Extensions of Credit to Insiders and Transactions With Affiliates

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 31

[Docket No. 95-29]

RIN 1557-AB40

Extensions of Credit to Insiders and Transactions With Affiliates

AGENCY: Office of the Comptroller of the Currency, Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Office of the Comptroller of the Currency (OCC) proposes

to revise its rules governing extensions of credit to national bank

insiders and to relocate to part 31 several interpretive rulings

dealing with transactions with affiliates. This proposal is another

component of the OCC's Regulation Review Program to update and

streamline OCC regulations and to reduce unnecessary regulatory costs

and other burdens. The proposal modernizes and clarifies the insider

lending rules and reduces unnecessary regulatory burdens where

feasible, consistent with statutory requirements.

DATES: Comments must be received by February 9, 1996.

ADDRESSES: Comments should be directed to: Office of the Comptroller of

the Currency, Communications Division, 250 E Street, SW, Washington, DC

20219, Attention: Docket No. 95-29. Comments will be available for

public inspection and photocopying at the same location. In addition,

comments may be sent by facsimile transmission to FAX number (202) 874-

5274 or by electronic mail to [email protected].

FOR FURTHER INFORMATION CONTACT: Aline Henderson, Senior Attorney, Bank

Activities and Structure (202) 874-5300; Emily McNaughton, National

Bank Examiner, Credit & Management Policy (202) 874-5170; or Mark

Tenhundfeld, Senior Attorney, Legislative and Regulatory Activities

(202) 874-5090.

SUPPLEMENTARY INFORMATION:

Background

Summary of Regulation Review Program

The OCC proposes to revise 12 CFR part 31 as another component of

its Regulation Review Program (Program). The goal of the Program is to

review all of the OCC's rules and to eliminate provisions that do not

contribute significantly to maintaining the safety and soundness of

national banks or to accomplishing the OCC's other statutory

responsibilities. Another goal of the Program is to clarify regulations

so that they more effectively convey the standards the OCC seeks to

apply.

[[Page 63462]]

The OCC intends for this proposal to reduce regulatory costs and

other burdens on national banks by eliminating regulatory requirements

that are neither essential to maintaining the safety and soundness of

national banks nor needed to accomplish the OCC's statutory

responsibilities. The proposal also seeks comments on whether it would

be useful for the OCC to issue additional guidance on the differences

between the requirements of part 31 and 12 CFR part 32 (Lending

Limits).

Discussion

Current part 31 contains two subparts. Subpart A implements 12

U.S.C. 375a(4) and 375b(3) by setting a limit on the amount that a

national bank may lend to any one of its executive officers other than

for housing- and education-related loans and by establishing a

threshold above which approval of the bank's board of directors is

required for any loan to an insider. Subpart B implements 12 U.S.C.

1817(k) and 1972(2)(G)(ii) by requiring a national bank to disclose,

upon request, the names of its executive officers and principal

shareholders who borrow more than specified amounts from the bank

itself or the bank's correspondent banks and to maintain records

related to requests for this information. Subpart B also implements 12

U.S.C. 1972(2)(G)(i), which requires a national bank's executive

officers and principal shareholders to report on loans they or their

related interests receive from the bank's correspondent banks.

This proposal creates three exceptions to the limit on loans that a

national bank may make to its executive officers for situations where

the lending bank's position is clearly protected by virtue of the type

of collateral involved. It also clarifies and simplifies the current

rule by removing provisions that are no longer necessary. Finally, it

invites comments on whether guidance would be helpful on the

differences between the insider lending limits and the loans-to-one-

borrower limits and, if so, the areas where clarification may be most

needed.

The following discussion identifies and explains material proposed

changes to part 31. The OCC invites general comments on the proposed

regulation as well as specific comments on the areas identified.

Title of Regulation

The current rule is titled ``Extensions of Credit to National Bank

Insiders.''

The proposed rule changes the title to ``Extensions of Credit to

Insiders and Transactions with Affiliates.'' This change reflects the

proposed relocation to 12 CFR part 31 of several interpretations

regarding transactions with affiliates that currently are set out in

part 7. (See ``Interpretations'' and text that follows for further

discussion of the relocation.)

Subpart A--Loans to Insiders

Definitions (Proposed Sec. 31.2)

Current Sec. 31.3 states that the definitions contained in

Secs. 215.2 and 215.3 of Regulation O (12 CFR part 215) apply to

subpart A of part 31.

Proposed Sec. 31.2 also states that the definitions used in

Secs. 215.2 and 215.3 of Regulation O apply. However, because proposed

Sec. 31.3 uses a term (capital and surplus) that is Not defined in

Regulation O, proposed Sec. 31.2 states that ``capital and surplus''

will be defined in the same way as that term is defined in part 32

(Lending Limits) (12 CFR 32.2(b)). This clarifies that national banks

calculate their loans-to-one-borrower lending limits and their insider

lending limits using the same capital base.1

\1\ Regulation O uses the term ``unimpaired capital and

unimpaired surplus.'' See 12 CFR 215.2(i). The Board of Governors of

the Federal Reserve System (Board) recently amended Regulation O to

conform the definition of ``unimpaired capital and unimpaired

surplus'' to the definition of ``capital and surplus'' as defined in

part 32 (60 FR 31053, June 13, 1995). Accordingly, the capital base

from which different limits are measured now is the same, despite

the different terminology.

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Loan Limits (Proposed Sec. 31.3)

Current Sec. 31.2(a) prohibits a national bank from making a loan

to an executive officer if the loan, when aggregated with all other

loans outstanding from the bank to the officer, would exceed the higher

of $25,000 or 2.5 percent of the bank's capital and unimpaired surplus,

up to $100,000. However, the current rule exempts home mortgage and

educational loans from this limit pursuant to sections 22(g)(2) and

22(g)(3) of the Federal Reserve Act (12 U.S.C. 375a (2) and (3)).2

Loans that do not comply with sections 22(g)(2) or 22(g)(3) often are

referred to as ``other purpose loans,'' because they are for purposes

other than those identified in those sections of the Federal Reserve

Act.

\2\ Section 22(g)(2) of the Federal Reserve Act permits a member

bank (and, therefore, a national bank) to make a loan to one of its

executive officers if the loan is secured by a first lien on a

dwelling that the officer will own and use as his or her residence

after the loan is made. Section 22(g)(3) permits a member bank to

make a loan to an executive officer to finance the education of the

officer's children.

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Pursuant to the rulemaking authority in 12 U.S.C. 375(a)(4),

proposed Sec. 31.3(a) exempts a loan from the limits applicable to

``other purpose loans'' if the loan is secured by United States

obligations, obligations guaranteed by a Federal agency, or a

segregated deposit account.3 The proposal effects this change by

incorporating the exceptions set forth in the OCC's Lending Limits

regulation at 12 CFR 32.3(c)(3), (c)(4)(ii), and (c)(6). The proposal

also clarifies that the limits prescribed by Sec. 31.3(a) do not apply

to executive officers of affiliates of the lending bank.

\3\ The OCC currently exempts these loans from the limits on

loans to one borrower. See 12 CFR 32.3(c)(3), (4), and (6). The only

difference between the exceptions in proposed part 31 and the

exceptions currently available under part 32 is that the proposal

does not include the exemption for loans to a Federal agency (12 CFR

32.3(c)(4)(i)), given that this exemption does not apply to loans to

executive officers.

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The OCC believes that the proposed exceptions, which entail

situations where the lending bank's position is secure by the nature of

the collateral required, are consistent with safe and sound banking

practices and would eliminate unnecessary restrictions on lending by

national banks. Moreover, in the insider lending context, loans that

qualify for the exceptions remain subject to the safeguards found in

sections 22(g)(1) and 22(h)(2) of the Federal Reserve Act (12 U.S.C.

375a(1) and 375b(2)), thereby providing additional protection against

abuse.4

\4\ Section 22(g)(1) of the Federal Reserve Act requires that

any loan by a member bank to one of its executive officers be

promptly reported to the bank's board of directors. The bank may

make the loan to the executive officer only if it is authorized to

make the loan to borrowers other than its officers, the loan is on

terms not more favorable than those afforded other borrowers, and

the officer has submitted a detailed current financial statement.

Section 22(h)(2) authorizes a member bank to make a loan to a bank

insider only if the loan is made on substantially the same terms as

those prevailing at the time for comparable transactions by the bank

with persons who are not insiders, the loan does not involve more

than the normal risk of repayment or present other unfavorable

features, and the bank follows credit underwriting procedures that

are not less stringent than those applicable to comparable

transactions by the bank with non-insiders.

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Both the Federal Deposit Insurance Corporation (FDIC) and the Board

have amended their insider lending rules to include exemptions similar

to those noted above. See 59 FR 66666 (December 28, 1994) (amending the

FDIC's rule at 12 CFR 337.3) and 59 FR 8831 (February 24, 1994)

(amending the Board's rule at 12 CFR 215.5).5 The OCC

[[Page 63463]]

believes the disparity between its rule and those of the other Federal

banking agencies is both unnecessary and inconsistent with section 303

of the Riegle Community Development and Regulatory Improvement Act of

1994 (CDRI) (12 U.S.C. 4803), which requires each agency to work with

the other Federal banking agencies to make uniform all regulations and

guidelines implementing common statutory or supervisory policies. CDRI,

section 303(a)(2).

\5\ The Office of Thrift Supervision's regulation automatically

applies the Board's insider lending rule to thrifts. See 12 CFR

563.43. Accordingly, the amendment to 12 CFR 215.5 also applies to

thrifts. The OCC also believes that the current restrictions run

counter to section 303(a)(1)(A) of the CDRI, which requires the

Federal banking agencies to eliminate unwarranted constraints on

credit availability. The OCC has observed no significant problems

arising from the exemptions in the loans-to-one-borrower context.

This experience, coupled with the safeguards provided by sections

22(g) and 22(h), leads the OCC to conclude that limiting the amount

of loans secured in the manner in question is unwarranted.

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For these reasons, the OCC proposes to eliminate the special

restrictions on extensions of credit by national banks to their

executive officers, provided the loans are secured in the manner

previously described. The OCC seeks comment on whether interested

parties agree that the exemptions are appropriate for national banks.

Current Sec. 31.2(b) requires a majority of the directors of a

national bank to approve in advance a loan to one of the bank's

executive officers, principal shareholders, or directors (or to any

related interest of such persons) if the amount of the loan, when

aggregated with other loans outstanding to that insider and his or her

related interests, exceeds the higher of $25,000 or 5 percent of the

bank's capital and surplus. In no event may a national bank lend more

than $500,000 to an insider and his or her related interests without

the majority of the bank's board first approving the loan. Interested

directors must abstain from the voting.

Proposed Sec. 31.3(b) amends the OCC's rule to conform to recent

changes made to the definitions of ``director,'' ``executive officer,''

and ``principal shareholder'' in Regulation O (12 CFR 215.2(d), (e),

and (m), respectively). The Board narrowed these definitions so that

they generally apply just to insiders of the bank and not to its

affiliates. At the same time the Board narrowed these definitions, it

also clarified, in 12 CFR 215.4(b)(1), that the prior approval

requirements continue to apply to insiders of the bank as well as

insiders of the bank's affiliates. Proposed Sec. 31.3(b) also makes

this clarification.

It should be noted that the exemptions set forth in proposed

Sec. 31.3(a) do not apply to proposed Sec. 31.3(b). Thus, a loan

secured, for instance, by a segregated deposit account still must be

counted for purposes of determining whether prior approval is required

under proposed Sec. 31.3(b). This provides an additional protection

against insider abuse by insuring that a bank's directors will have the

opportunity to review loans to insiders in amounts that exceed the

specified thresholds.

Subpart B--Reports and Public Disclosure

Authority and OMB Control Number (Sec. 31.4)

Current Sec. 31.4 states the authority pursuant to which subpart B

is issued and sets forth the Office of Management and Budget (OMB)

control number.

The proposed rule removes the statement of the OMB control number

from part 31 but retains the statement of authority. In a separate

rulemaking, the OCC will relocate all OMB control numbers to 12 CFR

part 4.

Definitions (Proposed Sec. 31.5)

Current Sec. 31.5(d) states, as a general matter, that the

definitions found in subpart B of Regulation O (12 CFR 215.20 through

215.23) apply to subpart B of part 31. Current Sec. 31.5(d) also states

that, for purposes of the requirement governing reports of loans to

insiders from the insider's bank, the term ``bank'' means Federally-

chartered insured bank.

The proposal relocates the definition section to proposed Sec. 31.5

and incorporates into subpart B of part 31 the definitions found in

subpart B of Regulation O. The proposal also clarifies, for the reasons

stated in the discussion of proposed Sec. 31.2, that the term ``capital

and surplus'' in part 31 has the same meaning as ``capital and

surplus'' as that term is used in 12 CFR part 32. The proposal also

removes an obsolete reference to 12 U.S.C. 1817.

Disclosure of Insider Indebtedness (Proposed Sec. 31.6)

Current Sec. 31.5 requires a national bank to disclose, if

requested, the names of each executive officer and principal

shareholder whose aggregate indebtedness (including debt of the

insider's related interests) from either the bank or its correspondent

banks equals or exceeds the lesser of 5 percent of the bank's capital

and unimpaired surplus or $500,000.6 The current rule also

requires a national bank to maintain records of requests for

information for two years following the request.

\6\ This requirement applies only to aggregate indebtedness that

exceeds $25,000.

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Proposed Sec. 31.6 makes no substantive change, but revises the

current section's style in order to improve clarity. Proposed

Sec. 31.6(a) uses the term ``capital and surplus'' instead of ``capital

and unimpaired surplus,'' which is used in the current regulation. This

change conforms subpart B of part 31 to subpart A. The proposal also

clarifies, in Sec. 31.6(c), that the two-year period for retaining

records of requests and the disposition of requests begins on the date

of the request.

Reports by Executive Officers and Principal Shareholders (Proposed

Sec. 31.7)

Current Sec. 31.6 implements 12 U.S.C. 1972(2)(G)(i), which

requires national bank executive officers and principal shareholders to

file annual reports with their bank's board of directors showing

indebtedness from correspondent banks to the insiders or their related

interests. The current rule states that ``This requirement is restated

in Regulation O, 12 CFR 215.22,'' thereby implicitly incorporating the

provisions of the section cited.

Proposed Sec. 31.7 clarifies that 12 U.S.C. 1972(2)(G)(i) requires

reports only if the executive officer or principal shareholder (or

their related interests) have credit outstanding at some point during

the year. The proposed rule also clarifies that all of the provisions

of 12 CFR 215.22 apply. The OCC does not intend any substantive change

by these proposed amendments.

Interpretations

On March 3, 1995, the OCC proposed to relocate several

interpretations that currently appear in part 7. See 60 FR 11924, 11930

(proposing to relocate 12 CFR 7.7355 (debts of affiliates), 7.7360

(loans secured by stock or obligations of an affiliate), 7.7365

(Federal funds transactions between affiliates), and 7.7370 (deposits

between affiliated banks)). The OCC proposed to relocate these

interpretations to part 31 because the interpretations and part 31 stem

from the same concern about persons or entities taking undue advantage

of positions of influence and thereby adversely affecting the safety

and soundness of a national bank. Given the similarities in the

supervisory concerns that prompted both part 31 and the

interpretations, the OCC believes that it is more appropriate to

include the interpretations in part 31 rather than in a collection of

unrelated interpretations. The OCC also believes that relocating the

interpretations to part 31 will make them easier to find.

The proposed rule restates the latter three of these

interpretations at new Secs. 31.100-31.102. Current Sec. 7.7355, which

interprets the prohibition against a national bank withdrawing its

capital, will be relocated to part 5 to consolidate all provisions

related to changes in a national bank's equity capital. The OCC

[[Page 63464]]

invites comments on these interpretations.

Additional Guidance Regarding Differences Between Lending Limits and

Insider Lending Standards

The OCC seeks comment on whether it would be useful for the OCC to

issue guidance clarifying the differences between the loans-to-one-

borrower limits (12 CFR part 32) and the insider lending limits (part

31). For instance, the attribution rules and the definition of

``extension of credit'' applied by the OCC in the two regulations are

similar but sufficiently different that a banker or bank counsel must

keep straight two different sets of rules that often will apply to the

same transaction. In many cases, these differences are compelled by

differences in the underlying statutory authority for the two parts.

The OCC requests that commenters who believe that this type of guidance

would be helpful also identify areas where the intersection of the two

rules gives rise to the most uncertainty. In this way, the OCC can

focus any guidance it provides on those areas where help is most

needed. The OCC also requests comment on whether the guidance should

appear in an appendix to part 31, as an OCC bulletin, or in some other

format.

The following table directs readers to the provision(s) of the

current regulation, if any, upon which the proposed provision is based,

and identifies generally the action taken.

Derivation Table

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Revised section Original section Comments

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31.1................... 31.1................... No change.

31.2................... 31.3................... Relocated and

modified.

31.3(a)(1)............. 31.2(a)................ Modified.

31.3(a)(2)............. ....................... Added.

31.3(b)................ 31.2(b)................ Modified.

31.4................... 31.4................... Modified.

31.5................... 31.5(d)................ Relocated and

modified.

31.6(a)................ 31.5(a)................ Modified.

31.6(b)................ 31.5(b)................ Modified.

31.6(c)................ 31.5(c)................ Modified.

31.7................... 31.6................... Modified.

31.100................. 7.7360................. Relocated and

modified.

31.101................. 7.7365................. Relocated.

31.102................. 7.7370................. Relocated and

modified.

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Regulatory Flexibility Act

It is hereby certified that this regulation will not have a

significant economic impact on a substantial number of small entities.

Accordingly, a regulatory flexibility analysis is not required. This

regulation will reduce the regulatory burden on national banks,

regardless of size, by eliminating and clarifying current regulatory

requirements.

Executive Order 12866

The OCC has determined that this proposal is not a significant

regulatory action under Executive Order 12866.

Unfunded Mandates Act of 1995

Section 202 of the Unfunded Mandates Act of 1995 (Unfunded Mandates

Act) requires that an agency prepare a budgetary impact statement

before promulgating a proposal likely to result in a rule that includes

a Federal mandate that may result in the annual expenditure of $100

million or more in any one year by State, local, and tribal

governments, in the aggregate, or by the private sector. If a budgetary

impact statement is required, section 205 of the Unfunded Mandates Act

requires an agency to identify and consider a reasonable number of

alternatives before promulgating a proposal. The OCC has determined

that the proposal, if adopted, will not result in expenditures by

State, local, and tribal governments, or by the private sector, of more

than $100 million in any one year. Accordingly, the OCC has not

prepared a budgetary impact statement or specifically addressed the

regulatory alternatives considered.

List of Subjects in 12 CFR Part 31

Credit, Disclosure, Executive officers, National banks, Principal

shareholders, Reporting and recordkeeping requirements.

Authority and Issuance

For the reasons set out in the preamble, the OCC proposes to revise

part 31 of chapter I of title 12 of the Code of Federal Regulations as

set forth below:

PART 31--EXTENSIONS OF CREDIT TO INSIDERS AND TRANSACTIONS WITH

AFFILIATES

Subpart A--Loans to Insiders

Sec.

31.1 Authority.

31.2 Definitions.

31.3 Loan limits.

Subpart B--Reports and Public Disclosure

31.4 Authority.

31.5 Definitions.

31.6 Disclosure of insider indebtedness.

31.7 Reports by executive officers and principal shareholders.

Interpretations

31.100 Loans secured by stock or obligations of an affiliate.

31.101 Federal funds transactions between affiliates.

31.102 Deposits between affiliated banks.

Authority: 12 U.S.C. 375a(4), 375b(3), 1817(k), and

1972(2)(G)(ii), as amended.

Subpart A--Loans to Insiders

Sec. 31.1 Authority.

The part is issued by the Comptroller of the Currency pursuant to

12 U.S.C. 375a(4) and 375b(3), as amended.

Sec. 31.2 Definitions.

For the purposes of this subpart, the definitions of the terms

contained in Regulation O, 12 CFR 215.2 and 215.3, apply, except that

the term ``capital and surplus'' as used in this subpart has the same

meaning as ``capital and surplus'' as defined in 12 CFR 32.2(b).

Sec. 31.3 Loan limits.

(a) Lending limit on loans to executive officer--(1) General limit.

Except as provided in paragraph (a)(2) of this section, a national bank

may not extend credit to an executive officer of the bank in an amount

that, when aggregated with all other outstanding extensions of credit

to that officer, exceeds the greater of $25,000 or 2.5 percent of the

bank's capital and surplus, or in any event $100,000. The restrictions

of this section apply only to executive officers of the national bank

and not to executive officers of its affiliates.

(2) Exceptions. The general limit specified in paragraph (a)(1) of

this section does not apply to the following:

(i) A loan made for the purpose described in 12 U.S.C. 375a(2)

(housing-related loans) or 12 U.S.C. 375a(3) (loans made to finance the

education of the officer's children); and

(ii) A loan secured in a manner described in 12 CFR 32.3(c)(3)

(secured by United States obligations), 12 CFR 32.3(c)(4)(ii) (secured

by obligations guaranteed by a Federal agency), or 12 CFR 32.3(c)(6)

(secured by a segregated deposit account).

(b) Approval limits on all loans to an insider. Notwithstanding

paragraph (a) of this section, a national bank may not extend credit to

an insider of the bank or insider of its affiliates in an amount that,

when aggregated with all other extensions of credit to that insider,

exceeds the greater of $25,000 or 5 percent of the bank's capital and

surplus, or in any event $500,000, unless:

(1) A majority of the lending bank's entire board of directors

approves the loan in advance; and

(2) The interested party abstains from participating directly or

indirectly in the vote.

[[Page 63465]]

Subpart B--Reports and Public Disclosure

Sec. 31.4 Authority.

This subpart is issued by the Comptroller of the Currency pursuant

to 12 U.S.C. 1817(k) and 12 U.S.C. 1972(2)(G)(ii), as amended.

Sec. 31.5 Definitions.

The definitions set forth in 12 CFR 215.21 apply to this subpart,

except that ``capital and surplus'' has the same meaning as ``capital

and surplus'' as defined in 12 CFR 32.2(b), and, for purposes of

Sec. 31.5(a)(1), ``bank'' means an insured national bank.

Sec. 31.6 Disclosure of insider indebtedness.

(a) Upon receipt of a written request, a national bank shall

disclose the name of each of its executive officers and principal

shareholders whose aggregate indebtedness (including indebtedness of

related interests of such persons) from either--

(1) The insider's bank as of the latest calendar quarter, or

(2) The bank's correspondent banks at any time during the previous

calendar year, equals or exceeds the lesser of 5 percent of the bank's

capital and surplus or $500,000. This requirement applies only if the

insider's (and his or her related interest's) aggregate indebtedness

described in paragraphs (a)(1) or (a)(2) of this section exceeds

$25,000.

(b) A national bank need not disclose additional information

concerning indebtedness of its executive officers and principal

shareholders. The bank may base its disclosure under paragraph (a)(1)

of this section on the bank's most recent Consolidated Report of

Condition and Income. The bank may base its disclosure under paragraph

(a)(2) of this section on information contained in the reports referred

to in Sec. 31.6.

(c) A national bank shall maintain records of any requests for

information under paragraph (a) of this section and records of the

disposition of these requests for two years from the date of the

request.

Sec. 31.7 Reports by executive officers and principal shareholders.

Pursuant to 12 U.S.C. 1972(2)(G)(i), each executive officer and

principal shareholder of a national bank shall report annually to the

bank's board of directors his or her indebtedness, and the indebtedness

of his or her related interests, from correspondent banks of the

insider's bank. For purposes of this section, the requirements stated

in 12 CFR 215.22 (which implements the insider reporting requirements

imposed by 12 U.S.C. 1972(2)(G)(i)) apply.

Interpretations

Sec. 31.100 Loans secured by stock or obligations of an affiliate.

If a loan to an affiliate is otherwise adequately secured in

compliance with 12 U.S.C. 371c(c), a national bank may take a security

interest in the securities of an affiliate as additional collateral

without the loan being considered a covered transaction for purposes of

the limits on transactions with affiliates in 12 U.S.C. 371c(a)(1) (A)

and (B).

Sec. 31.101 Federal funds transactions between affiliates.

The limitations contained in 12 U.S.C. 371c apply to the sale of

federal funds by a national bank to an affiliate of the bank.

Sec. 31.102 Deposits between affiliated banks.

(a) General rule. The OCC considers a deposit made by a bank in an

affiliated bank to be a loan or extension of credit to the affiliate

under 12 U.S.C. 371c. These deposits must be secured in accordance with

12 U.S.C. 371c(c). However, a national bank may not pledge assets to

secure private deposits unless otherwise permitted by law (see, e.g.,

12 U.S.C. 90 (permitting collateralization of deposits of public

funds); 12 U.S.C. 92a (trust funds); and 25 U.S.C. 156 and 162a (Native

American funds)). Thus, unless one of the exceptions to 12 U.S.C. 371c

noted in paragraph (b), of this section, applies or unless another

exception applies that enables a bank to meet the collateral

requirements of 12 U.S.C. 371c(c), a national bank may not:

(1) Make a deposit in an affiliated national bank;

(2) Make a deposit in an affiliated State-chartered bank unless the

affiliated State-chartered bank can legally offer collateral for the

deposit in conformance with applicable State law and 12 U.S.C. 371c; or

(3) Receive deposits from an affiliated bank.

(b) Exceptions. The restrictions of 12 U.S.C. 371c (other than 12

U.S.C. 371c(a)(4), which requires affiliate transactions to be

consistent with safe and sound banking practices) do not apply to

deposits:

(1) Made in the ordinary course of correspondent business; or

(2) Made in an affiliate that qualifies as a ``sister bank'' under

12 U.S.C. 371c(d)(1).

Dated: November 28, 1995.

Eugene A. Ludwig,

Comptroller of the Currency.

[FR Doc. 95-30028 Filed 12-8-95; 8:45 am]

BILLING CODE 4810-33-P