(i) and applied them to all business combinations.

Proposed § 5.33(g)(6) addresses a consolidation or merger under 12 U.S.C. 214a of a national bank with a state bank resulting in a state bank (as defined in 12 U.S.C. 214(a)). This new paragraph is based on the portions of current § 5.33(g)(3) that address a consolidation or merger of a national bank into a state bank.[69] We also propose to add express provisions on procedures and dissenters' rights. These requirements are statutory and were implied in current § 5.33(g)(3)(i). We propose to move the provisions on termination of charter and notice to the OCC in current § 5.33(g)(3)(i) and (ii) to new § 5.33(k). In § 5.33(g)(6)(iv), we propose to include a requirement that the consolidation or merger agreement must address the effect upon, and the terms of the assumption of, any liquidation account of any other participating institution by the resulting institution. This requirement is based on provisions in §§ 146.2(b)(9) and 152.13(f)(9). Although not currently in § 5.33, it is a requirement for national banks as discussed in the OCC Licensing Manual.

We propose to add a new § 5.33(g)(7), similar to proposed § 5.33(g)(6), that would address a consolidation or merger of a Federal savings association into a state bank, state savings bank, state savings association, state trust company, or credit union. Under proposed § 5.33(g)(7)(i), such transactions would require only a notice to the OCC, not application and approval. This requirement is a change for Federal savings associations because, under § 163.22(c), an application is required for a combination with an uninsured bank, savings association or trust company or a credit union. Proposed § 5.33(g)(7)(ii) would address the procedures Federal savings association must follow to engage in the consolidation or merger and would require the association to follow the provisions of § 5.33(n) and (o), which are based on provisions in 12 CFR part 146 and 12 CFR 152.13 and 163.22. In addition, proposed § 5.33(g)(7)(ii) would include a provision under which a whole purchase and assumption of the target Federal savings association would be treated as a consolidation for the Federal savings association, so that the procedural requirements in paragraph (o) would apply. The current regulations, at 12 CFR part 146 and 12 Start Printed Page 33286CFR 152.13, apply these requirements to such transactions now through the definition of “combination” in § 152.13(b)(1), which includes a whole purchase and assumption transaction between depository institutions, in addition to a consolidation and a merger.

Proposed § 5.33(g)(7)(iii) would set out the process for appraisal of dissenters' shares of stock in a Federal stock savings association involved in a consolidation or merger into a state bank, state savings bank, state savings association, state trust company, or credit union. The process is similar to the process included in § 5.33(g)(3)(C), described above, for appraisal of dissenters' shares of stock in a Federal stock savings association involved in a consolidation or merger into a another Federal savings association. In § 5.33(g)(7)(iv), we propose to include a requirement that the consolidation or merger agreement must address the effect upon, and the terms of the assumption of, any liquidation account of any other participating institution by the resulting institution. This requirement is based on provisions in §§ 146.2(b)(9) and 152.13(f)(9). Although not currently in § 5.33, it is a requirement for national banks as discussed in the OCC Licensing Manual.

Section 5.33(i) provides for expedited review of business reorganizations (defined in § 5.33(d)(3)) and streamlined applications (described in § 5.33(j)). We propose to add Federal savings associations to § 5.33(d)(3) and § 5.33(j), so that Federal savings association applications that meet the requirements would be eligible for expedited review. Under expedited review, an application is deemed approved as of the later of the 45th day after the application was filed or the 15th day after the close of the comment period, unless the OCC notifies the applicant that the application is not eligible for expedited review or the expedited review process is extended. Business reorganizations are (1) a business combination between eligible depository institutions owned by the same holding company or (2) a business combination between an eligible bank or savings association and an interim national bank or interim Federal savings association that is being effected to form a holding company that would own the eligible bank or savings association. For both business reorganizations and streamlined applications, the acquiring bank must be an eligible bank and the resulting institution must be well capitalized. There are several types of streamlined applications. The different types of streamlined applications vary depending on the other institutions' status as eligible institutions, the amount by which the resulting institution would grow in size, and, in some cases, a pre-filing approval from the OCC to use a streamlined application.

Under the proposal, expedited review under § 5.33(j) would replace the automatic approval provision in § 163.22(f) for Federal savings associations. Under § 163.22(f), an application is deemed to be approved automatically 30 days after the OCC sends the applicant a written notice that the application is complete. An application would fall out of the automatic approval process in a number of specified circumstances. Many of these circumstances are the same as those that would cause an application not to be eligible for expedited review under § 5.33(j). However, the size-based limit included in § 163.22(f) is more restrictive than eligibility for expedited review as a business reorganization or streamlined application in § 5.33. Specifically, under § 163.22(f)(10), an application does not qualify for the automatic approval process if the acquiring institution has assets of $1 billion or more and proposes to acquire assets of $1 billion or more. Business reorganizations have no size limit. Streamlined applications under § 5.33(j) have limits based on the relative size of the acquiring institution and the assets to be acquired but do not have a fixed maximum dollar amount limit on the size. In addition, under § 163.22(f) a number of the other disqualifying conditions are based on the competitive impact of the proposed combination, creating safe harbors that the proposal must meet in order qualify for the automatic approval process. The OCC believes it is not necessary to include competitive impact thresholds in the regulation. When a streamlined application is filed, the OCC would review it, and if it raised potential competitive concerns, the OCC would notify the applicant that the application is not eligible for expedited review. Accordingly, the OCC proposes not to include the automatic approval process of § 163.22(f), but to add one of the disqualifying factors set forth in § 163.22(f) to the streamlined application provision. Specifically, under proposed § 5.33(j)(2), an applicant would not qualify for a streamlined business combination application if the transaction is part of a mutual to stock conversion under 12 CFR part 192.

We are proposing to add a new § 5.33(k) regarding notices to be filed when a national bank or Federal savings association is consolidating or merging with another national bank or Federal savings association or with a state chartered institution or credit union and the target national bank or Federal savings association is not the resulting institution. It also includes provisions regarding the steps to be taken to terminate the institution's status as a national bank or Federal savings association. This new provision gathers in one place material from current §§ 5.33(g)(3), 163.22(b) and 163.22(h)(1)(i) on filing the notice and the timing of the filing, material from § 163.22(h)(1)(i) and (ii) on the content of the notice, and material from §§ 5.33(g)(3), 146.2(g) and 152.13(k) on termination of the institution's status as a national bank or Federal savings association. There would be no change for Federal savings associations. However, national banks would be required to include more information in the notice than currently required in § 5.33. This additional information would include a short description of the transaction or a copy of the filing made by the acquiring institution to its regulators for approval of the transaction and information showing the target national bank or Federal savings association has complied with the requirements to engage in the transaction (e.g., board and shareholder approval). The OCC is adding the requirement to include the information in order to monitor the transaction to ensure the national bank or Federal savings association complies with applicable law. The information involved is information the institution already would have compiled. Finally, under proposed § 5.33(k)(5), if the business combination contemplated by the notice has not occurred within six months after receipt of the notice, a new notice must be submitted, unless the OCC grants an extension of time. This requirement is in § 163.22(h)(1)(ii), except that the time period is shortened from one year to be consistent with the expiration period for OCC approvals under § 5.33(e)(7). This expiration provision would be new for national banks. After six months the information in the original notice could be out of date. Moreover, such a delay in consummation of the transaction may indicate changes in the condition or circumstances of the parties. Treating the notice as having expired and requiring a new one is similar to the requirement in various sections of part 5 that an approval expires after the passage of a specified amount of time.

The OCC is proposing to add new § 5.33(l) addressing the transfer of assets, liabilities, rights, franchises, Start Printed Page 33287interests, and fiduciary appointments to the resulting national bank or Federal savings association and its status as the continuation of each participating institution, sometimes referred to as corporate succession. It reflects the corporate succession provisions in national bank statutes [70] and continues the substance of current regulations providing succession for a Federal savings associations when it is the resulting institution in a consolidation or merger.[71]

The OCC is proposing to add new § 5.33(m) addressing certification of a consolidation or merger and documentation of its effective date. Specifically, proposed § 5.33(m) would require the applicant to submit information showing that all steps needed to complete the transaction have been met and to notify the OCC of the planned consummation date. The OCC would then issue a certification letter documenting that the consolidation or merger occurred and specifying the effective date. This new section reflects current OCC practice for national banks. The new section accomplishes through an applicant notification letter and issuance of an OCC certification letter what § 152.13(j) does in requiring the applicant to submit two sets of “Articles of Combination” that are filed with the OCC, and then endorsed by the OCC, with one set returned to the applicant with a specification of the effective date. The difference in forms and terminology would not represent a change in substance for Federal savings associations.

The OCC is proposing to add a new § 5.33(n). It would include provisions in § 146.2 and § 152.13 that set out the authority for Federal savings associations to engage in various types of business combinations and limitations on that authority. Section 5.33(n)(1) is based on § 152.13(a). Section 5.33(n)(2) is based on § 146.2(a) and § 152.13(c). However, we propose to add authority to engage in other business combinations listed in current § 5.33(d)(2), including the authority to enter whole entity purchase and assumptions with any entity (by the cross-reference to 5.33(d)(2)(vi)) and the other combinations listed in § 5.33(d)(10). We also propose to omit the requirement to meet the requirements for Federal Home Loan Bank membership, since membership in a Federal Home Loan Bank is no longer mandatory. Section 5.33(n)(3) is based on § 146.2(d). Section 5.33(n)(4) is based on § 163.22(e)(2).

The OCC is proposing to add a new § 5.33(o). It would include various provisions in § 146.2 and § 152.13 that set out the procedural requirements for board, shareholder (in the case of stock savings associations), and, if required by the OCC, voting member (in the case of mutual savings associations) approval of business combinations involving the Federal savings association. As noted earlier, § 146.2 and § 152.13 use the term “combination” to include a whole purchase and assumption transaction, as well as a consolidation or merger, and therefore apply these procedural requirements to those transactions. Section 5.33 uses the term business combination more broadly. In order to avoid applying the requirements to a broader set of transactions and achieve the same result as § 146.2 and § 152.13, we propose to use “consolidation or merger” instead of “combination” in § 5.33(o), and require in § 5.33(g)(2), (g)(3), and (g)(7) that a whole purchase and assumption transaction be treated as a consolidation by a Federal savings association for purposes of applying the requirements of § 5.33(o).

Section 5.33(o)(1) is based on § 146.2(b) and 152.13(e), except that we propose to reduce the required majority for the board of directors approval for Federal stock savings associations from two-thirds to a majority. We are not proposing to reduce the requirement for Federal mutual savings associations, since the board of directors vote is the principal vote; there typically is not a vote of the voting members, unless the OCC requires it as provided in proposed § 5.33(o)(4). Section 5.33(o)(2) is based on § 146.2(g). Section 5.33(o)(3) is based on § 152.13(h). Section 5.33(o)(4) is based on § 146.2(e). We are not proposing to include in § 5.33 the requirements in § 146.2(b)(1) and 152.13(f) that require the savings association to include all terms regarding the combination in a combination agreement and set out in some detail provisions that the agreement must contain. OCC practice with respect to national banks has not been to include these requirements in detailed regulations, as the drafting of a merger agreement is a business matter for the participating parties. However, we note that the OCC Licensing Manual includes sample agreements.

Operating Subsidiaries of a National Bank (§ 5.34)

The proposal would make a number of changes to the provisions governing operating subsidiaries of national banks set forth at 12 CFR 5.34. Some of these changes would incorporate elements of the Federal savings association operating subsidiary regulations currently contained in 12 CFR 159 in order to promote consistency between the regulations for operating subsidiaries for both charters.[72] We also are proposing a number of other changes to clarify existing provisions in § 5.34.

Specifically, the OCC is proposing to amend the scope section in § 5.34(c) by including language from § 159.1(a) that provides that the OCC may, at any time, limit a national bank's investment in an operating subsidiary, or may limit or refuse to permit any activities in an operating subsidiary, for supervisory, legal, or safety and soundness reasons. While the OCC currently has this authority, we are proposing to clarify the regulation by explicitly including this language.

The proposal would add a new § 5.34(e)(1)(ii), which would provide that before beginning business, an operating subsidiary must comply with other laws applicable to it, including applicable licensing or registration requirements. This is not a new requirement for national banks. We are adding the language to clarify that compliance with § 5.34 and approval of an operating subsidiary by the OCC are not the only requirements that must be met.

Section 5.34(e)(2) provides the criteria for a subsidiary to qualify as a national bank operating subsidiary. Section 5.34(e)(2)(i)(A) currently states that the national bank must have the ability to control the management and operations of the subsidiary. The proposal would clarify this provision by adding that no other person or entity has the ability to control the management or operations of the subsidiary. This reflects OCC practice regarding national bank operating subsidiaries. The language is based on a provision in § 159.3(c)(1) and we have added it to be consistent with that provision and the new Federal savings association operating subsidiary regulation. Section 5.34(e)(5)(ii)(A)(3), as redesignated in the proposal, would also include this language. The redesignation is discussed below. The OCC also is proposing to revise § 5.34(e)(2)(i)(B) to clarify that, in Start Printed Page 33288instances where the bank owns less than 50 percent of an operating subsidiary (but still controls it), no other party can own a greater percentage than the bank. This reflects current OCC practice, as set out in the Comptroller's Licensing Manual. We also are proposing a new § 5.34(e)(2)(iii) to clarify that the national bank must have reasonable policies and procedures to preserve the limited liability of the bank and its operating subsidiaries. This provision has been adapted from § 159.10 and would be consistent with the new operating subsidiary rule for Federal savings associations. It clarifies that the requirement that the bank must control the operating subsidiary does not mean they should be treated as a single entity.

The OCC also is proposing to revise § 5.34(e)(3) to clarify that there are other instances where different treatment of the operating subsidiary and the parent national bank may occur in addition to those regarding the application of state law addressed by the Dodd-Frank Act.

Section 5.34(e)(5)(i) provides that national banks meeting certain requirements are not required to file a prior application but may give after-the-fact notice when establishing or acquiring an operating subsidiary or performing a new activity in an existing operating subsidiary. Section 5.34(e)(5)(ii) requires a prior application and OCC approval in other instances and sets out the information that must be included in the filing. We are proposing to reverse the order of the application and notice provisions so that the application provision is first. The change in order simplifies and clarifies the opening language of each paragraph. It also will make the order of these provisions the same as that of the similar provisions in the regulation for operating subsidiaries of Federal savings associations. The proposal would make technical revisions in § 5.34(e)(5)(ii)(A)(3), as redesignated in the proposal (current § 5.34(e)(5)(i)(A)(3)), to account for instances in which the operating subsidiary is a limited liability company. We also propose other clarifying and technical changes in redesignated § 5.34(e)(5)(i) through (v).

Section 5.34(e)(5)(vi) provides that no application or notice is required for a national bank that is well managed and adequately capitalized or well capitalized to acquire or establish an operating subsidiary or perform a new activity in an existing operating subsidiary, if the activities of the new subsidiary are limited to those previously reported to the OCC in connection with a prior operating subsidiary and certain other requirements are met. We are proposing to change the requirement from adequately capitalized to well capitalized. This is consistent with the well capitalized requirement to be eligible for the after-the-fact notice procedure.

The proposal also would amend § 5.34(e)(5)(vii) by codifying the OCC's position that when a national bank operating subsidiary wishes to act as a fiduciary, its national bank parent must have fiduciary powers and the operating subsidiary also must have its own fiduciary powers under the law applicable to the subsidiary. The operating subsidiary may not rely on the national bank's fiduciary powers. Further, this provision also would explicitly provide that when an operating subsidiary that exercises investment discretion on behalf of customers or provides investment advice for a fee is a registered investment adviser, it is not necessary for its national bank parent to have fiduciary powers. These provisions reflect OCC practice as set out in the Comptroller's Licensing Manual.

Finally, a new § 5.34(e)(5)(viii) would be added, providing that OCC approvals granted under § 5.34 expire within 12 months if a national bank has not established or acquired the operating subsidiary or commenced the new activity in an existing operating subsidiary, unless the OCC shortens or extends the time period. This is similar to provisions in other sections of part 5 regarding the expiration of an OCC approval.

National Bank and Federal Savings Association Investments in Service Companies (§ 5.35)

Twelve CFR 5.35 addresses national bank investments in bank service companies pursuant to the Bank Service Company Act, 12 U.S.C. 1861-1867. The Bank Service Company Act was amended in 2006 to permit Federal savings associations to invest in bank service companies.[73] The OTS did not adopt implementing regulations. The OCC is proposing to amend § 5.35 to make it applicable to Federal savings associations, to state explicitly certain authority of the OCC, to conform definitions to Dodd-Frank Act changes, and to make a number of technical changes. The changes for Federal savings associations are not likely to be very significant because Federal savings associations are already subject to the statute and the filing procedures in § 5.35 follow the statute.

The authority of Federal savings associations to invest in bank service companies under the Bank Service Company Act is separate from the authority to invest in service corporations under section 5(c)(4)(B) of the HOLA.[74] Accordingly, a Federal savings association's investments in bank service companies are not included in the investment limits for service corporations in section 5(c)(4)(B). They instead are subject to the separate limits of the Bank Service Company Act, codified at 12 U.S.C. 1862.

The OCC is proposing to amend the scope section in § 5.35(c) by including language, based on 12 CFR 159.1(a), that provides that the OCC may, for supervisory, legal, or safety and soundness reasons, limit at any time a national bank's or Federal savings association's investment in a bank service company or limit or refuse to permit any activities of any bank service company for which a national bank or Federal savings association is the principal investor.

In addition, the OCC is proposing a technical amendment to the definition of the term “depository institution” in § 5.35(d)(3) to conform it to 12 U.S.C. 1861(b)(4) as amended by section 357 of the Dodd-Frank Act. Section 357 of the Dodd-Frank Act also amended 12 U.S.C. 1861(b)(5) by striking the definition of “insured depository institution” and adding in its place a second definition of “depository institution” that refers to section 3 of the FDI Act. The OCC believes that the deletion of the term “insured depository institution” was inadvertent and not intended to effect a change because the statute continues to use this term throughout. Therefore, we have not changed the definition of “insured depository institution” in § 5.35(d)(4).

The OCC is also proposing to change the filing and review process of § 5.35(f)(2). It provides for an after-the-fact notice with no requirement for OCC approval before the bank makes the investment if specified eligibility conditions are met. We are proposing to change it to a prior notice with OCC approval through an expedited review process, under which the notice is deemed approved on the 30th day after filing unless the OCC notifies the filer otherwise. We believe this process follows the statutory provisions more directly. Along with this change we are adding some of the provisions in § 5.35(f)(2) regarding what must be Start Printed Page 33289included in the notice to the general provision covering the required information in paragraph (g) of § 5.35, since paragraph (g) will now apply to all filings, and eliminating duplication between current § 5.35(f)(2) and (g).

Finally, we are proposing to make a number of technical changes in §§ 5.35(c), (d)(3), (d)(4), (d)(6), (e), (f)(1), (f)(2), (f)(3), (f)(5) and (i).

Investment in National Bank or Federal Savings Association Premises (§§ 5.37, 7.1000, 7.3001)

Under 12 U.S.C. 29, a national bank can purchase and hold real property necessary to transact business and may hold real estate in exchange for debts previously contracted subject to certain divestiture requirements. Under 12 U.S.C. 371d, a national bank is required to obtain prior OCC approval to invest in bank premises, unless its aggregate investment and related indebtedness is less than or equal to either the bank's capital stock or 150 percent of the bank's capital and surplus (and the bank meets certain other criteria, as described below).

National banks are subject to several regulations that further delineate the parameters of their investment in and use of real property. Specifically, 12 CFR 7.1000 details the types of real estate that are necessary, pursuant to 12 U.S.C. 29, for a national bank's transaction of business, including premises owned and occupied by the bank, its branches, and its subsidiaries; property intended to be used for future bank expansion; and other property to be used by bank customers and employees. Section 7.1000 cross-references 12 CFR 5.37, which contains the quantitative limitations based on a national bank's capital that are specified in 12 U.S.C. 371d. Section 5.37 also prescribes the OCC premises approval process. Twelve CFR 7.3001 sets forth the rules that apply when a national bank shares its space and employees with other entities. Finally, 12 CFR 34.84 sets forth specific requirements for property held for future bank expansion.

No statute specifically addresses a Federal savings association's investment in banking premises.[75] However, regulatory provisions governing banking premises are issued pursuant to the OCC's general supervisory and rulemaking authority under the HOLA. Specifically, 12 CFR 160.37 permits a Federal savings association to invest in real estate, whether improved or unimproved, to be used for office and related facilities of the association if such investment is made and maintained under a prudent program of property acquisition to meet the association's present needs for office and related facilities and the outstanding book value of these investments does not exceed the association's total capital. In addition, OCC regulations at 12 CFR part 159 recognize certain real estate-related activities as permissible for a Federal savings association service corporation, including real estate development and the acquisition of real estate for use by a stockholder of the service corporation. OCC guidance provides that a Federal savings association ordinarily must obtain prior OCC approval if such investments would exceed the amount of its total capital.[76] Currently, a Federal savings association seeking to exceed the total capital limitation would request a waiver under 12 CFR 100.2.

The OCC proposes numerous changes to these regulations, including applying the national bank regulations to Federal savings associations, rescinding 12 CFR 160.37, and making clarifying amendments. The details of these proposed changes are set forth below.

National bank ownership of property (12 CFR 7.1000). The OCC proposes to amend 12 CFR 7.1000 to make it applicable to Federal savings associations and to make other changes described below. While we do not believe that there are significant substantive differences between § 7.1000 and § 160.37 and related OTS guidance, § 7.1000 provides additional detailed regulatory guidance that we believe, as a supervisory matter, is appropriate to apply to both national banks and Federal savings associations.

Under proposed § 7.1000(a), a Federal savings association would be permitted to invest in real estate necessary to transact its business. Proposed § 7.1000(a)(2) would provide a non-exclusive list of permissible real estate investments for Federal savings associations. These investments are generally permitted for Federal savings associations under § 160.37, with the addition of lodging for customers, officers, or employees of the Federal savings association, its branches or consolidated subsidiaries in areas where suitable commercial lodging is not readily available, which is currently permissible for national banks.

Under § 7.1000(a)(3), a national bank is permitted to hold premises through any reasonable and prudent means, including fee ownership, leasehold estate, and interest in a cooperative. It also is permitted to hold such premises directly or through one or more subsidiaries and to organize a premises subsidiary as a corporation, partnership, or similar entity, such as a limited liability company. Section 160.37 permits a Federal savings association to invest in real estate, whether improved or unimproved, to be used for office and related facilities of the association under certain conditions, though it does not address how a Federal savings association may hold such premises. By adding Federal savings associations to proposed § 7.1000(a)(3), the OCC is making clear that a Federal savings association may hold its premises in any of the means set forth in that section. In addition, the proposal adds a new paragraph to recognize a Federal savings association's separate authority under part 159, as proposed to be amended and redesignated as 12 CFR 5.59 in this rulemaking, to acquire and hold banking premises in a service corporation.

In paragraph (c)(1) of § 7.1000, we propose to delete the reference to 12 U.S.C. 371d and replace it with language to clarify that the quantitative limitations in § 5.37(d)(1)(i) and (d)(3)(i) govern when OCC approval is required to invest in banking premises, in order to encompass Federal savings associations. We propose to amend § 7.1000(c)(2) by dividing it into two separate paragraphs. Proposed paragraph (c)(2)(i) would clarify that a national bank or Federal savings association must seek approval to invest in banking premises in accordance with § 5.37(d). New paragraph (c)(2)(ii) would clarify that a Federal savings association that invests in banking premises through a service corporation must comply with the quantitative limitations in § 5.37(d), and, to the extent applicable, § 5.59. As described below, proposed amendments to § 5.37(d) would clarify which requirements in § 5.37(d) would apply to service corporations.

Under redesignated § 7.1000(c)(3), a national bank must receive OCC approval to exercise an option to purchase banking premises or stock in a corporation holding banking premises if the price of the option and the bank's other investments in banking premises exceed the amount of the bank's capital stock. We propose to simplify paragraph (c)(3) by removing the unnecessary language explaining when approval is required and replacing it with a statement that the national bank or Federal savings association must comply with the requirements in Start Printed Page 33290§ 5.37(d). The procedures in § 5.37(d) are discussed below. In addition, we propose to make other nonsubstantive, clarifying changes. Section 160.37 does not address an option to purchase banking premises or stock in a corporation holding banking premises; therefore, this would be a new requirement for a Federal savings association.

We propose to delete § 7.1000(d), Other real property, because the two examples provided are based on well-established precedent and we believe it is unnecessary to include them in § 7.1000. Section 7.1000(d) was not intended to be a limitation on ownership of real property, and deleting it would eliminate the need to add clarifying language stating that national banks and Federal savings associations may have other sources of authority. Furthermore, deleting § 7.1000(d) would simplify § 7.1000 by limiting it to real estate necessary for the transaction of business.

Section 34.84 provides rules for a national bank's investment in future banking premises and is contained in the OCC's rules on “other real estate owned” (OREO). Specifically, this section provides that a national bank normally should use real estate acquired for future expansion within five years and, after holding such real estate for one year, must state, by resolution of the board of directors or an appropriate authorized bank official or a subcommittee of the board of directors, definite plans for use of such real estate.[77] This resolution or other official action must be available for inspection by bank examiners. We propose to move § 34.84 from part 34, subpart E, Other real estate owned, to § 7.1000 as paragraph (d) because it relates to banking premises, not other real estate owned, and amend it to include Federal savings associations. The revised “Other Real Estate Owned” booklet of the Comptroller's Handbook applies this 5-year timeframe for the use of real estate acquired for future premises to Federal savings associations. Thus, the regulatory requirements regarding future banking premises under proposed § 7.1000(d) would codify existing OCC policy for Federal savings associations.

To minimize practical difficulties that may arise as a result of these changes, we propose to add a transition provision, § 7.1000(e), that would grandfather Federal savings associations' existing premises investments, provided the investment complies with the legal requirements in effect prior to the publication date of this proposal and continues to comply with those requirements. However, modifying, expanding, or improving such investments, with the exception of routine maintenance, would require prior approval of the appropriate OCC supervisory office. We believe it is appropriate to require prior approval in such circumstances to ensure safety and soundness concerns are satisfied and to apply consistent standards to national banks and Federal savings associations.

Sharing space and employees (§ 7.3001). The OCC proposes to amend 12 CFR 7.3001 to make it applicable to Federal savings associations. While § 7.3001 is more detailed than OTS guidance, as described below, we do not believe that there are substantive differences in the way in which savings associations share offices and employees. Section 7.3001 provides additional guidance on how to share offices and employees in a manner that protects customers and is consistent with safe and sound banking practices. The OCC believes that, as a supervisory matter, it is appropriate to apply similar specific safety and soundness restrictions to both national banks and Federal savings associations.

Specifically, section 7.3001 provides for the sharing of office space and employees. Section 160.37 does not specifically provide for such sharing arrangements; however, through guidance a Federal savings association is authorized to share space in a manner similar to that provided in § 7.3001, and the safety and soundness requirements imposed are substantially similar, though not identical, to those imposed by § 7.3001(c). For example, both the guidance and § 7.3001(c) prohibit joint ventures but the methods to determine what constitutes a joint venture are different. Under § 7.3001(c)(3), what constitutes a joint venture or partnership is determined by applicable state law. In addition, under proposed § 7.3001(a), a Federal savings association would be permitted to: (1) Lease excess space on banking premises to one or more other businesses (including other banks, Federal or state savings institutions, or financial institutions); (2) share space jointly held with one or more other businesses; or (3) offer its services in space owned or leased to other businesses. Under proposed § 7.3001(b), as part of such a sharing arrangement, a Federal savings association may, pursuant to a written agreement, agree that its employee may act as an agent for the other business, or an employee of the other business may act as an agent for the savings association. Under proposed § 7.3001(c), a Federal savings association sharing office space would be required to satisfy eight requirements intended to ensure that the practice of sharing space was conducted in a safe and sound manner and also provides customer protections. This treatment is substantially similar to that in OCC guidance for Federal savings associations.[78]

To minimize practical difficulties that may arise as a result of these changes, we propose to add a transition provision, § 7.3001(e), that would grandfather existing sharing arrangements, provided such sharing arrangements comply with the legal requirements in effect prior to the publication date of this proposal and continue to comply with those requirements. However, the association may not amend or renew the agreement, or extend the agreement beyond its current term, without the prior approval of the appropriate OCC supervisory office. We believe it is appropriate to require prior approval in such circumstances to ensure customers are protected and safety and soundness concerns are satisfied and to apply consistent standards to national banks and Federal savings associations.

Investment in banking premises (§ 5.37). The OCC proposes to amend § 5.37 to make it applicable to Federal savings associations and to make other changes as described below. The OCC believes that, for safety and soundness purposes, it would be prudent to apply the procedures and quantitative investment limitations in § 5.37 to both national banks and Federal savings associations. In addition, we believe that consistent standards should be applied to national banks and Federal savings associations.

Specifically, § 5.37(d)(1)(i) requires a national bank to submit an application to the appropriate supervisory office to make an investment in banking premises, or to make loans to or upon the security of the stock of such a corporation, if the aggregate of all such investments and loans, together with the indebtedness incurred by any such corporation that is an affiliate of the national bank, will exceed the amount of its capital stock. Section 5.37(c) defines “bank premises” as including (but not limited to): (1) Premises that are owned and occupied (or to be occupied, Start Printed Page 33291if under construction) by the bank, its branches, or its consolidated subsidiaries; (2) capitalized leases and leasehold improvements, vaults, and fixed machinery and equipment; (3) remodeling costs to existing premises; (4) real estate acquired and intended, in good faith, for use in future expansion, or (5) parking facilities that are used by customers or employees of the bank, its branches, and its consolidated subsidiaries. In contrast, § 160.37 does not contain such a detailed definition and states, in general, that real estate may be used for office and related facilities for the association's current and future use.

Section 5.37(d)(1)(ii) requires the application to include a description of the bank's present investment in banking premises, the investment in such premises that the bank intends to make, the business reason for the investment, and the amount by which the national bank's aggregate investment will exceed the amount of its capital stock. Section 5.37(d)(2) provides information regarding the approval process, including that an application is deemed approved on 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. We propose to make these provisions applicable to a Federal savings association and to make other nonsubstantive, clarifying changes.

Section 5.37(d)(3) provides an alternative, after-the-fact notice process if a national bank satisfies certain requirements. Specifically, a national bank may make an aggregate investment in banking premises up to 150 percent of its capital and surplus without the OCC's prior approval and instead may provide the OCC with after-the-fact notice, provided the national bank has a 1 or 2 CAMELS rating, is well capitalized as defined in 12 CFR part 6, and will continue to be well capitalized after the investment or loan is made. The proposal makes these provisions applicable to Federal savings associations. However, a Federal savings association may not be eligible for after-the-fact notice if 12 U.S.C. 1828(m)(1) applies to the transaction. Twelve U.S.C. 1828(m)(1) requires a Federal savings association to file a 30-day prior notice when it establishes or acquires a subsidiary or when it conducts a new activity in a subsidiary. Thus, a Federal savings association would not be eligible for the after-the-fact notice process described in 5.37(d)(3)(i) if it proposes to establish or acquire a subsidiary to make an investment in banking premises, or if investing in banking premises would be a new activity for such a subsidiary. In those circumstances, the Federal savings association would be required to comply with the provisions of § 5.38 in the case of an operating subsidiary or § 5.59 in the case of a service corporation. Accordingly, we propose to reorganize current § 5.37(d)(3) by redesignating it § 5.37(d)(3)(i), General rule, and adding a new paragraph (d)(3)(ii), Exception, to describe the circumstances under which a Federal savings association would not be eligible for the after-the-fact notice process and to identify what requirements would apply.

Furthermore, a Federal savings association's investments in banking premises through a service corporation would not be subject to the premises application and notice requirements of § 5.37(d); instead, a Federal savings association wound need to comply with the requirements in proposed § 5.59. However, the amount of such an investment must be included when calculating the quantitative limitations in paragraph (d). Therefore, we propose to redesignate current § 5.37(d)(4), Exceptions to rules of general applicability, as proposed paragraph (d)(5), and add a new paragraph (d)(4) to clarify the treatment of an investment in banking premises through a service corporation.

As indicated above, pursuant to 12 U.S.C. 29 and 371d, § 5.37 provides that the quantitative limitations on a national bank's investment in banking premises are expressed as a percentage of “capital stock” or “capital and surplus.” Under § 160.37, the sole quantitative limit on a Federal savings association's investment in banking premises is based on “total capital.” [79] We propose to apply the quantitative investment limitations currently applicable to national banks to Federal savings associations, with the exception of Federal mutual savings associations, as discussed more fully below. To avoid confusion, we also propose to add definitions for the terms “capital stock” and “capital and surplus” in paragraph (c). Because the vast majority of national banks and Federal savings associations have a CAMELS rating of 1 or 2,[80] we believe the relevant limit for a Federal savings association generally would be “capital and surplus,” which is not materially different from “total capital.” In addition, for a Federal savings association that satisfies the criteria in proposed § 5.37(d)(3)(i), the quantitative limitation would be 150 percent of capital and surplus, which would be a greater amount than 100 percent of “total capital.” Thus, we expect that under the proposal, the amount that a Federal savings association could invest in banking premises without OCC approval would be increased, thereby reducing burden on those Federal savings associations. For Federal savings associations that do not have a CAMELS rating of 1 or 2 and are not well capitalized, the relevant limitation would be “capital stock,” which is a significantly lower threshold than “total capital” in § 160.37. While we are aware that this new lower threshold likely would increase the burden on low-rated Federal savings associations, we believe that additional scrutiny of investments in banking premises by such Federal savings associations is warranted for safety and soundness purposes.

In the case of a Federal mutual savings association, which by definition does not issue stock, a limit based on capital stock cannot apply to such associations. However, we believe it is important, wherever possible, to apply consistent standards to national banks Start Printed Page 33292and Federal savings associations, both from a safety and soundness perspective and an administrative perspective. Accordingly, because a Federal mutual savings association's equity capital consists primarily of retained earnings, we propose to use retained earnings as a proxy for capital stock for purposes of the quantitative limitations on investments in banking premises by Federal mutual savings associations. Such a limitation based on retained earnings would not be a significant change for a Federal mutual savings association since generally “total capital” of a Federal mutual savings association mostly consists of retained earnings. Moreover, under the proposal, a Federal mutual savings association that is CAMELS 1- or 2-rated would have a higher limit of 150 percent of retained earnings.

Question 6: We request comments on whether a limit based on the amount of retained earnings for a Federal mutual savings association's investment in bank premises provides a basis of measurement that is most comparable to capital stock for Federal stock savings associations.

Finally, we propose to amend § 5.37 by adding a new paragraph (e) to provide an appropriate transition provision that would grandfather existing banking premises investments, provided the investment complies with the legal requirements in effect prior to the publication date of this proposal, and continues to comply with those requirements. However, modifying, expanding, or improving such an investment, with the exception of routine maintenance, would require prior approval of the appropriate OCC supervisory office. We believe it is appropriate to require prior approval in such circumstances to ensure safety and soundness concerns are satisfied and to apply consistent standards to national banks and Federal savings associations.

Question 7: Because of the differences in corporate organization between a Federal stock savings association and a Federal mutual savings association, we request comments on whether it would be more appropriate and less burdensome to both types of savings associations to retain separate banking premises rules for national banks and Federal savings associations.

Operating Subsidiaries of Federal Savings Associations (New § 5.38)

Twelve CFR part 159 addresses subordinate organizations of Federal savings associations. This part covers both operating subsidiaries and other subsidiaries of Federal savings associations such as service corporations. The OCC is proposing to create a new § 5.38 to address only operating subsidiaries of Federal savings associations [81] and to remove those provisions of part 159 that address Federal savings association operating subsidiaries.[82] In order to harmonize the regulations applicable to Federal savings associations with those that apply to national banks, § 5.38 is based on current OCC regulations at 12 CFR 5.34. Many of the provisions in proposed § 5.38 and § 5.34 are nearly identical. Many of the requirements in proposed § 5.38 are similar to those in part 159. There are some differences between the proposal and provisions in part 159, as well as differences between § 5.38 and § 5.34. These differences are described below.

Paragraph (b) of § 5.38 mirrors paragraph (b) of § 5.34 and would require a Federal savings association to file an application to acquire or establish any operating subsidiary or to commence a new activity in an existing operating subsidiary. Under §§ 159.1(a) and 159.11, Federal savings associations must give 30 days' notice [83] to the OCC prior to establishing or acquiring an operating subsidiary or commencing a new activity in an operating subsidiary. Section 159.11 requires a filing when it is required under 12 U.S.C. 1828(m), and section 1828(m) does not require a filing if the subsidiary is an insured depository institution.[84] Proposed § 5.38(b) would require an application to acquire an insured depository institution as an operating subsidiary,[85] in order to provide the OCC with an appropriate opportunity to review the proposed transaction.

Section 159.3(a)(1) also provides that any finance subsidiary that existed on January 1, 1997 is deemed to be an operating subsidiary without further action by the savings association. The OCC is proposing to omit this provision from § 5.38 as not needed and without intent to make any change in substance.

Question 8: The OCC requests comment on whether the provision should be retained from any Federal savings associations that may still have a finance subsidiary that existed on January 1, 1997.

Paragraph (c) of § 5.38 addresses the scope of this section. This paragraph mirrors proposed paragraph (c) of § 5.34, including the additional language currently contained in § 159.1(a) that would permit the OCC to limit a Federal savings association's investment in an operating subsidiary or limit or refuse to permit any activities of an operating subsidiary for supervisory, legal, or safety and soundness reasons. While the OCC currently has this authority, we are proposing to clarify the regulation by explicitly including this language.

Paragraph (d) of § 5.38 sets out definitions for “well capitalized” and “well managed,” which will be used as part of the determination of which applications are eligible for expedited review by the OCC. These definitions are the same as those in § 5.34(d), and the OCC uses these terms as criteria to permit national banks to make an after-the-fact notice filing pursuant to § 5.34(e)(5). They are used similarly in proposed § 5.38 to determine if an application by a Federal savings association is eligible for expedited review.

Like §§ 159.3(e)(1) and 5.34(e)(1)(i), paragraph (e)(1)(i) of § 5.38 provides that a Federal savings association may conduct in an operating subsidiary activities that are permissible for the savings association to engage in directly. The proposal also would add a new § 5.34(e)(1)(ii), which would provide that before beginning business, an operating subsidiary must comply with other laws applicable to it, including applicable licensing or registration requirements. This requirement is not new for Federal savings associations. The language is being added to clarify that compliance with § 5.38 and approval of an operating subsidiary by the OCC are not the only requirements that must be met. The proposal would add a similar provision to § 5.34 for national banks.

Pursuant to § 159.3(c)(1), a Federal savings association must own, directly or indirectly, more than 50 percent of the voting shares of an operating subsidiary and no one else may exercise effective operating control. Proposed § 5.38(e)(2) describes what entities are “qualifying subsidiaries” for purposes of § 5.38. This provision mirrors Start Printed Page 33293§ 5.34(e)(2). Unlike § 159.3(c)(1), the proposal includes as a qualifying subsidiary one in which the savings association owns less than 50 percent of the voting shares. Specifically, under the proposal, a qualifying subsidiary is one in which: (1) 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 do so, and (2) the savings association owns and controls more than 50 percent of the voting (or similar type of controlling) interest of the operating subsidiary, or the parent savings association otherwise controls the operating subsidiary and no other party controls a greater percentage of the voting (or similar type of controlling) interest of the operating subsidiary than the Federal savings association. In addition, as is currently the case under part 159, the operating subsidiary would need to be consolidated with the savings association under Generally Accepted Accounting Principles (GAAP). Proposed § 5.38(e)(2)(iii), adapted from § 159.10, would expressly require the savings association to have reasonable policies and procedures to preserve the limited liability of the savings association and its operating subsidiaries. Furthermore, it clarifies that the requirement that the savings association must control the operating subsidiary does not mean they should be treated as a single entity.

Proposed paragraph (e)(3) of § 5.38 mirrors proposed § 5.34(e)(3). Similar to § 159.3(h)(1), paragraph (e)(3) generally provides that an operating subsidiary of a Federal savings association conducts activities pursuant to the same authorization, terms, and conditions that apply to the parent savings association, unless otherwise specifically provided by statute, regulation or published OCC policy. It also includes reference to the provisions in the Dodd-Frank Act regarding the application of state law, the subject of which is currently addressed in § 159.3(n)(1), and language to clarify that there are other instances in which different treatment of the operating subsidiary and the parent Federal savings association may occur, in addition to those regarding the application of state law addressed by the Dodd-Frank Act. In addition, this paragraph provides that, subject to certain statutory limitations, if the OCC determines that an operating subsidiary is in violation of law, regulation, or written condition, or in an unsafe or unsound manner or otherwise threatens the safety or soundness of the bank, the OCC will direct the savings association or operating subsidiary to take appropriate remedial action, which may include requiring the savings association to divest or liquidate the operating subsidiary, or discontinue specified activities. This is similar to provisions in § 159.3(q)(1).

Proposed § 5.38(e)(4) addresses consolidation of figures and provides that the savings association and its operating subsidiaries shall be combined for purposes of applying statutory or regulatory limitations when the combination is needed to effect the intent of the statute or regulation. Twelve U.S.C. 1467a(m)(5) governs consolidation for purposes of calculating portfolio assets and the qualified thrift lender test. These provisions are consistent with §§ 159.3(i)(1), (j)(1), (k)(1), and (m)(1).

Section § 159.11 provides that when required by 12 U.S.C. 1828(m), Federal savings associations must file a notice at least 30 days prior to establishing or acquiring an operating subsidiary or conducting a new activity in an existing operating subsidiary. The OCC processes this notice in a manner similar to the OCC's expedited review for applications and notices of national banks.[86] Proposed paragraph (e)(5) of § 5.38 sets out the detailed procedures a Federal savings association must follow when filing applications required under § 5.38.[87] Paragraph (e)(5)(i)(B) of § 5.38 describes the contents of the application and mirrors § 5.34(e)(5)(i)(B), as redesignated in this proposal, currently at § 5.34(e)(5)(ii)(B). Paragraph (e)(5)(ii)(A) of § 5.38 also mirrors § 5.34 and provides for expedited review of applications to establish or acquire an operating subsidiary, or to perform a new activity in an existing operating subsidiary. These applications would be deemed approved by the OCC as of the 30th day after the filing is received, unless the OCC notifies the savings association otherwise during the 30-day period.[88] In order to be eligible for expedited review, proposed § 5.38(e)(5)(ii)(B) provides that the savings association must be “well capitalized” and “well managed,” the activities to be performed by the operating subsidiary must be listed in § 5.38(e)(5)(v), and the operating subsidiary must be a corporation, limited liability company, or limited partnership. In addition, the savings association must clearly demonstrate control over the operating subsidiary, i.e., the savings association: (1) Must have the ability to control the management and operations of the operating 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; (2) must hold more than 50 percent of the voting, or equivalent, interests in the operating subsidiary, and, in the case of a limited partnership or limited liability company, the savings association or an operating subsidiary thereof must be the sole general partner of the limited partnership or the sole managing member of the limited liability company; and (3) must be required to consolidate its financial statements with those of the operating subsidiary under GAAP.

The proposed expedited review process would operate much like the process in § 159.11. As indicated above, under § 159.11 all Federal savings associations that wish to establish or obtain an interest in an operating subsidiary file a notice with the OCC when required under 12 U.S.C. 1828(m). Then, unless the OCC notifies the savings association within 30 days that the notice presents supervisory concerns or raises significant issues of law or policy, in which case the savings association must apply for approval under standard treatment processing procedures under part 116, the savings association may proceed with the operating subsidiary. Under § 159.11, all filings begin and are processed in this manner. Under the proposed § 5.38 expedited review process, only filings that meet the eligibility requirements can begin as an expedited review application. However, we do not believe this change will make a large difference for savings associations in practice. A filing that would not meet the eligibility requirements (clear showing of control, clearly permissible activity, a Federal savings association that is well managed and well capitalized) under the proposal would have a high likelihood of presenting supervisory concerns or raising significant issues of law or policy that would require an application under part 159.

Proposed paragraph (e)(5)(iii) of § 5.38 provides that the rules of general applicability at 12 CFR 5.8 (requiring public notice), 5.10 (addressing public Start Printed Page 33294comments received), and 5.11 (addressing requests for hearings or other meetings) do not apply to § 5.38, but the OCC may determine that any of these rules apply if the OCC concludes that the application presents significant or novel policy, supervisory, or legal issues.

Proposed paragraph (e)(5)(v) of § 5.38 sets out a list of activities that are eligible for expedited review. This list is based on the list of activities eligible for notice for national banks in § 5.34(e)(5)(v), but has been adapted for Federal savings associations, removing activities that are not permissible for Federal savings associations to conduct directly and listing only those activities that have been approved for operating subsidiaries of Federal savings associations in the past.

Question 9: The OCC requests comments and suggestions for other activities that should be added to the list of activities that are eligible for expedited review, and on other changes to the list. Commenters proposing an activity should include reference to the precedent approving the activity to be conducted directly by a Federal savings association or in an operating subsidiary. An approval to conduct an activity in a service corporation is not sufficient unless the precedent's analysis states the activity is one that could be conducted directly in a Federal savings association.

Section 159.3(p)(1) provides that a Federal savings association must consult with the appropriate OCC licensing office prior to redesignating a service corporation as an operating subsidiary. It also requires the Federal savings association to make available for examination adequate internal records demonstrating that the redesignated office meets all of the requirements for an operating subsidiary and that the board of directors has approved of the redesignation. Proposed paragraph (e)(5)(vi) of § 5.38 would require a Federal savings association to provide 30 days' prior notice to the OCC when the savings association wants to redesignate a service corporation as an operating subsidiary.

Proposed paragraph (e)(5)(vii) of § 5.38 mirrors proposed § 5.34(e)(5)(vii) and provides that when a Federal savings association operating subsidiary wishes to act as a fiduciary, its savings association parent must have fiduciary powers and the operating subsidiary also must have its own fiduciary powers under the law applicable to the subsidiary. The operating subsidiary may not rely on the savings association's fiduciary powers. Further, this provision also would explicitly provide that when an operating subsidiary that exercises investment discretion on behalf of customers or provides investment advice for a fee is a registered investment adviser, it is not necessary for its savings association parent to have fiduciary powers. These provisions reflect OCC practice for national banks as set out in the Comptroller's Licensing Manual.

Proposed paragraph (e)(5)(viii) of § 5.38 would provide that an OCC approval granted under § 5.38 expires within 12 months if a Federal savings association has not established or acquired the operating subsidiary or commenced the new activity in an existing operating subsidiary, unless the OCC shortens, or extends the time period. We also are adding this provision to § 5.34 for national banks. As previously indicated, this provision is similar to others in part 5 regarding the expiration of an OCC approval.

Proposed paragraph (e)(6) of § 5.38 contains provisions regarding grandfathered Federal savings association operating subsidiaries. It is modeled on § 5.34(e)(6) and provides that, notwithstanding the requirements for a qualifying operating subsidiary in § 5.38(e)(2) and unless otherwise notified by the OCC with respect to a particular operating subsidiary, an operating subsidiary that a Federal savings association lawfully acquired or established before June 10, 2014 may continue to operate as a Federal savings association operating subsidiary, provided that the savings association and the operating subsidiary were, and continue to be, conducting authorized activities in compliance with the standards and requirements applicable when the operating subsidiary was established or acquired.

Proposed paragraph (e)(7) addresses the issuance of securities by an operating subsidiary. It is based on portions of § 159.12(a) and (c).

Proposed paragraph (e)(8) of § 5.38 requires Federal savings associations to file an annual report on operating subsidiaries that do business directly with consumers in the United States and are not functionally regulated subsidiaries, which the OCC will make available to the public at www.OCC.gov. This provision mirrors § 5.34(e)(7) as well as the proposed provision in § 5.59 with respect to service corporations. There is no similar provision in part 159. This report enables the public to be aware of when they are dealing with an operating subsidiary of a Federal savings association. This report also provides information to the OCC on which Federal savings association operating subsidiaries are currently active.

Finally, a chart in § 159.3 provides a detailed side-by-side comparison of operating subsidiaries and service corporations. The proposal includes some of this information from this chart in various provisions of § 5.38, such as the specific items that are necessary to set out qualifying requirements and licensing requirements. Furthermore, proposed § 5.38(e)(4), consolidation of figures, covers provisions included in the chart at §§ 159.3(i)(1), (k)(1), (l)(1), and (m)(1).[89] Other provisions of the chart are not necessary to include in a regulation as they merely repeat applicable law and are in the chart for purposes of the comparison with service corporations. These provisions include §§ 159.3(b)(1), (d)(1), (f)(1), (g)(1), and (j)(1). While the OCC is proposing to remove the chart from its regulations, we are considering including a similar chart in the Comptroller's Licensing Manual as a reference.

Change in Location of Main Office/Home Office (§ 5.40)

Twelve CFR 5.40 addresses changes in location of a national bank's main office. Twelve CFR 145.91, 145.93 and 145.95 address changes in location of a Federal savings association's home office.[90] While these rules address a common subject there are a number of differences between them. We are proposing to harmonize the procedures for national banks and Federal savings associations and to consolidate our regulations by amending 12 CFR 5.40 to apply to Federal savings associations and to remove 12 CFR 145.91, 145.93 and 145.95.[91] As described below, as a result of this proposal, Federal savings associations would be subject to certain additional notices and applications to assist the OCC in monitoring these institutions' activities. Although these procedures are different from those that savings associations currently follow when taking certain actions with respect to their home offices, we expect those institutions that would qualify for treatment as highly-rated savings associations under the current regulation will also qualify for expedited treatment under the proposed Start Printed Page 33295regulation, resulting in only minimal additional requirements.

Pursuant to § 145.93(a), a Federal savings association must file an application or notice with the OCC and receive approval or non-objection prior to changing the permanent location of its home office or prior to establishing a new home office. However, § 145.93(b) provides that an application or notice is not required for a Federal savings association to: (i) Establish a drive-in or pedestrian office within 500 feet of a public entrance to its existing home office; (ii) make a short-distance relocation of its home office; or (iii) redesignate an existing branch office as a home office when redesignating the existing home office as a branch office. In addition, § 145.93(b) permits certain highly-rated Federal savings associations to change the permanent location of their home office or establish a new home office if the associations meet certain requirements without filing a notice or application. Section 145.95 contains processing procedures that apply to the aforementioned transactions.

The proposal would reorganize § 5.40 slightly and apply it to Federal savings associations, discontinuing the exceptions to filing applications or notices under § 145.93(b) and replacing the applicable processing procedures contained in § 145.95 with those contained in part 5 of our regulations.

Currently, § 5.40(b) generally sets out the licensing requirements for national banks to relocate their main office and § 5.40(c) sets out the scope of the rule. Section 5.40(d)(1) provides that national banks may relocate their main office to an authorized branch location within the same city, town, or village limits by giving prior notice to the OCC and § 5.40(d)(2) provides that a national bank may relocate its main office to any other location, by filing an application with the OCC. Section 5.40(d)(3) requires national banks to obtain OCC approval pursuant to the standards in § 5.30 in order to establish a branch at the site of a former main office. Section 5.40(d)(4) provides that an application submitted by an eligible national bank to move its main office to a location other than an authorized branch location will be approved by the OCC as of the 15th day after the close of the public comment period or the 45th day after the filing is received by the OCC, whichever is later, unless the OCC notifies the bank prior to that time that the filing is not eligible for expedited review, or the expedited review period is extended under § 5.13(a)(2). Section 5.40(d)(5) provides for exceptions to rules of general applicability in part 5 for relocations to an authorized branch location within the same city, town, or village limits. Finally, § 5.40(e) provides that an OCC approval of a main office relocation shall expire if the national bank has not opened its main office at the relocated site within 18 months of the date of the approval.

The proposal would redesignate the scope section as § 5.40(b) and would combine former paragraphs (b) and (d), which address licensing requirements and procedures, into a redesignated § 5.40(c). The proposal also generally would amend these newly redesignated provisions to apply to Federal savings associations. Proposed § 5.40(c)(1) would require national banks and Federal savings associations to give prior notice to the OCC when relocating a main office or home office, as applicable, to an authorized branch location within city, town, or village limits. Propose § 5.40(c)(2)(i) would require national banks to submit an application to the appropriate OCC licensing office in order to relocate a main office to any location other than an authorized branch location in the city, town, or village in which the main office of the bank is located or to any other location within 30 miles of the limits of such city, town, or village. As in the current rule, if a national bank is relocating its main office outside the limits of its city, town, or village, the national bank also would be required to obtain the approval of shareholders owning two-thirds of the voting stock of the bank and to amend its articles of association. Proposed § 5.40(c)(2)(ii) would require a Federal savings association to submit an application to the appropriate OCC licensing office and obtain prior OCC approval to relocate its home office to any location other than an authorized branch location within the city, town, or village in which the home office of the savings association is located. As with a national bank, a Federal savings association relocating the home office outside the limits of its city, town, or village would be required to amend its charter. Proposed § 5.40(c)(3) would require a national bank or Federal savings association to follow the provisions of § 5.30 or § 5.31, respectively, in order to establish a branch at the site of a former main office or home office. Proposed § 5.40(c)(4) would provide expedited review for applications submitted under paragraph (c)(2) (relocations of a main office or home office to any location other than an authorized branch location) for eligible Federal savings associations as well as eligible national banks. The proposal also would revise the expedited review time for short-distance relocations of a main office or home office so that they would be deemed approved 15 days after the close of the comment period or 30 days after the date the notice is filed, whichever is later. This change would reflect the shorter 15-day comment period for short-distance relocations.

Proposed § 5.40(c)(5) would provide exceptions to the OCC's rules of general applicability in part 5 of the OCC's regulations for relocations of a main office or home office to an authorized branch location within city, town, or village limits under paragraph (c)(1) and applies these exceptions to Federal savings associations. Redesignated § 5.40(d) of the proposal would require Federal savings associations, like national banks, to open a relocated home office within 18 months from the date of OCC approval, unless the OCC grants an extension. Under § 145.95(c), Federal savings associations currently must open or relocate a home office for which they have received approval or non-objection from the OCC within 12 months.

Corporate Title (§ 5.42)

Sections 5.42 and 143.1 of Title 12 set forth applicable standards and procedures for when a national bank or Federal savings association, respectively, seeks to change its corporate title. Under § 5.42(c), a national bank may change its corporate title without prior notice to the OCC if the new title includes the word “national” and complies with other OCC guidance and Federal laws, including laws regarding false advertising and misuse of names. In addition, if the national bank's articles of association specify the corporate title, § 5.42(d)(2) requires the bank to amend the articles in accordance with 12 U.S.C. 21a, which specifically addresses amendments to national bank articles of association.

Pursuant to § 143.1(b), a Federal savings association must provide the OCC with prior notice of a change in corporate title. If the OCC does not object within 30 days, the Federal savings association may change its title by amending its charter in accordance with the Federal mutual savings association or Federal stock association charter amendment regulatory procedures in §§ 5.21 or 5.22, respectively. There is no specific statute addressing Federal savings association charter amendments. In addition, § 143.1(a) prohibits a Federal savings association from adopting a title that Start Printed Page 33296misrepresents the nature of the institution or the services it offers.

The OCC proposes to amend § 5.42 to include Federal savings associations. The primary substantive effect of this proposal is to eliminate the advance notice requirement currently applicable to Federal savings association corporate title changes. Instead, Federal savings associations would be required promptly to provide a notice to the appropriate OCC licensing office subsequent to any change in its corporate title. The OCC believes that the advance notice of a change in corporate title is not necessary and that an after-the-fact notice will provide the OCC with adequate information for regulatory purposes and will reduce burden on Federal savings associations without affecting safety and soundness.

The proposal does not incorporate the provision in § 143.1(a) that prohibits a Federal savings association from adopting a title that misrepresents the nature of the institution or the services it offers. This statement is implicit in the current national bank rule and would be implicit under the revised rule for both national banks and Federal savings associations. Furthermore, the issue addressed by the savings association provision is not an area of concern in the current banking environment, and, if necessary, can be addressed through the supervisory process. For these reasons, we find it unnecessary to include a similar prohibition in § 5.42.

The OCC also proposes a number of conforming edits. Specifically, the proposal would add to § 5.42 a cross-reference to §§ 5.21(g) or 5.22(g), the regulatory charter amendment procedures that a Federal mutual savings association or Federal stock association must follow when amending its charter to reflect a corporate title change. This cross-reference simply transfers these requirements from the current Federal savings association rule to the proposed integrated rule. In addition, the OCC proposes to remove the word “Federal” in § 5.42(c)(1) to clarify that the new title must comply with all applicable laws, whether Federal or state.

Increases in Permanent Capital by a Federal Stock Savings Association (New § 5.45)

Twelve CFR 5.46 sets out the OCC's rules addressing changes in permanent capital by national banks. These rules implement statutory provisions that establish the processes and requirements for a national bank to increase or decrease its permanent capital (i.e., capital stock and capital surplus), including 12 U.S.C. 51a, 51b, 51b-1, 52, 56, 57, 59, and 60. The statutes require OCC approval for all increases and decreases in permanent capital at a national bank.

The OCC has established a streamlined approval process for most increases in permanent capital by national banks. However, in certain specified instances, the OCC requires a full application and prior approval. These instances, listed below, involve situations in which there are supervisory concerns with the institution or the capital contribution is not in cash, raising issues of proper valuation of the capital increase.

These statutes do not apply to Federal savings association, and there are not comparable provisions in the HOLA requiring a savings association to receive prior approval for any increase in permanent capital. Accordingly, the OCC is not proposing to add Federal savings associations to § 5.46. However, we are proposing to add a new § 5.45 to require a Federal stock savings association to apply to the OCC and obtain prior approval in the same circumstances in which a national bank would be required to file a full application under § 5.46. Those circumstances are: (1) When the savings association is required to receive OCC approval pursuant to letter, order, directive, written agreement or otherwise, (2) when the savings association is selling common or preferred stock for consideration other than cash, or (3) when the savings association is receiving a material noncash contribution to capital surplus.

We propose to base this new section on the provisions in § 5.46 that address increases in permanent capital, except that provisions that are required by statute for national banks, but are not needed for the OCC's supervisory objectives regarding Federal savings associations, are not included.

We are limiting the requirement to Federal stock savings associations. Federal mutual savings associations generally do not raise additional capital, other than through retained earnings, by methods comparable to Federal stock savings associations and national banks. The OCC will review any proposed capital increases at Federal mutual savings associations on a case-by-case basis.

Changes in Permanent Capital by a National Bank (§ 5.46)

Twelve CFR 5.46 sets out the OCC's rules addressing changes in permanent capital by national banks. These rules implement statutory provisions that establish the processes and requirements for a national bank to increase or decrease its permanent capital (i.e., capital stock and capital surplus), including 12 U.S.C. 51a, 51b, 51b-1, 52, 56, 57, 59, and 60. The statutes require OCC approval for increases and decreases in permanent capital. These statutes do not apply to Federal savings association, and there are not comparable provisions in the HOLA. Accordingly, the OCC is not proposing to add Federal savings associations to § 5.46.[92]

We propose to clarify existing provisions in § 5.46 regarding increases in capital. Specifically, we propose to revise paragraph (g)(1) to describe more fully those increases for which an application and prior approval are not required and when such increases are considered approved by the OCC. Portions of this provision are currently in paragraph (i)(3) which principally deals with the bank's notification to the OCC that the increase has occurred and the certification of the increase by the OCC. In the proposed revision, all of the discussion of the approval process would be in paragraph (g)(1), and paragraph (i)(3) would cover only the bank's notice of increase and OCC certification We also propose to revise paragraph (i)(3) to divide it into separate provisions, one about the bank's notice of increase, and the other about OCC certification. This layout makes the paragraph easier to follow. We also propose to describe more fully the certification process and clarify that the effective date of a capital increase is the date the increase occurred, not the date on which the OCC issues its certification. No changes in substance are intended in these clarifications.

We also propose to make a small number of technical changes, including revising the section's title to indicate it applies only to national banks.

Voluntary Liquidation (§ 5.48)

Twelve U.S.C. 181 and 182 establish liquidation standards and procedures for national banks, including requirements for public notice of liquidation plans.[93] Twelve CFR 5.48 Start Printed Page 33297implements these statutes, setting forth the standards and procedures for voluntary liquidation by a national bank. Specifically, § 5.48 provides that a national bank: (1) May liquidate in accordance with 12 U.S.C. 181; (2) must notify the OCC when it is considering voluntary liquidation; (3) must provide the public notice required by 12 U.S.C. 182, as well as notice to the OCC, after its shareholders have voted to voluntarily liquidate; and (4) must file reports of both condition and progress with the OCC. In addition, § 5.48(f) contains provisions for expedited voluntary liquidations in connection with certain acquisitions and § 5.48(g) addresses a national bank as the acquirer of a liquidating national bank.

There are no statutory requirements similar to 12 U.S.C. 181 and 182 that apply to Federal savings associations. However, § 146.4 contains standards and procedures for a Federal savings association to dissolve voluntarily. Under these rules, a Federal savings association's board of directors may propose a dissolution plan, which must be submitted to the OCC for approval. The OCC may approve the plan, make recommendations concerning the plan, or disapprove the plan. Once approved by both the board of directors and the OCC, the Federal savings association must submit the plan to the savings association's members for a vote. If approved by a majority of the members, the plan becomes effective. After dissolution, the savings association must provide a certificate evidencing such dissolution to the OCC, after which the OCC will cancel the savings association's charter.[94]

The OCC proposes to amend § 5.48 to incorporate certain provisions from § 146.4, to make § 5.48 applicable to both Federal savings associations and national banks, and to rescind § 146.4. These changes would provide the OCC with additional methods by which to ensure the safety and soundness of national banks and Federal savings associations. These changes also would streamline and improve the process by which an OCC-regulated institution may liquidate, thereby reducing regulatory burden for the institution. The proposal would result in changes to the liquidation procedures for both types of institutions.

Specifically, under proposed § 5.48(b), a Federal savings association would be required to provide preliminary notice to the OCC when it is considering voluntary liquidation and again when its liquidation plan is definite. These requirements currently apply only to national banks. The OCC has found that these advance notices are helpful to the agency in ensuring the liquidations are planned and executed in a safe and sound manner and in anticipating any issues that may arise as liquidation commences. Also under proposed § 5.48(b), neither a national bank nor a Federal savings association may commence liquidation until the OCC has notified it that the agency does not object to the liquidation plan. Although this requirement is included only in the current Federal savings association regulation, it is consistent with the OCC's current supervisory practice for national banks. The OCC has found that it can identify and communicate supervisory concerns in a timely manner if it reviews liquidation plans prior to the commencement of liquidation and believes that it is appropriate to include this requirement in the proposal.

Proposed § 5.48(d) specifies the factors the OCC will consider when reviewing a proposed liquidation plan. Neither § 5.48 nor § 146.4 currently sets out these factors; however, the OCC believes that the additional specificity provided by the proposed amendment will aid filers in the efficient preparation of liquidation plans and, accordingly, finds that it is appropriate to provide notice of what the OCC will consider in reviewing a proposed plan.

Specifically, proposed § 5.48(d)(1) states that in reviewing a liquidation plan, the OCC will consider the purpose of the liquidation, its impact on the liquidating institution's safety and soundness, and its impact on the institution's depositors, other creditors, and customers. These factors are similar to those that the OCC currently considers when reviewing the merger of a national bank with a nonbank affiliate and substantial changes in the composition of a national bank's assets.[95] Furthermore, the OCC currently uses similar considerations in reviewing voluntary dissolutions of Federal savings associations and bulk transfers by Federal savings associations.[96] These factors provide the OCC with a clear understanding of a plan's potential effect and help to ensure that liquidations are carried out in a safe and sound manner.

Proposed § 5.48(d)(2) states that the OCC also will review a national bank's liquidation plan for compliance with 12 U.S.C. 181 and 182. These statutory requirements do not apply to Federal savings associations and the OCC does not believe it is necessary to extend them to these institutions by regulation. Finally, because of the unique structure of mutual savings associations, proposed § 5.48(d)(3) states that the OCC will assess the advisability and effect of liquidation, as well as any alternatives to such action, when a mutual savings association plans to liquidate. As stated above, the OCC believes it must consider these factors in assessing a plan and that it is appropriate to provide affected parties with notice that these factors will be considered.

Proposed §§ 5.48(e)(1) and (e)(2) describe the procedures that apply to the proposed requirements to provide notice of consideration of a plan, to submit a plan, and to receive OCC non-objection before proceeding with a plan. Proposed § 5.48(e)(3) provides that a national bank or Federal savings association's board of directors and its shareholders (or, in the case of a Federal mutual savings association, directors and members) must vote to approve a voluntary liquidation plan. While this requirement is included in § 146.4, only shareholders are required to vote on a liquidation plan under § 5.48(e). The OCC believes that it is prudent and appropriate for a national bank's board of directors also to vote to liquidate because of its direct role in governing the operation of the institution and its role in liquidation, and that the addition of this requirement reflects existing practices of boards of directors in voluntary liquidations.

Currently, only a national bank is required to notify the OCC of a vote to liquidate. The OCC believes that each institution that it regulates should inform the OCC of such a vote so that the OCC knows the status of the liquidation process. Therefore, proposed § 5.48 (e)(3)(A) states that a national bank or Federal savings association must file a notice with the OCC once the specified parties vote to liquidate. In addition, proposed § 5.48(e)(3)(A) requires the bank or savings association to provide notice to depositors, other known creditors, and known claimants. Currently, § 146.4 has no specific notice requirement and, as noted above, § 5.48(e)(1) simply directs a bank to publish notice in accordance with 12 U.S.C. 182. The OCC believes that the Start Printed Page 33298public will be best served when notice to depositors, creditors, and claimants is provided and, therefore, the OCC has drafted the proposal to require this notice. Proposed § 5.48(e)(3)(B) makes clear, however, that the statutory vote and notice requirements of 12 U.S.C. 181 and 182 are applicable only to national banks.

The OCC also proposes to extend to Federal savings associations the § 5.48(e)(4) and (e)(5) requirements to submit reports of condition and progress to the OCC. The OCC has found these reports useful in determining whether a national bank is following its plan of liquidation and conducting the liquidation in a safe and sound manner. The OCC believes that it would be useful to have this same information for a liquidating Federal savings association. In addition, the proposal would require the bank's or savings association's liquidating agent or committee to submit to the OCC a report at the start of liquidation showing the bank's current balance sheet.

Proposed § 5.48(e)(6) would require a national bank and Federal savings association to submit a final report of the liquidation to the OCC. This requirement currently exists only for Federal savings associations. However, the OCC believes that this report allows the agency to confirm that the liquidation was accomplished in accordance with the liquidation plan. Furthermore, this requirement is consistent with the OCC's current supervisory practice. Both national banks and Federal savings associations also would be specifically required to return the charter certificate to the OCC.

Both §§ 5.48(f) and 146.4(b) contain substantively similar provisions for expedited liquidations, and the OCC proposes to consolidate the two provisions by applying § 5.48(f) to Federal stock savings associations. The § 146.4(b) provision excepting from the voluntary liquidation requirements the transfer of a Federal savings association's assets to a national bank remains in effect under proposed § 5.48(f). Consistent with § 146.4(b), however, the proposal does not extend paragraph (f) to Federal mutual savings associations because of the unique ownership structure of those savings associations. The OCC also proposes to eliminate § 5.48(g), concerning a national bank as an acquirer of a liquidating national bank, because it does not impose requirements beyond those stated in current law. Finally, the OCC proposes other technical changes to clarify the rule where necessary.

Change in Control (§ 5.50)

Twelve CFR 5.50, Change in bank control; Reporting of stock loans, and 12 CFR part 174, Acquisition of control of Federal savings associations, set forth the policy and establish the process for acquisitions of control of national banks and Federal savings associations, respectively. These rules provide the framework with which prospective acquirers are required to comply when they seek to acquire control of a national bank or Federal savings association. Specifically, § 5.50 and part 174 describe the application process and the factors the OCC considers in reviewing the qualifications of the prospective acquirer, and address the factors that prospective acquirers should consider when exploring possible acquisitions.

While both § 5.50 and part 174 implement the Change in Bank Control Act [97] and many of the substantive requirements are the same, part 174 includes certain substantive requirements that are not included in § 5.50. For example, the rules for Federal savings associations contain many of the same thresholds and control concepts included in § 5.50, but part 174 includes rebuttable control presumptions and rebuttable presumptions of concerted action that are absent in § 5.50.

We propose to amend 12 CFR 5.50 by making it applicable to both national banks and Federal savings associations and to rescind 12 CFR part 174. The amendments to § 5.50 would make uniform the treatment of ownership interests held in all Federally chartered depository institutions and provide the market and its participants with clarity as to what the OCC considers important when the agency reviews an application for change in control, whether for a national bank or a Federal savings association. The proposal also would give additional guidance to investors contemplating purchasing shares in a national bank or Federal savings association by providing information about what transactions would be covered by the requirements and when a notice would be necessary. The proposed amendments would clarify the OCC's supervisory expectations for these transactions.

Specifically, we propose to amend § 5.50 to include a number of the definitions and substantive provisions found in part 174. In some instances, these amendments would be codifying substantive differences, as described below. Therefore, national banks, Federal savings associations and prospective acquirers of national banks and Federal savings associations should be aware of the following proposed changes to the rule.

We are proposing to amend the definition section in § 5.50 and to add a number of definitions from part 174. The proposed additional definitions would provide clarity since the terms are used in the proposed substantive provisions. They include “controlling shareholder,” “management official,” “company,” and several definitions that are necessary because the proposed rule would be applicable to Federal savings associations. We also propose to replace the definition of “acquisition” with that of “acquire” from part 174, which contains a more detailed description of transactions that would be covered by the proposed rule. “Acquire” is defined as obtaining ownership, control, power to vote, or sole power of disposition of stock, directly or indirectly or through one or more transactions or subsidiaries, through purchase, assignment, transfer, pledge, exchange, succession, or other disposition of voting stock, and includes specific examples. The proposed definition is more detailed than the current definition of “acquisition” included in § 5.50, and thereby provides a clearer description of what would be covered by the proposal. Finally, the proposal retains and applies to Federal savings associations the current definition of “voting securities,” which would replace the part 174 definition of “voting stock.” The use of this definition would affect the standard for convertible securities. Currently, part 174 includes as voting stock any security that, upon transfer or otherwise, is convertible into voting stock or exercisable to acquire voting stock where the holder of the convertible security has the preponderant economic risk in the underlying voting stock. Section 5.50, by contrast, defines voting securities to include securities that are immediately convertible into voting securities at the option of the owner or holder. The OCC believes the immediately convertible standard is simpler and easier to apply than the preponderant economic risk standard, and provides an appropriate standard for the treatment of securities that are convertible into, or exchangeable for, voting securities.

The proposed amendments to § 5.50 would add several presumptions of concerted action. These additional presumptions of concerted action would provide clarity and guidance about how and when parties are presumed to be acting in concert for purposes of § 5.50, and help ensure compliance with the regulation. Currently, pursuant to § 5.50, Start Printed Page 33299an acquirer that proposes to rebut control of a national bank cannot have a representative on the board. The proposed regulation would allow acquirers to rebut a presumption of control in cases where the acquirer will have a representative on the board of directors of the national bank or Federal savings association to be acquired. The proposal to allow a rebutting party to have a board seat provides greater flexibility for acquirers; in addition, these changes help harmonize the OCC's proposed change in control regulations with the Federal Reserve System's regulations addressing acquisitions of control of bank holding companies and savings association holding companies. Additionally, the proposal would establish specific limitations, in the rebuttal of control context, on the total equity invested, where an acquirer proposes to acquire more than fifteen percent of the national bank's or Federal savings association's voting stock. The proposed regulatory changes have the effect of eliminating most of the rebuttable presumptions of control with respect to Federal savings associations that are currently set forth in § 174.4(b) and (c). The proposed regulatory changes also remove certain of the rebuttable presumptions of concerted action currently set forth in § 174.4(d).

The proposal does not include the detailed part 174 procedures for rebuttal of control and concerted action, retaining instead the provisions from § 5.50(f)(2)(vi) and applying them to Federal savings associations. The OCC believes that rebuttals are processed in a timely manner under § 5.50, and that the processing procedures established in part 174 are unnecessarily detailed. The amended § 5.50 will also exclude certain other provisions from part 174, resulting in changes for Federal savings associations. For instance, the proposed § 5.50 will retain the current prior notice exemption provisions for acquisition of control as a result of testate or intestate succession. Thus, both national banks and Federal savings associations would need to file a notice and pay the appropriate filing fee within 90 calendar days after the transaction occurs. Previously, persons who acquired control of a Federal savings association as a result of testate or intestate succession needed only to file a notification of acquisition to the OCC within 60 days of the acquisition and provide information requested by the OCC. The OCC believes this change is appropriate, because it enables the OCC to review acquisitions of control through testate or intestate succession under the standards set forth in § 5.50.

Likewise, the proposed § 5.50 does not include the presumptive disqualifiers from part 174—a list of factors, which, if present, may show a lack of integrity or lack of financial capability to proceed with a proposed transaction. While the OCC believes that the presumptive disqualifiers provide helpful guidance regarding circumstances in which the OCC might consider a change of control notice to be objectionable under the standards for disapproval, the OCC does not consider it necessary to include these detailed provisions in the regulation. The OCC intends to amend the Change in Bank Control Act booklet of the Comptroller's Licensing Manual to address the situations described in the presumptive disqualifiers to the extent it considers appropriate. The proposed regulation retains the standards for disapproval set forth in the §§ 5.50(e)(5) and (6).

Proposed § 5.50 also excludes the requirement at § 174.5(a) that acquirers of beneficial ownership exceeding 10 percent of any class of stock of a Federal savings association that does not file a control notice or control rebuttal file a certification of ownership. The OCC believes that the regulatory burden of these filings exceeds the benefits derived from them. These acquirers would no longer need to file a certification of ownership with the OCC.

Finally, the proposal would eliminate Appendix A to 174—Rebuttal of Control Agreement.

Question 10: Both the current and proposed rule provide that a person and the members of the person's immediate family will be presumed to be acting in concert for purposes of § 5.50. It has been the practice of the OCC, as well as the former OTS, to apply this presumption only to immediate family members who own stock in the institution or are institution-affiliated parties, as defined in sections 3(u)(1), (2), or (3) of the FDI Act.[98] We request comment on whether § 5.50 should be amended to provide this clarification.

Change in Directors & Senior Executive Officers (§ 5.51)

Twelve CFR 5.51, Changes in directors and senior executive officers, and 12 CFR part 163, subpart H, Notice of change of director or senior executive officer (§§ 163.550 through 163.590), implement 12 U.S.C. 1831i, which requires certain national banks and Federal savings associations to notify the OCC of a change in a director or senior executive officer. In order to harmonize the treatment of national banks and Federal savings associations, we propose to amend § 5.51 by adding language to make it applicable to both national banks and Federal savings associations and to rescind 12 CFR part 163, subpart H. In so doing, we also propose to amend § 5.51 by including certain requirements currently applicable only to Federal savings associations and by making various clarifying changes. As a result of this consolidation, Federal savings associations should be aware of the differences between § 5.51 and part 163, subpart H, and national banks should be aware of the proposed changes to § 5.51, as described below.

Definitions. The definition in § 5.51(c)(1) of a “director” for a national bank is not as broad as the definition of the same term in § 163.555 for a Federal savings association. Specifically, the definition in the bank rule includes an advisory director who is authorized to vote on any matters before, or provides more than general advice to, the board of directors. The savings association rule includes an advisory director who votes or provides such advice to a committee of the board in addition to the board of directors. We propose to amend § 5.51(c)(1)(ii) to include this broader definition. As a result, an advisory director of a national bank who may vote on matters before, or provides more than general advice to, any committee of the board of directors would now be subject to the requirements of § 5.51.

Section 5.51(c)(2) defines the term “national bank.” To provide parallel treatment, we propose to redesignate § 5.51(c)(2) as § 5.51(c)(3) and add a definition for the term “Federal savings association” at § 5.51(c)(2).

“Senior executive officer” is defined in § 5.51(c)(3) for a national bank and in § 163.555 for a Federal savings association. In addition to minor differences in wording, the definitions have two primary differences. First, the definition in § 163.555 includes an individual serving as president of the institution, while § 5.51(c)(3) does not. To eliminate any ambiguity, this final rule adds “president” to the definition of senior executive officer and redesignates § 5.51(c)(3) as § 5.51(c)(4). Second, the definition in § 163.555 specifies that a “senior executive officer” also includes any other person identified by the OCC or the OTS in writing as an individual who exercises significant influence over, or participates in, major policymaking decisions, whether or not hired as an employee, while § 5.51(c)(3) does not specify that the notification by the OCC be in writing. We propose to amend Start Printed Page 33300redesignated § 5.51(c)(4) to clarify that the notification must be in writing.

Section 5.51(c)(4) defines the term “technically complete notice” for a national bank to mean a notice that includes all information required by § 5.51(e)(2), and includes information that may be requested by the OCC after the original submission of the notice. While § 163.555 does not include a specific definition of this term for a Federal savings association, the term “technically complete notice” as defined in the bank rule is generally consistent with the content requirements in § 163.570 and the procedures in § 163.575 governing review of a notice for completeness. We are proposing to amend this definition to delete the phrase “original submission of the notice” and replace it with “notice” to allow for subsequent OCC requests for additional information.

Redesignated § 5.51(c)(6) defines the term “technically complete notice date” to mean the date on which the OCC has received a technically complete notice for a national bank or Federal savings association. A Federal savings association should be aware of this definition because it triggers the 90-day time period for OCC review and decision discussed below.

“Troubled condition” is defined in § 5.51(c)(6) for a national bank and in § 163.555 for a Federal savings association. The definitions are substantially similar, and we believe the definition of troubled condition for a national bank encompasses all of the actions included in the definition for a Federal savings association. However, § 5.51(c)(6) provides that a national bank may be designated in troubled condition based on information obtained as a result of an examination, while § 163.555 provides that a Federal savings association may be designated in troubled condition based on information available to the OCC. The language in § 163.555 is broader and thus provides the OCC with greater ability to ensure the safety and soundness of the institutions we supervise. Accordingly, we propose to amend § 5.51(c)(6) by redesignating it § 5.51(c)(7) and by deleting the phrase “as a result of an examination” and replacing it with the phrase “based on information pertaining to such national bank or Federal savings association.”

Prior Notice. Sections 5.51(d) and (e)(6)(ii) prescribe when a national bank must provide prior notice to the OCC, and §§ 163.560, 163.585(a)(2), and 163.590(b) are the corresponding provisions for a Federal savings association. The description of circumstances requiring prior notice are similar in most respects, but there are differences in the timeframe for prior notice and the treatment of an individual seeking election to the board of directors who has not been nominated by management. Under § 5.51(d), a national bank must provide 90 days prior notice before adding or replacing any director or senior executive officer, or changing the position of a current senior executive officer, if the bank is not in compliance with minimum capital requirements, is otherwise in a troubled condition, or the OCC determines, under section 38 of the FDI Act,[99] that prior notice is appropriate. Section 163.560 requires 30 days prior notice for a Federal savings association if similar prerequisites are met. The OCC may extend this review period under § 163.585(a)(2) for an additional period not to exceed 60 days. Furthermore, in lieu of following the procedures under § 163.590(b), this 30-day notice requirement applies to an individual seeking election to the board of directors who has not been nominated by management.

As a result of our proposed integration of savings associations into § 5.51, Federal savings associations would be required to provide 90 days prior notice of a new director or senior executive officer, instead of 30 days prior notice. We believe this longer prior notice is appropriate for both banks and savings associations and conforms with the review of these notices under current OCC practice pursuant to the notice period extension. In addition, under the revised rule, only a Federal savings association may file the notice with the OCC; an individual seeking election to the board of directors of a Federal savings association who has not been nominated by management would no longer be allowed to do so. We believe it would be a more judicious use of the agency's resources to conduct the necessary review only after an individual has been elected to the board of directors.

We also propose to require that if the OCC determines that prior notice is required based on review of an agency plan under section 38 of the FDI Act, such determination must be in writing.

Exceptions to rules of general procedure. For a national bank, under § 5.51(e)(8), notices are not subject to public notice and comment, are not publicly available, and are excepted from certain other generally applicable application processing provisions of part 5. Under part 163, subpart H and the application processing regulations applicable to Federal savings associations, notices pertaining to Federal savings associations are treated similarly. We propose to apply § 5.51(e)(8) to Federal savings associations. In addition, we propose to amend § 5.51(e)(8) to clarify that the procedures in § 5.13(c) regarding required information and abandonment of a filing apply to the extent provided for in proposed §§ 5.51(e)(3)(iii) and (e)(7).

Content of Notice. Sections 5.51(e)(2) and 163.570 provide, respectively, the requirements governing the content of a notice for a national bank and a Federal savings association. Although § 5.51(e)(2) lists the specific items required and § 163.570 refers to 12 U.S.C. 1817(j)(6)(A) and the Interagency Biographical and Financial Report (IBFR), these requirements are essentially the same, except that § 5.51(e)(2) currently does not require the financial portion of the IBFR for a national bank. Because the financial section of the IBFR provides information that is useful and relevant to the disapproval standards and may not be available to the OCC in the information currently required to be provided, we propose to revise § 5.51(e)(2) to require the submission of the financial portion of the IBFR, except when the OCC determines in writing that such information is not required.

We also propose to add language to § 5.51(e)(2) that would permit the OCC to require additional information and to require or accept other information in place of the information required by this paragraph. This language, which provides valuable flexibility to the OCC, is currently included in §§ 163.570(a)(3) and 163.570(b). In addition, we propose to add language to § 5.51(e)(2) to clarify how to calculate the three-year exception for providing fingerprints.

Request for additional information. We propose to amend § 5.51(e)(3), redesignated as § 5.51(e)(3)(i), to remove the qualification that the OCC's request for information be in writing “where feasible” and instead require that the OCC's request must always be in writing and that the OCC provide an explanation of why the information is needed. In addition, we propose adding new § 5.51(e)(3)(ii) to provide that a national bank or Federal savings association that cannot provide the requested information within the time specified by the OCC may request that the OCC suspend processing of the notice and that the OCC, in its discretion, may either grant or deny such request in writing, and if granted, specify the time period during which the information must be provided. This Start Printed Page 33301provision is similar to what is included in § 163.575(b). We also propose to add new § 5.51(e)(3)(iii), which would provide that if a national bank or Federal savings association fails to provide the requested information within the time specified in § 5.51(e)(3)(i) or in the OCC's grant of the suspension request pursuant to § 5.51(e)(3)(ii), the OCC may either deem the filing abandoned under § 5.13(c), or review the notice based on the information provided. This provision is included in § 163.575(b). Based on our supervisory experience, it is appropriate to apply these specific consequence for failing to provide such additional information to national banks in addition to Federal savings associations.

Notice of disapproval/notice of intent not to disapprove. Sections 5.51(e)(4) and (5) describe the requirements governing a notice of disapproval and a notice of intent not to disapprove for a national bank, and §§ 163.580 and 163.585 are the equivalent provisions for a Federal savings association. Although there are minor differences in wording, they are substantively the same. Accordingly, we propose to amend §§ 5.51(e)(4) and (5) to include Federal savings associations. In addition, in §§ 5.51(e)(4) and (5), we propose to clarify that the notice of disapproval and the notice of intent not to disapprove must be in writing. We also propose to clarify in § 5.51(e)(5) that the OCC provide the notice of intent not to disapprove to the individual in addition to the institution. This change clarifies an ambiguity and makes this provision consistent with other provisions in § 5.51. Finally, we propose to revise § 5.51(e)(5) to require that all applicable legal requirements must be satisfied in order for the individual to begin service as a director or senior executive officer after receiving a notice of intent not to disapprove.

Waiver. Section 5.51(e)(6) prescribes the waiver procedure that allows an individual to serve as a director or senior executive officer of a national bank prior to filing a notice, and § 163.590 prescribes corresponding procedures for a Federal savings association. Although these provisions are similar in terms of standards for granting a waiver and requiring that a notice be filed within a specified time period after the waiver has been granted, the savings association rule does not detail the length of service of such an interim position. We propose to apply § 5.51(e)(6) to savings associations, reorganize and renumber § 5.51(e)(6), and make the changes described below.

First, under redesignated § 5.51(e)(6)(i)(B), we propose to clarify that the OCC's finding in support of the waiver must be in writing, which is our current practice and which is included in the savings association rule.

Second, § 5.51(e)(6) provides that the OCC may waive the prior notice requirement if delay could harm the national bank or the public interest, or if other extraordinary circumstances justify waiving the requirement. Under § 163.590(a), the OCC may grant a waiver if delay would threaten the safety and soundness of the savings association, would not be in the public interest, or if there are other extraordinary circumstances. We propose revising § 5.51(e)(6) to incorporate the safety and soundness standard, modified slightly from what is included in the savings association rule. Specifically, as proposed, the OCC could grant a waiver if delay could adversely affect the safety and soundness of the national bank or Federal savings association, would not be in the public interest, or other extraordinary circumstances justify the waiver.

Third, both § 5.51(e)(6) and § 163.590 provide that if the OCC grants a waiver, the national bank must file the required notice within the time period specified in the waiver. We propose to amend redesignated § 5.51(e)(6)(i)(C) to clarify that such notices must be technically complete within this specified time period.

Fourth, we propose to amend redesignated § 5.51(e)(6)(i)(D) by amending the alternative outcomes that may occur after a waiver is granted and the proposed individual has assumed the position on an interim basis. Section 163.590 does not include similar provisions. Under the current rule, if a proposed director or senior executive officer who is serving under a waiver receives notice of disapproval, that person could continue to serve pending resolution of an appeal. We believe it is not in the best interest of the national bank or Federal savings association, and would be contrary to safe or sound practices, to allow an individual to continue to serve pending an appeal. Therefore, proposed § 5.51(e)(6)(i)(D)(2) would require an individual who is serving on an interim basis and receives a notice of disapproval to resign immediately from the board. This person may assume the position on a permanent basis only if the notice of disapproval is reversed on appeal and all other applicable legal requirements are satisfied.

Section 5.51(e)(6) also provides that if the required notice is not filed within the time period specified in the waiver, the proposed individual must resign his or her position. Thereafter, the individual may assume the position on a permanent basis only after the national bank receives a notice of intent not to disapprove, after the review period elapses, or after a notice of disapproval has been overturned on appeal. Section 163.590 does not include a similar provision. The rule also provides that a waiver does not affect the OCC's authority to issue a notice of disapproval within 30 days of the expiration of such waiver. We propose in § 5.51(e)(6)(i)(E) to clarify that the individual may assume the position under these circumstances only after a technically complete notice has been filed and all other applicable requirements are satisfied. Furthermore, we also propose in § 5.51(e)(6)(i)(D)(3) to specify that the “elapse” of the review period occurs when the OCC fails to act within 90 calendar days after submission of a technically complete notice and the individual satisfies all other legal requirements. As a matter of practice, the OCC has taken the position that waiver of prior notice does not affect the general 90-day review period and this amendment codifies this position in our rule.

We also propose in § 5.51(e)(6)(i)(D)(1) to clarify that following receipt of a notice of intent not to disapprove, the individual may assume the position on a permanent basis, provided all other applicable legal requirements are satisfied.

Section 5.51(e)(6)(ii) prescribes the requirements for an automatic waiver for a national bank, and § 163.590(b) is the corresponding provision for a Federal savings association. Specifically, § 5.51(e)(6)(ii) provides that if a new director not proposed by management is elected at a shareholder meeting, a waiver of the prior notice requirement is granted automatically and the elected individual may begin service as a director. However, the national bank must file the required notice as soon as practical, and not later than seven days from the date the individual is notified of the election. This provision differs from § 163.590(b), which requires the individual, and not the institution, to file the notice. Federal savings associations should note this change.

Commencement of Service. For a national bank, § 5.51(e)(7) prescribes when a proposed individual may assume the office. Section 163.585 is the corresponding provision for a Federal savings association. Under § 5.51(e)(7), Start Printed Page 33302an individual may begin service at the end of the OCC's review period unless the OCC issues a notice of disapproval or the OCC deems the notice to be abandoned because the bank does not provide additional requested information. Under § 163.585, an individual may begin service at the end of the 30-day review period (or, if extended, the 90-day review period) unless the OCC issues a notice of disapproval, or when the OCC notifies the bank in writing of its intent not to disapprove.

We propose to add new § 5.51(e)(7)(i) to clarify that an individual may assume the office on a permanent basis prior to expiration of the review period only if the OCC notifies the national bank or Federal savings association in writing that the OCC does not disapprove the proposed director or senior executive officer. As indicated above, this provision is included in § 163.585(b). We also propose to add conforming language in § 5.51(e)(7)(i), redesignated as § 5.51(e)(7)(ii)(A), to provide that the OCC's notice of disapproval must be in writing. We note that redesignated § 5.51(e)(7)(ii)(B) would specifically prohibit individuals from beginning service at a Federal savings association, in addition to national banks, if the OCC deems the application abandoned. While § 163.575 applies the concept of abandonment to a Federal savings association when a notice is not complete, § 163.585 does not specify this consequence.

Appeal. Section 5.51(f) prescribes the applicable procedures for a national bank or a proposed individual to appeal a notice of disapproval. There is no equivalent rule in § 163, subpart H for a Federal savings association. Accordingly, under § 5.51(f) as amended by this final rule, this appeal process would be available to both a Federal savings association and the proposed individual.

Technical changes. We propose to make minor technical changes throughout § 5.51. For example, § 5.51 uses the terms “individual” and “person” interchangeably and uses the terms “lapse,” “end,” and “expire” interchangeably. To promote consistency and conform to the language in 12 U.S.C. 1831i, we propose to replace the word “person” with “individual” and to use the word “expire” or “expiration.” To promote consistency and avoid confusion, we propose to add the word “calendar” before the word “days.” Finally, in the definition of “national bank” in § 5.51(c)(2), we propose to delete the reference to § 5.3(j) because it is obsolete.

Change in Address (§ 5.52)

Twelve CFR 5.52 requires a national bank to submit a written notice to the OCC if its main office or post office box address changes. Twelve CFR 145.91(b) requires a Federal savings association to notify the appropriate OCC licensing office if it changes the permanent address of its home office, with certain exceptions. The rules are substantially similar. In order to consolidate and harmonize these rules, the OCC proposes to amend § 5.52 by making it applicable to both national banks and Federal savings associations and to rescind § 145.91(b). As previously discussed in this preamble with respect to proposed § 5.40, the OCC's proposal uses the term “main office” when discussing a national bank and “home office” when discussing a Federal savings association.

As noted above, the current national bank and Federal savings association notice requirements are subject to certain exceptions. Specifically, § 5.52(b) currently provides that a national bank is not required to provide notice of a main office or post office box address change if the change results from a transaction approved under part 5. Section 145.91(b) provides that a Federal savings association is not required to provide a change of address notice if the association submitted an application or notice to relocate or establish a new home or branch office pursuant to §§ 145.93 and 145.95. The proposal seeks to harmonize these provisions by providing that neither a national bank nor a Federal savings association would be required to file a notice if it submitted a notice under § 5.40(b), which, as proposed, addresses a relocation of a main office or home office. In addition, a Federal savings association would not be required to file a notice for a transaction approved under part 5, consistent with the current treatment for national banks.

We note that under current Federal savings association rules, highly-rated savings associations are exempt from the §§ 145.93 and 145.95 provisions requiring an application or notice for the relocation or establishment of a new home or branch office, and therefore must file a change in address notice under 145.91. As a result of this proposal's integration of §§ 145.93 and § 145.95 into § 5.40 and the concurrent removal of the exemption for highly-rated savings associations, all savings associations that file an application or notice for the relocation or establishment of a new home or branch office pursuant to proposed § 5.40 would be exempt from the change in address notice under proposed § 5.52.

Finally, § 145.91(a) provides that all operations of a Federal savings association are subject to direction from the home office. There is no equivalent provision for national banks. The OCC believes this provision to be unnecessary and proposes to delete it.

Change in Asset Composition (§ 5.53)

Twelve CFR 5.53 sets out the OCC's rules addressing changes in asset composition for national banks. It requires a national bank to apply to the OCC and obtain prior written approval before changing the composition of all, or substantially all, of its assets (1) through sales or other dispositions, or, (2) having sold or disposed of all or substantially all of its assets, through subsequent purchases or other acquisitions or other expansions of its operations. It contains exceptions for changes in asset composition that occur in connection with an enforcement action, a liquidation under 12 CFR 5.48, or a bank's ordinary and ongoing business of originating and securitizing loans.

Twelve CFR 163.22(c) and (h)(2) set out the OCC's rules addressing changes in asset composition, as well as several other types of changes in business, for Federal savings associations. Section 163.22(c) requires a Federal savings association to file either an expedited treatment notice (which is a form of application) or a standard treatment application, as specified in § 163.22(h)(2), for transactions described in § 163.22(c). Section 163.22(c) includes: (1) Purchases or sales or other transfers of assets in bulk not made in the ordinary course of business, unless the transaction is a combination with, or the assumption of deposits from, another insured depository institution and is subject to the Bank Merger Act, (2) assumptions or sales or other transfers of savings account liabilities, deposit accounts, or other liabilities in bulk not made in the ordinary course of business, unless the transaction is a combination with, or the assumption of deposits from, another insured depository institution and is subject to the Bank Merger Act, and (3) combinations with a depository institution other than an insured depository institution.[100]

The OCC is proposing to combine these rules in an expanded § 5.53 by including some additional requirements for approval of asset transfers based on Start Printed Page 33303§ 163.22(c).[101] We also propose to make clarifications in some of the existing provisions of § 5.53. In addition, we are revising the rule's layout to make it easier to follow. Finally, as a result of these changes and others in this proposal, we propose to remove 12 CFR 163.22(c) and (h)(2).[102]

Specifically, we propose to revise § 5.53(b), the scope section, making it a single sentence and moving the extended description of covered transactions and exceptions into a new definition section. In § 5.53(c)(1)(i) of the definition section, we propose to amend an existing provision to clarify that a sale of all or substantially all assets in a series of transactions is covered, not only the sale of assets in a single transaction to one purchaser.

We propose to add two provisions in the definition that will bring some of the asset transfers that are covered by § 163.22(c) within the scope of § 5.53. Section 163.22(c) includes all purchases or sales or other transfers of assets in bulk not made in the ordinary course of business, unless the transaction is a combination with, or the assumption of deposits from, another insured depository institution and is subject to the Bank Merger Act. We are proposing to add some, but not all, such transfers to § 5.53. The existing national bank rule at §§ 5.53(b)(second half of first sentence) and (c)(1)(ii) (which the proposal includes at § 5.53(c)(1)(ii)) includes asset purchases only after a prior asset sale. The first proposed addition, in § 5.53(c)(1)(iii), would include any other asset purchases or other expansions of business that are part of a plan to increase the size of the bank or savings association by more than 25 percent in one year. The second proposed addition, in § 5.53(c)(1)(iv), would include any other material increase or decrease in the size of the national bank or Federal savings association or a material alteration in the composition of the types of assets or liabilities of the national bank or Federal savings association (including the entry or exit of business lines), on a case-by-case basis, as determined by the OCC. The proposed rule advises banks and savings associations that are contemplating transactions that may constitute a material change to consult the appropriate OCC supervisory office and sets out factors the OCC would use in determining whether an application is required. The intent of this provision is to establish a mechanism for requiring prior approval of significant changes when the OCC considers it necessary for supervisory reasons without establishing specific application criteria in the rule that would require banks and savings associations to file applications in all other cases.

Question 11: The OCC invites comment on other methods of accomplishing the OCC's review of significant changes.

The net effect of these proposed changes on national banks would be to require applications for approval in more situations than under current § 5.53, but these additional situations likely already would involve discussions between the bank and its supervisory office. The net effect of these changes on Federal savings associations would be fewer situations in which applications for approval are required than now required under current § 163.22(c).

Section 5.53 has three exceptions to the requirement to file an application. An application under § 5.53 is not required if the bank is making the asset change in response to direction from the OCC (e.g., in an enforcement action), if the asset change is part of a voluntary liquidation under 12 U.S.C. 181 and 182 and 12 CFR 5.48 that will be completed within one year, or if the asset change occurs as a result of a bank's ordinary and ongoing business of originating and securitizing loans. In the exception for asset changes that are part of a voluntary liquidation, we propose to add that the bank or savings association has received OCC approval of its plan of liquidation. Elsewhere in this rulemaking, we are proposing to add a requirement of OCC approval of the plan of liquidation to § 5.48 and to add liquidation of Federal savings associations to § 5.48. We also propose to add an exception for changes in assets that are subject to OCC approval under another application to the OCC. In such cases, an additional application under § 5.53 is not required. This exception is now only implied.

Section 5.53 currently does not have a provision granting expedited review of applications by eligible banks. The OCC believes the transactions covered under the current rule and under the proposed rule would always be significant enough that expedited review is not appropriate. Section 163.22(c) covered a broader range of transactions than § 5.53, and §§ 163.22(c) and (h)(2) provided for expedited treatment of bulk transfer filings if all the participating Federal savings associations meet the conditions for expedited treatment. We are not proposing to include expedited review in § 5.53.

Finally, we propose to revise the approval requirement provision in § 5.53(d)(1) to eliminate language that is now covered by the use of the defined term “substantial asset change” and to revise the manner in which the review factors are set out in § 5.53(d)(2)(i) to be the same as the similar factors in 12 CFR 5.33.

Capital Distributions by Federal Savings Associations (New § 5.55)

Subpart E of part 163, Capital distributions, sets forth the procedures and standards for all capital distributions made by a Federal savings associations. Section 5.46, Changes in permanent capital, and part 5 of subpart E, Payment of dividends, describes the procedures and standards relating to a transaction resulting in a change in a national bank's permanent capital and declaration and payment of national bank dividends, respectively. Although part 163, subpart E and § 5.46 and subpart E of part 5 cover similar transactions, they are structured differently and apply in different ways to Federal savings associations and national banks. Therefore, the OCC is not proposing to integrate these rules at this time. However, in order to include all OCC licensing-related rules in the same part of Chapter 12, we propose to move the provisions contained in subpart E of part 163 to part 5 as new 12 CFR 5.55; update the cross-references in §§ 192.510(c)(1) and 192.520(c) to reflect the new § 5.55; and make other conforming changes.

In addition, we propose to include in new § 5.55 filing procedures based on provisions in part 5 regarding eligible savings associations and expedited review. Because the proposal would move this rule into part 5 and in part 5 a Federal savings association must be an “eligible savings association” in order to qualify for expedited review of applications and notices generally, the OCC believes it is appropriate to apply the eligibility criterion to Federal savings associations seeking expedited review of filings for capital distributions even though the regulation is not being integrated with its national bank counterpart. These part 5 procedures would result in filing requirements similar to those in subpart E of part 163. However, as described in the discussion of the part 5, subpart A, definition of “eligible bank or eligible savings association” elsewhere in this preamble, because the eligibility requirements in part 5 and in the current Federal savings association rules are not identical, the part 5 eligibility requirements for Start Printed Page 33304expedited review could affect which savings associations qualify for the expedited process.

We also have clarified the provisions regarding filing a notice with the OCC and Federal Reserve Board in proposed §§ 5.55(e)(2)(iii), (e)(2)(iv) and (4) to more precisely describe the requirements.

We do not propose any other substantive changes to this rule.

Subordinated Debt (New § 5.56)

The OCC currently has separate rules for subordinated debt issued by national banks and Federal savings associations (12 CFR 5.47 and 12 CFR 163.81, respectively). Because of the differences and complexity of these rules, we are not proposing to integrate them in this rulemaking, although we may propose to do so at a later date. However, in order to include all OCC licensing-related rules in the same part of Chapter 12, we propose to move § 163.81 to part 5 as new 12 CFR 5.56 and update the cross-reference in § 193.101(c) to reflect the new § 5.56.

In addition, we propose to include in new § 5.56 filing procedures based on provisions in part 5 regarding eligible savings associations and expedited review that would result in filing requirements similar to those in § 163.81. However, as described in the discussion of the part 5, subpart A, definition of “eligible bank or eligible savings association” elsewhere in this preamble, because the eligibility requirements in part 5 and in the current Federal savings association rules are not identical, the part 5 eligibility requirements for expedited review could affect which savings associations qualify for the expedited process.

We do not propose any other substantive changes to this rule.

Pass-Through Investments by Federal Savings Associations (New § 5.58)

National banks and Federal savings associations may make, directly or through an operating subsidiary, non-controlling investments (the national bank term) or pass-through investments (the Federal savings association term) in entities pursuant to their respective authority under 12 U.S.C. 24(Seventh) (national banks) and 12 U.S.C. 1464(c) (Federal savings associations) and other statutes. Twelve CFR 5.36 describes the procedures for making these non-controlling investments for national banks. Twelve CFR 160.32(a) addresses the authority of Federal savings associations to make pass-through investments, while § 160.32(b) and (c) describe the procedures for making pass-through investments for Federal savings associations.

With respect to Federal savings associations, § 160.32(a) codifies the authority of Federal savings associations to make pass-through investments in certain entities that hold only assets and engage only in activities permissible for Federal savings associations. When making the pass-through investment, a Federal savings association must comply with all the statutes and regulations that would apply if it were engaging in the activity directly. For example, a Federal savings association must aggregate a proportionate share of its pass-through investment in an entity with the assets the Federal savings association holds directly in calculating its investment limits.[103]

Section 160.32(b) provides that a Federal savings association may make certain qualifying pass-through investments without prior notice to the OCC (a “no-notice procedure”) in any entity that is a limited partnership, an open-ended mutual fund, a closed-end investment trust, a limited liability company, or an entity in which the Federal savings association is investing primarily to use the company's services. To qualify for this no-notice procedure the investment must satisfy the conditions set forth in § 160.32(b): (1) The investment is not more than 15 percent of the association's total capital, (2) the book value of the association's aggregate pass-through investments does not exceed 50 percent of the association's total capital, (3) the investment does not give the association direct or indirect control of the company, and (4) the association's liability is limited to the amount of the investment. Section 160.32(c) requires a Federal savings association to provide the OCC with 30 days advance written notice prior to making any pass-through investment that does not meet these no-notice standards. The notice is a form of application and may become a standard application if the OCC notifies the filer that the investment presents supervisory, legal, or safety and soundness concerns. Section 160.32 does not specify the content of the notice or application, as does § 5.36.

The OCC proposes to harmonize its filing requirements for non-controlling and pass-through investments in order to have consistent review and oversight of such investments for national banks and Federal savings associations. The proposal would accomplish this by adding a new § 5.58 to part 5. Section 5.58 is based on § 5.36 and would subject Federal savings association pass-through investments to filing requirements very similar to those applicable to national banks. We are not proposing to add Federal savings associations to § 5.36 at this time because of differences in the respective statutory authorities, the regulations implementing them, and their interpretation. We plan to consider further harmonization of these filing rules, particularly in conjunction with any combination of the substantive regulations implementing the statutory authorities. The proposal also would amend § 160.32(b) to become a cross-reference referring Federal savings associations to § 5.36, and remove § 160.32(c). We would retain § 160.32(a) without change.

The scope section at proposed § 5.58(b) would refer to the authority of Federal savings associations to make equity investments, including pass-through investments, under 12 U.S.C. 1464 and other statutes. It also would reflect that the authority to make a pass-through investment subject to §§ 5.58(b) and 160.32(a) is in addition to authorities to make investments subject to §§ 5.35 and 5.37, as amended by this proposal to include Federal savings associations, and proposed new §§ 5.38 and 5.59.

Proposed paragraph (c) of § 5.58 would require a Federal savings association to file a notice or application for a pass-through investment when required by § 5.58. Proposed § 5.58(d) contains definitions used in the section. The definitions are like those in § 5.36(c).

Proposed paragraph (e) of § 5.58 mirrors § 5.36(e) and would provide that a well capitalized, well managed Federal savings association may make certain pass-through investments, directly or through its operating subsidiary, in certain entities [104] by filing a written notice with the OCC no later than 10 days after making the investment. This after-the-fact notice procedure is available if the activity conducted by the enterprise is on the list of activities eligible for a notice filing for operating subsidiaries under proposed § 5.38, or if it is substantially the same as an activity that has been previously approved for a Federal savings association (or its operating subsidiary) in published OCC precedent, including published former OTS precedent, and is conducted on the Start Printed Page 33305same terms and conditions that apply to the activity approved in that precedent. This notice must contain the information enumerated in § 5.58(e), including: (1) A description of the structure of the investment and the types of activities conducted by the enterprise in which the bank is investing, (2) how the activity comports with the activities listed in § 5.38 or OCC precedent, (3) a certification that the savings association is well managed and well capitalized at the time of the investment, (4) how the savings association will prevent the enterprise from engaging in impermissible activities, (5) a description of how the investment is convenient and useful to the savings association and not a passive investment, (6) a certification that the savings association's loss exposure is limited and that it does not have unlimited liability for the obligations of the enterprise, and (7) a certification that the enterprise agrees to be subject to OCC supervision and examination as permitted under certain Federal statutes.

If a Federal savings association is not well capitalized and well managed or if the activity conducted by the enterprise does not qualify for the after-the-fact notice procedure, the savings association would be required to apply to the OCC and receive prior approval for the non-controlling investment under § 5.58(f), which mirrors § 5.36(f). The application must satisfy the other conditions enumerated in proposed § 5.58(e).

Proposed § 5.58(g)(1), based on § 5.36(g)(1), would provide for an expedited notice procedure for pass-through investments in entities holding assets in satisfaction of debts previously contracted. Under § 5.58(g)(2), based on § 5.36(g)(2), a Federal savings association would not be required to file a notice or application under § 5.58 when acquiring a non-controlling investment in shares of a company through foreclosure or otherwise in good faith to compromise a doubtful claim, or in the ordinary course of collecting a debt previously contracted.

The proposal to require Federal savings associations to follow filing requirement for pass-through investments similar to the filing requirements for national bank non-controlling investments, to amend § 160.32(b), and to remove § 160.32(c) would not affect the authority of Federal savings associations to make pass-through investments in entities that engage only in activities permissible for Federal savings associations. In addition, § 5.36 permits national banks to make non-controlling investments greater than 25 percent of the company's equity. Under § 5.58, Federal savings associations would be permitted to do the same. Such an investment, however, would constitute “control” under the definition used in 12 U.S.C. 1828(m) and applicable to Federal savings associations, making the enterprise a subsidiary of the association for purposes of section 1828(m) and triggering a filing with the OCC pursuant to section 1828(m).[105] Accordingly, proposed § 5.58(f)(2) provides that, in all cases in which a Federal savings association proposes to invest in an enterprise that would be a subsidiary of the Federal savings association for purposes of section 1828(m) and would not be an operating subsidiary or service corporation, the Federal savings association must submit an application for approval to the OCC, similar to the application required under § 5.58(f)(1) for investments that do not qualify for the notice procedure.

The application of § 5.58 to Federal savings associations also would change the filing requirements for Federal savings associations' non-controlling investments. Some pass-through investments could meet the requirements for the after-the-fact notice procedure, and the Federal savings association would need to file only the after-the-fact notice, not an application as under § 160.32(c). However, some non-controlling investments that currently may qualify for the no-notice procedure under § 160.32(b) would require a filing under § 5.58. In this regard, we understand the no-notice procedure under § 160.32(b) was primarily used for investments in investment companies that held assets permissible for a Federal savings association to hold directly. Proposed § 5.58(h) would continue the no-notice procedure for such investments by Federal savings associations.[106] In addition, some investments that may have qualified for the no-notice procedure may be eligible for the after-the-fact notice of § 5.58(e). Thus, the OCC believes there should not be a substantial impact of this change on Federal savings associations, since the proposal would continue the most common exception to the application requirement in § 160.32, and other pass-through investments may qualify for after-the-fact filing.

Service Corporations of Federal Savings Associations (New § 5.59)

Section 5(c)(4)(B) of the HOLA [107] authorizes savings associations to invest in service corporations. There is no similar authority for national banks. OCC rules addressing service corporations of Federal savings associations (as well as operating subsidiaries of Federal savings associations) are currently set forth at 12 CFR part 159 (Subordinate organizations). The OCC is proposing to remove these provisions of part 159 and create a new § 5.59 based on part 159 that would address only Federal savings association service corporations.[108] This part would set forth the characteristics of Federal savings association service corporations, the requirements applicable to such service corporations, and the filing requirements that apply to a Federal savings association's establishment or acquisition of a service corporation or its commencement of new activities in an existing service corporation.

The current service corporation regulation provides that, when required by section 18(m) of the FDI Act, a Federal savings association must file a notice under 12 CFR part 116 at least 30 days before establishing or acquiring a subsidiary or engaging in a new activity in a subsidiary.[109] The regulation defines a “subsidiary” as a subordinate organization directly or indirectly controlled by a Federal savings association.[110] Accordingly, under the current regulation, a Federal savings association is not required to file a service corporation application if the association proposes to make a non-controlling investment in a service corporation.

The OCC proposes to amend the service corporation regulation to require that a Federal savings association file with the OCC before acquiring or Start Printed Page 33306establishing any service corporation, including one that it would not control. The OCC believes that this requirement is more consistent with the underlying statute, 12 U.S.C. 1828(m), and also is more prudent from a regulatory standpoint, because it enables the OCC to review the proposed establishment or acquisition of all service corporations, not merely ones the Federal savings association controls.[111] This ability to review is particularly important because service corporations may engage in a broader range of activities than Federal savings associations, and because Federal savings associations may make sizable investments in service corporations (the aggregate statutory limit for all service corporation investments is three percent of assets). The OCC believes that the proposed amendment will not materially increase the regulatory burden on Federal savings associations, because, in most cases, the notice process is not lengthy, and information requirements are not extensive.

The current service corporation regulation uses the definition of “control” in 12 CFR part 174. Section 5.59(d)(1), as proposed, states that “control” has the meaning set forth in the Bank Holding Company Act (BHC Act) and the Federal Reserve Board's regulations thereunder. The term “control” as it relates to the filing requirement, is set forth in section 18(m)(1) of the FDI Act. The FDI Act defines control by cross-referencing the definition of the term in the BHC Act, at 12 U.S.C. 1841.[112] Accordingly, the OCC believes that the appropriate definition of control is the BHC Act definition. The OCC does not believe that this definitional change will have a significant impact on Federal savings associations.[113]

Proposed § 5.59(e)(5) explicitly states that service corporations may be organized in any organizational form that provides the same protections as the corporate form of organization, including limited liability. This provision is consistent with the OTS's intent in promulgating 12 CFR part 559, the predecessor to part 159,[114] and is consistent with OTS precedent. In amending the service corporation regulation to provide explicitly that service corporations were not required to be in the corporate form, the OTS stated that it was following its standard practice of interpreting the HOLA in a manner that does not elevate form over substance, and that the HOLA authorization to invest in service corporations should be read “to permit any organizational form that provides the same basic protections as the corporate form of organization.” [115]

The current service corporation regulation provides that state law applies to a service corporation regardless of whether state law applies to the parent Federal savings association.[116] The OCC previously has amended its regulations to reflect the preemption provisions of the Dodd-Frank Act.[117] Accordingly, the proposal does not include this statement in proposed § 5.59. This result does not effect a substantive change from the current regulations.

Twelve CFR 163.161 includes a requirement that service corporations must be well managed and operate safely and soundly. That section also provides that service corporations must pursue financial policies that are safe and consistent with the purposes of savings associations, and that service corporations must maintain sufficient liquidity to ensure their safe and sound operation. These requirements addressing service corporations are more appropriately included in the service corporation regulations, and are set forth in proposed § 5.59(e)(7).

The proposed regulation would retain the provisions regarding separate corporate identity, with one exception. Proposed § 5.59(e)(8) does not include the provision in § 159.10(a)(3) that requires adequate financing as a separate unit in light of normal obligations reasonably foreseeable for a business of the service corporation's size and character because the OCC believes that this provision may be unnecessarily burdensome. For a service corporation that the Federal savings association does not control, the savings association may not have the power to ensure that it is adequately financed at all times; and such lack of control may help demonstrate the service corporation's separate corporate identity. Where the savings association controls the service corporation, the savings association may find it an ineffective use of resources to finance the entity far in advance; the proposed change helps provide a savings association with flexibility as to when it provides financing to the service corporation and reduces uncertainty regarding what the agency may consider adequate financing.

Proposed § 5.59(f) would retain the list of preapproved activities currently in § 159.4, with minor changes. Section 159.4(h) addresses both community development and charitable activities. The proposal would divide this paragraph into two separate provisions, one addressing community development (paragraph (f)(8)), and the other addressing charitable activities (paragraph (f)(9)). In addition, the community development provision would be simplified by deleting the current list of examples of preapproved community development activities (which generally fall within the scope of the 12 CFR 24.3 description of public welfare investments), and revising the provision to include a reference to community development investments that are permissible under part 24.

As a related matter, § 159.5(a) specifies several types of investments as serving primarily community, inner city, or community development purposes.[118] Proposed § 5.59(g) would delete these examples, all of which are within the scope of § 24.6, and provide that such investments must be consistent with § 24.6.

Proposed § 5.59(h)(1)(ii) includes an information requirement for service corporations with respect to insurance activities that is similar to the requirement for operating subsidiaries. This provision, which is intended to help the OCC carry out its statutory responsibilities,[119] would require a Federal savings association to list for Start Printed Page 33307each state the lines of business for which the service corporation holds, or will hold, an insurance license, and each state in which the service corporation holds a resident license or charter.

Proposed § 5.59(h)(2) would revise the circumstances under which a Federal savings association would receive expedited review for a service corporation filing. Currently, the criteria for expedited review are set forth in 12 CFR part 116. Pursuant to the proposal, a service corporation filing would be eligible for expedited review if the savings association is “well capitalized” and “well managed,” and the service corporation engages only in one or more of the preapproved activities listed in § 5.59(f).

Proposed § 5.59(k) would require each Federal savings association to file an annual report listing, for each service corporation subsidiary that is not functionally regulated and does business with consumers in the United States, certain information including the name and principal place of business of the service corporation, the lines of business in which the service corporation subsidiary engages directly with consumers, and the nature of the parent savings association's interest in the service corporation subsidiary. This would be a new requirement. The OCC currently requires similar information to be filed regarding bank operating subsidiaries and is also proposing in this rulemaking to require this information with respect to operating subsidiaries of Federal savings associations. The OCC makes publicly available a list of national bank operating subsidiaries that do business with the public, so that the public is aware when they are dealing with an operating subsidiary of a national bank. Adding Federal savings association operating subsidiaries and service corporation subsidiaries to this list will help ensure that the public is aware when they are dealing with an operating subsidiary or service corporation that is controlled by a Federal savings association.

C. Conforming Amendments

As indicated above, the proposal would make conforming and technical changes to both the rules in parts 5, 7, and 34 and in various provisions of parts 100 through 199 to reflect the movement of the licensing rules for savings association rules to part 5, to adjust section titles, and to conform cross-references. Specifically, the proposal would amend § 162.4 (audit of savings associations) to replace the cross-reference to the part 116 definition of composite ratings with a reference to the Uniform Financial Institutions Rating System, as referred to in other OCC rules. The proposal also would amend part 192 (conversions from mutual to stock form) to replace references to part 116, part 152 (Federal savings associations incorporation, organization and conversion), subpart E (capital distributions) and subpart H (notice of change in directors or senior executive officers) of part 163, and part 174 (change in control) with the appropriate cross-references in proposed part 5. In addition, the proposal would replace the reference to the standard treatment processing procedures of part 116 in § 160.35 (adjustments to home loans) with a statement that Federal savings associations must apply for and receive the OCC's prior written approval.

Part 32 (lending limits) also references the expedited and standard application processing procedures of part 116 at § 32.3(d) (loans by savings associations to develop domestic residential housing units). The proposal would replace this reference with a new paragraph that sets forth the application procedures for Federal savings associations for this activity. These procedures are based on those in § 32.7(b) with the addition of an expedited review process. With respect to state savings associations, the proposal would replace the citation to the FDIC application processing rule with a more general reference to the rules and procedures established by the appropriate Federal banking agency.

In addition, the proposal would conform the cross-references to part 159 (service corporations) and § 163.81 (subordinated debt) to proposed §§ 5.59 and 5.56, respectively.

Furthermore, the proposal would amend §§ 5.39, 5.47, and 5.64, which are not proposed to be integrated in this rulemaking, to clarify and make consistent the OCC office to which a national bank or Federal savings association must file a notice or application. Specifically, the proposal would direct such filings to the institution's appropriate OCC licensing office or appropriate OCC supervisory office, as noted, instead of the appropriate district office.

Finally, the proposal would amend §§ 100.1 (certain regulations superseded) and 100.2 (waiver authority) so that these provisions would continue to apply to rules pertaining to savings associations that would be included in parts other than parts 100 through 199 of Chapter 12 of the Code of Federal Regulations as a result of this rulemaking.

V. Summary of Substantive Changes for National Banks and Federal Savings Associations

A. Proposed Substantive Changes for National Banks

The following is a summary of the substantive changes, listed by rule, proposed in this rulemaking for national banks.

Rules of General Applicability (Proposed 12 CFR part 5, subpart A)

  • To qualify for expedited review as an “eligible bank,” a national bank would be required to have an OCC compliance rating of 1 or 2. Currently, a bank's compliance rating is not a factor in the requirements for eligibility; however, § 5.13(a)(2) currently permits the OCC to remove a filing from expedited review if it raises certain issues, including compliance concerns.
  • A national bank would be required to publish its public notice of a filing in English and, if the OCC determines necessary, also in other languages. Currently, the rules do not specify the language in which the notice must be published.
  • In addition to what is currently required, a public notice related to a national bank filing would be required to state (1) the name of the institution that is the subject of the filing, (2) that the public portion of the filing is available on request, and (3) the address of the applicant.
  • The OCC, at its discretion, could require an applicant to publish a new public notice if (1) the applicant submits either a revised filing or new or additional information related to a filing, (2) there is a major issue of law or a change in circumstances arises after a filing, or (3) the agency determines that a new public notice is appropriate. (Although this is not specifically permitted under current rules, this has been the practice of the OCC.)
  • When computing time for national bank filings, the day of the filing would no longer be included and the time period would no longer end on a Saturday, Sunday, or Federal holiday but would end on the next day that is not a Saturday, Sunday or Federal holiday.

Articles of Association, Bylaws, Charters and Chartering Procedures (proposed 12 CFR 5.20, 5.21, 5.22)

  • National banks would be prohibited by regulation from adopting a title that misrepresents the nature of the institution or the services it offers. This reflects current practice.Start Printed Page 33308
  • National banks would be required to sell all securities of a particular class in an initial offering at the same price.
  • In the event the organization of a national bank is not completed, the organizers would be required to return all cash collected on subscriptions.
  • The OCC charter approval could include a condition that OCC would review proposed directors and officers for more than two years after the bank commences business. The regulation currently says two years, but a longer time is sometimes imposed in practice.
  • Expedited OCC review would be available for an application to establish a full-service national bank filed by a bank holding company or savings and loan holding company only when the lead depository institution is an eligible national bank or eligible Federal savings and loan associations. Currently, the lead depository institution can be an eligible state institution.

Conversions (Proposed 12 CFR 5.24, 5.25)

  • Conversion to a National Bank Charter:

○ An institution seeking to convert to a national bank charter would be required by regulation to obtain all necessary regulatory and shareholder approvals. (OCC policy currently requires these approvals.)

○ The application would be required to:

Identify bank service company investments and other equity investments, in addition to subsidiaries. (This requirement reflects current practice.)

Include a business plan if the converting institution has been operating for less than three years, plans to make significant changes to its business after the conversion, or at the request of the OCC. (The OCC currently requests this information on a case-by-case basis.)

Include information about enforcement actions and other supervisory criticisms and the applicant's analysis of whether conversion is permissible under 12 U.S.C. 35, especially the provisions added to section 35 by section 612 of the Dodd-Frank Act.

○ The OCC could permit a converted national bank to retain nonconforming activities of a state bank or stock state savings association and nonconforming assets or activities of a Federal stock savings association for a transition period after conversion. (This regulatory change reflects current OCC practice.) The regulation now provides that the OCC may only permit the retention of nonconforming assets of a converting state bank, subject to requirements in 12 U.S.C. 35.

○ Expedited OCC review would be available only for conversion applications by Federal savings associations, because they are institutions the OCC already regulates. It would no longer be available for state-chartered institutions. The time for expedited review is extended from 30 to 60 days.

  • Conversions from a national bank to a state-chartered institution:

○ As required by section 612 of the Dodd-Frank Act, a national bank must include a copy of its conversion application filed with the state regulator to which it is applying for approval to convert in its notice to the OCC to convert, and it must send a copy of the application to the Federal banking agency that would become its appropriate Federal banking agency after the conversion.

○ It must also include a showing of its compliance with applicable requirements for converting.

Fiduciary Powers Applications (Proposed 12 CFR 5.26)

  • When reviewing an application to exercise fiduciary powers, the OCC would by regulation consider the bank's financial condition and capital adequacy, the character and ability of proposed trust management, the adequacy of any proposed business plan, and the needs of the community served. (Some of these factors are statutory and all reflect current OCC practice.)
  • A national bank that has not conducted previously approved fiduciary powers for 18 consecutive months would be required to provide a notice to the OCC 60 days in advance of commencing the activities.
  • A national bank that has received approval from the OCC to offer limited fiduciary services and desires to offer full fiduciary services would be required to apply to the OCC. (This requirement reflects current OCC practice.)

Branching (Proposed 12 CFR 5.30 and Branching-Related Sections in Part 7)

  • A drive-in or pedestrian facility located within 500 feet of a branch always would be an extension of the branch, not a separate branch. Currently, this result depends on a case-by-case analysis.
  • Under the expedited approval process, short-distance relocations of branches would be deemed approved 15 days after the close of the comment period or 30 days after the date the notice is filed, whichever is later. Currently, short-distance relocations are deemed approved 15 days after the close of the comment period or 45 days after the date the notice is filed, whichever is later.

Expedited Procedures For Certain Reorganizations (Proposed 12 CFR 5.32).

  • A national bank would not be required to comply with the public notice, public availability, and hearing requirements of part 5, subpart A (12 CFR 5.8, 5.9, and 5.11) for an application to reorganize to become a subsidiary of a bank holding company or a company that will, upon consummation of such reorganization, become a bank holding company unless the OCC concludes that an application presents significant and novel policy, supervisory, or other legal issues. Currently, such applications are subject to these subpart A requirements.

Business Combinations (Proposed 12 CFR 5.33)

  • An application to the OCC would be required for the assumption of deposit liabilities or other liabilities from a credit union or any other institution that is not FDIC-insured that will become deposits at the assuming national bank.
  • An application to the OCC would be required for the acquisition by a national bank of all or substantially all of the assets, or the assumption of all or substantially all of the liabilities, of companies in addition to depository institutions, including credit unions, nonbank affiliates, or any other company (a “whole entity purchase and assumption”) if the whole entity purchase and assumption would result in an increase in the asset size of the bank of 25 percent or more.
  • In the application for a business combination, national banks would be required to identify a financial subsidiary investment, bank service company investment, service corporation investment, and other equity investment in addition to the current requirement to identify subsidiaries and provide an analysis of the permissibility for the national bank to hold the subsidiary or investment. This regulatory change reflects current practice.
  • If the applicant intends to exercise fiduciary powers after the combination and requires OCC approval for such powers, the applicant would be required to include in the business combination application the information required in § 5.26 for a request for fiduciary powers. This regulatory change reflects current practice.Start Printed Page 33309
  • Filings in which a national bank is the target company and will not be the resulting institution will no longer be exempt from §§ 5.2 and 5.5. Section 5.2 (rules of general applicability) provides that the OCC may adopt different procedures for particular filings, in exceptional circumstances or for unusual transactions, and that the OCC permits electronic filing. Section 5.5 provides that an applicant must pay the applicable filing fee, if any.
  • If there are dissenting shareholders in a merger or consolidation between a national bank and Federal savings association, the OCC will conduct an appraisal of dissenters' shares of stock according to the statutory dissenters' appraisal processes that apply to mergers between national banks and state banks. Under the current rule, the OCC may conduct such an appraisal if all the parties agree. Now that the OCC regulates both the national bank and the Federal savings association, the processes can be required.
  • The OCC would have the authority to apportion costs for the dissenters' rights process for transactions to which 12 U.S.C. 214a or 215 and 215a are not applicable. (These statutes require the bank to bear all costs.) Under the current rule, in transactions that are not subject to those statutes, the parties must agree how costs are to be divided. Under the proposal, if the OCC regulates the institutions and the transaction is not subject to the statutes, then the OCC would have authority to apportion costs as the OCC determines.
  • A national bank's consolidation or merger agreement would be required to address the effect upon, and the terms of the assumption of, any liquidation account of any participating institution by the resulting institution. Although not currently in § 5.33, a resulting national bank in such transactions is required to establish and maintain a liquidation account, as discussed in the OCC Licensing Manual.
  • The national bank applicant in a consolidation or merger would be required to submit information showing that all steps needed to complete the transaction have been met and to notify the OCC of the planned consummation date. The OCC would then issue a certification letter documenting that the consolidation or merger occurred and specifying the effective date. This process reflects current OCC practice for national banks.
  • The OCC's approval of a transaction under § 5.33 would expire in six months instead of 12 months; the OCC could extend this six month period.
  • A national bank that will not be the resulting bank in a merger or consolidation with another national bank would be required to file a notice to the OCC under § 5.33(k). This notice is discussed in the next item.
  • When a national bank is consolidating or merging with a Federal savings association or a state chartered institution or credit union and the national bank is not the resulting institution, it would be required to include more information in the notice than currently required in § 5.33. This additional information would include a short description of the transaction or a copy of the filing made by the acquiring institution to its regulators for approval of the transaction and information showing the target national bank or Federal savings association has complied with the requirements to engage in the transaction (e.g., board and shareholder approval). (The bank should already have compiled this information.)
  • If a consolidation or merger of a national bank in which the national bank is not the resulting institution has not occurred within six months after the OCC's receipt of the notice of the transaction, the bank must submit a new notice with the OCC.

Operating Subsidiaries (Proposed 12 CFR 5.34)

  • Before beginning business, an operating subsidiary would be required to comply with other laws applicable to it, including applicable licensing or registration requirements. This change would codify current OCC policy.
  • The proposal would make the following changes regarding a national bank's control of an operating subsidiary:
  • Where a national bank has the ability to control the management and operations of an operating subsidiary, no other person or entity could have the ability to control the management or operations of the subsidiary. This change would codify current OCC policy.
  • Where a bank owns less than 50 percent of an operating subsidiary (but still controls it), no other party could own a greater percentage than the bank. This change would codify current OCC policy.
  • A national bank would be required to have reasonable policies and procedures to preserve the limited liability of the bank and its operating subsidiaries.
  • Adequately capitalized banks would no longer be exempt from the application or notice requirements when acquiring or establishing an operating subsidiary or performing a new activity in an existing operating subsidiary when the activities of the new subsidiary are limited to those previously reported to the OCC in connection with a prior operating subsidiary and certain other requirements are met.
  • If a national bank operating subsidiary wishes to act as a fiduciary, its national bank parent would be required to have fiduciary powers and the operating subsidiary also must have its own fiduciary powers under the law applicable to the subsidiary. The operating subsidiary no longer would be able to rely on the national bank's fiduciary powers, except when the subsidiary exercises investment discretion on behalf of customers or provides investment advice for a fee as a registered investment adviser. This change would codify longstanding OCC practice.
  • OCC approvals granted under § 5.34 would expire within 12 months if a national bank has not established or acquired the operating subsidiary or commenced the new activity in an existing operating subsidiary, unless the OCC shortens or extends the time period.

Investment in Bank Service Companies (Proposed 12 CFR 5.35)

  • To invest in a bank service company, a national bank would be required to file a prior notice for OCC approval through an expedited review process, under which the notice would be deemed approved on the 30th day after filing unless the OCC notifies otherwise. Under the current rule, a national bank files an after-the-fact notice with no requirement for OCC approval before the bank makes the investment, if specified eligibility conditions are met.

Other Equity Investments (Proposed 12 CFR 5.36)

  • No substantive changes.

Banking Premises (Proposed 12 CFR 5.37, 7.1000, 7.3001)

  • No substantive changes.

Main Office and Home Office Relocations (Proposed 12 CFR 5.40)

  • Under the expedited approval process, short-distance relocations of main offices would be deemed approved 15 days after the close of the comment period or 30 days after the date the notice is filed, whichever is later. Currently, short-distance relocations are deemed approved 15 days after the close of the comment period or 45 days after the date the notice is filed, whichever is later.Start Printed Page 33310

Change in Corporate Title (Proposed 12 CFR 5.42)

  • No substantive changes.

Changes in Permanent Capital (Proposed 12 CFR 5.46)

  • No substantive changes.

Subordinated Debt as Capital (Proposed 12 CFR 5.47)

  • No substantive changes.

Voluntary Liquidation (Proposed 12 CFR 5.48)

  • The following provisions in the proposal would codify existing OCC or national bank practice:

○ A national bank may not commence liquidation until the OCC has notified it that the agency does not object to the liquidation plan.

○ A national bank's board of directors, in addition to its shareholders, must vote to approve a voluntary liquidation plan.

○ A national bank would be required to provide notice of the liquidation to depositors, other known creditors, and known claimants in addition to the current requirement to publish notice in accordance with 12 U.S.C. 182.

○ The national bank's liquidating agent or committee would be required to submit to the OCC a report at the start of liquidation showing the bank's current balance sheet and a final report of the liquidation.

Change in Control (Proposed 12 CFR 5.50)

  • The proposal would add several presumptions of concerted action. These additional presumptions would provide clarity and guidance about how and when parties are presumed to be acting in concert for purposes of § 5.50.
  • Acquirers would be permitted to rebut a presumption of control in cases where the acquirer will have a representative on the board of directors of the national bank to be acquired. Currently, an acquirer that proposes to rebut control of a national bank cannot have a representative on the board.
  • The proposal would establish specific limitations, in the rebuttal of control context, on the total equity invested, where an acquirer proposes to acquire more than fifteen percent of the national bank's voting stock.

Changes in Directors and Senior Executive Officers (Proposed 12 CFR 5.51)

  • An advisory director of a national bank who may vote on matters before, or provides more than general advice to, any committee of the board of directors, in addition to the board itself, would be subject to the requirements of § 5.51.
  • The notice of a change in directors or senior executive officers for a national bank would need to include financial information on the individual, except when the OCC determines in writing that such information is not required.
  • If the OCC requests additional information regarding the notice, a national bank that cannot provide the requested information within the time specified by the OCC may request additional time to provide the information.
  • An individual who is serving on an interim basis pursuant to an OCC-granted waiver and receives a notice of disapproval would be required to resign immediately from the board, and would be able to assume the position on a permanent basis only if the notice of disapproval is reversed on appeal and all other applicable legal requirements are satisfied. Currently, the individual may continue on the board pending resolution of an appeal.

Change in Address (Proposed 12 CFR 5.52)

  • A national bank would not be required to file a notice of a change in the permanent address of its home office if it submitted a notice under § 5.40(b) (relocation of a main office to a branch location in the same city, town or village).

Change in Asset Composition (Proposed 12 CFR 5.53)

  • With regard to a change in asset composition, the national bank rule requires approval of only the sale of all or substantially all of a bank's assets, and the subsequent purchase of assets or expansion of operations after such a sale. Under the proposal, the following additional transactions would require approval under § 5.53:

○ Any other asset purchases or other expansions of business that are part of a plan to increase the size of the bank by more than 25 percent in one year.

○ As determined by the OCC on a case-by-case basis, any other material increase or decrease in the size of the bank or a material alteration in the composition of the types of its assets or liabilities (including the entry or exit of business lines). The OCC would consider the size and nature of the transaction and the condition of the institutions in determining whether to require an application and believes the additional situations in which the OCC would require an application likely already would involve discussions between the bank and its appropriate supervisory office.

  • The OCC would need to approve a bank's plan of voluntary liquidation in order for asset changes that are part of such liquidation to be exempt from the approval requirements of § 5.53. (The proposal also would amend the regulation governing liquidations, § 5.48, to require OCC approval of the plan of liquidation.)
  • Asset changes that are subject to OCC approval under another application to the OCC would specifically be exempt from the approval requirements of § 5.53. This exception is now only implied.

B. Proposed Substantive Changes for Federal Savings Associations

The following is a summary of the substantive changes proposed by this rulemaking, listed by revised rule, for Federal savings associations.

Rules of General Applicability (Proposed 12 CFR Part 5, Subpart A)

  • As a result of removing 12 CFR part 116 and applying 12 CFR part 5, subpart A, Federal savings associations would need to follow different procedural and processing provisions. While many of the underlying processes are similar, minor variations and different terminology is sometimes used. Federal savings associations would need to adjust to these variations and differences.
  • Adequately capitalized Federal savings associations would no longer qualify for expedited treatment; only well capitalized institutions would be eligible.
  • A Federal savings association would no longer have to publish a public notice within the seven days before a filing date but may publish as soon as practicable before or after filing, unless otherwise required.
  • In addition to what is currently required, a public notice related to a Federal savings association filing also would have to state that a filing is being made and the date of the filing.
  • A Federal savings association could publish a single public notice for multiple transactions or a single notice that would comply with the notice requirement of both the OCC and another Federal agency, if accepted by the OCC. (Although this is not specifically permitted under current rules, this has been an accepted practice for Federal savings association filings.)
  • Federal savings associations would obtain from the OCC the public comments made in response to a filing's public notice. Currently, the commenter Start Printed Page 33311is required to send comments directly to the institution.

Articles of Association, Bylaws, Charters and Chartering Procedures (Proposed 12 CFR 5.20, 5.21, 5.22)

  • All Federal savings associations:

○ An application to charter a Federal savings association would be subject to the same two-part approval process used for de novo national bank charters, whereby the OCC first issues a preliminary approval, followed by a final approval and charter issuance if the applicant completes all of the steps required by the preliminary approval and the Comptroller's Licensing Manual. Under the current Federal savings association rule, there is one approval before the OCC issues the charter but the approval is subject to the institution completing various post-approval organizational steps and other requirements before it can commence business, as specified in 12 CFR 143.4, 143.5, 143.6, and 152.1(c) through 152.1(i).

○ Expedited OCC review would be available for an application to establish a full-service Federal savings association filed by a bank holding company or savings and loan holding company when the lead depository institution is an eligible national bank or eligible Federal savings and loan association. The current regulations for chartering a de novo Federal savings association do not have a comparable expedited review process.

○ The OCC's preliminary approval of an application for a new Federal savings association would expire if the savings association has not raised the required capital within twelve months or has not commenced business within eighteen months. Under current rules, a Federal savings association's charter becomes void if organization is not completed within six months after approval.

○ The proposal rescinds de novo chartering approval criteria in §§ 143.2(g)(1) and 152.1(b)(1) that require the OCC to consider whether the Federal savings association will provide credit for housing in a safe and sound manner and approval considerations set forth in § 143.3 regarding the composition of board or directors.

  • Federal stock savings associations:

○ A Federal stock savings associations no longer would be required to cause a true copy of its charter and bylaws to be available to accountholders at all times in each office of the savings association, or to deliver to any accountholders a copy of such charter and bylaws or amendments upon request.

○ The requirements for adopting and filing Federal stock savings association bylaws would no longer include the requirements that the adoption of bylaws be by the board of directors at its first organizational meeting.

○ Shareholder meetings no longer would be required to be held in the state in which the association has its principal place of business.

○ Staggered terms for certain directors would no longer be specified.

○ Stock certificates of a Federal savings association would no longer be required to be signed by the chief executive officer or by any other officer of the association authorized by the board of directors, attested by the secretary or an assistant secretary, and sealed with the corporate seal or a facsimile thereof. Furthermore, each certificate for shares of capital would not be required to be consecutively numbered or otherwise identified.

  • Federal mutual savings associations:

○ Federal mutual savings association bylaws no longer would be required to provide some of the language or requirements specified in current § 144.5(b) regarding aspects of: The location of and notices for the annual meeting of members; reporting requirements at the annual meeting; record dates; proxy voting; annual meeting governance; duties of officers and agents of the association; director election and resignation; executive committees; director, officer and employee compensation and removal; and age limits for directors.

Conversions (Proposed 12 CFR 5.23, 5.25)

  • Conversions to a Federal savings association charter:

○ The applicant would no longer be required to publish a public notice of the application, and the application would no longer be available for public inspection, unless specifically required by the OCC.

○ An applicant that does not meet the qualified thrift lender test would be required to include in its application a plan for achieving compliance and a request for an exception. This is agency practice but is not expressly mentioned in the regulation.

○ Many details of the application process would no longer be included in the regulations. Instead, this information would be found in the Comptroller's Licensing Manual and other OCC guidance.

○ The applicant would be required to include in its conversion application information about enforcement actions and other supervisory criticisms and its analysis of whether conversion is permissible under 12 U.S.C. 35, especially the provisions added to section 35 by section 612 of the Dodd-Frank Act.

  • Conversions from a Federal savings association to any another charter

○ Any Federal savings association converting from its charter would be required to file a notice with the OCC. Under current rules, Federal savings associations that are not eligible for expedited treatment must file an application to convert out.

  • Conversions from a Federal savings association to a state chartered institution

○ As required by section 612 of the Dodd-Frank Act, a Federal savings association must include a copy of its conversion application filed with the state regulator to which it is applying for approval to convert in its notice to the OCC, and it must file a copy of its conversion application with the Federal banking agency that would become its appropriate Federal banking agency after the conversion.

○ It must also include a showing of its compliance with applicable requirements for converting.

Fiduciary Powers Applications (Proposed 12 CFR 5.26 and Part 150, Subpart A)

  • The time period that triggers the need to re-notify the agency before beginning to exercise previously approved fiduciary powers that have not been exercised is shortened from 5 years to 18 months.
  • The trigger for requiring a new application for a Federal savings association would be whether the original approval for fiduciary activities is for limited or full fiduciary powers. Under the current rule, the trigger for a new application is whether the activity is “materially different” from what had been approved.
  • Eligible Federal savings associations would receive expedited review of applications for fiduciary powers.

Branching (Proposed 12 CFR 5.31)

  • Only well capitalized Federal savings associations could be “eligible savings associations” as defined in part 5, and therefore exempt from the branch application requirement. Currently both well and adequately capitalized Federal savings associations are eligible for expedited treatment and therefore can be exempt from this requirement.
  • A Federal savings association would be required to obtain OCC approval in order to establish a branch at the site of a former home office unless Start Printed Page 33312the branch establishment meets one of the exceptions in § 5.31. Under the current rule, no notice or application is required in all cases of home office and branch office re-designations.
  • The OCC's approval of a branch expires after 18 months, unless the OCC grants an extension. Under the current rule, OCC approval expires after 12 months.
  • A state and Federal savings association would be required to file an application with the OCC to establish a branch in the District of Columbia.

Business Combinations (Proposed 12 CFR 5.33)

  • A Federal savings association would be permitted to acquire all or substantially all of the assets, or to assume all or substantially all of the liabilities, of nonbank affiliates, or any other company that is not a depository institution, in addition to credit unions. Currently, such acquisitions are limited to banks, savings associations, and credit unions.
  • In the factors the OCC considers in reviewing a business combination, the factor covering the fairness of the transaction, equitable treatment, and disclosure would be replaced by a factor assessing the effect of the transaction on the association's shareholders, depositors, other creditors, and customers.
  • In the application for a business combination, Federal savings associations would be required to identify a financial subsidiary investment, bank service company investment, service corporation investment, and other equity investment in addition to the current requirement to identify subsidiaries and provide an analysis of the permissibility for the Federal savings association to hold the subsidiary or investment. This requirement reflects current practice.
  • If the applicant intends to exercise fiduciary powers after the combination and requires OCC approval for such powers, the applicant would be required to include in the business combination application the information required in proposed § 5.26 for a request for fiduciary powers. This requirement reflects current practice.
  • The OCC's approval of a transaction under the proposal would expire in six months; the OCC could extend this six-month period. Under current OCC practice, transactions not involving an interim association must be consummated in 120 days.
  • A Federal savings association would be required to publish an initial public notice and two other public notices during the standard 30-day public comment period. Currently, § 163.22(e)(1)(i) requires an initial publication and then publication on a weekly basis during the public comment period.
  • The statutory provisions governing national bank dissenters' rights in 12 U.S.C. 215 and 215a would be applied to transactions in which a Federal savings association is merging or consolidating into a national bank, rather than the regulatory dissenters' rights provision in 12 CFR 152.14, with one exception—the proposal includes authority for the OCC to apportion costs for the dissenters' rights process.
  • In consolidation or merger of a state bank, state savings association, state trust company or a credit union into a Federal savings association, the institution would follow the procedures and dissenters' rights process set out for such transactions in the law of the state or other jurisdiction under which it is organized.
  • For consolidations or mergers of a Federal stock savings association into a another Federal savings association, the plan of merger or consolidation would be required to provide the manner of disposing of the shares of the resulting Federal savings association not taken by dissenting shareholders. Under § 152.14(c)(11), such shares have the status of authorized and unissued shares of the resulting association. The plan of merger or consolidation could still provide such status for these shares, but under the proposal such status no longer would be mandatory.
  • A consolidation or merger of a Federal savings association into an uninsured bank, savings association, or trust company, or into a credit union would require only a notice to the OCC, not application and approval as required under § 163.22(c).
  • Federal savings association applications for business reorganizations (defined in § 5.33(d)(3)) and streamlined applications (described in § 5.33(j)) that meet the requirements would be eligible for expedited review, under which an application is deemed approved as of the later of the 45th day after the application was filed or the 15th day after the close of the comment period, unless the OCC notifies the applicant that the application is not eligible for expedited review or the expedited review process is extended. This process would replace the automatic approval provision in § 163.22(f), under which an application is deemed to be approved automatically 30 days after the OCC sends the applicant a written notice that the application is complete.

○ The size-based limit for expedited review of a business reorganization or streamlined application included in the proposal is less restrictive than the criteria for automatic approval under the current savings association rule, 12 CFR 163.22(f), which provides that an application does not qualify for the automatic approval process if the acquiring institution has assets of $1 billion or more and proposes to acquire assets of $1 billion or more. To qualify for expedited review under the proposal, business reorganizations would have no size limit and streamlined applications would have limits based on the relative size of the acquiring institution and the assets to be acquired but would not have a fixed maximum dollar amount limit on the size.

○ The expedited procedure in the proposal would not include competitive impact thresholds as a disqualifier, as in the current savings association rule.

○ However, as in the current savings association rule, an applicant would not qualify for a streamlined business combination application if the transaction is part of a mutual to stock conversion under 12 CFR part 192.

  • Federal savings associations would no longer be required by regulation to meet the requirements for Federal Home Loan Bank membership, as membership in a Federal Home Loan Bank is no longer mandatory.
  • The approval of a board of directors of a business combination involving a Federal stock savings association would be reduced from two-thirds to a majority of the directors.
  • For a Federal stock savings association, the execution and filing of Articles of Combination as the method of documenting shareholder approval of the combination, consummation of the combination, and its effective date would be replaced by a letter to the OCC followed by a certification issued by the OCC.
  • A Federal savings association would not be required to include all terms regarding the combination in a combination agreement nor include the specific provisions in the agreement that are required by the current savings association rule.
  • If a consolidation or merger of a Federal savings association in which the savings association is not the resulting institution has not occurred within six months after the OCC's receipt of the notice of the transaction, the savings association must submit a new notice to the OCC. The current rule requires a new notice after 12 months.Start Printed Page 33313

Investment in Bank Service Companies (Proposed 12 CFR 5.35)

  • No substantive changes. There are no regulations addressing Federal savings association investment in bank service companies, and the proposed rule closely implements the statute.

Banking Premises (Proposed 12 CFR 5.37, 7.1000, 7.3001)

  • For Federal stock savings associations, the quantitative limitations on investment in banking premises would be based on the association's capital stock or, if a 1 or 2 CAMELS rated, well capitalized association, 150 percent of capital and surplus. Currently, the sole quantitative limit on a Federal savings association's investment in banking premises is total capital. Because 150 percent of capital and surplus would be a greater amount than 100 percent of total capital, we expect that under the proposal, the amount that a savings association could invest in banking premises without OCC approval would be increased. For Federal savings associations that do not have a CAMELS rating of 1 or 2 and are not well capitalized, the relevant limitation would be capital stock, which is a significantly lower threshold than total capital.
  • For Federal mutual savings associations, the quantitative investment limit in banking premises would be based on the amount of retained earnings, instead of total capital.
  • A Federal savings association would be required to follow the specific application requirements contained in proposed § 5.37.
  • The proposal would grandfather Federal savings associations' existing premises investments and arrangements for sharing office space and employees, provided the investment complies with the legal requirements in effect prior to the effective date of the final rule, and continues to comply with those requirements.
  • The rule would specifically permit Federal savings associations to invest in lodging for customers, officers, or employees of the savings association, its branches, or consolidated subsidiaries in areas where suitable commercial lodging is not readily available.
  • A Federal savings association would need to obtain OCC approval or provide after-the-fact notice to exercise an option to purchase banking premises or stock in a corporation that holds banking premises.
  • A Federal savings association would be permitted by regulation to hold banking premises through an operating subsidiary and to hold premises by any reasonable and prudent means.
  • A Federal savings association normally would need to use real estate acquired for future expansion within five years and, after holding such real estate for one year; would be required to state, by resolution of the board of directors or an appropriate authorized association official or a subcommittee of the board of directors, definite plans for use of such real estate. Currently, OCC guidance provides a Federal savings association with a one to three year timeframe for the use of real estate acquired for future premises.

Operating Subsidiaries (Proposed New 12 CFR 5.38)

  • Before beginning business, an operating subsidiary of a Federal savings association would be required to comply with other laws applicable to it, including applicable licensing or registration requirements. This change would codify current OCC policy.
  • Under this proposal, a Federal savings association could control an entity in which it owns less than 50 percent of the voting shares of the entity, provided no other party owns a greater percentage than the savings association, the savings association otherwise controls the subsidiary, and no one else exercises effective operating control. Currently, for control to exist, a savings association must own, directly or indirectly, more than 50 percent of the voting shares of an operating subsidiary.
  • A Federal savings association would be required to have reasonable policies and procedures to preserve the limited liability of the savings association and its operating subsidiaries. The detailed requirements for separate corporate identities for subsidiaries in 12 CFR 159.10 are removed.
  • A Federal savings association would need to file an application to acquire or establish an insured depository institution as an operating subsidiary.
  • A Federal savings association would need to file an application, and receive prior OCC approval, to acquire or establish an operating subsidiary or to commence a new activity in an existing operating subsidiary. The current rule in § 159.11 requires filing a notice at least 30 days prior to establishing or acquiring a subsidiary or engaging in new activities in a subsidiary; this notice is treated like an application under § 159.1(b).
  • Some applications would qualify for the proposal's expedited review of applications process. This expedited review is similar to the current rule's notice process: applications would be deemed approved by the OCC as of the 30th day after the filing is received, unless the OCC notifies the Federal savings association otherwise during the 30-day period.

○ For the application to qualify, the Federal savings association must be “well capitalized” and “well managed,” the activities to be performed by the operating subsidiary must be listed in proposed § 5.38(e)(5)(v) (activities that have been approved for operating subsidiaries of Federal savings associations in the past), the operating subsidiary must be a corporation, limited liability company, or limited partnership, and the savings association must clearly demonstrate control over the operating subsidiary (it must meet a standard for control that is more stringent than the general standard for operating subsidiaries).

○ Under the current rule, all filings start as 30-day prior notices. They become standard treatment applications if the OCC notifies the applicant that the notice presents supervisory concerns or raises significant issues of law or policy.

○ While there is overlap between an application failing to meet the criteria to qualify for expedited review (and so requiring standard processing) and raising issues that would cause a filing to present supervisory concerns, or raises significant issues of law or policy (and so requiring standard processing), there may be instances in which a filing would have had to be processed under standard procedures under one test but not the other.

  • For a Federal savings association operating subsidiary to act as a fiduciary, its savings association parent would be required to have fiduciary powers and the operating subsidiary also must have its own fiduciary powers under the law applicable to the subsidiary. The operating subsidiary no longer would be able to rely on the savings association's fiduciary powers, except when the subsidiary exercises investment discretion on behalf of customers or provides investment advice for a fee as a registered investment adviser. This change would codify OCC and OTS practice.
  • The regulation would no longer expressly state that any finance subsidiary of a Federal savings association that existed on January 1, 1997, is deemed to be an operating subsidiary without further action by the savings association. The pertinent provision is removed because it is thought no longer necessary. No change Start Printed Page 33314in substance is intended. The proposal asks if it needs to be retained.
  • OCC approvals granted under proposed § 5.38 would expire within 12 months if a Federal savings association has not established or acquired the operating subsidiary or commenced the new activity in an existing operating subsidiary, unless the OCC shortens or extends this time period.
  • Federal savings associations would be required to file an annual report on operating subsidiaries that do business directly with consumers in the United States and are not functionally regulated subsidiaries.

Main Office and Home Office Relocations (Proposed 12 CFR 5.40)

  • Under the current rule, no notice or application is required if the relocation is a short-distance relocation, if the Federal savings association redesignates an existing branch office as a home office when redesignating the existing home office as a branch office, or if the savings association is highly-rated and certain other requirements are met. If the relocation does not meet the above exceptions, a notice is required for savings associations that qualify for expedited treatment and OCC approval is required for all other savings associations. Under the proposal, all Federal savings associations would be required to:

○ Submit prior notice to the OCC for home office relocations to a branch site in the same city, town, or village of the current home office; and

○ Obtain prior OCC approval for home office relocations to a branch location other than a branch site in the same city, town, or village of the current home office. An application submitted by an eligible Federal savings association would be deemed approved by the OCC as of the 15th day after the close of the public comment period or the 45th day after the filing is received by the OCC (or in the case of a short-distance relocation, the 30th day after the filing is received by the OCC), whichever is later, unless the OCC notifies the bank or savings association prior to that time that the filing is not eligible for expedited review, or the expedited review period is extended.

  • A Federal savings association would be required to obtain OCC approval pursuant to § 5.31 (branching) in order to establish a branch at the site of a former home office unless the branch establishment meets one of the exceptions in § 5.31. Under the current rule, no notice or application is required in all cases of home office and branch office re-designations.
  • A Federal savings association would be required to open a relocated home office within 18 months from the date of OCC approval, unless the OCC grants an extension. Under the current rule, this office must be opened within 12 months of OCC approval or non-objection.

Change in Corporate Title (Proposed 12 CFR 5.42)

  • Federal savings associations would be required to submit an after-the-fact notice to the OCC instead of a 30-day prior notice for a change in corporate title.

Increases in Permanent Capital (Proposed New 12 CFR 5.45)

  • Federal stock savings associations would be required to apply to the OCC and obtain prior approval for increases in capital in the following circumstances: (1) When the savings association is required to receive OCC approval pursuant to letter, order, directive, written agreement or otherwise, (2) when the savings association is selling common or preferred stock for consideration other than cash, or (3) when the savings association is receiving a material noncash contribution to capital surplus. Currently, savings associations are not required to apply for increases in capital.

Voluntary Liquidation (Proposed 12 CFR 5.48)

  • The Federal savings association's liquidating agent or committee would be required to submit to the OCC:

○ At the start of liquidation, a report showing the association's current balance sheet;

○ Quarterly Consolidated Reports of Condition and Income (Call Reports); and

○ Annual reports on the progress of the liquidation.

  • The following provisions in the proposal would codify existing OCC practice:

○ A Federal savings association would be required to provide notice of the liquidation to depositors, other known creditors, and known claimants.

○ A Federal savings association would be required to publish public notice of its plan to liquidate if so directed by the OCC.

Change in Control (Proposed 12 CFR 5.50)

  • The current definition of “voting securities” in § 5.50 would replace the part 174 definition of “voting stock.” This would affect the standard for convertible securities. Currently, part 174 includes as voting stock any security that, upon transfer or otherwise, is convertible into voting stock or exercisable to acquire voting stock where the holder of the convertible security has the preponderant economic risk in the underlying voting stock. Section 5.50, by contrast, defines voting securities to include securities that are immediately convertible into voting securities at the option of the owner or holder.
  • The proposal excludes part 174 procedures for rebuttal of control and concerted action, applying instead the provisions in § 5.50(f)(2)(vi).
  • Persons who acquire control of a Federal savings association as a result of testate or intestate succession would need to file a notice and pay the appropriate filing fee within 90 calendar days after the transaction occurs. Currently, such persons need only file a notification of acquisition to the OCC within 60 days of the acquisition and provide information requested by the OCC.
  • The proposal excludes the presumptive disqualifiers from part 174—a list of factors, which, if present, may show a lack of integrity or lack of financial capability to proceed with a proposed transaction.
  • The proposed regulatory changes have the effect of eliminating most of the rebuttable presumptions of control with respect to Federal savings associations that are currently set forth in 12 CFR 174.4(b) and (c). The proposed regulatory changes also remove certain of the rebuttable presumptions of concerted action currently set forth in § 174.4(d).
  • Acquirers of beneficial ownership exceeding 10 percent of any class of stock of a Federal savings association that do not file a control notice or control rebuttal would not be required to file a certification of ownership.

Changes in Directors and Senior Executive Officers (Proposed 12 CFR 5.51)

  • A Federal savings association would be required to provide 90 days prior notice of a new director or senior executive officer if the association is not in compliance with minimum capital requirements, is otherwise in a troubled condition, or the OCC determines, under section 38 of the FDI Act (12 U.S.C. 1831o), that prior notice is appropriate. Currently, such an association is required to provide 30 days prior notice, which the OCC may extend for an additional 60 days.
  • Only a Federal savings association would be permitted to file the notice with the OCC; an individual seeking Start Printed Page 33315election to the board of directors who has not been nominated by management would no longer be allowed to do so.
  • A Federal savings association or a proposed individual would be able to appeal an OCC notice of disapproval. The current rule does not provide an appeal process, although the OCC has permitted appeals by Federal savings associations in practice.

Change in Address (Proposed 12 CFR 5.52)

  • A Federal savings association no longer would be required to provide notice of a home office or post office box address change if the change results from any transaction approved under 12 CFR part 5. The current rule provides this exception only in cases of an application to relocate or establish a new home or branch office.
  • All Federal savings associations no longer would be required to provide notice of a home office or post office box address change if they have filed a notice for the relocation or establishment of a new home or branch office pursuant to proposed § 5.40 (main office and home office relocations). Under current rules, highly-rated savings associations are required to file a change in address notice because they are exempt from the relocation notice requirement.
  • Federal savings associations no longer would be subject to the requirement that all operations be directed from the home office.

Change in Asset Composition (Proposed 12 CFR 5.53)

  • The Federal savings association rule now requires approval of all purchases or sales or other transfers of assets in bulk not made in the ordinary course of business, unless the transaction is subject to the Bank Merger Act (in which case other parts of the rule apply). Under the proposal, Federal savings associations would be required to obtain OCC approval only for the following (unless one of the exceptions applies).

○ The sale or other disposition of all, or substantially all, of the savings association's assets in a transaction or a series of transactions.

○ After having sold or disposed of all, or substantially all, of its assets, subsequent purchases or other acquisitions or other expansions of the savings association's operations.

○ Any other asset purchases or other expansions of business that are part of a plan to increase the size of the savings association by more than 25 percent in one year.

○ As determined by the OCC on a case-by-case basis, any other material increase or decrease in the size of the savings association or a material alteration in the composition of the types of its assets or liabilities (including the entry or exit of business lines). The OCC would consider the size and nature of the transaction and the condition of the institutions in determining whether to require an application and believes the additional situations in which the OCC would require an application likely already would involve discussions with the bank's appropriate supervisory office.

  • When an application is required, it would have standard processing. Currently, an application can qualify for expedited treatment if all participating Federal savings associations meet the conditions for expedited treatment.

Capital Distributions (Proposed New 12 CFR 5.55)

  • The expedited review process in part 5 would apply to Federal savings associations seeking expedited review of filings for capital distributions instead of the expedited treatment process in part 116. Because the eligibility requirements for expedited review differ from the requirements for expedited treatment, this change could affect which savings associations qualify for the expedited process.

○ Under the current savings association rule, both well and adequately capitalized institutions are eligible for expedited treatment. Under the proposal, only savings associations that are well capitalized would qualify for expedited review.

○ Under the current savings association rule, the institution must not have been notified it is in troubled condition, while under the proposal an eligible savings association must not be subject to an enforcement action. (Although different, these supervisory condition tests generally should overlap.)

○ Under the current rule, a savings association that has not been assigned a CAMELS rating, a CRA rating and a compliance rating is not eligible for expedited treatment. This requirement is not a factor in the requirements for eligible bank or eligible savings association status in part 5.

Subordinated Debt (Proposed New 12 CFR 5.56)

  • The expedited review process in part 5 would apply to Federal savings associations seeking expedited review of filings to issue subordinated debt instead of the expedited treatment process in part 116. Because the eligibility requirements for expedited review differ from the requirements for expedited treatment, this change could affect which savings associations qualify for the expedited process, as described above for the capital distributions rule.

Pass-Through Investments (Proposed New 12 CFR 5.58)

  • Federal savings associations would be allowed to make pass-through investments greater than 25 percent of the company's equity, but because this investment would make the company a subsidiary under law applicable to the Federal savings associations, the association would be required to submit an application for approval as a subsidiary.
  • Federal savings associations may be subject to different filing requirements:

○ Some pass-through investments that currently may qualify for the no-notice procedure under § 160.32(b) would require a filing under § 5.58. (However, pass-through investments in investment companies that hold assets permissible for a Federal savings association to hold directly would continue not to require a filing.)

○ For pass-through investments that meet the requirements for the after-the-fact notice procedure, the Federal savings association would need to file only the after-the-fact notice. This treatment would apply both to both investments that would have required a prior application under § 160.32(c) and investments that would have qualified for the no-notice procedure under § 160.32(b).

  • Federal savings associations would be subject to the notice content requirements of § 5.58. Section 160.32 does not specify the content of the notice or application.

Service Corporations (Proposed New 12 CFR 5.59)

  • The corporate separateness requirements would be amended to eliminate the requirement that a Federal savings association's service corporation be adequately financed as a separate unit in light of normal obligations reasonably foreseeable for a business of the service corporation's size and character in order to maintain the requisite corporate separateness.
  • Consistent with 12 U.S.C. 1828(m), a Federal savings association would be required to file an application with the OCC before investing in any service corporation, including one that it would not control. Currently, the service corporation regulation requires a Federal savings association to file with the OCC only if it directly or indirectly controls the service corporation.Start Printed Page 33316
  • Applications to establish or acquire a service corporation would be required to list for each state the lines of business for which the service corporation holds, or will hold, an insurance license, and the state where the service corporation holds a resident license or charter.
  • Each Federal savings association would be required to file an annual report listing, for each service corporation subsidiary that is not functionally regulated and does business with consumers in the United States, certain information including the name and principal place of business of the service corporation, the lines of business in which the service corporation subsidiary engages directly with consumers, and the nature of the parent savings association.

VI. Request for Comments

The OCC encourages comment on any aspect of this proposal and especially on those issues specified in this preamble. If commenting on a specific question contained in the preamble, please refer to that question number in your comment letter. As noted above, the OCC will also consider comments received in response to the Agencies' EGRPRA notice on licensing rules when finalizing this licensing integration rule.

VII. Regulatory Analysis

Regulatory Flexibility Act

Pursuant to the Regulatory Flexibility Act (RFA),[120] an agency must prepare a regulatory flexibility analysis for all proposed and final rules that describe the impact of the rule on small entities, unless the head of an agency certifies that the rule will not have “a significant economic impact on a substantial number of small entities.” The OCC currently supervises approximately 1,189 small entities (361 Federal savings associations, 801 national banks, and 21 trust companies).[121] Because some of the NPRM's provisions could impact any national bank and other provisions could impact any Federal savings association, the proposed rule could impact a substantial number of small institutions.

We estimated that the monetized direct compliance cost would be approximately $14.7 thousand per institution. Using the average direct cost per institution we believe compliance with the proposed rule will have a significant economic impact on 24 small institutions (of which 10 are small Federal savings associations), which is not a substantial number. Furthermore, we conclude that the amendments to § 5.37, investment in national bank or Federal savings association premises, could have a significant impact on an additional five Federal savings associations.[122] Therefore, we conclude that the proposed rule in total will have a significant economic impact on no more than 29 small institutions of the 1,189 small entities currently supervised by the OCC, which is not a substantial number (approximately 2.4 percent of small entities).

Based on the information set forth above, and pursuant to section 605(b) of the RFA, the OCC hereby certifies that this proposal would not have a significant economic impact on a substantial number of small entities. Accordingly, an initial regulatory flexibility analysis is not required.

Unfunded Mandates Reform Act of 1995

The OCC has analyzed the proposed rule under the factors in the Unfunded Mandates Reform Act of 1995 (UMRA).[123] Under this analysis, the OCC considered whether the proposed rule includes a Federal mandate that may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more in any one year (adjusted annually for inflation). The OCC finds that the proposed rule does not trigger the UMRA cost threshold. Accordingly, this proposal is not subject to section 202 of the Unfunded Mandates Act.

Paperwork Reduction Act

Under the Paperwork Reduction Act (PRA) of 1995,[124] the OCC may not conduct or sponsor, and a person is not required to respond to, an information collection unless the information collection displays a valid Office of Management and Budget (OMB) control number. The OCC has submitted the information collection requirements imposed by this rule to OMB for review.

The proposal contains both new and revised information collection requirements. Some of the revisions provide exceptions to existing requirements, which will result in a reduction in burden. Some of the requirements are currently in place for national banks and are being extended to cover both national banks and Federal savings associations. Some of the amendments impose new requirements on Federal savings associations and amend the requirements for national banks. A number of the revisions involve amendments to definitions, which, in some cases, would affect the respondent count for related provisions. For example, the change in the definition of “eligible bank” to include the compliance rating in addition to the CAMELS and CRA rating will affect respondent counts. The provisions are included the OCC's information collection for the Comptroller's Licensing Rules. The collection has been revised and submitted to OMB for review in connection with publication of the proposed rule. A number of the provisions being amended contain existing PRA requirements that have been previously approved by OMB.[125] The amendments proposed today do not create any new information collection requirements and, therefore, require no PRA filings, other than non-material changes necessary due to the consolidation of the regulations.

Rules of General Applicability

Federal savings associations would be required to follow the procedure and processing provisions currently imposed on national banks (part 5, subpart A) instead of those in part 116, which they currently follow. Only well Start Printed Page 33317capitalized Federal savings associations would qualify for expedited treatment and adequately capitalized institutions would no longer qualify. Public notices of filings would be required to be filed as soon as practicable after a filing date instead of seven days prior to the filing date. Public notice would have to state that a filing is being made and the date of the filing. A single public notice would be acceptable for multiple transactions or transactions filed with the OCC and another agency, under certain circumstances. Comments in response to a filing would have to be obtained from the OCC, as comments would no longer be sent directly to the institution.

The requirement for publication of notice of a filing by national banks would be made more specific and require the notice: to be published in English; to specify the name of institution that is the subject of the filing; to indicate that the public portion is available on request; and to provide the address of the applicant. Under certain circumstances, the OCC could require the applicant to publish a new notice.

Fiduciary Powers

In order to exercise fiduciary powers, Federal savings associations would be required to comply with the application requirements of § 5.26 in place of the requirements under current part 150. In addition, § 5.26 would be revised to require a national bank or Federal savings association that has not conducted previously approved fiduciary powers for 18 consecutive months to provide the OCC with 60 days' advance notice before engaging in the activities. It would also require that a national bank or Federal savings association that has received approval to offer limited fiduciary services apply to the OCC to offer full fiduciary services. Eligible Federal savings associations would receive expedited review of applications. A provision would be added setting out the circumstances under which a Federal savings association does not need to apply for fiduciary powers in connection with certain mergers.

Establishment, Acquisition, and Relocation of a Branch

New § 5.31 would address the establishment and relocation of branches, or the establishment of agency offices, by Federal savings associations and would replace several provisions currently found in part 145.

Section 5.31(f)(1) would set out the general requirement that each Federal savings association proposing to establish or relocate a branch shall submit a separate application for each proposed branch, unless the transaction qualifies for an exception. The provision in § 145.93(e) stating that a Federal savings association may not file an application or notice, or use any of the exceptions, to establish a branch if the association has filed an application to merge or otherwise surrender its charter and the application has been pending for less than six months would not be carried over to § 5.31.

Section 145.93(b)(3) provides that certain highly-rated Federal savings associations are not required to file an application to change the permanent location of an existing branch or to establish a new branch if it meets certain requirements, including that the Federal savings association meet the eligibility requirements for expedited treatment. The proposal would change this to require that the Federal savings association is an “eligible savings association,” as defined in 12 CFR 5.3(h), rather than eligible for expedited treatment.

Section 5.31(g) would set out exceptions to the rules of general applicability for applications by a Federal savings association to establish or relocate a branch and specify that the OCC would be able to waive or reduce the public notice and comment period in certain emergency situations or with respect to certain temporary branches.

Section 5.31(h) would provide that OCC's approval of a branch expires if the branch has not commenced business within 18 months, unless the OCC grants an extension. This period is longer than the current twelve month expiration period for branch approvals for Federal savings associations under § 145.95(c).

Section 145.93(c) currently requires prior approval for any savings association branch that would be subject to section 5(m)(1) of the HOLA (regarding District of Columbia savings associations), if the association meets the requirements of § 145.93(b) for an exception to the branch application filing requirement. New § 5.31(j) would require an application and prior written approval for each application.

State and Federal savings associations would be required to file an application with the OCC to establish or move a branch in the District of Columbia.

Investment in Bank Service Companies

This section would be expanded to cover Federal savings associations. It would replace the after-the-fact notice before making an investment in the equity of a bank service company or performing new activities in an existing bank service company with an expedited prior notice procedure.

Investments in Premises

This section would be expanded to cover Federal savings associations. In addition, an alternative, after-the-fact notice process would be added for both national banks and Federal savings associations and an exception to the premise application and notice requirements for investments in banking premises through a service corporation is provided for Federal savings associations. Amendments to the definitions of “capital stock” and “capital and surplus,” which would increase the amount that a Federal savings association could invest in banking premises without OCC approval, would result in a decrease in the number of requests for approval. A transition provision would be added for Federal savings associations to grandfather existing banking premises investments. Modifying, expanding, or approving such investments would require prior approval. A Federal savings association would be given a one to three year timeframe for the use of real estate acquired for future premises in place of the current requirement, which requires use of real estate acquired for future expansion within five years and, after holding the real estate for one year, requires a statement by resolution of the definite plans for use.

Main Office and Home Office Relocations

Federal savings associations would be required to submit prior notice to the OCC for home office relocations to a branch site in the same city, town, or village of the current home office and obtain prior approval for other relocations. They would also be required to obtain prior approval to establish a branch at the site of a former main or home office.

Change in Corporate Title

For change in corporate title, Federal savings associations would be required to submit an after-the-fact notice in place of the current 30-day prior notice.

Voluntary Liquidation

This section would be expanded to cover Federal savings associations. The liquidating agent or committee of the national bank or Federal savings association would be required to submit: A report to the appropriate OCC Licensing Office at the start of liquidation showing the bank's or savings associations balance sheet as of the start of liquidation; quarterly Call Start Printed Page 33318Reports; a report of condition at the start of the liquidation; annual progress reports; and a final report of liquidation. National banks and Federal savings associations would be required to notify all depositors, other known creditors, and known claimants of the bank or savings association.

Change in Control; Reporting of Stock Loans

This section would be expanded to cover Federal savings associations. Procedures for rebuttal of control and concerted action under part 174 would no longer be applicable to Federal savings associations. Persons who acquire control of a Federal savings association as a result of testate or intestate succession would need to file a notice within 90 days of the transaction, while the current regulations require only a notification of the acquisition within 60 days. Under § 5.50, acquirers of beneficial ownership exceeding 10 percent of any class of stock of a Federal savings association that does not file a control notice or control rebuttal would not be required to file a certification of ownership.

Changes in Directors and Senior Executive Officers

The notice of a change in directors or senior executive officers for a national bank would need to include financial information on the individual, except when the OCC determines it is not required. If the OCC requests additional information, a national bank may request a time extension to provide the information, if necessary.

Federal savings associations would be required to provide 90 days prior notice of a new director or senior executive officer, under certain circumstances, in place of the current shorter notice period. Only a Federal savings association would be permitted to file the notice; nominees no longer will be able to file. Federal savings associations would be able to appeal an OCC notice of disapproval.

Change in Address

Under certain circumstances, national banks and Federal savings associations would no longer be required to file a notice of home office change of address and Federal savings associations would no longer be required to provide notice of a post office box address.

Bank Activities and Operations

A number of provisions in part 7 are being expanded to cover Federal savings associations. A transition period would be added to grandfather Federal savings associations' existing premise investments, provided they are not modified, expanded, or improved. A transition period would also be provided for Federal savings associations that share space or employees with another business under an agreement that complies with legal requirements previously in place that would violate this provision. They would be permitted to continue under the existing agreement, but would not be able to amend, renew, or extend the agreement without prior approval.

The requirements in part 145 regarding the establishment of agency offices of Federal savings associations would be removed and agency offices of Federal savings associations that conduct non-branch activities would not be considered branches and would not be required to obtain OCC approval for these offices.

Organizing a National Bank or Federal Savings Association

In § 5.20, paragraph (h) specifies requirements for the organizers' business plan or operating plan, paragraph (i) lists the procedures that the organizers must follow, paragraph (j) specifies the requirements for expedited review of an application, and paragraph (l) lists requirements for the establishment of special purpose banks. An application to charter a Federal savings association would be subject to the two-part approval process contained in paragraph (i)(5). The OCC uses a two-part approval process for de novo national bank charters. After an application is filed, if the OCC determines it meets the applicable standards, the application is given preliminary approval. The national bank in organization would then take the steps needed to organize itself, raise capital, obtain any other regulatory approvals, and generally become ready to commence business. Final approval is given and the national bank's charter is issued only after all these steps are concluded, including compliance with any conditions imposed in the preliminary approval. Currently, the OCC issues only one approval before it issues the charter, but this approval is subject to the institution completing various post-approval organizational steps and other requirements before it can begin conducting business. Paragraph (j) currently provides for expedited review of an application to establish a full-service national bank filed by a bank holding company with a lead depository institution that is an eligible depository institution. Under the proposal, Federal savings associations and savings and loan holding companies would be added.

The corresponding rules applicable to organizing Federal savings associations are found in parts 143, 144, 152, and § 163.1. Sections 144.1 and 152.3 contain specific language and requirements to be used for the charter of Federal mutual savings associations and Federal stock savings associations, respectively, and §§ 144.2 and 152.4 contain specific requirements for the bylaws of Federal mutual savings associations and Federal stock savings associations, respectively. Sections 143.2(g)(2)(i) and 152.1(b)(3)(i) provide that approval of an application to organize a Federal mutual or stock savings association, respectively, is conditioned on OCC receipt of written confirmation from the FDIC that accounts will be insured. Section 152.2, which provides procedures for the organization of interim Federal savings associations, would be rescinded and addressed in the business combinations regulation at § 5.33.

Proposed § 5.21(j) would specify the language and requirements for Federal mutual savings association bylaws. The provision reflects the requirements in § 144.5.

Federal Stock Savings Association Charter, Bylaws and Related Provisions

Proposed § 5.22(e) would specify the language and requirements for a Federal stock savings association charter. The provision reflects the requirements in § 152.3.

Federal Savings Association Charter and Bylaws Availability Requirement

Section 163.1(b), which requires each Federal savings association to cause a true copy of its charter and bylaws and all amendments thereto to be available to accountholders at all times in each office of the savings association, and to deliver to any accountholders a copy of such charter and bylaws or amendments thereto, upon request, is being rescinded and OCC will continue applying this requirement only with respect to Federal mutual savings associations under new § 5.21(i).

Conversions to and From National Bank and Federal Savings Association Charters

In § 5.24(d), regarding the policy for approving and disapproving conversions to national bank charters, a statement would be added that the institution seeking to convert to a national bank charter must obtain all necessary regulatory and shareholder approvals. A parallel provision is found in § 143.8(a)(2), which would be now found in § 5.25. The public notice and inspection requirements at § 143.9(a)(2) Start Printed Page 33319are being rescinded. If there are instances where the OCC believes publication is warranted, the OCC could require publication under § 5.2(b), which allows the OCC to require materially different procedures for a particular filing.

Section 5.24(e)(2)(ix) would require the application for conversion to include a business plan if the converting institution has been operating for less than three years or plans to make significant changes to its business after the conversion, instead of the current policy of requesting it on a case-by-case basis.

Section 5.24(g), which allows for expedited review of a conversion application filed by an eligible depository institution, would be limited to applications by institutions already supervised by the OCC.

Proposed § 5.23(d)(2)(ii)(K) would require a converting institution that does not meet the qualified thrift lender test of 12 U.S.C. 1467a(m) to include a plan to achieve compliance within a reasonable period of time and to request an exception from the OCC in the application.

Proposed § 5.25(d) provides that converting from a Federal charter does not require prior OCC approval. The institution must file only a notice with the OCC. Currently, Federal savings associations that are not eligible for expedited treatment must file an application to convert to a national bank or state bank. The notice must contain a copy of the conversion application to the regulator to which it is applying for approval to convert, and a discussion of any issues regarding the permissibility of the conversion under section 612 of Dodd-Frank Act. The institution would also be required to file a copy of its conversion application with the Federal banking agency that would become its appropriate Federal banking agency after the conversion.

For conversions between a national bank and a Federal savings association, proposed § 5.25(e) requires the institution planning to convert to file a notice for the conversion-out aspect of the transaction with the OCC. Federal savings associations currently must file an application, unless they qualify for expedited review. The notice must contain a showing of its compliance with applicable requirements for converting from the Federal charter. The applicable “converting-in” regulation (§ 5.23 or § 5.24) would require the institution to file an application with the OCC with respect to the “converting-in” aspect of the transaction.

Proposed § 5.24(e)(2)(x) and § 5.23(d)(2)(ii)(J) would require the conversion application to include information about enforcement actions and other supervisory criticisms and the applicant's analysis of whether conversion is permissible under 12 U.S.C. 35, as amended by section 612.

Proposed § 5.25(d)(3) would require that the information that must be submitted to the OCC when a national bank or Federal savings association plans to convert to a state bank or state savings association must include a discussion of the impact of any enforcement action on the permissibility of the conversion under 12 U.S.C. 214d or 1464(i)(6).

Sections 5.24(e)(2), 5.23(d)(2)(ii), 5.25(d)(3)(i), and 5.25(d)(3)(ii)(A) require that, at the time an insured depository institution files a conversion application, it must transmit a copy of the conversion application to both the appropriate Federal banking agency for the institution and the Federal banking agency that would become the appropriate Federal banking agency for the institution after the proposed conversion.

Service Corporations

Under the current service corporation regulation, a Federal savings association must file a notice under part 116 at least 30 days before establishing or acquiring a subsidiary or engaging in a new activity in a subsidiary. A Federal savings association is not required to file a service corporation application if the association proposes to make a non-controlling investment in a service corporation. The proposal would amend the service corporation regulation at § 5.59 to require that a Federal savings association file with the OCC before acquiring or establishing any service corporation, including one that it would not control.

Section 5.59(h)(1)(ii) would require a Federal savings association to list for each state the lines of business for which the service corporation holds, or will hold, an insurance license, and each state in which the service corporation holds a resident license or charter. Section 5.59(h)(2) would change the circumstances under which a Federal savings association would receive expedited review for a service corporation filing, currently found in part 116. A service corporation filing would be eligible for expedited review if the savings association is “well capitalized” and “well managed,” and the service corporation engages only in one or more of the preapproved activities listed in § 5.59(f).

A new requirement would be added in section 5.59(k) to require each Federal savings association to file an annual report that includes, for each service corporation subsidiary that is not functionally regulated and does business with consumers in the United States, certain information including the name and principal place of business of the service corporation, the lines of business in which the service corporation subsidiary engages directly with consumers, and the nature of the parent savings association's interest in the service corporation subsidiary.

Operating Subsidiaries; Subordinate Organizations

New § 5.34(e)(2)(iii) would be added to clarify that a national bank must have reasonable policies and procedures to preserve the limited liability of the bank and its operating subsidiaries. This requirement has been adapted from § 159.10 and would be consistent with the new operating subsidiary rule for Federal savings associations.

Current § 5.34(e)(5)(i) provides that national banks meeting certain requirements are not required to file a prior application but may give after-the-fact notice when establishing or acquiring an operating subsidiary or performing a new activity in an existing operating subsidiary. Paragraph (e)(5)(ii) requires a prior application and OCC approval in other instances and sets out the information that must be included in the filing.

Current § 5.34(e)(5)(vi) provides that no application or notice is required for a national bank that is well managed and adequately capitalized or well capitalized to acquire or establish an operating subsidiary or perform a new activity in an existing operating subsidiary, if the activities of the new subsidiary are limited to those previously reported to the OCC in connection with a prior operating subsidiary and certain other requirements are met. The proposal would change the criteria from adequately capitalized to well capitalized. This is consistent with the well capitalized requirement to be eligible for the after-the-fact notice procedure.

Section 5.38(b) would require a Federal savings association to file an application to acquire or establish any operating subsidiary or to commence a new activity in an existing operating subsidiary. Part 159 required Federal savings associations to give 30 days' notice to the OCC prior to establishing or acquiring an operating subsidiary or commencing a new activity in an operating subsidiary. Section 159.11 Start Printed Page 33320required a filing when it is required under 12 U.S.C. 1828(m), and section 1828(m) does not require a filing if the subsidiary is an insured depository institution. Proposed § 5.38(b) would require an application to acquire an insured depository institution as an operating subsidiary. A proposal for a Federal savings association to own an insured depository institution subsidiary that would cause the savings association to be a bank holding company or a savings and loan holding company raises issues of law and policy as well as supervisory concerns. The acquisition of other insured depository institutions as operating subsidiaries also requires agency review. Accordingly, the OCC believes an application is needed, even if not required under 12 U.S.C. 1828(m).

Section 5.38(d) sets out definitions for “well capitalized” and “well managed,” which will be used as part of the determination of which applications are eligible for expedited review by the OCC. These definitions are the same as those in § 5.34(d), and the OCC uses these terms as criteria to permit national banks to make an after-the-fact notice filing pursuant to § 5.34(e)(5). They are also used in proposed § 5.38 to determine if an application by a Federal savings association is eligible for expedited review.

Section § 5.38(e)(1)(ii) would provide that if the activities performed at a location of an operating subsidiary (other than the home office of the savings association) include activities that would require the savings association to have approval for a branch office if the office were a direct office of the savings association, the savings association must obtain OCC approval for a branch office at that location, if it has not already been authorized as a branch. Existing offices would be grandfathered. This is requirement is new for Federal savings associations.

Section 5.38(e)(2)(iii) (similar to § 159.10) would expressly require a savings association to have reasonable policies and procedures to preserve the limited liability of the savings association and its operating subsidiaries.

Section 159.11 specifies when Federal savings associations must file a notice at least 30 days prior to establishing or acquiring an operating subsidiary or conducting a new activity in an existing operating subsidiary. Section 5.38(e)(5) specifies the procedures a Federal savings association must follow when filing applications required under § 5.38. Section 5.38(e)(5)(ii)(A) provides for expedited review of applications to establish or acquire an operating subsidiary, or to perform a new activity in an existing operating subsidiary. The expedited review process is similar to that contained in § 159.11.

Section 159.3(p)(1) provides that a Federal savings association must consult with the appropriate OCC licensing office prior to redesignating a service corporation as an operating subsidiary, and make available for examination adequate internal records demonstrating that the redesignated office meets all of the requirements for an operating subsidiary and that the board of directors has approved of the redesignation. Section 5.38(e)(vi) would require a Federal savings association to provide 30 days' prior notice to the OCC when the savings association wants to redesignate a service corporation as an operating subsidiary.

Section 5.38(e)(8) requires Federal savings associations to file an annual report on operating subsidiaries that do business directly with consumers in the United States and are not functionally regulated subsidiaries, which the OCC will make available to the public.

Pass-Through Investments

Section 160.32(b) currently provides that a Federal savings association may make certain qualifying pass-through investments without prior notice to the OCC in any entity that is a limited partnership, an open-ended mutual fund, a closed-end investment trust, a limited liability company, or an entity in which the Federal savings association is investing primarily to use the company's services. Section 160.32(c) requires a Federal savings association to provide the OCC with written notice 30 days prior to making any pass-through investment that does not meet the no-notice standards. The notice is a form of application and may become a standard application if the OCC notifies the filer that the investment presents supervisory, legal, or safety and soundness concerns. The proposal would remove these provisions and cross-reference § 5.36.

Proposed § 5.58(e) mirrors § 5.36(e) and would provide that a well capitalized, well managed Federal savings association may make certain pass-through investments, directly or through its operating subsidiary, in certain entities by filing a written after-the-fact notice with the OCC no later than 10 days after making the investment if the activity conducted by the enterprise is on the list of activities eligible for a notice filing for operating subsidiaries, or if it is substantially the same as an activity that has been previously approved for a Federal savings association (or its operating subsidiary).

If a Federal savings association is not well capitalized and well managed or if the activity conducted by the enterprise does not qualify for the after-the-fact notice procedure, the savings association would be required to apply to the OCC and receive prior approval for the non-controlling investment.

Section 5.58(g)(1) would provide for an expedited notice procedure for pass-through investments in entities holding assets in satisfaction of debts previously contracted. A Federal savings association would not be required to file a notice or application under § 5.58 when acquiring a non-controlling investment in shares of a company through foreclosure or otherwise in good faith to compromise a doubtful claim, or in the ordinary course of collecting a debt previously contracted.

Under § 5.58, Federal savings associations would be permitted to make non-controlling investments greater than 25 percent of the company's equity. The investment, however, would constitute “control,” making the enterprise a subsidiary of the association and triggering a filing. Section 5.58(f)(2) provides that a Federal savings association must submit an application for approval prior to investing in an enterprise that would be considered a subsidiary of the Federal savings association.

Section 5.58 would change the filing requirements for Federal savings associations' non-controlling investments. Some pass-through investments could meet the requirements for the after-the-fact notice procedure, and only the after-the-fact notice would be required. Some non-controlling investments that qualify for the no-notice procedure under § 160.32(b) would require a filing under § 5.58. Section 5.58(h) would continue the no-notice procedure for investments by Federal savings associations in investment companies that held assets permissible to be held directly. Some investments that may have qualified for the no-notice procedure may be eligible for the after-the-fact notice of § 5.58(e).

Change in Asset Composition

The proposal would expand the requirements of § 5.53 and remove § 163.22 regarding change in asset composition. Institutions contemplating transactions that may constitute a material change would be advised to consult the appropriate OCC supervisory office. National banks would find more situations in which applications for approval would be required than under current § 5.53, but Start Printed Page 33321these additional situations likely already would involve discussions between the bank and its supervisory office. Federal savings associations would find fewer situations in which applications for approval are required than now required under current § 163.22(c).

Under the application exception for asset changes that are part of a voluntary liquidation, the proposal would add that the bank or savings association must have received OCC approval of its plan of liquidation.

The expedited treatment under § 163.22(c) for of bulk transfer filings if all of the participating Federal savings associations meet the conditions for expedited treatment would not be carried over into § 5.53.

Business Combinations

Proposed § 5.33(d)(2)(v) expands the definition of “business combination” in § 5.33(d)(2), which currently includes only the assumption of deposit liabilities from another depository institution, to also include the assumption, from a credit union or any other institution that is not FDIC-insured, of deposit accounts or other liabilities that will become deposits at the assuming national bank or Federal savings association. Federal savings associations are currently required to file an application under § 163.22(c). The proposal retains the requirement and expands it to cover national banks.

Under the proposal, a Federal savings association would have the authority to engage in a whole entity purchase and assumption without regard to whether it has authority to consolidate or merge with the counterparty. National banks have had this authority but have not been required to apply to the OCC for approval of a whole entity purchase and assumption other than one with a depository institution. The proposal would require an application if the whole entity purchase and assumption would result in an increase in the asset size of the bank or savings association of twenty-five percent or more.

Proposed § 5.33(e)(3) would amend the business combination application to add to the current requirement to identify subsidiaries and provide an analysis of the permissibility for the national bank or Federal savings association to hold the subsidiary or investment, a financial subsidiary investment, bank service company investment, service corporation investment, and other equity investment.

Under proposed § 5.33(e)(6), regarding the exercise of fiduciary powers by the resulting national bank or Federal savings association, a clarification would be made that if the applicant intends to exercise fiduciary powers after the combination and requires OCC approval for such powers, it must include in the business combination application the information required in § 5.26 for a request for fiduciary powers.

Section 5.33(f)(1) would be amended to clarify that the requirement of public notice and comment would apply only when the application is subject to a public notice requirement under the Bank Merger Act or other applicable statute that requires notice to the public. This publication requirement would not be a change for national banks or Federal savings associations.

The frequency and timing of publication for transactions that are subject to the Bank Merger Act would be changed for Federal savings associations. Section 163.22(e)(1)(i) requires an initial publication and then publication on a weekly basis during the public comment period. Under proposed § 5.33(f)(1), the OCC would require the initial publication and two other publications during the standard 30-day public comment period.

Section 5.33(g)(1), addressing the merger or consolidation of a national bank or a state bank into a national bank, would require that a national bank that will not be the resulting bank in a merger or consolidation with another national bank must file a notice to the OCC under § 5.33(k). This notice would also be required whenever a national bank or Federal savings association merges or consolidates into another institution. It provides the OCC information about the target national bank's compliance with requirements to “merge-out” and sets in motion the steps for the disappearing national bank to end its separate existence.

Section 5.33(g)(2)(ii), under which the OCC may conduct an appraisal of dissenters' shares of stock in a national bank involved in a consolidation with a Federal savings association if all the parties agree, would be changed from a voluntary to a required process. Section 5.33(g)(2)(ii)(B) and (C) would specify the process for appraisal of dissenters' shares of stock in a stock Federal savings association involved in a consolidation or merger into a national bank.

Section 5.33(g)(2)(iii) would include a requirement that a consolidation or merger agreement must address the effect upon, and the terms of the assumption of, any liquidation account of any other participating institution by the resulting institution.

New § 5.33(g)(3), addressing consolidations and mergers of other institutions into a Federal savings association, would require application to the OCC and would require the Federal savings association to comply with requirements and procedures similar to those currently imposed on them. If a combination involves a whole purchase and assumption of a Federal savings association, then the combination would be treated as a consolidation for participating Federal savings associations, and the procedural requirements in § 5.33(o) would apply.

Section 5.33(g)(3)(ii) would include a requirement that the consolidation or merger agreement must address the effect upon and the terms of the assumption of, any liquidation account of any other participating institution by the resulting institution.

Section 5.33(g)(6)(iv) would include a requirement that the consolidation or merger agreement must address the effect upon, and the terms of the assumption of, any liquidation account of any other participating institution by the resulting institution. This requirement is based on provisions in §§ 146.2(b)(9) and 152.13(f)(9).

Section 5.33(g)(7) would address a consolidation or merger of a Federal savings association into a state bank, state savings bank, state savings association, state trust company, or credit union and require only a notice to the OCC, not application and approval. This requirement is a change for Federal savings associations from § 163.22(c), under which an application is required for a combination with an uninsured bank, savings association or trust company or a credit union. Section 5.33(g)(7)(ii) would include a provision under which a whole purchase and assumption of the target Federal savings association would be treated as a consolidation for the Federal savings association, so that the procedural requirements in § 5.33(o) would apply.

Section 5.33(g)(7)(iii) would set out the process for appraisal of dissenters' shares of stock in a stock Federal savings association involved in a consolidation or merger into a state bank, state savings bank, state savings association, state trust company, or credit union. Section 5.33(g)(7)(iv) would require that the consolidation or merger agreement must address the effect upon, and the terms of the assumption of, any liquidation account of any other participating institution by the resulting institution.

Section 5.33(i), which would provide for expedited review of business reorganizations and streamlined applications, would be expanded to include Federal savings association applications.Start Printed Page 33322

Expedited review under § 5.33(j) would replace the automatic approval provision in § 163.22(f) for Federal savings associations, which provides that an application is deemed to be approved automatically 30 days after the OCC sends the applicant a written notice that the application is complete.

New § 5.33(k) would address notices to be filed when a national bank or Federal savings association is consolidating or merging with another national bank or Federal savings association or with a state chartered institution or credit union and the target national bank or Federal savings association is not the resulting institution. It includes the steps to be taken to terminate the institution's status as a national bank or Federal savings association. This consolidates requirements from §§ 5.33(g)(3), 146.2(g), 152.13(k), 163.22(b) and 163.22(h)(1)(i) and (ii). There would be no change for Federal savings associations, but national banks would be required to include more information in the notice than currently required.

Section 5.33(m) would address certification of a consolidation or merger and documentation of its effective date. The applicant would be required to submit information showing that all steps needed to complete the transaction have been met and to notify the OCC of the planned consummation date. This reflects current OCC practice for national banks. It accomplishes through an applicant notification letter and issuance of an OCC certification letter what § 152.13(j) does in requiring the applicant to submit two sets of “Articles of Combination” that are filed with the OCC, and then endorsed by the OCC, with one set returned to the applicant with a specification of the effective date.

New § 5.33(o) would include provisions from §§ 146.2 and 152.13 that set out the procedural requirements for board, shareholder (in the case of stock savings associations), and, if required by the OCC, voting member (in the case of mutual savings associations) approval of business combinations involving the Federal savings association.

Changes in Permanent Capital

Section 5.46(g)(1) would be amended to describe more fully those increases in permanent capital of a national bank for which an application and prior approval are not required and when such increases are considered approved by the OCC. Portions of this requirement are currently in paragraph (i)(3), which addresses the bank's notification to the OCC that the increase has occurred and the certification of the increase by the OCC.

Subordinated Debt

The expedited treatment process in part 116 for savings associations would be replaced by the expedited review process in part 5 for Federal savings associations seeking expedited review of filings to issue subordinated debt. This could result in a change in which savings associations qualify for the expedited process, due to the difference between the eligibility requirements for expedited review and the requirements for expedited treatment.

Capital Distributions

New § 5.55 contains Federal savings association procedures and standards for capital distributions currently found in part 163 and filing procedures based on provisions in part 5 regarding eligible savings associations and expedited review. A Federal savings association must be an “eligible savings association” in order to qualify for expedited review of filings for capital distributions. Because the eligibility requirements in part 5 and in the current Federal savings association rules are not identical, the part 5 eligibility requirements for expedited review could affect which Federal savings associations qualify for the expedited process.

Title of Information Collection: Comptroller's Licensing Rules.

OMB Control No: 1557-0014.

Frequency of Response: Event generated.

Affected Public: Businesses or other for-profit organizations.

Current Burden for the Comptroller's Licensing Rules:

Number of Respondents: 3,831.

Average Burden per Respondent: 3.18 hours.

Total Burden: 12,174 hours.

Burden Estimates for the Comptroller's Licensing Rules as Amended by the proposal:

Number of Respondents: 3,879.

Average Burden per Respondent: 3.22 hours.

Total Burden: 12,485 hours.

The change in burden for the collection is an overall increase of 311 hours, or 2.6%. The change in number of respondents is due to an increase in the number of regulated entities involved in licensing activities and the revisions to certain definitions. The change in burden per respondent is an overall increase in .04 hours. This is a result of the combination of the expansion of national bank requirements to savings associations, the revision of requirements for both national banks and savings associations, the addition of exemptions, and the streamlining and elimination of unnecessary requirements. The OCC requests comment on:

a. Whether the information collection is necessary for the proper performance of the OCC's functions, and how the instructions can be clarified so that information gathered has more practical utility;

b. The accuracy of the OCC's estimates of the burdens of the information collection, 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 collection 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.

VIII. Redesignation Table

The following redesignation table is provided for reader reference. It lists the current savings association provision and identifies the provision in this final rule that would replace it.

SubjectFormer section number/guidanceNew section No.
Application Processing ProceduresPart 116Part 5, subpart A. See also relevant activity or transaction rule in part 5.
What does this part do?116.15.1, 5.2.
Do the same procedures apply to all applications under this part?116.55.2.
How does the OCC compute time periods under this part?116.105.12.
Must I meet with the OCC before I file my application?116.155.4(f).
Start Printed Page 33323
What information must I include in my draft business plan?116.20See 5.4(f).
What type of application must I file?116.25See 5.4.
What information must I provide with my application?116.30See 5.4 (e).
May I keep portions of my application confidential?116.355.9.
Where do I file my application?116.405.4(d).
What is the filing date of my application?/Filing fees116.45See 5.12.
How do I amend or supplement my application?116.47None.
Public notice116.50-116.805.8.
Comment procedures: What does this subpart do?116.100None.
Public comment116.110-116.1405.10.
Meeting procedures: What does this subpart do?116.160None.
When will the OCC conduct a meeting on an application?116.1705.11.
What procedures govern the conduct of a meeting?116.1805.11.
Will the OCC approve or disapprove an application at a meeting?116.185None.
Will a meeting affect application processing time frames?116.190See 5.10(b)(2), 5.11(h), and 5.13(a)(2).
If I file a notice under expedited treatment, when may I engage in the proposed activities?116.200See relevant activity or transaction rule in part 5.
What will the OCC do after I file my application?116.2105.13.
If the OCC requests additional information to complete my application, how will it process my application?116.2205.13.
Will the OCC conduct an eligibility examination?116.2305.7.
What may the OCC require me to do after my application is deemed complete?116.2405.8(g), 5.13(c).
Will the OCC require me to publish a new public notice?116.2505.8(g).
May the OCC suspend processing of my application?116.260None.
How long is the OCC review period?116.2705.13; See also relevant activity or transaction rule in part 5.
How will I know if my application is approved?116.2805.13(d).
What will happen if the OCC does not approve or disapprove my application within two calendar years after the filing date?116.290See 5.13(c).
Federal Mutual Savings Associations—Incorporation, Organization, and ConversionPart 1435.20; 5.42.
Corporate title143.15.20(f)(2(i)), 5.42.
Application for permission to organize143.25.20.
“De novo” applications for a Federal savings association charter143.35.20.
Issuance of charter143.4None.
Completion of organization143.55.20.
Limitations on transaction of business143.6None.
Federal savings association created in connection with an association in default or in danger of default143.7None.
Conversions143.8-143.105.23.
Organization plan for governance during first years after issuance of Federal mutual savings bank charter143.11None.
Continuity of existence143.145.23.
Federal Mutual Savings Associations—Charter and Bylaws1445.21.
Federal mutual charter144.15.21(e).
Charter amendments144.25.21(f)-(h).
Issuance of charter144.4None.
Federal mutual savings association bylaws144.5See 5.21(j).
Effect of subsequent charter of bylaw change144.65.21(j)(4).
Availability—in association offices144.75.21(i).
Communication between members of a Federal mutual savings association144.8144.8.
Federal Savings Associations—OperationsPart 1455.31, 5.40, 5.52.
Home office145.91(a) 145.91(b)None. 5.52.
Branch offices145.925.31.
Application and notice requirements and processing procedures for branch and home offices145.93, 145.955.31 (branch office). 5.40 (home office).
Agency office145.965.31(k).
Federal Mutual Savings Associations—Merger, Dissolution, Reorganization, and ConversionPart 1465.33, 5.48.
Definitions, procedures, and transfer of assets upon merger or consolidation146.1-146.35.33.
Voluntary dissolution146.45.48.
Fiduciary Powers of Federal Savings AssociationsPart 150, subpart A5.26.
Obtaining fiduciary powers: Must I obtain OCC approval or file a notice before I exercise fiduciary powers?150.70150.70 (revised), 5.26.
Obtaining fiduciary powers150.80-150.1255.26.
Federal Stock Associations—Incorporation, Organization, and ConversionPart 1525.20, 5.22, 5.23, 5.24, 5.25, 5.33.
Procedure for organization of Federal stock association152.15.20.
Start Printed Page 33324
Procedures for organization of interim Federal stock association152.25.33(e)(4).
Charters, bylaws, boards of directors and officers, share certificates, and books and records152.3-152.115.22.
Business combinations152.13-152.155.33.
Effect of subsequent charter or bylaw change152.165.22.
Federal stock association created in connection with an association in default or in danger of default152.17None.
Conversion from stock form depository institution to Federal stock association152.185.23.
Conversion to National banking association or state bank152.195.24 (to national bank). 5.25 (to State bank).
Subordinate organizations159 (159.1-159.13)5.38 (operating subsidiaries). 5.59 (service corporations).
Lending and investment
Pass-through investments160.32, except: 160.32(a) 160.32(b)5.58. 160.32(a) (same). 160.32(b) (revised).
Real estate for office and related facilities160.375.37, 7.1000, 7.3001.
Savings Associations—Operations
Submission for approval of chartering documents163.1(a)See 5.20(e)(1)(iii)(A).
Availability of chartering documents163.1(b)None (Federal stock savings associations). 5.21(i) (Federal mutual savings associations).
Merger, consolidation, purchase or sale of assets, or assumption of liabilities163.225.33, 5.53.
Conversion to state bank163.22(b)(1)(ii)5.25.
Conversion to national bank163.22(b)(2)5.24.
Inclusion of subordinated debt securities and mandatorily redeemable preferred stock as supplementary capital163.815.56.
Capital Distributions163.140-163.146 (subpart E)5.55.
Management and financial policies163.1615.59 (e)(7)(service corporations only).
Notice of change of director or senior executive officer163.550-163.590 (subpart H).5.51.
Acquisition of Control of Federal Savings Associations174.1-174.7 174, Appendix A5.50. None.
Start List of Subjects

List of Subjects

12 CFR Part 4

  • Administrative practice and procedure
  • Freedom of information
  • Individuals with disabilities
  • Minority businesses
  • Organization and functions (Government agencies)
  • Reporting and recordkeeping requirements
  • Women

12 CFR Part 5

  • Administrative practice and procedure
  • National banks
  • Reporting and recordkeeping requirements
  • Securities

12 CFR Part 7

  • Computer technology
  • Credit
  • Insurance
  • Investments
  • National banks
  • Reporting and recordkeeping requirements
  • Securities
  • Surety bonds

12 CFR Part 14

  • Banks
  • Banking
  • Consumer protection
  • Insurance
  • National banks
  • Reporting and recordkeeping requirements

12 CFR Part 32

  • National banks
  • Reporting and recordkeeping requirements

12 CFR Part 34

  • Mortgages
  • National banks
  • Reporting and recordkeeping requirements

12 CFR Part 100

  • Savings associations

12 CFR Part 116

  • Administrative practice and procedure
  • Reporting and recordkeeping requirements
  • Savings associations

12 CFR Part 143

  • Reporting and recordkeeping requirements; Savings associations

12 CFR Part 144

  • Reporting and recordkeeping requirements
  • Savings associations

12 CFR Part 145

  • Consumer protection
  • Credit
  • Electronic funds transfers
  • Investments
  • Manufactured homes
  • Mortgages
  • Reporting and recordkeeping requirements
  • Savings associations

12 CFR Part 146

  • Reporting and recordkeeping requirements
  • Savings associations

12 CFR Part 150

  • Administrative practice and procedure
  • Reporting and recordkeeping requirements
  • Savings associations
  • Trusts and trustees

12 CFR Part 152

  • Reporting and recordkeeping requirements
  • Savings associations
  • Securities

12 CFR Part 159

  • Reporting and recordkeeping requirements
  • Savings associations
  • Subsidiaries

12 CFR Part 160

  • Consumer protection
  • Investments
  • Manufactured homes
  • Mortgages
  • Reporting and recordkeeping requirements
  • Savings associations
  • Securities

12 CFR Part 161

  • Administrative practice and procedure
  • Savings associations

12 CFR Part 162

  • Accounting
  • Reporting and recordkeeping requirements
  • Savings associations

12 CFR Part 163

  • Accounting
  • Administrative practice and procedure
  • Advertising
  • Conflict of interests
  • Crime
  • Currency
  • Investments
  • Mortgages
  • Reporting and recordkeeping requirements
  • Savings associations
  • Securities
  • Surety bonds

12 CFR Part 174

  • Administrative practice and procedure
  • Reporting and recordkeeping requirements
  • Savings associations
  • Securities

12 CFR Part 192

  • Reporting and recordkeeping requirements
  • Savings associations
  • Securities

12 CFR Part 193

  • Accounting
  • Savings associations
  • Securities
End List of Subjects

For the reasons set forth in the preamble, and under the authority of 12 U.S.C. 93a and 5412(b)(2)(B), chapter I of title 12 of the Code of Federal Regulations is proposed to be amended as follows:

Start Part

PART 4—ORGANIZATION AND FUNCTIONS, AVAILABILITY AND RELEASE OF INFORMATION, CONTRACTING OUTREACH PROGRAM, POST-EMPLOYMENT RESTRICTIONS

End Part Start Amendment Part

1. The authority citation for part 4 is revised to read as follows:

End Amendment Part Start Authority

Authority: 12 U.S.C. 1, 12 U.S.C. 93a, 12 U.S.C. 5321, 12 U.S.C. 5412, and 12 U.S.C. 5414. Subpart A also issued under 5 U.S.C. 552. Subpart B also issued under 5 U.S.C. 552; E.O. 12600 (3 CFR 1987 Comp., p. 235). Subpart C also issued under 5 U.S.C. 301, 552; 12 U.S.C. 161, 481, 482, 484(a), 1442, 1462a, 1463, 1464 1817(a)(2) and (3), 1818(u) and (v), 1820(d)(6), 1820(k), 1821(c), 1821(o), 1821(t), 1831m, 1831p-1, 1831o, 1867, 1951 et seq., 2601 et seq., 2801 et seq., 2901 et seq., 3101 et seq., 3401 et seq.; 15 U.S.C. 77uu(b), 78q(c)(3); 18 U.S.C. 641, 1905, 1906; 29 U.S.C. 1204; 31 U.S.C. 5318(g)(2), 9701; 42 U.S.C. 3601; 44 U.S.C. 3506, 3510. Subpart D also issued under 12 U.S.C. 1833e. Subpart E is also issued under 12 U.S.C. 1820(k).

End Authority Start Amendment Part

2. Revise § 4.5 to read as follows:

End Amendment Part
Other OCC supervisory offices.

(a) Midsize Bank Supervision (MBS). Midsize Bank Supervision is responsible for supervising midsize national banks and Federal savings associations that present unique supervisory challenges based on size, complexity, and/or product line. MBS also supervises credit card and certain other special purpose banks. MBS is headquartered in Chicago, Il and located at 1 South Wacker Drive, Suite 2000, Chicago, IL 60606.

(b) Community bank supervision. (1) District offices. Each district office of the OCC is responsible for the direct supervision of the national banks and Federal savings associations in its district, with the exception of the national banks and Federal savings associations supervised by the Washington office pursuant to § 4.4 of this part or Midsize Bank Supervision pursuant to § 4.5(a). The four district offices cover the United States, Puerto Rico, the Virgin Islands, Guam, and the Northern Mariana Islands. The geographical composition of each district follows:

DistrictOffice locationGeographical composition
Northeastern DistrictOffice of the Comptroller of the Currency, 340 Madison Avenue, 5th Floor New York, NY 10173-0002Connecticut, Delaware, District of Columbia, northeast Kentucky, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Puerto Rico, Rhode Island, South Carolina, Vermont, the Virgin Islands, Virginia, and West Virginia.
Central DistrictOffice of the Comptroller of the Currency, One Financial Place, Suite 2700, 440 South LaSalle Street, Chicago, IL 60605Illinois, Indiana, central and southern Kentucky, Michigan, northern and eastern Minnesota, eastern Missouri, North Dakota, Ohio, and Wisconsin.
Southern DistrictOffice of the Comptroller of the Currency, 500 North Akard Street, Suite 1600, Dallas, TX 75201Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, Oklahoma, Tennessee, and Texas.
Western DistrictOffice of the Comptroller of the Currency, 1225 17th Street, Suite 300, Denver, CO 80202Alaska, American Samoa, Arizona, California, Colorado, Guam, Hawaii, Idaho, Iowa, Kansas, southwestern Minnesota, western Missouri, Montana, Nebraska, Nevada, New Mexico, Northern Mariana Islands, Oregon, South Dakota, Utah, Washington, and Wyoming.

(2) Field offices and other supervisory offices. Field offices and field office satellite offices support the bank and savings association supervision responsibilities of the district offices.

Start Part

PART 5—RULES, POLICIES, AND PROCEDURES FOR CORPORATE ACTIVITIES

End Part Start Amendment Part

3. The authority citation for part 5 is revised to read as follows:

End Amendment Part Start Authority

Authority: 12 U.S.C. 1 et seq., 24a, 93a, 215a-2, 215a-3, 481, 1462a, 1463, 1464, 2901 et seq., 3907, and 5412(b)(2)(B).

End Authority Start Amendment Part

4. Section 5.1 is revised to read as follows:

End Amendment Part
Scope.

This part establishes rules, policies and procedures of the Office of the Comptroller of the Currency (OCC) for corporate activities and transactions involving national banks and Federal savings associations. It contains information on rules of general and specific applicability, where and how to file, and requirements and policies applicable to filings. This part also establishes the corporate filing procedures for Federal branches and agencies of foreign banks.

Start Amendment Part

5. Subpart A of part 5 is revised to read as follows:

End Amendment Part
Subpart A—Rules of General Applicability
5.2
Rules of general applicability.
5.3
Definitions.
5.4
Filing required.
5.5
Fees.
5.6
[Reserved]
5.7
Investigations.
5.8
Public notice.
5.9
Public availability.
5.10
Comments.
5.11
Hearings and other meetings.
5.12
Computation of time.
5.13
Decisions.

Subpart A—Rules of General Applicability

Rules of general applicability.

(a) General. The rules in this subpart apply to all sections in this part unless otherwise stated.

(b) Exceptions. The OCC may adopt materially different procedures for a Start Printed Page 33326particular filing, or class of filings, in exceptional circumstances or for unusual transactions, after providing notice of the change to the applicant and to any other party that the OCC determines should receive notice.

(c) Comptroller's Licensing Manual. The “Comptroller's Licensing Manual” (Manual) provides additional filing guidance, including policies and procedures. The Manual and sample forms are available on the OCC's Internet Web page at www.occ.gov.

(d) Electronic filing. The OCC encourages electronic filing for all filings. The Manual describes the OCC's electronic filing procedures.

Definitions.

(a) Applicant means a person or entity that submits a notice or application to the OCC under this part.

(b) Application means a submission requesting OCC approval to engage in various corporate activities and transactions.

(c) 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.

(d) 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.

(e) Capital and surplus means:

(1) A 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 12 CFR part 3, as applicable, as reported in the bank's or savings association's Consolidated Reports of Condition and Income (Call Reports) filed under 12 U.S.C. 161 or 12 U.S.C. 1464(v), respectively; plus

(2) The balance of the national bank's or Federal savings association's allowance for loan and lease losses not included in the institution's Tier 2 capital, for purposes of the calculation of risk-based capital reported in the institution's Call Reports, described in paragraph (e)(1) of this section.

(f) Depository institution means any bank or savings association.

(g) Eligible bank or eligible savings association means a national bank or Federal savings association that:

(1) Is well capitalized as defined in 12 CFR 6.4;

(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 an OCC compliance rating of 1 or 2; 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.

(h) 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(g) 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 § 5.3(g) and is FDIC-insured.

(i) Filing means an application or notice submitted to the OCC under this part.

(j) 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 require the filer to obtain prior OCC approval before engaging in the activity or transaction, may provide the OCC with authority to disapprove the notice, or may be informational requiring no official OCC action.

(k) Principal city means an area designated as a “principal city” by the Office of Management and Budget.

(l) 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.

Filing required.

(a) Filing. A depository institution shall file an application or notice with the OCC to engage in corporate activities and transactions as described in this part.

(b) Availability of forms. Forms and instructions for filing are available on the OCC's Internet Web page at www.occ.gov.

(c) Other agency's applications or filings. At the request of the applicant, the OCC may accept an application or other filing submitted to another Federal agency that covers the proposed action or transaction and contains substantially the same information as required by the OCC. The OCC also may require the applicant to submit supplemental information.

(d) Where to file. An applicant should address a filing or other submission under this part to the appropriate OCC licensing office or appropriate OCC supervisory office, unless the OCC advises an applicant otherwise. Relevant addresses are listed on the OCC's Internet Web page at www.occ.gov.

(e) Incorporation of other material. An applicant may incorporate any material contained in any other application or filing filed with the OCC or other Federal agency by reference, provided that the material is attached to the application and is current and responsive to the information requested by the OCC. The filing must clearly indicate that the information is so incorporated and include a cross-reference to the information incorporated.

(f) Prefiling meeting. When submitting an application to the OCC, an applicant 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. Information on model business plans can be found in the Manual.

Filing fees.

(a) Procedure. An applicant shall submit the appropriate filing fee, if any, in connection with its filing. Filing fees may be paid by check, money order, cashier's check, or wire transfer. Additional information on filing fees, including where to file, can be found in the Manual. The OCC generally does not refund the filing fees.

(b) Fee schedule. The OCC publishes a fee schedule in the “Notice of Comptroller of the Currency Fees,” as described in 12 CFR 8.8.

Start Printed Page 33327
[Reserved]
Investigations.

(a) Authority. The OCC may examine or investigate and evaluate facts related to a filing to the extent necessary to reach an informed decision.

(b) Fees. As described in 12 CFR 8.6, the OCC may assess fees for investigations or examinations conducted under paragraph (a) of this section. The OCC publishes a fee schedule in the “Notice of Comptroller of the Currency Fees,” as described in 12 CFR 8.8.

Public notice.

(a) General. An applicant shall publish a public notice of its filing in a newspaper of general circulation in the community in which the applicant proposes to engage in business, on the date of filing, or as soon as practicable before or after the date of filing. This notice shall be published in the English language but if the OCC determines that the primary language of a significant number of adult residents of the community is a language other than English, the OCC may require that an additional notice(s) simultaneously be published in the community in the appropriate language(s).

(b) Contents of the public notice. The public notice shall state that a filing is being made, the date of the filing, the name and address of the applicant, the subject matter of the filing (including the name of the institution that is the subject of the filing), that the public may submit comments to the appropriate OCC licensing office, the address of the appropriate OCC licensing office where comments should be sent, the closing date of the public comment period, that the public portion of the filing is available on request, and any other information that the OCC requires.

(c) Confirmation of public notice. Promptly following publication, the applicant shall mail or otherwise deliver to the appropriate OCC licensing office a statement containing the date of publication, the name and address of the newspaper that published the public notice, a copy of the public notice, and any other information that the OCC requires.

(d) Multiple transactions. The OCC may consider more than one transaction, or a series of transactions, to be a single filing for purposes of the publication requirements of this section. When filing a single public notice for multiple transactions, the applicant shall explain in the notice how the transactions are related.

(e) Joint public notices accepted. Upon the request of an applicant, for a transaction subject to a public notice requirement of both the OCC and another Federal agency, the OCC may accept publication of a single joint notice containing the information required by both the OCC and the other Federal agency, provided that the notice states that comments must be submitted to both the OCC and, if applicable, the other Federal agency.

(f) Public notice by the OCC. In addition to the foregoing, the OCC may require or give public notice and request comment on any filing and in any manner the OCC determines appropriate for the particular filing.

(g) New public notice. At the OCC's discretion, an applicant may be required to publish a new public notice if:

(1) The applicant submits either a revised filing or new or additional information related to a filing;

(2) A major issue of law or change in circumstance arises after a filing; or

(3) The OCC determines that a new public notice is appropriate.

Public availability.

(a) General. The OCC provides a copy of the public file to any person who requests it. A requestor should submit a written request for the public file concerning a pending filing to the appropriate OCC licensing office. A requestor should submit a written request for the public file concerning a decided or closed filing to the OCC's Freedom of Information Act Officer, Communications Division, at the address listed on www.OCC.gov. The OCC may impose a fee in accordance with 12 CFR 4.17 and at the rate the OCC publishes in the “Notice of Comptroller of the Currency Fees,” described in 12 CFR 8.8.

(b) Public file. A public file consists of the portions of the filing, supporting data, supplementary information, and information submitted by interested persons, to the extent that those documents have not been afforded confidential treatment. Applicants and other interested persons may request that confidential treatment be afforded information submitted to the OCC pursuant to paragraph (c) of this section.

(c) Confidential treatment. The applicant or an interested person submitting information may request that specific information be treated as confidential under the Freedom of Information Act, 5 U.S.C. 552 (see 12 CFR 4.12(b)). A submitter should draft its request for confidential treatment narrowly to extend only to those portions of a document it considers confidential. If a submitter requests confidential treatment for information that the OCC does not consider to be confidential, the OCC may include that information in the public file after providing notice to the submitter. Moreover, at its own initiative, the OCC may determine that certain information should be treated as confidential and withhold that information from the public file. A person requesting information withheld from the public file should submit the request to the OCC's Freedom of Information Act Officer, Communications Division, under the procedures described in 12 CFR part 4, subpart B. That request may be subject to the predisclosure notice procedures of 12 CFR 4.16.

Comments.

(a) Submission of comments. During the comment period, any person may submit written comments on a filing to the appropriate OCC licensing office.

(b) Comment period— (1) General. Unless otherwise stated, the comment period is 30 days after publication of the public notice required by § 5.8(a). If a new public notice is required under § 5.8(g), the OCC may require a new comment period of up to 30 days after publication of the new public notice.

(2) Extension. The OCC may extend a comment period if:

(i) The applicant fails to file all required publicly available information on a timely basis to permit review by interested persons or makes a request for confidential treatment not granted by the OCC that delays the public availability of that information;

(ii) Any person requesting an extension of time satisfactorily demonstrates to the OCC that additional time is necessary to develop factual information that the OCC determines is necessary to consider the application; or

(iii) The OCC determines that other extenuating circumstances exist.

(3) Applicant response. The OCC may give the applicant an opportunity to respond to comments received.

Hearings and other meetings.

(a) Hearing requests. Prior to the end of the comment period, any person may submit to the appropriate OCC office a written request for a hearing on a filing. The request must describe the nature of the issues or facts to be presented and the reasons why written submissions would be insufficient to make an adequate presentation of those issues or facts to the OCC. A person requesting a hearing shall simultaneously submit a copy of the request to the applicant.

(b) Action on a hearing request. The OCC may grant or deny a request for a hearing and may limit the issues to those it deems relevant or material. The OCC generally grants a hearing request Start Printed Page 33328only if the OCC determines that written submissions would be insufficient or that a hearing would otherwise benefit the decision-making process. The OCC also may order a hearing if it concludes that a hearing would be in the public interest.

(c) Denial of a hearing request. If the OCC denies a hearing request, it shall notify the person requesting the hearing of the reason for the denial.

(d) OCC procedures prior to the hearing— (1) Notice of Hearing. The OCC issues a Notice of Hearing if it grants a request for a hearing or orders a hearing because it is in the public interest. The OCC sends a copy of the Notice of Hearing to the applicant, to the person requesting the hearing, and anyone else requesting a copy. The Notice of Hearing states the subject and date of the filing, the time and place of the hearing, and the issues to be addressed. The OCC may limit the issues considered at a hearing to those it determines are relevant or material.

(2) Presiding officer. The OCC appoints a presiding officer to conduct the hearing. The presiding officer is responsible for all procedural questions not governed by this section.

(e) Participation in the hearing. Any person who wishes to appear (participant) shall notify the appropriate OCC licensing office of his or her intent to participate in the hearing within ten days from the date the OCC issues the Notice of Hearing. At least five days before the hearing, each participant shall submit to the appropriate OCC licensing office, the applicant, and any other person the OCC requires, the names of witnesses and one copy of each exhibit the participant intends to present.

(f) Hearing transcripts. The OCC arranges for a hearing transcript. The person requesting the hearing may be required to bear the cost of one copy of the transcript for his or her use.

(g) Conduct of the hearing—(1) Presentations. Subject to the rulings of the presiding officer, the applicant and participants may make opening statements and present witnesses, material, and data.

(2) Information submitted. A person presenting documentary material shall furnish one copy to the OCC and one copy to the applicant and each participant.

(3) Laws not applicable to hearings. The Administrative Procedure Act (5 U.S.C. 551 et seq.), the Federal Rules of Evidence (28 U.S.C. appendix), the Federal Rules of Civil Procedure (28 U.S.C. Rule 1 et seq.), and the OCC's Rules of Practice and Procedure (12 CFR part 19) do not apply to hearings under this section.

(4) Meeting format. The OCC may conduct a meeting in the format that it determines is appropriate, including a telephone conference, a face-to-face meeting, or a more formal meeting.

(h) Closing the hearing record. At the applicant's or participant's request, the OCC may keep the hearing record open for up to 14 days following the OCC's receipt of the transcript. The OCC resumes processing the filing after the record closes.

(i) Other meetings—(1) Public meetings. The OCC may arrange for a public meeting in connection with an application, either upon receipt during the comment period of a written request for such a meeting or upon the OCC's own initiative, if the OCC finds that written submissions are insufficient to address facts or issues raised in the application or otherwise determines that a meeting will benefit the decision-making process. Public meetings will be arranged and presided over by a presiding officer.

(2) Private meetings. The OCC may arrange a meeting with an applicant or other interested parties to clarify and narrow the issues and to facilitate the resolution of the issues.

(3) Issues at meetings. The OCC may limit the issues considered at a meeting to those it determines are relevant or material.

Computation of time.

In computing the period of days, the OCC does not include the day of the act or event (e.g., the date an application is received by the OCC) from which the period begins to run. When the last day of a time period is a Saturday, Sunday, or Federal holiday, the time period runs until the end of the next day that is not a Saturday, Sunday or Federal holiday.

Decisions.

(a) General. The OCC may approve, conditionally approve, or deny a filing after appropriate review and consideration of the record. In reviewing a filing, the OCC may consider the activities, resources, or condition of an affiliate of the applicant that may reasonably reflect on or affect the applicant. It also may consider information available from any source, including any comments submitted by interested parties or views expressed by interested parties at meetings with the OCC.

(1) Conditional approval. The OCC may impose conditions on any approval, including to address a significant supervisory, CRA (if applicable), or compliance concern, if the OCC determines that the conditions are necessary or appropriate to ensure that approval is consistent with relevant statutory and regulatory standards and OCC policies thereunder and safe and sound banking practices.

(2) Expedited review. The OCC grants eligible banks and eligible savings associations expedited review within a specified time after filing or commencement of the public comment period.

(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 applicant with a written explanation if it decides not to process an application from an eligible bank or eligible 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, or are frivolous, filed primarily as a means of delaying action on the filing, or that raise a CRA concern that the OCC determines has been satisfactorily resolved, do not affect the OCC's decision under paragraph (a)(2)(i) of this section. The OCC considers a CRA concern to have been satisfactorily resolved if the OCC previously reviewed (e.g., in an examination or an 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.

(iii) If a bank or savings association files an application for any activity or transaction that is dependent upon the approval of another application under this part, or if requests for approval for more than one activity or transaction are combined in a single application under applicable sections of this part, none of the subject applications may be deemed approved upon expiration of the applicable time periods, unless all of the applications 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.Start Printed Page 33329

(b) Denial. The OCC may deny a filing if:

(1) A significant supervisory, CRA (if applicable), or compliance concern exists with respect to the applicant;

(2) Approval of the filing is inconsistent with applicable law, regulation, or OCC policy thereunder; or

(3) The applicant fails to provide information requested by the OCC that is necessary for the OCC to make an informed decision.

(c) Required information and abandonment of filing. A filing must contain information required by the applicable section set forth in this part. To the extent necessary to evaluate an application, the OCC may require an applicant to provide additional information. The OCC may deem a filing abandoned if information required or requested by the OCC in connection with the filing is not furnished within the time period specified by the OCC. The OCC may return an application without a decision if it finds the filing to be materially deficient. A filing is materially deficient if it lacks sufficient information for the OCC to make a determination under the applicable statutory or regulatory criteria.

(d) Notification of final disposition. The OCC notifies the applicant, and any person who makes a written request, of the final disposition of a filing, including confirmation of an expedited review under this part. If the OCC denies a filing, the OCC notifies the applicant in writing of the reasons for the denial.

(e) Publication of decision. The OCC will issue a public decision when a decision represents a new or changed policy or presents issues of general interest to the public or the banking industry. In rendering its decisions, the OCC may elect not to disclose information that the OCC deems to be private or confidential.

(f) Appeal. An applicant may file an appeal of an OCC decision in writing with the Deputy Comptroller for Licensing or with the Ombudsman at the address listed on www.OCC.gov. In the event that the Deputy Comptroller for Licensing was the deciding official of the matter appealed, or was involved personally and substantially in the matter, the appeal may be referred instead to the Chief Counsel or the Ombudsman.

(g) Extension of time. When the OCC approves or conditionally approves a filing, the OCC generally gives the applicant a specified period of time to commence that new or expanded activity. The OCC does not generally grant an extension of the time specified to commence a new or expanded corporate activity approved under this part, unless the OCC determines that the delay is beyond the applicant's control.

(h) Nullifying a decision—(1) Material misrepresentation or omission. An applicant shall 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. If the OCC discovers a material misrepresentation or omission after the OCC has rendered a decision on the filing, the OCC may nullify its decision. 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.

(2) Other nullifications. The OCC may nullify any decision on a filing that is:

(i) Contrary to law, regulation, or OCC policy thereunder; or

(ii) Granted due to clerical or administrative error, or a material mistake of law or fact.

Start Amendment Part

6. Section 5.20 is revised to read as follows:

End Amendment Part
Organizing a national bank or Federal savings association.

(a) Authority. 12 U.S.C. 21, 22, 24(Seventh), 26, 27, 92a, 93a, 1814(b), 1816, 1462a, 1463, 1464, 2903, and 5412(b)(2)(B).

(b) Licensing requirements. Any person desiring to establish a national bank or a Federal savings association shall submit an application and obtain prior OCC approval.

(c) Scope. This section describes the procedures and requirements governing OCC review and approval of an application to establish a national bank or a Federal stock or mutual savings association, including a national bank or a Federal savings association with a special purpose. Information regarding an application to establish an interim national bank or an interim Federal savings association solely to facilitate a business combination is set forth in § 5.33.

(d) Definitions. For purposes of this section:

(1) Bankers' bank means a bank owned exclusively (except to the extent directors' qualifying shares are required by law) by other depository institutions or depository institution holding companies (as that term is defined in section 3 of the Federal Deposit Insurance Act, 12 U.S.C. 1813), the activities of which are limited by its articles of association exclusively to providing services to or for other depository institutions, their holding companies, and the officers, directors, and employees of such institutions and companies, and to providing correspondent banking services at the request of other depository institutions or their holding companies.

(2) Control means with respect to an application to establish a national bank, control as used in section 2 of the Bank Holding Company Act, 12 U.S.C. 1841(a)(2), and with respect to an application to establish a Federal savings association, control as used in section 10 of the Home Owners' Loan Act, 12 U.S.C. 1467a(a)(2).

(3) Final approval means the OCC action issuing a charter and authorizing a national bank or Federal savings association to open for business.

(4) Holding company means any company that controls or proposes to control a national bank or a Federal savings association whether or not the company is a bank holding company under section 2 of the Bank Holding Company Act, 12 U.S.C. 1841(a)(1), or a savings and loan holding company under section 10 of the Home Owners' Loan Act, 12 U.S.C. 1467a.

(5) Lead depository institution means the largest depository institution controlled by a bank holding company or savings and loan holding company based on a comparison of the average total assets controlled by each depository institution as reported in its Consolidated Report of Condition and Income required to be filed for the immediately preceding four calendar quarters.

(6) Institution means either a national bank or Federal savings association.

(7) Organizing group means five or more persons acting on their own behalf, or serving as representatives of a sponsoring holding company, who apply to the OCC for a national bank or Federal savings association charter.

(8) Preliminary approval means a decision by the OCC permitting an organizing group to go forward with the organization of the proposed national bank or Federal savings association. A preliminary approval generally is subject to certain conditions that an applicant must satisfy before the OCC will grant final approval.

(e) Requirements—(1) General. (i) The OCC charters a national bank under the authority of the National Bank Act of 1864, as amended, 12 U.S.C. 1 et seq. The bank may be a special purpose bank that limits its activities to fiduciary activities or to any other activities within the business of banking. A special purpose bank that conducts activities other than fiduciary activities must conduct at least one of the Start Printed Page 33330following three core banking functions: receiving deposits; paying checks; or lending money. The name of a proposed national bank must include the word “national.”

(ii) The OCC charters a Federal savings association under the authority of section 5 of the Home Owners' Loan Act, 12 U.S.C. 1464, which in an application to establish a Federal savings association requires the OCC to consider:

(A) Whether the applicants are persons of good character and responsibility;

(B) Whether a necessity exists for the association in the community to be served;

(C) Whether there is a reasonable probability of the association's usefulness and success; and

(D) Whether the association can be established without undue injury to properly conducted existing local savings associations and home financing institutions.

(iii) In determining whether to approve an application to establish a national bank or Federal savings association, the OCC verifies that the proposed national bank or Federal savings association has complied with the following requirements. A national bank or a Federal savings association shall:

(A) File either articles of association (for a national bank), or a charter and by-laws (for a Federal savings association) with the OCC;

(B) In the case of an application to establish a national bank, file an organization certificate containing specified information with the OCC;

(C) Ensure that all capital stock is paid in, or in the case of a Federal mutual savings association, ensure that at least a minimum amount of capital is paid in; and

(D) Have at least five elected directors.

(2) Community Reinvestment Act. (i) Twelve CFR part 25 requires the OCC to take into account a proposed insured national bank's description of how it will meet its CRA objectives.

(ii) Twelve CFR part 195 requires the OCC to take into account a proposed insured Federal savings association description of how it will meet its CRA objectives.

(3) Federal Deposit Insurance. Preliminary approval for an application to establish a Federal savings association will be conditioned on the savings association applying for and receiving approval for deposit insurance from the Federal Deposit Insurance Corporation (FDIC). Final approval for an application to establish a Federal savings association will not be issued until receipt by the OCC of written confirmation by the FDIC that the accounts of the Federal savings association will be insured by the FDIC.

(f) Policy—(1) General. In determining whether to approve an application to establish a national bank or Federal savings association, the OCC is guided by the following principles:

(i) Maintaining a safe and sound banking system;

(ii) Encouraging a national bank or Federal savings association to provide fair access to financial services by helping to meet the credit needs of its entire community;

(iii) Ensuring compliance with laws and regulations; and

(iv) Promoting fair treatment of customers including efficiency and better service.

(2) Policy considerations. (i) In evaluating an application to establish a national bank or Federal savings association, the OCC considers whether the proposed institution:

(A) Has organizers who are familiar with national banking laws and regulations or Federal savings association laws and regulations, respectively;

(B) Has competent management, including a board of directors, with ability and experience relevant to the types of services to be provided;

(C) Has capital that is sufficient to support the projected volume and type of business;

(D) Can reasonably be expected to achieve and maintain profitability;

(E) Will be operated in a safe and sound manner; and

(F) Does not have a title that misrepresents the nature of the institution or the services it offers.

(ii) In evaluating an application to establish a Federal savings association, the OCC considers whether the proposed Federal savings association will be operated as a qualified thrift lender under section 10(m) of the Home Owners' Loan Act, 12 U.S.C. 1467a(m).

(iii) The OCC may also consider additional factors listed in section 6 of the Federal Deposit Insurance Act, 12 U.S.C. 1816, including the risk to the Federal deposit insurance fund, and whether the proposed institution's corporate powers are consistent with the purposes of the Federal Deposit Insurance Act, the National Bank Act, and the Home Owners' Loan Act, as applicable.

(3) OCC evaluation. The OCC evaluates a proposed institution's organizing group and its business plan or operating plan together. The OCC's judgment concerning one may affect the evaluation of the other. An organizing group and its business plan or operating plan must be stronger in markets where economic conditions are marginal or competition is intense.

(g) Organizing group— (1) General. Strong organizing groups generally include diverse business and financial interests and community involvement. An organizing group must have the experience, competence, willingness, and ability to be active in directing the proposed institution's affairs in a safe and sound manner. The institution's initial board of directors generally is comprised of many, if not all, of the organizers. The business plan or operating plan and other information supplied in the application must demonstrate an organizing group's collective ability to establish and operate a successful national bank or Federal savings association in the economic and competitive conditions of the market to be served. Each organizer should be knowledgeable about the business plan or operating plan. A poor business plan or operating plan reflects adversely on the organizing group's ability, and the OCC generally denies applications with poor business plans or operating plans.

(2) Management selection. The initial board of directors must select competent senior executive officers before the OCC grants final approval. Early selection of executive officers, especially the chief executive officer, contributes favorably to the preparation and review of a business plan or operating plan that is accurate, complete, and appropriate for the type of national bank or Federal savings association proposed and its market, and reflects favorably upon an application. As a condition of the charter approval, the OCC retains the right to object to and preclude the hiring of any officer, or the appointment or election of any director, for a two-year period from the date the institution commences business, or longer as appropriate.

(3) Financial resources. (i) Each organizer must have a history of responsibility, personal honesty, and integrity. Personal wealth is not a prerequisite to become an organizer or director of a national bank or Federal savings association. However, directors' stock purchases, or, in the case of a Federal mutual savings association, capital contributions, individually and in the aggregate, should reflect a financial commitment to the success of the institution that is reasonable in relation to their individual and collective financial strength. A director should not have to depend on institution dividends, fees, or other Start Printed Page 33331compensation to satisfy financial obligations.

(ii) Because directors are often the primary source of additional capital for an institution not affiliated with a holding company, it is desirable that the proposed directors of the national bank or Federal savings association, as a group, be able to supply or have a realistic plan to enable the institution to obtain capital when needed.

(iii) Any financial or other business arrangement, direct or indirect, between the organizing group or other insiders and the proposed national bank or Federal savings association must be on nonpreferential terms.

(4) Organizational expenses. (i) Organizers are expected to contribute time and expertise to the organization of the national bank or Federal savings association. Organizers should not bill excessive charges to the institution for professional and consulting services or unduly rely upon these fees as a source of income.

(ii) A proposed national bank or Federal savings association shall not pay any fee that is contingent upon an OCC decision. Such action generally is grounds for denial of the application or withdrawal of preliminary approval. Organizational expenses for denied applications are the sole responsibility of the organizing group.

(5) Sponsor's experience and support. A sponsor must be financially able to support the new institution's operations and to provide or locate capital when needed. The OCC primarily considers the financial and managerial resources of the sponsor and the sponsor's record of performance, rather than the financial and managerial resources of the organizing group, if an organizing group is sponsored by:

(i) An existing holding company;

(ii) Individuals currently affiliated with other depository institutions; or

(iii) Individuals who, in the OCC's view, are otherwise collectively experienced in banking and have demonstrated the ability to work together effectively.

(h) Business plan or Operating plan—(1) General. (i) Organizers of a proposed national bank or Federal savings association shall submit a business plan or operating plan that adequately addresses the statutory and policy considerations set forth in paragraphs (e) and (f)(2) of this section. In the case of a proposed Federal savings association the plan must also specifically address meeting qualified thrift lender requirements. The plan must reflect sound banking principles and demonstrate realistic assessments of risk in light of economic and competitive conditions in the market to be served.

(ii) The OCC may offset deficiencies in one factor by strengths in one or more other factors. However, deficiencies in some factors, such as unrealistic earnings prospects, may have a negative influence on the evaluation of other factors, such as capital adequacy, or may be serious enough by themselves to result in denial. The OCC considers inadequacies in a business plan or operating plan to reflect negatively on the organizing group's ability to operate a successful institution.

(2) Earnings prospects. The organizing group shall submit pro forma balance sheets and income statements as part of the business plan or operating plan. The OCC reviews all projections for reasonableness of assumptions and consistency with the business plan or operating plan.

(3) Management. (i) The organizing group shall include in the business plan or operating plan information sufficient to permit the OCC to evaluate the overall management ability of the organizing group. If the organizing group has limited banking experience or community involvement, the senior executive officers must be able to compensate for such deficiencies.

(ii) The organizing group may not hire an officer or elect or appoint a director if the OCC objects to that person at any time prior to the date the institution commences business.

(4) Capital. A proposed bank or Federal savings association must have sufficient initial capital, net of any organizational expenses that will be charged to the institution's capital after it begins operations, to support the institution's projected volume and type of business.

(5) Community service. (i) The business plan or operating plan must indicate the organizing group's knowledge of and plans for serving the community. The organizing group shall evaluate the banking needs of the community, including its consumer, business, nonprofit, and government sectors. The business plan or operating plan must demonstrate how the proposed national bank or Federal savings association responds to those needs consistent with the safe and sound operation of the institution. The provisions of this paragraph may not apply to an application to organize an institution for a special purpose.

(ii) As part of its business plan or operating plan, the organizing group shall submit a statement that demonstrates its plans to achieve CRA objectives.

(iii) Because community support is important to the long-term success of a national bank or Federal savings association, the organizing group shall include plans for attracting and maintaining community support.

(6) Safety and soundness. The business plan or operating plan must demonstrate that the organizing group (and the sponsoring company, if any), is aware of, and understands, applicable depository institution laws and regulations, and safe and sound banking operations and practices. The OCC will deny an application that does not meet these safety and soundness requirements.

(7) Fiduciary services. The business plan or operating plan must indicate if the proposed institution intends to offer fiduciary services. The information required by § 5.26 shall be filed with the charter application. A separate application is not required.

(i) Procedures—(1) Prefiling meeting. The OCC normally requires a prefiling meeting with the organizers of a proposed national bank or Federal savings association before the organizers file an application. Organizers should be familiar with the OCC's chartering policy and procedural requirements in the Comptroller's Licensing Manual before the prefiling meeting. The prefiling meeting normally is held in the district office where the application will be filed but may be held at another location at the request of the applicant.

(2) Business plan or operating plan. An organizing group shall file a business plan or operating plan that addresses the subjects discussed in paragraph (h) of this section.

(3) Contact person. The organizing group shall designate a contact person to represent the organizing group in all contacts with the OCC. The contact person shall be an organizer and proposed director of the new national bank or Federal savings association, except a representative of the sponsor or sponsors may serve as contact person if an application is sponsored by an existing holding company, individuals currently affiliated with other depository institutions, or individuals who, in the OCC's view, are otherwise collectively experienced in banking and have demonstrated the ability to work together effectively.

(4) Decision notification. The OCC notifies the spokesperson and other interested persons in writing of its decision on an application.

(5) Activities. (i) Before the OCC grants final approval, a proposed national bank or Federal savings association must be established as a legal entity. A national bank becomes a Start Printed Page 33332legal entity after it has filed its organization certificate and articles of association with the OCC as required by law. A Federal savings association becomes a legal entity after it has filed its proposed charter and bylaws with the OCC. A proposed national bank may offer and sell securities prior to OCC preliminary approval of the proposed national bank's charter application, provided that the proposed national bank has filed articles of association, an organization certificate, and a completed charter application and the bank complies with paragraph (i)(5)(iii) of this section. A proposed Federal stock savings association may offer and sell securities prior to OCC preliminary approval of the proposed Federal stock savings association's charter application, provided that the proposed Federal stock savings association has filed a proposed charter, bylaws, and a completed charter application and the Federal stock savings association complies with paragraph (i)(5)(iii) of this section.

(ii) (A) After the OCC grants preliminary approval, the organizing group shall elect a board of directors, take steps necessary to organize the proposed national bank or Federal savings association and prepare it for commencing business.

(B) A proposed national bank may not conduct the business of banking until the OCC grants final approval and issues a charter. A proposed Federal savings association may not commence business until the OCC grants final approval and issues a charter, which shall be in the form provided in this part.

(iii) For all capital obtained through a public offering a proposed national bank or Federal savings association shall use an offering circular that complies with the OCC's securities offering regulations, 12 CFR part 16 or part 197, as applicable. All securities of a particular class in the initial offering shall be sold at the same price.

(iv) A national bank or Federal savings association in organization shall raise its capital before it commences business. Preliminary approval expires if the proposed national bank or Federal savings association does not raise the required capital within 12 months from the date the OCC grants preliminary approval. Preliminary approval expires if the proposed national bank or Federal savings association does not commence business within 18 months from the date of preliminary approval, unless the OCC grants an extension. If preliminary approval expires, all cash collected on subscriptions shall be returned.

(j) Expedited review. An application to establish a full-service national bank or Federal savings association that is sponsored by a bank holding company or savings and loan holding company whose lead depository institution is an eligible bank or eligible savings association is deemed preliminarily approved by the OCC as of the 15th day after the close of the public comment period or the 45th day after the filing is received by the OCC, whichever is later, unless the OCC:

(1) Notifies the applicant prior to that date that the filing is not eligible for expedited review, or the expedited review process is extended, under § 5.13(a)(2); or

(2) Notifies the applicant prior to that date that the OCC has determined that the proposed bank will offer banking services that are materially different than those offered by the lead depository institution.

(k) National bankers' banks—(1) Activities and customers. In addition to the other requirements of this section, when an organizing group seeks to organize a national bankers' bank, the organizing group shall list in the application the anticipated activities and customers or clients of the proposed national bankers' bank.

(2) Waiver of requirements. At the organizing group's request, the OCC may waive requirements that are applicable to national banks in general if those requirements are inappropriate for a national bankers' bank and would impede its ability to provide desired services to its market. An applicant must submit a request for a waiver with the application and must support the request with adequate justification and legal analysis. A national bankers' bank that is already in operation may also request a waiver. The OCC cannot waive statutory provisions that specifically apply to national bankers' banks pursuant to 12 U.S.C. 27(b)(1).

(3) Investments. A national bank or Federal savings association may invest up to ten percent of its capital and surplus in a bankers' bank and may own five percent or less of any class of a bankers' bank's voting securities.

(l) Special purpose institutions. An applicant for a national bank or Federal savings association charter that will limit its activities to fiduciary activities, credit card operations, or another special purpose shall adhere to established charter procedures with modifications appropriate for the circumstances as determined by the OCC. An applicant for a national bank or Federal savings association charter that will have a community development focus shall also adhere to established charter procedures with modifications appropriate for the circumstances as determined by the OCC. A national bank that seeks to invest in a bank or savings association with a community development focus must comply with applicable requirements of 12 CFR part 24. A Federal savings association that seeks to invest in a bank or savings association with a community development focus must comply with § 160.36 or any other applicable requirements.

Start Amendment Part

7. Section 5.21 is added to read as follows:

End Amendment Part
Federal Mutual Savings Association Charter and Bylaws.

(a) Authority. 12 U.S.C. 1462a, 1463, 1464, and 2901 et seq.

(b) Licensing requirements. A Federal mutual savings association must file an application, notice, or other filing as prescribed by this section when adopting or amending its charter or bylaws.

(c) Scope. This section describes the procedures and requirements governing charters and bylaws for Federal mutual savings associations.

(d) Exceptions to rules of general applicability. Notwithstanding any other provision of this part, §§ 5.8 through 5.11 shall not apply to this section.

(e) Charter form. Except as provided in paragraphs (f) and (g), a Federal mutual savings association shall have a charter in the following form. A charter for a Federal mutual savings bank shall substitute the term “savings bank” for “association.” The term “trustee” may be substituted for the term “director.” Associations adopting this charter with existing borrower members must grandfather those borrower members who were members as of the date of issuance of the new charter by the OCC. Such borrowers shall have one vote for the period of time such borrowings are in existence.

Federal Mutual Charter

Section 1. Corporate title. The full corporate title of the Federal savings association is _.

Section 2. Office. The home office shall be located in _ [city, state].

Section 3. Duration. The duration of the association is perpetual.

Section 4. Purpose and powers. The purpose of the association is to pursue any or all of the lawful objectives of a Federal mutual savings association chartered under section 5 of the Home Owners' Loan Act and to exercise all the express, implied, and incidental powers conferred thereby and by all acts amendatory thereof and supplemental thereto, subject to the Constitution and laws of the United States as they are Start Printed Page 33333now in effect, or as they may hereafter be amended, and subject to all lawful and applicable rules, regulations, and orders of the Office of the Comptroller of the Currency (“OCC”).

Section 5. Capital. The association may raise capital by accepting payments on savings and demand accounts and by any other means authorized by the OCC.

Section 6. Members. All holders of the association's savings, demand, or other authorized accounts are members of the association. In the consideration of all questions requiring action by the members of the association, each holder of an account shall be permitted to cast one vote for each $100, or fraction thereof, of the withdrawal value of the member's account. No member, however, shall cast more than 1000 votes. All accounts shall be nonassessable.

Section 7. Directors. The association shall be under the direction of a board of directors. The authorized number of directors shall not be fewer than five nor more than fifteen persons, as fixed in the association's bylaws, except that the number of directors may be decreased to a number less than five or increased to a number greater than fifteen with the prior approval of the OCC.

Section 8. Capital, surplus, and distribution of earnings. The association shall maintain for the purpose of meeting losses the amount of capital required by section 5 of the Home Owners' Loan Act and by regulations of the OCC. The association shall distribute net earnings on its accounts on such basis and in accordance with such terms and conditions as may from time to time be authorized by the OCC: Provided, That the association may establish minimum-balance requirements for accounts to be eligible for distribution of earnings.

All holders of accounts of the association shall be entitled to equal distribution of assets, pro rata to the value of their accounts, in the event of voluntary or involuntary liquidation, dissolution, or winding up of the association. Moreover, in any such event, or in any other situation in which the priority of such accounts is in controversy, all such accounts shall, to the extent of their withdrawal value, be debts of the association having the same priority as the claims of general creditors of the association not having priority (other than any priority arising or resulting from consensual subordination) over other general creditors of the association.

Section 9. Amendment of charter. Adoption of any preapproved charter amendment shall be effective after such preapproved amendment has been approved by the members at a legal meeting. Any other amendment, addition, change, or repeal of this charter must be approved by the OCC prior to approval by the members at a legal meeting, and shall be effective upon filing with the OCC in accordance with regulatory procedures.

Attest:

Secretary of the Association

By:

President or Chief Executive Officer of the Association

Attest:

Deputy Comptroller for Licensing

By:

Comptroller of the Currency

Effective Date:

(f) Charter amendments. In order to adopt a charter amendment, a Federal mutual savings association must comply with the following requirements:

(1) Board of directors approval. The board of directors of the association must adopt a resolution proposing the charter amendment that states the text of such amendment;

(2) Form of filing—(i) Application requirement. If the proposed 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 involve a significant issue of law or policy; then, the association shall file the proposed amendment and obtain the prior approval of the OCC.

(ii) Notice requirement. If the proposed charter amendment does not involve a provision that would be covered by paragraph (f)(2)(i) of this section and is permissible under all applicable laws, rules and regulations, then the association shall submit the proposed amendment to the appropriate OCC licensing office, at least 30 days prior to the effective date of the proposed charter amendment.

(g) Approval. Any charter amendment filed pursuant to paragraph (f)(2)(ii) of this section shall automatically be approved 30 days from the date of filing of such amendment, provided that the association follows the requirements of its charter in adopting such amendment. This automatic approval does not apply if, prior to the expiration of such 30-day period, the OCC notifies the association that such amendment is rejected or that such amendment is deemed to be filed under the provisions of paragraph (f)(2)(i) of this section. In addition, notwithstanding anything in paragraph (f) of this section to the contrary, the following charter amendments, including the adoption of the Federal mutual charter as set forth in paragraph (e) of this section, shall be effective and deemed approved at the time of adoption, if adopted without change and filed with the OCC, within 30 days after adoption, provided the association follows the requirements of its charter in adopting such amendments:

(1) Purpose and powers. Add a second paragraph to section 4, as follows:

Section 4. Purpose and powers. * * * The association shall have 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 shall require 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 capital, which shall be unlimited, 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 shall, to such extent as may be provided by such rules and regulations, be members of the association and shall 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 shall have power to do all things Start Printed Page 33334reasonably incident to the accomplishment of its express objects and the performance of its express powers.

(2) Title change. A Federal mutual savings association that has complied with § 5.42 of this chapter may amend its charter by substituting a new corporate title in section 1.

(3) Home office. A Federal mutual savings association may amend its charter by substituting a new home office in section 2, if it has complied with applicable requirements of § 5.40 of this chapter.

(4) Maximum number of votes. A Federal mutual savings association may amend its charter by substituting any number of votes per member between 1 and 1000 in section 6.

(h) Reissuance of charter. A Federal mutual savings association that has amended its charter may apply to have its charter, including the amendments, reissued by the OCC. Such request for reissuance should be filed at the appropriate OCC licensing office and contain signatures required under paragraph (e) of this section, together with such supporting documents as may be needed to demonstrate that the amendments were properly adopted.

(i) Availability of chartering documents. A Federal mutual savings association shall cause a true copy of its charter and bylaws and all amendments thereto to be available to accountholders at all times in each office of the savings association, and shall upon request deliver to any accountholders a copy of such charter and bylaws or amendments thereto.

(j) Bylaws for Federal mutual savings associations—A Federal mutual savings association shall 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 shall substitute the term “savings bank” for “association”. The term “trustee” may be substituted for the term “director”.

(1) The following requirements are applicable to Federal mutual savings associations:

(i) Annual meetings of members. (A) An association shall 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 shall 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.

(B) At each annual meeting, the officers shall make a full report of the financial condition of the association and of its progress for the preceding year and shall outline a program for the succeeding year.

(ii) Special meetings of members. Procedures for calling any special meeting of the members and for conducting such a meeting shall 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 shall be entitled to call a special meeting. 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 shall be published for two successive weeks immediately prior to the week in which such meeting shall 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 shall convene to each of its members of record. A similar notice shall 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 shall 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 shall be given as in the case of the original meeting.

(iv) Fixing of record date. The bylaws shall 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 shall be not 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 shall 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 shall constitute a quorum. A majority of all votes cast at any meeting of the members shall determine 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 shall 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 shall be consistent with § 144.8 of this part. No member, however, shall 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 shall set forth a specific number of directors, not a range. The number of directors shall be not fewer than five nor more than fifteen, unless a higher or lower number has been authorized by the OCC. Each director of the association shall 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 shall 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 Start Printed Page 33335than six years after the conversion to a Federal savings association.

(ix) Meetings of the board. The board of directors shall determine the place, frequency, time, procedure for notice, which shall 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 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 shall constitute 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 shall be the act of the board.

(x) Officers, employees and agents. (A) The bylaws shall contain provisions regarding the officers of the association, their functions, duties, and powers. The officers of the association shall consist of a president, one or more vice presidents, a secretary, and a treasurer or comptroller, each of whom shall 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, shall be without prejudice to the contractual rights, if any, of the person so removed. Termination for cause, for purposes of this § 5.21 and § 5.22, shall include 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 their affirmative vote, fill such vacancy, even if the remaining directors constitute less than a quorum. A director elected to fill a vacancy shall be elected to serve only until the next election of directors by the members. The bylaws shall set out the procedure for the resignation of a director. Directors may be removed only for cause, as defined in § 5.21(j)(1)(x)(B), 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 shall have 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 shall provide that nominations for directors may be made at the annual meeting by any member and shall 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 shall 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 shall 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 may also address any other subjects necessary or appropriate for effective operation of the association.

(2) Form of filing—(i) Application requirement. (A) Any bylaw amendment shall be submitted to the appropriate OCC licensing office for OCC approval 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.

(B) For purposes of paragraph (j)(2), bylaw provisions that adopt the language of the OCC's model or optional bylaws, if adopted without change, and filed with the OCC within 30 days after adoption, are effective upon adoption.

(ii) Filing requirement. If the proposed bylaw amendment does not involve a provision that would be covered by paragraph (j)(2)(i)(A) of this section, then the association shall submit the amendment to the appropriate OCC licensing office at least 30 days prior to the date the bylaw amendment is to be adopted by the association.

(iii) Corporate governance procedures. A Federal mutual association may elect to follow the corporate governance procedures of the laws of the state where the main office of the institution is located, provided that such procedures may be elected only to the extent not inconsistent with applicable Federal statutes, regulations, and safety and soundness, and such procedures are not of the type described in paragraph (j)(2)(i)(A) of this section. If this election is selected, a Federal mutual association shall designate in its bylaws the provision or provisions from the body of law selected for its corporate governance procedures, and shall file a copy of such bylaws, which are effective upon adoption, within 30 days after adoption. The submission shall indicate, where not obvious, why the bylaw provisions meet the requirements stated in paragraph (j)(2)(i)(A) of this section.

(3) Effectiveness. Any bylaw amendment filed pursuant to paragraph (j)(2)(ii) of this section shall automatically be effective 30 days from the date of filing of such amendment, provided that the association follows the requirements of its charter and bylaws in adopting such amendment. This automatic effective date does not apply if, prior to the expiration of such 30-day period, the OCC notifies the association that such amendment is rejected or that such amendment requires an application to be filed pursuant to paragraph (j)(2)(i) of this section.

(4) 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 shall be determined only by the association's charter or bylaws then in effect.

Start Amendment Part

8. Section 5.22 is added to read as follows:

End Amendment Part
Start Printed Page 33336
Federal stock savings association charter and bylaws.

(a) Authority. 12 U.S.C. 1462a, 1463, 1464, and 2901 et seq.

(b) Licensing requirements. A Federal stock savings association must file an application, notice, or other filing as prescribed by this section when adopting or amending its charter or bylaws.

(c) Scope. This section describes the procedures and requirements governing charters and bylaws for Federal stock savings associations.

(d) Exceptions to rules of general applicability. Notwithstanding any other provision of this part, §§ 5.8 through 5.11 shall not apply to this section.

(e) Charter form. The charter of a Federal stock association shall be in the following form, except as provided in this section. An association that has converted from the mutual form pursuant to part 192 of this chapter shall include in its charter a section establishing a liquidation account as required by § 192.3(c)(13) of this chapter. A charter for a Federal stock savings bank shall substitute the term “savings bank” for “association.” Charters may also include any preapproved optional provision contained in this section.

Federal Stock Charter

Section 1. Corporate title. The full corporate title of the association is ___.

Section 2. Office. The home office shall be located in ___ [city, state].

Section 3. Duration. The duration of the association is perpetual.

Section 4. Purpose and powers. The purpose of the association is to pursue any or all of the lawful objectives of a Federal savings association chartered under section 5 of the Home Owners' Loan Act and to exercise all of the express, implied, and incidental powers conferred thereby and by all acts amendatory thereof and supplemental thereto, subject to the Constitution and laws of the United States as they are now in effect, or as they may hereafter be amended, and subject to all lawful and applicable rules, regulations, and orders of the Office of the Comptroller of the Currency (“OCC”).

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 shall be common stock of par [or if no par is specified then shares shall 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 shall be paid in full before their issuance and shall not be less than the par [or stated] value. Neither promissory notes nor future services shall constitute payment or part payment for the issuance of shares of the association. The consideration for the shares shall 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, shall be conclusive. Upon payment of such consideration, such shares shall 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 shall 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 stock form of capitalization, no shares of capital stock (including shares issuable upon conversion, exchange, or exercise of other securities) shall 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 shall exclusively possess all voting power. Each holder of shares of common stock shall be 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 shall 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 shall 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 shall have the same relative rights as and be identical in all respects with all the other shares of common stock.

Section 6. Preemptive rights. Holders of the capital stock of the association shall not be entitled to preemptive rights with respect to any shares of the association which may be issued.

Section 7. Directors. The association shall be under the direction of a board of directors. The authorized number of directors, as stated in the association's bylaws, shall not be fewer than five nor more than fifteen except when a greater or lesser number is approved by the OCC.

Section 8. Amendment of charter. Except as provided in Section 5, no amendment, addition, alteration, change or repeal of this charter shall be made, unless such is proposed by the board of directors of the association, approved by the shareholders by a majority of the votes eligible to be cast at a legal meeting, unless a higher vote is otherwise required, and approved or preapproved by the OCC.

Attest:

Secretary of the Association

By:

President or Chief Executive Officer of the Association

Attest:

Deputy Comptroller for Licensing

By:

Comptroller of the Currency

Effective Date:

(f) Charter amendments. In order to adopt a charter amendment, a Federal stock savings association must comply with the following requirements:

(1) Board of directors approval. The board of directors of the association must adopt a resolution proposing the charter amendment that states the text of such amendment;

(2) Form of filing—(i) Application requirement. If the proposed charter amendment 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, the association shall file the proposed amendment and shall obtain the prior approval of the OCC; and

(ii) Notice requirement. If the proposed charter amendment does not involve a provision that would be covered by paragraph (f)(2)(i) of this section and such amendment is permissible under all applicable laws, rules or regulations, then the association shall submit the proposed amendments to the appropriate OCC licensing office, Start Printed Page 33337at least 30 days prior to the date the proposed charter amendment is to be mailed for consideration by the association's shareholders.

(g) Approval. Any charter amendment filed pursuant to paragraph (f)(2)(ii) of this section shall automatically be approved 30 days from the date of filing of such amendment, provided that the association follows the requirements of its charter in adopting such amendment, unless prior to the expiration of such 30-day period the OCC notifies the association that such amendment is rejected or that such amendment is deemed to be filed under the provisions of paragraph (f)(2)(i) of this section. In addition, the following charter amendments, including the adoption of the Federal stock charter as set forth in paragraph (e) of this section, shall be approved at the time of adoption, if adopted without change and filed with the OCC within 30 days after adoption, provided the association follows the requirements of its charter in adopting such amendments:

(1) Title change. A Federal stock association that has complied with § 5.42 of this chapter may amend its charter by substituting a new corporate title in section 1.

(2) Home office. A Federal savings association may amend its charter by substituting a new home office in section 2, if it has complied with applicable requirements of § 5.40 of this chapter.

(3) Number of shares of stock and par value. A Federal stock association may amend Section 5 of its charter to change the number of authorized shares of stock, the number of shares within each class of stock, and the par or stated value of such shares.

(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 _ shall be 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 shall be paid in full before their issuance and shall not be less than the par [or stated] value. Neither promissory notes nor future services shall constitute payment or part payment for the issuance of shares of the association. The consideration for the shares shall 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, shall be conclusive. Upon payment of such consideration, such shares shall 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 shall 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) shall 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 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) shall entitle 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 shall be no such cumulative voting: Provided, That this restriction on voting separately by class or series shall 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, shall not be 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 shall exclusively possess all voting power. Each holder of shares of the common stock shall be 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 shall be no such cumulative voting.

Whenever there shall have 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) shall be entitled to receive, in cash or in kind, the assets of the association available for distribution remaining after: (i) Payment Start Printed Page 33338or 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 shall 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 shall 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 shall be set forth in a supplementary section to the charter. All shares of the same class shall 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 shall be 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 shall be 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 shall be 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 shall be 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 shall be issued; and

i. Whether the shares of such series which are redeemed or converted shall 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 shall 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 shall have 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 shall file with the OCC a dated copy of that supplementary section of this charter established and designating the series and fixing and determining the relative rights and preferences thereof.

(5) Limitations on subsequent issuances. A Federal stock association may amend its charter to require shareholder approval of the issuance or reservation of common stock or securities convertible into common stock under circumstances which would require shareholder approval under the rules of the New York Stock Exchange if the shares were then listed on the New York Stock Exchange.

(6) Cumulative voting. A Federal stock association may amend its charter by substituting the following sentence for the second sentence in the third paragraph of Section 5: “Each holder of shares of common stock shall be entitled to one vote for each share held by such holder and there shall be no right to cumulate votes in an election of directors.”

(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 shall apply:

A. Beneficial Ownership Limitation. No person shall 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 shall 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 § 192.25 of the OCC's regulations.

In the event shares are acquired in violation of this section 8, all shares beneficially owned by any person in excess of 10% shall be considered “excess shares” and shall not be counted as shares entitled to vote and shall 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 conscious parallel action towards a common goal 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, Start Printed Page 33339relationship, agreement or other arrangements, whether written or otherwise.

B. Cumulative Voting Limitation. Stockholders shall not be permitted to 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 shall be called only upon direction of the board of directors.

(h) Anti-takeover provisions. The OCC may grant approval to a charter amendment not listed in paragraph (g) of this section regarding the acquisition by any person or persons of its equity securities provided that the association shall file as part of its application for approval an opinion, acceptable to the OCC, of counsel independent from the association that the proposed charter provision would be permitted to be adopted by a corporation chartered by the state in which the principal office of the association is located. Any such provision must be consistent with applicable statutes, regulations, and OCC policies. Further, any such provision that would have the effect of rendering more difficult a change in control of the association and would require for any corporate action (other than the removal of directors) the affirmative vote of a larger percentage of shareholders than is required by this part, shall not be effective unless adopted by a percentage of shareholder vote at least equal to the highest percentage that would be required to take any action under such provision.

(i) Reissuance of charter. A Federal stock association that has amended its charter may apply to have its charter, including the amendments, reissued by the OCC. Such requests for reissuance should be filed with the appropriate OCC licensing office, and contain signatures required under (c) of this part, together with such supporting documents as needed to demonstrate that the amendments were properly adopted.

(j) Bylaws for Federal stock savings associations—(1) General. Bylaws may be adopted, amended or repealed by either a majority of the votes cast by the shareholders at a legal meeting or a majority of the board of directors. A bylaw provision inconsistent with paragraph (k), (l), (m) or (n), of this section may be adopted only with the approval of the OCC.

(2) Form of Filing—(i) Application requirement. (A) Any bylaw amendment shall be submitted to the OCC for approval if it 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.

(B) Bylaw provisions that adopt the language of the OCC's model or optional bylaws, if adopted without change, and filed with the OCC within 30 days after adoption, are effective upon adoption.

(ii) Filing requirement. If the proposed bylaw amendment does not involve a provision that would be covered by paragraph (j)(2)(i) or (iii) of this section and is permissible under all applicable laws, rules, or regulations, then the association shall submit the amendment to the OCC at least 30 days prior to the date the bylaw amendment is to be adopted by the association.

(iii) Corporate governance procedures. A Federal stock association may elect to follow the corporate governance procedures of: The laws of the state where the main 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) of this section. If this election is selected, a Federal stock association shall designate in its bylaws the provision or provisions from the body or bodies of law selected for its corporate governance procedures, and shall file a copy of such bylaws, which are effective upon adoption, within 30 days after adoption. The submission shall indicate, where not obvious, why the bylaw provisions meet the requirements stated in paragraph (j)(2)(i) of this section.

(3) Effectiveness. Any bylaw amendment filed pursuant to paragraph (j)(2)(ii) of this section shall automatically be effective 30 days from the date of filing of such amendment, provided that the association follows the requirements of its charter and bylaws in adopting such amendment, unless prior to the expiration of such 30-day period the OCC notifies the association that such amendment is rejected or that such amendment requires an application to be filed pursuant to paragraph (j)(2)(i) of this section.

(4) Effect of subsequent charter or bylaw change. Notwithstanding any subsequent change to its charter or bylaws, the authority of a Federal savings association to engage in any transaction shall be determined only by the association's charter or bylaws then in effect.

(k) Shareholders of Federal stock savings associations.—(1) Shareholder meetings. A meeting of the shareholders of the association for the election of directors and for the transaction of any other business of the association shall 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. All annual and special meetings of shareholders shall be held at any convenient place the board of directors may designate.

(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 shall 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 chairman 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 shall 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 (i)(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 shall be given as in the case of an original meeting. Notwithstanding anything in this section, however, a Federal stock association that is wholly owned shall not be 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 Start Printed Page 33340determination of shareholders for any other proper purpose, the board of directors shall fix in advance a date as the record date for any such determination of shareholders. Such date in any case shall be not 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 shall 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 shall 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 shall be kept on file at the home office of the association and shall be 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 shall 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 shall not be subject to the voting list requirements.

(ii) In lieu of making the shareholders list available for inspection by any shareholders as provided in paragraph (j)(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 shall 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, shall constitute 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 shall 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 shall 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 shall be 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, shall 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 shall 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 shall be provided for use at the annual meeting.

(8) Informal action by stockholders. If the bylaws of the association so provide, any action required to be taken at a meeting of the stockholders, or any other action that may be taken at a meeting of the stockholders, may be taken without a meeting if consent in writing has been given by all the stockholders entitled to vote with respect to the subject matter.

(l) Board of directors. (1) General powers and duties. The business and affairs of the association shall be under the direction of its board of directors. The board of directors shall annually elect a chairman of the board from among its members and shall designate the chairman of the board, when present, to preside at its meeting. Directors need not be stockholders unless the bylaws so require.

(2) Number and term. The bylaws shall set forth a specific number of directors, not a range. The number of directors shall be not 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 shall 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 shall be divided into two or three classes as nearly equal in number as possible and one class shall be elected by ballot annually.

(3) Regular meetings. The board of directors shall determine the place, frequency, time and procedure for notice of regular meetings.

(4) Quorum. A majority of the number of directors shall constitute 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 shall be the act of the board of directors, unless a greater number is prescribed by regulation of the OCC.

(5) Vacancies. Any vacancy occurring in the board of directors may be filled by the affirmative vote of a majority of the remaining directors although less than a quorum of the board of directors. A director elected to fill a vacancy shall be elected to 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)(1)(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 Start Printed Page 33341thereto, the provisions of this section shall 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 shall 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 shall 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 shall 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 shall constitute 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 electronic participation at a 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, shall be 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 shall be presumed to have assented to the action taken unless his or her dissent or abstention shall be entered in the minutes of the meeting or unless a written dissent to such action shall be filed with the person acting as the secretary of the meeting before the adjournment thereof or shall be 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 shall not apply to a director who voted in favor of such action.

(11) Age limitation on directors. A Federal association may provide a bylaw on age limitation for directors. Bylaws on age limitations must comply with all Federal laws, rules and regulations.

(m) Officers. (1) Positions. The officers of the association shall be a president, one or more vice presidents, a secretary, and a treasurer or comptroller, each of whom shall be elected by the board of directors. The board of directors may also designate the chairman of the board as an officer. The offices of the secretary and treasurer or comptroller may be held by the same person and the vice president may also be either the secretary or the treasurer or comptroller. The board of directors may designate one or more vice presidents as executive vice president or senior vice president.

(2) Removal. Any officer may be removed by the board of directors whenever in its judgment the best interests of the association will be served thereby; but such removal, other than for cause, as termination for cause is defined in § 5.21(j)(1)(x)(B), shall be without prejudice to the contractual rights, if any, of the person so removed. Employment contracts shall conform with 12 CFR 163.39.

(3) Age limitation on officers. A Federal association may provide a bylaw on age limitation for officers. Bylaws on age limitations must comply with all Federal laws, rules, and regulations.

(n) Certificates for shares and their transfer—(1) Certificates for shares. Certificates representing shares of capital stock of the association shall be in such form as shall be 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, shall be entered on the stock transfer books of the association. All certificates surrendered to the association for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have 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 shall be made only on its stock transfer books. Authority for such transfer shall be given only by the holder of record or by a legal representative, who shall 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 shall 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 shall be deemed by the association to be the owner for all purposes.

Start Amendment Part

9. Section 5.23 is added to read as follows:

End Amendment Part
Conversion to Become a Federal Savings Association.

(a) Authority. 12 U.S.C. 1462a, 1463, 1464, 1467a, 2903, and 5412(b)(2)(B).

(b) Scope. (1) This section describes procedures and standards governing OCC review and approval of an application by a mutual depository institution to convert to a Federal mutual savings association or an application by a stock depository institution to convert to a Federal stock savings association.

(2) As used in this section, depository institution means any commercial bank (including a private bank), a savings bank, a trust company, a savings and loan association, a building and loan association, a homestead association, a cooperative bank, an industrial bank or a credit union, chartered in the United States and having its principal office located in the United States.

(c) Licensing requirements. A depository institution that is mutual in form (“`mutual depository institution”) shall submit an application and obtain prior OCC approval to convert to a Federal mutual savings association. A stock depository institution shall submit an application and obtain prior OCC approval to convert to a Federal stock association. At the time of conversion, the applicant must have deposits insured by the Federal Deposit Insurance Corporation (FDIC). An institution that is not already insured by the FDIC must apply to the FDIC, and obtain FDIC approval, for deposit insurance before converting.

(d) Conversion of a mutual depository institution or a stock depository institution to a Federal savings association.—(1) Policy. Consistent with the OCC's chartering policy, it is OCC policy to allow conversion to a Federal Start Printed Page 33342savings association charter by another financial institution that can operate safely and soundly as a Federal savings association in compliance with applicable laws, regulations, and policies. This includes consideration of the factors set out in section 5(e) of the Home Owners' Loan Act, 12 U.S.C. 1464(e). The converting financial institution must obtain all necessary regulatory and shareholder or member approvals. The OCC may deny an application by any mutual depository institution or stock depository institution to convert to a Federal mutual savings association charter or Federal stock association charter, respectively, on the basis of the standards for denial set forth in § 5.13(b) or when conversion would permit the applicant to escape supervisory action by its current regulators.

(2) Procedures. (i) Prefiling communications. The applicant should consult with the appropriate OCC licensing office prior to filing if it anticipates that its application will raise unusual or complex issues. If a prefiling meeting is appropriate, it will normally be held in the OCC licensing office where the application will be filed, but may be held at another location at the request of the applicant.

(ii) Application. A mutual depository institution or a stock depository institution shall submit its application to convert to a Federal mutual savings association or Federal stock depository association, respectively, to the appropriate OCC licensing office and shall send a copy of the application to its current appropriate Federal banking agency. The application must:

(A) Be signed by the president or other duly authorized officer;

(B) Identify each branch that the resulting financial institution expects to operate after conversion;

(C) Include the institution's most recent audited financial statements (if any);

(D) Include the latest report of condition and report of income (the most recent daily statement of condition will suffice if the institution does not file these reports);

(E) Unless otherwise advised by the OCC in a prefiling communication, include an opinion of counsel that, in the case of state-chartered institutions, the conversion is not in contravention of applicable state law, or in the case of Federally-chartered institutions, the conversion is not in contravention of applicable Federal law;

(F) State whether the institution wishes to exercise fiduciary powers after the conversion;

(G) Identify all subsidiaries, service corporation investments, bank service company investments, and other equity investments that will be retained following the conversion, and provide the information and analysis of the subsidiaries' activities and the service corporation investments and other equity investments that would be required if the converting mutual institution or stock institution were a Federal mutual savings association or Federal stock savings association, respectively, establishing each subsidiary or making each service corporation or other equity investment pursuant to §§ 5.35, 5.36, 5.38, or 5.59, or other applicable law and regulation;

(H) Identify any nonconforming assets (including nonconforming subsidiaries) and nonconforming activities that the institution engages in, and describe the plans to retain or divest those assets and activities;

(I) Include a business plan if the converting institution has been operating for less than three years, plans to make significant changes to its business after the conversion, or at the request of the OCC;

(J) Include a list of all outstanding conditions or other requirements imposed by the institution's current appropriate Federal banking agency and, if applicable, current state bank supervisor or state attorney-general in any cease and desist order, written agreement, other formal enforcement order, memorandum of understanding, approval of any application, notice or request, commitment letter, board resolution, or in any other manner, including the converting institution's analysis whether any such actions prohibit conversion under 12 U.S.C. 35, and the converting institution's plans regarding adhering to such conditions and requirements after conversion; and

(K) If the converting institution does not meet the qualified thrift lender test of 12 U.S.C. 1467a(m), include a plan to achieve compliance within a reasonable period of time and a request for an exception from the OCC.

(iii) The OCC may permit a Federal savings association to retain nonconforming assets of a converting institution for the time period prescribed by the OCC following a conversion, subject to conditions and an OCC determination of the carrying value of the retained assets consistent with the requirements of section 5(c) of the HOLA relating to loans and investments. The OCC may permit a Federal savings association to continue nonconforming activities of a converting institution for the time period prescribed by the OCC following a conversion, subject to conditions.

(iv) Approval for an institution to convert to a Federal savings association expires if the conversion has not occurred within six months of the OCC's approval of the application, unless the OCC grants an extension of time.

(v) When the OCC determines that the applicant has satisfied all statutory and regulatory requirements and any other conditions, the OCC issues a charter. The charter provides that the institution is authorized to begin conducting business as a Federal mutual savings association or a Federal stock savings association as of a specified date.

(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 any or all parts of §§ 5.8, 5.10, and 5.11 apply.

(4) Expedited review. An application by an eligible national bank to convert to a Federal savings association charter is deemed approved by the OCC as of the 60th day after the filing is received by the OCC, unless the OCC notifies the applicant prior to that date that the filing is not eligible for expedited review under § 5.13(a)(2).

(e) Conversion of a mutual depository institution to a Federal mutual savings association—supplemental rules. In addition to the rules and procedures set forth in § 5.23(d), an applicant converting from a mutual depository institution to a mutual savings association shall comply with the following: After a Federal charter is issued to a converting institution, the association's members shall after due notice, or upon a valid adjournment of a previous legal meeting, hold a meeting to elect directors and take care of all other actions necessary to fully effectuate the conversion and operate the association in accordance with law and these rules and regulations. Immediately thereafter, the board of directors shall meet, elect officers, and transact any other appropriate business.

(f) Continuation of business and entity. The existence of the converting institution shall continue in the resulting Federal savings association. The resulting Federal savings association shall be considered the same business and entity as the converting institution, although as to rights, powers, and duties, the resulting Federal savings association is a Federal savings association. Any and all of the assets and other property (whether real, personal, mixed, tangible or intangible, Start Printed Page 33343including choses in action, rights, and credits) of the converting institution become assets and property of the resulting Federal savings association when the conversion occurs. Similarly, any and all of the obligations and debts of and claims against the converting institution become obligations and debts of and claims against the Federal savings association when the conversion occurs.

Start Amendment Part

10. Section 5.24 is revised to read as follows:

End Amendment Part
Conversion to Become a National Bank.

(a) Authority. 12 U.S.C. 35, 93a, 214a, 214b, 214c, and 2903.

(b) Licensing requirements. A state bank, a stock state savings association, or a Federal stock savings association shall submit an application and obtain prior OCC approval to convert to a national bank charter.

(c) Scope. (1) This section describes procedures and standards governing OCC review and approval of an application by a state bank, a stock state savings association, or a Federal stock savings association to convert to a national bank charter.

(2) As used in this section, state bank includes a state bank as defined in 12 U.S.C. 214(a).

(d) Policy. Consistent with the OCC's chartering policy, it is OCC policy to allow conversion to a national bank charter by another financial institution that can operate safely and soundly as a national bank in compliance with applicable laws, regulations, and policies. A converting financial institution also must obtain all necessary regulatory and shareholder approvals. The OCC may deny an application by any state bank, stock state savings association, and any Federal stock savings association to convert to a national bank charter on the basis of the standards for denial set forth in § 5.13(b), or when conversion would permit the applicant to escape supervisory action by its current regulators.

(e) Procedures—(1) Prefiling communications. The applicant should consult with the appropriate OCC licensing office prior to filing if it anticipates that its application will raise unusual or complex issues. If a prefiling meeting is appropriate, it will normally be held at the OCC licensing office where the application will be filed, but may be held at another location at the request of the applicant.

(2) Application. A state bank, a stock state savings association, or a Federal stock savings association shall submit its application to convert to a national bank to the appropriate OCC licensing office and send a copy to its current appropriate Federal banking agency. The application must:

(i) Be signed by the president or other duly authorized officer;

(ii) Identify each branch that the resulting bank expects to operate after conversion;

(iii) Include the institution's most recent audited financial statements (if any);

(iv) Include the latest report of condition and report of income (the most recent daily statement of condition will suffice if the institution does not file these reports);

(v) Unless otherwise advised by the OCC in a prefiling communication, include an opinion of counsel that, in the case of a state bank, the conversion is not in contravention of applicable state law, or in the case of a Federal stock savings association, the conversion is not in contravention of applicable Federal law;

(vi) State whether the institution wishes to exercise fiduciary powers after the conversion;

(vii) Identify all subsidiaries, bank service company investments, and other equity investments that will be retained following the conversion, and provide the information and analysis of the subsidiaries' activities, the bank service company investments, and the other equity investments that would be required if the converting bank or savings association were a national bank establishing each subsidiary or making each bank service company investment or other equity investment pursuant to §§ 5.34, 5.35, 5.36, 5.39, 12 CFR part 1, or other applicable law and regulation;

(viii) Identify any nonconforming assets (including nonconforming subsidiaries) and nonconforming activities that the institution engages in and describe the plans to retain or divest those assets and activities;

(ix) Include a business plan if the converting institution has been operating for fewer than three years or plans to make significant changes to its business after the conversion; and

(x) List all outstanding conditions or other requirements imposed by the institution's current appropriate Federal banking agency and, if applicable, current state bank supervisor or state attorney-general in any cease and desist order, written agreement, other formal enforcement order, memorandum of understanding, approval of any application, notice or request, commitment letter, board resolution, or in any other manner, including the converting institution's analysis whether the conversion is prohibited under 12 U.S.C. 35, and state the institution's plans regarding adhering to such conditions or requirements after conversion.

(3) The OCC may permit a national bank to retain nonconforming assets of a state bank or stock state savings association, subject to conditions and an OCC determination of the carrying value of the retained assets, pursuant to 12 U.S.C. 35. The OCC may permit a national bank to continue nonconforming activities of a state bank or stock state savings association, or to retain the nonconforming assets or nonconforming activities of a Federal stock savings association, for a reasonable period of time following a conversion, subject to conditions imposed by the OCC.

(4) Approval for an institution to convert to a national bank expires if the conversion has not occurred within six months of the OCC's approval of the application, unless the OCC grants an extension of time.

(5) When the OCC determines that the applicant has satisfied all statutory and regulatory requirements, including those set forth in 12 U.S.C. 35, and any other conditions, the OCC issues a charter certificate. The certificate provides that the institution is authorized to begin conducting business as a national bank as of a specified date.

(f) 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 any or all of §§ 5.8, 5.10, and 5.11 apply.

(g) 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 60th day after the filing is received by the OCC, unless the OCC notifies the applicant prior to that date that the filing is not eligible for expedited review under § 5.13(a)(2).

(h) Continuation of business and corporate entity. The corporate existence of the converting institution shall continue in the resulting national bank. The resulting national bank shall be considered the same business and corporate entity as the converting institution, although as to rights, powers, and duties, the resulting national bank is a national bank. Any and all of the assets and other property (whether real, personal, mixed, tangible or intangible, including choses in action, rights, and credits) of the converting institution become assets and property of the resulting national bank when the conversion occurs. Start Printed Page 33344Similarly, any and all of the obligations and debts of and claims against the converting institution become obligations and debts of and claims against the national bank when the conversion occurs.

Start Amendment Part

11. Section 5.25 is added to read as follows:

End Amendment Part
Conversion from a National Bank or Federal Savings Association.

(a) Authority. 12 U.S.C. 93a, 214a, 214b, 214c, 214d, 1462a, 1463, 1464, and 5412(b)(2)(B).

(b) Licensing Requirement. A national bank shall give notice to the OCC before converting to a state bank (including a state bank as defined in 214(a)), a state savings association, or a Federal savings association. A Federal savings association shall give notice to the OCC before converting to a state savings association, a state bank, or a national bank. A Federal mutual savings association that plans to convert to a stock state bank or a national bank must first convert to a Federal stock savings association under 12 CFR part 192.

(c) Scope. This section describes the procedures for a national bank seeking to convert to a state bank or a state savings association or for a Federal savings association seeking to convert to a state savings association or a state bank. In addition, this section, along with procedures in 5.24 and 5.23, describes procedures for conversions between national banks and Federal stock savings associations.

(d) Conversions of a national bank to a state bank or state savings association or of a Federal savings association to a state savings association or state bank—(1) Procedure for national banks. A national bank may convert to a state bank (including a state bank as defined in 214(a)) or a state savings association in accordance with 12 U.S.C. 214a and 214c, without prior OCC approval, subject to compliance with 12 U.S.C. 214d. Termination of a national bank's status as a national bank occurs upon the bank's completion of the requirements of 12 U.S.C. 214a, and upon the OCC's receipt of the bank's national bank charter in connection with the consummation of the conversion.

(2) Procedure for Federal savings associations. A Federal savings association may convert to a state savings association or to a state bank, without prior OCC approval, subject to compliance with 12 U.S.C. 1464(i)(6). Termination of a Federal savings association's status as a Federal savings association occurs upon receipt of the Federal savings association's charter in connection with the consummation of the conversion.

(3) Notice of intent. (i) A national bank that desires to convert to a state bank (including a state bank as defined in 214(a)) or state savings association, or a Federal savings association that desires to convert to a state savings association or a state bank, shall submit a notice of intent to convert to the appropriate OCC licensing office. The national bank or Federal savings association shall file this notice with the OCC at the time it files a conversion application with the appropriate state authority or the prospective appropriate Federal banking agency. The national bank or Federal savings association also shall transmit a copy of the conversion application to the prospective appropriate Federal banking agency if it has not already done so.

(ii) The notice shall include:

(A) A copy of the conversion application; and

(B) An analysis demonstrating that the conversion is in compliance with laws of the applicable jurisdictions regarding the permissibility, requirements, and procedures for conversions, including any applicable stockholder or account holder approval requirements.

(4) Consultation. The OCC may consult with the appropriate state authorities or the prospective appropriate Federal banking agency regarding the proposed conversion.

(5) Termination of status. After receipt of the notice, the appropriate OCC licensing office provides instructions to the national bank or Federal savings association for terminating its status as a national bank or Federal savings association.

(e) Conversions between national banks and Federal savings associations—(1) National bank to Federal savings association. (i) A national bank may convert to a Federal stock savings association. A national bank that desires to convert to a Federal stock savings association shall follow the requirements and procedures set forth in 12 U.S.C. 214a as if it were converting to a state bank and submit a notice to the appropriate OCC licensing office demonstrating compliance with the applicable requirements of 12 U.S.C. 214a.

(ii) A national bank desiring to convert to a Federal stock savings association shall also file an application for prior OCC approval to convert under 12 CFR 5.23.

(2) Federal savings association to a national bank. (i) A Federal stock savings association may convert to a national bank. A Federal savings association that desires to convert to a national bank shall submit a notice to the appropriate OCC licensing office demonstrating compliance with laws of the applicable jurisdictions regarding the permissibility, requirements, and procedures for conversions, including any applicable stockholder or account holder approval requirements.

(ii) A Federal stock savings association that desires to convert to a national bank shall also file an application for prior OCC approval to convert under 12 CFR 5.24.

(3) Termination and change of status. The appropriate OCC licensing office provides instructions to the converting national bank or Federal savings association for terminating its status as a national bank or Federal savings association and beginning its status as a Federal savings association or national bank, respectively.

(f) Exceptions to rules of general applicability. Sections 5.5 through 5.8 and 5.10 through 5.13 do not apply to this section.

Start Amendment Part

12. Section 5.26 is revised to read as follows:

End Amendment Part
Fiduciary powers of national banks and Federal savings associations.

(a) Authority. 12 U.S.C. 92a and 1462a, 1463, 1464(n), and 5412(b)(2)(B).

(b) Licensing requirements. A national bank or Federal savings association must submit an application and obtain prior approval from, or in certain circumstances file a notice with, the OCC in order to exercise fiduciary powers. No approval or notice is required in the following circumstances:

(1) Where two or more national banks consolidate or merge, and any of the national banks has, prior to the consolidation or merger, received OCC approval to exercise fiduciary powers and that approval is in force at the time of the consolidation or merger, the resulting national bank may exercise fiduciary powers in the same manner and to the same extent as the national bank to which approval was originally granted;

(2) Where two or more Federal savings associations consolidate or merge, and any of the Federal savings associations has, prior to the consolidation or merger, received approval from the OCC or the Office of Thrift Supervision to exercise fiduciary powers and that approval is in force at the time of the consolidation or merger, the resulting Federal savings association may exercise fiduciary powers in the same manner and to the same extent as the Federal savings association to which approval was originally granted;

(3) Where a national bank with prior OCC approval to exercise fiduciary Start Printed Page 33345powers is the resulting bank in a merger or consolidation with a state bank, state savings association, or Federal savings association and the national bank will exercise fiduciary powers in the same manner and to the same extent to which approval was originally granted; and

(4) Where a Federal savings association with prior approval from the OCC or the Office of Thrift Supervision to exercise fiduciary powers is the resulting savings association in a merger or consolidation with a state bank, state savings association, or national bank and the Federal savings association will exercise fiduciary powers in the same manner and to the same extent to which approval was originally granted.

(c) Scope. This section sets forth the procedures governing OCC review and approval of an application, and in certain cases the filing of a notice, by a national bank or Federal savings association to exercise fiduciary powers. Fiduciary activities of national banks are subject to the provisions of 12 CFR part 9. Fiduciary activities of Federal savings associations are subject to the provisions of 12 CFR part 150.

(d) Policy. The exercise of fiduciary powers is primarily a management decision of the national bank or Federal savings association. The OCC generally permits a national bank or Federal savings association to exercise fiduciary powers if the bank or savings association is operating in a satisfactory manner, the proposed activities comply with applicable statutes and regulations, and the bank or savings association retains qualified fiduciary management.

(e) Procedure— (1) General. The following institutions must obtain approval from the OCC in order to offer fiduciary services to the public: (i) A national bank or Federal savings association without fiduciary powers:

(ii) A national bank without fiduciary powers that desires to exercise fiduciary powers as the resulting bank after merging with a state bank, state savings association, or Federal savings association with fiduciary powers or a Federal savings association without fiduciary powers that desires to exercise fiduciary powers as the resulting savings association after merging with a state bank, state savings association or national bank;

(iii) A national bank that results from the conversion of a state bank or a state or Federal savings association that was exercising fiduciary powers prior to the conversion or a Federal savings association that results from a conversion of a state or national bank or a state savings association that was exercising fiduciary powers prior to the conversion; and

(iv) A national bank or Federal savings association that has received approval from the OCC to offer limited fiduciary services that desires to offer full fiduciary services.

(2) Application. (i) Except as provided in paragraph (e)(2)(ii) of this section, a national bank or Federal savings association that desires to exercise fiduciary powers shall submit to the OCC an application requesting approval. The application must contain:

(A) A statement requesting full or limited powers (specifying which powers);

(B) A statement that the capital and surplus of the national bank or Federal savings association is not less than the capital and surplus required by state law of state banks, trust companies, and other corporations exercising comparable fiduciary powers;

(C) Sufficient biographical information on proposed trust management personnel to enable the OCC to assess their qualifications;

(D) A description of the locations where the national bank or Federal savings association will conduct fiduciary activities;

(E) If requested by the OCC, an opinion of counsel that the proposed activities do not violate applicable Federal or state law, including citations to applicable law; and

(F) Any other information necessary to enable the OCC to sufficiently assess the factors described in (e)(2)(iii).

(ii) If approval to exercise fiduciary powers is desired in connection with any other transaction subject to an application under this part, the applicant covered under paragraph (e)(1)(ii), (e)(1)(iii), or (e)(1)(iv) of this section may include a request for approval of fiduciary powers, including the information required by paragraph (e)(2)(i) of this section, as part of its other application. The OCC does not require a separate application requesting approval to exercise fiduciary powers under these circumstances.

(iii) When reviewing any application filed under this section, the OCC considers factors such as the following:

(A) The financial condition of the national bank or Federal savings association;

(B) The adequacy of the national bank's or Federal savings association's capital and surplus and whether it is sufficient under the circumstances and not less than the capital and surplus required by state law or state banks, trust companies, and other corporations exercising comparable fiduciary powers;

(C) The character and ability of proposed trust management, including qualifications, experience, and competency. The OCC must approve any trust management change the bank or savings association makes prior to commencing trust activities;

(D) The adequacy of the proposed business plan, if applicable;

(E) The needs of the community to be served; and

(F) Any other factors or circumstances that the OCC considers proper.

(3) Expedited review. An application by an eligible national bank or eligible Federal savings 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 is not eligible for expedited review under § 5.13(a)(2).

(4) Permit. Approval of an application under this section constitutes a permit under 12 U.S.C. 92a for national banks and 12 U.S.C. 1464(n) for Federal savings associations to conduct the fiduciary powers requested in the application.

(5) Notice required. A national bank or Federal savings association that has ceased to conduct previously approved fiduciary powers for 18 consecutive months must provide the OCC with a notice describing the nature and manner of the activities proposed to be conducted and containing the information required by paragraph (e)(2)(i) of this section 60 days prior to commencing any fiduciary activity.

(6) Notice of fiduciary activities in additional states. (i) No further application under this section is required when a national bank or Federal savings association with existing OCC approval to exercise fiduciary powers plans to engage in any of the activities specified in § 9.7(d) of this chapter or to conduct activities ancillary to its fiduciary business, in a state in addition to the state described in the application for fiduciary powers that the OCC has approved.

(ii) Unless the national bank or Federal savings association provides notice through other means (such as a merger application), the national bank or Federal savings association shall provide written notice to the OCC no later than ten 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 described in the application for fiduciary powers that the OCC has approved. The written notice 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 Start Printed Page 33346the national bank or Federal savings association previously conducted.

(iii) 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.

(7) 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 any or all parts of §§ 5.8, 5.10, and 5.11 apply.

(8) Expiration of approval. Approval expires if a national bank or Federal savings association does not commence fiduciary activities within 18 months from the date of approval, unless the OCC grants an extension of time.

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13. Section 5.30 is revised to read as follows:

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Establishment, acquisition, and relocation of a branch of a national bank.

(a) Authority. 12 U.S.C. 1-42 and 2901-2907.

(b) Licensing requirements. A national bank shall submit an application and obtain prior OCC approval in order to establish or relocate a branch.

(c) Scope—(1) General. This section describes the procedures and standards governing OCC review and approval of an application by a national bank to establish a new branch or to relocate a branch.

(2) Branch established through a conversion or business combination. The standards of this section governing review and approval of applications by the OCC and, as applicable, 12 U.S.C. 36(b), but not the application procedures set forth in this section, apply to branches acquired or retained in a conversion approved under 12 CFR 5.24 or a business combination approved under § 5.33. A branch acquired or retained in a conversion or business combination is subject to the application procedures set forth in §§ 5.24 or 5.33.

(d) Definitions—(1) Branch includes any branch bank, branch office, branch agency, additional office, or any branch place of business established by a national bank in the United States or its territories at which deposits are received, checks paid, or money lent.

(i) A branch established by a national bank includes a mobile facility, temporary facility, intermittent facility, drop box or a seasonal agency as described in 12 U.S.C. 36(c).

(ii) A facility otherwise described in this paragraph (d)(1) is not a branch if:

(A) The bank establishing the facility does not permit members of the public to have physical access to the facility for purposes of making deposits, paying checks, or borrowing money (e.g., an office established by the bank that receives deposits only through the mail); or

(B) It is located at the site of, or is an extension of, an approved main office or branch office of the national bank. The OCC determines whether a facility is an extension of an existing main office or branch office on a case-by-case basis. For this purpose, the OCC will consider 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.

(iii) A branch does not include an automated teller machine (ATM), a remote service unit (such as an automated loan machine or personal computer used in providing financial services), 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 any of the activities in paragraph (d)(1) of this section.

(2) Home state means the state in which the national bank's main office is located.

(3) Intermittent branch means a branch that is operated by a national bank for one or more limited periods of time to provide branch banking services at a specified recurring event, on the grounds or premises where the event is held or at a fixed site adjacent to the grounds or premises where the event is held, and exclusively during the occurrence of the event. Examples of an intermittent branch include the operation of a branch on the campus of, or at a fixed site adjacent to the campus of, a specific college during school registration periods; or the operation of a branch during a state fair on state fairgrounds or at a fixed site adjacent to the fairgrounds.

(4) Messenger service has the meaning set forth in 12 CFR 7.1012.

(5) Mobile branch is 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. 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. A branch license is needed for each mobile unit.

(6) Temporary branch means a branch of a national bank that is located at a fixed site and which, from the time of its opening, is scheduled to, and will, permanently close no later than a certain date (not longer than one year after the branch is first opened) specified in the branch application and the public notice.

(e) Policy. In determining whether to approve an application to establish or relocate a branch, the OCC is guided by the following principles:

(1) Maintaining a safe and sound banking system;

(2) Encouraging a national bank to provide fair access to financial services by helping to meet the credit needs of its entire community;

(3) Ensuring compliance with laws and regulations; and

(4) Promoting fair treatment of customers including efficiency and better service.

(f) Procedures—(1) General. Except as provided in paragraph (f)(2) of this section, each national bank proposing to establish a branch shall submit to the appropriate OCC licensing office a separate application for each proposed branch.

(2) Messenger services. A national bank may request approval, through a single application, for multiple messenger services to serve the same general geographic area. (See 12 CFR 7.1012). Unless otherwise required by law, the bank need not list the specific locations to be served.

(3) Jointly established branches. 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. The national bank submitting the application may act as agent for all national banks in the group of depository institutions proposing to share the branch. The application must include the name and main office address of each national bank in the group.

(4) Intermittent branches. Prior to operating an intermittent branch, a national bank shall file a branch application and publish notice in accordance with § 5.8, both of which shall identify the event at which the branch will be operated; designate a location for operation of the branch which shall be on the grounds or premises at which the event is held or on a fixed site adjacent to those grounds or premises; and specify the approximate time period during which the event will be held and during which Start Printed Page 33347the branch will operate, including whether operation of the branch will be on an annual or otherwise recurring basis. If the branch is approved, then the bank need not obtain approval each time it seeks to operate the branch in accordance with the original application and approval.

(5) Authorization. The OCC authorizes operation of the branch when all requirements and conditions for opening are satisfied.

(6) Expedited review. An application submitted by an eligible bank to establish or relocate a branch is deemed approved by the OCC as of the 15th day after the close of the applicable public comment period or the 45th day after the filing is received by the OCC (or in the case of a short-distance relocation the 30th day after the filing is received by the OCC), whichever is later, unless the OCC notifies the bank prior to that date that the filing is not eligible for expedited review, or the expedited review process is extended, under § 5.13(a)(2). An application to establish or relocate more than one branch is deemed approved by the OCC as of the 15th day after the close of the last public comment period.

(g) Interstate branches. A national bank that seeks to establish and operate a de novo branch in any state other than the bank's home state or a state in which the bank already has a branch shall satisfy the standards and requirements of 12 U.S.C. 36(g).

(h) Exceptions to rules of general applicability. (1) A national bank filing an application for a mobile branch or messenger service branch shall publish a public notice, as described in § 5.8, in the communities in which the bank proposes to engage in business.

(2) The comment period on an application to engage in a short-distance relocation is 15 days.

(3) The OCC may waive or reduce the public notice and comment period, as appropriate, with respect to an application to establish a branch to restore banking services to a community affected by a disaster or to temporarily replace banking facilities where, because of an emergency, the bank cannot provide services or must curtail banking services.

(4) The OCC may waive or reduce the public notice and comment period, as appropriate, for an application by a national bank with a CRA rating of Satisfactory or better to establish a temporary branch which, if it were established by a state bank to operate in the manner proposed, would be permissible under state law without state approval.

(i) Expiration of approval. Approval expires if a branch has not commenced business within 18 months after the date of approval unless the OCC grants an extension.

(j) Branch closings. A national bank shall comply with the requirements of 12 U.S.C. 1831r-1 with respect to procedures for branch closings.

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14. Section 5.31 is added to read as follows:

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Establishment, acquisition, and relocation of a branch and establishment of an agency office of a Federal savings association.

(a) Authority. 12 U.S.C. 1462a, 1463, 1464. 2901-2907 and 5412(b)(2)(B).

(b) Licensing requirements. A Federal savings association shall submit an application and obtain prior OCC approval in order to establish or relocate a branch or to establish an agency office or conduct additional activities at an agency office, if required under this section.

(c) Scope—(1) General. This section describes the procedures and standards governing OCC review and approval of an application by a Federal savings association to establish a new branch or to relocate a branch and the circumstances in which a Federal savings association may establish or relocate a branch without application to the OCC. It also describes the authority of a Federal savings association to establish an agency office.

(2) Branch established through a conversion or business combination. The standards of this section governing review and approval of applications by the OCC, but not the application procedures set forth in this section, apply to branches acquired or retained in a conversion approved under 12 CFR 5.23 or a business combination approved under 12 CFR 5.33. A branch acquired or retained in a conversion or business combination is subject to the application procedures set forth in §§ 5.23 or 5.33.

(3) Branching by savings associations in the District of Columbia. This section also implements section 5(m) of the HOLA, 12 U.S.C. 1464(m), addressing branching by savings associations in the District of Columbia.

(d) Definitions—(1) A branch office of a Federal savings association for purposes of this section is a branch office as defined in 12 CFR 145.92(a).

(2) Home state means the state in which the Federal savings association's home office is located.

(e) Policy. In determining whether to approve an application to establish or relocate a branch, the OCC is guided by the following principles:

(1) Maintaining a safe and sound banking system;

(2) Encouraging a Federal savings association to provide fair access to financial services by helping to meet the credit needs of its entire community;

(3) Ensuring compliance with laws and regulations; and

(4) Promoting fair treatment of customers including efficiency and better service.

(f) Procedures—(1) Application requirements. (i) Except as provided in paragraph (f)(2) of this section, each Federal savings association proposing to establish or relocate a branch shall submit to the appropriate OCC licensing office a separate application for each proposed branch.

(ii) Authorization. The OCC authorizes operation of the branch when all requirements and conditions for opening are satisfied.

(iii) Expedited review. An application submitted by an eligible Federal savings association to establish or relocate a branch is deemed approved by the OCC as of the 15th day after the close of the applicable public comment period or the 45th day after the filing is received by the OCC, whichever is later, unless the OCC notifies the savings association prior to that date that the filing is not eligible for expedited review, or the expedited review process is extended, under § 5.13(a)(2). An application to establish or relocate more than one branch is deemed approved by the OCC as of the 15th day after the close of the last public comment period.

(2) Exceptions. A Federal savings association is not required to submit an application and receive OCC approval under the following circumstances:

(i) Drive-in or pedestrian offices. A Federal savings association may establish a drive-in or pedestrian office that is located within 500 feet of a public entrance to its existing home or branch office, provided the functions performed at the office are limited to functions that are ordinarily performed at a teller window.

(ii) Short-distance relocation. A Federal savings association may change the permanent location of an existing branch office to a site that is within the market area and short-distance location area, as defined in § 5.3(l).

(iii) Highly-rated Federal savings associations. A Federal savings association that is an eligible savings association as defined in § 5.3(g) may change the permanent location of, or establish a new, branch office if it meets all of the following requirements:

(A) It published a public notice under § 5.8 of its intent to change the location of the branch office or establish a new Start Printed Page 33348branch office. The public notice must be published at least 35 days before the proposed action establishment or relocation. If the notice is published more than 12 months before the proposed action, the publication is invalid.

(B) If the Federal savings association intends to change the location of an existing branch office, it must post a notice of its intent in a prominent location in the existing office to be relocated. This notice must be posted for 30 days from the date of publication of the initial public notice described in paragraph (f)(2)(iii)(A) of this section.

(C)(1) No person files a comment opposing the proposed action within 30 days after the date of the publication of the public notice; or

(2) A person files a comment opposing the proposed action and the OCC determines that the comment raises issues that are not relevant to the approval standards for an application for a branch or that OCC action in response to the comment is not required.

(g) Exceptions to rules of general applicability. (1) The OCC may waive or reduce the public notice and comment period, as appropriate, with respect to an application to establish a branch to restore banking services to a community affected by a disaster or to temporarily replace banking facilities where, because of an emergency, the savings association cannot provide services or must curtail banking services.

(2) The OCC may waive or reduce the public notice and comment period, as appropriate, for an application by a Federal savings association with a CRA rating of Satisfactory or better to establish a temporary branch which, if it were established by a state bank to operate in the manner proposed, would be permissible under state law without state approval.

(h) Expiration of approval. Approval expires if a branch has not commenced business within 18 months after the date of approval unless the OCC grants an extension.

(i) Branch closings. A Federal savings association shall comply with the applicable requirements of 12 U.S.C. 1831r-1 with respect to procedures for branch closings.

(j) Section 5(m) of the HOLA. (1) Under section 5(m)(1) of the HOLA (12 U.S.C. 1464(m)(1)), no savings association may establish or move any branch in the District of Columbia or move its principal office in the District of Columbia without the OCC's prior written approval.

(2) Any Federal savings association that must obtain approval of the OCC under 12 U.S.C. 1464(m)(1) shall follow the application procedures of this section. Any state savings association that must obtain approval of the OCC under 12 U.S.C. 1464(m)(1) shall follow the application procedures of this section as if it were a Federal savings association.

(k) Agency offices. (1) General. A Federal savings association may establish or maintain an agency office to engage in one or more of the following activities:

(i) Servicing, originating, or approving loans and contracts;

(ii) Managing or selling real estate owned by the Federal savings association; and

(iii) Conducting fiduciary activities or activities ancillary to the association's fiduciary business in compliance with § 5.26(e).

(2) Additional services— (i) General. A Federal savings association may request, and the OCC may approve, any service not listed in paragraph (k)(1) of this section, except for payment on savings accounts.

(ii) Application required. A Federal savings association desiring to engage in such additional services shall submit an application to the appropriate OCC licensing office.

(iii) Exceptions to rules of general applicability. Sections 5.8, 5.10, and 5.11 do not apply to filings under this paragraph 5.31(k)(2). 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.

(3) Records. A Federal savings association must maintain records of all business it transacts at an agency office. It must maintain these records at the agency office, and must transmit copies to a home or branch office.

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