# OCC Interpretive Letter No. 870: Letter finds that national bank may adopt corporate governance provisions of Washington state law and engage in a share exchange to ensure that newly formed parent holding company will own 100 percent of shares of bank. 10/12/99

> Federal · Agency guidance · In force

URL: https://www.frixlaw.com/law-library/statutes/OCC_INT0870

## Section

- **Citation:** OCC Interpretive Letter No. 870
- **Heading:** Letter finds that national bank may adopt corporate governance provisions of Washington state law and engage in a share exchange to ensure that newly formed parent holding company will own 100 percent of shares of bank. 10/12/99
- **Jurisdiction:** Federal
- **Kind:** Agency guidance
- **Status:** In force
- **Text as of:** August 14, 2026
- **Source:** Compiled text
- **Location:** OCC Interpretive Letters / Letter finds that national bank may adopt corporate governance provisions of Washington state law and engage in a share exchange to ensure that newly formed parent holding company will own 100 percent of shares of bank. 10/12/99

## Text

The Bank would file an application with the Federal Reserve Bank of San Francisco to form the holding company.
1
See Wash. Rev. Code § 23B.11.020 et seq. (1990).
2
Comptroller of the Currency
Administrator of National Banks
Washington, DC 20219
Interpretive Letter #870
October 12, 1999
November 1999
12 USC 214
Re:
Share Exchanges Pursuant to Washington State Corporate Law
Dear [ ]:
This is in response to your request for confirmation that a national bank may elect the corporate
governance provisions of Washington law, and complete a share exchange in accordance with those
provisions. Based on the representations that you have made, we conclude that a bank may effect a
proposed share exchange by following the provisions of Washington law.
Background
A national bank with its main office located in Washington state proposes to elect the corporate
governance provisions of Washington law through amendment to its articles of association and bylaws,
and engage in a share exchange as provided by Washington law. The bank wishes to form a parent
holding company and proposes the share exchange to ensure that the holding company will own 100
percent of the shares of the bank.
The bank would use several steps to accomplish the share exchange. The bank would form a company
to act as the holding company of the bank. The shareholders of the bank would vote on the plan of
1
share exchange. If the holders of two-thirds of the shares of the bank approve the share exchange, the
holding company would then exchange its shares for shares of the bank using the procedures described
in Washington law. As a result, each shareholder of the bank would own shares of the holding
2
o act as the holding company of the bank. The shareholders of the bank would vote on the plan of
1
share exchange. If the holders of two-thirds of the shares of the bank approve the share exchange, the
holding company would then exchange its shares for shares of the bank using the procedures described
in Washington law. As a result, each shareholder of the bank would own shares of the holding
2

- 2 -
See id. at § 23B.13.010 et seq.
3
12 C.F.R. § 7.2000(b).
4
Wash. Rev. Code § 23B.11.020(a). State banks in Washington may also form parent holding companies through
5
share exchanges. Id. at § 30.04.560.
Id. at § 23B.11.030(5) (1990).
6
Id. at § 23B.11.020(1).
7
Id. at § 23B.11.050.
8
Id. at § 23B.13.020(1)(b).
9
Id at § 23B.13.200(1).
10
company, and the holding company would own 100 percent of the shares of the bank. Each
shareholder of the bank would have the opportunity to own the same number and percentage of shares
in the holding company as that shareholder previously held in the bank. In the alternative, shareholders
could exercise dissenters’ rights and receive cash for their shares.3
Applicable Law
National banks may adopt corporate governance procedures that comply with applicable federal
banking law and safe and sound banking practices. An OCC regulation provides that:
To the extent not inconsistent with applicable Federal banking statutes or regulations, or
bank safety and soundness, a national bank may elect to follow the corporate
governance procedures of the law of the state in which the main office of the bank is
located, the law of the state in which the holding company of the bank is incorporated,
the Delaware General Corporation Law, Del. Code Ann. Tit. 8 (1991, as amended
1994, and as amended thereafter), or the Model Business Corporation Act (1984, as
amended 1994, and as amended thereafter)
t to follow the corporate
governance procedures of the law of the state in which the main office of the bank is
located, the law of the state in which the holding company of the bank is incorporated,
the Delaware General Corporation Law, Del. Code Ann. Tit. 8 (1991, as amended
1994, and as amended thereafter), or the Model Business Corporation Act (1984, as
amended 1994, and as amended thereafter). A national bank shall designate in its
bylaws the body of law selected for its corporate governance procedures.4
Washington statutory law expressly permits corporations to conduct share exchanges. The holders of
5
at least two-thirds of each class of shares entitled to vote must approve the plan of share exchange.
6
The corporation’s board of directors also must approve the transaction. After the shareholders
7
approve the share exchange, the acquiring corporation must deliver articles of share exchange to the
secretary of state.8
Washington statutory law requires corporations conducting share exchanges to provide dissenters’
rights to shareholders. Corporations must include notice of dissenters’ rights with the notice for the
9
meeting at which the shareholders will vote on the transaction. Any shareholder who wishes to
10
dissent must give notice to the corporation of intent to dissent and may not vote in favor of the

- 3 -
Id. at § 23B.13.210(1).
11
Id. at § 23B.13.220(1).
12
Id. at § 23B.13.230(1).
13
Id. at § 23B.13.280(1).
14
Id. at § 23B.13.300(1).
15
Id. at § 23B.13.310(1).
16
See 12 U.S.C. § 215a and 12 C.F.R. 12 C.F.R. § 5.33(e)(4). Although the holding company reorganization is a
17
common transaction, the Ninth Circuit Court of Appeals, which includes Washington, has not addressed the
permissibility of that transaction for national banks. See Nasser v. Federal Home Loan Bank Bd., 723 F.2d 1437 (9th
Cir. 1984) (challenge to interim merger involving thrifts dismissed on jurisdictional grounds). Some circuit courts
have permitted interim mergers. See, e.g., NoDak Bancorporation v
n transaction, the Ninth Circuit Court of Appeals, which includes Washington, has not addressed the
permissibility of that transaction for national banks. See Nasser v. Federal Home Loan Bank Bd., 723 F.2d 1437 (9th
Cir. 1984) (challenge to interim merger involving thrifts dismissed on jurisdictional grounds). Some circuit courts
have permitted interim mergers. See, e.g., NoDak Bancorporation v. Clarke, 998 F.2d 1416 (8 Cir. 1993) (permitting
th
interim merger of national bank that froze out minority shareholders). Another circuit has invalidated a freeze-out
interim merger for a national bank, but has not addressed the permissibility of the interim merger device generally.
See Lewis v. Clark, 911 F.2d 1558 (11 Cir. 1990).
th
See 12 U.S.C. § 215a(b)-(d). A dissenting shareholder must either vote against the merger, or give written notice of
18
dissent prior to or at the shareholder meeting at which the shareholders vote on the merger. The value of the
dissenting shareholder’s shares is determined by an appraisal made by a committee of three persons: one chosen by
the dissenting shareholders, one chosen by the directors of the bank (as it exists after the merger), and one chosen
by the other two members of the committee. If the committee fails to determine a value of the shares, or a dissenting
shareholder is not satisfied with the value determined, the OCC must make an appraisal of the shares. The resulting
bank must pay the costs of any appraisal conducted by the OCC.
transaction at the shareholders’ meeting. If the shareholders approve the transaction, the corporation
11
must send written notice to all dissenters after the meeting concerning the procedure for demanding
payment. Dissenting shareholders must then demand payment, and the corporation must make
12
payment to the shareholders. Any shareholder who is dissatisfied with the payment offered must
13
provide the corporation with an estimate of fair value
reholders approve the transaction, the corporation
11
must send written notice to all dissenters after the meeting concerning the procedure for demanding
payment. Dissenting shareholders must then demand payment, and the corporation must make
12
payment to the shareholders. Any shareholder who is dissatisfied with the payment offered must
13
provide the corporation with an estimate of fair value. The corporation must then either pay the
14
amount requested by the shareholder, or seek an appraisal from the court. In an appraisal
15
proceeding, the corporation is presumed to pay costs, but the court may assess the costs to the
shareholders if the court finds that the shareholders’ actions were arbitrary, vexatious, or not in good
faith.16
Federal banking law does not expressly address the authority of national banks to engage in share
exchanges. There are several mechanisms, however, by which a national bank may form a parent
holding company and, as a result, own 100 percent of the shares of a bank. For example, a national
bank can effect a holding company reorganization by forming a holding company and chartering an
interim bank, which is a subsidiary of that company. The existing bank then merges into the interim
bank. The National Bank Act provides protection for shareholders in an interim merger by providing
17
dissenters’ rights.
18
A national bank may become a holding company subsidiary through other methods, e.g., by forming a
holding company which then conducts a tender offer for the shares of the bank. Those methods can be
bsidiary of that company. The existing bank then merges into the interim
bank. The National Bank Act provides protection for shareholders in an interim merger by providing
17
dissenters’ rights.
18
A national bank may become a holding company subsidiary through other methods, e.g., by forming a
holding company which then conducts a tender offer for the shares of the bank. Those methods can be

- 4 -
12 C.F.R. § 7.2000(b).
19
12 U.S.C. § 215a.
20
See Footnote 18, supra.
21
Wash. Rev. Code § 23B.13.010 et seq.
22
The scheme of dissenters’ rights in Washington law is also substantially similar to that found in Iowa law.
23
Compare Wash. Rev. Code at § 23B.13.010 et seq. with Iowa Code § 490.1301, et seq. The OCC has found that the
dissenters’ rights available under Iowa law afford comparable protections to corresponding provisions in the
National Bank Act. See Interpretive Letter No. 786, reprinted in [1997 Transfer Binder] Fed. Banking Law Rep. (CCH)
¶ 81-213 (June 9, 1997) and Conditional Approval No. 99-10 (Apr. 1, 1999) at 5.
time consuming, relatively expensive, and present a risk that the holding company will acquire less than
100 percent of the bank’s shares.
Discussion
A national bank may adopt Washington state corporate governance procedures and conduct a share
exchange, to the extent that those procedures are not inconsistent with applicable federal banking
statutes and regulations. OCC regulation expressly permits a national bank to elect the corporate
governance procedures of the law of the state in which the main office of the bank is located.
19
Because the main office of the bank is located in Washington state, the bank may elect Washington
corporate governance procedures.
Washington state law allowing share exchanges is not inconsistent with applicable federal banking
statutes or regulations. The transaction would not directly or indirectly violate federal banking law,
which is silent concerning share exchanges
the bank is located.
19
Because the main office of the bank is located in Washington state, the bank may elect Washington
corporate governance procedures.
Washington state law allowing share exchanges is not inconsistent with applicable federal banking
statutes or regulations. The transaction would not directly or indirectly violate federal banking law,
which is silent concerning share exchanges. Washington law permitting share exchanges is consistent
with those provisions in federal banking law that permit national banks to accomplish the same result
through different steps where the bank provides adequate dissenters’ rights as described below. To
ensure consistency with federal banking law addressing interim mergers, national banks that effect a
20
share exchange must provide reasonable appraisal rights to those shareholders who choose not to
receive shares by dissenting from the transaction. A national bank conducting a share exchange should
provide dissenters’ rights that are substantially similar, although not necessarily identical to those in
section 215a.
21
Washington law governing share exchanges provides shareholders with dissenters’ rights that are
substantially similar to those in section 215a for interim mergers. Both Washington state law and
22
section 215a provide shareholders the right to dissent and receive fair value for the shares. In both
cases, if the parties are unable to settle on the fair value of the shares, an independent third party (a
state court under Washington law or the Comptroller under the National Bank Act) ultimately
determines the fair value of the shares. Under each system of dissenters’ rights, a dissatisfied
23
section 215a provide shareholders the right to dissent and receive fair value for the shares. In both
cases, if the parties are unable to settle on the fair value of the shares, an independent third party (a
state court under Washington law or the Comptroller under the National Bank Act) ultimately
determines the fair value of the shares. Under each system of dissenters’ rights, a dissatisfied
23

- 5 -
Wash. Rev. Code § 23B.13.310.
24
12 U.S.C. § 215a(d).
25
shareholder may dissent from the transaction and receive the fair value of the shares, as determined by
the independent third party.
Washington state law in one respect is not consistent with the dissenters’ rights available in federal
banking law. Washington law provides that the corporation must pay the cost of any judicial appraisal,
unless the court finds that the dissenting shareholders acted arbitrarily, vexatiously, or not in good faith
in demanding payment. Federal banking law, in contrast, requires the resulting bank to pay for any
24
Comptroller appraisal, without exception. Section 7.2000(b) limits the ability of national banks to
25
adopt alternative corporate governance to only those statutes that are not inconsistent with federal
banking law so that national bank shareholders will not suffer a disadvantage resulting from the bank’s
selection of that alternative law. To meet that limitation in section 7.2000(b), a national bank proposing
to adopt Washington state law and conduct a share exchange must agree to pay the cost of any judicial
appraisal that may result. The bank must also agree to pay for arbitration of the matter if the
appropriate court refuses jurisdiction of an appraisal action.
Conclusion
For the above reasons, and subject to the above conditions, we conclude that the bank may effect a
share exchange pursuant to Washington law. If you have any questions concerning this letter, please
contact Frederick G. Petrick, Jr., Senior Attorney, Securities and Corporate Practices Division, at
202-874-5210
matter if the
appropriate court refuses jurisdiction of an appraisal action.
Conclusion
For the above reasons, and subject to the above conditions, we conclude that the bank may effect a
share exchange pursuant to Washington law. If you have any questions concerning this letter, please
contact Frederick G. Petrick, Jr., Senior Attorney, Securities and Corporate Practices Division, at
202-874-5210.
Sincerely,
/s/
Julie L. Williams
Chief Counsel

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Source: Frix Law Library, https://www.frixlaw.com/law-library/statutes/OCC_INT0870. Check the current official text before relying on it. Not legal advice.