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/ December
/ Wednesday, December 17, 2003
[Federal Register: December 17, 2003 (Volume 68, Number 242)]
[Rules and Regulations]
[Page 70122-70131]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17de03-2]
[[Page 70122]]
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Parts 3, 5, 6, 7, 9, 28, and 34
[Docket No. 03-24]
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: Final rule.
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SUMMARY: The Office of the Comptroller of the Currency (OCC) is
publishing a final rule implementing 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 addition, the rule amends parts 5, 7, 9,
and 34, for other purposes and makes several technical corrections.
EFFECTIVE DATE: January 16, 2004.
FOR FURTHER INFORMATION CONTACT: For questions concerning 12 CFR 5.20,
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 12 CFR 5.32, contact Mark Ginsberg, Senior Licensing
Analyst, Licensing Policy and Systems Division, (202) 874-5060; or
Andra Shuster, Counsel, Legislative and Regulatory Activities Division,
(202) 874-5090. For questions concerning 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 12 CFR 7.2024, contact Andra Shuster,
Counsel, Legislative and Regulatory Activities Division, (202) 874-
5090. For questions concerning 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: On February 7, 2003, the OCC published a
notice of proposed rulemaking in the Federal Register (68 FR 6363) to
implement the AHEOA and clarify our visitorial powers regulations
(NPRM). In addition, we proposed to amend (1) 12 CFR part 5 concerning
limited-purpose banks, factors to be considered in business
combinations, and operating subsidiary activities eligible for after-
the-fact notice requirements; (2) 12 CFR part 7 concerning national
banks' ability to provide tax advice; (3) 12 CFR part 9 concerning the
valuation of collective investment funds; and (4) 12 CFR part 34 to
update regulatory text to conform to a statutory change. Various
technical changes to correct citations or footnote numbering were also
part of the NPRM.
The OCC received a total of 55 comments on the NPRM. Of this
number, 34 addressed the parts of the proposal that implemented the
AHEOA provisions and amended 12 CFR parts 5, 7, 9, and 34. These
comments included two from bank holding companies, four from banking
trade associations, one from a community trade association, one from a
non-profit consumer group, one from a bank supervisors' trade
association, and 25 from state bank supervisors' offices. While many of
the commenters supported the proposed changes, many offered suggestions
for changes. For the reasons discussed below, we have adopted the
provisions of the NPRM with a number of changes in response to the
comments received to clarify certain provisions.
Many of the comments we received on the proposal also addressed the
revision to our visitorial powers regulation. A number of these
comments contained thoughtful and detailed arguments that we will
address in a rulemaking to be published separately in the Federal
Register.
I. 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.
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\1\ The term ``state bank'' is defined by the statute 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.
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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).
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\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).
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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.
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\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).
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This final rule contains amendments to 12 CFR parts 5 and 7 to
implement these changes made by the AHEOA.
B. Description of the Proposal, Comments Received, and Final Rule
1. Reorganization into a Holding Company Subsidiary--New Sec. 5.32
Pursuant to section 1204 of the AHEOA, 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.
Proposed new Sec. 5.32 implemented this provision. Paragraph (a)
stated the authority for engaging in section 1204 transactions.
Paragraph (b) repeated the scope of the statute and provided that Sec.
5.32 applies to a reorganization of a
[[Page 70123]]
national bank into a subsidiary of a bank holding company or of a
company that will become a bank holding company through the
reorganization. In order to clarify the types of entities that would be
covered under this section, we have added a sentence at the end of
paragraph (b) that states that, for purposes of Sec. 5.32, ``bank
holding company'' means any company that owns or controls a national
bank, or will own or control one as a result of the reorganization.
Thus, the term ``bank holding company'' is not limited to companies
that would be bank holding companies under the definition of the term
in the Bank Holding Company Act of 1956 (BHCA).
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 section 1204 reorganization. Paragraph (d) described
the procedural requirements for this type of transaction. In accordance
with proposed Sec. 5.32(d)(1), the application is 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. A few commenters
recommended that the OCC give national banks notice that an application
has been received and is complete to verify that the application is in
process and to ensure that all parties know when the 30-day time period
starts to run. We have not revised the proposal in response to this
suggestion, however, because our standard application procedure
includes sending out an acknowledgment letter that will provide the
information the commenters requested.
These same commenters also suggested that the OCC provide banks
with guidance regarding the type of changes to the business plan that
would be material. The OCC has developed a policy addressing the
circumstances that constitute a ``significant deviation'' from a
national bank's existing business plan or operations and circumstances
under which we will impose a written condition requiring a bank to
provide notice of any significant deviation. This ``OCC Significant
Deviation Policy'' is posted on our website as a sample to the Charters
Booklet of the Comptroller's Licensing Manual.\6\ We expect that this
policy will provide the guidance commenters are seeking with respect to
the changes we think should prompt the notice required by Sec. 5.32.
In order to make the final rule consistent with this Policy, we have
changed the references to ``material change'' in the proposal to
``significant deviation.''
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\6\ This policy can be found on the OCC's Web site at http://www.occ.treas.gov/corpbook/forms/SigDevPolicy8-03.pdf.
The policy
defines a significant deviation from a bank;s business plan or
operations to include, but not be limited to, a material deviation
or material change in the bank's: (1) Projected growth, such as
planning significant growth in a product or service; (2) strategy or
philosophy, such as significantly reducing the emphasis of its
targeted niche (for example, small business lending) in favor of
significant expansion of another area (for example, funding large
commercial real estate projects); (3) lines of business, such as
intiating a new program for sub-prime lending; (4) funding sources
such as shifting from core deposits to brokered deposits; (5) scope
of activities, such as establishing transactional Internet banking
or entering new, untested markets; (6) stock benefit plans for de
novo banks, including the introduction of plans that were not
previously reviewed during the chartering process with no objection
by the OCC; and (7) relationships with a parent company or
affiliate, such as a shift to signficant reliance on a parent or
affiliate as a funding source or provider of back office support.
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Paragraph (d)(2) of proposed Sec. 5.32 implemented 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;\7\ 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 required that at least
two-thirds of the bank's shareholders approve a reorganization.
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\7\ 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.
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Paragraph (d)(3) of proposed Sec. 5.32 provided that the OCC will
review the financial and managerial resources and future prospects of
the national bank when considering a section 1204 reorganization.
Proposed Sec. 5.32(e) provided dissenters' rights protections for
section 1204 reorganizations. As provided in the Merger Act, this
paragraph would permit 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 stated that Sec. 5.32 does not
affect the applicability of the 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.
Proposed paragraph (g) of Sec. 5.32 stated that 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. A commenter suggested that the OCC incorporate flexibility
into this provision for complicated transactions that may take longer
than one year to complete by permitting banks to apply for a waiver of
this restriction. We do not think it is necessary to amend the
regulation to establish a formal waiver process, but we will evaluate
the need for an extension of the standard time frame on a case-by-case
basis in accordance with 5.13(g).\8\
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\8\ This section provides that the OCC generally does not grant
extensions unless the delay is beyond the control of the applicant.
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Finally, proposed paragraph (h)(1) stated 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) stated 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.
We received no comments regarding proposed Sec. 5.32 other than
those we have discussed. Accordingly, we are adopting this provision as
proposed with the changes just described.
2. Section 1206 Mergers--Revised Sec. 5.33
Section 1206 of the AHEOA provided new authority for a national
bank to merge with one or more of its nonbank affiliates, subject to
the OCC's approval.
[[Page 70124]]
Current Sec. 5.33 sets forth application and notice procedures for
national banks entering into business combinations, such as mergers or
consolidations, with other national banks or state-chartered banks, as
well as OCC review and approval standards for such transactions. The
proposal contained amendments to Sec. 5.33 to include Section 1206
Mergers within its scope.
The proposal added 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 were 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 amended the definition of ``business
combination'' to include Section 1206 Mergers, but left the definitions
of the other three terms unchanged.
Proposed Sec. 5.33(d)(1) added a definition of ``bank'' and
defined it as any national bank or state bank. This definition was
added because the term is used in the definition for ``nonbank
affiliate.''
Proposed Sec. 5.33(d)(4) defined the term ``company'' to mean a
corporation, limited liability company, partnership, business trust,
association, or similar organization. This term was proposed to be
added because it is used in the definition of ``nonbank affiliate'' and
``control.''
Proposed Sec. 5.33(d)(5) defined ``control,'' which is used in the
definition of ``nonbank affiliate.'' Under the proposal, for business
combinations under Sec. 5.33(g)(4) and (5), a company or shareholder
would 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
added the definition of ``nonbank affiliate'' to describe the entities
that are covered by section 1206. Proposed Sec. 5.33(d)(8) defined
``nonbank affiliate'' of a national bank as any company that controls,
is controlled by, or is under common control with the national bank.
Banks and Federal savings associations were not included as
``affiliates'' because mergers with such entities are governed by
statutes other than section 1206. Nonbank subsidiaries would be
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 modified
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. 5.8(a),
(b), or (c), which requires, and prescribes 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 proposed to amend Sec. 5.33(f)(1)
by adding references to the special procedures to be followed in
Section 1206 Mergers. We did not receive any comments on the foregoing
provisions and, therefore, we adopt them as proposed.
In addition, we proposed 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 reserved 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.
A few commenters urged the OCC to make the provisions in Sec. Sec.
5.10 and 5.11 applicable to all Section 1206 Mergers either because
this type of merger is unprecedented and likely to raise many important
issues or because these mergers would result in arbitrary or uneven
application of the Community Reinvestment Act (CRA)\9\ and fair lending
laws. For several reasons we decline to adopt the commenters'
suggestion to impose a notice requirement in every Section 1206 Merger.
First, if an insured national bank is involved in the merger, FDIC
approval is required under the Bank Merger Act.\10\ That approval
requires publication of notice and provides for public comment. Second,
where the national bank involved in the merger is uninsured, such as a
trust bank, the OCC may determine on a case-by-case basis that an
application presents significant and novel policy, supervisory, or
legal issues and that public notice is, therefore, warranted. This
standard covers the situations identified by commenters as appropriate
for notice and hearings. Evaluating the need for public notice, or a
hearing, on a case-by-case basis also avoids unnecessary burdens. In
addition, we note that CRA is not applicable to transactions where no
deposit facility is being acquired. Therefore, we decline the
commenters' suggestion to impose a notice requirement in every Section
1206 Merger.
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\9\ 12 U.S.C. 2901 et seq.
\10\ 12 U.S.C. 1828(c).
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Finally, we proposed 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. No comments were received on these
provisions. For the reasons discussed above, we adopt Sec. 5.33(f) as
proposed.
The proposal also added 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) stated 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 nonbank affiliate to engage in such
mergers. This section also required a national bank to obtain the OCC's
approval.
One commenter suggested that we modify the regulation to specify
that a merger between an insured national bank and its nonbank
affiliate must
[[Page 70125]]
receive prior approval by the FDIC. As noted above, if the national
bank involved is insured, the transaction is also subject to approval
by the FDIC under the Bank Merger Act. For purposes of clarification,
we have added this language to the final rule. In addition, we have
also added language stating that in determining whether to approve a
merger under this section, the OCC will consider the purpose of the
transaction, its impact on the safety and soundness of the bank, and
any effect on the bank's customers. The OCC may deny the merger if it
would have a negative effect on any of these factors.
A few commenters questioned the OCC's decision to condition the
merger of a nonbank affiliate on whether the law of the state or other
jurisdiction under which the affiliate is organized permits the
affiliate to participate in such a merger. These commenters contended
that there is no such requirement in the statute and that this
condition encourages states to discriminate against national banks by
enacting laws that prohibit this type of merger. One commenter
suggested that this requirement be revised to permit the merger where
the state's law permits a merger between the nonbank affiliate and any
other body corporate. We believe the language of the proposal as
drafted already achieves this result. The proposal required only that
the state statute permit such a merger. As long as this is the case,
the state statute providing merger authority need not specifically
mention national banks. For these reasons, the state law provision is
retained in the final rule.
Proposed Sec. 5.33(g)(4)(ii) stated 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 applied 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. We
received no comments on this provision and, therefore, adopt it as
proposed.
Proposed Sec. 5.33(g)(4)(iii) stated 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. Two commenters disagreed with the use of state law
procedures for mergers of a nonbank affiliate into a national bank. One
commenter contended that there is no such requirement in the statute
and that it has the effect of requiring the national bank to follow
both state and Federal law, which may be in conflict. We note, however,
that in a merger of a state bank into a national bank, the state bank
follows the procedures for mergers in state law. Proposed Sec.
5.33(g)(4)(iii) simply treats nonbank affiliates the same as state
banks by requiring them to follow the procedures contained in the law
of the state in which they are incorporated. We believe that this
similarity of treatment is appropriate and, therefore, have adopted
this provision as proposed.
Proposed Sec. 5.33(g)(4)(iv) stated 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. We received no comments suggesting changes to this section
of the proposed rule and have, therefore, adopted it as proposed.
Proposed Sec. 5.33(g)(4)(v) of the proposal stated 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 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. A few commenters suggested
that this provision state that a national bank resulting from a merger
with a nonbank affiliate may not exercise any power or engage in any
activity that would not be permissible for a national bank under
applicable provisions of Federal law other than section 215a-3. We note
that this language is already set forth specifically in the statute at
12 U.S.C. 215a-3(b)(2). In addition, current Sec. 5.33(e)(5) states
that the OCC generally requires a national bank to discontinue
nonconforming activities within a reasonable time following a business
combination. This provision would be applicable to transactions under
Sec. 5.33(g)(4). Because the statute and our rules already address
this point, we believe no further clarification is required, and we
have adopted the provision as proposed.
The proposal also added a new Sec. 5.33(g)(5), which addressed
section 1206 Mergers of uninsured national banks with their nonbank
affiliates when the resulting entity is a nonbank affiliate. The
proposal limited 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) stated 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 provided that an uninsured national bank must obtain
the OCC's approval for the transaction. As was done in Sec.
5.33(g)(4)(i), we have added language to the final rule in Sec.
5.33(g)(5)(i) stating that the OCC will consider the purpose of the
transaction, its impact on the safety and soundness of the bank, and
any effect on the bank's customers. The OCC may deny the merger if it
would have a negative effect on any of these factors.
Proposed Sec. 5.33(g)(5)(ii) stated 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) stated 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 stated 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. That section
also stated that 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 proposal provided
that rights of
[[Page 70126]]
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. We received no comments on these provisions and adopt them
as proposed.
Proposed Sec. 5.33(g)(5)(v) stated 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. A number of
commenters suggested that we clarify that where the surviving entity is
a nonbank affiliate, it does not succeed to any of the powers of the
national bank, and that the national bank and its powers cease to
exist. We agree that a national bank ceases to exist following
consummation of a section 1206 Merger and that a surviving nonbank
affiliate will not be permitted to exercise powers of the former
national bank except to the extent permitted under state law or other
law applicable to the resulting nonbank affiliate. The wording of the
regulation does not say otherwise, however and in our view it is
important to be clear that the surviving nonbank affiliate does enjoy
corporate succession to the corporate rights, franchises, property,
appointments, liabilities, and other interests of the former national
bank. This is the same result as when a national bank merges into a
state bank under 12 U.S.C. 214a and 214b. We do not believe that any
change to the regulation is necessary by virtue of these comments and
adopt this provision as proposed.
Finally, the proposal added 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. We received no
comments on this provision and adopt it as proposed.
3. National Bank Directors--Sec. 7.2024 (new)
Section 1205 of the AHEOA amended section 5145 of the Revised
Statutes of the United States (12 U.S.C. 71) and section 31 of 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 added 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) increased the permissible maximum
term of national bank directors from one year to three years. Finally,
paragraph (c) provided 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. We
received two comments on this provision, both of which supported the
proposal. Accordingly, we adopt it as proposed.
II. Additional Changes to Parts 5, 7, 9, and 34
A. Part 5 Amendments
The final rule also revised three other provisions in part 5 of our
regulations. Section 5.20 of our regulations contains the requirements
that govern the organization of a national bank. The proposal amended
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 proposed change was to clarify that a limited
purpose national bank may exist with respect to activities other than
fiduciary activities, provided the activities in question are part of
the business of banking. Some commenters expressed concern that this
provision was too broad and that the expansion of the limited purpose
charter had the potential to exclude from state oversight entities
conducting activities only loosely related to banking. We agree that it
is appropriate to provide further clarification of the scope of
activities permissible for a limited purpose national bank, and we have
amended this provision to require limited purpose national banks to
conduct at least one of the following core banking functions: (1)
Receiving deposits; (2) paying checks; or (3) lending money. These
functions are based on 12 U.S.C. 36, which identifies activities that
cause a facility to be considered a bank branch.
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 and the CRA. As part of the USA PATRIOT Act,\11\ Congress amended
the Bank Merger Act by adding a 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.\12\ The proposal conformed our regulations with the statute
by adding the factor at Sec. 5.33(e)(1)(v).
---------------------------------------------------------------------------
\11\ Pub. L. 107-56, 115 Stat. 272 (Oct. 26, 2001).
\12\ 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).
---------------------------------------------------------------------------
Finally, 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. Since the list was last revised, the
OCC has determined, in Corporate Decision 2001-10 (April 23, 2001) and
Corporate Decision 2000-16 (August 29, 2000), that credit-related
reinsurance products satisfy GLBA section 302's statutory requirements
and are ``authorized products.'' The proposal therefore amended 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.
We received no comments on these proposed changes to Sec. Sec.
5.33(e) or 5.34(e) and therefore adopt these changes as proposed.
[[Page 70127]]
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 deleted as outdated the prohibition against
serving as an expert tax consultant that currently appears at Sec.
7.1008.\13\ We received no comments regarding this change, and
therefore adopt it as proposed.
---------------------------------------------------------------------------
\13\ 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://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'' (i.e., funds that may be held pursuant to 12 CFR
9.18(a)(2) 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 proposed 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 must 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. We received
no comments regarding this change, and therefore adopt it as proposed.
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
subject 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 cross-
reference to 12 U.S.C. 1828(o) was added to the statute in 1991, but
the text of the regulation was never revised to reflect it. Thus, the
proposal updated the regulation to reflect that change to the
underlying statute. Other portions of the regulation remain
unchanged.\14\ We received no comments regarding this change, and
therefore adopt it as proposed.
---------------------------------------------------------------------------
\14\ We have proposed additional changes to part 34 in a
separate rulemaking that invites comment on changes to the
provisions governing preemption. See 68 FR 46119 (Aug. 5, 2003). The
comment period for that rulemaking closed October 6, 2003.
---------------------------------------------------------------------------
III. Technical Amendments
The proposal contained 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 corrected the citation.
Also in part 3 appendix A, section 4(a)(11)(ii), the references to
section 4(a)(8)(i) and (ii) were corrected to refer to section
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 amended 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 made 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, at 17 CFR 240.17Ad-17,
has been added, so the proposal changed 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 corrected this citation to refer to
the current rule for uninsured deposit notices, which can now be found
at 12 CFR 347.207.
We received no comments regarding these changes, and therefore
adopt them as proposed.
IV. Regulatory Analysis
CDRI Act Delayed Effective Date
This final rule takes effect 30 days after the date of its
publication in the Federal Register, consistent with the delayed
effective date requirement of the Administrative Procedure Act. See 5
U.S.C. 553(d). Section 302 of the Riegle Community Development and
Regulatory Improvement Act of 1994 (CDRI Act), 12 U.S.C. 4802(b),
provides that regulations that impose additional reporting, disclosure,
or other requirements on insured depository institutions may not take
effect before the first day of the quarter following publication unless
the agency finds that there is good cause to make the rule effective at
an earlier date. The regulations in this final rule provide procedures
to be used by national banks wishing to take advantage of the new
transactions or corporate governance options permitted by the AHEOA.
The regulations make it easier for national banks to exercise this new
statutory authority. Accordingly, the OCC finds that there is good
cause to dispense with the requirements of the CDRI Act.
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 final rule 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. 12 CFR 5.33(g)(5)
reduces burden by implementing a simpler way to
[[Page 70128]]
accomplish a merger of a national bank into one of its nonbank
affiliates. The amendments simply provide the OCC's implementation of
the AHEOA or make other technical changes to the rules to correct
existing errors or clarify various points. They 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 final rule 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, Public Law
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 this final 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 final rule are
contained in Sec. Sec. 5.32, 5.33, and 7.2024.
OMB has reviewed and approved the information collection
requirements 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: 24.
Estimated total burden hours: 5,580.
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.
Executive Order 13132
Executive Order 13132 (Order) 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. In the opinion of the OCC, this final
rule does not have Federalism implications.
List of Subjects
12 CFR Part 3
Administrative practice and procedure, National banks, Reporting
and recordkeeping requirements.
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
0
For the reasons set forth in the preamble, the OCC amends parts 3, 5,
6, 7, 9, 28, and 34 of chapter I of title 12 of the Code of Federal
Regulations as follows:
PART 3--MINIMUM CAPITAL RATIOS; ISSUANCE OF DIRECTIVES
0
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]
0
2. In appendix A to part 3:
0
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
0
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
0
3. The authority citation for part 5 is revised to read as follows:
[[Page 70129]]
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
0
4. In Sec. 5.20, add new second and third sentences 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. A special
purpose bank that conducts activities other than fiduciary activities
must conduct at least one of the following three core banking
functions: receiving deposits; paying checks; or lending money. * * *
* * * * *
Subpart C--Expansion of Activities
0
5. Add a new Sec. 5.32 to Subpart C 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. For purposes of
this section, a ``bank holding company'' means any company that owns or
controls a national bank, or will own or control one as a result of the
reorganization.
(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 significant deviation from
the bank's business plan or any significant deviation 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
(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, including
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.
0
6. In Sec. 5.33:
0
a. revise paragraph (a);
0
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);
0
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; revise
newly designated paragraph (d)(2); and add new paragraphs (d)(1),
(d)(4), (d)(5), and (d)(8);
0
d. add new paragraph (e)(1)(v);
0
e. revise paragraph (e)(3)(ii);
0
f. revise the second sentence of paragraph (f)(1) and add two new
sentences at the end of the paragraph;
0
g. add new paragraphs (g)(4) and (g)(5);
0
h. at the end of paragraph (j)(1)(ii), remove the term ``or'';
0
i. at the end of paragraph (j)(1)(iii), remove ``.'' and add ``; or'';
and
0
j. add new paragraph (j)(1)(iv) 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,
[[Page 70130]]
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. 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 percent 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) Money laundering. 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 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) of this
section (merger with nonbank affiliate not under national bank
charter). Sections 5.10 and 5.11 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 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. The
transaction is also subject to approval by the FDIC under the Bank
Merger Act, 12 U.S.C. 1828(c). In determining whether to approve the
merger, the OCC shall consider the purpose of the transaction, its
impact on the safety and soundness of the bank, and any effect on the
bank's customers, and may deny the merger if it would have a negative
effect in any such respect.
(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. In determining whether to approve the merger, the OCC shall
consider the purpose of the transaction, its impact on the safety and
soundness of the bank, and any effect on the bank's customers, and may
deny the merger if it would have a negative effect in any such respect.
(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
[[Page 70131]]
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.
* * * * *
0
7. In 5.34, revise paragraph (e)(5)(v)(L) 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
0
8. The authority citation for part 6 continues to read as follows:
Authority: 12 U.S.C. 93a, 1831o.
Subpart A--Capital Categories
0
9. In Sec. 6.4, revise paragraphs (c)(1)(i) and (ii) 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
0
10. Revise the authority citation for part 7 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
0
11. Revise Sec. 7.1008 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.
Sec. 7.1016 [Amended]
0
12. In Sec. 7.1016(a), redesignate footnote 30 as footnote 1.
Subpart B--Corporate Practices
0
13. Add a new Sec. 7.2024 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 25 member limit. A national bank seeking to
increase the number of its directors must notify the OCC any time 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.
PART 9--FIDUCIARY ACTIVITIES OF NATIONAL BANKS
0
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.
0
16. In Sec. 9.18, revise paragraph (b)(4)(i) 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.
* * * * *
0
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
0
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
0
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
0
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.
0
21. Revise Sec. 34.3 to read as follows:
Sec. 34.3 General rule.
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: October 17, 2003.
John D. Hawke, Jr.,
Comptroller of the Currency.
[FR Doc. 03-31093 Filed 12-16-03; 8:45 am]
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