[Federal Register: February 7, 2003 (Volume 68, Number 26)]
[Proposed Rules]
[Page 6363-6376]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07fe03-16]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Parts 3, 5, 6, 7, 9, 28, and 34
[Docket No. 03-02]
RIN 1557-AB97
Rules, Policies, and Procedures for Corporate Activities; Bank
Activities and Operations; Real Estate Lending and Appraisals
AGENCY: Office of the Comptroller of the Currency, Treasury.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The Office of the Comptroller of the Currency (OCC) proposes
to amend several of its regulations to update and clarify them in
various respects. Proposed revisions to parts 5 and 7 would implement
new authority provided to national banks by sections 1204, 1205, and
1206 of the American Homeownership and Economic Opportunity Act of 2000
(AHEOA). Section 1204 permits national banks to reorganize directly to
be controlled by a holding company. Section 1205 increases the maximum
term of service for national bank directors, permits the OCC to adopt
regulations allowing for staggered terms for directors, and permits
national banks to apply for permission to have more than 25 directors.
Section 1206 permits national banks to merge with one or more of their
nonbank affiliates, subject to OCC approval. In order to clarify issues
that have arisen in connection with the scope of the OCC's visitorial
powers, the proposal would revise part 7. The proposal contains other
amendments to parts 5, 7, 9, and 34 as well as several technical
corrections.
DATES: Comments must be received by April 8, 2003.
ADDRESSES: Please direct your comments to: Office of the Comptroller of
the Currency, 250 E Street, SW., Public Information Room, Mailstop 1-5,
Washington, DC 20219, Attention: Docket No. 03-02; fax number (202)
874-4448; or Internet address: regs.comments@occ.treas.gov. Due to
delays in the delivery of paper mail in the Washington area, we
encourage the submission of comments by fax or e-mail whenever
possible. Comments may be inspected and photocopied at the OCC's Public
Reference Room, 250 E Street, SW., Washington, DC. You can make an
appointment to inspect comments by calling (202) 874-5043.
FOR FURTHER INFORMATION CONTACT: For questions concerning proposed
5.20,
[[Page 6364]]
contact Richard Cleva, Senior Counsel, Bank Activities and Structure
Division, (202) 874-5300; or Andra Shuster, Counsel, Legislative and
Regulatory Activities Division, (202) 874-5090. For questions
concerning proposed 12 CFR 5.32, contact Robert Norris, Senior
Licensing Analyst, Licensing Policy and Systems Division, (202) 874-
5060; or Lee Walzer, Counsel, Legislative and Regulatory Activities
Division, (202) 874-5090. For questions concerning proposed 12 CFR
5.33, contact Crystal Maddox, Senior Licensing Analyst, Licensing
Policy and Systems Division, (202) 874-5060; Richard Cleva, Senior
Counsel, Bank Activities and Structure Division, (202) 874-5300; or
Andra Shuster, Counsel, Legislative and Regulatory Activities Division,
(202) 874-5090. For questions concerning proposed 12 CFR 7.2024,
contact Lee Walzer, Counsel, Legislative and Regulatory Activities
Division, (202) 874-5090. For questions concerning proposed 12 CFR
7.4000, contact Mark Tenhundfeld, Assistant Director, or Andra Shuster,
Counsel, Legislative and Regulatory Activities Division, (202) 874-
5090. For questions concerning proposed 12 CFR 34.3, contact Mark
Tenhundfeld, Assistant Director, or Andra Shuster, Counsel, Legislative
and Regulatory Activities Division, (202) 874-5090. For questions
concerning 12 CFR 9.18, contact Beth Kirby, Special Counsel, Securities
and Corporate Practices Division, (202) 874-5210.
SUPPLEMENTARY INFORMATION:
I. Introduction
This notice of proposed rulemaking invites comment on changes to
our regulations that fall into the following categories:
[sbull] Changes to our rules that implement the AHEOA (discussed in
Section II of the SUPPLEMENTARY INFORMATION);
[sbull] Clarifications to our visitorial powers regulations
(Section III);
[sbull] Amendments to part 5 concerning limited-purpose banks,
factors to be considered in business combinations, and operating
subsidiary activities eligible for after-the-fact notice requirements;
to part 7 concerning national banks' ability to provide tax advice; to
part 9 concerning the valuation of collective investment funds; and to
part 34 to update regulatory text to conform to a statutory change
(Section IV); and
[sbull] Various technical changes to correct citations or footnote
numbering (Section V).
II. Amendments Implementing the AHEOA
A. Background
The National Bank Consolidation and Merger Act (12 U.S.C. 215 et
seq.) (Merger Act) permits consolidations and mergers involving
national banks. Pursuant to 12 U.S.C. 215 and 215a, national banks or
state banks \1\ may, with OCC approval, merge or consolidate with a
national bank located in the same state, resulting in a national bank.
National banks also may merge or consolidate with Federal thrifts under
12 U.S.C. 215c, resulting in either a national bank or Federal thrift.
Pursuant to 12 U.S.C. 215a-1, an insured national bank may merge or
consolidate with an insured bank located in a different state.
---------------------------------------------------------------------------
\1\ The term ``state bank'' is defined to include state-
chartered banks, banking associations, trust companies, savings
banks (other than mutual savings banks), and other banking
institutions engaged in the business of receiving deposits. 12
U.S.C. 215b. This section also contains other definitions.
---------------------------------------------------------------------------
Prior to the enactment of the AHEOA on December 27, 2000,\2\ the
Merger Act did not address mergers or consolidations involving a
national bank and its nonbank affiliates. However, section 1206 \3\ of
the AHEOA amended the Merger Act to permit national banks to merge with
one or more of their nonbank affiliates with the approval of the OCC
(Section 1206 Merger).
---------------------------------------------------------------------------
\2\ Pub. L. 106-569, 114 Stat. 2944.
\3\ Pub. L. 106-569, sec. 1206, 114 Stat. 2944, 3034 (codified
at 12 U.S.C. 215a-3).
---------------------------------------------------------------------------
Other provisions of the AHEOA liberalize statutory reorganization
and corporate governance requirements for national banks. Section 1204
\4\ amends the Merger Act to expedite the procedures that a national
bank may use when it reorganizes to become a subsidiary of a holding
company. Section 1205 \5\ of the AHEOA liberalizes the requirements
governing the number and length of service of national bank directors.
---------------------------------------------------------------------------
\4\ Pub. L. 106-569, sec. 1204, 114 Stat. 2944, 3033 (codified
at 12 U.S.C. 215a-2).
\5\ Pub. L. 106-569, sec. 1205, 114 Stat. 2944, 3033-3034
(amending 12 U.S.C. 71 and 71a).
---------------------------------------------------------------------------
This rulemaking contains proposed amendments to parts 5 and 7 to
implement these changes made by the AHEOA.
B. Description of the Proposal
1. Reorganization Into a Holding Company Subsidiary--Proposed Sec.
5.32 (New)
Pursuant to section 1204, a national bank, with the OCC's approval
and the affirmative vote of shareholders holding at least two-thirds of
the bank's outstanding capital stock, may reorganize to become a
subsidiary of a bank holding company or a company that will become a
bank holding company through the reorganization.
The proposal implements this provision in proposed new Sec. 5.32.
Paragraph (a) states the authority for engaging in section 1204
transactions. Paragraph (b) repeats the scope of the statute and
provides that Sec. 5.32 applies to a reorganization of a national bank
into a subsidiary of a bank holding company or of a company that will
become a bank holding company through the reorganization.
Pursuant to proposed Sec. 5.32(c), a national bank must submit an
application to, and obtain approval from, the OCC prior to
participating in a reorganization under paragraph (b).
In accordance with proposed Sec. 5.32(d)(1), the application will
be deemed approved by the OCC as of the 30th day after the OCC receives
it, unless the OCC otherwise notifies the applicant national bank.
Approval of applications under Sec. 5.32 is subject to the condition
that the bank give the OCC 60 days' prior notice of any material change
in its business plan or any material change from the proposed changes
described in the bank's plan of reorganization. Paragraph (d)(2) of
proposed Sec. 5.32 implements the statutory requirements that apply to
the content of the reorganization plan. The plan must: (1) Specify how
the reorganization is to be carried out; (2) be approved by a majority
of the national bank's board of directors; (3) specify the amount and
type of consideration that the bank holding company will provide for
the stock of the bank, the date on which the shareholders' rights to
participate in the exchange are to be determined, and the procedure for
carrying out the exchange; (4) be submitted to the shareholders of the
reorganizing bank at a meeting called in accordance with the procedures
outlined in section 3 of the Merger Act; \6\ and (5) where applicable,
describe any changes to the bank's business plan resulting from the
reorganization. Consistent with section 3 of the Merger Act, the
proposal also requires that at least two-thirds of the bank's
shareholders approve a reorganization. Paragraph (d)(3) of proposed
Sec. 5.32
[[Page 6365]]
provides that the OCC will review the financial and managerial
resources and future prospects of the national bank when considering a
section 1204 reorganization.
---------------------------------------------------------------------------
\6\ Section 3 of the Merger Act, 12 U.S.C. 215a(a)(2), provides
generally that a shareholders' meeting will be called by the bank's
directors after publishing notice of the time, place, and object of
the meeting for four consecutive weeks in a newspaper of general
circulation where the bank is located and after sending notice to
each shareholder of record by certified or registered mail at least
10 days prior to the meeting.
---------------------------------------------------------------------------
Proposed Sec. 5.32(e) provides dissenters' rights protections for
section 1204 reorganizations. As provided in the Merger Act, this
subsection permits any shareholder who has voted against the
reorganization at a meeting or given notice in writing at or prior to
the meeting to receive the value of his or her shares by providing a
written request to the bank within 30 days after the consummation of
the reorganization.
Section 5.32(f) of the proposal states that Sec. 5.32 does not
affect the applicability of the Bank Holding Company Act of 1956 (BHCA)
to a transaction covered under Sec. 5.32(b); applicants must indicate
in their Sec. 5.32 applications the status of any BHCA application
they are required to file with the Board of Governors of the Federal
Reserve System.
The OCC's approval of a Sec. 5.32 application will expire if a
national bank has not completed the reorganization within one year of
the date of such approval. This is stated in proposed paragraph (g) of
Sec. 5.32.
Finally, proposed paragraph (h)(1) states that applicants shall
inform shareholders of all material aspects of a reorganization and
comply with applicable requirements in the Federal securities laws and
the OCC's securities regulations in 12 CFR part 11. Proposed paragraph
(h)(2) states that applicants that are not subject to registration
requirements under the Securities Exchange Act of 1934 shall submit
proxy materials or information statements used in connection with a
reorganization to the appropriate OCC district office no later than
when such materials are sent to shareholders.
2. Section 1206 Mergers--Proposed Sec. 5.33 (Revised)
Section 1206 of the AHEOA provides new authority for a national
bank to merge with one or more of its nonbank affiliates, subject to
the OCC's approval. Current Sec. 5.33 sets forth application and
notice procedures for national banks entering into business
combinations, such as mergers and consolidations with other national
banks or state-chartered banks, as well as OCC review and approval
standards for such transactions. The proposal amends Sec. 5.33 to
include Section 1206 Mergers within its scope.
The proposal adds new application and prior OCC approval
requirements for Section 1206 Mergers at the end of redesignated Sec.
5.33(c). These requirements are similar to those for mergers of a
national bank or state bank into a national bank under 12 U.S.C. 215a.
A number of new definitions are added to Sec. 5.33(d) in order to
implement section 1206. Current Sec. 5.33(d) defines only the terms
``business combination,'' ``business reorganization,'' ``home state,''
and ``interim bank.'' The proposal amends the definition of ``business
combination'' to include Section 1206 Mergers, but leaves the
definitions of the other three terms unchanged.
Proposed Sec. 5.33(d)(1) adds a definition of ``bank'' and defines
it as any national bank or state bank. This definition is added because
the term is used in the definition for ``nonbank affiliate.''
Proposed Sec. 5.33(d)(4) defines the term ``company'' to mean a
corporation, limited liability company, partnership, business trust,
association, or similar organization. This term is proposed to be added
because it is used in the definition of ``nonbank affiliate'' and
``control.''
Proposed Sec. 5.33(d)(5) defines ``control,'' which is used in the
definition of ``nonbank affiliate.'' Under the proposal, for business
combinations under Sec. Sec. 5.33(g)(4) and (5), a company or
shareholder will be deemed to control another company if (1) the
company or shareholder, directly or indirectly, or acting through one
or more other persons owns, controls, or has power to vote 25 per cent
or more of any class of voting securities of the other company, or (2)
the company or shareholder controls in any manner the election of a
majority of the directors or trustees of the other company.
Because section 1206 provides merger authority for entities
previously not included within the scope of Sec. 5.33, the proposal
adds the definition of ``nonbank affiliate'' to describe the entities
that are covered by section 1206. Proposed Sec. 5.33(d)(8) defines
``nonbank affiliate'' of a national bank as any company that controls,
is controlled by, or is under common control with the national bank.
However, banks and Federal savings associations are not included as
``affiliates'' because mergers with such entities are governed by
statutes other than section 1206. Nonbank subsidiaries are considered
to be nonbank affiliates for purposes of Sec. 5.33.
Section 5.33(e)(3)(ii) currently requires that, if as a result of a
business combination, a national bank obtains control of a new
subsidiary, the bank must provide the same information regarding the
new subsidiary's activities that would be required if the applicant
were establishing a new subsidiary under either 12 CFR 5.34 (which
addresses operating subsidiaries) or 12 CFR 5.39 (which addresses
financial subsidiaries). The current rule contains an exception if the
subsidiary was a subsidiary of a national bank. The proposal modifies
this provision to take into account the fact that the bank may now
merge with a nonbank affiliate that has a subsidiary.
Section 5.33(f) sets forth exceptions to the rules that generally
govern the OCC's application procedures, such as requirements for the
publication of notice or for hearings. Pursuant to Sec. 5.33(f)(1), a
national bank applicant that is subject to specific statutory notice
requirements for business combinations is not subject to Sec. Sec.
5.8(a), (b), or (c), which require, and prescribe the timing and
contents of, public notice. Instead, a national bank applicant must
follow the notice requirements in the applicable statute.
A national bank applicant in a Section 1206 Merger resulting in a
national bank would be required to follow the notice requirements of 12
U.S.C. 215a. A national bank applicant in a Section 1206 Merger
resulting in a nonbank affiliate would be required to follow the notice
requirements of 12 U.S.C. 214a. We propose to amend Sec. 5.33(f)(1) by
adding references to the special procedures to be followed in Section
1206 Mergers.
In addition, we propose to state in Sec. 5.33(f)(1) that
Sec. Sec. 5.10 (regarding public comments) and 5.11 (regarding
requests for hearings) are not applicable as a general rule to Section
1206 Mergers. However, we also reserve the discretion to determine that
some or all of the provisions in Sec. 5.10 and Sec. 5.11 apply in a
Section 1206 Merger if an application presents significant and novel
policy, supervisory, or legal issues.
Finally, we propose to make two technical changes to paragraph
(f)(1). The reference to paragraph (g) for mergers or consolidations
with a Federal savings association would be amended to refer more
specifically to paragraph (g)(2) and the reference to a resulting state
bank in the parenthetical following this reference would be corrected
to refer to a national bank.
The proposal also adds a new Sec. 5.33(g)(4) to address Section
1206 Mergers of national banks with their nonbank affiliates when the
resulting entity is a national bank. Section 5.33(g)(4)(i) states that
a national bank may enter into this type of Section 1206 Merger when
the law of the state or other jurisdiction under which the nonbank
affiliate is organized allows the
[[Page 6366]]
nonbank affiliate to engage in such mergers. This section also requires
a national bank to obtain the OCC's approval.\7\ Proposed Sec.
5.33(g)(4)(ii) states that a national bank entering into such a merger
must follow the procedures and requirements contained in 12 U.S.C. 215a
(which addresses the merger of state banks into national banks), as if
the nonbank entity were a state bank. The proposal applies the
procedures and requirements in 12 U.S.C. 215a because section 215a
addresses the same issues that arise in a Section 1206 Merger and its
requirements are familiar to national banks. In addition, we believe
that these procedures and requirements impose the least amount of
burden on the participants consistent with our supervisory objectives
in reviewing the proposed transactions. Proposed Sec. 5.33(g)(4)(iii)
states that a nonbank affiliate entering into such a merger is to
follow the procedures in the law of the state or other jurisdiction
under which the nonbank entity is organized. Proposed Sec.
5.33(g)(4)(iv) states that the rights of dissenting shareholders and
appraisal of dissenters' shares of stock in the nonbank entity shall be
determined in accordance with the laws of the state or other
jurisdiction under which the nonbank entity is organized. Finally,
Sec. 5.33(g)(4)(v) of the proposal states that the corporate existence
of each institution participating in the merger shall be continued in
the resulting national bank, and all the rights, franchises, property,
appointments, liabilities, and other interests of the participating
institutions shall be transferred to the resulting national bank as set
forth in 12 U.S.C. 215a(a), (e), and (f), in the same manner and to the
same extent as in a merger between a national bank and a state bank
under 12 U.S.C. 215a, as if the nonbank affiliate were a state bank.
---------------------------------------------------------------------------
\7\ If the national bank involved is insured, the transaction
may also be subject to approval by the FDIC under the Bank Merger
Act, 12 U.S.C. 1828(c).
---------------------------------------------------------------------------
Further, the proposal adds a new Sec. 5.33(g)(5), which addresses
Section 1206 Mergers of uninsured national banks with their nonbank
affiliates when the resulting entity is a nonbank affiliate. The
proposal limits this type of Section 1206 Merger to national banks that
are not insured banks (as defined in 12 U.S.C. 1813(h)). Prior to the
enactment of section 1206, there was no efficient way for a national
bank to cease its deposit-taking business, surrender its charter, and
combine its business with that of an affiliate because no statutory
provisions addressed this type of transaction. The section 1206
authority allows this transaction to take place in a merger and
therefore allows the OCC to establish the procedures necessary when an
uninsured national bank wishes to surrender its national charter but
continue conducting lines of business that are authorized for the
nonbank affiliate.
Proposed Sec. 5.33(g)(5)(i) states that this type of Section 1206
Merger may be entered into when the law of the state or other
jurisdiction under which the nonbank affiliate is organized allows such
mergers. It also provides that an uninsured national bank must obtain
the OCC's approval for the transaction. Section 5.33(g)(5)(ii) states
that a national bank entering into such a merger shall follow the
procedures and requirements contained in 12 U.S.C. 214a (which
addresses the merger of national banks into state banks), as if the
nonbank entity were a state bank. Section 5.33(g)(5)(iii) states that a
nonbank affiliate entering into such a merger shall follow the
procedures and requirements in the law of the state or other
jurisdiction under which the nonbank entity is organized. Section
5.33(g)(5)(iv) of the proposal states that dissenting national bank
shareholders may receive in cash the value of their national bank
shares if they comply with the requirements of 12 U.S.C. 214a as if the
nonbank affiliate were a state bank. In addition, the OCC may conduct
an appraisal or reappraisal of dissenters' shares of stock in a
national bank involved in a merger with a nonbank affiliate that
results in a nonbank affiliate if all parties agree that the
determination is final and binding on each party and agree on how the
OCC's expenses relating to the appraisal will be divided among the
parties and paid to the OCC. The rights of dissenting shareholders and
appraisal of dissenters' shares of stock in the nonbank entity shall be
determined in accordance with the laws of the state or other
jurisdiction under which the nonbank entity is organized.
In addition, Sec. 5.33(g)(5)(v) of the proposal states that the
corporate existence of each entity participating in the merger shall be
continued in the resulting nonbank affiliate, and all the rights,
franchises, property, appointments, liabilities, and other interests of
the participating national bank shall be transferred to the resulting
nonbank affiliate as set forth in 12 U.S.C. 214b, in the same manner
and to the same extent as in a merger between a national bank and a
state bank under 12 U.S.C. 214a, as if the nonbank affiliate were a
state bank.
Finally, the proposal adds a new paragraph (j)(1)(iv) to Sec. 5.33
that permits applications for certain transactions under Sec.
5.33(g)(4) to receive streamlined treatment. In order to qualify for
such treatment, the acquiring bank must be an eligible bank, the
resulting national bank must be well capitalized immediately following
consummation of the transaction, the applicants in a prefiling
communication must request and obtain approval from the appropriate
district office to use the streamlined application, and the total
assets acquired in the transaction must not exceed 10 percent of the
total assets of the acquiring national bank, as reported in the bank's
Consolidated Report of Condition and Income filed for the quarter
immediately preceding the filing of the application.
3. National Bank Directors--Proposed Sec. 7.2024 (New)
Section 1205 of the AHEOA amends section 5145 of the Revised
Statutes of the United States (12 U.S.C. 71) and the Banking Act of
1933 (12 U.S.C. 71a) regarding national bank directors. Section 1205
increases the maximum term a director may serve from one to not more
than three years and permits a national bank to adopt bylaws that
provide for staggering the terms of its directors in accordance with
the OCC's regulations. In addition, this section permits the OCC to
exempt a national bank from the otherwise applicable requirement that
it have no more than 25 directors.
The proposal adds a new Sec. 7.2024 conforming the OCC's rules to
these provisions. Pursuant to proposed Sec. 7.2024(a), national banks
may adopt bylaws that provide for staggering the terms of their
directors. Proposed Sec. 7.2024(b) increases the permissible maximum
term of national bank directors from one year to three years. Finally,
subsection (c) provides that a national bank may increase the size of
its board of directors above the statutory limit of 25 provided that
the bank satisfies the notice requirements set out in that section.
III. Visitorial Powers
A. Background
1. 12 CFR 7.4000
Current Sec. 7.4000(a) provides that only the OCC or an authorized
representative of the OCC may exercise visitorial powers with respect
to national banks, subject to exceptions provided in Federal law.
Section 7.4000(a) goes on to define the regulatory, supervisory, and
enforcement actions included within our visitorial powers, while Sec.
7.4000(b) sets out several exceptions to
[[Page 6367]]
our exclusive authority that are created by Federal law.\8\
---------------------------------------------------------------------------
\8\ Paragraph (c) of 12 CFR 7.4000 clarifies that the OCC owns
reports of examination and addresses a bank's obligations with
respect to these reports. This paragraph is unaffected by this
rulemaking.
---------------------------------------------------------------------------
These provisions interpret and implement 12 U.S.C. 484. Paragraph
(a) of that section states----
No national bank shall be subject to any visitorial powers
except as authorized by Federal law, vested in the courts of justice
or such as shall be, or have been exercised or directed by Congress
or by either House thereof or by any committee of Congress or of
either House duly authorized.
Paragraph (b) of the statute then permits lawfully authorized state
auditors or examiners to review a national bank's records ``solely to
ensure compliance with applicable State unclaimed property or escheat
laws upon reasonable cause to believe that the bank has failed to
comply with such laws.''
In recent years, various questions have arisen with respect to the
scope of the OCC's visitorial powers over national banks. In general,
the questions fall into two broad categories: First, what activities
conducted by a national bank are subject to the OCC's exclusive
visitorial powers? At one end of the spectrum of activities, for
example, are those, comprising the content of the business of banking
and activities incidental thereto, expressly authorized or recognized
as permissible for national banks by Federal statute or regulation, or
by OCC issuance or interpretation. At the other end would be
activities, not necessarily unique to a particular business, subject to
public safety standards, such as fire codes and zoning requirements,
that typically apply without reference to the content of an entity's
business. Second, what is the meaning of certain exceptions to the
OCC's exclusive visitorial powers that are provided in the statute,
specifically the exception for visitorial powers ``vested in the courts
of justice?''
This rulemaking contains amendments to Sec. 7.4000 to clarify the
application of section 484 to both areas. The first amendment adds a
new paragraph (3) to Sec. 7.4000(a) that clarifies the extent of
national bank activities subject to the OCC's exclusive visitorial
authority. The second amendment revises Sec. 7.4000(b) to reflect the
exceptions explicitly set out in section 484(a) for visitorial powers
``vested in the courts of justice'' and for Congress, and clarifies the
OCC's interpretation of the ``vested in the courts of justice''
exception.
To present these proposed changes in context, we first discuss the
background and purpose of section 484, and then summarize case law and
OCC interpretations in which questions concerning visitorial powers are
addressed. We conclude with a summary of the proposed amendments to
Sec. 7.4000.
2. The National Charter and the Role of Visitorial Powers
Congress enacted the National Currency Act (Currency Act) in 1863
and the National Bank Act the year after for the purpose of
establishing a new national banking system that would operate
distinctly and separately from the existing system of state banks. The
Currency Act and National Bank Act were enacted to create a uniform and
secure national currency and a system of national banks designed to
help stabilize and support the post-Civil War national economy.
Both proponents and opponents of the new national banking system
expected that it would supersede the existing system of state banks.\9\
Given this anticipated impact on state banks and the resulting
diminution of control by the states over banking in general,\10\
proponents of the national banking system were concerned that states
\11\ would attempt to undermine it. Remarks of Senator Sumner
illustrate the sentiment of many legislators of the time: ``Clearly,
the bank must not be subjected to any local government, State or
municipal; it must be kept absolutely and exclusively under that
Government from which it derives its functions.'' Cong. Globe, 38th
Cong., 1st Sess., at 1893 (April 27, 1864).\12\
---------------------------------------------------------------------------
\9\ Representative Samuel Hooper, who reported the bill to the
House, stated in support of the legislation that one of its purposes
was ``to render the law [Currency Act] so perfect that the State
banks may be induced to organize under it, in preference to
continuing under their State charters.'' Cong. Globe, 38th Cong. 1st
Sess. 1256 (March 23, 1864). While he did not believe that the
legislation was necessarily harmful to the state bank system, he did
``look upon the system of State banks as having outlived its
usefulness * * *'' Id. Opponents of the legislation believed that it
was intended to ``take from the States * * * all authority
whatsoever over their own State banks, and to vest that authority *
* * in Washington * * *'' Cong. Globe, 38th Cong., 1st Sess. 1267
(March 24, 1864) (statement of Rep. Brooks). Rep. Brooks made that
statement to support the idea that the legislation was intended to
transfer control over banking from the states to the Federal
government. Given that the legislation's objective was to replace
state banks with national banks, its passage would, in Rep. Brooks'
opinion, mean that there would be no state banks left over which the
states would have authority. Thus, by observing that the legislation
was intended to take authority over state banks from the states,
Rep. Brooks was not suggesting that the Federal government would
have authority over state banks; rather, he was explaining the bill
in a context that assumed the demise of state banks. Rep. Pruyn
opposed the bill stating that the legislation would ``be the
greatest blow yet inflicted upon the States * * *'' Cong. Globe,
38th Cong., 1st Sess. 1271 (March 24, 1864). See also John Wilson
Million, The Debate on the National Bank Act of 1863, 2 Journal of
Political Economy 251, 267 (1893-94) regarding the Currency Act.
(``Nothing can be more obvious from the debates than that the
national system was to supersede the system of state banks.'').
\10\ See, e.g., Tiffany v. National Bank of the State of
Missouri, 85 U.S. 409, 412-413 (1874) (``It cannot be doubted, in
view of the purpose of Congress in providing for the organization of
national banking associations, that it was intended to give them a
firm footing in the different states where they might be located. It
was expected they would come into competition with state banks, and
it was intended to give them at least equal advantages in such
competition. * * * National banks have been national favorites. They
were established for the purpose, in part, of providing a currency
for the whole country, and in part to create a market for the loans
of the general government. It could not have been intended,
therefore, to expose them to the hazard of unfriendly legislation by
the states, or to ruinous competition with state banks.''). See also
B. Hammond, Banks and Politics in America from the Revolution to the
Civil War, 725-34 (1957); P. Studenski & H. Krooss, Financial
History of the United States, 155 (1st ed. 1952).
\11\ For ease of reference, we use the term ``state'' in this
preamble in a way that includes other non-Federal governmental
entities.
\12\ See also Anderson v. H&R Block, 287 F.3d 1038, 1045 (11th
Cir. 2002) (``congressional debates amply demonstrate Congress's
desire to protect national banks from state legislation. * * *'').
---------------------------------------------------------------------------
The allocation of any supervisory responsibility for the new
national banking system to the states would have been inconsistent with
this need to protect national banks from state interference. Congress,
accordingly, established a Federal supervisory regime and created a
Federal agency within the Department of Treasury--the OCC--to carry it
out. Congress granted the OCC the broad authority ``to make a thorough
examination of all the affairs of [a national] bank,'' \13\ and
solidified this Federal supervisory authority by vesting the OCC with
exclusive visitorial powers over national banks. These provisions
assured, among other things, that the OCC would have comprehensive
authority to examine all the affairs of a national bank and protected
national banks from potential state hostility by establishing that the
authority to examine and supervise national banks is vested only in the
OCC, unless otherwise provided by Federal law.\14\
---------------------------------------------------------------------------
\13\ Act of June 3, 1864, c. 106, Sec. 54, 13 Stat. 116,
codified at 12 U.S.C. 481.
\14\ Writing shortly after the Currency Act and National Bank
Act were enacted, then-Secretary of the Treasury, and formerly the
first Comptroller of the Currency, Hugh McCulloch observed that
``Congress has assumed entire control of the currency of the
country, and, to a very considerable extent, of its banking
interests, prohibiting the interference of State governments. * *
*'' Cong. Globe, 39th Cong., 1st Sess., Misc. Doc. No. 100, at 2
(April 23, 1866).
---------------------------------------------------------------------------
[[Page 6368]]
Courts have consistently recognized the unique status of the
national banking system and the limits placed on states by the National
Bank Act. The Supreme Court stated in one of the first cases to address
the role of the national banking system that ``[t]he national banks
organized under the [National Bank Act] are instruments designed to be
used to aid the government in the administration of an important branch
of the public service. They are means appropriate to that end.''
Farmers' and Mechanics' National Bank v. Dearing, 91 U.S. 29, 33
(1875).
Subsequent opinions of the Supreme Court have been equally clear
about national banks' unique role and status. See Marquette National
Bank v. First of Omaha Service Corp., 439 U.S. 299, 314-315 (1978)
(``Close examination of the National Bank Act of 1864, its legislative
history, and its historical context makes clear that, * * * Congress
intended to facilitate * * * a `national banking system'.'' (citation
omitted)); Franklin National Bank of Franklin Square v. New York, 347
U.S. 373, 375 (1954) (``The United States has set up a system of
national banks as Federal instrumentalities to perform various
functions such as providing circulating medium and government credit,
as well as financing commerce and acting as private depositories.'');
Davis v. Elmira Savings Bank, 161 U.S. 275, 283 (1896) (``National
banks are instrumentalities of the Federal government, created for a
public purpose, and as such necessarily subject to the paramount
authority of the United States.'').
In Guthrie v. Harkness, 199 U.S. 148 (1905), the Supreme Court
recognized how the National Bank Act furthered the objectives of
Congress:
Congress had in mind, in passing this section [i.e., section
484] that in other sections of the law it had made full and complete
provision for investigation by the Comptroller of the Currency and
examiners appointed by him, and, authorizing the appointment of a
receiver, to take possession of the business with a view to winding
up the affairs of the bank. It was the intention that this statute
should contain a full code of provisions upon the subject, and that
no state law or enactment should undertake to exercise the right of
visitation over a national corporation. Except in so far as such
corporation was liable to control in the courts of justice, this act
was to be the full measure of visitorial power.
Id. at 159.
The Supreme Court also has recognized the clear intent on the part
of Congress to limit the authority of states over national banks
precisely so that the nationwide system of banking that was created in
the Currency Act could develop and flourish. For instance, in Easton v.
Iowa, 188 U.S. 220 (1903), the Court stated that Federal legislation
affecting national banks--
has in view the erection of a system extending throughout the
country, and independent, so far as powers conferred are concerned,
of state legislation which, if permitted to be applicable, might
impose limitations and restrictions as various and as numerous as
the States. * * * It thus appears that Congress has provided a
symmetrical and complete scheme for the banks to be organized under
the provisions of the statute. * * * [W]e are unable to perceive
that Congress intended to leave the field open for the States to
attempt to promote the welfare and stability of national banks by
direct legislation. If they had such power it would have to be
exercised and limited by their own discretion, and confusion would
necessarily result from control possessed and exercised by two
independent authorities.
Id. at 229, 231-232 (emphasis added). The Court in Farmers' and
Mechanics' Bank, after observing that national banks are means to aid
the government, stated--
Being such means, brought into existence for this purpose, and
intended to be so employed, the States can exercise no control over
them, nor in any wise affect their operation, except in so far as
Congress may see proper to permit. Any thing beyond this is ``an
abuse, because it is the usurpation of power which a single State
cannot give.''
Farmers' and Mechanics' Bank, 91 U.S. at 34 (citation omitted).
Consistent with the need for a uniform system of laws and uniform
supervision that would foster the nationwide banking system, courts
have interpreted the OCC's visitorial powers expansively. The Supreme
Court in Guthrie noted that the term ``visitorial'' as used in section
484 derives from English common law, which used the term ``visitation''
to refer to the act of a superintending officer who visits a
corporation to examine its manner of conducting business and enforce
observance of the laws and regulations (citing First National Bank of
Youngstown v. Hughes, 6 F. 737, 740 (6th Cir. 1881), appeal dismissed,
106 U.S. 523 (1883)). Guthrie, 199 U.S. at 158. ``Visitors'' of
corporations ``have power to keep them within the legitimate sphere of
their operations, and to correct all abuses of authority, and to
nullify all irregular proceedings.'' Id. (citations omitted). The
Guthrie Court also noted that visitorial powers include bringing
``judicial proceedings'' against a corporation to enforce compliance
with applicable law. Id.\15\ See also Peoples Bank v. Williams, 449 F.
Supp. 254, 259 (W. D. Va. 1978) (visitorial powers involve the exercise
of the right of inspection, superintendence, direction, or regulation
over a bank's affairs). Thus, section 484 establishes the OCC as the
exclusive regulator of the business of national banks, except where
otherwise provided by Federal law.
---------------------------------------------------------------------------
\15\ Enforcement through judicial proceedings was the most
common--and perhaps exclusive--means of exercising the visitorial
power to enforce compliance with applicable law at the time section
484 was enacted into law. Administrative actions were not widely
used until well into the 20th century. Thus, by vesting the OCC with
exclusive visitorial power, section 484 vests the OCC with the
exclusive authority to enforce, whether through judicial or
administrative proceedings--except where otherwise provided by
Federal law.
---------------------------------------------------------------------------
The OCC's exclusive visitorial authority complements principles of
Federal preemption, to accomplish the objectives of the National Bank
Act. The Supremacy Clause of the United States Constitution \16\
provides that Federal law prevails over any conflicting state law. An
extensive body of judicial precedent has developed over the nearly 140
years of existence of the national banking system, explaining and
defining the standards of Federal preemption of state laws as applied
to national banks.\17\ Visitorial power is a closely
[[Page 6369]]
related authority, which Congress specifically addressed in section 484
to enable national banks to avoid inconsistent and potentially hostile
application of standards by state authorities. Together, Federal
preemption and the OCC's exclusive visitorial authority are defining
characteristics of the national bank charter, which have fostered the
development of the nationwide system of Federally chartered banks
envisioned by Congress which now operates as part of the flourishing
dual banking system of national and state-chartered banks in the United
States.
---------------------------------------------------------------------------
\16\ U.S. Const. Art. VI, cl. 2 (``This Constitution, and the
Laws of the United States which shall be made in Pursuance thereof;
and all Treaties made, or which shall be made, under the Authority
of the United States, shall be the supreme Law of the Land; and the
Judges in every State shall be bound thereby, any Thing in the
Constitution or Laws of any State to the Contrary
notwithstanding.'').
\17\ See, e.g., Barnett Bank of Marion County, N.A. v. Nelson,
517 U.S. 25, 26, 32, 33 (1996) (``grants of both enumerated and
incidental `powers' to national banks [are] grants of authority not
normally limited by, but rather ordinarily pre-empting, contrary
state law.'' States may not ``prevent or significantly interfere
with the national bank's exercise of its powers.''); Franklin
National Bank, 347 U.S. at 378-379 (1954) (federal law preempts
state law when there is a conflict between the two; ``The compact
between the states creating the Federal Government resolves them as
a matter of supremacy. However wise or needful [the state's] policy,
* * * it must give way to contrary federal policy.''); Anderson
National Bank v. Luckett, 321 U.S. 233, 248, 252 (1944) (state law
may not ``infringe the national banking laws or impose an undue
burden on the performance of the banks' functions'' or
``unlawful[ly] encroac[h] on the rights and privileges of national
banks''); First National Bank v. Missouri, 263 U.S. 640, 656 (1924)
(Federal law preempts state laws that ``interfere with the purposes
of [national banks'] creation, tend to impair or destroy their
efficiency as federal agencies or conflict with the paramount law of
the United States.''); First National Bank of San Jose v.
California, 262 U.S. 366, 368-369 (1923) (``[National banks] are
instrumentalities of the federal government. * * * [A]ny attempt by
a state to define their duties or control the conduct of their
affairs is void whenever it conflicts with the laws of the United
States or frustrates the purposes of the national legislation, or
impairs the efficiency of the bank to discharge the duties for which
it was created.''); McClellan v. Chipman, 164 U.S. 347, 358 (1896)
(application to national banks of state statute forbidding certain
real estate transfers by insolvent transferees would not ``destro[y]
or hampe[r]'' national bank functions); First National Bank of
Louisville v. Commonwealth of Kentucky, 76 U.S. (9 Wall.) 353, 362-
63 (1870) (national banks subject to state law that does not
``interfere with, or impair [national banks'] efficiency in
performing the functions by which they are designed to serve [the
Federal] Government''); Bank of America et al. v. City and County of
San Francisco et al., 309 F.3d 551, 561 (9th Cir. 2002) (``[s]tate
attempts to control the conduct of national banks are void if they
conflict with federal law, frustrate the purposes of the National
Bank Act, or impair the efficiency of national banks to discharge
their duties.'') (citation omitted); Association of Banks in
Insurance, Inc. v. Duryee, 270 F.3d 397, 403-404 (6th Cir. 2001)
(``The Supremacy Clause `invalidates state laws that ``interfere
with, or are contrary to,'' federal law'. * * * A state law also is
pre-empted if it interferes with the methods by which the federal
statute was designed to reach th[at] goal.'') (citations omitted).
---------------------------------------------------------------------------
Congress recently affirmed the OCC's exclusive visitorial powers
with respect to national banks operating on an interstate basis in the
Riegle-Neal Interstate Banking Act of 1994 (Riegle-Neal).\18\ Although
Riegle-Neal makes interstate branches of national banks subject to
specified types of laws of a ``host'' state in which the bank has an
interstate branch to the same extent as a branch of a state bank of
that state, except when Federal law preempts the application of such
state laws to national banks, the statute then makes clear that even
where the state law is applicable, authority to enforce the law is
vested in the OCC. See 12 U.S.C. 36(f)(1)(B) (``The provisions of any
State law to which a branch of a national bank is subject under this
paragraph shall be enforced, with respect to such branch, by the
Comptroller of the Currency.''). This approach is another, and very
recent, recognition of the broad scope of the OCC's exclusive
visitorial powers with respect to national banks.
---------------------------------------------------------------------------
\18\ Pub. L. 103-328, 108 Stat. 2338 (Sept. 29, 1994).
---------------------------------------------------------------------------
B. Description of the Visitorial Powers Proposal
This rulemaking proposes to amend Sec. 7.4000 in two ways. First,
it adds a new paragraph (3) to Sec. 7.4000(a) that identifies the
scope of the activities of national banks for which the OCC's
visitorial powers are exclusive. Second, it amends Sec. 7.4000(b) to
reflect the exceptions to our exclusive visitorial authority as set out
in section 484. We have also added an exception in proposed new Sec.
7.4000(b)(vi) recognizing the authority for functional regulators to
exercise the authority provided under the Gramm-Leach-Bliley Act.\19\
---------------------------------------------------------------------------
\19\ Pub. L. 106-102, Sec. 302, 113 Stat. 1338, 1407-08 (Nov.
12 1999), codified at 15 U.S.C. 6712.
---------------------------------------------------------------------------
Circumstances when OCC visitorial authority is exclusive. As we
have discussed, the purpose of section 484 is to enable national banks
to conduct the banking business they are authorized to conduct under
Federal law, subject only to the ``visitation,'' i.e., inspection and
supervision of their activities and the ability to compel compliance
with standards for their operations, that is authorized under Federal
law. Consistent with this purpose, the OCC's visitorial powers are
exclusive (except where otherwise provided by Federal law) with respect
to activities comprising or in furtherance of the content of national
banks' business, that are expressly authorized or recognized as
permissible for national banks under Federal law, including the OCC's
regulations and interpretations. Examples include application of state
standards (to the extent they are not preempted) to the content of the
business conducted by a national bank, such as standards concerning the
bank's transactions and relations with its customers, or directives or
prescriptions regarding the components of, or income or expenses of,
the bank's business. In these situations, section 484 directs that,
unless Federal law supplies an exception, the OCC is exclusively
authorized to determine what standards apply to a national bank's
activities and whether a national bank's conduct complies with
applicable standards, and to enforce adherence to those standards.
Proposed new Sec. 7.4000(a)(3) would embody this clarification. It
states, in paragraph (i), that, unless otherwise provided by Federal
law, the OCC has exclusive visitorial authority with respect to
activities expressly authorized or recognized as permissible for
national banks under Federal law or regulation, or by OCC issuance or
interpretation, including the content of those activities and the
manner in which, and standards whereby, those activities are conducted.
Proposed paragraph (ii) then provides that the question of whether the
OCC possesses the exclusive authority to assess the applicability of a
state law and determine and enforce compliance by national banks is
determined solely by Federal law, including section 484 and Sec.
7.4000.\20\ Pursuant to Sec. 7.4006, these standards also determine
the scope of the OCC's exclusive visitorial authority with respect to
national banks' operating subsidiaries.\21\
---------------------------------------------------------------------------
\20\ To the extent questions arise as to whether an activity is
within the scope of the OCC's exclusive visitorial powers as defined
in the regulation, the OCC is prepared to issue interpretive
opinions on a case-by-case basis.
\21\ See 66 FR 34784, 34788 (July 2, 2001). In the preamble to
our final rule containing Sec. 7.4006 we noted that the OCC's
operating subsidiary regulation, 12 CFR 5.34(e)(3), states that ``an
operating subsidiary conducts its activities subject to the same
authorization, terms, and conditions that apply to the conduct of
those activities by its parent [national] bank.'' Further, we noted
that ``[o]perating subsidiaries often have been described as the
equivalent of departments or divisions of their parent banks.''
---------------------------------------------------------------------------
Exceptions to OCC exclusive visitorial authority. Section 484 also
creates several exceptions to the exclusive visitorial authority it
creates. Our current rule acknowledges, in Sec. 7.4000(a), that our
exclusive authority is subject to various exceptions created by Federal
law. Current Sec. 7.4000(b) lists several instances where Federal law
creates such an exception. However, the current rule does not address
two exceptions expressly set out in section 484(a): the exceptions
``vested in the courts of justice'' and for Congress (and its
committees). We propose to amend Sec. 7.4000(b) to include the
exceptions for courts of justice and Congress, and, in so doing,
clarify how the ``vested in the courts of justice'' exception
operates.\22\
---------------------------------------------------------------------------
\22\ We have not encountered questions concerning the
application of the exception for Congress and its committees.
Therefore, we propose only to include that exception in our rule
without elaboration.
---------------------------------------------------------------------------
The ``vested in the courts of justice'' exception to the OCC's
exclusive visitorial powers is best understood by referring to the
purpose of the statute, the plain language of the ``vested in the
courts of justice'' exception, and the structure of section 484. These
points are addressed in order, below.
Courts must be able to compel a national bank to produce books and
records in connection with private litigation involving the bank.
However, one might argue that the issuance of a subpoena by a court
would itself be a ``visitation,'' even if the underlying litigation was
not. Such a reading would effectively immunize national banks from
civil litigation, a result that Congress clearly did not intend.
Accordingly, section 484 recognizes an exception to the OCC's
exclusive visitorial authority for visitorial powers ``vested in the
courts of justice.'' This exception is consistent with case law,
settled well before section 484 was
[[Page 6370]]
enacted into law, concluding that courts are vested with certain
inherent powers. See, e.g., United States v. Hudson and Goodwin, 11
U.S. 32, 34 (1812) (``Certain implied powers must necessarily result to
our Courts of justice from the nature of their institutions.''); State
v. Morrill, 16 Ark. 384, 1855 WL 607 (Ark.) (1855) (finding that there
are express and implied powers, including the power to punish action
found in contempt of court, that are inherently vested in courts). In
order to avoid a constitutionally impermissable usurpation of the
judiciary's powers, Congress included the ``vested in the courts of
justice'' exception in section 484 and thereby recognized the inherent
authority of courts of justice to exercise those powers required to
fulfill the courts' responsibilities.
Congress clearly did not intend, however, to create new visitorial
authority that could be exercised by state authorities when it
recognized the authority of courts of justice. It would be completely
contrary to the express purposes of section 484 to read the ``vested in
the courts of justice'' exception as enabling state authorities to
accomplish exactly what Congress deliberately and expressly intended
states not to be able to do--namely, inspect and supervise the
activities of national banks and compel their adherence to a variety of
state-set standards.
This purpose is effectuated by the plain language of the statute.
The exception permits the exercise of ``visitorial powers'' that are
``vested in the courts of justice,'' powers, in other words, that
courts possess. Section 484 does not create new powers for state
executive, legislative, or administrative authorities to supervise and
regulate national banks. It grants no new authority and thus does not
authorize states to bring suits or enforcement actions that they do not
otherwise have the power to bring.
To read the exception to permit state authorities to inspect,
regulate, supervise, direct, or restrict the activities of national
banks simply by filing a complaint in a court would be to create a
visitorial power that states do not otherwise possess under Federal
law. Section 484 by its express terms simply does not create such
boundless visitorial powers for state authorities.\23\ Where section
484 does recognize visitorial authority for states in section 484(b),
by contrast, it is specific and narrow, and expressly stated as an
exception to the general exclusivity of the OCC's visitorial powers
recognized in section 484(a).
---------------------------------------------------------------------------
\23\ We note that one Federal district court has reached a
different conclusion, but we respectfully disagree with the parts of
the opinion in First Union National Bank et al. v. Burke, 48 F.
Supp. 2d 132, 145-146 (D. Ct. 1999), that suggest a different
reading of the exception, since the opinion did not analyze the
purpose, plain language, and structure of section 484. Moreover, we
note that the Burke court agrees that a state may not directly
enforce state law against national banks. See 48 F. Supp. 2d at 146.
---------------------------------------------------------------------------
This construction of the ``vested in the courts of justice''
exception also is supported by the rule of statutory construction that
holds that ``[s]tatutory language must be read in context and a phrase
`gathers meaning from the words around it.' '' \24\ Jones v. United
States, 527 U.S. 373, 389 (1999) (quoting Jarecki v. G.D. Searle & Co.,
367 U.S. 303, 307 (1961)); Tasini v. New York Times Company, Inc., 206
F.3d 161, 166-167 (2nd Cir. 2000), cert. granted, 531 U.S. 978 (2000),
aff'd, 533 U.S. 483 (2001) (noscitur a sociis applied to a statute
similar in format to section 484). Immediately following the ``vested
in the courts of justice'' exception is an exception that preserves
visitorial authority for Congress or any committee thereof. This
exception addresses the need of Congress and its committees to issue
subpoenas compelling the production of bank records or witnesses in
fulfillment of congressional oversight responsibilities. Similarly, the
exception set out in paragraph (b) of section 484 (preserving a state's
ability to examine a national bank's books and records as necessary to
ensure compliance with state unclaimed property and escheat laws) is
narrowly focused on a specific purpose. Thus, the statutory context of
the ``vested in the courts of justice'' exception also leads to the
conclusion that it is comparably focused on a particular function, not
an exception that endorses an indirect route to accomplish precisely
what Congress clearly sought to prevent--state regulation and
inspection of the banking business of national banks.\25\
---------------------------------------------------------------------------
\24\ This maxim is sometimes referred to as the noscitur a
sociis doctrine.
\25\ The noscitur a sociis doctrine as applied to the original
National Bank Act also leads to the conclusion that only the OCC may
enforce applicable laws. The visitorial powers language initially
appeared in section 54 of the National Bank Act. The section that
preceded it governed the forfeiture of a bank's charter upon a
knowing violation of the National Bank Act, while the section that
followed addressed penalties for embezzling. This location of
section 484 in a series of enforcement-related provisions
underscores the point that Congress intended for the OCC to have the
exclusive authority to bring enforcement actions against national
banks.
---------------------------------------------------------------------------
Under this construction of section 484, states remain free to seek
a declaratory judgment from a court as to whether a particular state
law applies to the Federally-authorized business of a national bank or
is preempted. However, if a court rules that a state law is not
preempted, enforcement of a national bank's compliance with that law is
within the OCC's exclusive purview. See National State Bank, Elizabeth,
N.J. v. Long, 630 F.2d 981, 988 (3rd Cir. 1980) (``[W]e find ourselves
unable to agree with the district court's determination that state
officials have the power to issue cease and desist orders against
national banks for violations of the [state's] antiredlining statute.
Congress has delegated enforcement of statutes and regulations against
national banks to the Comptroller of the Currency.'').\26\
---------------------------------------------------------------------------
\26\ This applies to enforcement of criminal statutes as well.
Easton v. Iowa, 188 U.S. 220 (1903).
---------------------------------------------------------------------------
In addition, this position does not preclude private civil actions
or actions brought by other governmental entities pursuant to a Federal
grant of authority. See, e.g. Guthrie, supra, 199 U.S. 148 (an
individual shareholder action against a bank for access to its books
and records); Bank of America National Trust & Savings Ass'n v.
Douglas, 105 F.2d 100 (D.C. Cir. 1939) (service of subpoenas on a
national bank by the SEC in connection with an investigation under the
Securities Exchange Act of 1934).
Accordingly, in light of the purpose of the ``vested in the courts
of justice'' exception, its plain language, and the narrow focus of
other exceptions in section 484, we propose to amend Sec. 7.4000(b) to
state that national banks shall be subject to such visitorial powers as
are vested in the courts of justice to issue orders or writs compelling
the production of information or witnesses. We propose further to
clarify that this exception does not create or expand any authority of
states or other governmental entities to inspect, regulate, or
supervise national banks' activities, or to compel national banks'
adherence to restrictions or mandates concerning the content of those
activities or the manner in which, or standards whereby, those
activities are conducted.
IV. Additional Changes to Parts 5, 7, 9, and 34
A. Part 5 Amendments
Section 5.20 of our regulations contains the requirements that
govern the organization of a national bank. The proposal amends Sec.
5.20(e)(1) to provide that the newly organized bank may be a special
purpose national bank that limits its activities to fiduciary
activities or to any other activities within the business of banking.
The purpose of this
[[Page 6371]]
proposed change is to clarify that a limited purpose national bank may
exist with respect to activities other than fiduciary activities,
provided the activities in question are within the business of banking.
Section 5.33(e) of our regulations contains a listing of factors
the OCC considers in evaluating applications for business combinations.
These factors are based upon the factors set forth in the Bank Merger
Act, 12 U.S.C. 1828(c), and the Community Reinvestment Act, 12 U.S.C.
2903. As part of the USA PATRIOT Act,\27\ Congress amended the Bank
Merger Act by adding an additional factor to be considered in
evaluating merger transactions. This factor requires the responsible
agencies to consider the effectiveness of any insured depository
institution involved in a proposed merger in combating money laundering
activities.\28\ The proposal conforms our regulations with the statute
by adding the factor at Sec. 5.33(e)(1)(v).
---------------------------------------------------------------------------
\27\ Pub. L. 107-56 (Oct. 26, 2001).
\28\ The FDIC recently updated its Statement of Policy on Bank
Merger Transactions to include this new factor at 67 FR 48178 (July
23, 2002). This update only provides the new provision. The complete
Policy Statement as it existed before this update may be found at 63
FR 44761 (August 20, 1998).
---------------------------------------------------------------------------
Current Sec. 5.34(e)(5)(iv) permits certain national banks to
acquire or establish an operating subsidiary or perform a new activity
in an existing operating subsidiary by providing after-the-fact notice
to the OCC if the operating subsidiary conducts certain activities
listed in Sec. 5.34(e)(5)(v). That list currently includes the
underwriting of credit-related insurance consistent with section 302 of
the Gramm-Leach-Bliley Act. However, in Corporate Decision 2001-10
(April 23, 2001) and Corporate Decision 2000-16 (August 29, 2000), the
OCC found that credit-related reinsurance products satisfy GLBA section
302's statutory requirements and are ``authorized products.'' The
proposal therefore amends 12 CFR 5.34(e)(5)(v)(L) to add reinsuring of
credit-related insurance to the list of activities eligible for after-
the-fact notice requirements.
B. Part 7 Amendment
As corporate transactions have become more sophisticated, an
integral part of financial and transactional advice with respect to
mergers and other corporate restructurings inevitably involves
providing advice on the tax implications of those transactions.
Recently amended Sec. 5.34(e)(5)(v)(J) and (K) permit national banks
to provide tax planning services and to provide financial and
transactional advice on structuring, arranging, and executing financial
transactions, including mergers, acquisitions, and divestitures.
Providing tax planning services encompasses tax consulting in order for
a bank to be able to offer comprehensive services in this area.
Accordingly, the proposal deletes as outdated the prohibition against
serving as an expert tax consultant that currently appears at Sec.
7.1008.\29\
---------------------------------------------------------------------------
\29\ National banks engaged in providing the services permitted
by 12 CFR 5.34(e)(5)(v)(J) and (K) must comply with applicable
regulations of the Internal Revenue Service (IRS) governing the
provision of such services. Information about the IRS regulations
may be obtained at http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=www.irs.treas.gov.
---------------------------------------------------------------------------
C. Part 9 Amendment
Currently, 12 CFR 9.18(b)(4)(i) requires valuation of collective
investment funds at least every three months. However, certain funds
are only required to be valued once a year. Those funds must be (a)(2)
funds that are primarily invested in real estate or other assets that
are not readily marketable. A growing number of collective investment
funds, including (a)(1) funds, however, are comprised of a mix of
assets that are readily marketable and assets that are not readily
marketable. Those funds do not qualify for the one-year valuation
because they are not (a)(2) funds primarily invested in real estate or
other assets that are not readily marketable. However, a one-year
valuation may be appropriate for assets in those funds that are not
readily marketable. Thus, we propose to amend the regulation to require
quarterly valuation of readily marketable assets in all collective
investment funds, including (a)(1) funds. Assets that are not readily
marketable will be valued at least once a year regardless of whether
the assets are in (a)(1) or (a)(2) funds or whether the funds' assets
are primarily invested in real estate or other assets that are not
readily marketable. For purposes of an admission or withdrawal date,
this provision does not negate the need to provide a current value at
the time of such admission or withdrawal.
D. Part 34 Amendment
Section 34.3 restates the comprehensive authority vested in the OCC
by 12 U.S.C. 371 to regulate real estate lending by national banks.
Section 371 authorizes national banks to engage in real estate lending,
making that authority subject only to 12 U.S.C. 1828(o) (real estate
lending safety and soundness standards) and ``such restrictions and
requirements as the Comptroller of the Currency may prescribe by
regulation or order.'' The text of the regulation was not revised to
reflect a statutory amendment to section 371 referring to 12 U.S.C.
1828(o) and thus the proposal updates the regulation to reflect that
change to the underlying statute. Other portions of the regulation
remain unchanged, as are the implementing provisions of section 34.4,
which set out by regulation certain types of state laws that are
specifically preempted (section 34.4(a)), and provide that the OCC will
apply recognized principles of Federal preemption in considering
whether other types of state laws apply to real estate lending by
national banks for purposes of issuing orders pursuant to section 371
(section 34.4(b)).
V. Technical Amendments
The proposal contains the following technical amendments:
[sbull] 12 CFR part 3, appendix A, section 3(a)(2)(ix) currently
cross-references a definition of ``General obligation of a State or
political subdivision'' but contains the wrong regulatory citation for
that definition. The definition in question has been moved from 12 CFR
1.3(g) to 12 CFR 1.2(b). The proposed revision will correct the
citation. Also in part 3 appendix A, section 4(a)(11)(ii) the
references to sections (4)(a)(8)(i) and (ii) are corrected to refer to
sections (4)(a)(9)(i) and (ii), respectively.
[sbull] The citations to FDIC regulations in current 12 CFR
6.4(c)(1)(i) and (ii) are incorrect. The proposal amends the citations
to correct them.
[sbull] Current 12 CFR 7.1016(a) contains a footnote reference and
accompanying footnote text. The footnote reference number is 30, but
should be 1. The proposal makes this change.
[sbull] Current 12 CFR 9.20(b) contains a reference to SEC rules 17
CFR 240.17Ad-1 through 240.17Ad-16. A new rule, 240.17Ad-17, has been
added, so the proposal changes the reference to 240.17Ad-16 to reflect
the addition.
[sbull] Current 12 CFR 28.16(e), dealing with uninsured deposit
notices, makes a reference to an FDIC regulation, 12 CFR 346.7, which
was removed in 1998. The proposal would correct this citation to refer
to the current rule for uninsured deposit notices which can now be
found at 12 CFR 347.207.
Request for Comments
The OCC invites comment on all aspects of the proposed regulation.
Solicitation of Comments on Use of Plain Language
Section 722 of the Gramm-Leach-Bliley Act, Pub. L. 106-102, sec.
722, 113 Stat. 1338, 1471 (Nov. 12, 1999),
[[Page 6372]]
requires the Federal banking agencies to use plain language in all
proposed and final rules published after January 1, 2000. We invite
your comments on how to make this proposal easier to understand. For
example:
[sbull] Have we organized the material to suit your needs? If not,
how could this material be better organized?
[sbull] Are the requirements in the proposed regulation clearly
stated? If not, how could the regulation be more clearly stated?
[sbull] Does the proposed regulation contain language or jargon
that is not clear? If so, which language requires clarification?
[sbull] Would a different format (grouping and order of sections,
use of headings, paragraphing) make the regulation easier to
understand? If so, what changes to the format would make the regulation
easier to understand?
[sbull] What else could we do to make the regulation easier to
understand?
Community Bank Comment Request
In addition, we invite your comments on the impact of this proposal
on community banks. The OCC recognizes that community banks operate
with more limited resources than larger institutions and may present a
different risk profile. Thus, the OCC specifically requests comments on
the impact of this proposal on community banks' current resources and
available personnel with the requisite expertise, and whether the goals
of the proposed regulation could be achieved, for community banks,
through an alternative approach.
Regulatory Flexibility Act
Pursuant to section 605(b) of the Regulatory Flexibility Act, 5
U.S.C. 605(b) (RFA), the regulatory flexibility analysis otherwise
required under section 604 of the RFA is not required if the agency
certifies that the rule will not have a significant economic impact on
a substantial number of small entities and publishes its certification
and a short, explanatory statement in the Federal Register along with
its rule.
Pursuant to section 605(b) of the RFA, the OCC hereby certifies
that this proposal will not have a significant economic impact on a
substantial number of small entities. Accordingly, a regulatory
flexibility analysis is not needed. The amendments to the OCC's
regulations relating to the AHOEA are permissive provisions that will
be used only by banks that wish to take advantage of the new
transactions, procedures, or corporate governance options permitted by
the statute as implemented by the regulations. Proposed 12 CFR
5.33(g)(5) reduces burden by implementing a simpler way to accomplish a
merger of a national bank into one of its nonbank affiliates. The
amendments regarding the OCC's visitorial powers simply identify the
scope of activities for which the agency's visitorial powers are
exclusive and clarify how an exception to such powers applies. These
amendments simply provide the OCC's analysis and do not impose any new
requirements or burdens. As such, they will not result in any adverse
economic impact.
Executive Order 12866
The OCC has determined that this proposal is not a significant
regulatory action under Executive Order 12866.
Unfunded Mandates Reform Act of 1995
Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L.
104-4 (2 U.S.C. 1532) (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 proposed 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, this
rulemaking is not subject to section 202 of the Unfunded Mandates Act.
Paperwork Reduction Act
The OCC may not conduct or sponsor, and a respondent is not
required to respond to, an information collection unless it displays a
currently valid Office of Management and Budget (OMB) control number.
The information collection requirements in this notice of proposed
rulemaking are contained in Sec. Sec. 5.32, 5.33, and 7.2024.
OMB has reviewed and approved the information collection
requirements contained in this rule under OMB Control Number 1557-0014,
in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3501
et seq.).
The Comptroller's Corporate Manual (Manual) explains the OCC's
policies and procedures for the formation of a new national bank, entry
into the national banking system by other institutions, and corporate
expansion and structural changes by existing national banks. The Manual
embodies all required procedures, forms, and regulations regarding OCC
corporate decisions.
The information collection requirements imposed by Sec. Sec. 5.32
and 5.33 are contained in the Business Combinations booklet in the
Manual and are part of the total requirement.
The respondents are national banks.
Estimated number of respondents: 270.
Estimated number of responses: 270.
Average hours per response: 20.6.
Estimated total burden hours: 5,562.
The information collection requirements imposed by Sec. 7.2024 are
included in the Corporate Organization booklet in the Manual, along
with several other corporate requirements.
The respondents are national banks.
Estimated number of respondents: 1,000.
Estimated number of responses: 1,000.
Average hours per response: .5 hour.
Estimated total burden hours: 500 hours.
The burden estimates represent total burden for national banks'
compliance with the information collection requirements associated with
corporate organization matters and business combination activities.
The OCC has a continuing interest in the public's opinion regarding
collections of information. The OCC invites comments on:
(1) Whether the collection of information contained in the proposed
rulemaking is necessary for the proper performance of the OCC's
functions, including whether the information has practical utility;
(2) The accuracy of the OCC's estimate of the burden of the
information collection, including the validity of the methodology and
assumptions used;
(3) Ways to enhance the quality, utility, and clarity of the
information to be collected;
(4) Ways to minimize the burden of the information collection on
respondents, including the use of automated collection techniques or
other forms of information technology; and
(5) Estimates of capital or start-up costs and costs of operation,
maintenance, and purchase of services to provide information.
Comments may be sent to:
Jessie Dunaway, Clearance Officer, Office of the Comptroller of the
Currency, 250 E Street, SW, Mailstop 8-4, Washington, DC 20219.
Comments
[[Page 6373]]
may also be sent by fax to 202-874-4889 or by e-mail to
jessie.dunaway@occ.treas.gov.
Joseph F. Lackey, Jr., Desk Officer, Office of Information and
Regulatory Affairs, Attention: 1557-0014, Office of Management and
Budget, Room 10235, Washington, DC 20503. Comments may also be sent by
e-mail to jlackeyj@omb.eop.gov.
Executive Order 13132
Executive Order 13132 requires Federal agencies, including the OCC,
to certify their compliance with that Order when they transmit to the
Office of Management and Budget any draft final regulation that has
Federalism implications. Under the Order, a regulation has Federalism
implications if it has ``substantial direct effects on the States, on
the relationship between the national government and the States, or on
the distribution of power and responsibilities among the various levels
of government.'' In the case of a regulation that has Federalism
implications and that preempts state law, the Order imposes certain
consultation requirements with state and local officials; requires
publication in the preamble of a Federalism summary impact statement;
and requires the OCC to make available to the Director of the Office of
Management and Budget any written communications submitted by state and
local officials. By the terms of the Order, these requirements apply to
the extent that they are practicable and permitted by law and, to that
extent, must be satisfied before the OCC promulgates a final
regulation.
This proposal may have Federalism implications, as that term is
used in the Order. Therefore, before promulgating a final regulation
based on this proposal, the OCC will, to the extent practicable and
permitted by law, seek consultation with state and local officials,
include a Federalism summary impact statement in the preamble to the
final rule, and make available to the Director of OMB any written
communications we receive from state or local officials.
List of Subjects
12 CFR Part 3
Administrative practice and procedure, Capital, National banks,
Reporting and recordkeeping requirements, Risk.
12 CFR Part 5
Administrative practice and procedure, National banks, Reporting
and recordkeeping requirements, Securities.
12 CFR Part 6
National banks.
12 CFR Part 7
Credit, Insurance, Investments, National banks, Reporting and
recordkeeping requirements, Securities, Surety bonds.
12 CFR Part 9
Estates, Investments, National banks, Reporting and recordkeeping
requirements, Trusts and trustees.
12 CFR Part 28
Foreign banking, National banks, Reporting and recordkeeping
requirements.
12 CFR Part 34
Mortgages, National banks, Reporting and recordkeeping
requirements.
Authority and Issuance
For the reasons set forth in the preamble, parts 3, 5, 6, 7, 9, 28,
and 34 of chapter I of title 12 of the Code of Federal Regulations are
proposed to be amended as follows:
PART 3--MINIMUM CAPITAL RATIOS; ISSUANCE OF DIRECTIVES
1. The authority citation for part 3 continues to read as follows:
Authority: 12 U.S.C. 93a, 161, 1818, 1828(n), 1828 note, 1831n
note, 1835, 3907, and 3909.
Appendix A to Part 3--[Amended]
2. In appendix A to part 3:
A. In section 3, amend paragraph (a)(2)(ix) by removing ``12 CFR
1.3(g)'' and adding in its place ``12 CFR 1.2(b)''; and
B. In section 4, amend paragraph (a)(11)(ii) by removing,
``section(4)(a)(8)(i) and (ii)'' and adding in its place ``section
(4)(a)(9)(i) and (ii)''.
* * * * *
PART 5--RULES, POLICIES, AND PROCEDURES FOR CORPORATE ACTIVITIES
3. The authority citation for part 5 is revised to read as follows:
Authority: 12 U.S.C. 1 et seq., 93a; 215a-2; 215a-3; and section
5136A of the Revised Statutes (12 U.S.C. 24a).
Subpart B--Initial Activities
4. In Sec. 5.20, a new second sentence is added to paragraph
(e)(1) to read as follows:
Sec. 5.20 Organizing a Bank.
* * * * *
(e) Statutory requirements--(1) General. * * * The bank may be a
special purpose bank that limits its activities to fiduciary activities
or to any other activities within the business of banking. * * *
* * * * *
Subpart C--Expansion of Activities
5. A new Sec. 5.32 is added to read as follows:
Sec. 5.32 Expedited procedures for certain reorganizations.
(a) Authority. 12 U.S.C. 93a and 215a-2.
(b) Scope. This section prescribes the procedures for OCC review
and approval of a national bank's reorganization to become a subsidiary
of a bank holding company or a company that will, upon consummation of
such reorganization, become a bank holding company.
(c) Licensing requirements. A national bank shall submit an
application to, and obtain approval from, the OCC prior to
participating in a reorganization described in paragraph (b) of this
section.
(d) Procedures--(1) General. An application filed in accordance
with this section shall be deemed approved on the 30th day after the
OCC receives the application, unless the OCC notifies the bank
otherwise. Approval is subject to the condition that the bank provide
the OCC with 60 days' prior notice of any material change in the bank's
business plan or any material change from the proposed changes to the
bank's business plan described in the bank's plan of reorganization.
(2) Reorganization plan. The application must include a
reorganization plan that:
(i) Specifies the manner in which the reorganization shall be
carried out;
(ii) Is approved by a majority of the entire board of directors of
the national bank;
(iii) Specifies:
(A) The amount and type of consideration that the bank holding
company will provide to the shareholders of the reorganizing bank for
their shares of stock of the bank;
(B) The date as of which the rights of each shareholder to
participate in that exchange will be determined; and
(C) The manner in which the exchange will be carried out;
(iv) Is submitted to the shareholders of the reorganizing bank at a
meeting to be held at the call of the directors in accordance with the
procedures prescribed in connection with a merger of a national bank
under section 3 of the National Bank Consolidation and Merger Act, 12
U.S.C. 215a(a)(2); and
[[Page 6374]]
(v) Describes any changes to the bank's business plan resulting
from the reorganization.
(3) Financial and managerial resources and future prospects. In
reviewing an application under this section, the OCC will consider the
impact of the proposed affiliation on the financial and managerial
resources and future prospects of the national bank.
(e) Rights of dissenting shareholders. Any shareholder of a bank
who has voted against an approved reorganization at the meeting
referred to in paragraph (d)(2)(iv) of this section, or who has given
notice of dissent in writing to the presiding officer at or prior to
that meeting, is entitled to receive the value of his or her shares by
providing a written request to the bank within 30 days after the
consummation of the reorganization, as provided by section 3 of the
National Bank Consolidation and Merger Act, 12 U.S.C. 215a(b) and (c),
for the merger of a national bank.
(f) Approval under the Bank Holding Company Act. This section does
not affect the applicability of the Bank Holding Company Act of 1956.
Applicants shall indicate in their application the status of any
application required to be filed with the Board of Governors of the
Federal Reserve System.
(g) Expiration of approval. Approval expires if a national bank has
not completed the reorganization within one year of the date of
approval.
(h) Adequacy of disclosure. (1) An applicant shall inform
shareholders of all material aspects of a reorganization and comply
with applicable requirements of the Federal securities laws and the
OCC's securities regulations at 12 CFR part 11.
(2) Any applicant not subject to the registration provisions of the
Securities Exchange Act of 1934 shall submit the proxy materials or
information statements it uses in connection with the reorganization to
the appropriate district office no later than when the materials are
sent to the shareholders.
6. In Sec. 5.33:
A. Paragraph (a) is revised;
B. Paragraph (b) is redesignated as paragraph (c), paragraph (c) is
redesignated as paragraph (b), newly redesignated paragraph (b) is
revised and a sentence is added at the end of newly redesignated
paragraph (c);
C. Paragraphs (d)(1), (d)(2), (d)(3), and (d)(4) are redesignated
as paragraphs (d)(2), (d)(3), (d)(6), and (d)(7), respectively; newly
designated paragraph (d)(2) is revised; and new paragraphs (d)(1),
(d)(4), (d)(5), and (d)(8) are added;
D. New paragraph (e)(1)(v) is added;
E. Paragraph (e)(3)(ii) is revised;
F. The second sentence of paragraph (f)(1) is revised and two new
sentences are added at the end;
G. New paragraphs (g)(4) and (g)(5) are added;
H. At the end of paragraph (j)(1)(ii), remove the term ``or'';
I. At the end of paragraph (j)(1)(iii), remove ``.'' and add ``;
or''; and
J. New paragraph (j)(1)(iv) is added to read as follows:
Sec. 5.33 Business combinations.
(a) Authority. 12 U.S.C. 24(Seventh), 93a, 181, 214a, 214b, 215,
215a, 215a-1, 215a-3, 215c, 1815(d)(3), 1828(c), 1831u, and 2903.
(b) Scope. This section sets forth the provisions governing
business combinations and the standards for:
(1) OCC review and approval of an application for a business
combination between a national bank and another depository institution
resulting in a national bank or between a national bank and one of its
nonbank affiliates; and
(2) Requirements of notices and other procedures for national banks
involved in other combinations with depository institutions.
(c) Licensing requirements. * * * A national bank shall submit an
application and obtain prior OCC approval for any merger between the
national bank and one or more of its nonbank affiliates.
(d) Definitions--(1) Bank means any national bank or any state
bank.
(2) Business combination means any merger or consolidation between
a national bank and one or more depository institutions in which the
resulting institution is a national bank, the acquisition by a national
bank of all, or substantially all, of the assets of another depository
institution, the assumption by a national bank of deposit liabilities
of another depository institution, or a merger between a national bank
and one or more of its nonbank affiliates.
* * * * *
(4) Company means a corporation, limited liability company,
partnership, business trust, association, or similar organization.
(5) For business combinations under Sec. Sec. 5.33(g)(4) and (5),
a company or shareholder is deemed to control another company if:
(i) Such company or shareholder, directly or indirectly, or acting
through one or more other persons owns, controls, or has power to vote
25 per cent or more of any class of voting securities of the other
company, or
(ii) such company or shareholder controls in any manner the
election of a majority of the directors or trustees of the other
company. No company shall be deemed to own or control another company
by virtue of its ownership or control of shares in a fiduciary
capacity.
* * * * *
(8) Nonbank affiliate of a national bank means any company (other
than a bank or Federal savings association) that controls, is
controlled by, or is under common control with the national bank.
(e) * * *
(1) * * *
(v) The OCC considers the effectiveness of any insured depository
institution involved in the business combination in combating money
laundering activities, including in overseas branches.
* * * * *
(3) * * *
(ii) An applicant proposing to acquire, through a business
combination, a subsidiary of any entity other than a national bank must
provide the same information and analysis of the subsidiary's
activities that would be required if the applicant were establishing
the subsidiary pursuant to 12 CFR Sec. Sec. 5.34 or 5.39.
* * * * *
(f) Exceptions to rules of general applicability. (1) National bank
applicant. * * * A national bank applicant shall follow, as applicable,
the public notice requirements contained in 12 U.S.C. 1828(c)(3)
(business combinations), 12 U.S.C. 215(a) (consolidation under a
national bank charter), 12 U.S.C. 215a(a)(2) (merger under a national
bank charter), paragraph (g)(2) of this section (merger or
consolidation with a Federal savings association resulting in a
national bank), paragraph (g)(4) of this section (merger with a nonbank
affiliate under a national bank charter), and paragraph (g)(5) (merger
with nonbank affiliate not under national bank charter). Sections 5.10
and 5.11 ordinarily do not apply to mergers of a national bank with its
nonbank affiliate. However, if the OCC concludes that an application
presents significant and novel policy, supervisory, or legal issues,
the OCC may determine that some or all provisions in Sec. Sec. 5.10
and 5.11 apply.
* * * * *
(g) * * *
(4) Mergers of a national bank with its nonbank affiliates under 12
U.S.C. 215a-3 resulting in a national bank--(i) With the approval of
the OCC, a national bank may merge with one or more of its nonbank
affiliates, with the national bank as the resulting
[[Page 6375]]
institution, in accordance with the provisions of this paragraph,
provided that the law of the state or other jurisdiction under which
the nonbank affiliate is organized allows the nonbank affiliate to
engage in such mergers.
(ii) A national bank entering into the merger shall follow the
procedures of 12 U.S.C. 215a, as if the nonbank affiliate were a state
bank, except as otherwise provided herein.
(iii) A nonbank affiliate entering into the merger shall follow the
procedures for such mergers set out in the law of the state or other
jurisdiction under which the nonbank affiliate is organized.
(iv) The rights of dissenting shareholders and appraisal of
dissenters' shares of stock in the nonbank affiliate entering into the
merger shall be determined in the manner prescribed by the law of the
state or other jurisdiction under which the nonbank affiliate is
organized.
(v) The corporate existence of each institution participating in
the merger shall be continued in the resulting national bank, and all
the rights, franchises, property, appointments, liabilities, and other
interests of the participating institutions shall be transferred to the
resulting national bank, as set forth in 12 U.S.C. 215a(a), (e), and
(f) in the same manner and to the same extent as in a merger between a
national bank and a state bank under 12 U.S.C. 215a(a), as if the
nonbank affiliate were a state bank.
(5) Mergers of an uninsured national bank with its nonbank
affiliates under 12 U.S.C. 215a-3 resulting in a nonbank affiliate--(i)
With the approval of the OCC, a national bank that is not an insured
bank as defined in 12 U.S.C. 1813(h) may merge with one or more of its
nonbank affiliates, with the nonbank affiliate as the resulting entity,
in accordance with the provisions of this paragraph, provided that the
law of the state or other jurisdiction under which the nonbank
affiliate is organized allows the nonbank affiliate to engage in such
mergers.
(ii) A national bank entering into the merger shall follow the
procedures of 12 U.S.C. 214a, as if the nonbank affiliate were a state
bank, except as otherwise provided in this section.
(iii) A nonbank affiliate entering into the merger shall follow the
procedures for such mergers set out in the law of the state or other
jurisdiction under which the nonbank affiliate is organized.
(iv)(A) National bank shareholders who dissent from an approved
plan to merge may receive in cash the value of their national bank
shares if they comply with the requirements of 12 U.S.C. 214a as if the
nonbank affiliate were a state bank. The OCC may conduct an appraisal
or reappraisal of dissenters' shares of stock in a national bank
involved in the merger if all parties agree that the determination is
final and binding on each party and agree on how the total expenses of
the OCC in making the appraisal will be divided among the parties and
paid to the OCC.
(B) The rights of dissenting shareholders and appraisal of
dissenters' shares of stock in the nonbank affiliate involved in the
merger shall be determined in the manner prescribed by the law of the
state or other jurisdiction under which the nonbank affiliate is
organized.
(v) The corporate existence of each entity participating in the
merger shall be continued in the resulting nonbank affiliate, and all
the rights, franchises, property, appointments, liabilities, and other
interests of the participating national bank shall be transferred to
the resulting nonbank affiliate as set forth in 12 U.S.C. 214b, in the
same manner and to the same extent as in a merger between a national
bank and a state bank under 12 U.S.C. 214a, as if the nonbank affiliate
were a state bank.
* * * * *
(j) * * *
(1) * * *
(iv) In the case of a transaction under paragraph (g)(4) of this
section, the acquiring bank is an eligible bank, the resulting national
bank will be well capitalized immediately following consummation of the
transaction, the applicants in a prefiling communication request and
obtain approval from the appropriate district office to use the
streamlined application, and the total assets acquired do not exceed 10
percent of the total assets of the acquiring national bank, as reported
in the bank's Consolidated Report of Condition and Income filed for the
quarter immediately preceding the filing of the application.
* * * * *
7. In 5.34, paragraph (e)(5)(v)(L) is revised to read as follows:
Sec. 5.34 Operating subsidiaries.
* * * * *
(e) * * *
(5) * * *
(v) * * *
(L) Underwriting and reinsuring credit related insurance to the
extent permitted under section 302 of the GLBA (15 U.S.C. 6712).
* * * * *
PART 6--PROMPT CORRECTIVE ACTION
8. The authority citation for part 6 continues to read as follows:
Authority: 12 U.S.C. 93a, 1831o.
Subpart A--Capital Categories
9. In Sec. 6.4, paragraphs (c)(1)(i) and (ii) are revised to read
as follows:
Sec. 6.4 Capital measures and capital category definitions.
* * * * *
(c) * * *
(1) * * *
(i) Maintains the pledge of assets required under 12 CFR 347.210;
and
(ii) Maintains the eligible assets prescribed under 12 CFR 347.211
at 108 percent or more of the preceding quarter's average book value of
the insured branch's third-party liabilities; and
* * * * *
PART 7--BANK ACTIVITIES AND OPERATIONS
10. The authority citation for part 7 is revised to read as
follows:
Authority: 12 U.S.C. 1 et seq., 71, 71a, 92, 92a, 93, 93a, 481,
484, 1818.
Subpart A--Bank Powers
11. Section 7.1008 is revised to read as follows:
Sec. 7.1008 Preparing income tax returns for customers or public.
A national bank may assist its customers in preparing their tax
returns, either gratuitously or for a fee.
12. In Sec. 7.1016(a), footnote 30 is redesignated as footnote 1.
Subpart B--Corporate Practices
13. A new Sec. 7.2024 is added to read as follows:
Sec. 7.2024 Staggered terms for national bank directors and size of
bank board.
(a) Staggered terms. Any national bank may adopt bylaws that
provide for staggering the terms of its directors. National banks shall
provide the OCC with copies of any bylaws so amended.
(b) Maximum term. Any national bank director may hold office for a
term that does not exceed three years.
(c) Number of directors. A national bank's board of directors shall
consist of no fewer than 5 and no more than 25 members. A national bank
may, after notice to the OCC, increase the size of its board of
directors above the twenty-five member limit. A national bank seeking
to increase the number of its directors must notify the OCC any time
[[Page 6376]]
the proposed size would exceed 25 directors. The bank's notice shall
specify the reason(s) for the increase in the size of the board of
directors beyond the statutory limit.
Subpart D--Preemption
14. In Sec. 7.4000:
A. Paragraphs (a)(3)(i) and (a)(3)(ii) are added; and
B. Paragraph (b) is revised to read as follows:
Sec. 7.4000 Visitorial powers.
(a) * * *
(3)(i) Unless otherwise provided by Federal law, the OCC has
exclusive visitorial authority with respect to activities expressly
authorized or recognized as permissible for national banks under
Federal law or regulation, or by OCC issuance or interpretation,
including the content of those activities and the manner in which, and
standards whereby, those activities are conducted.
(ii) The question of whether the OCC possesses the exclusive
visitorial authority to assess the applicability of a state law to a
national bank, and determine and enforce compliance with that law,
shall be determined exclusively by Federal law, including 12 U.S.C. 484
and this Sec. 7.4000.
(b) Exceptions to the general rule. Under 12 U.S.C. 484, the OCC's
exclusive visitorial powers are subject to the following exceptions:
(1) Exceptions authorized by Federal law. National banks are
subject to such visitorial powers as are provided by Federal law.
Examples of laws vesting visitorial power in other governmental
entities include laws authorizing state or other Federal officials to:
(i) Inspect the list of shareholders, provided that the official is
authorized to assess taxes under state authority (12 U.S.C. 62; this
section also authorizes inspection of the shareholder list by
shareholders and creditors of a national bank);
(ii) Review at reasonable times and upon reasonable notice to a
bank, the bank's records solely to ensure compliance with applicable
state unclaimed property or escheat laws upon reasonable cause to
believe that the bank has failed to comply with those laws (12 U.S.C.
484(b));
(iii) Verify payroll records for unemployment compensation purposes
(26 U.S.C. 3505(c));
(iv) Ascertain the correctness of Federal tax returns (26 U.S.C.
7602);
(v) Enforce the Fair Labor Standards Act (29 U.S.C. 211); and
(vi) Functionally regulate certain activities, as provided under
the Gramm-Leach-Bliley Act, Pub. L. 106-102, 113 Stat. 1338 (Nov. 12,
1999).
(2) Exception for courts of justice. National banks are subject to
such visitorial powers as are vested in the courts of justice to issue
orders or writs compelling the production of information or witnesses.
This exception does not authorize state or other governmental entities
to inspect, regulate, or supervise the activities of national banks, or
to compel production of information or adherence to restrictions or
requirements concerning the content of those activities or the manner
in which, or standards whereby, those activities are conducted.
(3) Exception for Congress. National banks are subject to such
visitorial powers as shall be, or have been, exercised or directed by
Congress or by either House thereof or by any committee of Congress or
of either House duly authorized.
* * * * *
PART 9--FIDUCIARY ACTIVITIES OF NATIONAL BANKS
15. The authority citation for part 9 continues to read as follows:
Authority: 12 U.S.C. 24 (Seventh), 92a, and 93a; 15 U.S.C. 78q,
78q-1, and 78w.
16. In Sec. 9.18, paragraph (b)(4)(i) is revised to read as
follows:
Sec. 9.18 Collective investment funds.
* * * * *
(b) * * *
(4) Valuation--(i) Frequency of valuation. A bank administering a
collective investment fund shall determine the value of the fund's
readily marketable assets at least once every three months. A bank
shall determine the value of the fund's assets that are not readily
marketable at least once a year.
* * * * *
17. In Sec. 9.20, amend paragraph (b), by removing the term
``240.17Ad-16'' and adding in its place the term ``240.17Ad-17.''
PART 28--INTERNATIONAL BANKING ACTIVITIES
18. The authority citation for part 28 continues to read as
follows:
Authority: 12 U.S.C. 1 et seq., 24(Seventh), 93a, 161, 602,
1818, 3101 et seq., and 3901 et seq.
Subpart B--Federal Branches and Agencies of Foreign Banks
19. In Sec. 28.16, amend paragraph (e), by removing the term ``12
CFR 346.7'' and adding in its place the term ``12 CFR 347.207.''
PART 34--REAL ESTATE LENDING AND APPRAISALS
Subpart A--General
20. The authority citation for part 34 continues to read as
follows:
Authority: 12 U.S.C. 1 et seq., 29, 93a, 371, 1701j-3, 1828(o),
and 3331 et seq.
21. Section 34.3 is revised to read as follows:
Sec. 34.3 General rule.
(a) A national bank may make, arrange, purchase, or sell loans or
extensions of credit, or interests therein, that are secured by liens
on, or interests in, real estate (``real estate loans''), subject to 12
U.S.C. 1828(o) and such restrictions and requirements as the
Comptroller of the Currency may prescribe by regulation or order.
Dated: January 27, 2003.
John D. Hawke, Jr.,
Comptroller of the Currency.
[FR Doc. 03-2641 Filed 2-6-03; 8:45 am]
BILLING CODE 4810-33-P