Assessment of Fees; National Banks; District of Columbia Banks

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

amending its regulation governing assessments by providing that

national banks that are not the largest national bank in a bank holding

company (referred to as non-lead banks) will pay assessments that are

less than these banks otherwise would pay. This amendment reflects the

cost savings that are realized by the OCC's Supervision by Risk

Program, whereby the OCC focuses on the risk profile of a consolidated

company. The intended effect of this rulemaking is to enable the OCC to

lower assessments on non-lead banks.

DATES: This interim rule is effective on December 2, 1996. Comments

must be received by January 31, 1997.

ADDRESSES: Comments should be directed to, and may be inspected and

copied at: Communications Division, OCC, 250 E Street, SW., Washington,

D.C. 20219, Attention: Docket No. 96-27. In addition, comments may be

sent via FAX, at (202) 874-5274 or via Internet at

[email protected]

FOR FURTHER INFORMATION CONTACT: Roy Madsen, Assistant Chief Financial

Officer, Financial Review, Policy and Analysis, (202) 874-5130;

Patricia S. Grady, Senior Attorney, Administrative and Internal Law

Division, (202) 874-4460; or Mark Tenhundfeld, Assistant Director,

Legislative and Regulatory Activities Division, (202) 874-5090, Office

of the Comptroller of the Currency, Washington, D.C. 20219.

SUPPLEMENTARY INFORMATION:

Background

The OCC charters, regulates, and supervises approximately 2,800

national banks and 66 federal branches and agencies of foreign banks in

the U.S., accounting for more than half the nation's banking assets.

Its mission is to ensure a safe, sound, and competitive national

banking system that supports the citizens, communities, and economy of

the United States. The OCC funds the activities that further this

mission by imposing assessments, fees, and other charges on national

banks, as necessary and appropriate to meet the OCC's expenses,

pursuant to 12 U.S.C. 482.

The OCC charges each national bank a semiannual assessment

according to a formula that is described in part 8 of the agency's

regulations (12 CFR part 8). In general, a national bank's semiannual

assessment is computed as follows. First, the bank identifies its

asset-size category by consulting the chart setting out ten such

categories that is contained in part 8. Once the bank determines its

asset-size category, the bank then calculates its assessment by adding

two numbers. The first number is called the ``base amount,'' 1 and

is provided by the OCC to all banks in the annual ``Notice of

Comptroller of the Currency Fees'' (Notice of Fees) and in each

semiannual assessment notice (Assessment Notice). Each bank derives the

second number by multiplying the ``marginal rate'' for the bank's

asset-size category, which also is provided by the OCC in the Notice of

Fees and Assessment Notices, by the amount of the bank's assets that

exceeds the next lowest asset-size category threshold. The bank then

adds the product of this multiplication to the base amount to arrive at

its total assessment.

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\1\ The base amount for a given bank is calculated by the OCC by

multiplying the lower endpoint of a bank's asset-size category by a

``marginal rate'' determined by the OCC. For a more complete

description of the way in which the OCC computes the base amount,

see 12 CFR 8.2(a)(1).

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The variables in this formula allow the OCC some flexibility in

adjusting assessments to reflect its costs. For example, the applicable

marginal rate declines as asset size grows, resulting in the lowest

marginal rates applying to assets in the largest asset-size categories.

This regressive rate structure reflects the OCC's experience that the

economies of scale realized in the examination and supervision of large

institutions allow a proportionately smaller expenditure of OCC

resources than is required in the case of smaller banks.2

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\2\ See, e.g., 53 FR. 31705 (August 19, 1988) (``Fixed costs of

supervision, such as basic preparatory tasks, do not vary

proportionately from small to large banks. Further, statistical

techniques used in the examination process permit larger

institutions to be examined with proportionately fewer

resources.'').

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The regulation being amended by this rulemaking does not, however,

reflect the significant additional economies now being realized as a

result of the OCC's new risk-based approach to bank supervision. The

OCC's Supervision by Risk Program creates the potential for cost

savings in the OCC's supervision of banks in holding company structures

that the current regulation does not reflect. Under this program, the

OCC focuses on the risk profile of the consolidated company in

recognition of the fact that exposure to risk at the national bank

level may be either mitigated or increased by activities company-

wide.3

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\3\ For further discussion of the OCC's Supervision by Risk

Program, see various components of the Comptroller's Handbook,

including especially the components entitled ``Bank Supervision

Process'' (April 1996) and ``Large Bank Supervision'' (December

1995).

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To implement the Supervision by Risk program effectively, the OCC

must obtain the information necessary to evaluate risks to a national

bank that may be presented by other entities in the banking

organization. Many banks already use information systems that integrate

data from affiliated companies. This type of system facilitates

retrieval of the data by OCC examiners, which, in turn, reduces the

costs incurred by the OCC in obtaining the information that is

essential to the supervisory process. In the OCC's experience, the

largest national bank in a bank holding company often has systems that

are sufficiently comprehensive, detailed, and reliable to facilitate

company-wide risk evaluation.

The declining marginal rate structure in the current assessment

regulation reflects the economies of scale realized in the OCC's

examination and supervision of large banks, but the rule does not

reflect the additional economies that result when the OCC can

facilitate its supervision of smaller banks in a bank holding company

by relying on information that is available from the largest national

bank in that holding company. As a consequence, under the current

regulation, a non-lead bank (defined as any national bank in a bank

holding company other than the largest national bank) would pay an

assessment that does not necessarily reflect these efficiencies.4

This rulemaking changes the current regulation, consistent with the

OCC's supervision-by-risk approach, to enable the OCC to reduce the

assessments to be paid by non-lead national banks in a bank holding

company.

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\4\ This situation is not present in the case of a national bank

that is not in a holding company structure, because there is no

similar opportunity for the OCC to conduct a significant amount of

its supervision of the bank by obtaining information from an

affiliated bank.

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Although the Supervision by Risk Program requires the OCC to focus

on the risk profile of the consolidated company, the OCC also must

continue to examine and supervise each national bank within a banking

organization. Reviewing related banks in a banking

[[Page 64001]]

organization as if they comprised one consolidated entity would ignore

the fact that not all aspects of the OCC's supervision can be

accomplished by viewing a banking organization on a whole-company

basis. Important components of the OCC's supervision are charter-

specific and require examination at the individual bank level. For

example, if one national bank in a banking organization engages in

certain specialized or sophisticated activities (such as capital

markets activities) but the others do not, reviewing consolidated

information on a whole-company basis may not permit the OCC to evaluate

the condition of the bank engaged in the specialized or sophisticated

activity. Careful review at the bank level is necessary to ensure that

each national bank conducts its operations safely and soundly and in a

manner that comports with applicable law.

The OCC also must examine each national bank to ensure each bank's

compliance with the fair lending and consumer protection laws that the

OCC administers. The Community Reinvestment Act (CRA), for instance,

requires the OCC to assess each national bank's record of meeting the

credit needs of the bank's entire community. 12 U.S.C. 2903. Consistent

with this statutory mandate, the OCC conducts a CRA examination of

every national bank. Similarly, the OCC examines every national bank in

order to determine compliance with laws such as the Equal Credit

Opportunity Act (15 U.S.C. 1691 et seq.) and the Truth-in-Lending Act

(15 U.S.C. 1601 et seq.). Effective supervision in these areas requires

the OCC to conduct bank-by-bank reviews of loan files and practices.

In order to better reflect the costs incurred by the OCC in

carrying out its diverse supervisory responsibilities, this interim

rule retains the requirement that each national bank pay an assessment

but adds a provision to part 8 that states that the OCC will charge a

non-lead national bank an assessment that will be less than the bank

otherwise would pay if it were either the lead bank in a holding

company or independent.

Description of the Interim Rule

Pursuant to new Sec. 8.2(a)(6), the OCC will charge a non-lead

national bank an assessment that will be lower than the assessment the

bank otherwise would pay. The specific percentage of the assessment

reduction will be provided in the semiannnual Assessment Notice. New

Sec. 8.2(a)(6)(ii)(B) defines lead bank as the largest national bank

controlled by a bank holding company, based on a comparison of the

total assets held by each national bank owned by that bank holding

company as reported in the Consolidated Reports of Condition and Income

that the national banks in question file for the quarter immediately

preceding the payment of a semiannual assessment. The rule defines bank

holding company and control as having the same meanings as these terms

have in section 2 of the Bank Holding Company Act of 1956 (BHCA) (12

U.S.C. 1841(a)(1) and (a)(2), respectively). Generally speaking, a

company is a bank holding company under the BHCA if it controls a bank.

A company will be deemed to control a bank if the company owns,

controls, or has power to vote at least 25 percent of any class of the

bank's voting securities, controls the election of a majority of the

bank's directors, or is found to exercise a controlling influence over

the management or policies of the bank.

Each non-lead national bank will continue to compute the components

of its assessment under the interim rule in the same way as it

currently does, as summarized at the outset of this preamble

discussion. However, once a non-lead bank determines these components,

it then will reduce the sum of the components by the percentage

specified in the Notice of Fees in order to determine its assessment.

The interim rule also deletes the provisions in current part 8

prohibiting the proration of assessments. The current rule states that

each bank and Federal branch or agency that is subject to the OCC's

jurisdiction must pay the full amount of its assessment for the next

six-month period, ``without proration for any reason.'' 12 C.F.R.

Sec. 8.2(a)(5) and (b). This prohibition is inconsistent with the

reduction in non-lead banks'' assessments because the reduction is

effectively a proration of these banks' assessments. The interim rule

removes the prohibition against prorations in order to avoid creating

an inconsistency within the regulation.

The OCC solicits comment on these amendments made to reflect

differences in the costs of the OCC's supervision based on the

organizational structure in which a national bank operates. The OCC

also welcomes comment on any other aspect of this interim rule.

Use of Immediately Effective Interim Rule

The OCC has determined that notice and comment is not required

before adopting the rule. The interim rule involves agency practice and

procedure and thus is exempt under 5 U.S.C. 553(b)(A) from the prior

notice requirements of the Administrative Procedures Act (5 U.S.C. 500

et seq.). The determination of how assessments are imposed is internal

to the OCC, since the Comptroller is required to recover expenses but

is not required to follow specific calculations or formulae when making

this determination. As a result, the OCC may revise its assessment

structure as necessary to meet its expenses. In addition, the rule is

exempt pursuant to 5 U.S.C. 553(b)(B) from the prior notice

requirements because delaying adoption of the rule pending receipt of

comments would be unnecessary and contrary to the public interest. The

rule confers a benefit on national banks by enabling the OCC to lower

the total amount of assessments paid by affiliated national banks. It

will not have the effect of raising the assessment of any national

bank.

The agency also has determined that the rule may be immediately

effective pursuant to 5 U.S.C. 553(d)(1) and (d)(3). By enabling the

OCC to reduce assessments, the rulemaking will have the effect of

granting a partial exemption from the assessment obligations that

otherwise would apply to non-lead banks. Accordingly, the rule may be

immediately effective under 5 U.S.C. 553(d)(1). There also is good

cause to dispense with a delayed effective date under 5 U.S.C.

553(d)(3), namely, that the interim rule needs to be effective in time

to ensure that reductions will be reflected in the Notice of

Comptroller of the Currency Fees that will be mailed in early December

to all national banks.

The OCC will continue to provide each national bank a semiannual

Assessment Notice, and national banks will continue to have at least 30

days following receipt of a semiannual assessment notice in which to

pay the assessment. Although the OCC is not required to provide notice

and public comment under the Administrative Procedure Act, 5 U.S.C.

553(b)(A) and (b)(B), the OCC invites comment on any aspect of this

interim rule.

Regulatory Flexibility Act

The Regulatory Flexibility Act, 5 U.S.C. 601-612, does not apply to

this interim rule. The Regulatory Flexibility Act applies whenever an

agency is required by 5 U.S.C. 553 or any other law to publish general

notice of proposed rulemaking for any proposed rule. 5 U.S.C. 603(a).

As is explained more fully in the preceding section captioned ``Use of

Immediately Effective Interim Rule,'' publication of this rule for

comment is unnecessary and contrary to the public interest.

Accordingly, section 553 does not require the OCC to publish general

notice of a proposed rulemaking (see 5 U.S.C. 553(b)(A) and (b)(B)).

[[Page 64002]]

Further, there is no other law that requires the OCC to publish a

proposed rule concerning assessments. Section 5240 of the Revised

Statutes (12 U.S.C. 481 and 482) authorizes the OCC to impose and

collect assessments as necessary or appropriate (12 U.S.C. 482), but

does not require the OCC to implement that grant of authority by means

of a regulation. Since the OCC is not required to publish a general

notice of proposed rulemaking for this rule, the Regulatory Flexibility

Act does not apply.

Executive Order 12866

The OCC has determined that this interim rule is not a significant

regulatory action for purposes of Executive Order 12866.

Unfunded Mandates Reform Act of 1995

Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L.

104-4 (Unfunded Mandates Act), requires that an agency prepare a

budgetary impact statement before promulgating any rule likely to

result in a Federal mandate that may result in the expenditure by

State, local, and tribal governments, in the aggregate, or by the

private sector of $100 million or more in any one year. If a budgetary

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

also requires an agency to identify and consider a reasonable number of

regulatory alternatives before promulgating a rule. The OCC has

determined that the interim rule will not result in expenditures by

State, local, and tribal governments, or by the private sector, of $100

million or more in any one year. Accordingly, the OCC has not prepared

a budgetary impact statement or specifically addressed any regulatory

alternatives. As discussed in the preamble, the interim rule will

enable the OCC to reduce the amount of the assessments paid by non-lead

banks in a banking organization.

List of Subjects in 12 CFR Part 8

Assessments, Fees, National banks.

Authority and Issuance

For the reasons set forth in the preamble, part 8 of chapter I of

title 12 of the Code of Federal Regulations is amended as set forth

below:

PART 8--ASSESSMENT OF FEES; NATIONAL BANKS; DISTRICT OF COLUMBIA

BANKS

1. The authority citation for part 8 is revised to read as follows:

Authority: 12 U.S.C. 93a, 481, 482, and 3102; 15 U.S.C. 78c and

78l; and 26 D.C. Code 102.

2. In Sec. 8.2, paragraph (b) is redesignated as paragraph (b)(1)

and the two undesignated paragraphs at the end of the section are

designated as paragraphs (b)(2) and (b)(3), respectively.

3. In Sec. 8.2, the last sentence of paragraph (a)(5) and the last

sentence of newly designated paragraph (b)(3) are amended by removing

the phrase ``without proration for any reason''.

4. Section 8.2 is amended by adding a new paragraph (a)(6) to read

as follows:

Sec. 8.2 Semiannual assessment.

(a) * * *

(6)(i) Notwithstanding any other provision of this part, the OCC

shall charge each non-lead bank a semiannual assessment that is less

than the amount of the semiannual assessment that the bank otherwise

would be required to pay under the Notice of Comptroller of the

Currency Fees described in Sec. 8.8. The OCC will specify the

percentage of the reduction of assessments for non-lead banks in the

Notice of Comptroller of the Currency Fees.

(ii) For purposes of this paragraph (a)(6):

(A) Non-lead bank means a national bank that is not the lead bank

in a bank holding company that controls two or more national banks;

(B) Lead bank means the largest national bank controlled by a bank

holding company, based on a comparison of the total assets held by each

national bank owned by that bank holding company as reported in each

bank's Call Report filed for the quarter immediately preceding the

payment of a semiannual assessment; and

(C) Bank holding company and control have the same meanings as

these terms have in sections 2(a)(1) and 2(a)(2), respectively, of the

Bank Holding Company Act of 1956 (12 U.S.C. 1841 (a)(1) and (a)(2)).

* * * * *

Dated: November 27, 1996.

Eugene A. Ludwig,

Comptroller of the Currency.

[FR Doc. 96-30763 Filed 11-29-96; 8:45 am]

BILLING CODE 4810-33-P