Licensing Amendments

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Parts 3, 5, 7

[Docket ID OCC-2019-0024]

RIN 1557-AE71

Licensing Amendments

AGENCY:

Office of the Comptroller of the Currency, Treasury.

ACTION:

Final rule.

SUMMARY:

The Office of the Comptroller of the Currency (OCC) is amending its rules relating to policies and procedures for corporate activities and transactions involving national banks and Federal savings associations to update and clarify the policies and procedures, eliminate unnecessary requirements consistent with safety and soundness, and make other technical and conforming changes.

DATES:

The final rule is effective on January 11, 2021, except for instruction 15g which is effective on December 11, 2020.

FOR FURTHER INFORMATION CONTACT:

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

SUPPLEMENTARY INFORMATION:

I. Background

Twelve CFR part 5 sets forth the OCC's requirements for national banks and Federal savings associations that seek to engage in certain corporate transactions or activities. It addresses the range of an institution's existence from chartering to dissolution and includes, among other things, business combinations, branching matters, operating subsidiaries, and dividend payments. In some cases, a national bank or Federal savings association is required to apply to engage in a certain transaction or activity while in other situations the bank or savings association must submit a notice to the OCC either for informational purposes or as a means for providing the OCC with the opportunity to object to the transaction or activity. On March 5, 2020, the OCC issued a notice of proposed rulemaking (proposal) to revise part 5.

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This proposal is part of the OCC's continual review of its regulations to eliminate outdated or otherwise unnecessary provisions and to clarify or revise requirements imposed on national banks and Federal savings associations where possible and when not inconsistent with safety and soundness.

2

1

The proposed rule was published in the

Federal Register

on April 2, 2020. 85 FR 18728.

2

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

Federal Register

. 82 FR 15900 (March 30, 2017).

The OCC received six substantive written comments on this proposal. These comments and the OCC's response are discussed in the next section of this

Supplementary Information.

II. Description of the Final Rule

Rules of General Applicability (Part 5, Subpart A)

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

Rules of General Applicability (§ 5.2)

Section 5.2(b) provides that the OCC may adopt materially different procedures for a particular filing or class of filings in exceptional circumstances or for unusual transactions after providing notice to the applicant and any other party that the OCC determines should receive notice. The proposal would increase the OCC's flexibility to address unusual situations by providing that the OCC may adopt materially different procedures as it deems necessary and then using the term “exceptional circumstances or unusual transactions” as examples, but not limitations, as to when the OCC may deem it necessary to adopt materially different procedures. One commenter expressed concern that the phrase “as it deems necessary” seemed vague and suggested the OCC note specific instances where flexibility is needed to eliminate vagueness.

The OCC disagrees with this commenter. The final rule includes examples—for exceptional circumstances or unusual transactions—that are intended to explain when the OCC may act while not limiting its ability in unforeseen cases where additional flexibility may be needed. Therefore, the OCC adopts this change as proposed.

Definitions (§ 5.3)

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

Second, the OCC proposed to define the term “previously approved activity” to mean, in the case of a national bank, an activity approved in published OCC precedent for a national bank, an operating subsidiary of a national bank, or a non-controlling investment of a national bank; and in the case of a Federal savings association, an activity approved in published OCC or Office of Thrift Supervision (OTS) precedent for a Federal savings association, an operating subsidiary of a Federal savings association, or a pass-through investment of a Federal savings association.

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The OCC proposed this definition to provide more clarity given the repeated use of this standard in §§ 5.34, 5.36, 5.38, and 5.58. One commenter discussed this definition. This commenter requested that the OCC clarify that this definition includes a previous OCC approval for any bank, not only the bank in question. The intention of this definition is to apply to

all previously approved activities. To clarify this, the OCC has changed “an activity” to “any activity” in this definition in the final rule.

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The OCC notes that this definition would not apply to an activity that a statute, regulation, or court decision has subsequently made impermissible.

The preamble to the proposed rule also noted that for references to previously approved activities, national banks and Federal savings associations may consult the OCC's publications

Comparison of the Powers of National Banks and Federal Savings Associations

and

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

4

In response to the commenter, the OCC clarifies that these documents are not exclusive examples of where to find published OCC precedent. The OCC also publishes interpretive letters and corporate decisions that may be used as precedent in its monthly Interpretations and Actions.

5

This commenter also suggested that the OCC publish its unpublished interpretive letters regarding permissible activities. The OCC notes that it endeavors to publish all pertinent interpretive letters.

4

These references are available at

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

and

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

5

See https://occ.gov/topics/charters-and-licensing/interpretations-and-actions/index-interpretations-and-actions.html.

Third, the OCC defines the term “well capitalized” differently in various sections of part 5 by cross-referencing to other OCC rules. The OCC proposed to add a definition of “well capitalized” to § 5.3 that incorporates these cross-references so that the individual cross-references in other sections are no longer needed. The OCC received no comments on this change and adopts it in the final rule as proposed, with one technical change to make a cross-reference citation more specific. As noted in the preamble to the proposed rule, this new definition does not make any substantive changes.

Fourth, the OCC proposed to add the term “well managed” to § 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 when acquiring or establishing a service corporation.

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

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The financial subsidiary statute, 12 U.S.C. 24a, defines “well managed” to include the management rating, and the OCC proposed to use this definition for national banks and Federal savings associations. The proposal also defined “well managed” for Federal branches and agencies of foreign banks as meaning the composite ROCA supervisory rating (which rates risk management, operational controls, compliance and assets quality) of 1 or 2, and at least a rating of 2 for risk management.

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

The OCC received one comment on this proposed definition. This commenter opposed the inclusion of management rating in a definition of “well managed,” except as required by statute. It stated that the financial subsidiary statutory definition of “well managed” was intended for new non-traditional activities, not core banking activities, and that using the new “well managed” definition could cause some banks to conduct activities in the bank rather than the subsidiary. The commenter noted that this could create safety and soundness issues because the bank would no longer benefit from having the activities conducted in a separate entity. In addition, this commenter stated that, in any event, the CAMELS management rating is in need of change.

The OCC disagrees with this commenter. As the OCC explained in the preamble to the proposed rule, the OCC believes that a single definition of “well managed” would enhance bank safety and soundness and provide a clearer and more consistent standard for national banks and Federal savings associations. In addition, the OCC finds that the components reflected in an entity's management rating, such as bank controls, are relevant to the establishment of operating subsidiaries, investments in bank service companies, other equity investments of a national bank and pass-through investments of a Federal savings association, and Federal savings association investments in service corporations. As explained in the preamble to the proposed rule, a national bank, Federal savings association, or Federal branch or agency with a 2 composite rating but a 3 management, or risk management, rating warrants additional scrutiny. Further, the OCC notes that the definition of “well managed” in Regulation K (international banking) and Regulation Y (bank holding companies) of the Board of Governors of the Federal Reserve System (Federal Reserve Board) also includes both composite and management ratings.

7

7

See

12 CFR 211.2(z); 12 CFR 225.2(s). Additionally, the OCC notes that the definition of “well managed” in Regulation Y applies to both expedited processing,

see, e.g.,

12 CFR 225.14(c)(2), and for an entity qualifying to be a financial holding company,

see, e.g.,

12 CFR 225.82. These are analogous, for example, to the revised usage of “well managed” for processing procedures to establish an operating subsidiary in § 5.34 and for a national bank qualifying to invest in a financial subsidiary in § 5.39, respectively.

This commenter also requested that if the OCC adopts the proposed “well managed” definition, the definition should include reasonable exceptions to the associated filing requirements. However, the proposed definition provides that it applies unless the OCC otherwise determines in writing. This provision allows the OCC to make exceptions in certain cases as warranted.

Finally, this commenter requested a transition period in event a bank receives a new rating, noting that without such a transition period a bank might be required to file an application where it already has begun negotiating or entering into an agreement to, for example, make a non-controlling investment, or otherwise relied on the fact that only an after-the-fact notice would be required. Specifically, the commenter recommended that the required “compliance date” of a new rating, particularly if it creates new requirements for the bank, should be several months after it is assigned or there should be an exception for any agreement already entered into at the

time the rating is assigned. The OCC disagrees. For safety and soundness reasons, a national bank's or Federal savings association's rating should apply to all its activities as of the date the OCC issues the rating. Furthermore, a national bank or Federal savings association may mitigate any rating changes by including appropriate regulatory approval clauses in agreements with third parties.

For the reasons discussed above, the OCC adopts the definition of “well managed” as proposed.

The proposed rule also noted that the OCC was considering an amendment to the definition of “short-distance relocation.” Currently, moving the premises of a branch or main office of a national bank or a branch or home office of a Federal savings association is a short-distance relocation if the move is within: (1) A one-thousand foot-radius of the site if the branch, main office, or home office is located within a principal city of a metropolitan statistical area (MSA); (2) a one-mile radius of the site if the branch, main office, or home office is not located within a principal city but is located within an MSA; or (3) a two-mile radius of the site if the branch, main office, or home office is not located within an MSA. Under the branch relocation provisions in § 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 finds the short-distance relocation provision to be equivalent to a “relocation” for the purposes of branch closings under section 42 of the Federal Deposit Insurance Act (FDI Act) (12 U.S.C. 1831r-1).

The preamble to the proposed rule noted that the OCC was considering doubling the distances for short-distance relocations to allow greater flexibility and to reduce regulatory burden for office relocations. The preamble noted that any amended definition would not apply to a branch that would be relocated from a low- or moderate-income (LMI) area to a non-LMI area.

The OCC received three comments on this possible amendment. One commenter supported the change and agreed that it would promote flexibility and reduce regulatory burden without depriving customers of appropriate notice. However, the commenter expressed concerns about having a separate standard for LMI areas because it could affect statistics on bank closures by more heavily weighing branch relocations in LMI areas relative to relocation in non-LMI areas. Another commenter stated that the expanded definitions for “short distance relocations” should not apply when the branch is relocated from an LMI tract to another LMI tract in addition to the suggested exclusion for branches relocated from an LMI tract to a non-LMI tract. The third commenter stated that the suggested definition may disproportionately adversely impact LMI persons and that the OCC should exempt branches in LMI areas or that largely service LMI customers from the definition change. Further, this commenter advocated no change to the definition, noting that it is not only LMI customers who would be inconvenienced.

The OCC has decided not to expand the distances in the definition of “short-distance relocation” in the final rule. In light of these public comments and after further reviewing this suggestion, the OCC believes that a bifurcated definition would increase burden on national banks without providing a compensating benefit. In addition, the exception may cause confusion for banks if a census tract LMI status changes. However, any increase in distance without excluding LMI tracts would negatively affect LMI communities. Therefore, the current definition of “short distance relocation” remains unchanged.

Finally, the OCC proposed technical changes to § 5.3. The OCC received no comments on these technical changes and adopts them as proposed. First, current § 5.3 defines “applicant” as a “person or entity that submits a notice or application to the OCC under” part 5. However, this usage of the term “applicant” is confusing because it covers persons who submit an application or a notice. Accordingly, the final rule changes the term “applicant” to “filer” to more clearly cover both a person who files an application or a notice. The final rule makes conforming changes throughout part 5.

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

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

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

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

Supplementary Information,

the final rule generally changes the term “notice” to “application” for activities or transactions that require prior OCC approval. Therefore, the final rule removes the quoted language from the definition.

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

Finally, to reflect the more current regulatory drafting style, the final rule removes the paragraph designations in § 5.3 and makes conforming changes to cross-references in § 5.3 and other OCC rules.

The final rule also makes additional technical corrections by removing the phrase “as defined in § 5.3” and related language throughout part 5. The definitions in § 5.3 apply to all of part 5 so these cross-references are not necessary.

Filing required (§ 5.4)

Section 5.4 requires a depository institution to file an application or notice with the OCC to engage in certain corporate activities and transactions and provides general information on this filing requirement. Section 5.4(f) currently encourages a potential filer to contact the appropriate OCC licensing office to determine the need for a prefiling meeting, and it specifically provides that the OCC decides whether to require a prefiling meeting on a case-by-case basis. The proposal included more general guidance on when a filer should seek a prefiling meeting with the OCC. Specifically, the OCC proposed to include a new sentence advising potential filers with novel, complex, or unique proposals to contact the appropriate OCC licensing office early in the development of the proposal to help identify and consider relevant policy issues. The OCC received no comments on this change and adopts it as proposed.

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

The OCC received one comment on new § 5.4(g). This commenter stated that because proposed § 5.4(g) makes no mention of a legal standard for culpability, it is unclear whether a filer would be subject to criminal penalties even if a material misrepresentation or omission were not made knowingly and willfully. The commenter suggested that in order to provide clarity regarding the applicable legal standard to which criminal penalties may apply when signing a certification, the OCC should amend proposed § 5.4(g) to qualify that filers who “knowingly and willfully” make material misrepresentations or omissions in a filing may be subject to enforcement and criminal penalty under 18 U.S.C. 1001. The commenter also suggested that the OCC update its standard forms accordingly. However, the OCC is not the appropriate agency to make representations about the specific elements of a criminal statute. Further, the OCC notes that the existing phrasing of “may be subject to enforcement action and other penalties” in the rule text indicates that section 1001 may or may not be applicable given the circumstances of a particular case, and that every misrepresentation or omission will not necessarily lead to a violation of section 1001. Section 1001 only would be applicable if the misrepresentation or omission meets the standard for a violation set forth in section 1001. Therefore, the OCC declines to address this comment in § 5.4(g).

Filing fees (§ 5.5)

Section 5.5(a) provides the procedure for submitting filing fees to the OCC. The current rule requires payment to the OCC by check, money order, cashier's check, or wire transfer. The OCC proposed updating this provision by providing that a filer can pay the fees by check payable to the OCC or by other means acceptable to the OCC. The OCC received no comments on this change and adopts it as proposed. The OCC notes that it does not currently charge filing fees for licensing filings and is not imposing any fees as part of this final rule.

Investigations (§ 5.7)

Section 5.7 provides the OCC with examination and investigation authority related to a filing. As discussed in the “Background Investigations” booklet of the

Comptroller's Licensing Manual,

the OCC routinely engages in background investigations of filers and other individuals involved in filings for new charters, changes in bank control, and changes in directors and senior executive officers. As part of these background investigations, the OCC collects fingerprints and submits them to the Federal Bureau of Investigation for a national criminal history background check. The OCC proposed adding a new paragraph (b) to § 5.7 to codify this procedure. The OCC also proposed conforming changes to other sections in part 5 to clarify when it collects fingerprints. The OCC received one comment in support of these changes. The final rule includes these changes as proposed.

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

Section 5.9 addresses the public availability and confidential treatment of filings. Section 5.10 provides the process for public comment periods and the submission of public comments. Section 5.11 provides the process for hearings and public and private meetings. The OCC proposed changing the terms “application” to “filing” and “applicant” to “filer” in these sections to reflect the more general terminology proposed in this rule. Furthermore, each of these sections currently uses the term “interested persons” to refer to persons other than the filer who seek to interact with a filing or related procedure. The OCC understands the term “interested persons” to mean any person who is or may wish to be involved in the licensing process. Such a person may, but need not, have particular financial, pecuniary, or other interest in the transaction itself, the filer, or other party to the transaction. In the proposal, the OCC invited comment about whether the term “interested persons” is sufficiently clear, or whether a change in terminology would be helpful to indicate the breadth of this provision. The OCC received no comments on changing the terms “application” to “filing” and “applicant” to “filer” and adopts these changes in the final rule. Further the OCC received no comments in the term “interested persons” and so does not change this term in the final rule.

Decisions (§ 5.13)

Section 5.13 contains the OCC's procedures for acting on a filing. Paragraph (a)(2) of this section provides the procedures for the OCC's expedited review, including extending the time frame for reviewing or removing a filing from expedited review. Specifically, the OCC may change the expedited review procedures if it concludes that the filing, or an adverse comment regarding the filing, presents a significant supervisory, Community Reinvestment Act (CRA)

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(if applicable), or compliance concern or raises a significant legal or policy issue requiring additional OCC review. Paragraph (a)(2)(ii) of § 5.13 provides that the OCC will not change the expedited procedures if it determines, among other things, that an adverse comment does not raise a significant supervisory, CRA (if applicable), or compliance concern or a significant legal or policy issue, or is frivolous or filed primarily as a means of delaying action on the filing. The OCC proposed adding non-substantive comments to this list to better align the regulation with OCC policy. The proposal stated that the OCC considers a comment to be “non-substantive” if it is: (1) A generalized opinion that a filing should or should not be approved; or (2) a conclusory statement, lacking factual or analytical support.

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12 U.S.C. 2901

et seq.

The OCC received three comments on this proposed change. One commenter supported the addition of “non-substantive” to the list of items that do not remove a filing from expedited processing stating that this change would provide commenters with a clear standard and reduce unfair or unnecessary delays where a comment lacks factual or analytical support.

Another commenter opposed this change stating that it would increase the risk that the OCC could arbitrarily classify comments as non-substantive. The OCC disagrees with this commenter. For example, in the analogous context of informal rulemaking under the Administrative Procedure Act (APA),

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agencies need only “consider and respond to significant comments” received during the public comment period.

11

Courts have not interpreted the APA as requiring agencies to respond to

insubstantial comments.

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As stated by the Supreme Court, “administrative proceedings should not be a game or a forum to engage in unjustified obstructionism by making cryptic and obscure reference to matters that `ought to be' considered and then, after failing to do more to bring the matter to the agency's attention, seeking to have that agency determination vacated on the ground that the agency failed to consider matters `forcefully presented.' ”

13

10

5 U.S.C. 551

et seq.

11

See, e.g., Perez

v.

Mortg. Bankers Ass'n,

575 U.S. 92, 96 (2015).

12

See Thompson

v.

Clark,

741 F.2d 401, 408-09 (D.C. Cir. 1984);

Auto. Parts & Accessories Ass'n

v.

Boyd,

407 F.2d 330, 338 (D.C. Cir.1968).

13

Vermont Yankee Nuclear Power Corp.

v.

Natural Res. Def. Council, Inc.,

435 U.S. 519, 553-54 (1978).

See also, e.g.,

Interstate Natural Gas Ass'n of Am.

v.

Fed. Energy Regulatory Comm'n,

494 F.3d 1092, 1096 (D.C. Cir. 2007) (“`[C]omments must be significant enough to step over a threshold requirement of materiality before any lack of agency response or consideration becomes of concern' . . . and `[t]he APA requirement of agency responsiveness to comments is subject to the common-sense rule that a response be necessary.'”(

quoting Portland Cement Ass'n

v.

Ruckelshaus,

486 F.2d 375, 294 (D.C. Cir. 1973) and

Natural Res. Def. Council, Inc.

v.

U.S. Envtl. Prot. Agency,

859 F.2d 156, 188 (D.C. Cir. 1988) (per curiam)).

The regulation's requirement that a party seeking relief must provide sufficient and supported information to warrant review of its claim is fully consistent with established principles that wholly speculative or unsupported comments need not be addressed.

14

Further, the receipt of a large number of comments that set forth a particular view regarding a proposal does not necessarily render those comments “significant” or material

15

if they do not contain the requisite level of analytical or substantive content.

14

See Home Box Office, Inc.

v.

Fed'l Commc'ns Comm'n,

567 F.2d 9, 35 n.58 (D.C. Cir. 1977) (“Moreover, comments which themselves are purely speculative and do not disclose the factual or policy basis on which they rest require no response. There must be some basis for thinking a position taken in opposition to the agency is true.”).

15

See Hillsdale Envtl. Loss Prevention, Inc.

v.

U.S. Army Corps of Eng'rs,

702 F.3d 1156, 1181-82 (10th Cir. 2012) (Holding that “[e]ven if 90% of the comments . . . were negative, this merely demonstrates public opposition, not a substantial dispute” concerning the factors that the agency had to consider per the statute).

The situation also may be analogized with the standards applicable to setting forth minimally viable claims in litigation. A Federal plaintiff has an “obligation to provide the `grounds' of his `entitle[ment] to relief' [that] requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.”

16

“Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.”

17

16

Bell Atlantic Corp.

v.

Twombly,

550 U.S. 544, 555 (2007) (

quoting

Fed. R. Civ. P. 8(a)(2) (first alteration in original)).

17

Ashcroft

v.

Iqbal,

556 U.S. 662, 678 (2009).

The OCC believes that either of these standards, as expressed by the Supreme Court, are analogous to those proposed for a comment on a licensing filing to warrant a change to expedited procedures. The requirement that a comment not be “non-substantive” to be considered reflects that the OCC will not “accept as true a legal conclusion couched as a factual allegation.”

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Similarly, the requirement is consistent with the APA's provisions governing formal rulemaking proceedings.

19

Thus, a comment containing merely a conclusory statement would not be sufficient to change the expedited processing procedures. It is appropriate for the OCC to require that a comment must have factual and analytical support to allow the OCC to determine that one of the concerns set forth in § 5.13(a)(1) has indeed been raised, thus warranting additional OCC review.

20

18

Papsan

v.

Allain,

478 U.S. 265, 286 (1986).

19

See

5 U.S.C. 556(d) (permitting agency officials or administrative law judges overseeing formal rulemaking proceedings to exclude “irrelevant, immaterial, or unduly repetitious evidence”).

20

Cf. Twombly,

550 U.S. at 556 (requiring that an antitrust complaint contain “enough fact to raise a reasonable expectation that discovery will reveal evidence of illegal agreement”).

Accordingly, the OCC believes that the criteria for being “non-substantive” set forth in the amendment provides a clear standard for when the OCC will consider a comment to be non-substantive and provides commenters with guidance on submitting views on a filing. Further, the OCC notes that if a commenter believes that the OCC inadequately considered a comment, they may have grounds to challenge the OCC's licensing decision under the APA.

This commenter also stated that the final rule should describe the procedure by which the OCC would notify the commenter if the OCC determines a comment to be non-substantive and the procedure for re-submission of the comment. The OCC also disagrees with this comment. The OCC does not intend to notify a commenter that it finds its comment non-substantive. As indicated above, the OCC believes the provision as proposed adequately explains the OCC's standards for non-substantive comments and that these standards should inform commenters when the OCC would find a comment to be non-substantive.

Another commenter requested the OCC to define and explain the term “significant” as used in the current rule to describe supervisory, CRA, and compliance concerns and to provide the criteria it would use to determine the significance of concerns. In response to this comment, the OCC intends “significant” as used in the current and final rule to mean a “substantive” comment that raises material concerns requiring a longer review period to determine the impact on the application. A “substantive” comment is one that includes specific, concrete statements raising an issue on the relevant subject with supporting argument and material. A comment may be “substantive” but not “significant” if it does not raise concerns for which the OCC would need a longer time period to review to determine their impact on the application (

e.g.,

they are relatively minor or can be addressed in other ways). The OCC notes that it considers all comments received.

This commenter also requested that the final rule clarify whether a “prior filing” means a filing from the current filer or a different bank that shares the same assessment area. This provision is referring to the current filer. As requested by the commenter, the final rule includes language to clarify this point.

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

e.g.,

in an examination or application) a concern presenting substantially the same issue in substantially the same assessment area during substantially the same time, and the OCC determines that the concern would not warrant denial or imposition of a condition on approval of the application. The OCC proposed amending this provision to expand what is meant by “previously reviewed” to include other supervisory activity, in addition to an examination, and a prior filing, which includes notices and applications.

One commenter read this proposed amendment to mean that the OCC would not consider a comment to be substantive if it addresses an issue the OCC previously resolved during an examination or application and as such opposed this change, noting that it would increase the arbitrariness of the OCC's rulings. However, the commenter misreads the proposal. The proposal does not classify an already addressed issue as non-substantive. Instead, a CRA concern that has been satisfactorily resolved is currently, and remains in the final rule, a separate basis for not changing expedited processing under

§ 5.13(a)(2). The only proposed change to this provision was to broaden the types of activities in which the concern had already been addressed. The commenter does not address this aspect of the proposal. Further, as stated in the “Public Notice and Comments” booklet of the

Comptroller's Licensing Manual,

“[t]he OCC construes these standards [for satisfactorily resolved CRA concerns] narrowly. The OCC may consider a CRA concern to be unresolved, for example, if the agency receives new information on a matter that it reviewed previously.”

21

21

“Public Notice and Comments” booklet of the

Comptroller's Licensing Manual,

Version 1.1, Nov. 2017, p. 8. The OCC note's that one commenter requested that this language regarding new information be included in the regulatory text. However, the OCC believes that it is not necessary to include this language in the rule, and that the inclusion of this language in the

Supplementary Information

of this final rule and in the

Licensing Manual

provides adequate explanation for how OCC construes as “previously reviewed.”

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

For these reasons, the OCC adopts these proposed amendments to § 5.13 (a)(2) with the change discussed above. Additionally, the OCC is making additional technical amendments to paragraph (a)(2)(iii) to conform with the general change in terminology from “application” to “filing” in rules of general applicability.

Paragraph (h) of § 5.13 provides that the OCC may nullify a decision on a filing if: (1) The OCC discovers a material misrepresentation or omission after the OCC has rendered a decision on the filing; (2) the decision is contrary to law, regulation, or OCC policy; or (3) the OCC granted the decision due to clerical or administrative error or a material mistake of law or fact. The OCC's decisions on filings generally contain a statement that the “OCC may modify, suspend or rescind this approval if a material change in the information on which the OCC relied occurs prior to the date of the transaction to which the decision pertains.” The OCC proposed revising paragraph (h) to clarify that the OCC may nullify a decision on a filing either prior to or after consummation of the transaction and that the OCC may nullify a decision based on a material misrepresentation or omission in any information provided to the OCC in the filing or supporting materials. Additionally, the OCC proposed adding a new paragraph (i) that would provide that the OCC may modify, suspend, or rescind a decision on a filing if a material change in the information or circumstance on which the OCC relied occurs prior to the date of the consummation of the transaction to which the decision pertains. The OCC received no comments on these amendments to § 5.13(g) and new § 5.13(i) and adopts them as proposed. As explained in the preamble to the proposed rule, these revisions are intended to clarify that nullification is based on the facts, law, and policy as they existed at the time of the OCC's decision. By contrast, modification, suspension, or rescission is based on a change in facts or circumstance from the time of the OCC's decision until consummation of the transaction to which the decision pertains.

As indicated previously in this

Supplementary Information,

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

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

Section 5.20 provides the procedures and requirements involved in organizing a

de novo

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

Comptroller's Licensing Manual

and the instructions for the Interagency Biographical and Financial Report.

22

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

22

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

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

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

The OCC received no comments on these new definitions and adopts them as proposed.

Paragraph (i) contains procedures for filing a charter application. The OCC proposed a new paragraph (i)(3) requiring each proposed organizer, director, executive officer, or principal shareholder to submit to the OCC the information prescribed in the Interagency Biographical and Financial Report and legible fingerprints. New paragraph (i)(3) permits the OCC to request additional information, if appropriate, and waive the requirements of that paragraph if the OCC determines it to be in the public interest. The OCC received no comments on this provision and adopts it as proposed. As discussed in the “Charters” booklet of the

Comptroller Licensing Manual,

the OCC generally conducts routine background checks on insiders, including proposed organizers, directors, executive officers, and controlling shareholders. This revision to § 5.20(i), which is consistent with the final rule's background investigation changes in § 5.7(b), codifies this process and authorizes the collection of fingerprints for charter applications.

The OCC also proposed a number of technical changes to § 5.20. First, in the definition of “organizing group” in § 5.20(d)(7), the OCC proposed to change the term “persons” to “individuals” to more accurately reflect who may make up an organizing group. One commenter stated that further clarity is needed for changing this term. The OCC proposed this change to clarify that only individuals and not entities may serve in the organizing group, as provided by 12 U.S.C. 21. Section 21 states that “[a]ssociations for carrying on the business of banking . . . . may be formed by any number of natural persons, not less in any case than five.” However, to be as consistent as possible with this statute, the final rule instead changes the term “persons” to “natural persons.” Although 12 U.S.C. 21 only applies to national banks, this definitional change applies to both national banks and Federal savings associations. Second, in § 5.20(g)(4)(ii), the OCC proposed to change the phrase “withdrawal of preliminary approval” to “nullification or rescission of preliminary approval” to align with the terminology in proposed §§ 5.13(h) and (i). Third, in § 5.20(i), the OCC proposed to change the term “spokesperson” to “contact person” in redesignated paragraph (i)(5) to conform to the use of this term in other paragraphs of this section. Fourth, in redesignated

paragraph (i)(5), the OCC proposed to change the term “interested parties” to “relevant parties,” which more accurately describes who the OCC should notify of its decision on an application. Lastly, the OCC proposed to remove the reference to 12 CFR part 197 in § 5.20(i), redesignated paragraph (i)(6)(iii), because the OCC has removed this regulation. The remaining citation, 12 CFR part 16, now applies to both national banks and Federal savings associations. The OCC received no comments on these technical changes and therefore adopts them as proposed, with an additional technical correction of cross-references in redesignated paragraph (i)(6)(i).

The final rule makes one new technical correction to § 5.20. It removes the reference to 12 CFR part 195, the Federal savings association CRA rule, in § 5.20(e)(2)(ii) as of December 11, 2020. The OCC recently amended 12 CFR part 25 to include Federal savings associations and removed 12 CFR part 195 as of October 1, 2020.

23

23

See

85 CFR 34734 (June 5, 2020).

Federal Mutual Savings Association Charter and Bylaws (§ 5.21)

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

The OCC proposed to reorganize these provisions to clarify the procedures Federal mutual savings associations must follow in adopting charter amendments, to align the terminology in § 5.21 with general usage in part 5, and to make other clarifying changes. As indicated in the preamble to the proposed rule, the OCC does not intend these changes to be substantive. The OCC received no comments on these amendments to § 5.21 and adopts them as proposed, with technical amendments. Specifically, the final rule amends paragraphs (j)(2) to reflect the changes made by the OCC's interim final rule on Director, Shareholder, and Member Meetings.

24

These amendments do not make any substantive changes to paragraph (j)(2) as proposed.

24

See

85 FR 31943 (May 28, 2020). Because the final rule includes the changes made by the interim final rule, the OCC is not issuing a separate rulemaking to finalize the part 5 changes made by the interim final rule. Among other things, this interim final rule amended §§ 5.21 and 5.22 to permit an association's bylaws to provide for telephonic or electronic participation of members and shareholders, as applicable, at both annual and special meetings. These amendments also provide that members or shareholders participating telephonically or electronically at these meetings will be deemed present in person for purposes of the quorum requirement in §§ 5.21(j)(2)(v) or 5.22(k)(5), as applicable. In addition, this interim final rule requires Federal savings associations to have procedures in place for telephonic and electronic participation and provides associations with a choice of procedures to follow based on elected State corporate governance procedures, the Delaware General Corporation Law, or the Model Business Corporation Act. Further, this interim final rule clarifies that stock Federal savings associations may provide for telephonic or electronic participation at all board of directors meetings, as currently provided for mutual Federal savings associations. The OCC received one substantive comment letter on this interim final rule, which supported its amendments. In response to a request for comment in the preamble to this interim final rule, this commenter opposed any new risk management standards to mitigate any security risks arising from telephonic or electronic meetings, noting that new standards would be unnecessary given current safeguards and regulatory requirements. The OCC is not imposing any new risk management standards for telephonic or electronic meetings through this part 5 final rule.

As a result of the final rule, all of this section's procedural requirements for adopting charter amendments are located in paragraph (f)(2). These amendments clarify that charter amendments are subject to a three-part regime: Application with expedited review, standard application, or notice. As a result, revised paragraph (g) now only contains provisions relating to optional charter amendments. Additionally, the final rule adds a new paragraph (f)(3) specifying that a charter amendment is effective once it is: (1) Approved by the OCC, if approval is required under paragraph (f)(2); and (2) adopted by the association provided the association follows the requirements of its charter in adopting the amendment. The final rule also makes a clarifying amendment to paragraph (g)(2) to reflect that change of a Federal savings association's title does not require prior OCC notice under § 5.42, as is implied by the current paragraph (g)(2).

25

The OCC intends no substantive change with this amendment.

25

When provisions for Federal savings associations were added to § 5.42, the OCC did not include the prior rule's advance notice requirement.

See

80 FR 28383 (May 15, 2015).

Current paragraph (j) of § 5.21 governs the bylaws for Federal mutual savings associations. Paragraph (j)(2)(viii) requires the bylaws to specify that the Federal mutual association's board of directors consist of no fewer than five nor more than fifteen members unless the OCC has authorized a higher or lower number. However, unlike the corresponding provision for Federal stock savings associations, 12 CFR 5.22(l)(2), paragraph (j)(2)(viii) does not explicitly address numbers of directors authorized by the former OTS. Accordingly, the final rule revises this paragraph to explicitly acknowledge that authorizations by the former OTS remain effective.

Current paragraph (j)(3) contains the filing requirements for changes to Federal mutual savings association bylaws. Currently, all bylaw amendments require some sort of filing with the OCC. As with the charter amendments discussed above, the OCC reorganizes these provisions in the final rule to clarify the procedures Federal mutual savings associations must follow in adopting bylaw amendments and to align the terminology with that used in part 5. The OCC also is eliminating the filing requirement for savings associations that adopt without change the OCC's model or optional bylaws, thereby reducing burden for these Federal mutual savings associations. As a result, these amendments specify that bylaw amendments are subject to a four-part regime: Application with expedited review, standard application, notice, and no filing required. As with the charter amendments, the final rule provides that a bylaw amendment is effective after approval by the OCC, if required, and adoption by the association, provided that the association follows the requirements of its charter and bylaws in adopting the amendment. Additionally, the final rule makes two additional technical changes. First it corrects a cross reference in paragraph (j)(3)(i)(A) to correctly refer to paragraph (j)(3)(i)(B). Second, it changes the heading of proposed paragraph (j)(3)(ii) from “Notice requirement” to “Corporate governance election and notice requirement” to better reflect the subject of this paragraph.

As discussed later in this

Supplementary Information,

the OCC proposed technical changes throughout part 5, including replacing the word “shall” with another appropriate word or words. These technical changes, as well as other minor proposed wording changes, are included in the model charter and bylaw provisions provided

in revised § 5.21. As indicated in the preamble to the proposed rule, the OCC does not intend these technical changes to require any changes on the part of Federal mutual savings associations that use the current model language. Further, the OCC does not intend these technical changes to have any effect on the provisions or effectiveness of a Federal mutual savings association's current charter or bylaws.

Federal Stock Savings Association Charter and Bylaws (§ 5.22)

Section 5.22 governs the procedures and requirements for Federal stock savings association charters and bylaws. Section 5.22 generally parallels § 5.21, which applies to Federal mutual savings association charters and bylaws. The OCC proposed equivalent changes to § 5.22 as proposed for § 5.21. The OCC also proposed two additional technical amendments to § 5.22. Section 5.22 contains sample charter and bylaw provisions, and paragraph (g)(7) provides an optional “Section 8” for Federal stock savings association charters following mutual to stock conversions. This optional section contains a definition of “acting in concert.” The OCC proposed minor wording changes to this definition for consistency with the definition of this term in the OCC's change in bank control regulation, § 5.50. The OCC also proposed correcting a cross-reference to 12 CFR part 192 in paragraph (e). The OCC received no comments on the revisions to § 5.22 and adopts them as proposed, with additional technical amendments. First, as discussed above regarding § 5.21, the final rule amends paragraph (g)(1) to reflect that change of a Federal savings association's title does not require prior OCC notice under § 5.42. Second, the final rule corrects the cross-reference in paragraph (i) to the form “Federal stock charter.” Third, the final rule changes the heading in proposed paragraph (j)(2)(ii) from “Notice requirement” to “Corporate governance election and notice requirement” to better reflect the subject of this paragraph. Fourth, the final rule amends paragraphs (k)(1) and (l)(3) and (8) to reflect the changes made by the OCC's interim final rule on Director, Shareholder, and Member Meetings.

26

Fifth, the final rule corrects cross-references in paragraphs (k)(2) and (k)(4)(ii). Finally, the final rule amends paragraph (m)(2) to remove the sentence that provides that employment contracts shall conform with 12 CFR 163.39 because the OCC removed § 163.39 in a separate final rule.

27

26

See

85 FR 31943 (May 28, 2020).

27

See

85 FR 42630 (July 14, 2020).

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

Sections 5.23 and 5.24 are largely parallel rules that provide the procedures and standards for OCC review and approval of an application by an institution to convert to a Federal savings association or national bank, respectively. The OCC proposed a number of amendments to these sections and did not receive any comments. Therefore, the OCC adopts these amendments as proposed.

First, § 5.23(d)(2)(ii)(A) and 5.24(e)(2)(i) each require the president or other duly authorized officer to sign the conversion application. OCC applications also require an authorized signature. However, these sections are the only provisions in part 5 that require an authorized officer to sign the application. The final rule removes §§ 5.23(d)(2)(ii)(A) and 5.24(e)(2)(i) because the OCC does not find it necessary to specify this signature requirement in a regulation.

Second, the “Conversions to Federal Charter” booklet of the

Comptroller's Licensing Manual

indicates that filers should include a list of directors and senior executive officers of the converting institution as well as a list of individuals, directors, and shareholders who directly or indirectly, or acting in concert with one or more persons or companies, or together with members of their immediate family, do or will own, control, or hold 10 percent or more of the converting institution's stock. It is necessary for the OCC to have a complete list of these individuals because the OCC generally conducts routine background investigations as part of the application process. The final rule codifies these requirements in §§ 5.23(d)(2)(ii) and 5.24(e)(2). Additionally, the final rule makes a technical change to redesignated § 5.23(d)(2)(ii)(F) to correctly reference § 5.58 for Federal savings association equity investments, rather than § 5.36, which applies to national banks.

Furthermore, as proposed, the final rule adds a new paragraph to each of these rules, §§ 5.23(d)(2)(iv) and 5.24(e)(4), providing that the OCC may require directors and senior executive officers of the converting institution to submit the Interagency Biographical and Financial Report and legible fingerprints. This amendment codifies the background investigation process set forth in the “Conversions to Federal Charter” booklet of the

Comptroller's Licensing Manual

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

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

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

Section 5.26 contains the application requirements and processes for a national bank or Federal savings association to engage in the exercise of fiduciary powers. Paragraph (e)(2)(i)(C) requires a national bank or Federal savings association to submit sufficient biographical information on proposed trust management personnel as part of an application for fiduciary powers. The OCC proposed two changes to this paragraph and did not receive any comments. Therefore, the OCC adopts them as proposed. Because the scope of the term “trust management personnel” in paragraph (e)(2)(i)(C) is unclear, the final rule clarifies that the biographical information is required for proposed senior trust management personnel, as identified by the OCC. The final rule also provides that the application required in paragraph (e)(2)(i)(C) include, if requested by the OCC, the Interagency Biographical and Financial Report and legible fingerprints for these individuals, consistent with the background investigation changes made to other sections of part 5 by this final rule.

Section 5.26(e)(6) requires a national bank or Federal savings association to submit a written notice to the OCC no later than 10 days after it begins

previously approved fiduciary activities in additional States. The OCC proposed to reorganize this paragraph with no substantive changes. No commenters discussed this reorganization and the OCC adopts it as proposed. Under the final rule, paragraph (e)(6)(i) generally requires a written notice after the national bank or Federal savings association begins any of the activities specified in 12 CFR 9.7(d) in a new State. Paragraph (e)(6)(ii) requires the notice to include the new States, the fiduciary activities to be conducted, and the extent to which the activities differ materially from the fiduciary activities currently conducted. Paragraph (e)(6)(iii) provides that no notice is required if the information required by paragraph (e)(6)(ii) is provided by other means, such as in a merger application. Finally, the final rule redesignates current paragraph (iii), which provides that no notice is required if the national bank or Federal savings association is conducting only activities ancillary to its fiduciary business through a trust representative office or otherwise, as paragraph (iv).

One commenter discussed § 5.26(e)(5), which the OCC did not propose to amend. This provision requires a national bank or Federal savings association that has ceased to conduct previously approved fiduciary powers for 18 consecutive months to provide the OCC with a new notice as set forth by this section 60 days prior to commencing any fiduciary activity. The commenter requested that the OCC change this 18 month time period to five years. The commenter noted that five years would be consistent with 12 U.S.C. 92a(k), which allows the OCC to revoke the authority to engage in fiduciary activities if the national bank has not exercised it for five consecutive years. The OCC disagrees with this commenter's recommendation and continues to believe, as discussed when the OCC originally adopted this requirement in 2015, that an 18-month time period is appropriate to ensure that the management and condition of a national bank or Federal savings association has not changed since the OCC's original approval of the fiduciary activities.

28

Further, this 18-month notification period enables the OCC to allocate supervisory resources to evaluate the institution when it resumes fiduciary activities. Lastly, § 5.26(e)(5) requires notice to the OCC, and not OCC approval. Therefore, the OCC does not find this requirement to be overly burdensome.

28

See

80 FR 28345, at 28365 (May 18, 2015).

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

Section 5.30 describes the application procedures to establish and relocate a national bank branch. Paragraph (d) provides definitions applicable to § 5.30. The OCC proposed two amendments to paragraph (d). First, paragraph (d)(1)(i) lists certain types of facilities that are considered branches. The OCC proposed to reorder this list so that the reference to 12 U.S.C. 36(c) applies only to seasonal agencies and not to the other types of facilities. Second, paragraph (d)(1)(iii) specifies that remote service units (RSUs) and certain types of offices are not within the definition of “branch.” The OCC proposed to clarify this provision by adding both a cross-reference to the description of RSUs contained in 12 CFR 7.4003

29

and a reference to automated teller machines (ATMs), including interactive ATMs, codifying OCC Interpretive Letter No. 1165 (August 2019).

30

As discussed in this interpretive letter, a national bank establishment of an interactive ATM does not constitute establishing a branch if the machine meets the definition of an ATM used for purposes of 12 U.S.C. 36 consistent with OCC interpretations, and the nature of the interactions between the customer and remote bank personnel are delimited as would be the case with an RSU. The OCC received no comments on these amendments and adopts them as proposed.

29

The OCC notes that it has proposed to renumber 12 CFR 7.4003 to 12 CFR 7.1027 in a separate rulemaking.

See

85 FR 40794 (July 7, 2020). The OCC will update this cross-reference in § 5.30 if it finalizes this renumbering.

30

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

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

One commenter requested that the OCC amend the definition of “mobile branch” in § 5.30(d)(5) to clarify that a mobile branch may be located at one location for up to four months without requiring an application for a temporary branch. Currently, paragraph (d)(5) defines “mobile branch” as a branch of a national bank, other than a messenger service branch, that does not have a single, permanent site, and includes a vehicle that travels to various public locations to enable customers to conduct their banking business. Pursuant to this definition, a mobile branch may provide services at various regularly scheduled locations or it may be open at irregular times and locations such as at county fairs, sporting events, or school registration periods. The OCC agrees that the rule does not clearly indicate how long a mobile branch may serve one location before losing its status as a mobile branch and that clarity and uniformity on this point would be helpful. Further, the OCC finds that locating a mobile branch at one location for a limited period of time without having to continuously move it back and forth to this location to prevent it from losing its status as a mobile branch would be useful in certain circumstances, especially during emergency situations such as weather-related emergencies or during the current COVID-19 pandemic. Therefore, the OCC is clarifying in the final rule that a mobile branch may be stationed continuously at a single location within the geographic area it is approved to serve for a period of up to four months. The OCC views this new language as interpretive. The OCC notes that a mobile branch is only permitted in States where a State bank is permitted to establish a mobile branch. Because State statutes restricting mobile branch locations are applicable to national banks, if a State statute restricts how long a mobile branch could serve a given location, that restriction is applicable to national bank mobile branches in that State.

In the preamble to the proposed rule, the OCC noted that it is considering one additional change to the definition of “branch” in paragraph (d). Paragraph (d)(1)(ii)(B) provides that a facility is not a branch if it is located at the site, or is an extension, of an approved main office or branch office of the national bank. The rule further provides that the OCC determines whether a facility is an extension of an existing main office or branch office on a case-by-case basis. However, the rule deems a drive-in or pedestrian facility located within 500 feet of a public entrance to an existing main office or branch office to be an extension of the existing main office or branch office, provided the functions performed at the drive-in or pedestrian facility are limited to functions that are ordinarily performed at a teller window, without the OCC's case-by case analysis. The OCC requested comment on expanding this 500 foot distance to 1,500 feet. One commenter supported this increase. However, after further review, the OCC has concluded that 500 feet is a more appropriate limit for a facility to have the benefit of automatic treatment as an extension of the main office or branch.

31

Furthermore, a

facility at a distance greater than 500 feet may still be considered an extension of the main office or branch based on the OCC's case-by-case analysis. The OCC believes this current rule provides adequate flexibility without the need to increase the regulatory distance threshold.

31

The OCC also stated that it was considering the same change for a drive-in or pedestrian office of

a Federal savings association, in 12 CFR 5.31. To maintain consistency between national bank and Federal association rules, the OCC also declines to move forward with expanding the 500 foot distance rule to 1,500 feet in § 5.31.

Finally, the OCC proposed a technical change to paragraph (f), which provides the procedures for establishing a national bank branch. Paragraph (f)(1) requires each national bank that proposes to establish a branch to submit an application to the OCC, except in the case of messenger services as specified in paragraph (f)(2). However, paragraph (f)(3) provides that if a national bank proposes to establish a branch jointly with one or more national banks or other depository institutions, only one of the national banks must submit a branch application and this bank may act as agent for the other institutions. Even if a single application is submitted for a joint branch, the OCC still considers the relevant factors for each national bank. The OCC proposed including paragraph (f)(3) as an additional exception to the application requirement in paragraph (f)(1), thereby conforming these two paragraphs. The OCC received no comments on this change and adopts it as proposed.

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

Section 5.31 describes application and notice procedures for the establishment, acquisition, or relocation of a Federal savings association branch. Paragraph (j), implementing section 5(m) of the Home Owners' Loan Act (HOLA) (12 U.S.C. 1464(m)), requires a Federal or State savings association to obtain prior OCC approval to establish or move a branch or move its principal office in the District of Columbia. The OCC proposed to add a new paragraph (j)(3) to clarify that a branch in the District of Columbia includes any location at which accounts are opened, payments are received, or withdrawals made, including ATMs that perform one or more of these functions. This amendment implements court opinions finding that ATMs that accept deposits or disburse funds against a customer's account constitute a branch.

32

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

32

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

v.

Marine Midland Bank, N.A.,

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

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

Section 5.33 provides the application requirements and procedures for business combinations involving national banks and Federal savings associations, such as mergers, consolidations, and certain purchase and assumption transactions. The OCC proposed several changes to this section.

Paragraph (e) of § 5.33 sets forth policies the OCC considers when evaluating business combinations. Paragraph (e)(1)(ii)(F) provides that the OCC will not approve a transaction that would violate the deposit concentration limit in 12 U.S.C. 1828(c)(13). Only interstate merger transactions as defined 12 U.S.C. 1828(c)(13)(C)(i) are subject to this deposit concentration limit. The OCC proposed adding a reference to 12 U.S.C. 1828(c)(13)(C)(i) in paragraph (e)(1)(ii)(F) for clarity. The OCC did not receive any comments on this change and adopts it as proposed.

Paragraph (e)(1)(iii) provides the OCC's policy for evaluating business combinations under the CRA. Under 12 U.S.C. 2903(a)(2), the OCC must evaluate an insured national bank's or Federal savings association's CRA record when evaluating its application for a business combination. The OCC proposed three changes to paragraph (e)(1)(iii). First, the OCC proposed a new paragraph (e)(1)(iii)(A) to better describe the OCC's review of a business combination and to more closely track the statutory language under which the OCC is required to assess the track record of the applicant. This paragraph specifies that the OCC takes into account the filer's CRA record of performance in considering an application for a business combination. It also states that the OCC's conclusion of whether the CRA performance is or is not consistent with approval of an application is considered in conjunction with the other factors in § 5.33, codifying the OCC's practice of evaluating all policy factors in light of the whole application as set forth in the OCC's Policies and Procedures Manual (PPM-6300-2).

One commenter supported the clarification that the OCC will consider the institution's CRA's performance in conjunction with the other factors in § 5.33, stating that this change is consistent with statutory requirements and codifies existing OCC practice. Another commenter said that it would break with precedent to remove the provision providing that the OCC will take into account the CRA record of the target institution. This commenter also stated that this change would impair the public's ability to comment and render the OCC unable to fully consider the public benefit of the proposed merger as required by the CRA statute. The commenter stated that only a review of the CRA performance of both the target and the acquiring bank provides a full understanding of likely future CRA performance and the resultant bank's ability to meet the convenience and needs of the communities it serves.

The OCC disagrees with this commenter. The OCC's review of an institution's CRA performance is retrospective, while the OCC's review of a business combination application is prospective. As noted in the preamble to the proposed rule, OCC practice is to consider and evaluate a filer's record of performance under the CRA and, more broadly, the filer's plans and ability to enable the combined organization to serve the convenience and needs of its communities. Thus, the target's CRA record will inform the convenience and needs analysis but is not in of itself a factor in the OCC's review of the application. Additionally, the OCC notes that public benefit is not a statutory factor the OCC must consider despite the comment's reference to it as such.

33

The OCC therefore adopts this new paragraph (e)(1)(iii)(A) as proposed.

33

See

12 U.S.C. 1828(c)(5).

Second, the OCC proposed a new paragraph (e)(1)(iii)(B) to recognize the expanded community reinvestment compliance review required by 12 U.S.C. 1831u(b)(3) when the filing national bank would have a branch or bank affiliate immediately following the transaction in any State in which the filer had no branch or bank affiliate immediately before the transaction. Specifically, this new paragraph provides that the OCC considers the CRA record of performance of the filer and its resulting bank affiliates and the filer's record of compliance with

applicable State community reinvestment laws when required by 12 U.S.C. 1831(b)(3). The OCC received no comments on this new paragraph and adopts it as proposed.

Third, the OCC proposed a new paragraph (e)(1)(iii)(C) requiring the filer to disclose whether it has entered into and disclosed a covered agreement, as defined in 12 CFR 35.2, in accordance with 12 CFR 35.6 and 35.7. These regulations implement the CRA sunshine requirements of section 48 of the FDI Act, 12 U.S.C. 1831y. Requiring disclosure of any covered agreements will better permit the OCC to review the filer's CRA record and any CRA-related comments on the filing. One commenter supported the disclosure of these covered agreements. Therefore, the OCC adopts this new paragraph as proposed. The final rule also includes a technical amendment that changes the heading of paragraph (e) from “

Policy” to “Policy and related filing requirements”

to better reflect the contents of this paragraph.

This commenter also stated that the regulators should work with community groups and banks on the development of a process for recognizing these agreements during the merger application process and for their implementation to become a factor on CRA performance evaluations. The OCC agrees that these agreements may provide the OCC with context on the credit needs of the community served during the application process. However, the OCC and the other Federal banking regulators have long held the position that these agreements are private agreements between depository institutions and private parties. Therefore, the Federal banking regulators do not monitor compliance with, nor enforce, these agreements.

34

Because they are private agreements, a bank's compliance with these agreements should not be a factor in the OCC's decision on an application.

34

See

the Interagency Questions and Answers Regarding Community Reinvestment, Q&A § __.29(b)—2, 81 FR 48506 (July 25, 2016).

The OCC noted in the preamble to the proposed rule that it is considering whether to require a filer to memorialize and publish any discussion between the filer and any third party with respect to the development of any community reinvestment plan, community benefit plan, or similar plan in connection with a business combination. Two commenters opposed this idea. One commenter stated that the requirement to memorialize discussions would be burdensome, frivolous, and extraneous because all relevant information is included in the final plan. This commenter also stated that such a requirement may cause disagreements about what is covered and what constitutes an acceptable level of memorialization. In addition, this commenter noted that this requirement would discourage community participation in discussions for these agreements. The second commenter stated that this requirement could have a chilling effect on discussions between filers and third parties causing them to be less candid during these discussions, reducing the likelihood of reaching an agreement. This commenter also stated that the filer and third party may disagree in the way in which the discussion has been memorialized. Lastly this commenter noted that this requirement would duplicate the CRA sunshine requirements in 12 CFR part 35, which provides the circumstances under which these discussions should be made public.

The OCC disagrees with these comments and is adding a new paragraph in the final rule requiring that the national bank or Federal savings association submitting a business combination filing must provide summaries of, or documents relating to, all substantive discussions with respect to the development of the content of a covered agreement submitted pursuant to new paragraph (e)(1)(iii)(C)(

1

). This summary must include the names of participants, dates, and synopsis of these discussions. The OCC believes that memorializing and disclosing discussions between a national bank or Federal savings association and a community group during the development of an agreement promotes transparency and results in a fairer and more robust agreement for both the financial institution and the community served by the institution, furthering the intent of the CRA Sunshine statute as well as providing the OCC with additional context during the application process on the credit needs of the community served. The OCC does not expect minor or trivial communications to be memorialized; for example, discussions regarding scheduling or staffing need not be documented. However, national banks and Federal savings associations will need to memorialize and disclose substantive discussions pertaining to the content of a plan. This documentation may consist of summaries or transcripts of the discussions, or work product produced to further the negotiations, such as summaries of suggested terms of the plan. Further, to avoid conflicts between the institution and the community group, the institution may share the documentation with the community group prior to disclosure. Because national banks and Federal savings associations already should be documenting these discussions in the course of normal business operations, and because many of the documents are already produced as part of the negotiating process, the OCC believes that any additional burden placed on banks and savings associations will be minimal and will be outweighed by the benefit of ensuring transparency in the development of these plans in connection with a business combination.

The OCC also proposed a new paragraph (e)(1)(iv) to state that the OCC considers the standards and requirements contained in 12 U.S.C. 1831u for interstate merger transactions between insured banks, when applicable. Current paragraph (h) describes the application of 12 U.S.C. 1831u to combinations between insured banks with different home states. As part of the reorganization of paragraphs (g) and (h), discussed below, the OCC proposed instead to include its review of the 12 U.S.C. 1831u factors in paragraph (e)(1) for clarity. The OCC received no comments on this change and adopts it as proposed.

Paragraph (e)(8)(ii) requires a national bank or Federal savings association with one or more classes of securities subject to registration under sections 12(b) or (g) of the Securities Exchange Act of 1934 to file preliminary proxy material or information statements with the Director, Securities and Corporate Practices Division (SCP) of the OCC. As a result of an internal reorganization, the OCC proposed replacing the reference to SCP in paragraph (e)(8)(ii) with the OCC Chief Counsel's Office. The OCC received no comments on this change and adopts it as proposed.

Paragraph (g) provides procedures for different types of consolidations and mergers. Paragraph (o) provides general procedures for approval of Federal savings association business combinations. These paragraphs provide detailed procedures for national banks and Federal savings associations engaging in several different types of business combinations. Some of these requirements are imposed by statute. Specifically, 12 U.S.C. 215 and 215a provide procedures for consolidations and mergers, respectively, between national banks and State or national banks located in the same State resulting in a national bank. Similarly, 12 U.S.C. 214 through 214d provide procedures for consolidations and

mergers between national banks and State banks located in the same State resulting in a State bank. Other consolidation and merger transactions described in § 5.33 do not have any statutory procedures, including interstate consolidations and mergers involving a national bank under 12 U.S.C. 215a-1; consolidations and mergers of national banks and Federal savings associations under 12 U.S.C. 215c and 1467a(s); consolidations and mergers of Federal savings associations and State banks, State savings associations, State trust companies, or credit unions under 12 U.S.C. 1464(d)(3)(A) and 1467a(s); and mergers of national banks with their non-bank affiliates under 12 U.S.C. 215a-3.

In order to increase flexibility and reduce regulatory burden for national banks and Federal savings associations involved in business combinations for which procedural requirements are not specified by statute, the OCC proposed a number of changes to these procedural provisions. First, the OCC proposed that a national bank may follow the procedures for mergers and consolidations under sections 2 and 3 of the National Bank Consolidation and Merger Act (NBCMA) currently provided in paragraph (g) for the specific transaction.

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

35

35

See, e.g.,

OCC Conditional Approval No. 859 (July 2008).

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

de minimis

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

de minimis

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

The OCC proposed making this

de minimis

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

36

The OCC believes that in a transaction involving reorganization into a holding company structure, shareholders of the national bank or Federal stock savings association should have the opportunity to vote. However, the OCC believes that a national bank or Federal stock savings association may engage in transactions 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.

36

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

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

37

37

See

Del. Code Ann. tit. 8, § 251(f).

The new procedural options described above would apply to: (1) Consolidations and mergers of national banks and Federal savings associations under 12 U.S.C. 215c and 1467a(s), resulting in either a national bank or Federal savings association; (2) consolidations and mergers of Federal savings associations and State banks, State savings associations, State trust companies, or credit unions under 12 U.S.C. 1464(d)(3)(A) and 1467a(s), resulting in either a Federal savings association or another entity; and (3) mergers of national banks with their non-bank affiliates under 12 U.S.C. 215a-3, resulting in either a national bank or a non-bank affiliate.

The new procedural options also would apply to interstate consolidations and mergers involving a national bank under 12 U.S.C. 215a-1 based on a revised analysis of the NBCMA. As indicated in the preamble to the proposed rule, the OCC formerly opined in licensing decisions that 12 U.S.C. 215a-1 incorporates the provisions of 12 U.S.C. 215 for consolidations and 12 U.S.C. 215a for mergers.

38

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

39

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

under this Act

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

40

under 12 U.S.C. 1831u, which sets out requirements for interstate mergers of insured banks. In prior licensing decisions, the OCC interpreted “under this Act” to mean that an interstate

consolidation or merger authorized under section 4 of the NBCMA is a consolidation or merger under section 2 or 3 of the NBCMA, respectively, and thus subject to the procedural provisions of those sections with respect to shareholder vote, dissenter's rights, and other matters as well as the substantive provisions addressing corporate succession, transfer of assets, liabilities, property, rights and interests including fiduciary appointments, and the status of the resulting bank (collectively “corporate succession provisions”). In other words, section 4 extended sections 2 and 3, which cover consolidations and mergers between banks located in the same state, to also cover consolidations and mergers between banks with different home states. The OCC therefore implemented the NBCMA in § 5.33(h) by applying these provisions of sections 2 and 3 of the NBCMA to transactions authorized under section 4 of the NBCMA.

38

See, e.g.,

OCC CRA Decision No. 94 (June 1999).

39

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

40

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

However, after further analysis, the OCC believes that the proper reading of section 4 of the NBCMA is that it does not directly incorporate any provisions of sections 2 or 3 of the NBCMA. As noted above, the OCC previously focused on the phrase “under this Act” as imposing the requirements of sections 2 and 3 on a merger conducted under section 4. However, the statutory language is ambiguous and does not require the OCC to incorporate any of the provisions in sections 2 or 3 of the NBCMA. Upon further consideration, the OCC believes the text taken in its entirety may be read as merely specifying the source of the authority and imposing the requirement that the consolidation or merger be approved under section 1831u, but not imposing additional requirements or conditions with which the bank must comply. As there are no other sections of the NBCMA under which an interstate merger between banks with different home States could be conducted in cases in which the acquiring bank does not have branches in the same State as the target bank,

41

“under this Act” can be read to refer only to section 4 itself. Since section 4 of the NBCMA, 12 U.S.C. 215a-1, does not contain any substantive or procedural provisions, there are no statutory procedures for interstate bank mergers under 12 U.S.C. 215a-1 resulting in a national bank. Therefore, the new proposed procedures described above apply to these section 4 transactions.

41

An acquiring bank that has branches in the same State as the target bank but has a different home State than the target bank is also “located” in the same State as the target bank for purposes of sections 2 or 3. In this case, while the banks have different home states, the transaction can be conducted either under section 4 or under sections 2 or 3.

See Ghiglieri

v.

NationsBank of Texas, N.A.,

1998 U.S. Dist. LEXIS 6637 (N.D. Texas, May 6, 1998); OCC Corporate Decision No. 98-19 (April 2, 1998).

In addition to new paragraph (p), the OCC proposed implementing the changes discussed above through revisions to paragraphs (g), (h), and (o). Specifically, the OCC proposed redesignating current paragraphs (g)(2), (g)(3), (g)(6), and (g)(7) as paragraphs (g)(3), (g)(6), (g)(7), and (g)(9), respectively. The proposal included new paragraph (g)(2) that provides procedures for interstate consolidations and mergers under 12 U.S.C. 215a-1 resulting in a national bank and paragraph (g)(8) providing procedures for interstate mergers between an insured national bank and an insured State bank resulting in a State bank. Procedures for these transactions are currently contained in paragraph (h). New paragraphs (g)(2) and (g)(8) include an option to follow the procedures for intrastate mergers resulting in a national bank or State bank in paragraphs (g)(1) and redesignated paragraph (g)(7), respectively. The proposal also included in new and redesignated paragraphs (g)(2), (g)(3), (g)(4), (g)(5), (g)(6), and (g)(8) a reference to a national bank making an election under paragraph (h). Revised paragraph (h) would permit a national bank to elect to follow the procedures of the laws of the State which the national bank association has elected to follow pursuant to 12 CFR 7.2000(b) or to use the

de minimis

procedure in new paragraph (p) if applicable. Further, the proposal included a new corporate succession provision in new paragraph (g)(2)(iv) for interstate mergers resulting in a national bank to ensure that the resulting bank succeeds to the rights, franchises, and interests, including the fiduciary appointments, of the consolidating or merging banks. The proposal also included coordinating revisions to cross-references to paragraph (g).

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

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

de minimis

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

The OCC received one comment on these proposed procedures, which focused on national bank business combinations conducted under section 4 of the NBCMA. This commenter stated that the proposal contradicts prior OCC public precedent. The OCC acknowledges this is a reversal of the OCC's prior interpretation of section 4. However, an agency is permitted to change its position on an interpretation of law.

42

As noted above, the statutory language is ambiguous. The OCC's change of position is based on the OCC's belief, after further review, that reading the language in section 4 of the NBCMA in its entirety as authorizing a consolidation or merger with an out-of-State bank under the NBCMA if it is approved pursuant 12 U.S.C. 1831u, but not importing the substantive or procedural requirements of sections 2 and 3 into section 4 through oblique terminology is more in accordance with the statutory language. Moreover, the OCC notes that this commenter did not identify any reliance concerns implicated by the change in position, nor did the OCC receive any such comments from OCC-regulated entities

that could conceivably have such an interest.

42

See, e.g., Perez

v.

Mortgage Bankers Association,

575 U.S. 92 (2015);

Federal Communications Commission

v.

Fox Television Stations,

556 U.S. 502 (2009) (an agency must provide a reasonable explanation for the change in position. The depth of explanation depends on the degree of the change. The agency also should take into account the reliance interests of parties who have relied on the agency's prior interpretation.)

See also National Cable & Telecommunications Association

v.

Brand X internet Services.,

545 U.S. 967, 981-82 (2005) (agency reconsiderations of prior interpretations entitled to judicial deference so long as the agency adequately explains the reasons for the change);

Motor Vehicle Manufacturers Association of the U.S., Inc.

v.

State Farm Mutual Automobile Insurance Company,

463 U.S. 29, 43 (1983) (“agency must examine the relevant data and articulate a satisfactory explanation for its action including a `rational connection between the facts found and the choice made' ”).

This commenter also stated that the proposal contradicts prior OCC licensing decisions and has contradictory results, arguing that if sections 2 and 3 of the NBCMA cannot now be used to authorize a combination of a national bank with an out-of-State bank, then the OCC would need to reverse its prior interpretation set forth in previous business combination approvals that a bank is located in a State for purposes of sections 2 and 3 by virtue of having a branch in that State. The OCC disagrees with this point. As noted above, sections 2 and 3 authorize consolidations and mergers between insured banks that are located in the same State. Section 4 authorizes mergers between insured banks with different home States if the merger is approved under 12 U.S.C. 1831u. It stands on its own and is not tied to sections 2 and 3. However, the OCC is not changing its interpretation of sections 2 and 3 that was involved in the prior business combination approvals to which the commenter refers, namely, that an acquiring bank that has a different home State than the target bank but that has a branch in the target bank's State is located in the target bank's State for purposes of section 2 and 3.

43

The OCC continues to believe such banks could engage in the transaction under the authority of section 2 or 3 or, alternatively, could engage in the transaction under section 4. Neither the revised interpretation of section 4 nor the prior interpretation affects the applicability of sections 2 or 3 to such transactions. An interstate merger that must be conducted under section 4 because the acquiring bank is not located in the same State as the target bank would be conducted under the procedures that apply for transactions under section 4 at the time of the application (whether the procedures of section 2 or 3 of the NBCMA as under the current rule or the procedures available under the proposed rule). Thus, the commenter failed to distinguish between a transaction conducted under section 4 and following the procedures of sections 2 or 3, as in the OCC's prior interpretation of section 4, and a transaction conducted under sections 2 or 3.

43

See Ghiglieri

v.

NationsBank of Texas, N.A.,

1998 U.S. Dist. LEXIS 6637 (N.D. Texas, May 6, 1998); OCC Corporate Decision No. 98-19 (April 2, 1998). The prior OCC decisions referred to by the commenter, Corporate Decision No. 2001-29 (September 28, 2001); Conditional Approval No. 687 (April 25, 2005); Conditional Approval No. 1105 (Aug. 11, 2014), were instances of such transactions and were conducted under the authority of section 3, not under section 4.

In addition, this commenter argues that the proposed change may raise issues with respect to the Tenth Amendment, citing

Hopkins Federal Savings & Loan Association

v.

Cleary,

44

noting that section 4 does not contain a “not in contravention of State law” provision. Sections 2 and 3 contain such a provision, and under the OCC's prior interpretation of section 4, that provision would have been incorporated into section 4. Under the OCC's new interpretation, this provision is not incorporated, and the commenter claims that raises an issue. The OCC does not agree that such language is needed in Section 4. Sections 2 and 3 include State banks within their scope, authorizing them to consolidate or merge with a national bank, but by virtue of a non-contravention provision in those sections, a State bank may not engage in a business combination pursuant to sections 2 and 3 with a national bank if it would contravene State law. However, section 4 (interpreted as a stand-alone provision, not incorporating sections 2 and 3) is directed only at national banks; it does not refer to State banks. Therefore, the OCC's proposal with respect to transactions authorized under section 4 does not affect State banks. A State bank can engage in an interstate merger with a national bank if the State bank has authority to do so under State law.

44

296 U.S. 315, 337 (1935) (ruling that a statute allowing State-chartered institutions to convert to Federal charters without regard to State law violated the Tenth Amendment).

The commenter similarly suggests that failure to include a “not in contravention of State law” provision with respect to corporate succession in mergers conducted under section 4 raises issues under

Hopkins.

However, as noted, an interstate merger of a national bank and a State bank under section 4, resulting in a national bank, would occur only if the State bank had authority to engage in the merger under State law. Moreover, a Federal law providing for corporate succession and the transfer of property, fiduciary appointments, and other relationships in a merger with a resulting national bank does not raise the same concerns as a Federal law purporting to authorize a State bank to convert into a Federal institution, as in

Hopkins.

Lastly, this commenter stated that the OCC did not adequately explain the proposed change regarding interim transactions appropriate for

de minimis

transactions. Per proposed § 5.33(g) and (o), a national bank or Federal savings association that is the acquiring institution in a transaction may elect not to have a shareholder vote if a vote is not required by statute and certain criteria are met, including the

de minimis

nature of the transaction. The proposed

de minimis

procedures in § 5.33(p) are similar to existing Federal savings association

de minimis

procedures except for two changes. First, they permit the use of the procedures for transactions that use interim charters that are not holding company reorganizations provided that the existing shareholders of the national bank or Federal savings association will directly hold the shares of the resulting national bank or Federal savings association and the national bank's articles or Federal savings association's charter is not changed. Second, they increase the maximum issuance of shares under this procedure from 15% total outstanding shares to 20%. The current Federal savings association regulation for

de minimis

transactions excludes those involving an interim because such transactions were commonly used in a reorganization to form a holding company and the OCC believes that shareholders in these transactions should have a vote. However, it is possible to have a transaction that involves an interim in which the existing institution and its shareholders continue as the surviving institution after the transaction in a manner that meets the requirements set out in the rule that the existing shareholders of the national bank or Federal savings association directly hold the shares of the resulting national bank or Federal savings association and the national bank's articles or Federal savings association's charter is not changed. In this case, there is no reason not to allow the acquiring institution to use the procedures in proposed paragraph (p).

For the reasons stated above, the OCC adopts the proposed procedures that a national bank or Federal savings association may elect for business combinations for which there are no statutory procedural requirements.

Current paragraph (k) of § 5.33 requires a national bank or Federal savings association engaging in a consolidation or merger in which it is not the filer and the resulting institution to file a notice with the OCC advising of its intention. This requirement currently applies even when the surviving institution is another national bank or Federal savings association. Because the OCC already supervises the surviving institution and has acted on the application for consolidation or merger, the OCC proposed removing

this requirement for the disappearing national bank or Federal savings association in this type of transaction and making a conforming revisions to paragraph (g). In such a case, the OCC already has the information that it needs to process termination and ensure that the disappearing national bank or Federal savings association has met all applicable requirements. The OCC received one comment on this provision, which supported the change. The OCC therefore adopts this change as proposed. The final rule also makes technical amendments to cross-references in paragraph (k)(4).

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

As noted in the preamble to the proposed rule, the OCC did not intend paragraph (n)(2)(iii) to apply to this type of transfer of deposit liabilities when it last amended this provision in 2015 (2015 Final Rule).

45

In fact, § 5.33(n)(4), which requires mutual savings associations to provide notice to accountholders of a proposed account transfer and to give them the option of retaining the account in the transferring Federal savings association if the account liabilities are transferred to an uninsured institution, contemplates just such an account transfer. In addition, the anomalous reading of § 5.33(n)(2)(iii) was not present in the pre-integration version of the Federal savings association combination rules.

46

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

47

45

80 FR 28346 (May 18, 2015).

46

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

47

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

The OCC did not receive any comments on this change to paragraph (n)(2)(iii) and adopts it as proposed.

The OCC also proposed adding an additional exception to paragraph (n)(2)(iii), as new paragraph (n)(2)(iii)(C). The OCC and OTS have permitted transactions where a mutual savings association transferred all of its deposits to a non-mutual savings association institution followed by the voluntarily liquidation of the mutual savings association. These transactions are subject to approvals or non-objections by the OCC. However, the literal reading of § 5.33(n)(2)(iii) may not permit such transactions. Accordingly, the OCC proposed adding a new exception to the requirement that the resulting institution be an insured mutual institution when the transaction is part of a voluntary liquidation for which the OCC has provided non-objection under § 5.48. The OCC received no comments on this change and adopts it as proposed.

Finally, the OCC proposed technical amendments to paragraph (l) to correct a typographical error and to revise paragraph (o)(2)(ii)(A) to replace the citation to 12 CFR 152.4 with the current citation, 12 CFR 5.22. The OCC received no comments on these technical amendments and adopts them as proposed. The final rule makes additional technical amendments to paragraphs (o)(2)(ii)(A) and (o)(2)(ii)(C) to correct cross-references, paragraphs (f)(3) and (g)(6) to properly reflect the reorganization of paragraph (g), and paragraph (g) to conform headings to the plural form.

Two commenters suggested changes to § 5.33 that were not included in the proposed rule. One of these commenters suggested that prefiling discussions between the OCC and national banks filing to engage in a business combination be memorialized and made public after the bank submits its application. The OCC notes that § 5.33 does not contain a requirement for prefiling meetings but that these meetings may occur. This commenter asserts that publication of these discussions would promote fairness and transparency and deter the OCC from giving unfair advantage to certain banks. The OCC disagrees with this commenter. Prefiling discussions generally concern confidential business and often supervisory information, which may not be disclosed. The OCC therefore is not including this suggestion in its final rule.

The other commenter suggested a change to § 5.33(e)(1)(ii), which lists the policies that the OCC considers when evaluating a business combination under the Bank Merger Act. Specifically, this commenter requested a change to paragraph (e)(1)(ii)(D), which states that the OCC considers the effectiveness of any insured depository institution involved in the business combination in combating money laundering activities, including in overseas branches. This commenter requested that the OCC change this provision to provide that, as the OCC proposed with respect to CRA, the OCC's conclusion of whether the filer's effectiveness in combatting money laundering activities is consistent with approval of an application be considered in conjunction with the other factors in § 5.33. The OCC disagrees with the commenter. CRA is a separate statute and is not included in the Bank Merger Act. However, 12 U.S.C. 1828(c)(11) requires the OCC to consider, among other factors, the effectiveness of insured depository

institutions' efforts in combating money laundering when evaluating proposals subject to the Bank Merger Act. The current regulatory text repeats this statutory requirement. In addition, banks with significant Bank Secrecy Act deficiencies may not have the capability to put in place sufficient controls to mitigate additional money laundering or terrorist financing risks associated with significant corporate activities.

Operating Subsidiaries of a National Bank (§ 5.34)

Section 5.34 provides the licensing requirements for a national bank's acquisition or establishment of an operating subsidiary or commencement of a new activity in an existing operating subsidiary. Paragraph (e)(2)(i) specifies what entities may qualify as an operating subsidiary. Paragraph (e)(2)(i)(A) requires that the national bank must have the ability to control the management and operations of the subsidiary and no other person or entity exercises effective operating control over the subsidiary or has the ability to influence the subsidiary's operations to an extent equal to or greater than that of the bank. The OCC proposed to clarify this provision by requiring that no other person or entity has the ability to exercise effective control or influence over the management or operations of the subsidiary to an extent equal to or greater than that of the bank or an operating subsidiary thereof. The OCC also proposed conforming amendments to current § 5.34(e)(5)(A)(3)(

i

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

l

), which contains a parallel requirement for operating subsidiary filings. Redesignated § 5.34(f)(2)(i)(C)(

l

) provides additional requirements for how the national bank must effectively control the operating subsidiary to be eligible to submit a notice to the OCC instead of an application to establish or engage in an activity in an operating subsidiary. The OCC received no comments on these changes and adopts them as proposed.

Section 5.34(e)(2)(ii) identifies certain subsidiaries that are not operating subsidiaries for purposes of § 5.34. The OCC proposed to replace the word “subsidiaries” with “entities” to further clarify the exclusion. The OCC received no comments on this change and adopts it as proposed.

The OCC also proposed a new paragraph (e)(2)(ii)(C) to specify that a trust formed for purposes of securitizing assets held by the bank as part of its banking business would not be considered an operating subsidiary. This proposal would codify the OCC's position that securitization trusts generally do not qualify as operating subsidiaries because of the bank's limited control over the trust and because beneficial interests in trusts lack many of the indicia of traditional equity. The OCC received two comments on this new paragraph. One commenter supported removing securitization trusts from the definition of operating subsidiary, but also proposed excluding trusts formed for the purpose of holding securities, off-lease property, real estate, and other assets held in satisfaction of debt previously contracted (DPC assets) from this definition. The OCC does not agree with this suggested change. The parent bank likely will have actual control and management of trusts holding securities, off-lease property, real estate, and other DPC assets. Therefore, the reasons for excluding securitization trusts from the definition of operating subsidiary are unlikely to be present for these trusts identified by the commenter.

A second commenter disagreed with the proposed change asserting that the OCC has not indicated any authority for the proposition that securitization trusts are not operating subsidiaries or non-controlling investments. The commenter also stated that the OCC has not adequately discussed the intent or expected impact of the proposal. As indicted above, the OCC generally has not treated the securitization trust as an operating subsidiary. The interests in securitization trusts typically are not the equivalent of “equity” for purposes of 12 CFR 5.34, 5.36, 5.38, and 5.58, and do not provide indicia of “control” for purposes of 12 CFR 5.34 and 5.38. Rather, the beneficial interest or any other interests retained in a securitization trust are more akin to economic interests than to traditional equity interests. The beneficial interests do not give rise to traditional voting power associated with equity interests in a corporation or LLC. Furthermore, securitization trusts are generally structured simply as a set of instructions for administering the securitization that are difficult to change. Given these factors, the bank does not control the trust in the traditional sense of directing its operations.

For the reasons discussed above, the OCC adopts new paragraph (e)(2)(ii)(C) as proposed.

Paragraph (e)(5) of § 5.34 provides the procedures for operating subsidiary filings. The OCC proposed to redesignate the majority of paragraph (e)(5) as paragraph (f) and to redesignate current paragraph (e)(6), addressing grandfathered operating subsidiaries, as paragraph (g). The OCC also proposed conforming revisions to cross-references. The OCC received no comments on these technical changes and adopts them as proposed.

Redesignated § 5.34(f)(2) contains the requirements for a national bank to qualify for the notice process for operating subsidiary filings. In addition to meeting additional control requirements and being well capitalized and well managed, paragraph (f)(2)(i)(A) permits a national bank to file a notice instead of an application if the activity is listed in paragraph (e)(5), redesignated by the proposal as paragraph (f)(5). The OCC proposed to expand the scope of this requirement to include any activity that is substantively the same as a previously approved activity and that will be conducted in accordance with the same terms and conditions applicable to the previously approved activity. As discussed previously in this

Supplementary Information,

the OCC proposed to define “previously approved activity” in § 5.3 to mean, for national banks, any activity approved in published OCC precedent for a national bank, an operating subsidiary of a national bank, or a non-controlling investment of a national bank.

48

The OCC noted in the preamble to the proposed rule that the expansion of the notice requirement to activities that are substantively the same as previously approved activities does not relieve the national bank from the requirement to ensure that the operating subsidiary is only conducting permissible activities and would not affect the OCC's ability to take action if the OCC finds that the activities are not permissible or are conducted in an unsafe or unsound manner.

48

As discussed, the final rule changes “an activity approved” to “any activity approved.”

The proposal also raised as an alternative removing all filing requirements for national bank operating subsidiaries noting that a filing would not be required if the activity was conducted in the bank. Under this alternative, a national bank would be able to acquire or establish an operating subsidiary or commence a new activity in an existing operating subsidiary without filing a notice or application if the activity to be engaged in by the operating subsidiary is a permissible bank activity, provided the operating subsidiary meets the ownership and structural aspects currently required for notice and the national bank is well capitalized and well managed.

One commenter supported this alternative noting that no filing would be required if the activity were performed in the bank and contending

that there are safety and soundness reasons to reduce regulatory obstacles to conducting an activity in an operating subsidiary.

49

However, upon further consideration, the OCC has determined not to pursue this alternative at this time. The OCC would like experience with the new notice provision for an activity that is substantively the same as a previously approved activity before making a decision on removing all filings for operating subsidiaries. Therefore, the OCC is not including this change in the final rule.

49

This commenter also discussed having this alternative amendment apply to Federal savings associations. However, this alternative would not permissible for Federal savings associations because section 18(m) of the FDI Act (12 U.S.C. 1828(m)) requires a Federal savings associations to file a notice with the OCC when establishing, acquiring, or conducting a new activity in an operating subsidiary.

This commenter also argued that the OCC should extend the proposal to fiduciary powers, stating that operating subsidiaries should be able to rely on the fiduciary powers of the parent national bank or Federal savings association without notifying or seeking approval from the OCC, so long as the parent national bank or Federal savings association was not required to notify or seek approval from the OCC prior to engaging in permissible bank activities. The commenter argued that this change would also obviate the need for many national banks and Federal savings associations to register an operating subsidiary as an investment adviser under the Investment Advisers Act of 1940 (Advisers Act) when the subsidiary is exercising its investment discretion on behalf of its customers or providing investment advice for a fee under 12 CFR part 9 and therefore would substantially reduce regulatory burden.

The OCC disagrees with this comment. Regardless of the OCC's decision regarding the alternative proposal, the provision regarding fiduciary powers and investment advice activity is special and distinct. Current § 5.34(e)(5)(vii)(B) does not require an investment advisory subsidiary to be registered. Rather, the provision provides that if the subsidiary is registered, the national bank or Federal savings association need not have fiduciary powers, but if the subsidiary is not registered, then the national bank or Federal savings association must have fiduciary powers. This requirement is necessary to ensure that there will be some applicable law that will govern the conduct of the subsidiary, whether it is the Advisers Act or 12 CFR part 9.

The commenter further recommended that if the OCC does not eliminate filings for operating subsidiary fiduciary activities, the OCC should add the exercise of fiduciary powers to the list of activities for which no advance filing is required under 12 CFR 5.34(e)(5)(vi). The OCC disagrees with this recommendation because the proposal to expand the activities eligible for notice under § 5.34(e)(5)(v) to include all previously approved activities would already include most national bank subsidiary fiduciary activities.

The commenter also argues that subsidiaries engaging in the activities listed in § 5.34(e)(5)(v) are an example of why a bank's ability to establish an operating subsidiary should not be tied to the bank's management rating, as required by the proposed definition of “well managed.” The commenter contends that if a bank is well capitalized and has a satisfactory composite rating, it should be able to establish, without a separate regulatory approval, a subsidiary to engage in activities listed in § 5.34(e)(5)(v), such as the management and disposition of DPC assets. The commenter requests that the OCC retain the existing definition of “well managed” for this section, instead of the proposed definition which includes the management rating. The OCC disagrees with this comment. If a bank is not “well managed” it may lack sufficient internal controls and processes to properly manage an operating subsidiary, such as one managing DPC assets. As such, an application should be required. If the bank is well managed and well capitalized, it need only file a notice once, as it can rely on the provision in current § 5.34(e)(5)(vi) to form additional subsidiaries engaging in the same activity without any additional filing.

The commenter also suggests that, in the event that the OCC decides to retain some filing requirements, the OCC use a notice rather than an application when a national bank intends to acquire as an operating subsidiary an entity that engages in

de minimis

activities not permissible for a national bank. The OCC does not agree with this comment. Although

de minimis

-type provisions did exist in the past, all were removed after the passage of the Gramm-Leach-Bliley Act, Public Law 105-102. In addition, a financial subsidiary provides an alternative existing mechanism if a national bank wishes to use a subsidiary to conduct limited activities not permissible for a national bank.

For the reasons discussed above, the OCC adopts redesignated § 5.34(f) as proposed, with two technical amendments. First, the final rule removes unnecessary cross-references to § 5.3 for the definitions of ”well capitalized,” “well managed, ” and “previously approved activity.” As indicated above, the definitions in § 5.3 apply to all of part 5 so these cross-references are unnecessary. Additionally, the final rule corrects a cross-reference to redesignated § 5.34(f) in § 5.34(c) regarding ownership requirements applying to a foreign bank rather than its Federal branch. The OCC inadvertently did not adjust the current cross-reference in § 5.34(c) to § 5.34(e)(5)(i)(B) when it restructured the rule in 2008.

50

The final rule restores the cross-reference to the ownership requirement to file a notice under § 5.34, as was originally promulgated in 2001.

51

50

See

73 FR 22216, 22238 (Apr. 24, 2008).

51

See

12 CFR 5.34(c), (e)(5)(i)(B) (2002).

Current paragraph (e)(7) requires national banks to file an annual report with the OCC describing operating subsidiaries that do business directly with consumers. The OCC publishes this information on its website. The OCC proposed to remove this requirement to reduce burden and because it generally duplicates information contained elsewhere, such as the FFIEC's National Information Center (NIC). In addition, the majority of the operating subsidiaries reported are now subject to the jurisdiction of the Consumer Financial Protection Bureau, and not the OCC, for most consumer law issues. The OCC received one comment on this proposal. The commenter supported the proposal and agreed that the existing regulation is redundant. The final rule therefore removes the requirement as proposed.

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

Section 5.35 addresses national bank and Federal savings association investments in bank service companies as authorized by the Bank Service Company Act (BSCA) (12 U.S.C. 1861-1867). Pursuant to section 2 of the BSCA (12 U.S.C. 1862), paragraph (i) of § 5.35 provides that a national bank or Federal savings association may not invest more than 10 percent of its capital and surplus in a bank service company. In addition, paragraph (i) also provides that the national bank's or Federal savings association's total investments in all bank service companies may not exceed five percent of the national bank's or Federal savings association's total assets. However, section 2 of the BSCA also specifies that the investment

limitations in section 5(c)(4)(B) of the HOLA apply to Federal savings associations with regard to bank service company investments. This limitation is not currently included in paragraph (i). Accordingly, the OCC proposed to revise paragraph (i) to directly reference the limitations in section 2 of the BSCA. The OCC also proposed a technical correction to the title of this section that would remove the extraneous word “investment.” The OCC received no comments on the changes it proposed to § 5.35 and adopts them in the final rule as proposed with additional technical changes. Specifically, the final rule does not include the unnecessary cross reference to § 5.3 for the definitions of “well capitalized” and “well managed” in paragraph (f). The final rule also corrects a reference to the FDI Act in paragraph (d)(3).

Other Equity Investments by a National Bank (§ 5.36)

Section 5.36 provides the procedures for national banks to make certain types of equity investments. Paragraphs (e) and (f) provide the procedures and requirements for a national bank to make a non-controlling investment that is not prescribed by other OCC rules. The OCC proposed to clarify the types of national bank equity investments that are subject to § 5.36 by adding a new definition to paragraph (c) that would define “non-controlling investment” to mean an equity investment made pursuant to 12 U.S.C. 24(Seventh) that is not governed by procedures prescribed by another OCC rule. Additionally, the OCC proposed to specify in the definition that the term “non-controlling investment” does not include a national bank holding interests in a trust formed for the purposes of securitizing assets held by the bank as part of its banking business or for the purposes of holding multiple legal titles of motor vehicles or equipment in conjunction with lease financing transactions. This would codify the OCC's interpretation that these interests do not have sufficient indicia of ownership and control to qualify as an equity investment for purposes of § 5.36. The OCC also proposed a conforming change to paragraphs (e) and (f). The OCC received no comments to the new definition and conforming amendments and adopts them in the final rule as proposed.

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

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

The OCC received one comment relating to § 5.36(e), supporting the alternative amendment. However, for the reasons noted in the discussion on § 5.34, Operating subsidiaries, the OCC declines to include this alternative in the final rule.

This commenter also recommended that if the OCC retains the notice requirements and limits the use of a notice to banks meeting the proposed definition to “well managed” in § 5.3, the OCC should make exceptions to these filing requirements for investments that help to meet the credit needs of the community and for investments below a specified threshold. As noted above in its discussion of comments on the definition of “well managed” in § 5.3, the OCC finds that the components reflected in an entity's management rating, such as bank controls, are relevant to the establishment of other equity investments of a national bank and that a national bank with a 2 composite rating but a 3 management, or risk management, rating warrants additional scrutiny. This rationale is generally applicable, regardless of the size of the investment, including for investments that help meet the credit needs of the community.

For these reasons, the OCC adopts these changes to § 5.36(e) as proposed, with technical amendments to remove unnecessary cross-references to § 5.3.

As noted, whether a national bank is filing a notice under paragraph (e) or an application under paragraph (f), the current rule requires the enterprise in which the bank will make a non-controlling investment to agree to OCC supervision and examination. The OCC proposed to amend paragraph (f), redesignated as paragraph (f)(1), to permit national banks to file an application for prior approval to invest in an enterprise that has not agreed to be subject to OCC supervision and examination. Additionally, the OCC proposed a new paragraph (f)(2) to provide for expedited review of certain applications for investments in enterprises that do not agree to OCC supervision and examination that pose minimal risk to the national bank's safety and soundness. An application under proposed paragraph (f)(2) would be deemed approved by the OCC within 10 days after the application is received if five additional requirements are met. First, the enterprise must engage in permissible bank activities as described in proposed paragraph (e) of this section. Second, the national bank must be well managed and well capitalized. These two requirements parallel the requirements for filing a notice. Third, the book value of the national bank's non-controlling investment for which the application is submitted must not be more than 1% of the bank's capital and surplus. Fourth, no more than 50% of the enterprise may be owned or controlled by banks or savings associations subject to examination by an appropriate Federal banking agency or credit unions insured by the National Credit Union Association. Many enterprises in which national banks make non-controlling investments are owned by a consortium of banks and savings associations and provide services to their owners and others. Given the potentially complex

interactions between these enterprises and their owners and the additional risks posed to the owners, the OCC believes that OCC supervision and examination of these enterprises is necessary for the safety and soundness of the investing national banks and Federal savings associations. Accordingly, the proposed rule did not permit investments in these entities without their commitment to OCC supervision and examination, and therefore expedited review of these investments would not be available. Finally, the OCC must not have notified the national bank that the application has been removed from expedited review, or that the expedited review process has been extended, pursuant to the standards contained in § 5.13(a)(2).

The OCC received one comment on these proposed amendments to § 5.36(f), which supported the proposed changes. The OCC therefore adopts these amendments to paragraph (f) as proposed, with one technical change in wording for clarity. As explained in the preamble to the proposed rule, the OCC believes that these amendments will give national banks greater flexibility to make permissible non-controlling investments, while giving the OCC an opportunity for an in-depth review of the proposed investment to ensure there is no inappropriate risk to the national bank's safety and soundness. Furthermore, the OCC believes that this added flexibility will in particular facilitate national bank investments in financial technology (fintech) companies, which will enhance the ability of national banks to enter into strategic partnerships and to develop innovative products, services, and processes while ensuring the OCC receives adequate information to supervise the attendant banking activities.

52

52

Notwithstanding this amendment, if the enterprise in which the national bank invests also provides services to the national bank, it may be subject to the examination and regulation under the Bank Service Company Act.

See

12 U.S.C. 1867(c).

In addition, the OCC proposed adding a new paragraph (g) to § 5.36 to permit a national bank to make a non-controlling investment without a filing to the OCC in certain circumstances. Specifically, a national bank would be permitted to make a non-controlling investment without an application or notice if the activities of the enterprise are limited to those activities previously reported by the bank in connection with making or acquiring a non-controlling investment; the activities in the enterprise continue to be legally permissible for a national bank; the bank's non-controlling investment will be made in accordance with any conditions imposed by the OCC in approving any prior non-controlling investment in an enterprise conducting these same activities; and the bank is able to make the representations and certifications specified in amended §§ 5.36(e)(3) through (e)(7). As a conforming amendment, the OCC proposed to redesignate current paragraphs (g) through (i) as paragraphs (h) through (j), respectively.

The OCC received no comments on new paragraph (g) and the conforming amendments and adopts the revisions as proposed, with two technical changes to correct a cross-reference in paragraph (h)(1) to reflect the redesignation and to remove an unnecessary cross-reference to § 5.3 in redesignated paragraph (i). As stated in the preamble to the proposed rule, the national bank would already have a non-controlling investment in an entity conducting particular activities, and the OCC finds that there would be little risk in the bank making an additional non-controlling investment in an entity conducting the same activities. Furthermore, the OCC finds that non-controlling investments pose similar risks to national banks as operating subsidiaries, and new paragraph (g) would parallel current § 5.34(e)(5)(vi), redesignated in the final rule as § 5.34(f)(6), which permits national banks to make investments in operating subsidiaries without a filing. Therefore, the OCC believes that the revisions to paragraph (g) will reduce burden without jeopardizing the national bank's safety and soundness.

Redesignated paragraph (j) provides exceptions to the rules of general applicability. The OCC proposed to remove the exception to § 5.9, public availability, because some of these investments may be of public interest. Further, the proposal would permit the OCC to determine that some or all provisions in §§ 5.8, 5.10, and 5.11 apply if it concludes that an application presents significant or novel policy, supervisory, or legal issues. This proposed paragraph (j) would parallel the equivalent provision for operating subsidiary filings in current § 5.34(e)(5)(iii). The OCC received one comment to these changes to paragraph (j). The commenter opposed making the public availability requirements of § 5.9 applicable to non-controlling investment filings on the grounds that the information included in those filings could be competitive information and the commenter contended that a bank cannot rely on the OCC deeming this information confidential. Therefore, the commenter argued that the proposed change would have a chilling effect on equity investments by banks. The commenter also stated that the public will learn about bank noncontrolling investments when the bank or firm in which the bank invested announces the investment.

The OCC has reconsidered this proposed amendment in light of this comment. A noncontrolling investment filing differs from an operating subsidiary filing. Although confidential information can be redacted in both of these types of filings when made available to the public, the fact that a national bank is making a noncontrolling investment in an entity may itself be considered confidential information until the national bank or entity announces the investment. Therefore, the OCC is not removing the exception to § 5.9, public availability, for § 5.36 filings as proposed. However, the OCC is adopting in the final rule the proposed provision that permits the OCC to determine that some or all of the provisions in §§ 5.8, 5.10, and 5.11 apply if it concludes that an application presents significant or novel policy, supervisory, or legal issues, with the addition of § 5.9 to this sentence.

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

Section 5.37 describes the procedures for national bank and Federal savings association investment in bank premises. Paragraph (d)(1)(i) provides that the procedures of § 5.37 are applicable to investments in the stocks, bonds, debentures, or other obligations of any corporation holding the premises of the national bank or Federal savings association in addition to direct investments in the bank premises. Twelve CFR 7.1000 provides the authority for national bank and Federal savings association investments in bank premises.

53

In addition to the investments listed in § 5.37(d)(1)(i), § 7.1000(a)(3) provides that national banks and Federal savings associations may hold bank premises through a subsidiary organized as a corporation, partnership, or similar entity (

e.g.,

a limited liability company). The OCC proposed to revise § 5.37(d)(1)(i) to recognize the permissibility of holding bank premises through partnerships and similar entities, such as limited liability companies, so that it is consistent with § 7.1000(a)(3). In addition, the OCC proposed to remove the definition of “capital and surplus” in § 5.37 as it is redundant with the definition of this

term in § 5.3. The OCC also proposed adding § 5.9, public availability, to the exceptions to rules of general applicability in § 5.37(d)(5). Finally, the OCC proposed to correct a technical error in paragraph (a), replacing “12 U.S.C. 317d” with “12 U.S.C. 371d.”

53

The OCC notes that it has proposed to redesignate 12 CFR 7.1000 as 12 CFR 7.1024 in a separate rulemaking.

See

85 FR 40794 (July 7, 2020).

The OCC received no comments on these changes and adopts them as proposed, with two technical changes to remove an unnecessary cross-reference to § 5.3 in paragraph (d)(3)(i) and to conform a cross-reference in paragraph (d)(4).

Operating Subsidiaries of a Federal Savings Association (§ 5.38)

Section 5.38 provides the application requirements for a Federal savings association's acquisition or establishment of an operating subsidiary or commencement of a new activity in an existing operating subsidiary when required by section 18(m) of the FDI Act (12 U.S.C. 1828(m)). Section 5.38 is largely parallel to § 5.34 for national bank operating subsidiaries, except that where a national bank would file a notice, a Federal savings association would file an application eligible for expedited review. Accordingly, the OCC proposed coordinating revisions to § 5.38 including: (1) Revising the standard for qualifying subsidiaries in paragraph (e)(2)(i)(A); (2) excluding securitization trusts from the scope of the section in new paragraph (e)(2)(iii)(C); (3) redesignating paragraphs (e)(5), (e)(6), and (e)(7) as paragraphs (f), (g), and (h), respectively; (4) expanding the activities eligible for expedited review to include activities substantially the same as a previously approved activity (as proposed to be defined in § 5.3) and conducted in accordance with the same terms and conditions applicable to the previously approved activity, in redesignated paragraph (f)(2)(ii)(B); (5) expanding the entities eligible for expedited review to include certain trusts where the Federal savings association or its operating subsidiary is the sole beneficiary and has the ability to replace the trustee at will, in redesignated paragraphs (f)(2)(ii)(C) and (D); and (6) explicitly recognizing that the control required by redesignated paragraphs (f)(2)(ii)(D) may be met through an operating subsidiary of the Federal savings association. In addition, the OCC proposed technical changes that would remove the definitions of “well capitalized” and “well managed” from § 5.38, as with § 5.34, and replace the word “subsidiary” with the more appropriate word “entity” in the introductory text of paragraph (e)(2)(iii). The OCC received no comments on these proposed amendments and the OCC adopts them as proposed, with one technical change to remove unnecessary cross-references to § 5.3 in paragraph (f).

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

1

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

3

)(

i

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

54

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

4

)(

i

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

1

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

1

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

3

)(

i

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

1

). The OCC received no comments on this change and adopts it as proposed.

54

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.

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Paragraph (h)(5)(ii) of § 5.39 specifies that the restrictions contained in section 23A(a)(1)(A) of the Federal Reserve Act

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do not apply to a covered transaction between a bank and its financial subsidiary. However, section 609 of the Dodd-Frank Wall Street Reform and Consumer Protection Act removed this section 23A exclusion. Accordingly, the OCC proposed to remove paragraph (h)(5)(ii).

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12 U.S.C. 24a.

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12 U.S.C. 371c(a)(1)(A).

The OCC also proposed to clarify the approval process for financial subsidiary activities. First, consistent with other changes in part 5, the OCC proposed to change the terminology for filings under § 5.39 from notice to application. The OCC did not intend any substantive change in standards or procedures as a result of this proposal.

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

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

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

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65 FR 3159 (Jan. 20, 2000).

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Id.

Finally, the OCC proposed technical changes to paragraph (d) that would remove the definitions of “appropriate Federal banking agency,” “well capitalized,” and “well managed.”

The OCC received no comments specific to the amendments it proposed to § 5.39 and adopts them as proposed with technical changes that remove an unnecessary cross-reference to § 5.3 in paragraph (g) and correct a cross-reference in paragraph (h)(5), and with other technical changes to citations.

Change in Location of a Main Office of a National Bank or Home Office of a Federal Savings Association (§ 5.40)

The final rule makes a technical correction to § 5.40. Among other things, § 5.40(c)(2)(ii) requires a Federal savings association to obtain shareholder approval required under its charter if relocating its home office outside the limits of its city, town, or village, and must amend its charter. Because this provision applies to both Federal stock savings associations and Federal mutual savings associations, the OCC is amending this provision to include member approval as Federal mutual savings associations have members and not shareholders.

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

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

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

Comptroller's Licensing Manual

currently describes the procedures for requesting and granting waivers. The OCC proposed codifying these procedures in a new 12 CFR 5.43 to better clarify and structure the waiver process. The OCC received no comments on this new section and adopts these provisions as proposed, with the changes discussed below.

Specifically, paragraph (a) of § 5.43 sets forth the authority for the regulation, 12 U.S.C. 72 and 93a, the latter of which grants the OCC general rulemaking authority. Paragraph (b) sets forth the scope of the section as describing the procedures for the OCC to waive the residency and citizenship requirements.

Paragraph (c) sets forth the application procedures. Under paragraph (c)(1), a national bank would file a written application with the OCC to request a waiver of the residency requirement. Paragraph (c)(1) also provides that the OCC may grant this waiver for individual directors or for any number of director positions. The OCC typically grants residency waivers for a certain number of directors on the board rather than to specific individuals, but the final rule increases flexibility by permitting either procedure. As a clarifying change, the final rule provides that the waiver is valid until the OCC revokes it in accordance with paragraph (d) of this section, or, if granted on an individual basis, until the individual no longer serves on the board.

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

Paragraph (c)(3)(i) requires the subject of a citizenship waiver application to submit the information prescribed in the Interagency Biographical and Financial Report. Paragraph (c)(3)(ii) provides that the OCC may require additional information about the subject of a citizenship waiver application, including legible fingerprints, if appropriate. This paragraph also permits the OCC to waive any of the information requirements if the OCC determines that doing so is in the public interest. The final rule makes a technical correction to the cross-reference in this paragraph.

Paragraph (c)(4) provides exceptions to the rules of general applicability. Specifically, §§ 5.8 (public notice), 5.9 (public availability), 5.10 (comments), and 5.11 (hearings and other meetings) do not apply to applications for citizenship waivers. As noted in the preamble to the proposed rule, the OCC believes the applications will largely consist of information specific to a bank's internal practice as well as private information about the individuals subject to the waiver applications. Accordingly, these applications should not be publicly available nor subject to public notice, comment, or hearings.

Paragraph (d) provides procedures for the OCC's revocation of a residency or citizenship waiver. Under these procedures, the OCC will provide written notice before a revocation to the national bank and affected director(s) of its intention to revoke the waiver and the basis for its intention. The OCC recognizes that discretion in revoking residency and citizenship waivers is premised upon the guarantee of due process. Accordingly, this paragraph provides the bank and the affected director(s) the opportunity to respond in writing to the OCC's intention to revoke a waiver within 10 calendar days, unless the OCC determines that a shorter period is appropriate in light of relevant circumstances. The OCC will consider the written responses of the bank and affected director(s), if any, prior to deciding whether or not to revoke a residency or citizenship waiver. The OCC will notify the national bank and the director of the OCC's decision to revoke a residency or citizenship waiver in writing. If the director appeals pursuant to paragraph (e), this waiver decision is effective upon the director's receipt of the decision of the Comptroller, an authorized delegate, or the appellate official, to uphold the initial decision to revoke the residency or citizenship waiver. If the director does not appeal, the revocation is effective at the expiration of the period to appeal. As stated in the preamble to the proposed rule, the OCC believes the decision to revoke a waiver is consistent with the Comptroller's authority to grant a waiver even though 12 U.S.C. 72 does not contain any specific provisions for revoking a waiver. Absent this authority many residency waivers effectively would be perpetual as the OCC generally grants residency waivers for a designated number of director positions. Further, changing geo-political circumstances may in some circumstances warrant the revocation of citizenship waivers, particularly if foreign governments are unduly influencing directors' activities with regard to a national bank.

Paragraph (e) provides an appeals process for a director whose residency or citizenship waiver the OCC has decided to revoke. This appeals process parallels the appeals process provided for disapprovals of directors and senior executive officers in 12 CFR 5.51, and pro

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