Licensing Amendments

Federal RegisterApr 2, 2020

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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 5

[Docket ID OCC-2019-0024]

RIN 1557-AE71

Licensing Amendments

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 amend its rules relating to policies and procedures for corporate activities and transactions involving national banks and Federal savings associations to update and clarify the policies and procedures, eliminate unnecessary requirements consistent with safety and soundness, and make other technical and conforming changes.

DATES:

Comments must be received on or before May 4, 2020.

ADDRESSES:

Commenters are encouraged to submit comments through the Federal eRulemaking Portal or email, if possible. Please use the title “Licensing Amendments” to facilitate the organization and distribution of the comments. You may submit comments by any of the following methods:

•

Federal eRulemaking Portal—Regulations.gov Classic or Regulations.gov Beta Regulations.gov Classic:

Go to

https://www.regulations.gov/.

Enter “Docket ID OCC-2019-0024” in the Search Box and click “Search.” Click on “Comment Now” to submit public comments. For help with submitting effective comments please click on “View Commenter's Checklist.” Click on the “Help” tab on the

Regulations.gov

home page to get information on using

Regulations.gov,

including instructions for submitting public comments.

Regulations.gov Beta:

Go to

https://beta.regulations.gov/

or click “Visit New

Regulations.gov Site”

from the

Regulations.gov

classic homepage. Enter “Docket ID OCC-2019-0024” in the Search Box and click “Search.” Public comments can be submitted via the “Comment” box below the displayed document information or click on the document title and click the “Comment” box on the top-left side of the screen. For help with submitting effective comments please click on “Commenter's Checklist.” For assistance with the

Regulations.gov

Beta site please call (877)-378-5457 (toll free) or (703) 454-9859 Monday-Friday, 9am-5pm ET or email to

regulations@erulemakinghelpdesk.com.

•

Email: regs.comments@occ.treas.gov.

•

Mail:

Chief Counsel's Office, Attention: Comment Processing, Office of the Comptroller of the Currency, 400 7th Street SW, suite 3E-218, Washington, DC 20219.

•

Hand Delivery/Courier:

400 7th Street SW, suite 3E-218, Washington, DC 20219.

•

Fax:

(571) 465-4326.

Instructions:

You must include “OCC” as the agency name and “Docket ID OCC-2019-0024” in your comment. In general, the OCC will enter all comments received into the docket and publish the comments on the

Regulations.gov

website without change, including any business or personal information provided such as name and address information, email addresses, or phone numbers. Comments received, including attachments and other supporting materials, are part of the public record and subject to public disclosure. Do not include any information in your comment or supporting materials that you consider confidential or inappropriate for public disclosure.

You may review comments and other related materials that pertain to this rulemaking action by any of the following methods:

•

Viewing Comments Electronically—Regulations.gov Classic or Regulations.gov Beta: Regulations.gov Classic:

Go to

https://www.regulations.gov/.

Enter “Docket ID OCC-2019-0024” in the Search box and click “Search.” Click on “Open Docket Folder” on the right side of the screen. Comments and supporting materials can be viewed and filtered by clicking on “View all documents and comments in this docket” and then using the filtering tools on the left side of the screen. Click on the “Help” tab on the

Regulations.gov

home page to get information on using

Regulations.gov.

The docket may be viewed after the close of the comment period in the same manner as during the comment period.

Regulations.gov Beta:

Go to

https://beta.regulations.gov/

or click “Visit New

Regulations.gov Site”

from the

Regulations.gov

classic homepage. Enter “Docket ID OCC-2019-0024” in the Search Box and click “Search.” Click on the “Comments” tab. Comments can be viewed and filtered by clicking on the “Sort By” drop-down on the right side of the screen or the “Refine Results” options on the left side of the screen. Supporting Materials can be viewed by clicking on the “Documents” tab and filtered by clicking on the “Sort By” drop-down on the right side of the screen or the “Refine Results” options on the left side of the screen.” For assistance with the

Regulations.gov

Beta site please call (877)-378-5457 (toll free) or (703) 454-9859 Monday-Friday, 9am-5pm ET or email to

regulations@erulemakinghelpdesk.com.

The docket may be viewed after the close of the comment period in the same manner as during the comment period.

•

Viewing Comments Personally:

You may personally inspect comments at the OCC, 400 7th Street SW, Washington, DC 20219. For security reasons, the OCC requires that visitors make an appointment to inspect comments. You may do so by calling (202) 649-6700 or, for persons who are deaf or hearing impaired, TTY, (202) 649-5597. Upon arrival, visitors will be required to present valid government-issued photo identification and submit to security screening in order to inspect comments.

FOR FURTHER INFORMATION CONTACT:

For additional information, contact Christopher Crawford, Counsel, Valerie Song, Assistant Director, Rima Kundnani, Senior Attorney, or Heidi Thomas, Special Counsel, (202) 649-5490, Chief Counsel's Office; or Karen Marcotte, Director for Licensing Activities, (202) 649-7297, Office of the Comptroller of the Currency, 400 7th Street SW, Washington, DC 20219. For persons who are deaf or hearing impaired, TTY, (202) 649-5597.

SUPPLEMENTARY INFORMATION:

I. Background

The OCC periodically reviews its regulations to eliminate outdated or otherwise unnecessary provisions and to clarify or revise requirements imposed on national banks and Federal savings associations where possible and when not inconsistent with safety and soundness. These reviews are in addition to the OCC's decennial review of its regulations as required by the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA)

As part of this process, the OCC is proposing to revise its rules in 12 CFR

part 5 relating to requirements for national banks and Federal savings associations that seek to engage in certain corporate transactions or activities.

Public Law 104-208 (1996), codified at 12 U.S.C. 3311(b). Section 2222 of EGRPRA requires that, at least once every 10 years, the OCC along with the other Federal banking agencies and the Federal Financial Institutions Examination Council (FFIEC) conduct a review of their regulations to identify outdated or otherwise unnecessary regulatory requirements imposed on insured depository institutions. Specifically, EGRPRA requires the agencies to categorize and publish their regulations for comment, eliminate unnecessary regulations to the extent that such action is appropriate, and submit a report to Congress summarizing their review. The agencies completed their second EGRPRA review on March 30, 2017 and published their report in the

Federal Register

. 82 FR 15900 (March 30, 2017).

Part 5 addresses the range of an institution's existence from chartering to dissolution and includes, among other things, business combinations, branching matters, operating subsidiaries, and dividend payments. In some cases, a bank is required to apply to engage in a certain transaction or activity while in other situations a bank must submit a notice to the OCC either for informational purposes or as a means for providing the OCC with the opportunity to object to the transaction or activity.

II. Description of the Proposed Rule

Rules of General Applicability (Part 5, Subpart A)

Twelve CFR part 5, subpart A, sets forth the OCC's generally applicable rules and procedures for corporate activities and transactions of national banks and Federal savings associations. The OCC proposes substantive and technical changes to subpart A as explained below.

Rules of General Applicability (§ 5.2)

Section 5.2(a) states that the procedures in subpart A apply to all part 5 filings, unless otherwise stated. Section 5.2(b) provides that the OCC may adopt materially different procedures for a particular filing or class of filings in exceptional circumstances or for unusual transactions after providing notice to the applicant and any other party that the OCC determines should receive notice. The OCC is proposing to increase its flexibility to address unusual situations by adding language to clarify that it may adopt materially different procedures as it deems necessary, for example, in exceptional circumstances or for unusual transactions. As discussed below, the OCC also is proposing to change the term “applicant” to “filer” in this section.

Definitions (§ 5.3)

Section 5.3 defines terms that are used throughout part 5. The OCC is proposing several new definitions to this section. First, the OCC is proposing definitions for “nonconforming assets” and “nonconforming activities.” The OCC uses, but does not define, these terms in §§ 5.23 and 5.24 (conversions to a Federal savings association or national bank, respectively) and § 5.33 (business combinations). The OCC proposes these definitions to mean assets or activities that are impermissible for a national bank or a Federal savings association to hold or conduct, as applicable, or if permissible, are nonetheless held or conducted in a manner that exceeds limits applicable to national banks or Federal savings associations. Under this proposed definition, the term “assets” would include a national bank's or Federal savings association's investments in subsidiaries or other entities.

Second, the OCC proposes to define the term “previously approved activity” to mean, in the case of a national bank, an activity approved in published OCC precedent for a national bank, an operating subsidiary of a national bank, or a non-controlling investment of a national bank; and in the case of a Federal savings association, an activity approved in published OCC or OTS precedent for a Federal savings association, an operating subsidiary of a Federal savings association, or a pass-through investment of a Federal savings association. The OCC is proposing this definition to provide more clarity given the repeated use of this standard in §§ 5.34, 5.36, 5.38, and 5.58.

For references to previously approved activities, national banks and Federal savings associations may consult the OCC's publications

Comparison of the Powers of National Banks and Federal Savings Associations,

available at

https://www.occ.gov/publications-and-resources/publications/banker-education/files/pub-comparison-powers-national-banks-fed-sav-assoc.pdf,

and

Activities Permissible for National Banks and Federal Savings Associations, Cumulative,

available at

https://www.occ.gov/publications-and-resources/publications/banker-education/files/pub-activities-permissible-for-nat-banks-fed-saving.pdf.

Third, the OCC proposes to define “well capitalized” in § 5.3. The OCC uses the term “well capitalized” throughout part 5 differently. For example, for national banks and Federal savings associations various sections of part 5 apply the definition of well capitalized that is used in 12 CFR 6.4. For Federal branches and agencies, §§ 5.34, 5.35, and 5.36 apply the standard in 12 CFR 4.7(b)(1)(iii) to qualify for an 18-month examination cycle. Finally, for an insured depository institution that is not a national bank or Federal savings association, § 5.39 applies the applicable standard promulgated by the appropriate Federal banking agency under 12 U.S.C. 1831

The OCC proposes to remove this inconsistency by adding a definition of “well capitalized” to § 5.3 that would apply to all of part 5 and removing the duplicative definitions included in the various sections. Where appropriate, provisions in part 5 would cross-reference to this new definition.

Fourth, the OCC proposes to add the term “well managed” to § 5.3. Currently, part 5 contains two different definitions of “well managed.” Consistent with section 5136A of the Revised Statutes (12 U.S.C. 24a), § 5.39 generally defines “well managed” for purposes of financial subsidiaries as a 1 or 2 composite rating under the Uniform Financial Institutions Rating System and at least a rating of 2 for management. By contrast, §§ 5.34 and 5.38, governing national bank and Federal savings association operating subsidiaries, respectively, generally define “well managed” as a 1 or 2 composite rating without reference to the management rating. Sections 5.35 (bank service company investments), 5.36 (other equity investments by a national bank), and 5.58 (Federal savings association pass-through investments) cross-reference to the §§ 5.34 or 5.38 definition. Additionally, § 5.59(h)(2)(ii)(A) requires a Federal savings association to be well managed to be eligible for expedited review.

The OCC is proposing a single definition of “well managed” applicable throughout part 5 to eliminate confusion between the two definitions and to further the OCC's supervisory objectives.

The financial subsidiary statute, 12 U.S.C. 24a, defines “well managed” to include the management rating, and the OCC proposes to use this definition. The proposal uses an equivalent definition for Federal branches and agencies of foreign banks which is a composite ROCA supervisory rating (which rates risk management, operational controls, compliance and assets quality) of 1 or 2, and at least a rating of 2 for risk management. Further, the OCC believes that a national bank, Federal savings association, or Federal branch or agency with a 2 composite rating but a 3 management, or risk management, rating warrants additional scrutiny. The OCC believes that these changes will enhance bank safety and soundness and provide a clearer and more consistent standard for national banks.

There is one instance of the term “well managed” in part 5 that does not follow this definition. Specifically, 12 CFR 5.59(e)(7)(i) requires that each Federal savings association “be well managed and operate safely and soundly.” This provision is not directly applicable to any filing procedures but is rather a general statement of appropriate management and safety and soundness standards. For example, pursuant to § 5.59(e)(7)(ii) the OCC may limit a Federal savings association's investment in a service corporation, or limit or refuse to permit any activity of a service corporation, for supervisory, legal, or safety or soundness reasons.

The OCC also is considering amending the definition of “short-distance relocation.” Currently, moving the premises of a branch or main office of a national bank or a branch or home

office of a Federal savings association is a short-distance relocation if the move is within: (1) A one-thousand foot-radius of the site if the branch, main office, or home office is located within a principal city of a metropolitan statistical area (MSA); (2) a one-mile radius of the site if the branch, main office, or home office is not located within a principal city but is located within an MSA; or (3) a two-mile radius of the site if the branch, main office, or home office is not located within an MSA. Under the branch relocation provisions in § 5.30 (national banks) and § 5.31 (Federal savings associations) and the main office and home office relocation provisions in § 5.40, short-distance relocations have a shorter public comment and OCC approval period than other relocations. Additionally, the OCC generally equates the short-distance relocation provision to be equivalent to a “relocation” for the purposes of branch closing under section 42 of the Federal Deposit Insurance Act (FDI Act) (12 U.S.C. 1831r-1).

The OCC has never adjusted the distances in the definition of short-distance relocation, and the distances do not necessarily reflect the individual circumstances of each bank location. Because of the changes in branching activities, locations, and usage since 1996, such as the increased use of electronic banking, the OCC is considering expanding the distances for short-distance relocations to allow national banks and Federal savings associations greater flexibility in their office locations and to reduce regulatory burden for these types of relocations. Specifically, the OCC is considering expanding the distances in the definition to: (1) A two-thousand foot radius within a principal city of an MSA; (2) a two-mile radius not within a principal city but within an MSA; and (3) a four-mile radius not within an MSA. However, any amendment to this definition would provide that this increase in distance would not apply to a branch that would be relocated from a low- or moderate-income area to a non-low- or moderate-income area. For such relocations, the current definition of a short-distance relocation would continue to apply. The OCC invites comment on whether the OCC should amend § 5.3 to adjust the distances included in the definition of short-distance relocation and if so whether the increase suggested above would be appropriate or whether an alternate increase in distance would better reduce regulatory burden on national banks and Federal savings associations while providing appropriate notice to customers.

Finally, the OCC is proposing technical changes to § 5.3. First, current § 5.3 defines “applicant” as a “person or entity that submits a notice or application to the OCC under” part 5. However, this usage of the term “applicant' is confusing because it covers persons who submit an application or a notice. Accordingly, the OCC proposes to change the term “applicant” to “filer” to more clearly cover both a person who files an application or a notice. The proposal would make conforming changes throughout part 5.

Second, the proposal would add a new definition for “Appropriate Federal banking agency” that cross-references the definition contained in section 3(q) of the FDI Act, 12 U.S.C. 1813(q).

Third, the proposal would add a new definition clarifying that “MSA” means metropolitan statistical area as defined by the Director of the Office of Management and Budget (OMB).

According to the OMB,”[t]he general concept of a metropolitan statistical area is that of an area containing a large population nucleus and adjacent communities that have a high degree of integration with that nucleus.” 75 FR 37246 (June 28, 2010). These standards are then applied to census data to delineate the metropolitan statistical areas.

Fourth, part 5 currently defines “notice” to mean a submission notifying the OCC that a national bank or Federal savings association intends to engage in or has commenced certain activities or transactions. The definition notes that the specific meaning depends on context and “may require the filer to obtain prior OCC approval before engaging in the activity or transaction.” As described later in this

Supplementary Information,

the OCC is proposing to change the term “notice” to “application” for activities or transactions that require prior OCC approval. Therefore, the OCC proposes to remove the quoted language from the definition.

Fifth, the OCC proposes adding abbreviations for the former OTS, the Federal Deposit Insurance Corporation (FDIC), and generally accepted accounting principles as used in the United States (GAAP) to make their use consistent throughout part 5.

Finally, to reflect the more current regulatory drafting style, the OCC proposes to remove the paragraph designations in § 5.3 and to make conforming changes to cross-references throughout 12 CFR part 5.

Filing required (§ 5.4)

Section 5.4 requires depository institutions to file applications or notices with the OCC to engage in certain corporate activities and transactions and provides general information on this filing requirement. Section 5.4(f) currently encourages a potential filer to contact the appropriate OCC licensing office to determine the need for a prefiling meeting, and it specifically provides that the OCC decides whether to require a prefiling meeting on a case-by-case basis. The OCC is proposing to provide more general guidance on when a filer should seek a prefiling meeting with the OCC. Specifically, the OCC proposes to include a new sentence advising potential filers with novel, complex, or unique proposals to contact the appropriate OCC licensing office early in the development of the proposal to help identify and consider relevant policy issues.

Additionally, the OCC proposes to move the certification requirement in current § 5.13(h) to new § 5.4(g). Current § 5.13(h) requires filers to certify that material submitted to the OCC contains no material misrepresentations or omissions. The OCC also may review and verify any information filed in connection with a notice or an application. Section 5.13(h) further provides that material misrepresentations or omissions may be subject to enforcement actions and other penalties, including criminal penalties under 18 U.S.C. 1001. As discussed below, the OCC is proposing to revise § 5.13(h) to clarify the procedures regarding nullification of decisions. The certification requirement in § 5.13(h) does not fit well in the revised provision so the OCC is proposing to move it to § 5.4 with other provisions relating to the form of the filing.

Filing fees (§ 5.5)

Section 5.5(a) provides the procedure for submitting filing fees to the OCC. The current rule requires payment to the OCC by check, money order, cashier's check, or wire transfer. The OCC is proposing to update this provision by providing that a filer can pay the fees by check payable to the OCC or by other means acceptable to the OCC. The OCC does not currently charge filing fees for licensing filings and is not proposing any fees as part of this rulemaking.

Investigations (§ 5.7)

Section 5.7 provides the OCC with examination and investigation authority related to a filing. As discussed in the OCC's

Licensing Manual,

the OCC routinely engages in background investigations of filers and other individuals involved in filings for new charters, changes in bank control, and changes in directors and senior executive officers. As part of these background investigations, the OCC collects fingerprints and submits them to the Federal Bureau of

Investigation for a national criminal history background check. The OCC is proposing to add a new paragraph (b) to § 5.7 to codify this procedure. The OCC also is proposing conforming changes to other sections in part 5 to clarify when it collects fingerprints.

Public availability, Comments, and Hearings and other meetings (§§ 5.9, 5.10, 5.11)

Section 5.9 addresses the public availability and confidential treatment of filings. Section 5.10 provides the process for public comment periods and the submission of public comments. Section 5.11 provides the process for hearings and public and private meetings. The OCC is proposing to change the terms “application” to “filing” and “applicant” to “filer” in these sections to reflect the more general terminology proposed in this rule. Furthermore, each of these sections currently uses the term “interested persons” to refer to persons other than the filer who seek to interact with a filing or related procedure. The OCC understands the term “interested persons” to mean any person who is or may wish to be involved in the licensing process. Such a person may, but need not, have any particular financial, pecuniary, or other interest in the transaction itself, the filer, or other party to the transaction. The OCC invites comment about whether the term “interested persons” is sufficiently clear, or whether a change in terminology would be helpful to indicate the breadth of this provision.

Decisions (§ 5.13)

Section 5.13 contains the OCC's procedures for acting on a filing. Paragraph (a)(2) of this section provides the procedures for the OCC's expedited review, including extending the time frame for reviewing or removing a filing from expedited review. The OCC may change the expedited review procedures if it concludes that the filing, or an adverse comment regarding the filing, presents a significant supervisory, Community Reinvestment Act (CRA) (if applicable), or compliance concern or raises a significant legal or policy issue requiring additional OCC review. However, paragraph (a)(2)(ii) provides that the OCC will not change the expedited procedures if it determines, among other things, that an adverse comment does not raise a significant supervisory, CRA (if applicable), or compliance concern or a significant legal or policy issue, or is frivolous or filed primarily as a means of delaying action on the filing. The OCC proposes to add non-substantive comments to this list to better align the regulation with OCC policy and processes. The OCC also proposes to specify that it considers a comment to be “non-substantive” if it is: (1) A generalized opinion that a filing should or should not be approved; or (2) a conclusory statement, lacking factual or analytical support. The OCC intends to apply this non-substantive standard to all comments that it reviews. This change would provide a clear standard for commenters submitting views on a filing.

Section 5.13(a)(2)(ii) also provides that the OCC will not change the expedited procedures if the adverse comment raises a CRA concern that the OCC determines has been satisfactorily resolved. The rule states that the OCC considers a CRA concern to be satisfactorily resolved if the OCC previously reviewed (

e.g.,

in an examination or application) a concern presenting substantially the same issue in substantially the same assessment area during substantially the same time, and the OCC determines that the concern would not warrant denial or imposition of a condition on approval of the application. The OCC proposes to amend this provision to expand what is meant by “previously reviewed” to include other supervisory activity and to provide that the OCC's review may occur in a prior filing.

The OCC also proposes to amend the introductory text to paragraph (a)(2) to reflect that some expedited review procedures in part 5 do not require the national bank or Federal savings association to be an eligible bank or eligible savings association, as defined in § 5.3. The proposed rule also would clarify paragraphs (a)(2)(i) and (ii) by revising the punctuation and sentence structure so that it is easier to read.

Paragraph (h) of § 5.13 provides that the OCC may nullify a decision on a filing if: (1) The OCC discovers a material misrepresentation or omission after the OCC has rendered a decision on the filing; (2) the decision is contrary to law, regulation, or OCC policy; or (3) the OCC granted the decision due to clerical or administrative error or a material mistake of law or fact. The OCC's decisions on filings generally contain a statement that the “OCC may modify, suspend or rescind this approval if a material change in the information on which the OCC relied occurs prior to the date of the transaction to which the decision pertains.”

The OCC proposes to revise paragraph (h) to clarify when the OCC may nullify a decision. The revised provision would state that the OCC may nullify a decision on a filing either prior to or after consummation of the transaction. The proposed rule also would clarify that the OCC may nullify a decision based on a material misrepresentation or omission in any information provided to the OCC in the filing or supporting materials. The OCC is also proposing a new paragraph (i) that would provide that the OCC may modify, suspend, or rescind a decision on a filing if a material change in the information or circumstance on which the OCC relied occurs prior to the date of the consummation of the transaction to which the decision pertains.

These revisions are intended to clarify that nullification is based on the facts, law, and policy as they existed at the time of the OCC's decision. By contrast, modification, suspension, or rescission is based on a change in facts or circumstance from the time of the OCC's decision until consummation of the transaction to which the decision pertains. The OCC welcomes comment on how it could further clarify these procedures.

As indicated previously in this

Supplementary Information,

the proposed rule would move the provisions in current § 5.13(h) regarding certification of the submitted filing and penalties for material misrepresentation and omissions in a filing to new paragraph § 5.4(g).

Organizing a National Bank or Federal Savings Association (§ 5.20)

Section 5.20 provides the procedures and requirements involved in organizing a

de novo

national bank or Federal savings association. The OCC is proposing two new definitions to § 5.20(d). First, the OCC would define “principal shareholder” as a person who directly or indirectly or acting in concert with one or more persons or companies, or together with members of their immediate family, will own, control, or hold 10 percent or more of the stock of the proposed national bank or Federal savings association. This definition is consistent with the definition used in the “Background Investigations” booklet of the

Comptroller's Licensing Manual

and the instructions for the Interagency Biographical and Financial Report.

The OCC is proposing this definition in conjunction with provisions related to background checks and fingerprint collections in proposed § 5.20(i)(3), discussed below.

The Interagency Biographical and Financial Report is available on the OCC's website at

https://www.occ.gov/static/licensing/form-ia-biographical-financial-report.pdf.

Second, the OCC proposes to clarify that the term “organizer” means a member of the organizing group. This definition is not clearly stated in § 5.20.

Paragraph (i) contains procedures for filing a charter application. The OCC proposes a new paragraph (i)(3) requiring each proposed organizer, director, executive officer, or principal shareholder to submit to the OCC the information prescribed in the Interagency Biographical and Financial Report and legible fingerprints. New paragraph (i)(3) also would permit the OCC to request additional information, if appropriate, and waive the requirements of that paragraph if the OCC determines it to be in the public interest. As discussed in the “Charters” booklet of the

Comptroller Licensing Manual,

the OCC generally conducts routine background checks on insiders, including proposed organizers, directors, executive officers, and controlling shareholders. The OCC revision, consistent with the background investigation changes in proposed § 5.7(b), would codify this process and authorize the collection of fingerprints for charter applications.

The OCC also is proposing a number of technical changes to § 5.20. First, in the definition of “organizing group” the OCC proposes to change the term “persons” to “individuals” to more accurately reflect who may make up an organizing group. Second, in § 5.20(g)(4)(ii), the OCC proposes to change the phrase “withdrawal of preliminary approval” to “nullification or rescission of preliminary approval” to align with the terminology in proposed §§ 5.13(h) and (i). Third, in § 5.20(i), Decision notification, the OCC proposes to change the term “spokesperson” to “contact person” in redesignated paragraph (i)(5) to conform to the use of this term in other paragraphs of this section. Fourth, also in § 5.20(i), redesignated paragraph (i)(5), the OCC proposes to change the term “interested parties” to “relevant parties,” which more accurately describes who the OCC should notify of its decision on an application. Lastly, the OCC proposes to remove the reference to 12 CFR part 197 in § 5.20(i), redesignated paragraph (i)(6)(iii), because the OCC has removed this regulation. The remaining citation, 12 CFR part 16, now applies to both national banks and Federal savings associations.

Federal Mutual Savings Association Charter and Bylaws (§ 5.21)

Section 5.21 governs the procedures and requirements for charters and bylaws of Federal mutual savings associations. Pursuant to paragraph (f)(2), charter amendments are generally subject to prior approval by the OCC, although under paragraph (g), most applications for charter amendments are subject to expedited review and deemed approved as of the 30th day after filing unless the OCC notifies the filer that it has denied the amendment, or the amendment is not eligible for expedited review. An application is not eligible for expedited review if the charter amendment would render more difficult or discourage a merger, proxy contest, the assumption of control by a mutual account holder of the association, or the removal of incumbent management or involves a significant issue of law or policy. Paragraph (g) further provides that a notice is required within 30 days after adoption if the filer adopts the optional charter amendments contained in paragraph (g) without change.

The OCC is proposing to reorganize these provisions to clarify the procedures Federal mutual savings associations must follow in adopting charter amendments, to align the terminology in § 5.21 with general usage in part 5, and to make other clarifying changes. The OCC does not intend these changes to be substantive. Specifically, the OCC proposes including all of this section's procedural requirements for adopting charter amendments in paragraph (f)(2). These amendments would clarify that charter amendments are subject to a three-part regime: Application with expedited review, standard application, or notice. Paragraph (g) would only contain provisions relating to optional charter amendments. Additionally, the OCC proposes to add a new paragraph (f)(3) specifying that a charter amendment is effective once it is: (1) Approved by the OCC, if approval is required under paragraph (f)(2); and (2) adopted by the association provided the association follows the requirements of its charter in adopting the amendment.

Paragraph (j) governs the bylaws for Federal mutual savings associations. Paragraph (j)(2)(viii) requires the bylaws to specify that the Federal mutual association's board of directors consist of no fewer than five nor more than fifteen members unless the OCC has authorized a higher or lower number. However, unlike the corresponding provision for Federal stock savings associations, 12 CFR 5.22(l)(2), paragraph (j)(2)(viii) does not explicitly address numbers of directors authorized by the former OTS. Accordingly, the OCC proposes to revise this paragraph to explicitly acknowledge that authorizations by the former OTS remain effective.

Paragraph (j)(3) contains the filing requirements for changes to Federal mutual savings association bylaws. Currently, all bylaw amendments require some sort of filing with the OCC. As with the charter amendments discussed above, the OCC is proposing to reorganize these provisions to clarify the procedures Federal mutual savings associations must follow in adopting bylaw amendments and to align the terminology with that used in part 5. The OCC also proposes to eliminate the filing requirement for savings associations that adopt without change the OCC's model or optional bylaws, thereby reducing burden for these Federal mutual savings associations. As a result, these amendments would specify that bylaw amendments are subject to a four-part regime: Application with expedited review, standard application, notice, and no filing required. As with the charter amendments, the OCC also proposes that a bylaw amendment is effective after approval by the OCC, if required, and adoption by the association, provided that the association follows the requirements of its charter and bylaws in adopting the amendment.

As discussed later in this

Supplementary Information,

the OCC is proposing technical changes throughout part 5, including replacing the word “shall” with another appropriate word or words. These changes, as well as other minor proposed wording changes, are included in the model charter and bylaw provisions provided in § 5.21. The OCC does not intend these proposed changes to require any changes on the part of Federal mutual savings associations that use the current model language. Further, the OCC does not intend that the changes would have any effect on the provisions or effectiveness of a Federal mutual savings association's current charter or bylaws.

Federal Stock Savings Association Charter and Bylaws (§ 5.22)

Section 5.22 governs the procedures and requirements for Federal stock savings association charters and bylaws. Section 5.22 generally parallels § 5.21, which applies to Federal mutual savings association charters and bylaws. The OCC proposes equivalent changes to § 5.22 as proposed for § 5.21. The OCC also proposes two additional technical amendments to § 5.22. Section 5.22 contains sample charter and bylaw provisions, and paragraph (g)(7) provides an optional “Section 8” for Federal stock savings association charters following mutual to stock conversions. This optional section contains a definition of “acting in concert.” The OCC proposes minor wording changes to this definition for consistency with the definition of this

term in § 5.50(d)(2), changes in bank control. The OCC also proposes correcting a cross-reference to 12 CFR part 192 in paragraph (e).

Conversion To Become a Federal Savings Association (§ 5.23) and Conversion To Become a National Bank (§ 5.24)

Sections 5.23 and 5.24 are largely parallel rules that provide the procedures and standards for OCC review and approval of an application by an institution to convert to a Federal savings association or national bank, respectively. Sections 5.23(d)(2)(ii)(A) and 5.24(e)(2)(i) each require the president or other duly authorized officer to sign the conversion application. These sections are the only provisions in part 5 that have specific signature requirements for the filing. As discussed above, the OCC is proposing a new provision in § 5.4 requiring that a filing include evidence of authorization for the filing, such as a board resolution. Accordingly, the OCC proposes to remove §§ 5.23(d)(2)(ii)(A) and 5.24(e)(2)(i) as unnecessary.

The “Conversions to Federal Charter” booklet of the

Comptroller's Licensing Manual

indicates that filers should include a list of directors and senior executive officers of the converting institution as well as a list of individuals, directors, and shareholders who directly or indirectly, or acting in concert with one or more persons or companies, or together with members of their immediate family, do or will own, control, or hold 10 percent or more of the converting institution's stock. The OCC proposes to codify these requirements in §§ 5.23(d)(2)(ii) and 5.24(e)(2). It is necessary to have a complete list of these individuals because the OCC generally conducts routine background investigations as part of the application process. Furthermore, the OCC proposes to add a new paragraph to each of these rules, §§ 5.23(d)(2)(iv) and 5.24(e)(4), providing that the OCC may require directors and senior executive officers of the converting institution to submit the Interagency Biographical and Financial Report and legible fingerprints. This amendment would codify the background investigation process set forth in the “Conversions to Federal Charter” booklet of the

Comptroller's Licensing Manual

and specifically authorize the collection of fingerprints for conversion applications, consistent with the background investigation changes proposed to other sections in this rulemaking.

Additionally, §§ 5.23(d)(4) and 5.24(h) provide for expedited review for conversion from an eligible national bank to a Federal savings association, and vice versa. Currently, this conversion application is deemed approved as of the 60th day after the filing is received by the OCC. The OCC believes that it can review and decide these conversion applications in a shorter period because it already supervises an entity eligible to use the expedited review process. Accordingly, the OCC proposes decreasing the time period for the expedited review to 45 days. The OCC also proposes a technical change to § 5.23(d)(4) to remove the modifier “national” before bank as the defined term in § 5.3 is “eligible bank.” This deletion would not change the scope of institutions eligible for expedited review as only a national bank, and not a State bank, may be an eligible bank under the definition in § 5.3.

Fiduciary Powers of National Banks and Federal Savings Associations (§ 5.26)

Section 5.26 contains the application requirements and processes for a national bank or Federal savings association to engage in the exercise of fiduciary powers. Paragraph (e)(2)(i)(C) requires a national bank or Federal savings association to submit sufficient biographical information on proposed trust management personnel as part of an application for fiduciary powers. The scope of the term “trust management personnel” is unclear, and therefore the OCC is proposing to clarify that the biographical information is required for proposed senior trust management personnel, as identified by the OCC. The OCC also is proposing that the application include, if requested by the OCC, the Interagency Biographical and Financial Report and legible fingerprints for these individuals, consistent with the background investigation changes proposed to other sections in this rulemaking.

Section 5.26(e)(6) requires a national bank or Federal savings association to submit a written notice to the OCC no later than 10 days after it begins previously approved fiduciary activities in additional States. The OCC proposes to reorganize this paragraph with no additional substantive changes. As proposed, paragraph (e)(6)(i) would generally require a written notice after the national bank or Federal savings association begins any of the activities specified in 12 CFR 9.7(d) in a new State. Paragraph (e)(6)(ii) would require the notice to include the new States, the fiduciary activities to be conducted, and the extent to which the activities differ materially from the fiduciary activities currently conducted. Finally, paragraph (e)(6)(iii) would not require any notice if the information required by paragraph (e)(6)(ii) is provided by other means, such as in a merger application.

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

Section 5.30 describes application procedures to establish and relocate a national bank branch. Paragraph (d) provides definitions applicable to § 5.30. Paragraph (d)(1)(i) lists certain types of facilities that are considered branches. The OCC proposes to reorder this list so that the reference to 12 U.S.C. 36(c) applies only to seasonal agencies and not to the other types of facilities. Additionally, paragraph (d)(1)(iii) specifies that remote service units (RSUs) and certain types of offices are not within the definition of “branch.” The OCC proposes to clarify this provision by adding both a cross reference to the description of RSUs contained in 12 CFR 7.4003 and a reference to automated teller machines (ATMs), including interactive ATMs, codifying OCC Interpretive Letter No. 1165 (August 2019).

As discussed in OCC Interpretive Letter No. 1165, a national bank establishment of an interactive ATM does not constitute establishing a branch if the machine meets the definition of an ATM used for purposes of 12 U.S.C. 36 consistent with OCC interpretations, and the nature of the interactions between the customer and remote bank personnel are delimited as would be the case with an RSU.

OCC Interpretive Letter No. 1165, Legal Requirements for the Establishment of Interactive Automated Teller Machines (August 2019), available at

https://www.occ.gov/topics/charters-and-licensing/interpretations-and-actions/2019/int1165.pdf.

The OCC is considering one additional change to the definition of “branch” in paragraph (d). Paragraph (d)(1)(ii)(B) specifies that a drive-in or pedestrian facility located within 500 feet of a public entrance to a main office or branch is not considered a separate branch, provided the functions performed at the drive-in or pedestrian facility are limited to functions that are ordinarily performed at a teller window. The OCC is considering expanding this distance to 1,500 feet to address issues in crowded urban areas. The OCC specifically requests comment on whether this increase in distance, or some other distance, would be appropriate and whether it would be helpful in reducing regulatory burden.

Finally, the OCC proposes a technical change to paragraph (f), which provides the procedures for establishing a

national bank branch. Paragraph (f)(1) requires each national bank that proposes to establish a branch to submit an application to the OCC, except in the case of messenger services as specified in paragraph (f)(2). However, paragraph (f)(3) provides that if a national bank proposes to establish a branch jointly with one or more national banks or other depository institutions, only one of the national banks must submit a branch application and this bank may act as agent for the other institutions. Even if a single application is submitted for a joint branch, the OCC still considers the relevant factors for each national bank. The OCC proposes including paragraph (f)(3) as an additional exception to the application requirement in paragraph (f)(1), thereby conforming these two paragraphs.

Establishment, Acquisition, and Relocation of a Branch and Establishment of an Agency Office of a Federal Savings Association (§ 5.31)

Section 5.31 describes application and notice procedures for the establishment, acquisition, or relocation of a Federal savings association branch. Under paragraph (f)(2)(i), a Federal savings association is not required to submit an application for OCC approval to establish a drive-in or pedestrian office located within 500 feet of a public entrance of its home office or a branch. As with national banks, the OCC is considering expanding this distance to 1,500 feet to address issues in crowded urban areas. The OCC specifically requests comment on whether this increase in distance, or some other distance, would be appropriate and whether it would be helpful in reducing regulatory burden.

Paragraph (j), implementing section 5(m) of the Home Owners' Loan Act (HOLA) (12 U.S.C. 1464(m)), requires a Federal or State savings association to obtain prior OCC approval to establish or move a branch or move its principal office in the District of Columbia. The OCC proposes to add a new paragraph (j)(3) to clarify that a branch in the District of Columbia includes any location at which accounts are opened, payments are received, or withdrawals made, including ATMs that perform one or more of these functions. This amendment would implement court opinions finding that ATMs that accept deposits or disburse funds against a customer's account constitute a branch.

Although Congress amended 12 U.S.C. 36(j) to remove ATMs and RSUs from the definition of a national bank “branch,” Congress has not similarly amended section 5(m) of the HOLA. Therefore, the OCC and OTS have long taken the position that an ATM established by a savings association in the District of Columbia constitutes a branch requiring approval. Because proposed paragraph (j)(3) codifies the OCC's existing legal interpretation, the OCC does not view this proposed amendment as adding burden to savings associations.

See Independent Bankers Ass'n of New York State, Inc.

Marine Midland Bank, N.A.,

757 F.2d 453, 458 (2d Cir. 1985) (collecting cases).

Business Combinations Involving a National Bank or Federal Savings Association (§ 5.33)

Section 5.33 provides the application requirements and procedures for business combinations involving national banks and Federal savings associations, such as mergers, consolidations, and certain purchase and assumption transactions. Paragraph (e) of § 5.33 sets forth policies the OCC considers when evaluating business combinations. Paragraph (e)(1)(ii)(F) provides that the OCC will not approve a transaction that would violate the deposit concentration limit in 12 U.S.C. 1828(c)(13). Only interstate merger transactions, as defined 12 U.S.C. 1828(c)(13)(C)(i) are subject to this deposit concentration limit. The OCC proposes adding a reference to 12 U.S.C. 1828(c)(13)(C)(i) in paragraph (e)(1)(ii)(F) for clarity.

Paragraph (e)(1)(iii) provides the OCC's policy for evaluating business combinations under the CRA (12 U.S.C. 2901

et seq.

). Under 12 U.S.C. 2903(a)(2), the OCC must evaluate an insured national bank's or Federal savings association's CRA record when evaluating its application for a business combination. The OCC proposes three changes to paragraph (e)(1)(iii). First, the OCC proposes a new paragraph (e)(1)(iii)(A) to better describe the OCC's review and to more closely track the statutory requirement that the OCC assess only the CRA record of the filer. Further, the proposal would specify that the OCC's conclusion of whether the CRA performance is or is not consistent with approval of an application is considered in conjunction with the other factors in § 5.33. This amendment codifies the OCC's practice of evaluating all policy factors in light of the whole application, as set forth in the OCC's Policies and Procedures Manual (PPM-6300-2). The OCC practice in this regard is to consider and evaluate a filer's record of performance under the CRA and, more broadly, the filer's plans and ability to enable the combined organization to serve the convenience and needs of its communities. Second, the OCC proposes a new paragraph (e)(1)(iii)(B) to recognize the expanded community reinvestment compliance review required by 12 U.S.C. 1831u(b)(3) when the filing national bank would have a branch or bank affiliate immediately following the transaction in any State in which the filer had no branch or bank affiliate immediately before the transaction. Third, the OCC proposes a new paragraph (e)(1)(iii)(C) requiring the filer to disclose whether it has entered into and disclosed a covered agreement, as defined in 12 CFR 35.2, in accordance with 12 CFR 35.6 and 35.7. These regulations implement the CRA sunshine requirements of section 48 of the FDI Act, 12 U.S.C. 1831y. Requiring disclosure of any covered agreements will better permit the OCC to review the filer's CRA record and any CRA-related comments on the filing. Additionally, the OCC is considering whether to require a filer to memorialize and publish any discussion between the filer and any third party with respect to development of any community reinvestment plan, community benefit plan, or similar plan in connection with a business combination. The OCC requests comment on whether to include this requirement in the final rule.

The OCC also proposes a new paragraph (e)(1)(iv) to state that the OCC considers the standards and requirements contained in 12 U.S.C. 1831u for interstate merger transactions between insured banks, when applicable. Current paragraph (h) describes the application of 12 U.S.C. 1831u to combination between insured banks with different home states. As part of the reorganization of paragraphs (g) and (h), discussed below, the OCC proposes instead to include its review of the 12 U.S.C. 1831u factors in paragraph (e)(1) for clarity.

Paragraph (e)(8)(ii) requires a national bank or Federal savings association with one or more classes of securities subject to registration under sections 12(b) or (g) of the Securities Exchange Act of 1934 to file preliminary proxy material or information statements with the Director, Securities and Corporate Practices Division (SCP) of the OCC. As a result of an internal reorganization, the OCC proposes replacing the reference to SCP in paragraph (e)(8)(ii) with the OCC Chief Counsel's Office.

Paragraph (g) provides procedures for different types of consolidations and mergers. Paragraph (o) provides general procedures for Federal savings association approval of business combinations. These paragraphs provide detailed procedures for national banks

and Federal savings associations engaging in several different types of business combinations. Some of these requirements are imposed by statute. Specifically, 12 U.S.C. 215 and 215a provide procedures for consolidations and mergers, respectively, between national banks and State or national banks located in the same State resulting in a national bank. Similarly, 12 U.S.C. 214 through 214d provide procedures for consolidations and mergers between national banks and State banks located in the same State resulting in a State bank. Other consolidation and merger transactions described in § 5.33 do not have any statutory procedures, including interstate consolidations and mergers involving a national bank under 12 U.S.C. 215a-1; consolidations and mergers of national banks and Federal savings associations under 12 U.S.C. 215c and 1467a(s); consolidations and mergers of Federal savings associations and State banks, State savings associations, State trust companies, or credit unions under 12 U.S.C. 1464(d)(3)(A) and 1467a(s); and mergers of national banks with their non-bank affiliates under 12 U.S.C. 215a-3.

The OCC formerly opined in licensing decisions that 12 U.S.C. 215a-1 incorporates the provisions of 12 U.S.C. 215 for consolidations and 12 U.S.C. 215a for mergers.

Twelve U.S.C. 215a-1 is the codification of section 4 of the National Bank Consolidation and Merger Act (NBCMA), which was enacted by section 102(b)(4)(D) of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994.

Twelve U.S.C. 215 and 215a are codifications of sections 2 and 3 of the NBCMA, respectively. Section 4 of the NBCMA states that “a national bank may engage in a consolidation or merger

under this Act

with an out-of-State bank if the consolidation or merger is approved” (emphasis added)

under 12 U.S.C. 1831u, which governs interstate mergers of insured banks. In prior licensing decisions, the OCC interpreted “under this Act” to mean that a consolidation or merger under section 4 of the NBCMA is also a consolidation or merger under section 2 or 3 of the NBCMA, respectively, and thus subject to the provisions of those sections. However, after further analysis, the OCC believes that the proper reading of section 4 of the NBCMA is that it is self-referential and does not directly incorporate any provisions of sections 2 or 3 of the NBCMA. A consolidation or merger with an out-of-State bank generally may not be approved under sections of 2 and 3 of the NBCMA, which specifically apply to consolidations or mergers, respectively, between banks located in the same State. Accordingly, “under this Act,” as used in section 4 of the NBCMA should not be read as referring to sections 2 or 3 of the NBCMA. As there are no other sections of the NBCMA under which an interstate merger between banks could be conducted, “under this Act” can only be read to refer to section 4 itself. As section 4 of the NBCMA, 12 U.S.C. 215a-1, does not contain any statutory procedures, there are no statutory procedures for interstate bank mergers resulting in a national bank. Therefore, the OCC is proposing several procedures that a national bank or Federal savings association may elect for business combinations for which there are no statutory procedural requirements.

See, e.g.,

OCC CRA Decision #94 (June 1999).

Public Law 103-328, 108 Stat. 2338, 2351.

12 U.S.C. 215a-1(a).

First, the national bank or Federal savings association may follow the procedures currently provided in paragraph (g) for the specific transaction if there are no statutory procedures.

Second, the national bank or Federal savings association may elect to follow the procedures applicable to a State bank or State savings association, respectively, chartered by the State in which the national bank's main office or the Federal savings association's home office is located. In connection with this election, the OCC proposes rules of construction so that the State procedures function logically for national banks and Federal savings associations. Specifically, any references to a State agency in the applicable State procedures would be read as referring to the OCC. Additionally, unless otherwise specified in Federal law, all filings required by the applicable State procedures would be made to the OCC. Requiring filings prescribed by State law to be made with the OCC, rather than a State agency, is consistent with past OCC practice for certain transactions under State corporate governance procedures adopted pursuant to 12 CFR 7.2000.

See, e.g.,

OCC Conditional Approval #859 (July 2008).

Third, the national bank or Federal savings association that is the acquiring institution in a transaction may follow a

de minimis

procedure not requiring a shareholder vote pursuant to proposed § 5.33(p) if certain criteria are met. Proposed § 5.33(p) is similar to the

de minimis

exception to general shareholder voting requirements for Federal stock savings associations in current § 5.33(o)(3)(ii), which applies if the transaction does not involve an interim savings association; the Federal savings association charter does not change; each share of stock outstanding will be identical to an outstanding share or treasury share after the effective date of the transaction; and either no stock or securities convertible into stock will be issued or delivered under the plan of combination, or the authorized unissued shares or treasury shares of the resulting Federal savings association to be issued or delivered, plus those initially issuable upon conversion of any securities to be issued or delivered, do not exceed 15 percent of the total shares of voting stock outstanding immediately prior to the effective date of the consolidation or merger. The OCC proposes making this

de minimis

exception available to a national bank engaging in transactions not subject to statutory procedural requirements as well as a Federal stock savings association in new paragraph (p) with two revisions. First, the OCC proposes permitting certain combinations involving an interim bank or savings association. Specifically, a national bank or Federal stock savings association engaging in a transaction involving an interim bank or saving association would potentially be able to use the procedures in paragraph (p) if the existing shareholders of the national bank or Federal stock savings association would directly hold the shares of the resulting national bank or Federal stock savings association. In promulgating an amendment to the predecessor to current § 5.33(o)(3)(ii), the Federal Home Loan Bank Board, the predecessor to OTS, stated that “[a]lthough the ownership interests of shareholders of a reorganizing association generally do not undergo substantive change upon a reorganization into holding company form, the Board believes that shareholders should, nevertheless, be given an opportunity to approve or disapprove a plan of reorganization.”

The OCC believes that in a transaction involving reorganization into a holding company structure, shareholders of the national bank or Federal stock savings association should have the opportunity to vote. However, the OCC believes that a national bank or Federal stock savings association may engage in transactions involving interim banks or savings association that do not involve holding company reorganizations where shareholder votes are not necessary, if the rest of the requirements of proposed paragraph (p) are met. Second, to

provide additional flexibility, the OCC also proposes increasing the maximum issuance of shares eligible under this procedure for both national banks and Federal savings associations from 15 percent of total outstanding shares to 20 percent. This proposal mirrors the 20 percent threshold in similar procedures under Delaware law.

47 FR 17797 at 17799 (Apr. 26, 1982).

See

Del. Code Ann. tit. 8, § 251(f).

In addition to new paragraph (p), the OCC proposes implementing the changes discussed above through revisions to paragraphs (g), (h), and (o). The proposal redesignates a number of paragraphs in paragraph (g) to keep similar transactions consecutive and to accommodate additional paragraphs. Specifically, the OCC proposes redesignating current paragraphs (g)(2), (g)(3), (g)(6), and (g)(7) as paragraphs (g)(3), (g)(6), (g)(7), and (g)(9), respectively. The proposal includes new paragraph (g)(2) providing procedures for interstate consolidations and mergers under 12 U.S.C. 215a-1 resulting in a national bank and paragraph (g)(8) providing procedures for interstate mergers between an insured national bank and an insured State bank resulting in a State bank. Procedures for these transactions are currently contained in paragraph (h). New paragraphs (g)(2) and (g)(8) generally follow the procedures for intrastate mergers resulting in a national bank or State bank in paragraphs (g)(1) and redesignated paragraph (g)(7), respectively. The proposal includes a new corporate succession provision in new paragraph (g)(2)(iv) for interstate mergers resulting in a national bank to ensure that the resulting bank succeeds to the rights, franchises, and interests, including the fiduciary appointments, of the consolidating or merging banks. The proposal also includes in new and redesignated paragraphs (g)(2), (g)(3), (g)(4), (g)(5), (g)(6), and (g)(8) a reference to a national bank making an election under paragraph (h). Revised paragraph (h) would permit a national bank to elect to follow the procedures of the laws of the State which the national bank association has elected to follow pursuant to 12 CFR 7.2000(b) or to use the

de minimis

procedure in new paragraph (p) if applicable. The proposal also includes coordinating revisions to cross references to paragraph (g).

For Federal savings associations, the OCC proposes reorganizing paragraph (o) to contain the election procedures. Revised paragraph (o)(1)(i) permits a Federal savings association to follow the procedures applicable to a State savings association chartered by the State where the Federal savings association's home office is located or to follow the standard procedures in revised paragraph (o)(2). As discussed above for national banks, revised paragraph (o)(1)(ii) would direct Federal savings associations to read references to State agencies as the OCC and to make filings generally with the OCC.

Revised paragraph (o)(2) would contain the procedures in current paragraphs (o)(1) and (o)(3) governing board and shareholder votes, respectively. The proposal would change the

de minimis

exception to the shareholder voting requirement in current paragraph (o)(3)(ii), redesignated by this proposal as paragraph (o)(2)(ii)(B), to a cross-reference to new paragraph (p). Current paragraph (o)(2) regarding the Federal savings association's change in name or home office would be redesignated as paragraph (o)(3). Finally, the OCC proposes a technical amendment to revised paragraph (o)(2)(ii)(A), replacing the citation to 12 CFR 152.4 with the current citation, 12 CFR 5.22.

Paragraph (k) requires a national bank or Federal savings association engaging in a consolidation or merger in which it is not the filer and the resulting institution to file a notice with the OCC advising of its intention. This requirement currently applies even when the surviving institution is another national bank or Federal savings association. Because the OCC already supervises the surviving institution and has acted on the application for consolidation or merger, the OCC proposes removing this requirement for the disappearing national bank or Federal savings association in this type of transaction. In such a case, the OCC already has the information that it needs to process termination and ensure that the disappearing national bank or Federal savings association has met all applicable requirements. The proposal also includes conforming revisions to paragraph (g).

Paragraph (n) provides authority for, and limits on, certain business combinations for Federal savings associations. In addition to consolidations, mergers, and other specified forms of business combinations, this paragraph addresses “other combinations,” the definition of which in section 5.33(d)(10) includes the transfer of any deposit liabilities to another insured depository institution, credit union, or other institution. Paragraph (n)(2)(iii) provides special requirements for mutual savings associations. Specifically, if any combining savings association is a mutual savings association, the resulting institution must be a mutually held depository institution insured by the FDIC, unless the transaction is approved under 12 CFR part 192 governing mutual to stock conversions or the transaction involves a mutual holding company organization under 12 U.S.C. 1467a(o) or a similar transaction under State law. Under the definition of “other combination,” § 5.33(n)(2)(iii) applies to any transfer of deposit liabilities, such as the sale of a branch, even if the mutual savings association still exists as an ongoing institution after the transaction. Accordingly, a branch sale would not be permissible unless the sale is to an insured mutual institution or either the mutual to stock or mutual holding company reorganization exception applied.

The OCC did not intend paragraph (n)(2)(iii) to apply to this type of transfer of deposit liabilities when it last amended this provision in 2015 (2015 Final Rule).

In fact, § 5.33(n)(4), which requires mutual savings associations to provide notice to accountholders of a proposed account transfer and to give them the option of retaining the account in the transferring Federal savings association if the account liabilities are transferred to an uninsured institution, contemplates just such an account transfer.

80 FR 28346 (May 18, 2015).

In addition, the anomalous reading of § 5.33(n)(2)(iii) was not present in the pre-integration version of the Federal savings association combination rules.

Former 12 CFR 146.2(a)(4) contained a similar restriction on the resulting institution being a mutually held savings association with similar exceptions. However, § 146.2(a) applied to combinations, which was defined in 12 CFR 152.13(b)(1) as a merger or consolidation with another depository institution, or an acquisition of all or substantially all of the assets or assumption of all or substantially all of the liabilities of a depository institution by another depository institution. Accordingly, a branch purchase or other transfer of less than substantially all deposits was not a combination and thus not subject to the restrictions in § 146.2(a)(4). Furthermore, in the preamble to the 2015 Final Rule, the OCC did not describe paragraph (n)(2)(iii) as applying to transfers of less than substantially all deposits.

The 2015 Final Rule integrated many licensing rules that apply to national banks and Federal savings associations.

The OCC stated, “in a merger or consolidation with a mutual Federal savings association, a mutual savings association must be the resulting institution.” 80 FR 28346 at 28374 (May 18, 2015).

Accordingly, the OCC proposes revising paragraph (n)(2)(iii) to state that a consolidation or merger involving a mutual savings association or the transfer of all or substantially all of the deposits of a mutual savings association must result in a mutually held depository institution insured by the FDIC unless one of the exceptions applies.

The OCC also proposes adding an additional exception to paragraph (n)(2)(iii). The OCC and OTS have permitted transactions where a mutual savings association transferred all of its deposits to a non-mutual savings association institution followed by the voluntarily dissolution of the mutual savings association. These transactions are subject to approvals or non-objections by the OCC. However, the literal reading of 5.33(n)(2)(iii) may not permit such transactions. Accordingly, the OCC proposes adding a new paragraph (n)(2)(iii)(C) that provides an exception to the requirement that the resulting institution be an insured mutual institution when the transaction is part of a voluntary liquidation for which the OCC has provided non-objection under § 5.48.

Finally, the OCC proposes technical amendments to paragraph (l) to correct a typographical error and to revise paragraph (o)(2)(ii)(A) to replace the citation to 12 CFR 152.4 with the current citation, 12 CFR 5.22.

Operating Subsidiaries of a National Bank (§ 5.34)

Section 5.34 provides the licensing requirements for a national bank's acquisition or establishment of an operating subsidiary or commencement of a new activity in an existing operating subsidiary. Paragraph (e)(2)(i) specifies what entities may qualify as an operating subsidiary. Paragraph (e)(2)(i)(A) requires that the national bank must have the ability to control the management and operations of the subsidiary and no other person or entity exercises effective operating control over the subsidiary or has the ability to influence the subsidiary's operations to an extent equal to or greater than that of the bank. The OCC is proposing to clarify this provision by requiring that no other person or entity has the ability to exercise effective control or influence over the management or operations of the subsidiary to an extent equal to or greater than that of the bank or an operating subsidiary thereof. The OCC also is proposing conforming amendments to current § 5.34(e)(5)(ii)(A)(

)(

), redesignated by this proposed rule as § 5.34(f)(2)(i)(C)(

), which contains a parallel requirement for operating subsidiary filings and provides additional requirements for how the national bank must effectively control the operating subsidiary to be eligible to submit a notice to the OCC instead of an application to establish or acquire or engage in an activity in an operating subsidiary.

Section 5.34(e)(2)(ii) identifies certain subsidiaries that are not operating subsidiaries for purposes of § 5.34. The OCC is proposing to replace the word “subsidiaries” with “entities” to further clarify the exclusion. The OCC also is proposing a new paragraph (e)(2)(ii)(C) to specify that a trust formed for purposes of securitizing assets held by the bank as part of its banking business would not be considered an operating subsidiary. This proposal would codify the OCC's position that securitization trusts generally do not qualify as operating subsidiaries because of the bank's limited control over the trust and because beneficial interests in trusts lack many of the indicia of traditional equity. The OCC invites comment on the scope of this proposed provision.

Paragraph (e)(5) provides the procedures for operating subsidiary filings. The OCC is proposing to redesignate the majority of paragraph (e)(5) as paragraph (f) and current paragraph (e)(6), addressing grandfathered operating subsidiaries, as paragraph (g). The OCC also is proposing conforming revisions to cross-references.

Redesignated § 5.34(f)(2) contains the requirements for a national bank to qualify for the notice process for operating subsidiary filings. In addition to meeting additional control requirements and being well capitalized and well managed, paragraph (f)(2)(i)(A) permits a national bank to file a notice instead of an application if the activity is listed in redesignated paragraph (f)(5). The OCC is proposing to expand the scope of this requirement to include any activity that is substantively the same as a previously approved activity and that will be conducted in accordance with the same terms and conditions applicable to the previously approved activity. As discussed above, the proposal defines “previously approved activity” in § 5.3 to mean, for national banks, an activity approved in published OCC precedent for a national bank, an operating subsidiary of a national bank, or a non-controlling investment of a national bank. The OCC notes that the expansion of the notice requirement to activities that are substantively the same as previously approved activities does not relieve the national bank from the requirement to ensure that the operating subsidiary is only conducting permissible activities and would not affect the OCC's ability to take action if the OCC finds that the activities are not permissible or are conducted in an unsafe or unsound manner.

Proposed § 5.34(f)(2)(ii) would exempt from this expanded scope of permissible activities eligible for a notice the holding of an entity that is or will be chartered or licensed by a State as a bank, trust company, or savings association as an operating subsidiary. The proposed rule instead would require a national bank to file an application to hold these entities as an operating subsidiary.

The OCC also is considering as an alternative amendment removing all filing requirements for permissible activities, even for those not previously approved by the OCC. Under this alternative amendment, national banks would be able to acquire or establish an operating subsidiary or commence a new activity in an existing operating subsidiary without filing a notice or application if the activity to be engaged in by the operating subsidiary is a permissible national bank activity, provided that the operating subsidiary meets the ownership and structural aspects currently required for notice and the national bank is well capitalized and well managed. National banks are generally not required to notify or seek approval from the OCC before they engage in new permissible bank activities. Accordingly, removing the application and notice requirement would apply this logic to operating subsidiaries, which may only engage in activities permissible for national banks. Because the use of the operating subsidiary structure requires additional controls on the part of the national bank to ensure that the bank is not subject to unlimited liability and that the appropriate formalities for the subsidiary are met, this alternative amendment would maintain the additional control and well managed and well managed requirement. The OCC requests comment on the proposed amendment to the notice provision, the alternative amendment described above, and any intermediate options, such as removing the filing requirement for activities that are substantively the same as previously approved activities.

Redesignated § 5.34(f)(2)(i)(B) requires that an operating subsidiary eligible to file a notice must be a corporation, limited liability company, or limited partnership. Redesignated paragraphs (f)(2)(i)(C)(

) and (

) contain specific requirements for the management, control, and ownership of these entities to be eligible for the notice process. If

a national bank does not meet these requirements, the OCC requires the filer to submit an application so that it may conduct a case-by-case review to ensure that the national bank has effective control over the operating subsidiary and that the bank is not exposed to undue risks.

As trusts are currently not entities eligible for notice under redesignated paragraph (f)(2)(i)(B), a national bank must file an application for a trust to be an operating subsidiary. In recent years, the OCC has processed a number of applications for operating subsidiaries organized as trusts. From this experience, the OCC believes that a national bank in certain circumstances possesses sufficient control over trust structures that the notice process is appropriate. Accordingly, the OCC is proposing to add trusts to the list of entities eligible for notice in redesignated paragraph (f)(2)(i)(B). To qualify for the notice process, the national bank or an operating subsidiary must have the ability to replace the trustee at will and be the sole beneficial owner of the trust. The OCC believes that these requirements are appropriate in light of the flexible ownership and control permitted by trust structures. Requiring a national bank or its operating subsidiary to be able to replace the trustee at will and to be the sole beneficial owner of the trust would ensure that the bank has sufficient control over the trust making it unnecessary for the OCC to conduct a case-by-case review through an application process. Additionally, the OCC is proposing to reorganize redesignated paragraphs (f)(2)(i)(C)(

) and (

) to reflect the addition of trust structures and to explicitly recognize that the national bank may meet the required control provisions indirectly through another operating subsidiary. The OCC intends no substantive change to the provisions that address corporations, limited liability partnerships, or limited liability companies.

See

61 FR 60350 (Nov. 27, 1996).

Current 5.34(e)(7) requires national banks to file an annual report with the OCC describing operating subsidiaries that do business directly with consumers. The OCC publishes this information on its website. The OCC is proposing to remove this requirement to reduce burden and because it generally duplicates information contained elsewhere, such as the FFIEC's National Information Center (NIC).

In addition, the majority of the operating subsidiaries reported are subject to the jurisdiction of the Consumer Financial Protection Bureau, and not the OCC, for most consumer law issues.

The NIC may be found at

https://www.ffiec.gov/NPW.

Finally, the OCC is proposing a technical change that would remove the definitions of “well capitalized” and “well managed” from § 5.34(d). As described above, the OCC is proposing to define these terms in § 5.3.

Bank Service Company Investments by a National Bank or Federal Savings Association (§ 5.35)

Section 5.35 addresses national bank and Federal savings association investments in bank service companies as authorized by the Bank Service Company Act (BSCA) (12 U.S.C. 1861-1867). Pursuant to section 2 of the BSCA (12 U.S.C. 1862), paragraph (i) of § 5.35 provides that a national bank or Federal savings association may not invest more than 10 percent of its capital and surplus in a bank service company. In addition, paragraph (i) also provides that the national bank's or Federal savings association's total investments in all bank service companies may not exceed five percent of the national bank's or Federal savings association's total assets. However, section 2 of the BSCA also specifies that the investment limitations in section 5(c)(4)(B) of the HOLA apply to Federal savings associations with regard to bank service company investments. This limitation is not currently included in paragraph (i). Accordingly, the OCC proposes to revise paragraph (i) to directly reference the limitations in section 2 of the BSCA.

The OCC also is proposing a technical correction to the title of this section that would remove the extraneous word “investment.”

Other Equity Investments by a National Bank (§ 5.36)

Section 5.36 provides the procedures for national banks to make certain types of equity investments. Paragraphs (e) and (f) provide the procedures and requirements for a national bank to make a non-controlling investment that is not prescribed by other OCC rules. The OCC is proposing to clarify the types of national bank equity investments that are subject to § 5.36 by adding a new definition to paragraph (c) that would define “non-controlling investment” to mean an equity investment made pursuant to 12 U.S.C. 24(Seventh) that is not governed by procedures prescribed by another OCC rule. Additionally, the OCC is proposing to specify in the definition that “non-controlling investment” does not include a national bank holding interests in a trust formed for the purposes of securitizing assets held by the bank as part of its banking business or for the purposes of holding multiple legal titles of motor vehicles or equipment in conjunction with lease financing transactions. This would codify OCC interpretation that these interests do not have sufficient indicia of ownership and control to qualify as an equity investment for purposes of § 5.36. The OCC also is proposing a conforming change to paragraphs (e) and (f).

For a national bank to make a noncontrolling investment, current § 5.36 requires a filing with the OCC that: (1) Describes the structure of the investment and the activity or activities conducted by the enterprise in which the bank is investing; (2) describes how the bank has the ability to prevent the enterprise from engaging in impermissible activities or has the ability to withdraw its investment; (3) describes how the investment is convenient and useful to the bank in carrying out its business and not a mere passive investment; (4) certifies that the bank's loss exposure is limited; and (5) certifies that the enterprise agrees to be subject to OCC supervision and examination, subject to the limitations and requirements of section 45 of the FDI Act (12 U.S.C. 1831v) and section 115 of the Gramm-Leach-Bliley Act (12 U.S.C. 1820a).

A national bank must file an application with the OCC to make a non-controlling investment unless it qualifies for the notice procedure in § 5.36(e). A national bank may file a notice if: (1) The investment meets the above requirements; (2) the enterprise engages in activities that are listed in § 5.34(e)(5)(v) (permissible operating subsidiary activities) or an activity that is substantively the same as that contained in published OCC precedent approving a non-controlling investment by a national bank or its operating subsidiary; and (3) the bank is well managed and well capitalized. As discussed above for operating subsidiary notices, the OCC is proposing to expand the activities eligible for notice for non-controlling investments to all previously approved activities, as defined in proposed § 5.3. This definition includes activities approved for national banks and their operating subsidiaries, in addition to previously approved non-controlling investments. The proposal also reorganizes paragraph (e) and makes conforming changes to paragraphs (e)(2) and (e)(4). Additionally, the OCC is considering removing the filing requirement for non-controlling investments in enterprises engaging in bank permissible activities, as discussed above for national bank

operating subsidiaries. The OCC requests comment on the proposed amendment to the notice provision, the alternative amendment described above, and any intermediate options, such as removing the filing requirement for activities that are substantively the same as previously approved activities.

As noted, whether a national bank is filing a notice under paragraph (e) or an application under paragraph (f), the current rule requires the enterprise in which the bank will make a non-controlling investment to agree to OCC supervision and examination. The OCC is proposing to amend paragraph (f), redesignated as paragraph (f)(1), to permit national banks to file an application for prior approval to invest in an enterprise that has not agreed to be subject to OCC supervision and examination. The OCC believes that this will give national banks greater flexibility to make permissible non-controlling investments, while giving the OCC an opportunity for an in-depth review of the proposed investment to ensure there is no inappropriate risk to the national bank's safety and soundness.

Additionally, the OCC is proposing a new paragraph (f)(2) to provide for expedited review of certain applications for investments in enterprises that do not agree to OCC supervision and examination that pose minimal risk to the national bank's safety and soundness. An application under proposed paragraph (f)(2) would be deemed approved by the OCC within 10 days after the application is received if five additional requirements are met. First, the enterprise must engage in permissible bank activities as described in proposed paragraph (e) of this section. Second, the national bank must be well managed and well capitalized. These two requirements parallel the requirements for filing a notice. Third, the book value of the national bank's non-controlling investment for which the application is submitted must not be more than 1% of the bank's capital and surplus. Fourth, no more than 50% of the enterprise may be owned or controlled by banks or savings associations subject to examination by an appropriate Federal banking agency or credit unions insured by the National Credit Union Association. Many enterprises in which national banks make non-controlling investments are owned by a consortium of banks and savings associations and provide services to their owners and others. Given the potentially complex interactions between these enterprises and their owners and the additional risks posed to the owners, the OCC believes that OCC supervision and examination of these enterprises is necessary for the safety and soundness of the investing national banks and Federal savings associations. Accordingly, the proposed rule does not permit investments in these entities without their commitment to OCC supervision and examination, and therefore expedited review of these investments would not be available. Finally, the OCC must not have notified the national bank that the application has been removed from expedited review, or that the expedited review process has been extended, pursuant to the standards contained in § 5.13(a)(2).

In addition, the proposed rule would permit a national bank to make a non-controlling investment without a filing to the OCC in certain circumstances. Under proposed paragraph (g), a national bank would be permitted to make a non-controlling investment without an application or notice if the activities of the enterprise are limited to those activities previously reported by the bank in connection with making or acquiring a non-controlling investment; the activities in the enterprise continue to be legally permissible for a national bank; the bank's non-controlling investment will be made in accordance with any conditions imposed by the OCC in approving any prior non-controlling investment in an enterprise conducting these same activities; and the bank is able to make the representations and certifications specified in §§ 5.36(e)(3) through (e)(7), as proposed to be amended. As the national bank would already have a non-controlling investment in an entity conducting particular activities, the OCC believes that there would be little risk in the bank making an additional non-controlling investment in an entity conducting the same activities. Furthermore, the OCC believes that non-controlling investments pose similar risks to national banks as operating subsidiaries, and proposed paragraph (g) would parallel current § 5.34(e)(5)(vi), redesignated in this proposal as § 5.34(f)(6), which permits national banks to make investments in operating subsidiaries without a filing. Therefore, the OCC believes that proposed paragraph (g) would reduce burden without jeopardizing the national bank's safety and soundness. As a conforming amendment, the OCC is proposing to redesignate current paragraphs (g) through (i) as paragraphs (h) through (j), respectively.

Redesignated paragraph (j) provides exceptions to the rules of general applicability. The OCC is proposing to remove the exception to § 5.9, public availability, because some of these investments may be of public interest. Further, the proposal would permit the OCC to determine that some or all provisions in §§ 5.8, 5.10, and 5.11 apply if it concludes that an application presents significant or novel policy, supervisory, or legal issues. This proposed paragraph (j) would parallel the equivalent provision for operating subsidiary filings in current § 5.34(e)(5)(iii).

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

Section 5.37 describes the procedures for national bank and Federal savings association investment in bank premises. Paragraph (d)(1)(i) provides that the procedures of § 5.37 are applicable to investments in the stocks, bonds, debentures, or other obligations of any corporation holding the premises of the national bank or Federal savings association in addition to direct investments in the bank premises. Twelve CFR 7.1000 provides the authority for national bank and Federal savings association investments in bank premises. In addition to the investments listed in § 5.37(d)(1)(i), § 7.1000(a)(3) provides that national banks and Federal savings associations may hold bank premises through a subsidiary organized as a corporation, partnership, or similar entity (

e.g.,

a limited liability company). The OCC proposes to revise § 5.37(d)(1)(i) to recognize the permissibility of holding bank premises through partnerships and similar entities, such as limited liability companies, so that it is consistent with § 7.1000(a)(3).

In addition, the OCC proposes to remove the definition of “capital and surplus” in § 5.37. Because § 5.3 defines this term, it is not necessary to include it in § 5.37. Finally, the OCC proposes to correct a technical error in paragraph (a), replacing “12 U.S.C. 317d” with “12 U.S.C. 371d.”

Operating Subsidiaries of a Federal Savings Association (§ 5.38)

Section 5.38 provides the application requirements for a Federal savings association's acquisition or establishment of an operating subsidiary or commencement of a new activity in an existing operating subsidiary when required by section 18(m) of the FDI Act (12 U.S.C. 1828(m)). Section 5.38 is largely parallel to § 5.34 for national bank operating subsidiaries, except that where a national bank would file a notice, a Federal savings association would file an application eligible for expedited review. Accordingly, the OCC is proposing coordinating revisions to

§ 5.38 including: (1) Revising the standard for qualifying subsidiaries in paragraph (e)(2)(i)(A); (2) excluding securitization trusts from the scope of the section in new paragraph (e)(2)(iii)(C); (3) redesignating paragraphs (e)(5), (e)(6), and (e)(7) as paragraphs (f), (g), and (h), respectively; (4) expanding the activities eligible for expedited review to include activities substantially the same as a previously approved activity (as proposed to be defined in § 5.3) and conducted in accordance with the same terms and conditions applicable to the previously approved activity, in redesignated paragraph (f)(2)(ii)(B); (5) expanding the entities eligible for expedited review to include certain trusts where the Federal savings association or its operating subsidiary is the sole beneficiary and has the ability to replace the trustee at will, in redesignated paragraphs (f)(2)(ii)(C) and (D); and (6) explicitly recognizing that the control required by redesignated paragraphs (f)(2)(ii)(D) may be met through an operating subsidiary of the Federal savings association. In addition, the OCC is proposing technical changes that would remove the definitions of “well capitalized” and “well managed” from § 5.38, as in proposed § 5.34, and replace the word “subsidiary” with the more appropriate word “entity” in the introductory text of paragraph (e)(2)(iii).

In addition, the OCC is proposing to correct an inadvertent omission in the 2015 Final Rule by amending redesignated § 5.38(f)(2)(ii)(D)(

), which contains requirements for how a Federal savings association must effectively control an operating subsidiary to be eligible for expedited review of an application. Although the OCC made changes in the 2015 Final Rule to current §§ 5.34(e)(2)(i)(A), 5.34(e)(5)(ii)(A)(

)(

), and 5.38(e)(2)(i)(A) to address commenter's concerns regarding the application of the rule to joint ventures,

the OCC did not make corresponding conforming changes to current § 5.38(e)(5)(ii)(B)(

)(

), redesignated in this proposal as § 5.38(f)(2)(ii)(D)(

). However, all of these provisions should contain parallel language. Accordingly, the OCC is proposing to revise redesignated § 5.38(f)(2)(ii)(D)(

) so that it parallels current § 5.34(e)(5)(ii)(A)(

)(

), redesignated in this proposal as § 5.34(f)(2)(i)(C)(

See

80 FR 28346, at 28375 (May 18, 2015).

Financial Subsidiaries of a National Bank (§ 5.39)

Section 5.39 describes the procedures for national bank acquisition of, and conduct of activities in, a financial subsidiary pursuant to section 5136A of the Revised Statutes (12 U.S.C. 24a). Paragraph (h)(5)(ii) of § 5.39 specifies that the restrictions contained in section 23A(a)(1)(A) of the Federal Reserve Act (12 U.S.C. 371c(a)(1)(A)), do not apply to a covered transaction between a bank and its financial subsidiary. However, section 609 of the Dodd-Frank Wall Street Reform and Consumer Protection Act removed this section 23A exclusion. Accordingly, the OCC proposes to remove paragraph (h)(5)(ii).

The OCC also proposes to clarify the approval process for financial subsidiary activities. First, consistent with other changes in part 5, the OCC proposes to change the terminology for filings under § 5.39 from notice to application. However, the OCC does not intend any substantive change in standards or procedures.

Second, as the OCC recognized in the initial proposal for § 5.39, section 24a states that OCC approval shall be based solely upon specific statutory factors.

Accordingly, the OCC proposed the current procedures for § 5.39 upon the understanding that the approval may occur upon a bank's submission of information demonstrating satisfaction of the statutory criteria.

The OCC proposes to add a new paragraph (i)(3) specifying that an application is deemed approved upon filing of the information required by the procedures of paragraphs (i)(1) or (i)(2) within the time frames provided.

65 FR 3159 (Jan. 20, 2000).

Id.

In addition, the OCC is proposing technical changes to paragraph (d) that would remove the definitions of “appropriate Federal banking agency,” “well capitalized,” and “well managed.” As discussed above, the proposal would amend § 5.3 to add these definitions without any substantive changes.

Finally, consistent with other proposed changes in part 5, the OCC proposes changing the terminology for “notice” to “application” thereby conforming the terminology to the licensing action provided in § 5.39. No substantive change is intended from this change in nomenclature.

National Bank Director Residency and Citizenship Waivers (New § 5.43)

The OCC proposes a new § 5.43 to provide procedures for waivers of the national bank director residency and citizenship requirements. Section 5146 of the Revised Statues (12 U.S.C. 72) requires every director of a national bank to be a citizen of the United States and that a majority of the directors reside in the State, Territory, or District where the national bank is located, or within one hundred miles of the location of the office of the bank. These requirements reflect the principle of local ownership and control of national banks. Twelve U.S.C. 72 provides the Comptroller the discretion to waive the residency requirement and to waive the citizenship requirement for not more than a minority of the total number of directors.

The OCC has processed requests for waivers of the residency and citizenship requirements for many years. The “National Bank Director Waivers” booklet of the

Comptroller's Licensing Manual

currently describes the procedures for requesting and granting waivers. The OCC proposes codifying these procedures in a new 12 CFR 5.43 to better clarify and structure the waiver process.

Proposed paragraph (a) would set forth the authority for the regulation, 12 U.S.C. 72 and 93a, the latter of which grants the OCC general rulemaking authority. Proposed paragraph (b) would set forth the scope of the section as describing the procedures for the OCC to waive the residency and citizenship requirements.

Proposed paragraph (c) would set forth the application procedures. Under paragraph (c)(1), a national bank would file a written application with the OCC to request a waiver of the residency requirement. Proposed paragraph (c)(1) also provides that the OCC may grant this waiver for individual directors or for any number of director positions. The OCC typically grants residency waivers for a certain number of directors on the board rather than to specific individuals. However, the OCC proposes to increase flexibility by permitting either procedure.

Under proposed paragraph (c)(2), a national bank could request a waiver of the citizenship requirements for individuals who comprise up to a minority of the total number of directors by filing a written application with the OCC. Proposed paragraph (c)(2) also provides that the OCC may grant a waiver on an individual basis. Given the more prescriptive nature of the citizenship requirement and the greater background investigation that the OCC undertakes on proposed non-citizen directors, OCC practice is to grant waivers to individuals and not to a designated number of directors. Accordingly, the OCC also proposes specifying in paragraph (c)(2) that a citizenship waiver is valid until the individual leaves the board or the OCC revokes the waiver in accordance with

proposed paragraph (d), discussed below.

Proposed paragraph (c)(3)(i) requires the subject of a citizenship waiver application to submit the information prescribed in the Interagency Biographical and Financial Report. Proposed paragraph (c)(3)(ii) provides that the OCC may require additional information about the subject of a citizenship waiver application, including legible fingerprints, if appropriate. This proposed paragraph also permits the OCC to waive any of the information requirements if the OCC determines that doing so is in the public interest.

Proposed paragraph (c)(4) provides for exceptions to the rules of general applicability. The OCC proposes that §§ 5.8 (public notice), 5.9 (public availability), 5.10 (comments), and 5.11 (hearings and other meetings) not apply to applications for citizenship waivers. The OCC believes that the applications will largely consist of information specific to a bank's internal practices as well as significant private information about the individuals subject to the waiver applications. Accordingly, the OCC does not believe that these applications should be publicly available or subject to public notice, comment, or hearings.

The OCC also would add a new paragraph (d) that would provide procedures for the OCC's revocation of a residency or citizenship waiver. Under these procedures, the OCC would provide written notice before a revocation to the national bank and affected director(s) of its intention to revoke the waiver and the basis for its intention. The bank and the affected director(s) may respond in writing to the OCC within 10 calendar days, unless the OCC determines that a shorter period is appropriate in light of relevant circumstances. The OCC will consider the written responses of the bank and affected director(s), if any, prior to deciding whether or not to revoke a residency or citizenship waiver. The OCC will notify the national bank and the director of the OCC's decision to revoke a residency or citizenship waiver in writing. The OCC's decision to revoke a residency or citizenship waiver would be effective, if the director appeals pursuant to proposed paragraph (e), upon the director's receipt of the decision of the Comptroller, an authorized delegate, or the appellate official, to uphold the initial decision to revoke the residency or citizenship waiver. If the director does not appeal, the revocation would be effective the expiration of the period to appeal.

Although 12 U.S.C. 72 does not contain any explicit provisions for revoking a waiver, the OCC believes that the decision to revoke a waiver is consistent with the Comptroller's authority to grant a waiver. Absent this authority, many residency waivers effectively would be perpetual as the OCC generally grants residency waivers for a designated number of director positions. Further, changing geo-political circumstances may in some circumstances warrant the revocation of citizenship waivers, particularly if foreign governments are unduly influencing directors' activities with regard to a national bank.

The OCC recognizes that discretion in revoking residency and citizenship waivers is premised upon the guarantee of due process. Accordingly, the proposed rule provides affected national banks and directors the opportunity to respond to the OCC's intention to revoke a waiver. The OCC will specifically consider written responses prior to deciding on the revocation.

Proposed paragraph (e) would provide an appeals process for a director whose residency or citizenship waiver the OCC has decided to revoke. This proposed appeals process is parallel to that provided for disapprovals of directors and senior executive officers in 12 CFR 5.51, and provides review by the Comptroller, an authorized delegate, or a designated appellate official. A director may appeal on the grounds that the reasons for the initial decision to revoke were contrary to fact or arbitrary and capricious. The Comptroller, an authorized delegate, or the appellate official will independently determine whether the reasons given for the initial decision to revoke are contrary to fact or arbitrary and capricious. If they determine either to be the case, the Comptroller, an authorized delegate, or the appellate official may reverse the initial decision to revoke the waiver.

Proposed paragraph (f) provides that waivers outstanding on the effective date of a final rule would remain in effect notwithstanding proposed paragraph (c)(2), unless revoked pursuant to proposed paragraph (d).

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

Section 5.45 sets out the OCC's rules addressing increases in permanent capital by a Federal savings association organized in stock form. The OCC is proposing two technical amendments to this section. First, the proposed rule would change the term “Federal savings association” or “savings association” to “Federal stock savings association” each time it appears, except as used in the defined term “eligible savings association,” to more accurately reflect the scope of this section. Second, the proposed rule would replace the reference to 12 CFR part 197 in paragraph (h) with 12 CFR part 16, which now applies to Federal savings associations.

The OCC is considering one other change to § 5.45. Under the current rule, Federal savings associations that meet the criteria for an eligible savings association described in § 5.3 may have their applications for capital increases, when required, reviewed under an expedited process. In the OCC's experience, the most relevant factors in considering such applications are the financial and managerial conditions of the requesting Federal savings association, given the more direct relationship between capital, on the one hand, and the financial and managerial conditions, on the other hand. Accordingly, the OCC requests comment on whether the agency should amend its regulations to focus the eligibility criteria such that only well capitalized and well managed Federal savings associations are eligible to request expedited review of their applications for capital increases. If the OCC makes this change to § 5.45 in the final rule, it also would amend its other capital filing-related rules in part 5 based on this same rationale, §§ 5.46 (Changes in permanent capital of a national bank), 5.47 (Subordinated debt issued by a national bank), 5.55 (Capital distributions by Federal savings associations), and 5.56 (Inclusion of subordinated debt securities and mandatorily redeemable preferred stock as Federal savings association supplementary (tier 2) capital).

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

Section 5.46 sets out the OCC's rules addressing changes in permanent capital for a national bank. Paragraph (g)(1)(ii) provides that prior OCC approval is required for an increase in permanent capital in certain cases. In addition, pursuant to 12 U.S.C. 57, paragraph (i)(3) of § 5.46 requires a bank to submit a notice to the appropriate licensing office after it completes an increase in capital, regardless of whether prior approval is required. The OCC proposes to clarify these procedures for increases in capital requiring prior approval by referencing paragraph (i)(3) in the introductory text of paragraph (g)(1)(ii) and removing it from paragraph (g)(1)(ii)(C). The OCC also proposes to clarify the introductory text of paragraph (g)(1)(ii) to specifically

indicate that an application to increase a national bank's permanent capital may be eligible for expedited review under paragraph (i)(2).

Paragraph (h) provides that a national bank must apply and obtain the OCC's prior approval for any reduction in its permanent capital. Paragraph (i)(2) provides expedited review procedures and currently provides that an eligible bank may request approval for decreasing its capital for up to four consecutive quarters. The OCC proposes a number of amendments to paragraphs (h) and (i) to add flexibility for national banks and to clarify procedures. First, the proposal would amend paragraph (h) to permit a national bank to request approval in a standard application for a reduction in capital for multiple quarters. The request need only specify a total dollar amount for the requested period and need not specify amounts for each quarter. As a result, a national bank may request approval for a reduction in permanent capital over more than four consecutive quarters. However, this request would not be eligible for expedited review so that the OCC may have the time to carefully review the request. Second, the proposed rule would add flexibility to the expedited process in paragraph (i)(2) by specifying that an eligible national bank need only state the total dollar amount rather than per-quarter reductions in requests for four-quarter decreases. As a conforming change, the OCC proposes to amend paragraph (i)(5) to clarify that the OCC's approval of a capital change does not expire within one year of the date of the approval if the OCC specifies a longer period.

Subordinated Debt Issued By a National Bank (§ 5.47)

Section 5.47 describes the requirements applicable to a national bank's issuance of subordinated debt, including subordinated debt intended for inclusion in tier 2 capital. The OCC is proposing to add a new definition of “subordinated debt document” to § 5.47(c) to mean any document pertaining to an issuance of subordinated debt, and any renewal, extension, amendment, modification, or replacement thereof, including the subordinated debt note, and any global note, pricing supplement, note agreement, trust indenture, paying agent agreement, or underwriting agreement. The OCC intends this list of documents to be illustrative and not exclusive.

This change would clarify that a national bank should submit with their applications all material documents needed for the OCC to review the application for compliance with its regulatory requirements. The OCC reviews ancillary securities documents to ensure that they do not contain language that conflicts with required disclosures or statements made in the subordinated debt note. The OCC invites comment on revisions to the proposed definition and the scope of relevant documents typically employed in subordinated debt issuances. The OCC also is proposing conforming revisions throughout § 5.47 to better reflect this terminology.

Paragraph (d)(3)(ii) contains a list of statements and descriptions that a national bank must clearly and accurately disclose in the subordinated debt note. The OCC proposes adding language to paragraph (d)(3)(ii)(C) to clarify that a national bank is only required to disclose the OCC's authority under 12 CFR 3.11 to limit certain distributions if the disclosure requirement is applicable to the subordinated debt issuance. Specifically, a national bank only will be required to incorporate this disclosure language into a subordinated debt note if the issuing bank, or any successor institution to the issuing bank, would have discretion under the terms of the subordinated debt to permanently or temporarily suspend payments without triggering an event of default. This amendment would provide flexibility and reduce burden by permitting national banks to omit the provisions when warranted.

The OCC also proposes to add a new paragraph (d)(3)(ii)(D) that would require a national bank to disclose in a subordinated debt note that the subordinated debt obligation may be fully subordinated to interests held by the U.S. government in the event that the national bank enters into a receivership, insolvency, liquidation, or similar proceeding. This proposed requirement mirrors the language in 12 CFR 3.20(d)(1)(xi), which requires advanced approaches banks to disclose this information in the governing agreement, offering circular, or prospectus of an instrument to be included in tier 2 capital. The OCC believes that disclosing this information to potential investors in subordinated debt is beneficial for all national banks, even those that are not advanced approaches banks or that do not intend to include the debt in tier 2 capital. The proposal would make a conforming change to paragraph (e) introductory text to remove the reference to advanced approaches national banks.

Paragraphs (f)(1)(ii) and (h) govern the procedure for a national bank to include subordinated debt in tier 2 capital. Currently, these provisions provide that a national bank may not include subordinated debt as tier 2 capital unless it has filed a notice with the OCC and received notification from the OCC that the subordinated debt qualifies as tier 2 capital. The OCC proposes to make these paragraphs consistent with the rest of part 5 by changing the terminology from notice to application. This change is not intended to be substantive. The OCC also is proposing clarifying changes to this paragraph.

Additionally, the OCC proposes to provide explicit regulatory authority for a national bank to seek approval to include subordinated debt as tier 2 capital before issuance of the subordinated debt in paragraphs (f)(1)(ii) and (h)(1). National banks routinely seek confirmation from the OCC that subordinated debt will qualify as tier 2 capital prior to issuance to mitigate the risk of issuing nonqualifying subordinated debt. This amendment would codify this practice. Under the proposal, and as with current practice, the OCC would not provide final approval that the subordinated debt qualifies as tier 2 capital until after the debt is issued and final pricing is available. Relatedly, the OCC proposes a conforming revision to paragraph (h)(2)(ii), which requires the application to include the amount and date of receipt of funds, to permit submission of the projected amount and date of receipt.

The OCC also proposes to add a new paragraph (h)(2)(iii) requiring the application to include the interest rate or expected calculation method for the interest rate for the subordinated debt. This would assist the OCC in reviewing applications for inclusion of the subordinated debt in tier 2 capital.

Paragraphs (f)(2)(ii) and (g)(1)(ii) require OCC approval for a national bank to prepay subordinated debt. The approval requirements for prepayment of subordinated debt include specific additional requirements for prepayment that is in the form of a call option. Specifically, a national bank seeking to prepay subordinated debt in the form of a call option is required to provide: (1) A statement explaining why the national bank believes that following the proposed prepayment the national bank would continue to hold an amount of capital commensurate with its risk; or (2) a description of the replacement capital instrument that meets the criteria for tier 1 or tier 2 capital under 12 CFR 3.20, including the amount of such instrument, and the time frame for issuance. The OCC has found that in the distinction between prepayment and prepayment in the form of a call option is immaterial to OCC review, that the

additional requirements are generally satisfied in most prepayment applications, and that the additional information is helpful for the OCC to determine the impact of the prepayment on the national bank's capital levels and safety and soundness. Accordingly, the OCC proposes having a single procedure for the prepayment of subordinated debt that would incorporate the requirements for prepayment in the form of a call option. The proposal contains a coordinating revision to paragraph (g)(2)(ii) regarding OCC approval.

Currently, § 5.47 does not explicitly require a national bank to make a filing with the OCC if the national bank makes a material change to its outstanding subordinated debt note or any related subordinated debt documents. The OCC proposes to add new paragraphs (f)(3) and (g)(1)(iii) to ensure that subordinated debt issuances remain compliant with OCC regulatory requirements, including the requirements for inclusion in tier 2 capital. This revision would require OCC approval for a material change to an existing subordinated debt document if the bank would have been required to receive OCC approval to issue the security under paragraph (f)(1) or to include it in tier 2 capital under paragraph (h). An application to make a material change would include: (1) A description of the proposed changes; (2) a statement of whether the national bank is subject to or required to file a capital plan with the OCC, and if so, how the proposed change conforms to the capital plan; (3) a copy of the revised subordinated debt documents reflecting all proposed changes; and (4) a statement that the proposed changes to the subordinated debt documents comply with all applicable laws and regulations.

The OCC also is proposing to make certain stylistic changes to the rule text of § 5.47 that are not intended to impact the substantive requirements applicable to national banks.

Change in Control of a National Bank or Federal Savings Association; Reporting of Stock Loans (§ 5.50)

Section 5.50 sets forth the procedures and standards for changes in control of national banks and Federal savings associations. Paragraph (d)(8) contains a definition of insured depository institution. However, that term is not used within § 5.50. Accordingly, the OCC proposes to replace that definition with the definition of “depository institution,” to mean a depository institution as defined in section 3(c)(1) of the FDI Act (12 U.S.C. 1813(c)(1)).

Paragraph (f)(3)(iv) states that an applicant may request a hearing by the OCC within 10 days of receipt of a notice disapproving a change in control and that following final agency action under 12 CFR part 19, further review by the courts is available. Paragraph (f)(6) provides that the OCC will notify the proposed acquiror in writing of a disapproval within three days and will indicate the basis of its disapproval. For clarity, the OCC proposes combining these provisions in a revised paragraph (f)(6). The OCC also proposes to add language stating that this disapproval notice will inform the filer of the availability of a hearing. Additionally, the OCC proposes a new paragraph (f)(6)(iii) specifying that if a filer fails to request a hearing with a timely request, the notice of disapproval constitutes a final and unappealable order. This language is currently included in 12 CFR 19.161 and the OCC believes it also should be included in § 5.50 to put filers on notice of the implications of failure to request a hearing in a timely manner.

Finally, paragraph (g)(2)(i) provides procedures for the OCC's release of information related to a change in control notice, including publication of information in the OCC's Weekly Bulletin. The OCC proposes revising this provision to reflect the information that the OCC publishes in the Weekly Bulletin in practice, namely the date of filing, the disposition of the notice and date thereof, and the consummation date of the transaction, if applicable.

Changes in Directors and Senior Executive Officers of a National Bank or Federal Savings Association (§ 5.51)

Section 5.51 implements section 914 of the Financial Institutions Reform, Recovery, and Enforcement of 1989 (12 U.S.C. 1831i). Section 914 requires a national bank or Federal savings association to provide prior notice to the OCC of the proposed addition of any individual to the board of directors or the employment of any individual as a senior executive officer of a bank if, among other things, the bank is in troubled condition. Paragraph (c)(4) defines “senior executive officer” to mean the president, chief executive officer, chief operating officer, chief financial officer, chief lending officer, chief investment officer, and any other individual the OCC identifies in writing to the national bank or Federal savings association who exercises significant influence over, or participates in, major policy making decisions of the bank or savings association without regard to title, salary, or compensation. The term also includes employees of entities retained by a national bank or Federal savings association to perform functions in lieu of directly hiring the individuals, and the individual functioning as the chief managing official of the Federal branch of a foreign bank. The OCC proposes to add chief risk officer to the definition of senior executive officer given the increase in that role at many national banks and Federal savings associations. The OCC invites comment on whether it should add others to the definition or remove any currently included in the definition.

Paragraph (c)(7) provides the definition of “troubled condition,” which is one of the circumstances in which a national bank or Federal savings association is required to file a notice under § 5.51. Pursuant to paragraph (c)(7)(ii), this definition includes a national bank or Federal savings association that is subject to a cease and desist order, a consent order, or a formal written agreement, unless otherwise informed in writing by the OCC. The OCC is proposing to amend paragraph (c)(7)(ii) to specify that the cease and desist order, consent order, or formal written agreement must require the bank or savings association to improve its financial condition for the institution to be considered in “troubled condition” solely as a result of the enforcement action. The OCC expects to inform a bank in writing when an enforcement action does not require action to improve the financial condition of the bank. The OCC's general policy is not to apply troubled condition status to national banks or Federal savings associations solely as a result of cease and desist orders, consent orders, or formal written agreements that do not require improvement in the financial condition of the bank or savings association, such as enforcement actions that address certain compliance-related deficiencies that do not affect the financial condition of the bank or savings association. Typically, the OCC has specifically noted in these actions that the bank or savings association is not in troubled condition as a result of the action. This proposal would update the definition of troubled condition in § 5.51 to align with the OCC's current supervisory practice. The OCC notes that this practice is consistent with that of the Federal Reserve Board (Board) and the FDIC, and the proposed revision would align the OCC's regulations with the Board's and FDIC's regulations implementing section 914.

See

12 CFR 225.71(d) (Board); 12 CFR 303.101(c) (FDIC).

Capital Distributions by Federal Savings Associations (§ 5.55)

Section 5.55 provides standards and procedures for capital distributions made by Federal savings associations. Paragraph (d)(2) defines “capital” as total capital, computed under 12 CFR part 3. The OCC proposes to delete this definition as unnecessary because all references to “capital” are either in relation to the defined term “capital distribution” or contain an explicit reference to calculations under 12 CFR part 3. Additionally, the OCC proposes a new definition of “control,” to have the same meaning as in section 10(a)(2) of the HOLA (12 U.S.C. 1467a(a)(2)), and to use this term to describe control relationships, rather than the current use of the term “subsidiary” in § 5.55.

Current paragraph (e)(1) requires a Federal savings association to file an application if it is not an eligible savings association. Current paragraphs (e)(2) and (g)(2) require eligible savings associations to file a notice if certain requirements are met. Consistent with other proposed changes in part 5, the OCC proposes to change the terminology for notice to application and to make corresponding changes throughout § 5.55. As a result, filings that are currently notices would be applications subject to expedited review. In addition, the OCC proposes to reorganize paragraphs (e) and (g) to clarify the procedures; however no substantive change is intended. The OCC also would make additional stylistic revisions to current paragraph (e)(4) to clarify that the notice mentioned in this paragraph is that of the notice filed with the Board of Governors of the Federal Reserve System.

Further, the OCC proposes one substantive change to the application procedures. Current paragraph (e)(1)(ii) requires a Federal savings association to file an application if the total amount of all its capital distributions (including the proposed capital distribution) for the applicable calendar year exceeds its net income for that year to date plus retained net income for the preceding two years. Under 12 CFR 5.64(c)(2), a national bank may calculate its dividends in excess of a single year's current net income by offsetting certain excess dividends against retained net income from each of the prior two years, with the potential to incorporate net income from up to four years prior to the current year when determining the maximum dividend payout possible without prior OCC approval. To provide additional flexibility, the OCC would permit a Federal savings association to conduct this calculation when determining whether this application requirement applies. Specifically, if the capital distribution is from retained earnings, a Federal savings association would be able to calculate the aggregate limitation for a capital distribution in accordance with 12 CFR 5.64(c)(2), substituting “capital distributions” for “dividends” in that section.

Paragraph (f)(2) provides that the capital distribution application may include a schedule proposing capital distributions over a specified period, not to exceed 12 months. The OCC proposes to remove this 12-month limitation to allow a Federal savings association more flexibility for its distributions and to align this provision with the analogous national bank provision, 12 CFR 5.46(i)(1)(ii).

Additionally, the OCC is proposing a new paragraph (g)(3) to clarify the appropriate OCC filing office for capital distribution applications and notices. In general, a Federal savings association would file with the appropriate OCC licensing office. However, the Federal savings association must submit the application to the appropriate OCC supervisory office if the application involves solely a cash dividend from retained earnings or involves a cash dividend from retained earnings and a concurrent cash distribution from permanent capital.

Finally, the OCC is proposing to reorganize paragraph (h), which addresses OCC review of an application, by providing separate paragraphs for OCC denials and approvals. As a result, proposed paragraph (h)(1) would address OCC denials and include the majority of current paragraph (h) and proposed paragraph (h)(2) would address OCC approvals. In doing so, the proposal would clarify that the OCC may approve an application in whole or in part and that the OCC may waive any waivable prohibition or condition to permit a distribution. The proposal also would change the cross-reference in the current introductory text to the more appropriate paragraph (e)(1).

Inclusion of Subordinated Debt Securities and Mandatorily Redeemable Preferred Stock as Federal Savings Association Supplementary (tier 2) Capital (§ 5.56)

Section 5.56 provides the requirements and procedures for a Federal savings association to include subordinated debt and mandatorily redeemable preferred stock (collectively, “covered securities”) in tier 2 capital. Paragraph (b) provides the filing procedures, including the application and notice procedures. Under § 5.56, the OCC must approve an application or notice before a Federal savings association may include covered securities as tier 2 capital. As proposed in § 5.47, the OCC proposes to make this process consistent with the rest of part 5 by changing the terminology from notice to application where appropriate throughout § 5.56. The proposal also would clarify that a savings association may not include covered securities in tier 2 capital until the OCC approves the application and the securities are issued. This change is not intended to be substantive.

Paragraph (b)(2) requires an application and prior approval from the OCC for a Federal savings association to prepay covered securities included in tier 2 capital. Similar to the national bank requirement in § 5.47, §§ 5.56(b)(2)(ii) and (h) contain additional application requirements for and OCC review of prepayments in the form of a call option. As provided above in the discussion for § 5.47, and for the same reasons, the OCC is proposing to incorporate the application requirements currently applicable to prepayment in the form of a call option to all prepayment applications. The OCC is proposing one additional technical change in § 5.56(b)(2) to replace a reference to “a tier 1 or tier 2 instrument” to refer to “tier 1 or tier 2 capital.”

Paragraph (d)(1) contains disclosure requirements for covered securities. The OCC proposes to add a new paragraph (d)(1)(i)(H) to require the covered security to state that it may be fully subordinated to interests held by the U.S. government in the event that the savings association enters into a receivership, insolvency, liquidation, or similar proceeding. As discussed above regarding § 5.47, a Federal savings association that is an advanced approaches institution must make this disclosure under 12 CFR 3.20(d)(1)(xi). The OCC believes that disclosing this information to potential investors in the covered security is beneficial for all Federal savings associations, even those that are not advanced approaches Federal savings associations or that do not intend to include the debt in tier 2 capital.

In addition, the proposed rule would replace the reference to 12 CFR part 197 in paragraphs (b)(1)(iii) and (d)(2)(i) with 12 CFR part 16, which now applies to Federal savings associations. The OCC also is proposing to make certain purely stylistic changes to the rule text of § 5.56 that are not intended to impact the substantive requirements applicable to Federal savings associations.

Pass-Through Investments by a Federal Savings Association (§ 5.58)

Section 5.58 provides the licensing procedures for Federal savings associations making pass-through investments. Although based on different authority, § 5.58 is largely analogous to the provisions in § 5.36 governing national bank non-controlling investments. Accordingly, the OCC is proposing amendments to § 5.58 similar to those proposed for § 5.36, and for the same reasons.

First, the OCC is proposing to amend paragraph (d), Definitions, by defining “pass-through investment” as an investment authorized under 12 CFR 160.32(a). As discussed above for the proposed definition of “non-controlling investment” in § 5.36, the proposed definition for “pass-through investment” would exclude a Federal savings association holding interests in a trust formed for the purposes of securitizing assets held by the bank as part of its business or for the purposes of holding multiple legal titles of motor vehicles or equipment in conjunction with lease financing transactions. The OCC also is proposing to amend paragraph (d) by removing the definitions of “well capitalized” and “well managed.” As described above, the OCC is proposing to define these terms in § 5.3.

Second, the proposal would expand the activities eligible for notice to include activities that are substantially the same as previously approved activities, as proposed to be defined in § 5.3. In making this change, the proposal reorganizes paragraph (e) and makes conforming changes to paragraphs (e)(2) and (e)(4). Additionally, the OCC is considering removing the filing requirement for pass-through investments in enterprises engaging in activities permissible for a Federal savings association, as discussed above for national bank operating subsidiaries and non-controlling investments. The OCC would not remove the filing requirement if the enterprise would be a subsidiary of the Federal savings association for purposes of section 18(m) of the FDIA Act (12 U.S.C. 1828(m)), which generally requires a Federal savings association to provide 30-days prior notice to the OCC before establishing or acquiring a subsidiary defined in section 3(w)(4) of the FDI Act (12 U.S.C. 1813(w)(4)). The OCC requests comment on the proposed amendment to the notice provision, the alternative amendment described above, and any intermediate options, such as removing the filing requirement for activities that are substantively the same as previously approved activities.

Third, the proposal would revise paragraph (f)(1) to permit a Federal savings association to file an application to make a pass-through investment in an entity that does not agree to OCC supervision and examination. The proposal also would redesignate paragraph (f)(2) as paragraph (f)(3) and add a new paragraph (f)(2) providing for expedited review for certain applications. The qualifications for expedited review are equivalent to those in proposed § 5.36(f).

Fourth, the OCC is proposing to add a new paragraph (g) that would permit a Federal savings association to make a pass-through investment without a notice or application to the OCC. The standards would be equivalent to those in proposed § 5.36(g) except that the enterprise must not be a subsidiary of the Federal savings association for purposes of section 18(m) of the FDI Act. In such a case, an application would be required under § 5.58(f)(2).

Finally, the OCC is proposing to amend redesignated paragraph (j) to provide exceptions to the rules of general applicability in the same manner as proposed § 5.36(j).

Earnings Limitation Under 12 U.S.C. 60 (§ 5.64)

Section 5.64 describes the calculations for earnings available for dividends under 12 U.S.C. 60. Paragraph (d) provides special rules for what the OCC referred to as “surplus surplus,” which is an amount in capital surplus in excess of capital stock that the national bank can demonstrate came from earnings in prior periods. A national bank had been required to retain a certain percentage of net income as capital surplus whenever it paid dividends. In addition, a variety of statutes and regulations established limits for banks based on permanent capital, including capital surplus, and ignored any amounts in retained earnings, which provided an incentive for banks to shift earnings into permanent capital. After Congress revised the statutes to provide more flexibility to include retained earnings as capital for purposes of the statutory limits, the OCC permitted banks to distribute these surplus surplus funds as dividends rather than as reductions in permanent capital given the surplus surplus funds' origin as earnings rather than paid in capital. As these statutory and regulatory changes occurred decades ago, national banks have not needed to create new surplus surplus for many years but may still incur recordkeeping burden associated with identifying regulatory surplus surplus within capital surplus. Accordingly, the OCC proposes to remove the concept of surplus surplus and associated procedures described in paragraph (d). However, removal of paragraph (d) would not prevent a bank from distributing amounts contained in the capital surplus accounts. A national bank may make an appropriate filing under 12 CFR 5.46 for a reduction in capital to distribute these funds.

Dividends Payable in Property Other Than Cash (§ 5.66)

Section 5.66 provides procedures for payment of dividends in non-cash property by national banks. This section currently provides that these dividends are equivalent to a cash dividend in an amount equal to the actual current value of the property, even if the bank previously has charged down or written off the property. Before the dividend is declared, the bank should show the excess of the actual value over book value on its books as a recovery and should declare the dividend in the amount of the full book value (equivalent to the actual current value) of the property being distributed. The OCC proposes to revise this section to clarify that the dividend is equivalent to a cash dividend in an amount equal to the actual current value of the property, regardless of whether the book value is higher or lower under GAAP. The OCC also proposes to apply this valuation methodology to all non-cash dividends, not just those for property that has been charged down or written off. Further, the amendment would provide that the bank should show the difference between the actual value and book value on its books as gain or loss, as applicable, prior to recording the non-cash dividend reflecting the actual value of the property. The OCC believes this approach better reflects the value of the property being distributed from the bank, particularly in cases where the non-cash property was recorded at historical cost under GAAP.

Fractional Shares (§ 5.67)

Section 5.67 provides a number of potential arrangements that a national bank may adopt to avoid the issuance of fractional shares. The OCC proposes to simplify this section for a national bank by retaining only one of these options, the remittance of the cash equivalent of the fraction not being issued to those to whom fractional shares would otherwise be issued. The OCC believes this procedure is the simplest and is the predominant method of disposing of fractional shares today. Other options in the current rule include issuing

warrants for fractional shares or permitting shareholders to purchase additional fractions up to one whole share. While the OCC permitted these methods historically, these methods can create significant recordkeeping costs today when bank stock may be traded in “round lots” of 100 shares or more. Because a transaction that would result in the issuance of fractional shares will generally require an application with the OCC, proposed § 5.67 maintains flexibility for banks by permitting the bank to propose an alternate method in the application for the stock issuance, which could include one of the options proposed to be removed from the rule.

Federal Branches and Agencies (§ 5.70)

Section 5.70 provides the filing procedures for corporate activities and transactions involving Federal branches and agencies of foreign banks. Consistent with the background investigation changes proposed to other sections, the OCC proposes adding a new paragraph (d)(3) to explicitly permit the OCC to require any senior executive officer of a Federal branch or agency submitting a filing to submit an Interagency Biographical and Financial Report and legible fingerprints.

General Technical Changes

The OCC proposes numerous technical changes throughout 12 CFR part 5. Specifically, the proposed rule would:

• Replace the word “shall” with “must,” “will,” or other appropriate language, which is the more current rule writing convention for imposing an obligation and is the recommended drafting style of the

Federal Register

;

• Replace the term “notice” with the term “application” where prior OCC approval is required, thereby conforming the terminology to the licensing action provided in the provision (notices would continue to include informational filings to the OCC as well as certain transactions that the OCC has the power to disapprove, such as changes in control);

• Amend the expedited review provisions throughout part 5 to refer to the OCC removing a filing from expedited review rather than making a determination that the filing is not eligible for expedited review to accord with the language and procedure in § 5.13(a)(2).

• Revise citations to the U.S. Code and the Code of Federal Regulations by adjusting cross-references and making citations more specific;

• Update and standardize references to the OCC website;

• Simplify gender references by replacing “his or her” with the neutral “their;”

• Uniformly capitalize the word “State,” in conformance with

Federal Register

drafting style; and

• Replace the term “bank” and “savings association” with “national bank” or “Federal savings association,” respectively, where appropriate.

III. Regulatory Analyses

A. Paperwork Reduction Act

Paperwork Reduction Act

Certain provisions of the proposed rulemaking contain “collection of information” requirements within the meaning of the Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3501-3521). In accordance with the requirements of the PRA, the OCC may not conduct or sponsor, and a respondent is not required to respond to, an information collection unless it displays a currently valid Office of Management and Budget (OMB) control number.

The OCC reviewed the proposed rulemaking and determined that it revises certain information collection requirements previously cleared by OMB under OMB Control No. 1557-0014. The OCC has submitted the revised information collection to OMB for review under section 3507(d) of the PRA (44 U.S.C. 3507(d)) and section 1320.11 of the OMB's implementing regulations (5 CFR 1320).

Current Actions

The proposed rulemaking would:

• Add new definitions to add clarity and consistency across Part 5. This includes proposing a single definition of

well managed

applicable throughout Part 5. 12 CFR 5.3.

• Require each proposed organizer, director, executive officer, or principal shareholder to submit information prescribed in the Interagency Biographical and Financial Report and legible fingerprints. This amendment merely codifies current application requirements and will not result in a change in burden. 12 CFR 5.20.

• Eliminate the bylaw amendment notice requirement for Federal savings associations that adopt without change the OCC's model or optional bylaws set forth in the rule. 12 CFR 5.21, 5.22.

• Require that applications to convert to a Federal savings association or national bank include: A list of directors and senior executive officers of the converting institution; and a list of individuals, directors, and shareholders who directly or indirectly, or acting in concert with one or more persons or companies, or together with members of their immediate family, do or will own, control, or hold 10 percent or more of the converting institution's stock. This amendment merely codifies current application requirements and will not result in a change in burden. 12 CFR 5.23(d)(2)(ii), 5.24(e)(2).

• Permit the OCC to require directors and senior executive officers of a converting institution to submit the Interagency Biographical and Financial Report and legible fingerprints. This amendment merely codifies current application requirements and will not result in a change in burden. 12 CFR 5.23, 5.24.

• Require that applications for national banks or Federal savings associations that wish to engage in the exercise of fiduciary powers include, if requested by the OCC, the Interagency Biographical and Financial Report and legible fingerprints. 12 CFR 5.26.

• Require a filer of a business combination application under CRA to disclose whether it has entered into and disclosed a covered agreement, as defined in 12 CFR 35.2. 12 CFR 5.33(e)(1)(iii)(B).

• Remove the requirement that a disappearing national bank or Federal savings association consolidating or merging with another OCC-supervised institution provide a notice to the OCC. § 5.33(g), (k).

• For national bank operating subsidiaries, expand the after the fact notice for national banks to activities that are substantially the same as previously approved activities that will be conducted in accordance with the same terms and conditions applicable to the previously approved activity. Expand the list of eligible entities to include trusts provided that the bank or operating subsidiary has the ability to replace the trustee at will and be the sole beneficial owner of the trust. 12 CFR 5.34.

• Remove the requirement for a national bank to file an annual report identifying its operating subsidiaries that do business directly with consumers and are not functionally regulated. 12 CFR 5.34.

• For national bank non-controlling investments and Federal savings association pass-through investments, expand the activities eligible for notice to activities that are substantially the same as previously approved activities., 12 CFR 5.36, 5.58.

• Allow national banks and Federal savings associations to file an application to make a non-controlling investment or a pass-through investment, respectively, in an enterprise that has not agreed to be

subject to OCC supervision and examination. 12 CFR 5.36(f), 5.58(f).

• Allow national banks and Federal savings associations to make non-controlling investments or a pass-through investments, respectively, without a filing if the activities of the enterprise are limited to those previously reported to the OCC in connection with a prior investment. 12 CFR 5.36, 5.58.

• For Federal savings association operating subsidiaries, expand the expedited approval process for Federal savings associations to include activities that are substantially the same as previously approved activities that will be conducted in accordance with the same terms and conditions applicable to the previously approved activity. Expanded the list of eligible entities to include trusts provided that the Federal savings association or operating subsidiary has the ability to replace the trustee at will and be the sole beneficial owner of the trust. 12 CFR 5.38.

• Permit national banks to request approval for a reduction in permanent capital for multiple quarters. 12 CFR 5.46.

• Regarding subordinated debt notes, allow national banks to omit inapplicable provisions when warranted, and require national banks to disclose in subordinated debt notes that the subordinated debt obligation may be fully subordinated to interests held by the U.S. government in the event that the national bank enters into a receivership, insolvency, liquidation, or similar proceeding. 12 CFR 5.47.

• Revise the standard for when prior approval is required for a national bank's issuance of subordinated debt and for prepayment of any subordinated debt that is not included in tier 2 capital 12 CFR 5.47(f).

• Require OCC approval for a material change to an existing subordinated debt document if the national bank would have been required to receive OCC approval to issue the security under § 5.47(f)(1) or to include it in tier 2 capital under § 5.47(h). 12 CFR 5.47.

• Add the position of

chief risk officer

to the definition of senior executive officer. This change would require prior OCC approval for the employment of an individual as a chief risk officer by a national bank or Federal savings association in troubled condition. 12 CFR 5.51.

• Require a covered security (inclusion of subordinated debt and mandatorily redeemable preferred stock) issued by a Federal savings association to state that it may be fully subordinated to interests held by the U.S. government in the event that the savings association enters into a receivership, insolvency, liquidation, or similar proceeding. 12 CFR 5.56.

• Permit the OCC to require any senior executive officer of a Federal branch or agency submitting a filing to submit an Interagency Biographical and Financial Report and legible fingerprints. This amendment merely codifies current application requirements and will not result in a change in burden. 12 CFR 5.70.

Title of Information Collection:

Licensing Manual.

Frequency:

Event generated.

Affected Public:

Businesses or other for-profit.

Estimated number of respondents:

1,196.

Total estimated annual burden:

12,481 hours.

Comments are invited on:

a. Whether the collections of information are necessary for the proper performance of the agencies' functions, including whether the information has practical utility;

b. The accuracy or the estimate of the burden of the information collections, including the validity of the methodology and assumptions used;

c. Ways to enhance the quality, utility, and clarity of the information to be collected;

d. Ways to minimize the burden of the information collections on respondents, including through the use of automated collection techniques or other forms of information technology; and

e. Estimates of capital or startup costs and costs of operation, maintenance, and purchase of services to provide information.

All comments will become a matter of public record. Comments on aspects of this notice that may affect reporting, recordkeeping, or disclosure requirements and burden estimates should be sent to the addresses listed in the

ADDRESSES

section of this document. A copy of the comments may also be submitted to the OMB desk officer by mail to U.S. Office of Management and Budget, 725 17th Street NW, #10235, Washington, DC 20503; facsimile to (202) 395-6974; or email to

oira_submission@omb.eop.gov,

Attention, Federal Banking Agency Desk Officer.

B. Regulatory Flexibility Act Analysis

In general, the Regulatory Flexibility Act (5 U.S.C. 601

et seq.

) requires an agency, in connection with a proposed rule, to prepare an Initial Regulatory Flexibility Analysis describing the impact of the rule on small entities (defined by the SBA for purposes of the RFA to include commercial banks and savings institutions with total assets of $600 million or less and trust companies with total revenue of $41.5 million or less). However, under section 605(b) of the RFA, this analysis is not required if an agency certifies that the rule would not have a significant economic impact on a substantial number of small entities and publishes its certification and a short explanatory statement in the

Federal Register

along with its rule.

The OCC currently supervises approximately 1,196 institutions (commercial banks, trust companies, FSAs, and branches or agencies of foreign banks, collectively banks), of which 782 are small entities.

Because the rule applies to all OCC-supervised depository institutions, the proposed rule would affect all small OCC-supervised entities, and thus a substantial number of them.

Consistent with the General Principles of Affiliation 13 CFR 121.103(a), the OCC counts the assets of affiliated financial institutions when determining if it should classify an institution as a small entity. The OCC used December 31, 2018, to determine size because a “financial institution's assets are determined by averaging the assets reported on its four quarterly financial statements for the preceding year.”

See

footnote 8 of the U.S. Small Business Administration's

Table of Standards.

The OCC classifies the economic impact of total costs on an OCC-regulated entity as significant if the total costs for the entity in a single year are greater than 5 percent of total salaries and benefits, or greater than 2.5 percent of total non-interest expense. The OCC estimates that the monetized direct cost of this rulemaking would range from a low of approximately $4,560 per bank (40 hours × $114 per hour)

to a high of approximately $18,240 per bank (160 hours × $114 per hour). Using the upper bound average direct cost per bank, the OCC finds the compliance costs would have a significant economic impact on no more than 20 small banks, which is not a substantial number.

Therefore, the OCC certifies that this regulation, if adopted, would not have a significant economic impact on a substantial number of small entities supervised by the OCC. Accordingly, an Initial Regulatory Flexibility Analysis is not required.

This per hour dollar amount is based on the U.S. Bureau of Labor Statistics data for wages (by industry and occupation).

The OCC's threshold for a substantial number of small entities is five percent of OCC-supervised small entities, or 39 as of December 31, 2018.

C. 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) (2 U.S.C. 1501

et seq.

). 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 UMRA does not apply to regulations that incorporate requirements specifically set forth in law.

Based on the OCC estimate that the monetized direct cost of this rulemaking would range from a low of approximately $4,560 per bank to a high of approximately $18,240 per bank, the OCC's overall estimate of the total effect of the proposed rule ranges from approximately $5.5 million to approximately $21.8 million for the approximately 1,196 institutions supervised by the OCC. Therefore, the OCC finds that the proposed rule does not trigger the UMRA cost threshold. Accordingly, the OCC has not prepared the written statement described in section 202 of the UMRA.

D. Riegle Community Development and Regulatory Improvement Act of 1994

Pursuant to section 302(a) of the Riegle Community Development and Regulatory Improvement Act of 1994 (12 U.S.C. 4802(a)), in determining the effective date and administrative compliance requirements for new regulations that impose additional reporting, disclosure, or other requirements on insured depository institutions, the OCC will consider, consistent with the principles of safety and soundness and the public interest: (1) Any administrative burdens that the proposed rule would place on depository institutions, including small depository institutions and customers of depository institutions; and (2) the benefits of the proposed rule. The OCC requests comment on any administrative burdens that the proposed rule would place on depository institutions, including small depository institutions, and their customers, and the benefits of the proposed rule that the OCC should consider in determining the effective date and administrative compliance requirements for a final rule.

List of Subjects

12 CFR Part 5

Administrative practice and procedure, Federal savings associations, National banks, Reporting and recordkeeping requirements, Securities.

For the reasons set out in the preamble, the OCC proposes to amend 12 CFR chapter I as follows:

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

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

Authority:

12 U.S.C.

1 et seq.,

24a, 35, 93a, 214a, 215, 215a, 215a-1, 215a-2, 215a-3, 215c, 371d, 481, 1462a, 1463, 1464, 1817(j), 1831i, 1831u, 2901

et seq.,

3101

et seq.,

3907, and 5412(b)(2)(B).

§ 5.2

[Amended]

2. Amend § 5.2 by:

a. In paragraph (b), removing the word “filings,” and adding in its place the phrase “filings as it deems necessary, for example,” and removing the word “applicant” and adding in its place the word “filer”; and

b. In paragraph (c), removing the phrase “on the OCC's internet web page”.

3. Revise § 5.3 to read as follows.

§ 5.3

Definitions.

As used in this part:

Application

means a submission requesting OCC approval to engage in various corporate activities and transactions.

Appropriate Federal banking agency

has the meaning set forth in section 3(q) of the Federal Deposit Insurance Act, 12 U.S.C. 1813(q).

Appropriate OCC licensing office

means the OCC office that is responsible for processing applications or notices to engage in various corporate activities or transactions, as described at

www.occ.gov.

Appropriate OCC supervisory office

means the OCC office that is responsible for the supervision of a national bank or Federal savings association, as described in subpart A of 12 CFR part 4.

Capital and surplus

means:

(1) For qualifying community banking organizations that have elected to use the community bank leverage ratio framework, as set forth under the OCC's Capital Adequacy Standards at part 3 of this chapter:

(i) A qualifying community banking organization's tier 1 capital, as used under § 3.12 of this chapter; plus

(ii) A qualifying community banking organization's allowance for loan and lease losses or adjusted allowances for credit losses, as applicable, as reported in the national bank's or Federal savings association's Consolidated Report of Condition and Income (Call Report); or

(2) For all other national banks and Federal savings associations:

(i) A national bank's or Federal savings association's tier 1 and tier 2 capital calculated under the OCC's risk-based capital standards set forth in part 3 of this chapter, as applicable, as reported in the bank's or savings association's Call Report, respectively; plus

(ii) The balance of the national bank's or Federal savings association's allowance for loan and lease losses or adjusted allowances for credit losses, as applicable, not included in the institution's tier 2 capital, as reported in the Call Report.

Depository institution

means any bank or savings association.

Eligible bank or eligible savings association

means a national bank or Federal savings association that:

(1) Is well capitalized as defined in § 5.3;

(2) Has a composite rating of 1 or 2 under the Uniform Financial Institutions Rating System (CAMELS);

(3) Has a Community Reinvestment Act (CRA), 12 U.S.C. 2901

et seq.,

rating of “Outstanding” or “Satisfactory,” if applicable;

(4) Has a consumer compliance rating of 1 or 2 under the Uniform Interagency Consumer Compliance Rating System; and

(5) Is not subject to a cease and desist order, consent order, formal written agreement, or Prompt Corrective Action directive (

see

12 CFR part 6, subpart B) or, if subject to any such order, agreement, or directive, is informed in writing by the OCC that the bank or savings association may be treated as an “eligible bank or eligible savings association” for purposes of this part.

Eligible depository institution

means:

(1) With respect to a national bank, a State bank or a Federal or State savings association that meets the criteria for an “eligible bank or eligible savings association” under § 5.3 and is 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 and is FDIC-insured.

FDIC

means the Federal Deposit Insurance Corporation.

Filer

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

Filing

means an application or notice submitted to the OCC under this part.

GAAP

means generally accepted accounting principles as used in the United States.

MSA

means metropolitan statistical area as defined by the Director of the Office of Management and Budget.

Nonconforming assets and nonconforming activities

mean assets or activities, respectively, that are

impermissible for national banks or Federal savings associations to hold or conduct, as applicable, or, if permissible, are held or conducted in a manner that exceeds limits applicable to national banks or Federal savings associations, as applicable. Assets include investments in subsidiaries or other entities.

Notice,

in general, means a submission notifying the OCC that a national bank or Federal savings association intends to engage in or has commenced certain corporate activities or transactions. The specific meaning of

notice

depends on the context of the rule in which it is used and may provide the OCC with authority to disapprove the notice or may be informational requiring no official OCC action.

OTS

means the former Office of Thrift Supervision.

Previously approved activity

means:

(1) In the case of a national bank, an activity approved in published OCC precedent for a national bank, an operating subsidiary of a national bank, or a non-controlling investment of a national bank; and

(2) In the case of a Federal savings association, an activity approved in published OCC or OTS precedent for a Federal savings association, an operating subsidiary of a Federal savings association, or a pass-through investment of a Federal savings association.

Principal city

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

Short-distance relocation

means moving the premises of a branch or main office of a national bank or a branch or home office of a Federal savings association within a:

(1) One thousand foot-radius of the site if the branch, main office, or home office is located within a principal city of an MSA;

(2) One-mile radius of the site if the branch, main office, or home office is not located within a principal city, but is located within an MSA; or

(3) Two-mile radius of the site if the branch, main office, or home office is not located within an MSA.

Well capitalized

means:

(1) In the case of a national bank or Federal savings association, the capital level described in 12 CFR 6.4;

(2) In the case of a Federal branch or agency, the capital level described in 12 CFR 4.7(b)(1)(iii); or

(3) In the case of another depository institution, the capital level designated as “well capitalized” by the institution's appropriate Federal banking agency pursuant to section 38 o

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