Activities and Operations of National Banks and Federal Savings Associations

Citation85 FR 40794
Record Number2020-12435
Published date07 July 2020
CourtThe Comptroller Of The Currency Office
Federal Register, Volume 85 Issue 130 (Tuesday, July 7, 2020)
[Federal Register Volume 85, Number 130 (Tuesday, July 7, 2020)]
                [Proposed Rules]
                [Pages 40794-40827]
                From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
                [FR Doc No: 2020-12435]
                [[Page 40793]]
                Vol. 85
                Tuesday,
                No. 130
                July 7, 2020
                Part III
                Department of the Treasury
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                Office of the Comptroller of the Currency
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                12 CFR Parts 7, 145, 155, et al.
                Activities and Operations of National Banks and Federal Savings
                Associations; National Bank and Federal Savings Association Digital
                Activities; Proposed Rule
                Federal Register / Vol. 85, No. 130 / Tuesday, July 7, 2020 /
                Proposed Rules
                [[Page 40794]]
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                DEPARTMENT OF THE TREASURY
                Office of the Comptroller of the Currency
                12 CFR Parts 7, 145 and 160
                [Docket ID OCC-2020-0003]
                RIN 1557-AE74
                Activities and Operations of National Banks and Federal Savings
                Associations
                AGENCY: Office of the Comptroller of the Currency, Treasury.
                ACTION: Notice of proposed rulemaking.
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                SUMMARY: The Office of the Comptroller of the Currency is issuing a
                notice of proposed rulemaking to revise and reorganize its regulations
                relating to the activities and operations of national banks and Federal
                savings associations. This proposal would clarify and codify recent OCC
                interpretations, integrate certain regulations for national banks and
                Federal savings associations, and update or eliminate outdated
                regulatory requirements that no longer reflect the modern financial
                system.
                DATES: Comments must be received on or before August 3, 2020.
                ADDRESSES: Commenters are encouraged to submit comments through the
                Federal eRulemaking Portal or email, if possible. Please use the title
                ``Activities and Operations of National Banks and Federal Savings
                Associations'' to facilitate the organization and distribution of the
                comments. You may submit comments by any of the following methods:
                 Federal eRulemaking Portal--Regulations.gov Classic or
                Regulations.gov Beta Regulations.gov Classic: Go to https://www.regulations.gov/. Enter ``Docket ID OCC 2020-0003'' in the Search
                Box and click ``Search.'' Click on ``Comment Now'' to submit public
                comments. For help with submitting effective comments please click on
                ``View Commenter's Checklist.'' Click on the ``Help'' tab on the
                Regulations.gov home page to get information on using Regulations.gov,
                including instructions for submitting public comments.
                 Regulations.gov Beta: Go to https://beta.regulations.gov/ or click
                ``Visit New Regulations.gov Site'' from the Regulations.gov classic
                homepage. Enter ``Docket ID OCC-2020-0003'' in the Search Box and click
                ``Search.'' Public comments can be submitted via the ``Comment'' box
                below the displayed document information or click on the document title
                and click the ``Comment'' box on the top-left side of the screen. For
                help with submitting effective comments please click on ``Commenter's
                Checklist.'' For assistance with the Regulations.gov Beta site please
                call (877)-378-5457 (toll free) or (703) 454-9859 Monday-Friday, 9
                a.m.-5 p.m. ET or email to [email protected].
                 Email: [email protected].
                 Mail: Chief Counsel's Office, Attention: Comment
                Processing, Office of the Comptroller of the Currency, 400 7th Street
                SW, Suite 3E-218, Washington, DC 20219.
                 Hand Delivery/Courier: 400 7th Street SW, Suite 3E-218,
                Washington, DC 20219.
                 Fax: (571) 465-4326.
                 Instructions: You must include ``OCC'' as the agency name and
                ``Docket ID OCC-2020-0003'' in your comment. In general, the OCC will
                enter all comments received into the docket and publish the comments on
                the Regulations.gov website without change, including any business or
                personal information provided such as name and address information,
                email addresses, or phone numbers. Comments received, including
                attachments and other supporting materials, are part of the public
                record and subject to public disclosure. Do not include any information
                in your comment or supporting materials that you consider confidential
                or inappropriate for public disclosure.
                 You may review comments and other related materials that pertain to
                this rulemaking action by any of the following methods:
                 Viewing Comments Electronically--Regulations.gov Classic
                or Regulations.gov Beta:Regulations.gov Classic: Go to https://www.regulations.gov/. Enter ``Docket ID OCC-2020-0003'' in the Search
                box and click ``Search.'' Click on ``Open Docket Folder'' on the right
                side of the screen. Comments and supporting materials can be viewed and
                filtered by clicking on ``View all documents and comments in this
                docket'' and then using the filtering tools on the left side of the
                screen. Click on the ``Help'' tab on the Regulations.gov home page to
                get information on using Regulations.gov. The docket may be viewed
                after the close of the comment period in the same manner as during the
                comment period.
                 Regulations.gov Beta: Go to https://beta.regulations.gov/ or click
                ``Visit New Regulations.gov Site'' from the Regulations.gov classic
                homepage. Enter ``Docket ID OCC-2020-0003'' in the Search Box and click
                ``Search.'' Click on the ``Comments'' tab. Comments can be viewed and
                filtered by clicking on the ``Sort By'' drop-down on the right side of
                the screen or the ``Refine Results'' options on the left side of the
                screen. Supporting Materials can be viewed by clicking on the
                ``Documents'' tab and filtered by clicking on the ``Sort By'' drop-down
                on the right side of the screen or the ``Refine Results'' options on
                the left side of the screen.'' For assistance with the Regulations.gov
                Beta site please call (877)-378-5457 (toll free) or (703) 454-9859
                Monday-Friday, 9 a.m.-5 p.m. ET or email to
                [email protected].
                 The docket may be viewed after the close of the comment period in
                the same manner as during the comment period.
                FOR FURTHER INFORMATION CONTACT: Beth Kirby, Assistant Director,
                Valerie Song, Assistant Director, Heidi Thomas, Special Counsel, or
                Chris Rafferty, Attorney, Chief Counsel's Office, (202) 649-5490,
                Office of the Comptroller of the Currency, 400 7th Street SW,
                Washington, DC 20219. For persons who are deaf or hearing impaired,
                TTY, (202) 649-5597.
                SUPPLEMENTARY INFORMATION:
                I. Background
                 The Office of the Comptroller of the Currency (OCC) periodically
                reviews its regulations to eliminate outdated or otherwise unnecessary
                regulatory provisions and, where possible, to clarify or revise
                requirements imposed on national banks and Federal savings
                associations. These reviews are in addition to the OCC's decennial
                review of its regulations as required by the Economic Growth and
                Regulatory Paperwork Reduction Act (EGRPRA).\1\ These reviews also
                consider, where appropriate, opportunities to integrate rules that
                apply to national banks with similar rules that apply to Federal
                savings associations in light of the transfer to the OCC of all
                functions of the former Office of Thrift Supervision (OTS) relating to
                Federal savings association by Title III of the Dodd-
                [[Page 40795]]
                Frank Wall Street Reform and Consumer Protection Act.\2\
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                 \1\ Public Law 104-208 (1996), codified at 12 U.S.C. 3311(b).
                Section 2222 of EGRPRA requires that, at least once every 10 years,
                the OCC along with the other Federal banking agencies and the
                Federal Financial Institutions Examination Council (FFIEC) conduct a
                review of their regulations to identify outdated or otherwise
                unnecessary regulatory requirements imposed on insured depository
                institutions. Specifically, EGRPRA requires the agencies to
                categorize and publish their regulations for comment, eliminate
                unnecessary regulations to the extent that such action is
                appropriate, and submit a report to Congress summarizing their
                review. The agencies completed their second EGRPRA review on March
                2017 and published their report in the Federal Register. 82 FR 15900
                (March 30, 2017).
                 \2\ Public Law 111-203, 124 Stat. 1376 (2010) (transferring to
                the OCC all functions of the former OTS relating to Federal savings
                associations).
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                 As part of this process, the OCC is proposing to revise and
                reorganize subparts A through D of 12 CFR part 7, Activities and
                Operations. Specifically, the OCC is proposing new regulations or
                updates to existing regulations to address developing issues and
                industry practices and to clarify OCC interpretive positions. For
                example, proposed revisions to subpart A include new regulations
                covering tax equity finance transactions, derivatives activities, and
                payment system memberships. Proposed revisions to subpart B address
                corporate governance issues, such as expanding the ability of national
                banks to choose corporate governance provisions under State or other
                law, clarifying permissible anti-takeover provisions, and adding
                provisions relating to capital stock-related activities of national
                banks. The OCC also is proposing to update and integrate rules relating
                to bank hours and closings in subpart C and to update rules relating to
                loan production and deposit production offices and remote service units
                in subpart D and move these sections to subpart A to improve the
                organization of part 7.\3\ As a companion to this proposed rule, the
                OCC is separately issuing an Advance Notice of Proposed Rulemaking
                (ANPR), published elsewhere in this issue of the Federal Register as a
                separate document, that requests comment on subpart E of 12 CFR part 7
                and 12 CFR part 155, the OCC's rules on electronic banking activities.
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                 \3\ The OCC has separately proposed a rule that would amend 12
                CFR 7.4001. See 84 FR 64229 (Nov. 21, 2019) (Permissible Interest on
                Loans That Are Sold, Assigned, or Otherwise Transferred). The OCC
                also has issued an interim final rule that amends 12 CFR 7.1001 and
                7.1003. See 85 FR 31943 (May 28, 2020) (Director, Shareholder, and
                Member Meetings).
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                 The OCC also is proposing more general changes throughout part 7
                including removing outdated or superfluous regulations; consolidating
                related regulations into one section; and making various technical
                changes throughout part 7. In addition, the OCC is proposing to
                integrate a number of rules in part 7 to include Federal savings
                associations.
                 This proposed rule accompanies other OCC efforts to modernize OCC
                rules, remove unnecessary burden, and clarify requirements, including
                the proposed rule published in the Federal Register on April 2, 2020,
                which would amend requirements in 12 CFR part 5 for national banks and
                Federal savings associations that seek to engage in certain corporate
                transactions or activities.\4\
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                 \4\ 85 FR 18728.
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                II. Description of the Proposed Rule
                Subpart A--National Banks and Federal Savings Association Powers
                Activities That are Part of, or Incidental to, the Business of Banking
                (New Sec. 7.1000)
                 Section 7.5001 identifies the criteria that the OCC uses to
                determine whether an electronic activity is authorized for national
                banks as part of, or incidental to, the business of banking under 12
                U.S.C. 24(Seventh) or other statutory authority. While this section
                details those criteria in the context of electronic activities, the OCC
                uses these same criteria to determine whether any activity is part of,
                or incidental to, the business of banking. To confirm the broader
                applicability of the criteria listed in Sec. 7.5001, the OCC is
                proposing to remove the word ``electronic'' from this section and move
                Sec. 7.5001 to subpart A of part 7 as new Sec. 7.1000. As part of
                this move, the proposal would redesignate current Sec. 7.1000 as Sec.
                7.1024. These proposed changes would better organize OCC rules and
                clarify that the criteria of this new Sec. 7.1000 may apply to any
                potential national bank activity and not just those that are electronic
                in nature. The OCC believes that new Sec. 7.1000 belongs at the
                beginning of part 7 because it provides the framework for all national
                bank powers that follow in subpart A.
                 The OCC also proposes a technical change to Sec. 7.1000(c)(1).
                Specifically, the proposed rule would amend this provision to clarify
                that the four-factor test set forth in this section to determine
                activities authorized as part of the business of banking applies to
                activities not specifically included in 12 U.S.C. 24(Seventh) or other
                statutory authority. Activities that are specifically included in 12
                U.S.C. 24(Seventh) or other statutory authority are by express
                statutory language within the business of banking. This clarification
                reflects the OCC's long-standing use of the four-factor test to
                determine whether an activity not expressly included in a statute is
                within the business of banking.\5\
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                 \5\ The Supreme Court has held that the business of banking is
                not limited to the enumerated powers listed in 12 U.S.C. 24(Seventh)
                but encompasses more broadly activities that are part of or
                incidental to the business of banking. NationsBank of N.C., N.A. v.
                Variable Annuity Life Ins. Co., 513 U.S. 251, 258-60 (1995).
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                National Bank Acting as Finder (Sec. 7.1002)
                 The OCC is proposing a technical change to its finder regulation at
                Sec. 7.1002 and invites comment on the inclusion of Federal savings
                association finder activities in part 7. The OCC has long permitted a
                national bank to act as a finder to bring together buyers and sellers
                of financial and nonfinancial products and services.\6\ The OCC's
                regulations include two separate rules relating to permissible national
                bank finder activities. Section 7.1002, which codifies OCC interpretive
                letters, provides that finder activities are part of the business of
                banking.\7\ This section also describes permissible finder activities;
                provides an illustrative, non-exclusive list of permissible finder
                activities; clarifies that a national bank's finder authority does not
                allow it to engage in brokerage activities that have not been found to
                be permissible for national banks; and authorizes a national bank to
                advertise and accept fees for finder services unless otherwise
                prohibited by Federal law. Section 7.5002 provides that a national bank
                generally may perform, provide, or deliver through electronic means and
                facilities any activity, function, product, or service that is
                otherwise permissible. Section 7.5002(a)(1) clarifies that a national
                bank may act as electronic finders and includes a list of permissible
                electronic finder activities.\8\
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                 \6\ See, e.g., OCC Interpretive Letter No. 607 (Aug. 24, 1992).
                 \7\ See, e.g., OCC Interpretive Letter No. 824 (Feb. 27, 1998).
                 \8\ The OCC's ANPR on National Bank and Federal Savings
                Association Use of Digital Technology, published elsewhere in this
                issue of the Federal Register as a separate document, also requests
                comment on whether to add more examples to the electronic finder
                activities list in 12 CFR 7.5002(a)(1).
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                 The OCC is proposing to amend its regulations by adding a new
                paragraph (8) to Sec. 7.1002(b) that would cross-reference the
                permissible electronic finder activities listed in Sec. 7.5002(a)(1).
                This change would reference all examples of permissible finder
                activities for national banks in one rule.
                 While finder activities are part of the business of banking for a
                national bank, a Federal savings association may engage in a finder
                activity only to the extent that the activity is incidental to Federal
                savings association powers authorized under the Home Owners' Loan Act
                (HOLA) (12 U.S.C. 1461 et seq).\9\ The former OTS determined that,
                [[Page 40796]]
                if certain factors are met, a Federal savings association may collect
                fees for referring customers to third parties \10\ and may provide
                services and products to customers through a third-party discount
                program \11\ as activities incidental to their statutorily enumerated
                powers. The OCC also has recognized Federal savings association finder
                authority in its Retail Nondeposit Investment Products Booklet of the
                Comptroller's Handbook.\12\
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                 \9\ The OCC and the predecessor agencies previously responsible
                for the supervision of Federal savings associations ``have long
                recognized that federal savings associations possess `incidental'
                powers, i.e., powers that are incident to the express powers of
                federal savings associations as set forth in the Home Owners' Loan
                Act.'' OTS Op. Acting Ch. Couns. at 3 (Mar. 25, 1994).
                 \10\ OTS Op. Ch. Couns. (May 5, 2000).
                 \11\ OTS Op. Ch. Couns. (Aug. 5, 2008).
                 \12\ OCC, Comptroller's Handbook: Retail Nondeposit Investment
                Products Booklet at 9 (Jan. 2015).
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                 The OCC invites comment on whether it should add a separate
                provision to Sec. 7.1002 to set forth Federal savings association
                finder authority. This provision could provide that a Federal savings
                association may engage in finder activities to the extent that those
                activities are incidental to Federal savings association powers
                expressly authorized under the HOLA. The OCC also could include in this
                provision a list of Federal savings association finder activities that
                the former OTS or the OCC have determined are permissible. This list
                could codify prior interpretations and include collecting fees for
                referring customers to third parties and providing services and
                products to customers through a third-party discount program. The OCC
                specifically requests comment on what other Federal savings association
                finder activities the OCC could add to this list.
                Money Lent by a National Bank at Banking Offices or at Facilities Other
                Than Banking Offices (Sec. 7.1003)
                 Twelve U.S.C. 81 provides that a national bank must transact
                business in the place specified in its organization certificate and in
                any branches established or maintained in accordance with 12 U.S.C. 36.
                The OCC interprets 12 U.S.C. 81 to mean that money is deemed to be lent
                at a bank's main office unless there is a sufficient nexus tying the
                transaction to another location, in which case that location must be
                licensed as a branch office.
                 Twelve U.S.C. 36 and 12 CFR 5.30 define ``branch'' as a place of
                business established by the national bank where ``deposits are
                received, or checks paid, or money lent.'' Section 7.1003 provides that
                for purposes of what constitutes a branch within the meaning of 12
                U.S.C. 36 and 12 CFR 5.30, ``money'' is deemed to be ``lent'' only at
                the place, if any, where the borrower in-person receives loan proceeds
                directly from bank funds either: (1) From the lending bank or its
                operating subsidiary or (2) at a facility that is established by the
                lending bank or its operating subsidiary. Section 7.1003(b) further
                provides that a borrower may receive loan proceeds directly from bank
                funds in person at a place that is not the bank's main office and is
                not licensed as a branch without violating 12 U.S.C. 36, 12 U.S.C. 81,
                and 12 CFR 5.30, provided that a third party is used to deliver the
                funds and the place is not established by the lending bank or its
                operating subsidiary. This paragraph defines a third party to include a
                person who satisfies the requirements of Sec. 7.1012(c)(2) or one who
                customarily delivers loan proceeds directly from bank funds under
                accepted industry practice, such as an attorney or escrow agent at a
                real estate closing.
                 The OCC is proposing to amend Sec. 7.1003 to incorporate an OCC
                interpretation that further clarifies when the OCC considers money to
                be lent at a location other than the main office. Specifically,
                proposed paragraph (c) would provide that a national bank operating
                subsidiary may distribute loan proceeds from its own funds or bank
                funds directly to the borrower in person at offices the operating
                subsidiary established without violating 12 U.S.C. 36, 12 U.S.C. 81,
                and 12 CFR 5.30 if the operating subsidiary provides similar services
                on substantially similar terms and conditions to customers of
                unaffiliated entities, including unaffiliated banks.\13\ Based on
                Supreme Court precedent,\14\ OCC interpretations have recognized that a
                facility must provide a convenience to bank customers that gives the
                bank a competitive advantage in obtaining customers for the facility to
                be considered a branch for purposes of 12 U.S.C. 36 and 12 CFR
                5.30.\15\ The OCC has found that a facility where members of the
                public, customers, and noncustomers alike receive substantially similar
                services on substantially similar terms is not a facility created to
                attract bank customers and thus the establishment of this type of
                facility offers no competitive advantage to the national bank.\16\
                Proposed paragraph (c) reflects this OCC precedent.
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                 \13\ See Interpretive Letter No. 814 (Nov. 3, 1997).
                 \14\ In First National Bank in Plant City v. Dickinson, the
                Supreme Court explained that because the purpose of 12 U.S.C. 36 is
                to maintain competitive equality, it is relevant in construing the
                term ``branch'' to consider whether the facility gives the bank an
                advantage in its competition for customers. First National Bank in
                Plant City v. Dickinson, 396 U.S. 122, 136-137 (1969).
                 \15\ See OCC Interpretive Letter No. 635 (July 23, 1993). See
                also 61 FR 60342, 60347 (Nov. 27, 1996).
                 \16\ See OCC Interpretive Letter No. 814 (Nov. 3, 1997).
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                Establishment of a Loan Production Office by a National Bank (Sec.
                7.1004)
                Credit Decisions at Other Than Banking Offices of a National Bank
                (Sec. 7.1005)
                 Section 7.1004 provides that a national bank may use the services
                of persons not employed by the bank for originating loans. It also
                provides that an employee or agent of a national bank or its subsidiary
                may originate a loan at a site other than the main office or a branch
                office of the bank without violating the branching and place of
                business requirements of 12 U.S.C. 36 and 12 U.S.C. 81 if the loan is
                approved and made at the main office or a branch office of the bank or
                at an office of an operating subsidiary located on the premises of, or
                contiguous to, the main office or branch office of the bank. Section
                7.1005 provides that a national bank and its operating subsidiary may
                make a credit decision regarding a loan application at a site other
                than the main office or a branch office of the bank provided that
                ``money'' is not ``lent'' at those other sites within the meaning of
                Sec. 7.1003.
                 OCC precedent has explained that the purpose of Sec. 7.1004 is not
                to prescribe where certain activities must be performed but rather to
                help avoid violations of the branching laws by defining a ``safe
                harbor'' of loan origination activities that will not constitute
                branching.\17\ Further, the OCC has stated that this section does not
                purport to address the outer limits of what is permissible nor
                establish any affirmative requirement for where loan production office
                (LPO)-originated loans must be approved or made.\18\ The OCC has found
                that Sec. 7.1004 should not be read to require loans originated at
                LPOs to be approved and made at a main or branch office, and that it is
                permissible for loans originated at an LPO to be approved at separate
                back office facilities not located on the premises of, or contiguous
                to, a main or branch office of the bank.\19\ These OCC interpretations
                were codified in Sec. 7.1005. When the OCC adopted Sec. 7.1005, the
                agency noted that it was retaining Sec. 7.1004 despite the potential
                tension between the two sections because Sec. 7.1004 is a judicially
                recognized safe harbor permitting national banks to undertake certain
                [[Page 40797]]
                lending related activities without violating branching statutes, and
                that it did not view a lending related activity that falls outside the
                scope of Sec. 7.1004, as with Sec. 7.1005 regarding the making of
                credit decisions, as necessarily violating branching statutes.\20\
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                 \17\ OCC Interpretive Letter No. 634 (July 23, 1993).
                 \18\ Id.; OCC Interpretive Letter No. 667 (Oct. 12, 1994).
                 \19\ OCC Interpretive Letter No. 667 (Oct. 12, 1994).
                 \20\ 61 FR 4849, 4851 (Feb. 9, 1996).
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                 The OCC is proposing to amend Sec. 7.1004 so that it reflects the
                broader permissibility provided by current Sec. 7.1005, to describe
                the permitted activities as ``loan production activities,'' and to
                remove Sec. 7.1005 to simplify and streamline its rules. As proposed,
                paragraph (a) of Sec. 7.1004 would provide that a national bank or its
                operating subsidiary may engage in loan production activities at a site
                other than the main office or a branch office of the bank. The proposal
                would permit a national bank or its operating subsidiary to solicit
                loan customers, market loan products, assist persons in completing
                application forms and related documents to obtain a loan, originate and
                approve loans, make credit decisions regarding a loan application, and
                offer other lending-related services such as loan information and
                applications at a loan production office without violating 12 U.S.C. 36
                and 12 U.S.C. 81, provided that ``money'' is not deemed to be ``lent''
                at that site within the meaning of Sec. 7.1003 and the site does not
                accept deposits or pay withdrawals. This description of activities is
                not intended to alter the description of ``money lent'' in Sec. 7.1003
                nor affect the scope of activities that are permissible for a national
                bank to perform at a non-branch location. Rather, the OCC is proposing
                this description to provide greater clarity to what activities a
                national bank may conduct at a loan production office. As a technical
                change, the OCC would redesignate former paragraph (a) as paragraph (b)
                and amend it to reference loan production activities instead of
                originating loans.
                Loan Agreement Providing for a National Bank Share In Profits, Income,
                or Earnings or for Stock Warrants (Sec. 7.1006)
                 The OCC is proposing to amend Sec. 7.1006 to include Federal
                savings associations. Section 7.1006 permits a national bank to take as
                consideration for a loan: (1) A share in the profit, income, or
                earnings from a business enterprise of a borrower or (2) a stock
                warrant issued by the business enterprise of a borrower provided the
                bank does not exercise the warrant. This arrangement is known as an
                ``equity kicker.'' Section 7.1006 further provides that the national
                bank may take the share or stock warrant in addition to, or in lieu of,
                interest. However, the national bank may not condition the borrower's
                ability to repay principal on the value of the profit, income, earnings
                of the business enterprise or upon the value of the warrant received.
                 The former OTS and its predecessor, the Federal Home Loan Bank
                Board, permitted a Federal savings association to take a share of
                profit, income, or earnings as consideration for a loan as not
                inconsistent with Federal savings association lending authority under
                HOLA \21\ to maintain parity with the commercial lending practices of
                national banks.\22\ In addition, the former OTS permitted a Federal
                savings association to acquire warrants as an incidental power of its
                authority to make secured loans for commercial, corporate, or business
                purposes under HOLA and applied the same restrictions on exercising
                those warrants as applied to national banks.\23\ By amending Sec.
                7.1006 to include Federal savings associations, the proposed rule would
                codify these interpretations to clarify this authority and to better
                provide parity with national banks.
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                 \21\ 12 U.S.C. 1464(c)(2).
                 \22\ Unpublished letter from Jordan Luke, Gen. Couns., Federal
                Home Loan Bank Board (Dec. 19, 1988), available on Westlaw: 1988 WL
                1022319 (O.T.S.).
                 \23\ Id.
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                National Bank Holding Collateral Stock as Nominee (Sec. 7.1009)
                 Current Sec. 7.1009 permits a national bank to transfer stock it
                has received as collateral for a loan into the bank's name as
                nominee.\24\ The OCC believes this provision is unnecessary and is
                proposing to delete it. The OCC permits a bank to perfect its security
                interests in collateral under applicable State laws consistent with the
                Uniform Commercial Code.\25\ In situations where a bank holds stock as
                collateral, typically one method to perfect that interest under State
                law is to list the bank as nominee on the stock certificate. However,
                recent versions of the Uniform Commercial Code \26\ provide other
                potentially less burdensome methods to perfect an interest in
                securities collateral, for example, by obtaining control over a
                brokerage account holding the stock. Therefore, the OCC believes that
                Sec. 7.1009 is not necessary. Removing this provision would streamline
                OCC regulations while not substantively changing the methods national
                banks may use to perfect their interests in stock or other securities
                obtained as collateral for loans, which continue to include being
                listed as nominee if permitted under State law.
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                 \24\ See 12 U.S.C. 24(Seventh).
                 \25\ See OCC, Comptroller's Handbook: Asset-Based Lending at 21-
                22 (2017).
                 \26\ Primarily Articles 8 and 9, which have been substantively
                adopted by all U.S. jurisdictions. See https://www.uniformlaws.org/acts/ucc.
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                Postal Services by National Banks and Federal Savings Associations
                (Sec. 7.1010)
                 Section 7.1010 provides that a national bank may operate a postal
                substation on banking premises and receive income from it. It describes
                the types of services permitted and states that a bank may advertise
                them to attract customers to the bank. It also requires the bank to
                operate the substation in accordance with the rules and regulations of
                the United States Postal Service (USPS) and to keep books and records
                on it, which are subject to inspection by the USPS, separate from those
                of other banking operations.
                 The OCC is proposing to amend Sec. 7.1010 to also apply to Federal
                savings associations, consistent with the position taken in agency
                guidance.\27\ The OCC also proposes to replace the words ``operate a
                postal substation'' with ``provide postal services'' because the term
                ``Postal substation'' is no longer used in USPS regulations. This
                change in terminology would clarify that national banks and Federal
                savings associations may offer a limited menu of postal services and
                are not required to operate full-service post offices.
                ---------------------------------------------------------------------------
                 \27\ The former OTS previously concluded that Federal savings
                associations are authorized to operate a postal substation on
                premises. See OTS Op. Acting Ch. Couns., Mar. 25, 1994.
                ---------------------------------------------------------------------------
                National Bank Receipt of Stock From a Small Business Investment Company
                (Sec. 7.1015)
                 Fifteen U.S.C. 682(b)(1) permits a national bank to invest in one
                or more small business investment companies (SBICs) or in any entity
                established solely to invest in SBICs, provided that the total amount
                of all SBIC investments does not exceed five percent of the bank's
                capital and surplus.\28\ Section 7.1015 provides that a national bank
                may purchase stock of a SBIC and receive benefits of such stock
                ownership. This section further provides that the receipt and retention
                of a dividend from a SBIC in the form of stock of a corporate borrower
                of the SBIC is not a purchase of stock within the meaning of 12 U.S.C.
                24(Seventh).
                ---------------------------------------------------------------------------
                 \28\ National banks also may invest in SBICs pursuant to their
                community development investment authority See 12 U.S.C.
                24(Eleventh) and 12 CFR part 24.
                ---------------------------------------------------------------------------
                 The OCC is proposing to amend Sec. 7.1015 to provide that a
                national bank
                [[Page 40798]]
                may invest in a SBIC or in any entity established solely to invest in
                SBICs, and that purchasing stock in a SBIC is one example of this type
                of investment. This amendment would more closely align Sec. 7.1015 to
                15 U.S.C. 682(b). In addition, the OCC is proposing to amend Sec.
                7.1015 to provide that a national bank's SBIC investments are subject
                to appropriate capital limitations.
                 Fifteen U.S.C. 682(b)(2) provides a Federal savings association
                with similar authority to invest in SBICs.\29\ This authority is
                codified in OCC regulations at 12 CFR 160.30. To clarify this
                authority, the OCC is proposing to add a reference to Federal savings
                association SBIC authority in Sec. 7.1015 and cross-reference to 12
                CFR 160.30.
                ---------------------------------------------------------------------------
                 \29\ As with national banks, Federal savings associations also
                may invest in SBICs pursuant to their community development
                investment authority. See 12 U.S.C. 1464(c)(4)(B) and 12 CFR 5.59
                (Service corporations of Federal savings associations).
                ---------------------------------------------------------------------------
                 The OCC also is proposing to amend Sec. 7.1015 to clarify that a
                national bank or Federal savings association may invest in a SBIC that
                is either (1) already organized and has obtained a license from the
                Small Business Administration, or (2) in the process of being
                organized. The OCC has previously interpreted this authority to permit
                a national bank to invest in a SBIC that is in the process of being
                organized.\30\
                ---------------------------------------------------------------------------
                 \30\ See OCC Interpretive Letter No. 832 (June 18, 1998).
                ---------------------------------------------------------------------------
                Letters of Credit and Independent Undertakings (Sec. 7.1016)
                 The OCC proposes to amend 12 CFR 7.1016, which provides that a
                national bank may issue letters of credit and other independent
                undertakings to customers, to include Federal savings associations.
                Section 7.1016 provides that a national bank entering into an
                independent undertaking should not expose itself to undue risk and also
                outlines certain safety and soundness considerations for these
                activities. Specifically, Sec. 7.1016 provides that a national bank
                should consider at a minimum: (1) Whether the terms make clear the
                independence of the undertaking; (2) whether the amount of the
                undertaking is limited; (3) whether the undertaking is limited in
                duration or, if not, whether the bank has an ability to end the
                undertaking or demand cash collateral from the applicant; and (4)
                whether the undertaking will be collateralized or include a
                reimbursement right. Section 7.1016 also provides that certain
                undertakings require particular protections against credit,
                operational, and market risk and outlines the protections a bank should
                or must take in specific circumstances.\31\ Section 7.1016 further
                provides that the national bank should possess operational expertise
                that is commensurate with the sophistication of its independent
                undertaking activities. Finally, Sec. 7.1016 requires a bank to
                accurately reflect its undertakings in its records.
                ---------------------------------------------------------------------------
                 \31\ Specifically, Sec. 7.1016(b)(2) provides that: (1) If the
                undertaking is to honor by delivery of an item of value other than
                money, the bank should ensure that market fluctuations affecting the
                value of the item will not cause the bank to assume undue market
                risk; (2) if the undertaking provides for automatic renewal, the
                terms for renewal should be consistent with the bank's ability to
                make any necessary credit assessments prior to renewal; and (3) if a
                bank issues an undertaking for its own account, the underlying
                transaction for which it is issued must be within the bank's
                authority and must comply with any safety and soundness requirements
                applicable to that transaction.
                ---------------------------------------------------------------------------
                 Pursuant to Sec. 160.50, a Federal savings association may issue
                letters of credit and may issue other independent undertakings as are
                approved by the OCC, subject to the restrictions in Sec. 160.120.
                Section 160.120 contains provisions that are largely similar to the
                provisions applicable to national banks in Sec. 7.1016.\32\ However,
                Sec. Sec. 160.50 and 160.120 provide that, unless it is a letter of
                credit, a Federal savings association only may issue independent
                undertakings that have been approved by the OCC. The OTS explained when
                it updated its regulation that Federal savings associations were not
                traditionally involved in international banking transactions, which
                utilized these independent undertakings, as were national banks.\33\
                The OTS stated that the approval requirement provided ``the appropriate
                balance between giving thrifts greater flexibility to potentially
                engage in new types of transactions while at the same time ensuring
                that thrifts have properly evaluated the risks posed by a particular
                transaction consistent with prudent banking practice.'' \34\
                ---------------------------------------------------------------------------
                 \32\ See 61 FR 50951, 50958 (Sept. 30, 1996).
                 \33\ Id.
                 \34\ Id.
                ---------------------------------------------------------------------------
                 The OCC is proposing to amend Sec. 7.1016 to apply it to Federal
                savings associations, and to remove Sec. Sec. 160.50 and 160.120,
                because of the similarities between the national bank and Federal
                savings association independent undertaking regulations. As a result, a
                Federal savings association would no longer be limited to issuing non-
                letter of credit independent undertakings approved by the OCC. The
                industry's rules of practice have improved since the former OTS
                promulgated the regulation in 1996. In addition, the operations of
                Federal savings associations have evolved over the past two decades and
                those Federal savings associations that issue independent undertakings
                are familiar with non-letters of credit independent undertakings and
                related supervisory expectations. Furthermore, the OCC expects national
                banks and Federal savings associations to have operational expertise
                commensurate with the sophistication of its letters of credit or
                independent undertaking activities.\35\ The OCC believes that this
                expectation is sufficient to ensure that all OCC-supervised
                institutions properly evaluate the risks associated with these
                activities. For these reasons, the OCC finds that the OCC approval
                requirement for non-letter of credit independent undertakings issued by
                Federal savings associations is no longer necessary.
                ---------------------------------------------------------------------------
                 \35\ 12 CFR 7.1016(b)(3) and 12 CFR 160.120(b)(3).
                ---------------------------------------------------------------------------
                 The OCC also is proposing to clarify that Federal branches and
                agencies of foreign banks may issue letters of credit and other
                independent undertakings, consistent with the conditions outlined in
                Sec. 7.1016.\36\ Finally, the OCC is proposing technical changes to
                the footnote to reflect updates to the laws and rules of practice
                cited.
                ---------------------------------------------------------------------------
                 \36\ Section 4(b) of the International Banking Act, 12 U.S.C.
                3102(b) (Pub. L. 95-369) provides that the operations of a foreign
                bank at a Federal branch or agency shall be conducted with the same
                rights and privileges as a national bank at the same location and
                shall be subject to all the same duties, restrictions, penalties,
                liabilities, conditions, and limitations that would apply under the
                National Bank Act to a national bank doing business at the same
                location. See also 12 CFR 28.13.
                ---------------------------------------------------------------------------
                National Bank Participation in Financial Literacy Programs (Sec.
                7.1021)
                 Twelve CFR 7.1021 provides that a national bank may participate in
                a financial literacy program on the premises of, or at a facility used
                by, a school. Section 7.1021 also provides that the school premises or
                facility will not be considered a branch of the bank if: (1) The bank
                does not establish and operate the school premises or facility on which
                the financial literacy program is conducted; and (2) the principal
                purposes of the program is educational.
                 The OCC is proposing to amend Sec. 7.1021 to clarify that the
                purpose of this section is whether the facilities or premises used for
                such a program would be considered a branch of the national bank under
                12 U.S.C. 36. Facilities or premises are only considered to be branches
                of a national bank if they are established and operated by the national
                bank. The proposal also would provide that the OCC considers the
                establishment and operation in this
                [[Page 40799]]
                context on a case by case basis, considering the facts and
                circumstances. However, the OCC has previously determined \37\ that
                whether a financial literacy program is a branch under section 36 may
                be evaluated under the safe harbor test for messenger services
                established by third parties set forth in Sec. 7.1012(c)(2) and that a
                premises or facility used for a school savings program is clearly
                established by a third party if it meets this safe harbor test. The
                proposal would codify this interpretation by providing that a premises
                is not a branch of the national bank if the safe harbor test in Sec.
                7.1012(c)(2) applicable to messenger services established by third
                parties is satisfied and that the factor discussed in Sec.
                7.1012(c)(2)(i), regarding whether the bank employs the person who
                provide the service, can be met if bank employee participation in the
                financial literacy program consists of managing the program or
                conducting or engaging in financial education activities provided the
                school or other community organization retains control over the program
                and over the premises or facilities at which the program is held. The
                OCC believes that this should provide clarity with respect to the
                meaning of ``establish and operate'' in Sec. 7.1021.
                ---------------------------------------------------------------------------
                 \37\ See OCC Interpretive Letter No. 839 (August 3, 1998).
                ---------------------------------------------------------------------------
                 Consistent with current practice, the OCC also is expanding the
                scope of financial literacy programs beyond schools to encompass other
                community-based organizations, such as non-profit organizations, that
                provide financial literacy programs. In addition, the OCC is moving the
                definition of financial literacy program to the beginning of the
                section to clarify that, while a financial literacy program is a
                program for which the primary purpose is educational, this is not a
                factor in determining whether the premises or facility is a branch for
                purposes of section 36.
                 The OCC is not adding Federal savings associations to this section
                because they are not subject to the branching requirements in section
                36. However, the OCC notes that participation in financial literacy
                programs is a permissible activity for both national banks and Federal
                savings associations.
                National Banks' Authority To Buy and Sell Exchange, Coin, And Bullion
                (Sec. 7.1022)
                Federal Savings Associations, Prohibition on Industrial or Commercial
                Metal Dealing or Investing (Sec. 7.1023)
                 The OCC also is proposing a technical change to Sec. Sec. 7.1022
                and 7.1023. Section 7.1022 prohibits a national bank from acquiring or
                selling industrial or commercial metal for purposes of dealing or
                investing. Section 7.1022 excludes industrial and commercial metals
                from the national bank authority to ``buy and sell exchange, coin, and
                bullion.'' Section 7.1023 similarly prohibits a Federal savings
                association from dealing or investing in industrial or commercial
                metal. Both sections require a national bank and a Federal savings
                association to dispose of any industrial or commercial metal held as a
                result of dealing or investing in that metal as soon as practicable,
                but not later than one year from the effective date of the regulation.
                The OCC may grant up to four separate one-year extensions if the bank
                makes a good faith effort to dispose of the metal and the retention of
                the metal for an additional year is not inconsistent with the safe and
                sound operation of the bank. The OCC is proposing a technical change to
                both sections to replace the words ``one year from the effective date
                of this regulation'' with the actual effective date of that final rule,
                April 1, 2018.
                Tax Equity Finance Transactions (New Sec. 7.1025)
                 The OCC and the courts have long held that a national bank may use
                its 12 U.S.C. 24(Seventh) lending authority to engage in transactions
                that do not take the form of a traditional loan to accommodate the
                demands of the market, provided the transaction is the functional
                equivalent of a loan.\38\ The OCC has interpreted this authority to
                permit a national bank to engage in tax equity finance (TEF)
                transactions.\39\ Although the OCC has not previously addressed the
                permissibility of TEF transactions for a Federal savings association,
                OCC regulations authorize a Federal savings association to engage in
                loan equivalent transactions pursuant to 12 U.S.C. 1464,\40\ and the
                former OTS permitted a Federal savings association to participate in
                certain transactions in order to receive tax credits and other tax
                benefits.\41\ The OCC is proposing to codify and clarify these
                interpretations of 12 U.S.C. 24(Seventh) and 1464 in new Sec.
                7.1025.\42\
                ---------------------------------------------------------------------------
                 \38\ See M & M Leasing Corp. v. Seattle First Nat'l Bank, 563
                F.2d 1377 (9th Cir. 1977), cert. denied, 436 U.S. 956 (1978). See
                also OCC Interpretive Letter No. 1048 (Dec. 21, 2005); Corporate
                Decision 99-07 (March 26, 1999); Corporate Decision 98-17 (March 27,
                1998); Interpretive Letter No. 867 (June 1, 1999).
                 \39\ See OCC Interpretive Letter No. 1048 (Dec. 21, 2005), OCC
                Interpretive Letter No. 1139 (Nov. 13, 2013), OCC Interpretive
                Letter No. 1141 (Apr. 22, 2014). See also 26 U.S.C. 48 (energy ITC)
                and 26 U.S.C. 45 (energy PTC). Internal Revenue Service (IRS) rules
                govern tax credit availability.
                 \40\ 12 CFR 160.41 (Leasing).
                 \41\ See, e.g., OTS Op. Ch. Couns. (Feb. 9, 2004) (New Market
                Tax Credit Program) and OTS Op. Ch. Couns. (Nov. 10, 1994) (low-
                income housing tax credit partnership).
                 \42\ A national bank or Federal savings association may be able
                to participate in TEF transactions under an alternative authority,
                including community development and public welfare investment
                authority under 12 U.S.C. 24(Eleventh) and 12 CFR 24.
                ---------------------------------------------------------------------------
                 Proposed Sec. 7.1025(a) would permit a national bank and Federal
                savings association to engage in a TEF transaction pursuant to 12
                U.S.C. 24(Seventh) and 1464 if the transaction is the functional
                equivalent of a loan, as provided in proposed paragraph (c), and if a
                TEF transaction satisfies the requirements of proposed paragraph (d).
                 Proposed Sec. 7.1025(b) would define a ``tax equity finance
                transaction'' as a transaction in which a national bank or Federal
                savings association provides equity financing to fund a project that
                generates tax credits and other tax benefits and the use of an equity-
                based structure allows the transfer of those credits to the bank or
                savings association. Paragraph (b) also would define ``capital and
                surplus'' by cross-referencing to its definition in the OCC's lending
                limit rule, 12 CFR 32.\43\ As defined in the lending limit rule, for
                qualifying community banking organizations that have elected to use the
                community bank leverage ratio framework, as set forth under the OCC's
                Capital Adequacy Standards at 12 CFR part 3, ``capital and surplus''
                means a qualifying community banking organization's tier 1 capital, as
                used under 12 CFR 3.12, plus a qualifying community banking
                organization's allowance for loan and lease losses or adjusted
                allowances for credit losses, as applicable, as reported in the
                Consolidated Reports of Condition and Income (Call Report). For all
                other national banks and Federal savings associations, ``capital and
                surplus'' means a national bank's or savings association's tier 1 and
                tier 2 capital, calculated under the risk-based capital standards
                applicable to the institution as reported in the Call Report, plus the
                [[Page 40800]]
                balance of a national bank's or Federal savings association's allowance
                for loan and lease losses or adjusted allowances for credit losses, as
                applicable, not included in the bank's or savings association's tier 2
                capital, for purposes of the calculation of risk-based capital, as
                reported in the national bank's or savings association's Call Report.
                ---------------------------------------------------------------------------
                 \43\ The OCC recently amended the definition of ``capital and
                surplus'' in 12 CFR 32.2 in its recent community bank leverage ratio
                rule. See 84 FR 61776 (November 13, 2019).
                ---------------------------------------------------------------------------
                 Under proposed paragraph (c), a TEF transaction would qualify as
                the functional equivalent of a loan if it meets eight requirements that
                derive from OCC interpretations. First, the TEF transaction structure
                must be necessary for making the tax credits and other tax benefits
                available to the national bank or Federal savings association. The OCC
                requests comment on whether national banks or Federal savings
                associations routinely obtain legal opinions regarding the availability
                of tax credits in connection with these types of finance transactions.
                 Second, the TEF transaction must be of limited tenure and not
                indefinite. Under this requirement, a national bank or Federal savings
                association would need to be able to achieve its targeted return in a
                reasonable time, and the TEF transaction would need to have a defined
                termination point. A national bank or Federal savings association could
                satisfy this requirement if the TEF transaction will terminate within a
                reasonable time of the transaction's initiation or if a project sponsor
                has an option to purchase a national bank's or Federal savings
                association's interest at or near fair market value. The national bank
                or Federal savings association cannot control whether it retains the
                interest indefinitely. The proposed rule would permit a national bank
                or Federal savings association to retain a limited investment interest
                if that interest is required by law to obtain continuing tax benefits
                from the TEF transaction.
                 Third, the tax benefits and other payments received by the national
                bank or Federal savings association from the TEF transaction must repay
                the investment and provide an implied rate of return. As a result of
                this proposed requirement, the national bank's or Federal savings
                association's underwriting could not place undue reliance on the value
                of any residual stake in the project and the proceeds of disposition
                following the expiration of the tax credits' compliance period.
                 Fourth, the national bank or Federal savings association must not
                rely on appreciation of value in the project or property rights
                underlying the project for repayment. As discussed in OCC Interpretive
                Letter 1139, wind turbines, solar panels, and other ancillary equipment
                are not considered real property under 12 U.S.C. 29, and acquisition of
                interests in real estate incidental to the provision of financing is
                not inconsistent with 12 U.S.C. 29.
                 Fifth, the national bank or Federal savings association must use
                underwriting and credit approval criteria and standards that are
                substantially equivalent to the underwriting and credit approval
                criteria and standards used for a traditional commercial loan. To
                comply with this requirement, the documents governing the TEF
                transaction should contain terms and conditions equivalent to those
                found in documents governing typical lending relationships and
                transactions.
                 Sixth, the national bank or Federal savings association must be a
                passive investor in the transaction and must be unable to direct the
                affairs of the project company. This means that the national bank or
                Federal savings association would not be able to direct day-to-day
                operations of the project. However, the OCC would not consider
                temporary management activities in the context of foreclosure or
                similar proceedings as violating this requirement.
                 Seventh, the national bank or Federal savings association must
                appropriately account for the transaction initially and on an ongoing
                basis and document contemporaneously its accounting assessment and
                conclusion. Although TEF transactions can be the functional equivalent
                of loans pursuant to a national bank's or Federal savings association's
                lending authority, the accounting treatment of tax equity investments
                may differ from being a loan.
                 Proposed paragraph (d) would provide that a national bank or
                Federal savings association only could engage in TEF transactions if it
                meets the following four additional requirements. First, the national
                bank or Federal savings association cannot control the sale of energy,
                if any, from the project. To satisfy this requirement, a national bank
                or Federal savings association could enter into a long-term contract
                with creditworthy counterparties to sell energy from the project, as
                articulated in OCC Interpretive Letter 1139, or have the project
                sponsor bear responsibility for selling generated power into the energy
                market so long as those sales are stabilized by a hedge contract that
                provides reasonable price and cash flow certainty, as articulated in
                OCC Interpretive Letter 1141.
                 Second, the national bank or Federal savings association must limit
                the total dollar amount of TEF transactions to no more than five
                percent of its capital and surplus unless the OCC determines, by
                written approval of a written request by the national bank or Federal
                savings association to exceed the five percent limit, that a higher
                aggregate limit will not pose an unreasonable risk to the national bank
                or Federal savings association and that the tax equity finance
                transactions in the national bank's or Federal savings association's
                portfolio will not be conducted in an unsafe or unsound manner. In no
                case may a bank's or FSA's total dollar amount of TEF transactions
                exceed fifteen percent of its capital and surplus. As provided for
                public welfare investments under 12 U.S.C. 24(Eleventh) and 12 CFR 24,
                a national bank is generally subject to a five percent aggregate
                investment limit and this limit encourages a national bank to maintain
                appropriate risk diversification.\44\ The OCC specifically requests
                comment on whether the OCC should use an alternate measure when
                calculating the aggregate investment limit and whether the proposed
                five percent aggregate investment limit is appropriate.
                ---------------------------------------------------------------------------
                 \44\ 12 U.S.C. 24(Eleventh); 12 CFR 24.4(a).
                ---------------------------------------------------------------------------
                 Third, the national bank or Federal savings association has
                provided written notification to the OCC prior to engaging in each TEF
                transaction that includes its evaluation of the risks posed by the
                transaction.
                 Fourth, the national bank or Federal savings association can
                identify, measure, monitor, and control the associated risks of its tax
                equity finance transaction activities individually and as a whole on an
                ongoing basis to ensure that it conducts such activities in a safe and
                sound manner.
                 Proposed paragraph (e) would provide that the TEF transaction must
                be subject to the substantive legal requirements of a loan, including
                the lending limits prescribed by 12 U.S.C. 84, as implemented by 12 CFR
                32, and, if the active investor or project sponsor of the transaction
                is an affiliate of the national bank or Federal savings association,
                the restrictions on transactions with affiliates prescribed by 12
                U.S.C. 371c and 371c-1, as implemented by 12 CFR 223. If a national
                bank or Federal savings association is relying on its lending authority
                to participate in a TEF transaction, the TEF transaction would be
                subject to regulatory requirements applicable to loans, including any
                applicable legal lending limits and affiliate transaction restrictions
                to the extent applicable. However, the regulatory capital treatment of
                a national bank or Federal savings association's participation in a TEF
                transaction would be determined
                [[Page 40801]]
                according to the regulatory capital rule (12 CFR part 3).
                 The OCC specifically requests comment on whether the final rule
                should prohibit a national bank or Federal savings association from
                entering into TEF transactions for projects involving residential
                installation TEF transactions not involving utility-scale standalone
                power-generation facilities. The OCC also requests comment on whether
                the final rule should permit national banks or Federal savings
                associations to invest in TEF transactions involving detached single-
                family residences, multi-family residences, or non-utility commercial
                buildings. Further, the OCC requests comment on whether national banks
                and Federal savings associations should have other contractual remedies
                available before entering into a TEF transaction. For example, should
                the final rule require national banks or Federal savings associations
                to have the option to replace the sponsor or manager of a project under
                certain conditions or be required to have indemnifications for breaches
                of tax representations or other legal risks? In the alternative, should
                a final rule require a project sponsor or the sponsor's parent to make
                or guarantee such an indemnification? The OCC also requests comment on
                whether national banks and Federal savings associations are currently
                participating in TEF transactions through fund-based structures, and,
                if not, whether national banks and Federal savings associations want to
                participate in TEF transactions through fund-based structures. Further,
                the OCC requests comment on whether there are additional issues related
                to fund-based structures and whether the final rule should include
                additional safeguards related to fund-based structures.
                Payment System Memberships (New Sec. 7.1026)
                 Section 7.1026 Payment System Memberships. The OCC has long
                recognized the authority of national banks to become members of payment
                systems.\45\ Similarly, OTS precedent permits Federal savings
                associations to join payment systems.\46\ In 2014, the OCC published a
                legal interpretive letter clarifying that national banks may join
                payment systems with approval from the OCC even when the national bank
                would be exposed to potentially open-ended liability as a member of the
                payment system.\47\ This interpretive letter also outlined the approval
                process for this membership. In a subsequent interpretive letter, the
                OCC modified the process to remove the approval requirement.\48\ To
                provide additional clarity to national banks, the OCC is proposing to
                add a new Sec. 7.1026 to part 7 that would codify the current process
                for joining a payment system. The OCC also is proposing to apply this
                section to Federal savings associations to provide equal treatment to
                Federal savings associations. The OCC continues to support national
                banks and Federal savings associations performing their critical roles
                in payment systems--including as members and architects. The proposal
                reminds national banks and Federal savings associations of their
                responsibility for ensuring that payment system membership is conducted
                in a safe and sound manner.
                ---------------------------------------------------------------------------
                 \45\ See, e.g., OCC Conditional Approval Letter No. 220 (Dec. 2,
                1996); OCC Interpretive Letter No. 993 (May 16, 1997).
                 \46\ See, e.g., 12 CFR 145.17; OTS Op. Ch. Couns. (Sept. 15,
                1995); OTS Op. Ch. Couns. (Dec. 22, 1995).
                 \47\ OCC Interpretive Letter No. 1140 (Jan. 13, 2014).
                 \48\ OCC Interpretive Letter No. 1157 (Nov. 12, 2017).
                ---------------------------------------------------------------------------
                 Definitions. Proposed Sec. 7.1026(a) would provide definitions for
                several terms used throughout the proposed new section. First, the
                proposal would define ``appropriate OCC supervisory office'' as the OCC
                office that is responsible for the supervision of a national bank or
                Federal savings association, as described in subpart A of 12 CFR part
                4.
                 Second, because different payment systems may use different
                terminology, the OCC is proposing to define ``member'' to include a
                national bank or Federal savings association designated as a
                ``member,'' a ``participant,'' or other similar role by a payment
                system, including by a payment system that requires the national bank
                or Federal savings association to share in operational losses or
                maintain reserves with the payment system to offset potential liability
                for operational losses. The OCC requests comment on whether the
                definition of ``member'' should include national banks and Federal
                savings associations who are indirect members of a payment system.
                 Third, the rules of some payment systems may not place a cap on the
                operational liability of its members, but a member's operational
                liability may be capped in some other way. For example, a jurisdiction
                could have a law that does not permit open-ended liability. If that law
                applies to the payment system, it could effectively cap a member's
                operational liability. In other situations, a member may negotiate a
                separate agreement with a payment system that allows the member to
                limit its potential liability and, as a result, the risks of membership
                in that payment system. To address these situations, the OCC is
                proposing to define ``open-ended liability'' as liability for
                operational losses that is not capped under the rules of the payment
                system and includes indemnifications provided to third parties as a
                condition of membership in the payment system. For example, national
                banks and Federal savings associations may provide open-ended
                indemnifications to Federal Reserve Banks as a condition of membership
                in particular payment systems.\49\ This proposed definition is
                consistent with the definition of open-ended liability in OCC
                Interpretive Letter 1140.
                ---------------------------------------------------------------------------
                 \49\ Id.
                ---------------------------------------------------------------------------
                 Fourth, although memberships in payment systems expose national
                banks and Federal savings associations to a variety of risks, OCC legal
                precedent only has addressed whether a national bank may assume open-
                ended liability for operational losses at the payment system. Thus, the
                OCC is proposing to define ``operational loss'' as a charge resulting
                from sources other than defaults by other members of the payment
                system. Examples of these operational losses would be losses that are
                due to: Employee misconduct, fraud, misjudgment, or human error;
                management failure; information systems failures; disruptions from
                internal or external events that result in the degradation or failure
                of services provided by the payment system; or payment or settlement
                delays, constrained liquidity, contagious disruptions, and resulting
                litigation. These examples are listed in OCC Interpretive Letter
                1140.\50\ The OCC requests comment as to whether these examples should
                be included in this definition. If these examples should be included,
                the OCC also requests comment as to whether the examples listed are
                appropriate and whether the list is sufficiently comprehensive or
                whether other examples should be included.
                ---------------------------------------------------------------------------
                 \50\ OCC Interpretive Letter No. 1140.
                ---------------------------------------------------------------------------
                 Finally, the OCC recognizes that payment systems transfer funds for
                a variety of purposes and in varying amounts. For example, wholesale
                payment systems typically process large dollar transfers while retail
                payment systems may process a higher volume of transactions at a lower
                average dollar figure.\51\ The OCC proposes to define ``payment
                system'' in Sec. 7.1026 to mean a ``financial market utility'' as
                defined
                [[Page 40802]]
                in 12 U.S.C. 5462(6), wherever it operates. This definition would
                therefore include payment systems that operate either in the U.S. or in
                a foreign jurisdiction. Section 5462(6) provides that ``a financial
                market utility'' means ``any person that manages or operates a
                multilateral system for the purpose of transferring, clearing, or
                settling payments, securities, or other financial transactions among
                financial institutions or between financial institutions and the
                person'' with certain exclusions.\52\ but would exclude derivatives
                clearing organizations registered under the Commodity Exchange Act and
                clearing agencies registered under the Securities Exchange Act of 1934,
                and foreign organizations that would be considered a derivatives
                clearing organization or clearing agency were it operating in the
                United States. The OCC requests comment on whether to include a
                definition of payment system and, if so, whether this definition and
                the three exclusions listed are appropriate. The OCC also requests
                comment on whether the definition appropriately encompasses both
                foreign and domestic payment systems that national banks and Federal
                savings associations may join, including whether the proposed language
                properly excludes foreign equivalents of U.S.-registered derivatives
                clearing organizations and U.S.-registered clearing agencies.
                ---------------------------------------------------------------------------
                 \51\ FFIEC IT Examination Handbook, Retail Payment Systems at 2
                (Apr. 2016).
                 \52\ Financial market utility ``does not include: designated
                contract markets, registered futures associations, swap data
                repositories, and swap execution facilities registered under the
                Commodity Exchange Act (7 U.S.C. 1 et seq.), or national securities
                exchanges, national securities associations, alternative trading
                systems, security-based swap data repositories, and swap execution
                facilities registered under the Securities Exchange Act of 1934 (15
                U.S.C. 78a et seq.), solely by reason of their providing facilities
                for comparison of data respecting the terms of settlement of
                securities or futures transactions effected on such exchange or by
                means of any electronic system operated or controlled by such
                entities, provided that the exclusions in this clause apply only
                with respect to the activities that require the entity to be so
                registered'' nor ``any broker, dealer, transfer agent, or investment
                company, or any futures commission merchant, introducing broker,
                commodity trading advisor, or commodity pool operator, solely by
                reason of functions performed by such institution as part of
                brokerage, dealing, transfer agency, or investment company
                activities, or solely by reason of acting on behalf of a financial
                market utility or a participant therein in connection with the
                furnishing by the financial market utility of services to its
                participants or the use of services of the financial market utility
                by its participants, provided that services performed by such
                institution do not constitute critical risk management or processing
                functions of the financial market utility.'' 12 U.S.C. 5462(6)(B).
                ---------------------------------------------------------------------------
                 Notice requirements. Proposed Sec. 7.1026(c) would require a
                national bank or Federal savings association to provide written notice
                to the appropriate OCC supervisory office 30 days prior to joining a
                payment system that would expose it to open-ended liability. If the
                payment system does not expose the national bank or Federal savings
                association to open-ended liability, the proposed rule would require
                the national bank or Federal savings association instead to provide
                after-the-fact written notice within 30 days of becoming a member of
                the payment system. The OCC believes membership in a payment system
                that exposes members to open-ended liability creates additional risks
                for national banks and Federal savings associations. Thus, the OCC
                believes prior notice to the OCC is appropriate in these
                situations.\53\
                ---------------------------------------------------------------------------
                 \53\ The proposed notice requirement would not apply to existing
                payment system memberships. However, as explained below, the
                proposed rule would require national banks and Federal savings
                associations to continuously inform the OCC of changes to bank
                operations that would affect the institution's risk profile. Thus,
                the OCC would be made aware of any payment system membership at a
                bank or savings association even though the specific timing and
                information required by this proposed rule would not apply to
                existing payment systems memberships.
                ---------------------------------------------------------------------------
                 Content of notice. Proposed Sec. 7.1026(d) would provide that all
                notices filed under Sec. 7.1026 must include representations that the
                national bank or Federal savings association has complied with the
                safety and soundness review required by proposed Sec. 7.1026(e)(1)
                before joining the payment system and will comply with the safety and
                soundness review and the notification requirements in proposed Sec.
                7.1026(e)(2) and (e)(3) after joining the system. For after-the-fact
                notices pursuant to paragraph (c)(2), the proposed rule would require a
                national bank or Federal savings association to include a
                representation that either the rules of the payment system do not
                impose liability for operational losses on members or that the national
                bank's or Federal savings association's liability for operational
                losses is limited by the rules of the payment system to specific and
                appropriate limits that do not exceed the legal lending limit specified
                by 12 CFR part 32 or a lower limit established for the national bank or
                Federal savings association by the OCC.
                 Safety and soundness procedures. The OCC relies upon a number of
                resources to communicate in detail its safety and soundness guidance
                for national bank and Federal savings association memberships in
                payment systems.\54\ At a minimum, the OCC believes a national bank or
                Federal savings association must be able to identify, evaluate, and
                control its risks from membership in a particular payment system both
                before joining the system and on an ongoing basis.\55\ Proposed Sec.
                7.1026(e) would require as a prerequisite to joining a payment system
                and on a continual basis after joining that the national bank or
                Federal savings association: (1) Identify and evaluate the risks posed
                by membership in the payment system, taking into account whether the
                liability is limited, and (2) measure, monitor, and control those
                risks. To assist with these requirements in paragraph (e), national
                banks and Federal savings associations should review the standards
                outlined in OCC Interpretive Letter 1140 and OCC Banking Circular 235.
                The proposal also requires a national bank or Federal savings
                association to notify the appropriate OCC supervisory office if its
                ongoing risk management identifies a safety and soundness concern, such
                as a material change to the bank's or savings association's liability
                or indemnification responsibilities, as soon as that concern is
                identified and to take appropriate actions to remediate the risk. The
                OCC requests comment on whether to include any of the criteria outlined
                in OCC Interpretive Letter 1140 and OCC Banking Circular 235 related to
                the analysis of: (1) The payment system and its membership criteria and
                (2) criteria for an effective risk management program to the safety and
                soundness requirements in paragraph (e).
                ---------------------------------------------------------------------------
                 \54\ See, e.g., FFIEC IT Examination Handbook on Retail Payment
                Systems (Apr. 2016); FFIEC IT Examination Handbook on Wholesale
                Payment Systems (July 2004); Comptroller's Handbook: Payment Systems
                and Funds Transfer Activities (March 1990); OCC Banking Circular 235
                (May 10, 1989).
                 \55\ For example, OCC Banking Circular 235 states ``Management
                of each national bank is responsible for assessing risk in each
                payment, clearing, and settlement system in which the bank
                participates. Management must adopt adequate policies, procedures,
                and controls with respect to these activities.'' The OCC applied
                this Banking Circular to Federal savings associations on Oct. 1,
                2014.
                ---------------------------------------------------------------------------
                 The OCC recognizes that a national bank's or Federal savings
                association's liability will vary from payment system to payment
                system. For example, the rules of some payment systems may expose
                members to open-ended liability for operational losses but, in reality,
                the national bank's or Federal savings association's liability is
                limited by separately negotiated agreements, controlling laws of the
                jurisdiction, or some other means. Therefore, the proposal also would
                permit a national bank or Federal savings association to consider its
                open-ended liability to a particular payment system to be limited for
                purposes of the review required by proposed Sec. 7.1026(e)(1) and (2)
                if the
                [[Page 40803]]
                bank or savings association obtains an independent legal opinion prior
                to joining the payment system. That legal opinion must describe how the
                payment system allocates liability for operational losses and conclude
                the potential liability for the national bank or Federal savings
                association is limited to specific and appropriate limits that do not
                exceed the legal lending limit specified by 12 CFR part 32 or a lower
                limit established for the national bank or Federal savings association
                by the OCC. This legal opinion would enable the OCC to verify that the
                liability of the national bank or Federal savings association is
                limited even though the rules of the payment system do not provide any
                limits. If there are material changes to the liability or
                indemnification requirements of the national bank or Federal savings
                association after the bank or savings association joins the payment
                system, it can no longer rely on that legal opinion to demonstrate that
                its liability is limited and must notify the OCC and remediate its
                risks as described in Sec. 7.1026(e)(3).
                Establishment and Operation of a Remote Service Unit by a National Bank
                (New Sec. 7.1027/Sec. 7.4003)
                 Section 7.4003 provides that a bank can establish and operate a
                remote service unit (RSU) pursuant to 12 U.S.C. 24(Seventh). This
                section further states that an RSU does not constitute a branch under
                12 U.S.C. 36(j) and is not subject to State geographic or operational
                restrictions or licensing laws. Section 7.4003 defines an RSU as an
                automated facility, operated by a customer of a bank, that conducts
                banking functions such as receiving deposits, paying withdrawals, or
                lending money. This section provides examples of an RSU, specifically
                listing an automated teller machine (ATMs), automated loan machine,
                automated device for receiving deposits, personal computer, telephone,
                and other similar electronic devices. Finally, this section notes that
                an RSU may be equipped with a telephone or tele-video device that
                allows contact with bank personnel.
                 The OCC has historically treated drop boxes as branches based on
                the 1969 Supreme Court case First National Bank in Plant City, Florida
                v. Dickinson, 396 U.S. 122 (1969) (Plant City). In Plant City, the
                Supreme Court ruled that a drop box operated by a national bank
                constituted a branch under 12 U.S.C. 36(j) because it was a place ``at
                which deposits are received.'' \56\ However, in 1996, Congress amended
                the definition of ``branch'' in 12 U.S.C. 36(j) to provide that ``[t]he
                term `branch,' as used in this section, does not include an automated
                teller machine or a remote service unit.'' \57\ Thus, the holding in
                Plant City is legislatively overruled with respect to any banking
                facility that is an ATM or an RSU.
                ---------------------------------------------------------------------------
                 \56\ Plant City, 396 U.S. 122 at 137.
                 \57\ Economic Growth and Regulatory Paperwork Reduction Act of
                1996 (EGRPRA), Public Law 104-208, 110 Stat. 3009, Section 2204
                (1996).
                ---------------------------------------------------------------------------
                 As noted, the current definition of ``RSU'' in Sec. 7.4003
                requires an RSU to be automated.\58\ However, upon further
                consideration, the OCC believes that interpreting both the terms ATM
                and RSU to require automation leads to incongruous results whereby a
                non-automated facility such as a drop box is considered a branch
                whereas an automated facility such as an ATM is not, despite a drop box
                functioning less like a full branch than an ATM. Furthermore, the OCC
                finds that drop boxes have more in common with the types of devices
                already considered RSUs than with full-service branches and therefore
                are more appropriately classified as RSUs. Accordingly, the OCC is
                proposing to amend Sec. 7.4003 to expand the definition of an RSU to
                include either an automated or unstaffed facility and to add drop boxes
                to the list of RSU examples. This would allow unstaffed facilities,
                such as drop boxes, to receive the same branching treatment as ATMs and
                other devices already classified as RSUs such as computers and
                automated loan machines. This amendment would provide national banks
                with a significant degree of flexibility and burden relief in the
                establishment of drop boxes. We note that if the OCC finalizes this
                amendment, it also will amend 12 CFR 5.30(d) to remove ``drop box''
                from the definition of ``branch.'' Because the OCC is proposing changes
                to this definition in another rulemaking,\59\ the OCC has not proposed
                this technical amendment in this proposed rule.
                ---------------------------------------------------------------------------
                 \58\ In 1997, the OCC issued an interpretive letter which
                explained that the OCC did not view a drop box to be an RSU because
                they are not automated. OCC Interpretive Letter No. 772 (March 6,
                1997).
                 \59\ See Articles of Association, Charters, and Bylaw Amendments
                (Forms), Comptroller's Licensing Manual (June 19, 2017).
                ---------------------------------------------------------------------------
                 The OCC also is proposing to move Sec. 7.4003 to subpart A of part
                7 as new Sec. 7.1027. This change would place it in the same subpart
                as other interpretations regarding branching and non-branching
                functions, thereby improving the organization of part 7.
                Establishment and Operation of a Deposit Production Office by a
                National Bank (New Sec. 7.1028/Sec. 7.4004)
                 Section 7.4004 provides that a national bank or its operating
                subsidiary may engage in deposit production activities at a site other
                than the main office or a branch of the bank, and further provides that
                a deposit production office (DPO) may solicit deposits, provide
                information about deposit products, and assist persons in completing
                application forms and related documents to open a deposit account.
                Section 7.4004 specifically states that a DPO is not a branch so long
                as the site does not receive deposits, pay withdrawals, or make loans.
                It further states that all deposit and withdrawal transactions of a
                bank customer using a DPO must be performed by the customer, either in
                person at the main office or a branch office of the bank or by mail,
                electronic transfer, or a similar method of transfer. Finally, this
                section states that a national bank may use the services of persons not
                employed by the bank in its deposit production activities. As with
                Sec. 7.4003, the OCC is proposing to move Sec. 7.4004 to subpart A of
                part 7 as new Sec. 7.1028 to place it in the same subpart as other
                interpretations regarding branching and non-branching functions. This
                change would improve the organization of part 7. The OCC is proposing
                no other changes to this section except for a non-substantive change to
                its wording.
                Combination of National Bank Loan Production Office, Deposit Production
                Office, and Remote Service Unit (New Sec. 7.1029/Sec. 7.4005)
                 Section 7.4005 provides that a location at which a national bank
                operates a loan production office (LPO), a DPO, and an RSU is not a
                ``branch'' within the meaning of 12 U.S.C. 36(j) by virtue of that
                combination of operations because none of these locations individually
                constitutes a branch.
                 The OCC is proposing to add language regarding the extent of the
                permissible interaction between bank personnel and the RSU at a
                facility that combines a loan production office or a deposit production
                office with an RSU. The proposed addition provides that an RSU at a
                combined location must be primarily operated by the customer with at
                most delimited assistance from bank personnel. This language is based
                on published OCC precedent.\60\
                ---------------------------------------------------------------------------
                 \60\ OCC Interpretive Letter No. 1165 (June 28, 2019).
                ---------------------------------------------------------------------------
                 As with Sec. Sec. 7.4003 and 7.4004, the OCC also is proposing to
                move Sec. 7.4005 to subpart A of part 7, as new Sec. 7.1029.
                [[Page 40804]]
                This change would place this section in the same subpart as other
                interpretations regarding branching and non-branching functions. This
                change would improve the organization of part 7.
                Permissible Derivatives Activities for National Banks (New Sec.
                7.1030)
                 Certain derivatives activities are permissible for national banks
                under 12 U.S.C. 24(Seventh). A national bank may engage in derivatives
                activities that reference certain rates or assets that are permissible
                for bank investment. In addition, a national bank may use derivatives
                to hedge the risks of its permissible banking activities. Finally, with
                prior notification to the bank's examiner-in-charge (EIC), a national
                bank may engage as a financial intermediary in customer-driven
                derivatives activities. Congress has recognized national banks'
                authority to engage in derivatives activities in various statutes.\61\
                ---------------------------------------------------------------------------
                 \61\ See, e.g., 12 U.S.C. 84 (incorporating credit exposure from
                derivatives into the legal lending limit); Gramm-Leach-Bliley Act,
                Pub. L. 106-102, 113 Stat. 1338, section 206(a)(6) (defining
                ``identified banking product'' to include any swap agreement except
                an equity swap with a retail customer); 12 U.S.C. 371c (defining
                ``covered transaction'' between a bank and its affiliates to include
                a derivative transaction); Dodd-Frank Wall Street Reform and
                Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376, (Dodd-
                Frank Act) section 716 (15 U.S.C. 8305); Dodd-Frank Act section 731
                (7 U.S.C. 6s); Dodd-Frank Act section 764 (15 U.S.C. 78o-10).
                ---------------------------------------------------------------------------
                 The OCC is proposing to issue a new Sec. 7.1030 addressing
                derivatives activities permissible for national banks. This new section
                would incorporate and streamline the framework in OCC interpretive
                letters discussing bank-permissible derivatives activities. The
                proposed rule addresses five functional categories of permissible
                derivatives activities: (1) Derivatives referencing underlyings a
                national bank may purchase directly as an investment; (2) derivatives
                with any underlying to hedge the risks arising from bank-permissible
                activities; (3) derivatives with any underlying that are customer-
                driven, cash-settled and either perfectly-matched or portfolio-hedged;
                (4) derivatives with any underlying that are customer-driven and
                physically-settled by transitory title transfer; and (5) derivatives
                with any underlying that are customer-driven, physically-settled (other
                than by transitory title transfer), and physically-hedged.
                 The proposed rule also would include a requirement that a national
                bank provide written notice to its EIC prior to engaging in certain
                derivatives activities. This requirement would be consistent with prior
                OCC interpretations that have, in connection with affirming the
                permissibility of a derivatives activity in which a bank has sought to
                engage, directed the bank to notify its EIC of the details of the
                bank's business and management practices for performing that particular
                derivatives activity as a financial intermediary. As with all
                permissible activities within the business of banking, derivative
                activities are subject to all other applicable laws and regulations, as
                well as prudential safety and soundness standards.
                 The proposal is intended to describe the derivatives activities
                that are legally permissible for a national bank, including activities
                that require a bank to provide notice to the OCC prior to engaging in
                the activity. Providing this information in a regulation is expected to
                promote clarity and transparency and, ultimately, reduce compliance
                burden. These proposed changes also can help ensure consistent
                practices across institutions when a national bank seeks to commence or
                expand derivatives activities. OCC rules for Federal savings
                associations are currently set forth at 12 CFR 163.172. This rule
                provides that a Federal savings association may engage in a transaction
                involving a financial derivative provided that the savings association
                is authorized to invest in the assets underlying the derivative, the
                transaction is safe and sound, and the association's board of directors
                and management satisfy certain prudential requirements. It also states
                that, in general, a Federal savings association should engage in a
                financial derivative transaction only to reduce its risk exposure.
                Because Federal savings associations have different statutory authority
                for derivative activities, the OCC has not proposed to include Federal
                savings associations in Sec. 7.1030. However, the OCC is considering
                moving Sec. 163.172 to part 7 so that the derivative rules for both
                charters are located in the same part. This move would better organize
                OCC rules. The specifics of the proposal are discussed below.
                 Authority. Paragraph (a) of new Sec. 7.1030 would specify that the
                section is issued pursuant to 12 U.S.C. 24 (Seventh). Paragraph (a)
                would further specify that a national bank may only engage in
                derivatives transactions in accordance with the requirements of this
                section.
                 Definitions. In paragraph (b), the proposed rule incorporates
                several terms that are commonly used in OCC derivatives interpretive
                letters. The proposed rule also defines certain terms for the first
                time to promote transparency and consistency among institutions.
                 Customer-driven. The proposed rule would define
                ``customer-driven'' to mean a transaction entered into for a customer's
                valid and independent business purpose. This approach is consistent
                with OCC interpretive letters.\62\ This focus on the customer
                recognizes that a number of derivatives activities are permissible for
                a national bank because the bank is acting as a financial intermediary
                for the customer. A customer-driven transaction would not include a
                transaction entered into for the purpose of speculating in derivative,
                currency, commodity, or security prices.\63\ Similarly, a customer-
                driven transaction would not include a transaction the principal
                purpose of which is to deliver to a national bank assets that the
                national bank could not invest in directly.
                ---------------------------------------------------------------------------
                 \62\ E.g., OCC Interpretive Letter No. 1160 (Aug. 22, 2018).
                 \63\ OCC interpretations have specified that customer-driven
                derivatives transactions do not include transactions entered into
                for the purpose of speculating in the underlying commodity or
                security prices. See e.g., OCC Interpretive Letter No. 1033 (Jun.
                14, 2015); OCC Interpretive Letter No. 892 (September 13, 2000); OCC
                Interpretive Letter No. 684 (Aug. 4, 1995); OCC No-Objection Letter
                90-1 (Feb. 16, 1990).
                ---------------------------------------------------------------------------
                 Perfectly-matched. OCC interpretive letters have permitted
                national banks to engage in various customer-driven, cash settled
                derivatives transactions if they are perfectly-matched. In determining
                that national banks may engage in perfectly-matched derivatives, the
                OCC found it material that the bank would be exposed only to credit
                risk.\64\ OCC interpretive letters have typically used ``perfectly-
                matched'' to describe two back-to-back transactions in which all
                economic terms match and in which the bank's primary exposure is credit
                risk because the matched transactions offset one another's market
                risk.\65\ The OCC proposes to incorporate a substantially similar
                definition into the rule, with certain clarifications. Specifically,
                the OCC proposes to define perfectly-matched to mean two back-to-back
                transactions that offset risk with respect to all economic terms (e.g.,
                amount, maturity, duration, and underlying). Consistent with OCC
                interpretive letters, this definition would allow transactions to be
                considered ``perfectly-matched'' despite a difference in price between
                two derivatives when that difference
                [[Page 40805]]
                reflects the bank's intermediation fee (in the form of a spread).\66\
                ---------------------------------------------------------------------------
                 \64\ See e.g., OCC No-Objection Letter No. 87-5 (Jul. 20, 1987).
                 \65\ See e.g., OCC Interpretive Letter No. 1039 (Sept. 13,
                2005).
                 \66\ OCC Interpretive Letter No. 1110 (Jan. 30, 2009).
                ---------------------------------------------------------------------------
                 Portfolio-hedged. OCC interpretive letters have discussed
                the permissibility of portfolio hedging with respect to specified types
                of underlyings. These letters have typically used ``portfolio-hedged''
                to describe the practice of hedging the net residual risk position in a
                portfolio of positions.\67\ This method of hedging can reduce
                transactional costs and operational risks because fewer transactions
                need to be executed relative to perfectly-matched hedging (in which the
                bank must offset each transaction on an individual basis).\68\ The OCC
                proposes to incorporate into the rule a substantially similar
                definition with certain clarifications. Specifically, the OCC proposes
                to define ``portfolio-hedged'' to mean that a portfolio of transactions
                is hedged based on net unmatched positions or exposures in the
                portfolio. The proposed definition refers to unmatched ``positions or
                exposures'' to clarify that hedging on a portfolio basis may involve
                hedging based on various risk exposures with different instruments in
                accordance with applicable policies and procedures and risk limits of
                the bank.
                ---------------------------------------------------------------------------
                 \67\ See e.g., OCC Interpretive Letter No. 1073 (Oct. 19, 2006);
                OCC Interpretive Letter No. 1060 (Apr. 26, 2006).
                 \68\ See e.g., OCC Interpretive Letter No. 1073; OCC
                Interpretive Letter No. 1060.
                ---------------------------------------------------------------------------
                 Physical hedging or physically-hedged. The OCC has issued
                guidance recognizing that it is permissible for national banks to
                utilize physical positions, including physical positions in certain
                commodities, to hedge their customer-driven derivatives activities
                under certain conditions.\69\ The OCC proposes to define ``physical
                hedging'' and ``physically-hedged'' to mean holding title to or
                acquiring ownership of an asset (for example, by warehouse receipt or
                book entry) to manage the risks arising out of permissible derivatives
                transactions. This definition is intended to be consistent with the
                description of commodities physical hedging activities that the OCC has
                identified as permissible in prior interpretive letters and in OCC
                Bulletin 2015-35. This definition would also apply to physical hedging
                of customer-driven derivatives referencing securities. As described
                further below, OCC interpretive letters have recognized the
                permissibility of physical hedging of customer-driven derivatives with
                securities (i.e., taking ownership of the relevant security to hedge
                the customer-driven transaction), including securities that a national
                bank could not purchase as an investment under 12 CFR part 1.\70\ In
                this context, consistent with prior OCC interpretations,\71\ ``physical
                hedging'' involving securities would include taking ownership of a
                security, by book-entry or otherwise. Section 7.1030(e) of the proposed
                rule includes additional requirements applicable to physical hedging
                activities.\72\
                ---------------------------------------------------------------------------
                 \69\ OCC Bulletin 2015-35, Quantitative Limits on Physical
                Commodity Transactions (Aug. 4, 2015); see also OCC Interpretive
                Letter No. 1040 (Sept. 15, 2005); OCC Interpretive Letter No. 935
                (May 14, 2002); OCC Interpretive Letter No. 684; OCC Interpretive
                Letter No. 632 (Jun. 30, 1993).
                 \70\ See, e.g., OCC Interpretive Letter No. 1090 (Oct. 25,
                2007); OCC Interpretive Letter No. 1064 (Jul. 13, 2006); OCC
                Interpretive Letter No. 1018 (Feb. 10, 2005); OCC Interpretive
                Letter No. 935; OCC Interpretive Letter No. 892.
                 \71\ See, e.g., OCC Interpretive Letter No. 1090; OCC
                Interpretive Letter No. 1064; OCC Interpretive Letter No. 1018; OCC
                Interpretive Letter No. 935; OCC Interpretive Letter No. 892.
                 \72\ See proposed rule Sec. 7.1030(e).
                ---------------------------------------------------------------------------
                 Physical settlement or physically-settled. OCC
                interpretive letters recognize the permissibility of physical
                settlement conducted as part of a national bank's derivatives financial
                intermediation activities in limited circumstances. Under existing
                interpretive letters and the proposed rule, engaging in physical
                settlement with respect to an underlying would entail providing a
                notice to the OCC.\73\ The OCC proposes to define ``physical
                settlement'' and ``physically-settled'' to mean a transaction is
                settled by accepting title to or acquiring ownership of the underlying
                asset (whether a commodity, security, or emissions allowance). Physical
                settlement stands in contrast to cash-settled transactions. In cash-
                settled transactions, counterparties do not exchange the underlying
                assets. Rather, they exchange cash payments based on the price of the
                underlying. For purposes of the proposed rule, physical settlement
                includes transitory title transfer, which is discussed below.
                ---------------------------------------------------------------------------
                 \73\ See, e.g., OCC Interpretive Letter No. 1040; OCC
                Interpretive Letter No. 935; OCC Interpretive Letter No. 684; OCC
                Interpretive Letter No. 632.
                ---------------------------------------------------------------------------
                 Transitory title transfer. OCC interpretive letters
                recognize the permissibility of settling a derivatives transaction by
                transitory title transfer of the underlying asset in limited
                circumstances. Transitory title transfer is a means of physical
                settlement in which a counterparty only briefly holds title to the
                underlying asset. Consistent with prior OCC interpretive letters,\74\
                the OCC proposes to define ``transitory title transfer'' to mean a
                transaction is settled by accepting and immediately relinquishing title
                to an asset. Transitory title transfer does not entail a bank taking
                physical possession of a commodity.\75\
                ---------------------------------------------------------------------------
                 \74\ See, e.g., OCC Interpretive Letter No. 962 (Apr. 21, 2003).
                 \75\ See, e.g., OCC Interpretive Letter No. 1073; OCC
                Interpretive Letter No. 1060; OCC Interpretive Letter No. 1025 (Apr.
                25, 2005); OCC Interpretive Letter No. 962; OCC Interpretive Letter
                No. 684. See also 81 FR 96355 (Dec. 30, 2016) (explaining
                ``transitory title transfer typically does not entail physical
                possession of a commodity; the ownership occurs solely to facilitate
                the underlying transaction and lasts only for a moment in time.'').
                ---------------------------------------------------------------------------
                 Underlying. OCC interpretive letters have long analyzed
                derivatives transactions based on the underlying reference asset, rate,
                obligation, index, etc. The OCC proposes to define ``underlying'' as
                the reference asset, rate, obligation, or index on which the payment
                obligation(s) between counterparties to a derivatives transaction is
                based.
                 The OCC specifically requests comment on whether the proposed
                definitions accurately reflect the terms used in OCC interpretive
                letters and whether any of these terms, in particular ``perfectly-
                matched'' and ``portfolio-hedged,'' would benefit from further
                clarification. Further, the OCC requests comment on whether national
                banks would be able to determine effectively which activities meet
                these definitions and, specifically, whether the OCC should elaborate
                on the characteristics of transactions that will be considered
                perfectly-matched or portfolio-hedged. The OCC requests comment on
                whether it should include a definition of the term ``derivative'' in
                the final rule and whether a definition of this term would be necessary
                to appropriately scope the proposed provision and whether any
                definition would be workable in practice. To the extent a definition of
                ``derivative'' is necessary, the OCC suggests that it be defined as
                follows:
                 A contract, agreement, swap, warrant, note, or option that is
                based, in whole or in part, on the value of, any interest in, or any
                quantitative measure or the occurrence of any event relating to, one or
                more commodities, securities, currencies, interest or other rates,
                indexes, or other assets, except a derivative does not include a:
                 (1) Retail forex transaction, as defined in 12 CFR 48.2;
                 (2) Security;
                 (3) Loan or loan participation;
                 (4) Deposit;
                 (5) Banker's acceptance; or
                 (6) Letter of credit.
                 The OCC requests comment on this possible definition.
                 Permissible Derivatives Activities Generally. The proposed rule
                would address five categories of permissible derivatives activities.
                These categories are discussed below.
                [[Page 40806]]
                 Derivatives Referencing Underlyings in which a National
                Bank May Invest Directly. OCC interpretive letters have recognized that
                national banks may engage in derivatives activities where the
                derivative references assets that a national bank could purchase
                directly as an investment.\76\ For example, to manage its investment
                portfolio, a national bank may use derivatives tied to interest rates,
                foreign exchange and currency, credit, precious metals, and investment
                securities. Section 7.1030(c)(1) of the proposed rule would reflect
                this authority by specifying that a national bank may engage in
                derivatives transactions with payments based on underlyings that a
                national bank is permitted to purchase directly as an investment.
                Paragraph (c)(1) would address only derivatives on underlyings that a
                national bank would be permitted to purchase directly as principal. For
                example, an underlying that a national bank could hold only as a
                nonconforming investment under 12 CFR part 1 or only in satisfaction of
                debts previously contracted would not be a permissible underlying under
                this paragraph.
                ---------------------------------------------------------------------------
                 \76\ See, e.g., OCC Interpretive Letter No. 494 (Dec. 20, 1989);
                OCC Interpretive Letter No. 422 (Apr. 11, 1988); OCC No Objection
                Letter No. 86-13 (Aug. 8, 1986). See also, ``Report to Congress and
                the Financial Stability Oversight Council Pursuant to Section 620 of
                the Dodd-Frank Act'' at 86-90 (September 2016), available at https://www.occ.treas.gov/publications-and-resources/publications/banker-education/files/pub-report-to-congress-sec-620-dodd-frank.pdf
                (Section 620 Report).
                ---------------------------------------------------------------------------
                 Hedging Bank-Permissible Activities with Derivatives.
                 Under 12 U.S.C. 24 (Seventh), a national bank may engage in
                activities that are part of, or incidental to, the business of banking.
                Risk management activities, such as hedging risks arising from bank
                activities, are part of the business of banking.\77\ Entering into
                deposit, loan, and other contracts with customers and engaging in other
                bank-permissible activities involve risks that a bank must manage as
                part of the business of banking. A bank must manage the risk of those
                activities to operate profitably and in a safe and sound manner.\78\ A
                bank may engage in hedging activities to manage these risks.\79\ The
                OCC has long recognized that a national bank may hedge its risk using
                derivatives on underlyings that a national bank would be permitted to
                invest in directly. For example, a national bank may use futures
                contracts on exchange, coin, or bullion to hedge activities conducted
                pursuant to a national bank's statutory authority to buy and sell
                exchange, coin, or bullion. Similarly, a national bank may use futures
                to hedge against the risk of loss due to the interest rate fluctuations
                inherent in bank loan operations, U.S. Treasury Bills, and certificates
                of deposit.
                ---------------------------------------------------------------------------
                 \77\ See Decision of the Office of the Comptroller of the
                Currency on the Request by Chase Manhattan Bank, N.A. to Offer the
                Chase Market Index Investment Deposit (1988) (MII Deposit);
                Investment Company Institute v. Ludwig, 884 F. Supp. 4 (D.D.C. 1995)
                (upholding Comptroller's decision that the hedged deposit in MII
                Deposit is a bank-permissible product that did not violate the
                Glass-Steagall Act).
                 \78\ See generally MII Deposit; OCC Interpretive Letter No. 892.
                 \79\ See OCC Interpretive Letter No. 896 (Aug. 21, 2000); OCC
                Interpretive Letter No. 892.
                ---------------------------------------------------------------------------
                 Hedging with Derivatives Referencing Underlyings in which
                a National Bank May Not Invest Directly.
                 The OCC also has recognized that a national bank may hedge the
                risks of bank-permissible activities using derivatives on underlyings
                in which a national bank may not invest directly. For example, in OCC
                Interpretive Letter 896, the OCC recognized that a national bank may
                purchase cash-settled options on commodity futures contracts to hedge
                the risk of a commodity that served as collateral on an agricultural
                loan.\80\ Similarly, the OCC has recognized that it is permissible for
                a trust bank to hedge the market risk associated with the fees it
                received from its investment advisory activities using equity
                derivatives.\81\ Likewise, the OCC has determined that a national bank
                may purchase certain equity derivatives to hedge the risks of a deposit
                account that paid interest based, in part, upon changes in the Standard
                & Poor's 500 Composite Stock Index.\82\ The OCC also has recognized
                that it is permissible for a national bank to use commodity derivatives
                to hedge commodity price risk associated with a production payment
                loan.\83\
                ---------------------------------------------------------------------------
                 \80\ See OCC Interpretive Letter No. 896.
                 \81\ See OCC Interpretive Letter No. 1037 (Aug. 9, 2005).
                 \82\ See MII Deposit.
                 \83\ See OCC Interpretive Letter No. 1117 (May 19, 2009).
                ---------------------------------------------------------------------------
                 The proposed rule would recognize a national bank's authority to
                hedge bank-permissible activities using derivatives on underlyings in
                which a bank could not invest directly. Section 7.1030(c)(2) of the
                proposed rule would provide that a national bank may engage in
                derivatives transactions with any underlying to hedge the risks arising
                from bank-permissible activities after providing notice to its EIC.\84\
                ---------------------------------------------------------------------------
                 \84\ In contrast, if a national bank engaged in hedging using
                derivatives on underlyings in which a national bank could invest
                directly, the bank would not need to provide notice under the
                proposed rule because this activity could be conducted under
                proposed rule Sec. 7.1030(c)(1). See proposed rule Sec.
                7.1030(c)(1), (d).
                ---------------------------------------------------------------------------
                 Derivatives Financial Intermediation for Customers.
                 OCC interpretive letters have long recognized that a national bank
                may act as a financial intermediary in customer-driven \85\ derivatives
                transactions on a variety of reference assets as part of the business
                of banking.\86\ These letters have recognized national banks' authority
                to enter into cash-settled, customer-driven derivatives transactions
                both on a perfectly-matched \87\ and portfolio-hedged basis.\88\ The
                OCC has explained that these derivatives activities ``are, at their
                essence, modern forms of financial intermediation'' because ``through
                intermediated exchanges of payments, banks facilitate the flow of funds
                within our economy and serve important financial risk management and
                other financial needs of bank customers.'' \89\
                ---------------------------------------------------------------------------
                 \85\ A ``customer-driven'' transaction is one entered into for a
                customer's valid and independent business purposes. See, e.g., OCC
                Interpretive Letter No. 1160; OCC Interpretive Letter No. 892. This
                definition is addressed in Sec. 7.1030(b) of the proposed rule.
                 \86\ See, e.g., OCC Interpretive Letter No. 937 (Jun. 27, 2002);
                OCC Interpretive Letter No. 892; No-Objection Letter 87-5.
                 \87\ See, e.g., OCC Interpretive Letter No. 1110 (longevity
                indexes); OCC Interpretive Letter No. 1101 (Jul. 7, 2008) (certain
                risk indexes); OCC Interpretive Letter No. 1089 (Oct. 15, 2007);
                (specific property indexes); OCC Interpretive Letter No. 1081 (May
                15, 2007) (specific property indexes); OCC Interpretive Letter No.
                1079 (Apr. 19, 2007) (inflation indexes); OCC Interpretive Letter
                No. 1065 (Jul. 24, 2006) (petroleum products, agricultural oils,
                grains and grain derivatives, seeds, fibers, foodstuffs, livestock/
                meat products, metals, wood products, plastics and fertilizer); OCC
                Interpretive Letter No. 1063 (Jun. 1, 2006) (hogs, lean hogs, pork
                bellies, lumber, corrugated cardboard, and polystyrene); OCC
                Interpretive Letter No. 1059 (Apr. 13, 2006) (old corrugated
                cardboard #11, polypropylene: injection molding (copoly),
                polypropylene: all grades, Dow Jones AIG Commodity Index); OCC
                Interpretive Letter No. 1056 (Mar. 29, 2006) (frozen concentrate
                orange juice, polypropylene); OCC Interpretive Letter No. 1039
                (crude oil, natural gas, heating oil, natural gasoline, gasoline,
                unleaded gas, gasoil, diesel, jet fuel, jet-kerosene, residual fuel
                oil, naphtha, ethane, propane, butane, isobutane, crack spreads,
                lightends, liquefied petroleum gases, natural gas liquids,
                distillates, oil products, coal, emissions allowances, benzene,
                dairy, cattle, wheat, corn, soybeans, soybean meal, soybean oil,
                cocoa, coffee, cotton, orange juice, sugar, paper, rubber, steel,
                aluminum, zinc, lead, nickel, tin, cobalt, iridium, rhodium,
                freight, high density polyethylene (plastic), ethanol, methanol,
                newsprint, paper (linerboard), pulp (kraft), and recovered paper
                (newsprint)).
                 \88\ See, e.g., OCC Interpretive Letter No. 1073 (aluminum,
                nickel, lead, zinc, and tin); OCC Interpretive Letter No. 1060
                (coal); OCC Interpretive Letter No. 1040 (emissions allowances); OCC
                Interpretive Letter No. 937 (electricity).
                 \89\ OCC Interpretive Letter No. 1110; OCC Interpretive Letter
                No. 1101; OCC Interpretive Letter No. 1079.
                ---------------------------------------------------------------------------
                [[Page 40807]]
                 The OCC has also recognized in this context the permissibility of
                physical settlement by transitory title transfer.\90\ As described
                above, transitory title transfer is a particular means of physical
                settlement in which a counterparty only briefly holds title to the
                underlying asset. Transitory title transfer does not entail a bank
                taking physical possession of a commodity.\91\ Further, the OCC has
                recognized that a national bank may engage in customer-driven financial
                intermediation derivatives activities that are physically-settled
                (other than by transitory title transfer) and to physically hedge those
                derivatives in certain circumstances.\92\ OCC interpretive letters have
                explained that physical delivery can help to reduce the risk in
                customer-driven commodity derivatives transactions if the activity is
                conducted in accordance with safe and sound banking practices and would
                achieve a more accurate and precise hedge than a cash-settled
                transaction.\93\ The OCC subsequently provided guidance on safe and
                sound practices with respect to physical hedges of commodity-linked
                financial transactions.\94\
                ---------------------------------------------------------------------------
                 \90\ See OCC Interpretive Letter No. 1073 (aluminum, nickel,
                lead, zinc, and tin); OCC Interpretive Letter No. 1060 (coal); OCC
                Interpretive Letter No. 1025 (electricity); Interpretive Letter No.
                962 (electricity). The term ``transitory title transfer'' means
                accepting and instantaneously relinquishing title to the commodity,
                as a party in a ``chain of title'' transfer. OCC Interpretive Letter
                No. 1025.
                 \91\ See, e.g., OCC Interpretive Letter No. 1060; OCC
                Interpretive Letter No. 684. See also 81 FR 96355 (Dec. 30, 2016)
                (explaining ``transitory title transfer typically does not entail
                physical possession of a commodity; the ownership occurs solely to
                facilitate the underlying transaction and lasts only for a moment in
                time.'').
                 \92\ See, e.g., OCC Interpretive Letter No. 1040; OCC
                Interpretive Letter 892; OCC Interpretive Letter No. 684.
                 \93\ E.g., OCC Interpretive Letter No. 684.
                 \94\ See OCC Bulletin 2015-35.
                ---------------------------------------------------------------------------
                 The OCC proposes to incorporate and streamline the framework
                contained in its interpretive letters addressing derivatives financial
                intermediation activities in Sec. 7.1030(c)(3) through (5).
                 First, under the proposed rule, a national bank may engage in
                customer-driven, cash-settled derivatives transactions on any
                underlying on a perfectly-matched or portfolio-hedged basis.
                 Second, the proposed rule would permit a national bank to engage in
                customer-driven, perfectly-matched or portfolio-hedged derivatives
                transactions on any underlying that is settled by transitory title
                transfer.
                 Third, the proposed rule would permit physically settled and
                physically hedged transactions that are either perfectly-matched or
                portfolio-hedged, provided that the national bank does not take
                physical delivery of any commodity by receipt of physical quantities of
                the commodity on bank premises and the physical hedging activities meet
                the requirements in paragraph (e) of the proposed rule. As discussed
                below, a national bank would need to provide a written notice to its
                EIC before engaging in financial intermediation activities with
                derivatives on underlyings in which a national bank could not invest
                directly.
                 Relative to prior OCC interpretations, the proposed rule would make
                fewer distinctions based on the particular underlying or how the
                national bank hedges its derivatives financial intermediation activity.
                While prior interpretations typically analyzed both the underlying and
                the bank's method for hedging the customer-driven derivative (i.e.,
                perfectly matched versus portfolio hedged), the proposal would permit
                customer-driven, cash-settled derivatives transactions on any
                underlying, whether perfectly-matched or portfolio-hedged. The OCC
                recognizes that financial intermediation in derivatives continues to
                evolve and that the markets for derivatives on underlyings that the OCC
                has not previously addressed may have sufficient liquidity and depth to
                allow a bank to conduct the activity as a financial intermediary.
                Similarly, the OCC recognizes that these same factors may allow a
                national bank to hedge its customer-driven derivatives activities in
                evolving ways--whether by portfolio hedging or physical hedging--
                consistent with conducting the activity as a financial intermediary.
                 As with any bank-permissible activity, safety and soundness
                standards apply to derivatives financial intermediation activities. The
                proposal would include additional requirements for physical hedging
                activities in Sec. 7.1020(e). The OCC requests comment on whether the
                rule should reflect any additional standards regarding the underlyings
                that are permissible for financial intermediation in derivatives and
                how national banks may hedge these activities. For example, the OCC
                requests comment on whether the regulation should include additional
                language relating to the liquidity of the market for permissible
                customer-driven derivatives activities.
                 Notice requirement. OCC interpretations have often included a
                process in which the national bank provides notice to its EIC about the
                business and management practices the bank will employ in performing
                the derivatives activity as financial intermediation. Consistent with
                prior interpretive letters addressing derivatives hedging or financial
                intermediation activities, proposed Sec. 7.1020(d) would require a
                national bank to provide written notice to its EIC prior to engaging in
                activity using derivatives referencing assets that a national bank
                could not invest in directly.
                 OCC Interpretive Letter 1160 contemplates that a bank would provide
                written notification to its EIC prior to commencing a derivatives
                financial intermediation business for a reference asset addressed in
                prior OCC interpretive letters. This process replaced the no-objection
                process that was typically included in prior OCC interpretive
                letters.\95\ The proposal would require a national bank to provide a
                notice to its EIC prior to commencing a financial intermediation
                activity in derivatives on underlyings in which a national bank could
                not invest directly or expanding its financial intermediation
                activities to include a new category of underlyings.\96\
                ---------------------------------------------------------------------------
                 \95\ See, e.g., OCC Interpretive Letter No. 1065.
                 \96\ National banks that have provided notice to or received
                statements of no-objection from their EICs for particular
                derivatives activities consistent with the process in OCC
                interpretive letters would not be required to submit new notices for
                those activities.
                ---------------------------------------------------------------------------
                 In addition, OCC interpretive letters have contemplated that a
                national bank would obtain a no-objection before engaging in hedging
                activities using derivatives on underlyings in which a national bank
                could not invest directly.\97\ The OCC is not proposing to incorporate
                an EIC no-objection in connection with these hedging activities, and
                the proposal would instead create a regulatory requirement to provide
                notice to the national bank's EIC for these hedging activities
                recognized in Sec. 7.1030(c)(2) through the proposed notice
                requirement in Sec. Sec. 7.1030(d)(1)(i)-(ii). The OCC expects that
                transitioning from the no-objection process for derivatives hedging
                activities to the notice process will enhance prudential supervision of
                bank derivatives activities by ensuring that banks evaluate the risks
                of the activities both at inception and on an ongoing basis.
                ---------------------------------------------------------------------------
                 \97\ See OCC Interpretive Letter No. 896.
                ---------------------------------------------------------------------------
                 Under the proposed rule, the notice procedures and requirements in
                proposed Sec. 7.1030(d)(2) would be the same for hedging activities
                and financial intermediation activities. The proposed rule would
                require the written notice to include information that is substantially
                similar to the information that is discussed in Interpretive Letter
                1160. Specifically, the written notice must
                [[Page 40808]]
                include a detailed description of the proposed activity, including the
                relevant underlying(s); the anticipated start date of activity; and a
                detailed description of the bank's risk management system (policies,
                processes, personnel, and control systems) for identifying, measuring,
                monitoring, and controlling the risks of the activity. The proposed
                rule does not include the requirement from Interpretive Letter 1160
                that the bank submitting the notice identify an OCC interpretive letter
                confirming the permissibility of transactions involving the underlying
                and hedging activity. If the proposed rule is finalized, derivatives
                hedging and financial intermediation activities would be conducted
                pursuant to the regulation, without reference to prior OCC
                interpretations. Therefore, the OCC does not believe it would be
                necessary for a national bank to identify a prior OCC interpretation.
                The OCC believes that this framework could ultimately reduce the
                compliance burden associated with national bank derivatives activities.
                 The proposed prior notice does not impose a prior approval
                requirement. Rather, the notice is designed to make OCC supervisor
                aware of a bank's derivatives activities so that such activities can be
                appropriately scoped into OCC's ongoing supervision and oversight of
                the bank's safety and soundness. In addition, having awareness of
                bank's derivatives activities will enable the OCC to raise questions as
                to whether the derivatives activity can be conducted in a safe and
                sound manner, or whether the derivatives activity is within the scope
                of those legally authorized for a national bank, before the bank
                activities commence or at any time, as is the case with any other
                permissible bank activities.
                 Section 7.1030(d)(1) of the proposed rule would require a national
                bank to provide EIC notice prior to engaging in any of the derivatives
                hedging or financial intermediation activities described in Sec.
                7.1030(c)(2) through (5) for the first time. This notice requirement
                would apply, for example, if a bank has previously engaged in cash-
                settled derivatives with respect to a particular underlying as
                described in Sec. 7.1030(c)(3) but seeks to begin physically settling
                transactions as described in Sec. 7.1030(c)(4) or (5). Likewise, a
                national bank would need to provide notice prior to first engaging in
                derivatives hedging activities pursuant to Sec. 7.1030(c)(2) or
                expanding the bank's derivatives hedging activities to include a new
                category of underlying. Under proposed Sec. 7.1030(d)(2), the bank
                must submit written notice at least 30 days before the national bank
                commences the derivatives activity. The OCC specifically requests
                comment on whether it is sufficiently clear when a notice would be
                required and what would constitute a ``new category of underlying.''
                Prior OCC interpretations have addressed several categories of
                permissible underlyings for national bank derivatives transactions.\98\
                The OCC requests comments on whether the regulation text should list
                these categories. If the regulation were to list these categories, the
                OCC requests comment on whether the regulation should specify that any
                new derivatives activities not falling within one of the specified
                categories also requires notice.
                ---------------------------------------------------------------------------
                 \98\ See e.g., supra, note 27.
                ---------------------------------------------------------------------------
                 The OCC believes that the proposed notice process will provide an
                efficient notice standard for national banks engaging in derivatives
                activities. The notice requirement is expected to enhance supervision
                by providing bank supervisors with comprehensive, up-to-date
                information on the activities in which the bank is engaged. This
                information will assist OCC supervisors by ensuring they have an
                opportunity to assess a bank's ability to engage in derivatives
                activities in a safe and sound manner prior to the bank commencing the
                activity and provide them ongoing information as those activities
                expand to new categories. The OCC believes this objective is
                particularly important in the case of derivatives hedging and financial
                intermediation activities because these activities continue to evolve.
                 The OCC specifically requests comment on whether the final rule
                should provide additional specificity regarding the notice process and
                whether any additional information should be included in the notice.
                 Additional requirements for physical hedging activities. The OCC
                has elaborated in interpretive letters and guidance on practices with
                respect to physical hedging with securities and commodities.\99\ The
                OCC proposes to incorporate these practices into proposed Sec.
                7.1030(e) with certain modifications to promote consistency in the
                practices national banks employ with respect to physical hedging
                activities. Specifically, the OCC proposes to apply the framework in
                interpretive letters addressing physical hedging using securities to
                all physical hedging activities involving underlyings in which a
                national bank could not invest directly. Under the proposed rule, a
                national bank could engage in physical hedging only if: (1) The
                national bank holds the underlying solely to hedge risks arising from
                derivatives transactions originated by customers for the customers'
                valid and independent business purposes; (2) the physical hedging
                activities offer a cost-effective means to hedge risks arising from
                permissible banking activities; (3) the national bank does not take
                anticipatory or maintain residual positions in the underlying except as
                necessary for the orderly establishment or unwinding of a hedging
                position; and (4) the national bank does not acquire equity securities
                for hedging purposes that constitute more than five percent of a class
                of voting securities of any issuer.\100\
                ---------------------------------------------------------------------------
                 \99\ See OCC Bulletin 2015-35; OCC Interpretive Letter No. 935;
                OCC Interpretive Letter No. 892; OCC Interpretive Letter No. 684.
                 \100\ Certain of the practices described in prior OCC
                interpretive letters are not included in the proposed rule text
                because they are generally-applicable safety and soundness standards
                that can be evaluated and addressed under other existing sources of
                law, including, as applicable, 12 U.S.C. 1818. For example, several
                interpretive letters discuss that a national bank should have
                appropriate risk management policies and procedures for its physical
                hedging activities. In addition, several interpretive letters have
                also specified that a bank may not engage in physical hedging
                activities for the purpose of speculating in security or commodity
                prices. As described above, customer-driven financial intermediation
                as defined in the proposal would not include activities entered into
                for the purpose of speculation.
                ---------------------------------------------------------------------------
                 Consistent with OCC interpretive letters and guidance concerning
                physical hedging with commodities in which a national bank could not
                invest directly,\101\ the proposed rule would impose additional
                requirements on physical hedging with commodities. Under the proposed
                rule, a national bank may engage in physical hedging with commodities
                only if the national bank's commodity position (including, as
                applicable, delivery point, purity, grade, chemical composition,
                weight, and size) is no more than five percent of the gross notional
                value of the national bank's derivatives that: (1) Are in that same
                particular commodity and (2) allow for physical settlement within 30
                days. Title to commodities acquired and immediately sold in a
                transitory title transaction would not count against this five percent
                limit.\102\ Consistent with OCC interpretive letters,\103\ the proposed
                rule would permit physical hedging involving commodities only if the
                physical position more effectively reduces risk than a cash-settled
                hedge
                [[Page 40809]]
                involving the same commodity. As discussed above, a national bank may
                not take physical delivery of any commodity by receipt of physical
                quantities of the commodity on bank premises. The proposed rule would
                apply these requirements to physical hedging activities involving
                commodities due to the unique risks of physical commodity
                activities.\104\
                ---------------------------------------------------------------------------
                 \101\ See OCC Bulletin 2015-35; OCC Interpretive Letter No. 684.
                 \102\ Consistent with OCC Interpretive Letter No. 1040, this 5
                percent limit would not apply to physical hedging using emissions
                allowances.
                 \103\ See OCC Interpretive Letter No. 684; OCC Interpretive
                Letter No. 632.
                 \104\ See Section 620 Report (describing the price risks and
                operational risks specific to physical commodities activities).
                ---------------------------------------------------------------------------
                Subpart B--National Bank Corporate Practices
                Corporate Governance (Sec. 7.2000)
                 As noted, the OCC continually seeks to update its regulations to
                stay current with industry changes and technological advances, subject
                to Federal law and consistent with the safe and sound operation of the
                banking system. As part of this process, the OCC is proposing to update
                and modernize Sec. 7.2000, which provides a regulatory framework for
                national bank corporate governance. As described by the OCC in various
                conditional approvals,\105\ ``corporate governance procedures''
                generally refer to requirements involving the operation and mechanics
                of the internal organization of a national bank, including relations
                among owners-investors, directors, and officers, and do not include
                requirements that relate to the banking powers or activities of a
                national bank or relationships between a national bank and customers or
                third parties. Examples of corporate governance procedures include, but
                are not limited to, share exchanges, anti-takeover provisions, and the
                use of blank check procedures in issuing preferred stock. The OCC
                issued Sec. 7.2000 in 1996 to provide national banks with increased
                flexibility to structure their corporate governance procedures
                consistent with the particular needs of the bank while providing
                shareholders and others with adequate notice of the corporate standards
                on which a bank will rely.\106\ The OCC has not substantively changed
                Sec. 7.2000 since its adoption.\107\
                ---------------------------------------------------------------------------
                 \105\ See e.g., OCC Conditional Approval No. 859 (June 13, 2008)
                and OCC Conditional Approval No. 696 (June 9, 2005).
                 \106\ 61 FR 4849, 4854 (Feb. 9, 1996).
                 \107\ Non-substantive amendments to Sec. 7.2000 changed the
                address and telephone number of the OCC Communications Office. See
                79 FR 15641 (March 21, 2014) and 80 FR 28345 (May 18, 2015).
                ---------------------------------------------------------------------------
                 Section 7.2000 currently provides that a national bank proposing to
                engage in a corporate governance procedure must comply with applicable
                Federal banking statutes and regulations and safe and sound banking
                practices. In addition, Sec. 7.2000 provides that to the extent not
                inconsistent with applicable Federal banking statutes or regulations,
                or bank safety and soundness, a national bank may elect to follow the
                corporate governance procedures of the law of the State in which the
                main office of the bank is located, the law of the State in which the
                holding company of the bank is incorporated, Delaware General
                Corporation Law, or the Model Business Corporation Act. Further, Sec.
                7.2000 requires that a national bank designate in its bylaws the body
                of law selected for its corporate governance procedures. Finally, Sec.
                7.2000 describes the process for obtaining OCC staff positions on the
                ability of a national bank to engage in a particular corporate
                governance procedure.
                 The OCC is proposing to amend Sec. 7.2000 to reduce burden,
                provide greater clarity, and modernize the national bank charter with
                respect to corporate governance provisions. These proposed amendments
                also would address anomalous results that may arise when a national
                bank eliminates its holding company. As a general matter, the OCC is
                proposing to change the term ``corporate governance procedure'' used in
                Sec. 7.2000 to ``corporate governance provisions'' and to revise
                paragraph (a) of Sec. 7.2000 accordingly. The OCC believes that
                ``corporate governance procedure'' may be construed too narrowly than
                intended and omit corporate governance practices that are not
                procedural in nature. Revised paragraph (a) would provide that the
                corporate governance provisions in a national bank's articles of
                association and bylaws and the bank's conduct of its corporate
                governance affairs must comply with applicable Federal banking statutes
                and regulations and safe and sound banking practices. The OCC does not
                intend this change to affect the application of prior OCC
                interpretations of corporate governance procedures to Sec. 7.2000.
                 The proposal would preserve the current ability of a national bank
                to use the corporate governance provisions of the State in which the
                main office of the bank is located, the State in which the bank's
                holding company is located, the Delaware General Corporation Law, or
                the Model Business Corporation Act. The proposal, however, would
                increase flexibility in three ways. First, the proposal would revise
                paragraph (b) of Sec. 7.2000 to authorize a national bank to elect the
                corporate governance provisions of the law of any State in which any
                branch of the bank is located in addition to the law of the State in
                which the bank's main office is located, to the extent not inconsistent
                with applicable Federal banking statutes or regulations or safety and
                soundness. Accordingly, a national bank would no longer be limited to
                using the corporate governance provisions of the State where its main
                office is located. For example, a national bank with its main office in
                State A and branches in State B and State C could elect to use the
                corporate governance provisions of the law of State A, State B, or
                State C.
                 Second, the proposal would revise paragraph (b) to authorize the
                national bank to use the law of the State where a holding company of
                the bank is incorporated. The proposal would expressly recognize the
                possibility that a national bank may be controlled by more than one
                holding company and that those holding companies may be incorporated by
                different States.
                 Third, the proposal would add a new paragraph (c) that would allow
                a national bank to continue to use the corporate governance provisions
                of the law of the State where its holding company is incorporated even
                if the holding company is later eliminated or no longer controls the
                bank, and the national bank is not located in that State. This change
                would remove an impediment to a national bank that may choose to
                eliminate its holding company or is no longer controlled by that
                holding company but wishes to retain longstanding and familiar
                corporate governance provisions.
                 The OCC seeks comment on whether a national bank also should be
                able to adopt a combination of corporate governance provisions from the
                laws of several different States where the national bank and any
                holding companies are located, thus potentially resulting in a national
                bank following corporate governance provisions that derive from a
                combination of States' laws, or whether a national bank should be
                limited to electing and using the corporate governance provisions of a
                single State. If the OCC permits a national bank to follow the
                corporate governance provisions from more than one State, the OCC seeks
                comment on how to ensure that shareholders and others are made aware of
                the provisions that the bank has chosen.
                 The OCC also requests comment on whether it should make, to the
                extent appropriate, similar revisions to the regulations pertaining to
                corporate governance provisions for Federal savings associations in 12
                CFR 5.21 and 5.22, so that Federal savings associations may elect to
                use the corporate governance provisions of: (1) Any State in which the
                Federal savings association is located and (2) in the case of Federal
                stock savings associations,
                [[Page 40810]]
                the law of the State in which the association's former holding company
                was incorporated. In addition, the OCC requests comment on whether the
                final rule should change the term ``corporate governance procedures''
                to ``corporate governance provisions'' in Sec. Sec. 5.21 and 5.22 to
                be consistent with the change in terminology proposed for Sec. 7.2000.
                 The proposal also would revise current paragraph (c) of Sec.
                7.2000 (proposed to be redesignated as Sec. 7.2000(d)). Current
                paragraph (c) provides that the OCC considers requests for the OCC
                staff's position on the ability of a national bank to engage in a
                particular State corporate governance provision in accordance with the
                no-objection procedures set forth in OCC Banking Circular 205 or any
                subsequently published agency procedures, and that requests should
                demonstrate how the proposed practice is not inconsistent with
                applicable Federal statutes or regulations and is consistent with bank
                safety and soundness. The OCC issued Banking Circular 205 on July 26,
                1985 and has not modified it since. However, a national bank also may
                request the views of the OCC on an interpretation of national banking
                statutes and regulations through an interpretive letter, which has been
                the more common approach since 1985. In order to update this paragraph,
                the proposal would remove the requirement that requests for the OCC's
                views on State corporate governance provisions use the no-objection
                procedure. The proposal also lists the information that a request must
                contain. This information, similar to what is set forth in OCC Banking
                Circular 205, would include: (1) The name of the bank; (2) citations to
                the State statutes or regulations involved; (3) a discussion whether a
                similarly situated State bank is subject to or may adopt the corporate
                governance provision; (4) identification of all Federal banking
                statutes or regulations that are on the same subject as, or otherwise
                have a bearing on, the subject of the proposed State corporate
                governance provision; and (5) an analysis of how the proposed corporate
                governance provision is not inconsistent with applicable Federal
                statutes or regulations nor with bank safety and soundness. The OCC
                notes that this provision would not preclude a national bank from
                seeking informal consultation with OCC staff. However, if the bank
                wants to receive a written response from OCC staff, it should follow
                the procedure in this proposed paragraph (d).
                 Finally, the OCC requests comment on whether it should revise the
                standard it uses to apply the requirement in Sec. 7.2000 that the
                State corporate governance provision be ``not inconsistent with
                applicable Federal banking statutes or regulations'' to be more
                flexible. The OCC has historically viewed the standard as meaning that
                State corporate governance provisions may be used unless Federal law
                has a different standard than State law, in which case Federal law
                controls. That is, if Federal law addresses a particular corporate
                governance matter, then a national bank must follow Federal law on the
                matter and cannot supplement it with State law. However, the ``not
                inconsistent'' language could be interpreted in a more flexible manner.
                One could view a State provision that imposed higher or more stringent
                requirements as ``not inconsistent'' with Federal law because a bank
                can comply with both if it meets the State's higher requirement. Thus,
                the OCC could permit a bank to adopt a State corporate governance
                provision under Sec. 7.2000 that imposed a higher or more stringent
                standard than Federal law, as long as in complying with the State
                provision the bank also would meet the requirements in Federal law. The
                OCC requests comment on whether this change in the interpretation of
                the ``not inconsistent'' standard would be helpful.
                National Bank Adoption of Anti-Takeover Provisions (7.2001)
                 The OCC is proposing to add a new section Sec. 7.2001 that would
                address the extent to which a national bank may include anti-takeover
                provisions in its articles of association or bylaws.\108\ Anti-takeover
                provisions are examples of corporate governance procedures \109\
                covered by 12 CFR 7.2000. As discussed above, under current Sec.
                7.2000(b) a national bank may elect to follow the corporate governance
                procedures of specified State law to the extent it is (1) not
                inconsistent with applicable Federal banking statutes or regulation and
                (2) not inconsistent with bank safety and soundness.
                ---------------------------------------------------------------------------
                 \108\ OCC regulations currently include provisions addressing
                adoption of anti-takeover provisions by stock Federal savings
                associations. See 12 CFR 5.22(g)(7), (h) and (j)(2)(i)(A). The OCC
                is not proposing to amend those provisions.
                 \109\ The proposed rule would change this terminology in Sec.
                7.2000 to ``corporate governance provisions.''
                ---------------------------------------------------------------------------
                 The purpose of proposed Sec. 7.2001 is to provide the OCC's views
                about the permissibility of several types of anti-takeover provisions.
                Specifically, proposed paragraph (a) of Sec. 7.2001 would provide that
                a national bank may, pursuant to 12 CFR 7.2000(b), adopt anti-takeover
                provisions included in State corporate governance law if the provisions
                are not inconsistent with Federal banking statutes or regulations and
                not inconsistent with bank safety and soundness.
                 Proposed paragraph (b) would set forth the type of anti-takeover
                provisions in State corporate governance provisions that the OCC
                specifically has determined are not inconsistent with Federal banking
                statutes or regulations.\110\ This list is not exclusive and the OCC
                may find that other State anti-takeover laws are not inconsistent with
                Federal banking statutes or regulations. A national bank could elect to
                follow these provisions, subject to the bank safety and soundness
                limitation discussed below.
                ---------------------------------------------------------------------------
                 \110\ Permitting the use of staggered boards is another anti-
                takeover provision. The proposed new section does not include
                staggered boards because they are now expressly permitted under the
                National Bank Act. 12 U.S.C. 71; 12 CFR 2024.
                ---------------------------------------------------------------------------
                 Restrictions on business combinations with interested shareholders.
                These State provisions prohibit, or permit the corporation to prohibit
                in its certificate of incorporation or other governing document, the
                corporation from engaging in a business combination with an interested
                shareholder or any related entity for a specified period of time (e.g.,
                three years) from the date on which the shareholder first becomes an
                interested shareholder (subject to certain exceptions, such as board
                approval). An interested shareholder is one that owns an amount of
                stock specified in the State statute, e.g., at least fifteen percent.
                Federal banking statutes and regulations do not address, directly or
                indirectly, this type of restriction for national banks. Although
                Federal banking statutes authorize national banks to engage in
                specified consolidations and mergers,\111\ this authorization does not
                preclude a bank's shareholders from adopting a provision that limits
                the consolidations and mergers into which the bank would enter.
                Therefore, State restrictions on business combinations with interested
                shareholders are not inconsistent with Federal law.
                ---------------------------------------------------------------------------
                 \111\ See 12 U.S.C 215, 215a, 215a-1, 215a-3, and 215c.
                ---------------------------------------------------------------------------
                 Poison pills. A ``poison pill'' is a State statutory provision that
                provides, or that permits the corporation to provide in its certificate
                of incorporation or other governing document, that all shareholders,
                other than the hostile acquiror, have the right to purchase additional
                stock at a substantial discount upon the occurrence of a triggering
                event. Because no Federal banking statutes or regulations directly or
                indirectly address these shareholder
                [[Page 40811]]
                purchase rights, State poison pill laws are not inconsistent with
                Federal law.\112\
                ---------------------------------------------------------------------------
                 \112\ However, shareholders, including the hostile acquiror,
                should consider the implications under the Change in Bank Control
                Act or Bank Holding Company Act if a shareholder, or shareholders
                acting in concert, acquire sufficient shares to constitute
                ``control.''
                ---------------------------------------------------------------------------
                 Requiring all shareholder actions to be taken at a meeting. These
                State provisions provide, or permit the corporation to provide in its
                certificate of incorporation or other governing document, that all
                actions to be taken by shareholders must occur at a meeting and
                prohibit shareholders from taking action by written consent. Certain
                Federal banking statutes require shareholder approval to be taken at a
                meeting \113\ while other sections require shareholder approval but do
                not specify a meeting.\114\ There is no provision in Federal law
                authorizing national bank shareholders to take action by written
                consent in lieu of a meeting. Furthermore, nothing in Federal law
                precludes a national bank's articles of association from requiring a
                meeting for any action. Therefore, this type of State provision is not
                inconsistent with Federal law.
                ---------------------------------------------------------------------------
                 \113\ See 12 U.S.C. 71, 214a, 215, 215a, and 215a-2.
                 \114\ See 12 U.S.C. 30, 51a, 57, and 59. However, 12 U.S.C. 21a
                provides that any action requiring approval of the stockholders be
                obtained by approval by a majority vote of the voting shares at a
                meeting, unless the statutory provision addressing the action
                requires greater level of approval.
                ---------------------------------------------------------------------------
                 Limits on shareholders' authority to call special meetings. These
                State provisions provide, or permit the corporation to provide in its
                certificate of incorporation or other governing document, that only the
                board of directors, and not shareholders, have the right to call
                special meetings of the shareholders or, if shareholders have the
                right, require a high percentage of shareholders to call the meeting.
                Because Federal banking statutes or regulations do not address,
                directly or indirectly, the right of shareholders of a national bank to
                call special meetings, these type of State laws are not inconsistent
                with Federal law.
                 Shareholder removal of a director only for cause. These State
                provisions provide, or permit the corporation to provide in its
                certificate of incorporation or other governing document, that
                shareholders may remove a director only for cause, rather than both for
                cause and without cause. The National Bank Act and OCC regulations do
                not have a specific provision addressing director removal by
                shareholders. Removal only for cause is consistent with the OCC's model
                national bank Articles of Association, which provide for removal for
                cause and for failure to meet statutory director qualifications.\115\
                Therefore, State provisions requiring shareholder removal of a director
                only for cause are not inconsistent with Federal law.
                ---------------------------------------------------------------------------
                 \115\ See Articles of Association, Charters, and Bylaw
                Amendments (Forms), Comptroller's Licensing Manual (June 19, 2017)
                (Model Articles of Association, Article Fourth, last paragraph).
                ---------------------------------------------------------------------------
                 Proposed paragraph (c) would set forth the type of anti-takeover
                provisions in State corporate governance provisions that the OCC has
                determined are inconsistent with Federal banking statutes or
                regulations. A national bank could not elect to follow these
                provisions. These provisions are set forth below.
                 Supermajority voting requirements. These State statutory provisions
                require, or permit the corporation to require in its certificate of
                incorporation or other governing document, that a supermajority of the
                shareholders approve specified matters. A requirement that a
                supermajority vote of shareholders must approve some transactions is
                inconsistent with Federal law when applied to transactions for which a
                Federal statute or regulation includes an express specific shareholder
                approval level. Certain provisions of the National Bank Act specify
                shareholder approval by a two-thirds vote \116\ and other provisions
                require majority shareholder approval.\117\ When a provision in the
                National Bank Act specifies the level of shareholder vote required for
                approval, it is inconsistent with Federal law to follow a State
                corporate governance provision that permits or requires a different
                level or an additional shareholder approval requirement for a subset of
                shareholders.
                ---------------------------------------------------------------------------
                 \116\ See 12 U.S.C. 30, 57, 59, 181, 214a, 215, 215a, and 215a-
                2.
                 \117\ See 12 U.S.C. 21a and 51a.
                ---------------------------------------------------------------------------
                 Restrictions on a shareholder's right to vote all the shares it
                owns. These State statutory provisions prohibit, or permit the
                corporation in its certificate of incorporation or other governing
                document to prohibit, a person from voting shares acquired that
                increase their percentage of ownership of the company's stock above a
                certain level. This type of provision is inconsistent with the National
                Bank Act, which expressly provides that each shareholder is entitled to
                one vote on each share of stock held by the shareholder on all matters
                other than elections for directors, where cumulative voting may be
                allowed if so provided in the articles of association.\118\ A State
                corporate governance provision that interferes with this express right
                to vote is inconsistent with Federal law.
                ---------------------------------------------------------------------------
                 \118\ 12 U.S.C. 61.
                ---------------------------------------------------------------------------
                 As indicated above, Sec. 7.2000(b) permits a national bank to
                elect to follow a State corporate governance provision only if it is
                not inconsistent with Federal law and bank safety and soundness.
                Proposed paragraph (d) of Sec. 7.2001 addresses the impact of bank
                safety and soundness on adoption of anti-takeover provisions.
                 Anti-takeover provisions could make it harder for a bank to be
                acquired by another bank or by investors or to raise capital by
                discouraging share purchases by a potential acquiror. Thus, when a bank
                is in a weak condition, anti-takeover provisions the OCC has determined
                are not inconsistent with Federal law nevertheless would be
                inconsistent with bank safety and soundness if they would impair the
                possibility of restoring the bank to sound condition. These provisions
                would then be impermissible.
                 Accordingly, proposed paragraph (d) would provide that any State
                corporate governance provision, including anti-takeover provisions,
                that would render more difficult or discourage an injection of capital
                by purchase of bank stock, a merger, the acquisition of the bank, a
                tender offer, a proxy contest, the assumption of control by a holder of
                a large block of the bank's stock, or the removal of the incumbent
                board of directors or management is inconsistent with bank safety and
                soundness if: (1) The bank is less than adequately capitalized (as
                defined in 12 CFR part 6); (2) the bank is in troubled condition (as
                defined in 12 CFR 5.51(c)(7)); (3) grounds for the appointment of a
                receiver under 12 U.S.C. 191 are present; or (4) the bank is otherwise
                in less than satisfactory condition, as determined by the OCC.
                 However, proposed paragraph (d) also provides that an anti-takeover
                provision is not inconsistent with bank safety and soundness if, at the
                time it adopts the provision, the national bank: (1) Is not subject to
                any of the foregoing conditions and (2) includes along with the
                provision a limitation that the provision is not effective if one or
                more of the foregoing conditions occur or if the OCC otherwise directs
                the bank not to follow the provision for supervisory reasons.
                 Proposed paragraph (e) provides for OCC case-by-case review of
                anti-takeover provisions. The OCC reviewed each type of State anti-
                takeover provision described in proposed paragraph (b) for consistency
                with Federal banking statutes and regulations only at a general level,
                without
                [[Page 40812]]
                reviewing the specific terms of a proposed provision to be adopted by a
                particular bank. While the OCC has concluded that the types of
                provisions set out in paragraph (b) are not inconsistent with Federal
                banking statutes and regulations in general, the specific provision a
                particular bank adopts may contain features that could change the
                result of the OCC's review. Similarly, some anti-takeover provisions
                may be inconsistent with bank safety and soundness for a particular
                national bank because of its individual circumstances, even if it is
                not subject to the conditions listed in proposed paragraph (d).
                 In order to address the need for individual determinations when
                appropriate, proposed paragraph (e) would provide that the OCC may
                determine that a State anti-takeover provision, as proposed or adopted
                by an individual national bank, is: (1) Inconsistent with Federal
                banking statutes or regulations, even if it is of a type included in
                paragraph (b) or (2) inconsistent with bank safety and soundness other
                than as provided in paragraph (d). The OCC could begin a case-by-case
                review on its own initiative. In addition, a bank that wishes the OCC
                to review the permissibility of the specific State anti-takeover
                provisions it has adopted or proposes to adopt may request the OCC's
                review, under the procedures set forth at 12 CFR 7.2000(d).
                 Finally, proposed paragraph (f) addresses the method a national
                bank, its shareholders, and its directors would use to adopt each anti-
                takeover provision. In general, the bank would follow the requirements
                for board of director and shareholder approval set out in the State
                corporate governance statute it is electing to follow. However, if the
                provision is included in the bank's articles of association, the bank's
                shareholders would be required to approve the amendment of the articles
                pursuant to 12 U.S.C. 21a, even if the State law does not require
                approval by the shareholders. Further, if the State corporate
                governance law requires the provision to be in the company's articles
                of incorporation, certificate of incorporation, or similar document,
                the national bank must include the provision in its articles of
                association. If the State corporate governance law does not require the
                provision to be in the company's articles of incorporation, certificate
                of incorporation, or similar document but allows it to be in the
                bylaws, then the national bank could include the provision in its
                articles of association or in its bylaws. However, if the State
                corporate governance law requires shareholder approval for changes to
                the corporation's bylaws, then the national bank must include the
                provision in its articles of association.
                Director or Attorney as Proxy (Sec. 7.2002)
                 Twelve U.S.C. 61 prohibits an officer, clerk, teller, or bookkeeper
                of the bank from acting as proxy for shareholder voting. Section 7.2002
                codifies this prohibition in OCC regulations, and provides that any
                person or group of persons, except the bank's officers, clerks,
                tellers, or bookkeepers, may be designated to act as proxy. The OCC is
                proposing to amend this section to clarify that the proxy referenced in
                the section is for shareholder voting, as provided in the statute. The
                OCC intends no substantive change with this amendment.
                President as Director; Senior Executive Officer (Sec. 7.2012)
                 Twelve U.S.C. 76 provides that the president of the bank must be a
                member of the board and be chairman thereof, but that the board may
                designate a director in lieu of the president to be chairman, who must
                perform duties as assigned by the board. Section 7.2012 codifies this
                statutory requirement in the OCC's rules by providing that pursuant to
                12 U.S.C. 76, the president of a national bank must be a member of the
                board of directors, but a director other than the president may be
                elected chairman of the board. This section further provides that a
                person other than the president may serve as the chief executive
                officer, and that this person is not required to be a director of the
                bank. When first proposing this rule, the OCC acknowledged that it was
                adding this second sentence to provide that a person other than the
                president or a director may serve as chief executive officer of a
                bank.\119\
                ---------------------------------------------------------------------------
                 \119\ 60 FR 11924 (March 3, 1995). This rule was finalized in
                1996. 61 FR 4849 (Feb. 9, 1996).
                ---------------------------------------------------------------------------
                 The OCC is proposing two substantive changes to this section.
                First, the OCC is proposing that the person serving as, or in the
                function of, president of a national bank, regardless of title, must be
                a member of the board of directors. This change would align the
                regulation with the OCC's view that the bank officer positions in 12
                U.S.C. 76 and other provisions of the National Bank Act refer to
                functions rather than required titles. If a national bank does not have
                an individual serving in the position of president but does have
                another officer serving the function of president, the individual
                serving in the function of president must be a member of the board of
                directors. The person serving the function of president is generally
                the individual appointed to oversee the national bank's day-to-day
                activities.\120\ This change would provide national banks with
                flexibility in employee titles and management organization. The OCC
                notes that 12 U.S.C. 24(Fifth) provides national banks with the
                authority to set the duties of their officers. National banks should
                ensure that their employee titles do not create unnecessary confusion.
                ---------------------------------------------------------------------------
                 \120\ See OCC, ``The Director's Book: Role of Directors for
                National Banks and Federal Savings Associations'' (July 2016),
                available at www.OCC.gov (Director's Book).
                ---------------------------------------------------------------------------
                 Second, the OCC is proposing to remove the provision in Sec.
                7.2012 that states that a person other than the president may serve as
                chief executive officer, and this person is not required to be a
                director of the bank. This provision is unnecessary. The position of
                chief executive officer is not referenced in statute and, as indicated
                above, national banks have discretion to set the duties of their
                officers. Further, this provision would conflict with the first
                proposed revision. Because function rather than title would govern
                under the proposal, a chief executive officer that serves the function
                of president would be required to be a member of the board.\121\
                ---------------------------------------------------------------------------
                 \121\ The Director's Book uses the terms ``president'' and
                ``chief executive officer'' interchangeably to refer to the
                individual appointed by the board of directors to oversee the day-
                to-day activities of a national bank.
                ---------------------------------------------------------------------------
                 The OCC requests comment on whether the proposed changes would
                provide national banks with flexibility in their organization of
                management or introduce complexity given the current practices at
                national banks.
                Indemnification of Institution-Affiliated Parties (Sec. Sec. 7.2014,
                145.121)
                 The OCC is proposing to amend and reorganize Sec. 7.2014,
                Indemnification of institution-affiliate parties (by national banks),
                apply revised Sec. 7.2014 to Federal savings associations, and remove
                Sec. 145.121, Indemnification of directors, officers and employees (by
                Federal savings associations). Twelve CFR 7.2014 addresses
                indemnification of institution-affiliated parties (IAPs) by national
                banks in cases involving an administrative proceeding or civil action
                initiated by a Federal banking agency, as well as cases that do not
                involve a Federal banking agency. Under Sec. 7.2014(a), a national
                bank only may make or agree to make indemnification payments to an IAP
                with respect to an administrative proceeding or civil action initiated
                by a Federal banking agency if those
                [[Page 40813]]
                payments are reasonable and consistent with the requirements of 12
                U.S.C. 1828(k) and the implementing regulations thereunder. Pursuant to
                section 1828(k), the Federal Deposit Insurance Corporation (FDIC) may
                prohibit, by regulation or order, any indemnification payment made with
                regard to an administrative proceeding or civil action instituted by
                the appropriate Federal banking agency that results in a final order
                under which the IAP: (1) Is assessed a civil money penalty; (2) is
                removed or prohibited from participating in conduct of the affairs of
                the insured depository institution; or (3) is required to take certain
                affirmative actions in regards to an insured depository
                institution.\122\ Section 1828(k) defines ``indemnification payment''
                to mean any payment (or any agreement to make any payment) by any
                insured depository institution to pay or reimburse an IAP for any
                liability or legal expense with regard to any administrative proceeding
                or civil action instituted by the appropriate Federal banking agency
                that results in a final order under which the IAP: (1) Is assessed a
                civil money penalty; (2) is removed or prohibited from participating in
                conduct of the affairs of the insured depository institution; or (3) is
                required to take certain affirmative actions in regards to an insured
                depository institution.\123\ Section 7.2014(a) defines ``institution-
                affiliated party'' by reference to 12 U.S.C. 1813(u).
                ---------------------------------------------------------------------------
                 \122\ In prohibiting such payments, the FDIC may take into
                account several factors listed in the statute, such as whether there
                is a reasonable basis to believe the IAP has committed fraud,
                breached a fiduciary duty, or committed insider abuse; is
                substantially responsible for the insolvency of the depository
                institution; has violated any Federal or State banking law or
                regulation that has had a material effect on the financial condition
                of the institution; or was in a position of managerial or fiduciary
                responsibility. See 12 U.S.C. 1828(k)(2). The FDIC has forbidden
                certain indemnification payments by regulation. See 12 CFR
                359.1(l)(1) (definition of ``prohibited indemnification payment'');
                12 CFR 359.3 (forbidding prohibited indemnification payments, except
                as provided in part 359).
                 \123\ See 12 U.S.C. 1828(k)(5)(A); see also 12 U.S.C. 1818(b)(6)
                (defining affirmative actions that an IAP may be required to take in
                regard to insured depository institutions for purposes of section
                1828(k)(5)(A)).
                ---------------------------------------------------------------------------
                 Section 7.2014(b)(1) permits a national bank to indemnify IAPs for
                damages and expenses, including the advancement of legal fees and
                expenses, in cases involving an administrative proceeding or civil
                action that is not initiated by a Federal banking agency in accordance
                with the law of the State in which the main office of the bank is
                located, the law of the State in which the bank's holding company is
                incorporated, or the relevant provisions of the Model Business
                Corporation Act or Delaware General Corporation Law, provided such
                payments are consistent with safe and sound banking practices.
                 Additionally, pursuant to Sec. 7.2014(b)(2), a national bank may
                provide for the payment of reasonable premiums for insurance covering
                the expenses, legal fees, and liability of IAPs to the extent that
                these costs could be indemnified under administrative proceedings or
                civil actions not initiated by a Federal banking agency, as provided in
                Sec. 7.2014(b)(1).
                 Twelve CFR 145.121 addresses indemnification of directors, officers
                and employees by Federal savings associations. Section 145.121(b)
                requires a Federal savings association to indemnify any person against
                whom an action is brought or threatened because that person is or was a
                director, officer, or employee of the association. This indemnification
                is subject to the requirements of Sec. 145.121(c) and (g). Section
                145.121(c) provides that indemnification only may be made available to
                the IAP if there is a final judgment on the merits in the IAP's favor;
                or, in the case of settlement, final judgment against the IAP, or final
                judgment in the IAP's favor other than on the merits, if a majority of
                the disinterested directors of the Federal savings association
                determine that the IAP was acting in good faith. It also provides that
                the association give the OCC at least 60 days' notice of its intention
                to indemnify an IAP and provides that the association may not indemnify
                the IAP if the OCC advises the savings association in writing that the
                OCC objects. Section 145.121(g) makes the indemnification subject to 12
                U.S.C. 1821(k).
                 Pursuant to Sec. 145.121(d), a Federal savings association may
                obtain insurance to protect it and its directors, officers, and
                employees from potential losses arising from claims for acts committed
                in their capacity as directors, officers, or employees. However, a
                Federal savings association may not obtain insurance that provides for
                payment of losses incurred as a consequence of willful or criminal
                misconduct.
                 Pursuant to Sec. 145.121(e), if a majority of the directors of a
                Federal savings association conclude that, in connection with an
                action, a person may become entitled to indemnification, the directors
                may authorize payment of reasonable costs and expenses arising from the
                defense or settlement of the action. Before making advance payment of
                expenses, the savings association is required to obtain an agreement
                that the savings association will be repaid if the person on whose
                behalf payment is made is later determined not to be entitled to the
                indemnification.
                 Pursuant to Sec. 145.121(f), an association that has a bylaw in
                effect relating to indemnification of its personnel must be governed
                solely by that bylaw, except that its authority to obtain insurance
                must be governed by Sec. 145.121(d), which, as described above,
                authorizes the purchase of indemnification insurance unless the
                insurance pays for losses created by willful or criminal misconduct.
                Section 145.121(g) states that the indemnification provided for in
                Sec. 145.121 for Federal savings associations is subject to and
                qualified by 12 U.S.C. 1821(k), which addresses personal liability for
                directors and officers in certain civil actions.
                 The OCC is proposing to add Federal savings associations to Sec.
                7.2014 so that both charters would be required to comply with Sec.
                7.2014. Because Sec. 7.2014 applies to IAPs and not only officers,
                directors, and employees as does Sec. 145.121, the scope of
                indemnification rules for Federal savings associations would be
                broader, applying also to certain Federal savings association
                controlling shareholders, independent contractors, consultants, and
                other persons identified in 12 U.S.C. 1813(u).
                 The OCC also is proposing changes to Sec. 7.2014. First, the
                proposal would amend current Sec. 7.2014(b)(1), redesignated in this
                proposal as Sec. 7.2014(a) and retitled, to provide that State law on
                indemnification may apply to all administrative proceedings or civil
                actions for which an IAP can be indemnified, not just actions that are
                initiated by a person or entity not a Federal banking agency as under
                the current rule. This would clarify the application of State law on
                indemnification to actions initiated by Federal banking agencies.
                However, current Sec. 7.2014(a), redesignated by this proposal as
                Sec. 7.2014(b), would still apply. Specifically, under redesignated
                Sec. 7.2014(b), with respect to proceedings or civil actions initiated
                by a Federal banking agency, a national bank or Federal savings
                association only may make or agree to make indemnification payments to
                an IAP that are reasonable and consistent with the requirements of
                section 1828(k) and implementing regulations thereunder.\124\
                ---------------------------------------------------------------------------
                 \124\ The OCC also proposes to move the cross-reference to the
                definition of IAP in redesignated Sec. 7.2014(b) to redesignated
                paragraph (a) and to make stylistic changes to the wording of
                redesignated Sec. 7.2014(b).
                ---------------------------------------------------------------------------
                 The OCC also is proposing a technical change to redesignated Sec.
                7.2014(a). As
                [[Page 40814]]
                indicated above, the current rule states that in cases involving an
                administrative proceeding or civil action not initiated by a Federal
                banking agency, a national bank may indemnify an IAP in accordance with
                the law of the State in which the main office of the bank is located,
                the law of the State in which the bank's holding company is
                incorporated, or the relevant provisions of the Model Business
                Corporation Act or Delaware General Corporation Law, provided such
                payments are consistent with safe and sound banking practices. Because
                these sources of law are identical to the law a national bank may elect
                to follow pursuant to Sec. 7.2000(b) or the law a Federal savings
                association may elect to follow pursuant to Sec. Sec. 5.21 or 5.22,
                the OCC proposes to replace the language on sources of State law in
                this provision with a statement that the bank or savings association
                may indemnify an IAP for damages and expenses in accordance with the
                law of the State the bank or savings association has designated for its
                corporate governance under the provisions of Sec. Sec. 7.2000, 5.21,
                or 5.22, as applicable.\125\
                ---------------------------------------------------------------------------
                 \125\ As explained supra, the OCC is proposing to amend Sec.
                7.2000 to also allow national banks to follow the corporate
                governance provisions of the law of any State in which any branch of
                the bank is located or where a holding company of the bank is
                incorporated even if the holding company is later eliminated or no
                longer controls the bank and the national bank is not located in
                that State. The OCC is requesting comment on making the same change
                to Sec. Sec. 5.21 and 5.22.
                ---------------------------------------------------------------------------
                 Second, the OCC is proposing to amend Sec. 7.2014(b)(2),
                redesignated as Sec. 7.2014(d) in the proposal, to allow a national
                bank or Federal savings association to provide for the payment of
                reasonable insurance premiums in connection with all actions involving
                an IAP that could be indemnified under Sec. 7.2014, whether or not
                initiated by a Federal banking agency. The OCC believes this change
                would resolve confusion regarding how current Sec. 7.2014(b)(2) is
                applied. This proposed change also would better align OCC regulations
                on the payment of insurance premiums with the FDIC's regulations and 12
                U.S.C. 1828(k).\126\
                ---------------------------------------------------------------------------
                 \126\ The FDIC's implementing regulations under section 1828(k),
                12 CFR part 359, explicitly allow the payment of insurance premiums
                in anticipation of actions brought by a Federal banking agency,
                provided the insurance is not used to reimburse the cost of a
                judgment or civil monetary penalty. See 12 CFR 359.1(l)(2).
                ---------------------------------------------------------------------------
                 Third, the OCC is proposing to add a new paragraph (c) that would
                require a national bank or Federal savings association, before
                advancing funds to an IAP under Sec. 7.2014, to obtain a written
                agreement that the IAP will reimburse the bank for any portion of
                indemnification that the IAP is ultimately found not to be entitled to
                under 12 U.S.C. 1828(k) and implementing regulations, except to the
                extent the bank's expenses have been reimbursed by an insurance policy
                or fidelity bond.\127\ This requirement is similar to the requirement
                in Sec. 145.121(e) currently applicable to Federal savings
                associations and therefore would not impose any additional burdens on
                Federal savings associations. Further, FDIC regulations,\128\ State
                law,\129\ and the Model Business Corporation Act \130\ contain similar
                requirements for IAPs to reimburse institutions for funds to which they
                are later found not to be entitled. As most national banks are subject
                to the FDIC's indemnification regulations or have elected under 12 CFR
                7.2000(b) to follow State corporate law imposing reimbursement
                requirements for advancement of funds, the OCC believes that this
                proposed change would not impose any additional burden on national
                banks and would merely codify existing practices. This proposed change
                also will ensure that national banks, and Federal savings associations,
                do not provide indemnification to IAPs that is ultimately in
                contravention of the statutory limits of section 1828(k).
                ---------------------------------------------------------------------------
                 \127\ National banks are required to purchase fidelity coverage
                by 12 CFR 7.2013.
                 \128\ See 12 CFR 359.5(a)(4).
                 \129\ See, e.g., 8 Del. C. Sec. 145(e); Utah Code Sec. 16-10a-
                904; 805 Ill. Comp. Stat. 5/8.75(e); see also N.Y. Bus. Corp. Law
                Sec. 725(a) (requiring repayment, but not explicitly requiring a
                written agreement).
                 \130\ See Model Bus. Corp. Act Sec. 8.53(a).
                ---------------------------------------------------------------------------
                 The OCC believes that proposed Sec. 7.2014 incorporates the
                provisions of current Sec. 145.121 that should be applicable to both
                national banks and Federal savings associations, while maintaining
                appropriate flexibility for both types of institutions. Specifically,
                the proposal would apply Sec. 7.2014 to actions brought by a Federal
                banking agency and actions not brought by a Federal banking agency, as
                in Sec. 145.121, while retaining the statutory limits of section
                1828(k).\131\ The proposal also includes the reimbursement agreement
                requirement, as in Sec. 145.121(e). However, the proposed rule does
                not include the provision in Sec. 145.121 that requires Federal
                savings associations to indemnify persons against whom an action is
                brought under certain circumstances, such as if they are successful on
                the merits of the action, nor \132\ the provision requiring a board
                vote to authorize indemnification under certain circumstances.\133\ In
                place of these requirements, proposed Sec. 7.2014 would permit Federal
                savings associations to incorporate State law on indemnification.
                Because State law governing indemnification generally incorporates
                these aspects of current Sec. 145.121, the OCC expects that Federal
                savings associations will continue to be subject to similar provisions
                governing indemnification as before. For example, State law generally
                requires mandatory indemnification if an employee is successful on the
                merits,\134\ as well as a board vote authorizing indemnification in
                almost all circumstances.\135\ Because national banks also may
                incorporate State indemnification law, they would be subject to these
                State indemnification provisions as well. The OCC specifically requests
                comment on whether, instead of relying on State law, the final rule
                should include the requirement from Sec. 145.121 that, in the case of
                settlement, final judgment against the IAP, or final judgment in the
                IAP's favor other than on the merits, a majority of the disinterested
                directors determine that the IAP was acting in good faith before the
                instruction may indemnify the IAP.
                ---------------------------------------------------------------------------
                 \131\ Section 145.121(g) subjects and qualifies the
                indemnification provided for by current Sec. 145.121 to 12 U.S.C.
                1821(k). In contrast, current Sec. 7.2014 explicitly subjects
                national bank indemnification to the restrictions of 12 U.S.C.
                1828(k). Section 1828(k) directly addresses indemnification and is
                applicable to any insured depository institution. See 12 U.S.C.
                1828(k)(5)(A). Section 1821(k) addresses personal liability for
                directors and officers and is also applicable to any insured
                depository institution. Both of these statutes apply, and will
                continue to apply to national banks and Federal savings associations
                but proposed Sec. 7.2014 retains the citation to section 1828(k) as
                the more relevant citation for indemnification purposes.
                 \132\ See Sec. 145.121(b).
                 \133\ See Sec. 145.121(c)(1)(ii)(C)).
                 \134\ See, e.g., 8 Del. C. 145(c); New York BCL Sec. 723(a);
                805 ILCS 5/8.75(c); Model Bus. Corp. Act, Sec. 8.52 (2016).
                 \135\ See, e.g., 8 Del. C. 145(d); New York BCL Sec. 723(b);
                805 ILCS 5/8.75(d); Model Bus. Corp. Act, Sec. Sec. 8.53(c), 8.55
                (2016).
                ---------------------------------------------------------------------------
                 The proposed rule also does not include the provision in Sec.
                145.121 that requires a 60-day prior notice to the OCC before making an
                indemnification.\136\ The OCC is not proposing to retain this provision
                because it believes it is burdensome and unnecessary. However, the OCC
                requests comment on whether the final rule should include this prior
                notice requirement and, if so, what benefits prior approval would
                provide that would outweigh any additional regulatory burden.
                ---------------------------------------------------------------------------
                 \136\ See Sec. 145.121(c)(2)).
                ---------------------------------------------------------------------------
                [[Page 40815]]
                Restricting Transfer of Stock and Record Dates; Stock Certificates
                (Sec. 7.2016)
                Facsimile Signatures on Bank Stock Certificates (Sec. 7.2017)
                Lost Stock Certificates (Sec. 7.2018)
                 Sections 12 CFR 7.2016, 7.2017, and 7.2018 contain specific
                requirements related to national bank stock transfers and stock
                certificates. Many of these requirements are mandated by 12 U.S.C. 52.
                However, some of these requirements are outdated because national banks
                today rarely issue physical stock certificates.
                 Section 7.2016(a) states that, pursuant section 52, a national bank
                may impose conditions on the transfer of its stock reasonably
                calculated to simplify the work of the bank with respect to stock
                transfers, voting at shareholders' meetings, and related matters and to
                protect the bank against fraudulent transfers. Consistent with the
                statute, Sec. 7.2016(b) allows a national bank to close its stock
                records for a reasonable period to ascertain shareholders for voting
                purposes. The board also may fix record dates, which should be
                reasonable in proximity to the date notice is given to shareholders of
                the meeting. Section 7.2017 states that the president and cashier of
                the bank, or other officers authorized by the bank's bylaws, shall sign
                each stock certificate. These signatures may be manual or facsimile and
                may be electronic. Each certificate also must be sealed with the seal
                of the bank.
                 To streamline OCC rules, the OCC is proposing to combine Sec. Sec.
                7.2016 and 7.2017 into one section, Sec. 7.2016, that would apply to
                both stock transfers and stock certificate requirements. The OCC also
                is proposing to make OCC rules on stock certificates more flexible. As
                noted above, section 12 U.S.C. 52 requires certain officers of the
                association to sign every bank stock certificate and for it to be
                sealed with the seal of the association. However, banks now generally
                hold stock in ``book-entry'' form, which is not a format that supports
                signatures or stamps. Although section 52 places requirements on
                physical stock certificates, the OCC does not believe that the language
                of that section requires banks to actually issue stock in certificated
                form.
                 Notably, section 52 also states that ``[t]he capital stock of each
                association shall be . . . transferable on the books of the association
                in such manner as may be prescribed in the by-laws or articles of
                association.'' \137\ This language allows banks to provide for book-
                entry transfer in their by-laws or articles of association, even if
                this type of transfer is incompatible with the use of signatures and
                seals. Therefore, the OCC is proposing to state that a national bank
                may prescribe the manner in which its stock shall be transferred in its
                by-laws or articles of association. The OCC also is proposing to
                specify that a national bank that does issue stock in certificate form
                must comply with the requirements of section 52, including: (1) The
                name and location of the bank; (2) name and holder of record of the
                stock; (3) the number and class of shares which the certificate
                represents; (4) if the bank issues more than one class of stock, the
                respective rights, preferences, privileges, voting rights, powers,
                restrictions, limitations, and qualifications of each class of stock
                issued (unless incorporated by reference to the articles of
                association); (5) signatures of the president and cashier of the bank,
                or such other officers as the bylaws of the bank provide; and (6) the
                seal of the bank. The OCC is proposing to continue allowing banks to
                meet the signature requirements of section 52 through the use of
                electronic means or by facsimiles, as is permitted by current Sec.
                7.2017.
                ---------------------------------------------------------------------------
                 \137\ See 12 U.S.C. 52, first paragraph.
                ---------------------------------------------------------------------------
                 Finally, the OCC is proposing to remove Sec. 7.2018 as
                unnecessary. Section 7.2018 states that if the bank's articles of
                association or bylaws do not provide for replacing lost, stolen, or
                destroyed stock certificates, the bank may adopt procedures under 12
                CFR 7.2000. Section 7.2000 generally permits national banks to adopt
                corporate governance procedures \138\ in accordance with State law, to
                the extent not inconsistent with applicable Federal laws and
                regulations or with bank safety and soundness. Therefore, this
                provision is unnecessary.
                ---------------------------------------------------------------------------
                 \138\ The proposed rule would change this terminology in Sec.
                7.2000 to ``corporate governance provisions.''
                ---------------------------------------------------------------------------
                Acquisition and Holding of Shares as Treasury Stock (Sec. 7.2020)
                 The OCC is proposing to remove 12 CFR 7.2020. Currently, Sec.
                7.2020 provides that a national bank may repurchase its outstanding
                shares and hold them as treasury stock as a capital reduction under 12
                U.S.C. 59 if the repurchase and retention is for a ``legitimate
                corporate purpose'' and not for speculative purposes. The OCC issued
                Sec. 7.2020 in 1996 as an exception to the provision in 12 U.S.C. 83
                that prohibited a national bank from being the ``purchaser or holder''
                of its own shares. However, in 2000, Congress amended section 83 to
                remove this prohibition.\139\ Therefore, Sec. 7.2020 is unnecessary.
                The OCC notes that removing Sec. 7.2020 would not limit the OCC's
                authority over share repurchases. Share repurchases are considered
                reductions in capital and would continue to be subject to OCC and
                shareholder approval under 12 U.S.C. 59 and 12 CFR 5.46.
                ---------------------------------------------------------------------------
                 \139\ Public Law 106-569, Title XII, section 1207(a), 114 Stat.
                3034 (American Homeownership and Economic Opportunity Act of 2000).
                ---------------------------------------------------------------------------
                Capital Stock-Related Activities of a National Bank (New Sec. 7.2025)
                 The OCC is proposing a new section, Sec. 7.2025, that would codify
                various OCC interpretations of the National Bank Act involving capital
                stock issuances and repurchases. Specifically, proposed Sec. 7.2025
                would explain the shareholder approval requirements for the issuance of
                authorized common stock; the issuance, repurchase, and redemption of
                preferred stock pursuant to blank check procedures; and share
                repurchase programs. Generally, an increase or decrease in the amount
                of a national bank's common or preferred stock is a change in permanent
                capital subject to the notice and approval requirements of 12 CFR 5.46
                and applicable law.\140\ Proposed Sec. 7.2025(a) sets forth the
                general requirements for changes in permanent capital. Paragraphs (b)
                through (d) of proposed Sec. 7.2025 provide more specific requirements
                for shareholder approval of various types of issuances and repurchases.
                Section 7.2025(e) would identify certain permissible features for
                preferred stock.
                ---------------------------------------------------------------------------
                 \140\ See generally 12 U.S.C. 51a, (preferred stock issuance),
                57 (increase in capital), and 59 (reduction of capital).
                ---------------------------------------------------------------------------
                 Issuance of previously approved and authorized common stock. The
                issuance of common stock is governed by 12 U.S.C. 57, which provides
                that a national bank ``may, with the approval of the [OCC], and by a
                vote of shareholders owning two-thirds of the stock of such [bank],
                increase its capital stock to any sum.'' The OCC has interpreted 12
                U.S.C. 57 to require a two-thirds shareholder vote to amend the
                articles of association to increase the number of authorized
                shares.\141\ The OCC also has long interpreted section 57 to permit a
                national bank's board of directors to issue common stock without
                obtaining additional shareholder approval at the time of the issuance
                so long as the issuance does not exceed the amount of common stock
                previously
                [[Page 40816]]
                approved and authorized by shareholders.\142\ Proposed 7.2025(b) would
                codify this interpretation. Specifically, paragraph (b) would provide
                that, in compliance with 12 U.S.C. 57, a national bank may issue common
                stock up to an amount previously approved and authorized in the
                national bank's articles of association by holders of two-thirds of the
                national bank's shares without obtaining additional shareholder
                approval for each subsequent issuance within the authorized amount.
                ---------------------------------------------------------------------------
                 \141\ See, e.g., Articles of Association, Charter, and Bylaw
                Amendments, Comptroller's Licensing Manual (June 2017), p. 3
                (indicating that two-thirds of a national bank's shareholders must
                vote to increase or decrease the authorized number of common shares
                in the articles of association).
                 \142\ A previous version of Sec. 5.46 (1981) provided that
                shareholder approval would not be required to increase common stock
                through the issuance of a class of common up to an amount previously
                approved by shareholders. Subsequent amendments to Sec. 5.46, which
                the OCC intended to simplify 12 CFR part 5, omitted this language
                but did not change this interpretation.
                ---------------------------------------------------------------------------
                 Issuance, repurchase, and redemption of preferred stock pursuant to
                certain procedures. Twelve U.S.C. 51a requires a majority of
                shareholders vote to approve a national bank's issuance of preferred
                stock. However, the statute does not specify when in the process the
                bank must obtain shareholder approval. In OCC Interpretive Letter 921,
                the OCC determined that a national bank could adopt, subject to
                required shareholder approval, a provision in its articles of
                association or an amendment to its articles authorizing the bank's
                board of directors to issue preferred stock using blank check
                procedures (``blank check preferred stock'').\143\ Blank check
                preferred stock refers to preferred stock for which the board is
                empowered to issue and determine the terms of authorized and unissued
                preferred stock. To be permissible, blank check preferred stock must be
                permitted by the corporate governance procedures adopted by the bank
                under Sec. 7.2000.\144\
                ---------------------------------------------------------------------------
                 \143\ OCC Interpretive Letter No. 921 (Dec. 13, 2001).
                 \144\ The proposed rule would change this terminology in Sec.
                7.2000 to ``corporate governance provisions.''
                ---------------------------------------------------------------------------
                 The OCC also determined that shareholders' adoption or approval of
                a blank check preferred stock article constitutes the shareholder
                action required by 12 U.S.C. 51a and 51b to issue and establish the
                terms of preferred stock. The subsequent issuance of the preferred
                stock within the authorized limits would not require additional
                shareholder approval. Interpretive Letter 921 did not specifically
                address blank check preferred procedures that include the authority,
                and the shareholder action required, to repurchase and redeem blank
                check preferred stock.
                 The redemption or repurchase of preferred stock is a reduction in
                capital. Twelve U.S.C. 59 requires the approval of two-thirds of
                shareholders for a national bank to reduce capital, but it does not
                specify when in the process the bank must obtain shareholder approval.
                In Interpretive Letter 1162, the OCC determined that the holders of
                two-thirds of a national bank's shares may approve in advance
                redemptions of blank check preferred stock by voting to amend the
                articles of association to authorize the issuance and redemption of
                blank check preferred shares.\145\
                ---------------------------------------------------------------------------
                 \145\ OCC Interpretive Letter No. 1162 (July 6, 2018).
                ---------------------------------------------------------------------------
                 Proposed Sec. 7.2025(c) would codify these interpretations and
                permit blank check procedures, if approved in advance by the bank's
                shareholders, that authorize the issuance, repurchase, and redemption
                of preferred stock without additional shareholder approval at the time
                of issuance, repurchase, or redemption, if certain conditions are met.
                Proposed paragraph (c) would provide that, subject to the requirements
                of 12 U.S.C. 51a, 51b, and 59, a national bank may adopt procedures to
                authorize the board of directors to issue, determine the terms of,
                repurchase, or redeem one or more series of preferred stock, if
                permitted by the corporate governance provisions adopted by the bank
                under 12 CFR 7.2000. This proposed provision further provides that, to
                satisfy the shareholder approval requirements of 12 U.S.C. 51a and 59,
                shareholders must approve the adoption of these procedures in advance
                through an amendment to the national bank's articles of association,
                and that any amendment that authorizes both the issuance and the
                repurchase and redemption of shares must be approved by holders of two-
                thirds of the national bank's shares.
                 Share repurchase programs. In Interpretive Letter 1162, the OCC
                determined that the shareholder approval requirement in 12 U.S.C. 59
                may be satisfied by a two-thirds shareholder vote approving an
                amendment to the bank's articles of association authorizing the board
                of directors to implement share repurchase programs. A share repurchase
                program authorizes the board of directors to repurchase the national
                bank's common or preferred stock from time to time under board-
                determined parameters that can limit the frequency, type, aggregate
                limit, or purchase price of repurchases, without obtaining additional
                shareholder approval at the time the shares are repurchased. Proposed
                Sec. 7.2025(d) would codify this interpretation by providing that,
                subject to the requirements of 12 U.S.C. 59, a national bank may
                establish a program for the repurchase, from time to time, of the
                national bank's common or preferred stock, if permitted by the
                corporate governance provisions adopted by the bank under 12 CFR
                7.2000. Proposed paragraph (d) also provides that, to satisfy the
                shareholder approval requirement of 12 U.S.C. 59, the repurchase
                program must be approved in advance by the holders of two-thirds of the
                national bank's shares, including through an amendment to the national
                bank's articles of association that authorizes the board of directors
                to implement share repurchase programs from time to time under board-
                determined parameters that can limit the frequency, type, aggregate
                limit, or purchase price of repurchases.
                 Preferred stock features. Proposed Sec. 7.2025(e) would clarify
                that a national bank may issue and maintain noncumulative preferred
                stock under 12 U.S.C. 51b. This provision would codify a longstanding
                OCC interpretation that section 51b, by its terms, describes
                limitations on the portion of the preferred stock dividend which may be
                cumulative. It does not require that preferred stock dividends must
                always be cumulative.\146\ Specifically, proposed Sec. 7.2025(e) would
                provide that a national bank's preferred stock may be cumulative or
                non-cumulative and may or may not have voting rights on one or more
                series.
                ---------------------------------------------------------------------------
                 \146\ In part, section 51b provides that preferred shareholders
                ``shall be entitled to receive such cumulative dividends . . . as
                may be provided in the articles of association . . . and no
                dividends shall be declared or paid on common stock until cumulative
                dividends on preferred stock have been paid in full. . . . '' The
                OCC has previously interpreted section 51a as providing national
                banks with broad authority to issue preferred stock, including
                preferred stock bearing noncumulative dividends, notwithstanding the
                language of section 51b. See OCC Letter from Martin Goodman, OCC
                Assoc. Ch. Couns. (Oct. 3, 1977).
                ---------------------------------------------------------------------------
                Subpart C-- National Bank and Federal Savings Association Operations
                National Bank and Federal Savings Association Hours and Closings (Sec.
                7.3000)
                 The OCC is proposing to amend Sec. 7.3000, National bank hours and
                closings, to include Federal savings associations, to update it, and to
                make technical and clarifying changes.
                 Twelve U.S.C. 95(b)(1) specifically authorizes the Comptroller to
                designate a legal holiday because of emergency conditions occurring in
                any State or part of a State for national banks located in that State
                or affected area. Section 95(b)(1) also provides that when a State or
                State official authorized by law designates any day as a legal holiday
                for
                [[Page 40817]]
                ceremonial or emergency reasons, that day is a legal holiday and a
                national bank located in that State or affected part of the State may
                close or remain open unless the Comptroller directs otherwise by
                written order.
                 The OCC has implemented this statutory provision in 12 CFR 7.3000.
                Specifically, Sec. 7.3000(b) provides that when the Comptroller, a
                State, or a legally authorized State official declares a day a legal
                holiday due to emergency conditions, a national bank may temporarily
                limit or suspend its operations at its affected offices. Alternatively,
                the bank may continue its operations, unless the Comptroller directs
                otherwise by written order. This rule provides that emergency
                conditions include natural disasters and civil and municipal
                emergencies, such as severe flooding or a power emergency declared by a
                local power company or government requesting that businesses in the
                affected area close. Section 7.3000(c) states that a State or a legally
                authorized State official may declare a day a legal holiday for
                ceremonial reasons and provides that when a State legal holiday is
                declared for ceremonial reasons, a national bank may choose to remain
                open or to close. Section 7.3000(d) provides that a national bank
                should assure that all liabilities or other obligations under the
                applicable law due to the bank's closing are satisfied, e.g., notice to
                depositors about funds availability pursuant to 12 CFR 229.13(g)(4).
                 There is no equivalent statute or corresponding regulation for
                Federal savings associations. However, a former OTS regulation at 12
                CFR 510.2(b) permitted the OTS to waive or relax any limitations
                pertaining to the operations of a Federal savings associations in any
                area affected by a determination by the President of the United States
                that a major disaster or emergency had occurred. Amending Sec. 7.300
                to include Federal savings associations would clarify for these
                institutions how a legal holiday is declared and the implications of a
                legal holiday declaration, as well as provide consistency between
                national bank and Federal savings association operations on legal
                holidays. We note that the Comptroller is directed under section 4 of
                the HOLA (12 U.S.C. 1463(a)(1)(A)) to provide for the ``safe and sound
                operation'' of Federal savings associations.\147\ The OTS relied on
                this HOLA authority when it issued Sec. 510.2(b) \148\ and this
                proposed rule furthers that objective.
                ---------------------------------------------------------------------------
                 \147\ See also 12 U.S.C. 1(a) (charging the OCC with assuring
                the safety and soundness of institutions subject to its
                jurisdiction).
                 \148\ See 54 FR 49411, at 49456 (Nov. 30, 1989).
                ---------------------------------------------------------------------------
                 The OCC also is proposing a number of changes to clarify and update
                the emergency closing provisions of Sec. 7.3000. First, the OCC is
                proposing to clarify that Sec. 7.3000 also applies to Federal branches
                and agencies of foreign banks. Although current Sec. 7.3000 applies to
                Federal branches and agencies pursuant to section 4(b) of the
                International Banking Act, 12 U.S.C. 3102(b), the OCC believes it is
                appropriate to specify this application in the rule.\149\
                ---------------------------------------------------------------------------
                 \149\ As indicated previously in this preamble, section 4(b) of
                the International Banking Act, 12 U.S.C. 3102(b), provides that the
                operations of a foreign bank at a Federal branch or agency shall be
                conducted with the same rights and privileges as a national bank at
                the same location and shall be subject to all the same duties,
                restrictions, penalties, liabilities, conditions, and limitations
                that would apply under the National Bank Act to a national bank
                doing business at the same location. See also 12 CFR 28.13.
                ---------------------------------------------------------------------------
                 Second, the proposal would provide that the Comptroller may declare
                ``any day'' a legal holiday, instead of ``a day,'' to more accurately
                reflect the statutory language and to clarify that the Comptroller may
                declare more than one day due to the emergency condition as a legal
                holiday.
                 Third, the proposed rule would amend Sec. 7.3000(b) to state that
                emergency conditions could be ``caused by acts of nature or of man.''
                This amendment mirrors the language in 12 U.S.C. 95(b)(1) and would
                clarify the broad scope of possible emergency conditions that could
                justify a legal holiday.
                 Fourth, the proposal updates the types of emergency conditions
                listed in the rule to include disasters other than natural disasters,
                public health or safety emergencies, and cyber threats or other
                unauthorized intrusions, and updates the list of examples to include
                pandemics, terrorist attacks, and cyber-attacks on bank systems.
                 Fifth, the proposal provides that the Comptroller may issue a
                declaration of a legal holiday in anticipation of the emergency
                condition, in addition to at the time of the emergency or soon
                thereafter. This codifies the current practice of the Comptroller in
                most cases, which permits national banks, Federal savings associations,
                and Federal branches and agencies to better plan for the possible
                closing.
                 Sixth, the proposal provides that in the absence of a Comptroller
                declaration of a bank holiday, a national bank, Federal savings
                associations, or Federal branch or agency may choose to temporarily
                close offices in response to an emergency condition. The bank, savings
                associations, or branch or agency would need to notify the OCC of such
                temporary closure as soon as feasible. This provision would provide
                additional flexibility to OCC-regulated institutions during emergency
                conditions and would codify similar language currently included in the
                OCC's Licensing Manual.\150\
                ---------------------------------------------------------------------------
                 \150\ See Comptroller's Licensing Manual, Branch Closings (June
                2017).
                ---------------------------------------------------------------------------
                 Seventh, the proposal clarifies in Sec. 7.3000(c) that a State
                legal holiday may be for the entire State or part of the State, as
                indicated in 12 U.S.C. 95(b)(1).
                 Eighth, as provided in the statute, the proposal provides in Sec.
                7.3000(c) that the Comptroller may by written order direct the affected
                institution to close or remain open during a State legal holiday
                declared for ceremonial reasons, as with a State legal holiday declared
                due to an emergency.
                 Finally, the proposed rule adds a new paragraph, Sec. 7.3000(e),
                to provide a definition of ``State'' that is consistent with the
                definition in 12 U.S.C. 95(b)(2).
                 In addition, the OCC is proposing a number of technical changes to
                Sec. 7.3000. The proposal would replace the word ``country'' with
                ``United States'' in the phrase describing affected geographic area to
                make this phrase more precise; delete the superfluous citation to 12
                U.S.C. 95 in Sec. 7.3000(b); and delete the superfluous first sentence
                of current Sec. 7.3000(c), which states that a State or a legally
                authorized State official may declare a day a legal holiday for
                ceremonial reasons.
                 In proposing these changes, the OCC is reorganizing Sec. 7.3000(b)
                and (c) so that all provisions relating to Comptroller declared legal
                holidays for emergency conditions are in Sec. 7.3000(b) and all
                provisions related to State declared legal holidays for emergency and
                ceremonial reasons are in Sec. 7.3000(c). This reorganization more
                clearly sets forth the standards for Comptroller and State declared
                legal holidays and corresponds better with the statutory text.
                 Section 7.3000 also provides, in paragraph (a), that a national
                bank's board of directors should review its banking hours and,
                independently of any other bank, take appropriate actions to
                establishing a schedule of its banking hours. The OCC is proposing to
                update this provision by replacing ``banking hours'' with ``hours of
                operations for customers.'' Furthermore, the OCC is proposing to
                include Federal savings associations and Federal branches and agencies
                in this provision. Because Federal branches and agencies typically
                [[Page 40818]]
                do not have a board of directors, proposed Sec. 7.3000(a) would
                provide that an equivalent person or committee for a Federal branch or
                agency should review that entity's operating hours and take appropriate
                action to establish a schedule of operating hours for customers.
                Sharing National Bank or Federal Savings Association Space and
                Employees (Sec. 7.3001)
                 Section 7.3001 permits national banks and Federal savings
                associations to lease excess space on bank or savings association
                premises to other businesses, share space jointly held with other
                businesses, offer its services in space owned by or leased to other
                businesses, and share employees when sharing space. The OCC proposes to
                add a cross-reference to redesignated Sec. 7.1024, National bank or
                Federal savings association ownership of property, in Sec.
                7.3001(a)(1) to clarify that the requirements of Sec. 7.1024 apply to
                the sharing of office space and employees pursuant to Sec. 7.3001.
                General Technical Changes
                 In addition to the technical changes discussed above, the OCC
                proposes numerous technical changes throughout 12 CFR part 7.
                Specifically, the proposed rule would:
                 Replace the word ``shall'' with ``must,'' ``will,'' or
                other appropriate language, which is the more current rule writing
                convention for imposing an obligation and is the recommended drafting
                style of the Federal Register;
                 Uniformly capitalize the words ``State'' and ``Federal''
                in conformance with Federal Register drafting style;
                 Replace the term ``bank'' and ``savings association'' with
                ``national bank'' or ``Federal savings association,'' respectively,
                where appropriate;
                 Clarify punctuation and update or conform spelling of
                various terms; and
                 Conform paragraph heading style.
                III. Request for Comments
                 The OCC requests comment on any aspect of this proposal, in
                addition to those specific requests noted in the SUPLEMENTARY
                INFORMATION. Further, the COVID 19 emergency has required banks in many
                cases to consider changes to the way they do business and may
                potentially result in longer term changes in industry practices. The
                OCC requests comment on whether it should consider other amendments to
                part 7 to address issues that may have arisen due to the COVID-19
                pandemic. If so, please provide suggestions for specific amendments and
                not general requests for changes.\151\
                ---------------------------------------------------------------------------
                 \151\ As indicated previously in this Supplementary Information
                section, the OCC has issued an interim final rule that amends 12 CFR
                7.1001 and 7.1003 to provide for remote participation at shareholder
                and board of director meetings to allow national banks to hold these
                meetings without violating social distancing restrictions imposed in
                response to the COVID-19 emergency. See 85 FR 31943 (May 28, 2020).
                ---------------------------------------------------------------------------
                IV. Regulatory Analyses
                A. Paperwork Reduction Act
                 Certain provisions of the proposed rulemaking contain ``collection
                of information'' requirements within the meaning of the Paperwork
                Reduction Act (PRA) of 1995 (44 U.S.C. 3501-3521). In accordance with
                the requirements of the PRA, 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 OCC reviewed the proposed rulemaking and determined that it
                revises certain information collection requirements previously cleared
                by OMB under OMB Control No. 1557-0204. The OCC has submitted the
                revised information collection to OMB for review under section 3507(d)
                of the PRA (44 U.S.C. 3507(d)) and section 1320.11 of the OMB's
                implementing regulations (5 CFR 1320).
                Current Actions
                 The information collection requirements are as follows:
                 Tax Equity Finance Transactions--Written requests are
                required to increase the aggregate limit on tax equity finance
                transactions. Prior written notification to OCC is required for each
                tax equity finance transaction. Sec. 7.1025.
                 Payment Systems--Thirty (30) days advance written notice
                is required before joining a payment system that would expose the
                institution to open-end liability. An after-the-fact written notice
                must be filed within 30 days of becoming a member of a payment system
                that does not expose the institution to open-end liabilities with
                certain representations. Both notices must include safety and soundness
                representations. Sec. 7.1026.
                 Derivatives Activities--Thirty (30) days prior written
                notice is required before engaging in certain derivatives hedging
                activities, expanding derivatives hedging activities to include a new
                category of underlying, engaging in certain customer-driven financial
                intermediation derivatives activities, and expanding customer-driven
                financial intermediation derivatives activities to include a new
                category of underlying. Sec. 7.1030.
                 State Corporate Governance--Requests for OCC's staff
                position on the ability of national bank to engage in particular State
                corporate governance provision must include name, citations, discussion
                of similarly suited State banks, identification of Federal banking
                statutes and regulations, and analysis of consistency with statutes,
                regulations, and safety and soundness. Sec. 7.2000.
                 Indemnification of institution-affiliated parties--
                Administrative proceeding or civil actions not initiated by a Federal
                banking agency--A written agreement that an IAP will reimburse the
                institution for any portion of non-reimbursed indemnification that the
                IAP is found not entitled to is required before advancing funds to an
                IAP. Federal savings associations no longer required to provide OCC
                prior notice of indemnification. Sec. 7.2014.
                 Issuing Stock in Certificate Form--National banks must
                include certain information, signatures and seal when issuing stock in
                certificate form. Sec. 7.2016.
                 Title of Information Collection: Bank Activities and Operations.
                 Frequency: Event generated.
                 Affected Public: Businesses or other for-profit.
                 Estimated number of respondents: 213.
                 Total estimated annual burden: 586 hours.
                 Comments are invited on:
                 a. Whether the collections of information are necessary for the
                proper performance of the agencies' functions, including whether the
                information has practical utility;
                 b. The accuracy or the estimate of the burden of the information
                collections, including the validity of the methodology and assumptions
                used;
                 c. Ways to enhance the quality, utility, and clarity of the
                information to be collected;
                 d. Ways to minimize the burden of the information collections on
                respondents, including through the use of automated collection
                techniques or other forms of information technology; and
                 e. Estimates of capital or startup costs and costs of operation,
                maintenance, and purchase of services to provide information.
                 All comments will become a matter of public record. Comments on
                aspects of this notice that may affect reporting, recordkeeping, or
                disclosure requirements and burden estimates should be sent to the
                addresses listed in the ADDRESSES section of this document. Written
                comments and
                [[Page 40819]]
                recommendations for the information collection should be sent within 60
                days of publication of this notice of proposed rulemaking to
                www.reginfo.gov/public/do/PRAMain. Find this particular information
                collection by selecting ``Currently under 30-day Review--Open for
                Public Comments'' or by using the search function.
                B. Regulatory Flexibility Act
                 In general, the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et
                seq.) requires an agency, in connection with a proposed rule, to
                prepare an Initial Regulatory Flexibility Analysis describing the
                impact of the rule on small entities (defined by the Small Business
                Administration for purposes of the RFA to include commercial banks and
                savings institutions with total assets of $600 million or less and
                trust companies with total assets of $41.5 million of less). However,
                under section 605(b) of the RFA, this analysis is not required if an
                agency certifies that the rule would 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.
                 The OCC currently supervises approximately 1,185 institutions
                (commercial banks, trust companies, Federal savings associations, and
                branches or agencies of foreign banks, collectively banks), of which
                782 are small entities.\152\ Because the rule applies to all OCC-
                supervised depository institutions, the proposed rule would affect all
                small OCC-supervised entities and thus, a substantial number of them.
                However, almost all of the provisions in the final rule clarify or
                codify existing requirements, loosen existing requirements, increase
                flexibility, or reduce burden. One provision in the proposed rule,
                Sec. 7.2012, which would require a bank president to be a member of
                the bank's board of directors, could impose a new requirement on banks
                subject to the prior notice requirement for any change in directors
                pursuant to 12 CFR 5.51. However, the number of banks that are subject
                to this prior notice requirement that do not currently have a president
                serving on the board of directors is limited. As a result, the proposed
                rule, if implemented, would not impose new mandates on more than a
                limited number of banks. Therefore, the OCC believes the costs
                associated with the proposed rule, if any, would be minimal and thus
                the proposed rule would not have a significant economic impact on any
                small OCC-supervised entities. For these reasons, the OCC certifies
                that, if adopted, the proposed rule would not have a significant
                economic impact on a substantial number of small entities supervised by
                the OCC. Accordingly, an Initial Regulatory Flexibility Analysis is not
                required.
                ---------------------------------------------------------------------------
                 \152\ Consistent with the General Principles of Affiliation 13
                CFR 121.103(a), the OCC counts the assets of affiliated financial
                institutions when determining if it should classify an institution
                as a small entity. The OCC used December 31, 2018, to determine size
                because a ``financial institution's assets are determined by
                averaging the assets reported on its four quarterly financial
                statements for the preceding year.'' See footnote 8 of the U.S.
                Small Business Administration's Table of Size Standards.
                ---------------------------------------------------------------------------
                C. Unfunded Mandates Reform Act of 1995
                 The OCC has analyzed the proposed rule under the factors in the
                Unfunded Mandates Reform Act of 1995 (UMRA), 2 U.S.C. 1501 et seq.
                Under this analysis the OCC considered whether the proposed rule
                includes 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 ($154 million as
                adjusted annually for inflation). The UMRA does not apply to
                regulations that incorporate requirements specifically set forth in
                law.
                 As discussed above, the proposed rule, if implemented, would not
                impose new mandates on more than a limited number of banks. Therefore,
                the OCC concludes that if implemented, the proposed rule would not
                result in an expenditure of $154 million or more annually by State,
                local, and tribal governments, or by the private sector. Therefore, the
                OCC finds that the proposed rule does not trigger the UMRA cost
                threshold. Accordingly, the OCC has not prepared the written statement
                described in section 202 of the UMRA.
                E. Riegle Community Development and Regulatory Improvement Act of 1994
                 Pursuant to section 302(a) of the Riegle Community Development and
                Regulatory Improvement Act of 1994 (RCDRIA), 12 U.S.C. 4802(a), in
                determining the effective date and administrative compliance
                requirements for new regulations that impose additional reporting,
                disclosure, or other requirements on insured depository institutions,
                the OCC will consider, consistent with principles of safety and
                soundness and the public interest: (1) Any administrative burdens that
                the proposed rule would place on depository institutions, including
                small depository institutions and customers of depository institutions;
                and (2) the benefits of the proposed rule. The OCC requests comment on
                any administrative burdens that the proposed rule would place on
                depository institutions, including small depository institutions, and
                their customers, and the benefits of the proposed rule that the OCC
                should consider in determining the effective date and administrative
                compliance requirements for a final rule.
                List of Subjects
                12 CFR Part 7
                 Computer technology, Credit, Derivatives, Federal savings
                associations, Insurance, Investments, Metals, National banks, Reporting
                and recordkeeping requirements, Securities, Security bonds
                12 CFR Part 145
                 Electronic funds transfers, Public deposits, Federal savings
                associations
                12 CFR Part 160
                 Consumer protection, Investments, Manufactured homes, Mortgages,
                Reporting and recordkeeping requirements, Savings associations,
                Securities.
                 For the reasons set out in the preamble, the OCC proposes to amend
                12 CFR chapter I as follows:
                PART 7--ACTIVITIES AND OPERATIONS
                0
                1. The authority citation for part 7 is revised to read as follows:
                 Authority: 12 U.S.C. 1 et seq., 25b, 29, 71, 71a, 92, 92a, 93,
                93a, 95(b)(1), 371, 371d, 481, 484, 1463, 1464, 1465, 1818, 1828(m),
                3102(b), and 5412(b)(2)(B).
                Sec. 7.1000 [Redesignated]
                0
                2. Redesignate Sec. 7.1000 as Sec. 7.1024.
                0
                3. Add Sec. 7.1000 to read as follows:
                Sec. 7.1000 Activities that are part of, or incidental to, the
                business of banking.
                 (a) Purpose. This section identifies the criteria that the Office
                of the Comptroller of the Currency (OCC) uses to determine whether an
                activity is authorized as part of, or incidental to, the business of
                banking under 12 U.S.C. 24(Seventh) or other statutory authority.
                 (b) Restrictions and conditions on activities. The OCC may
                determine that activities are permissible under 12 U.S.C. 24(Seventh)
                or other statutory authority only if they are subject to standards or
                conditions designed to provide that the activities function as intended
                and are conducted safely and soundly, in accordance with other
                applicable statutes, regulations, or supervisory policies.
                [[Page 40820]]
                 (c) Activities that are part of the business of banking.
                 (1) An activity is permissible for national banks as part of the
                business of banking if the activity is authorized under 12 U.S.C.
                24(Seventh) or other statutory authority. In determining whether an
                activity that is not specifically included in 12 U.S.C. 24(Seventh) or
                other statutory authority is part of the business of banking, the OCC
                considers the following factors:
                 (i) Whether the activity is the functional equivalent to, or a
                logical outgrowth of, a recognized banking activity;
                 (ii) Whether the activity strengthens the bank by benefiting its
                customers or its business;
                 (iii) Whether the activity involves risks similar in nature to
                those already assumed by banks; and
                 (iv) Whether the activity is authorized for State-chartered banks.
                 (2) The weight accorded each factor set out in paragraph (c)(1) of
                this section depends on the facts and circumstances of each case.
                 (d) Activities that are incidental to the business of banking.
                 (1) An activity is authorized for a national bank as incidental to
                the business of banking if it is convenient or useful to an activity
                that is specifically authorized for national banks or to an activity
                that is otherwise part of the business of banking. In determining
                whether an activity is convenient or useful to such activities, the OCC
                considers the following factors:
                 (i) Whether the activity facilitates the production or delivery of
                a bank's products or services, enhances the bank's ability to sell or
                market its products or services, or improves the effectiveness or
                efficiency of the bank's operations, in light of risks presented,
                innovations, strategies, techniques and new technologies for producing
                and delivering financial products and services; and
                 (ii) Whether the activity enables the bank to use capacity acquired
                for its banking operations or otherwise avoid economic loss or waste.
                 (2) The weight accorded each factor set out in paragraph (d)(1) of
                this section depends on the facts and circumstances of each case.
                0
                4. Amend Sec. 7.1002 by:
                0
                a. Revising the heading in paragraph (a);
                0
                b. In paragraph (b)(6), removing the word ``and'';
                0
                c. In paragraph (b)(7)(ii), removing the period after ``specific
                transaction'' and adding in its place ``; and''; and
                 d. Adding paragraph (b)(8).
                 The revision and addition reads as follows:
                Sec. 7.1002 National bank acting as finder.
                 (a) In general. * * *
                * * * * *
                 (b) * * *
                 (8) Acting as an electronic finder pursuant to Sec. 7.5002(a)(1).
                * * * * *
                0
                5. Amend Sec. 7.1003 by:
                0
                a. Revising the section heading;
                0
                b. Revising the paragraph heading in paragraph (a); and
                0
                c. Adding paragraph (c).
                 The revisions and addition read as follows:
                Sec. 7.1003 Money lent at banking offices or at facilities other than
                banking offices.
                 (a) In general. * * *
                * * * * *
                 (c) Services on equivalent terms to those offered customers of
                unrelated banks. An operating subsidiary owned by a national bank may
                distribute loan proceeds from its own funds or bank funds directly to
                the borrower in person at offices the operating subsidiary has
                established without violating 12 U.S.C. 36, 12 U.S.C. 81 and 12 CFR
                5.30, provided that the operating subsidiary provides similar services
                on substantially similar terms and conditions to customers of
                unaffiliated entities including unaffiliated banks.
                0
                6. Revise 7.1004 to read as follows:
                Sec. 7.1004 Establishment of a loan production office by a national
                bank.
                 (a) In general. A national bank or its operating subsidiary may
                engage in loan production activities at a site other than the main
                office or a branch of the bank. A national bank or its operating
                subsidiary may solicit loan customers, market loan products, assist
                persons in completing application forms and related documents to obtain
                a loan, originate and approve loans, make credit decisions regarding a
                loan application, and offer other lending-related services such as loan
                information and applications at a loan production office without
                violating 12 U.S.C. 36 and 12 U.S.C. 81, provided that ``money'' is not
                deemed to be ``lent'' at that site within the meaning of Sec. 7.1003
                and the site does not accept deposits or pay withdrawals.
                 (b) Services of other persons. A national bank may use the services
                of, and compensate, persons not employed by the bank in its loan
                production activities.
                Sec. 7.1005 [Removed and Reserved]
                0
                7. Remove and reserve Sec. 7.1005.
                Sec. 7.1006 [Amended]
                0
                8. Amend Sec. 7.1006 by:
                0
                a. Revising the section heading by removing the words ``national
                bank'';
                0
                b. Adding the words ``or Federal savings association'' after the words
                ``national bank'' wherever it appears in the first and second
                sentences; and
                0
                c. Adding the words ``or savings association'' after the words
                ``provided that the bank'' in the second sentence.
                Sec. 7.1009 [Removed and Reserved]
                0
                9. Remove and reserve Sec. 7.1009.
                0
                10. Revise Sec. 7.1010 to read as follows:
                Sec. 7.1010 Postal services by national banks and Federal savings
                associations.
                 (a) In general. A national bank or Federal savings association may
                provide postal services and receive income from those services. The
                services performed are those permitted under applicable rules of the
                United States Postal Service. These may include meter stamping of
                letters and packages and the sale of related insurance. The national
                bank or Federal savings association may advertise, develop, and extend
                the services to attract customers to the institution.
                 (b) Postal regulations. A national bank or Federal savings
                association providing postal services must do so in accordance with the
                rules and regulations of the United States Postal Service. The national
                bank or Federal savings association must keep the books and records of
                the postal services separate from those of other banking operations.
                Under 39 U.S.C. 404 and any regulations issued under that statute, the
                United States Postal Service may inspect the books and records
                pertaining to the postal services.
                Sec. 7.1012 [Amended]
                0
                11. Amend Sec. 7.1012 by:
                0
                a. In paragraph (c)(1), removing the words ``pick up from, and
                deliver'' and adding in its place the words ``pick up from and
                deliver''; and
                0
                b. In paragraph (c)(2)(vi), removing the words ``back office'' and
                adding in its place the words ``back-office''.
                0
                12. Revise Sec. 7.1015 to read as follows:
                Sec. 7.1015 National bank and Federal savings association investments
                in small business investment companies.
                 (a) National banks. A national bank may invest in a small business
                investment company (SBIC) or in any entity established solely to invest
                in SBICs, including purchasing the stock of a SBIC, subject to
                appropriate capital limitations (see e.g., 15 U.S.C. 682(b)), and may
                receive the benefits of such stock ownership (e.g., stock dividends).
                The receipt and retention of a dividend by a national bank from a SBIC
                in the form of stock of a corporate borrower of the SBIC is not a
                purchase of stock
                [[Page 40821]]
                within the meaning of 12 U.S.C. 24(Seventh).
                 (b) Federal savings associations. Federal savings associations may
                invest in a SBIC or in any entity established solely to invest in SBICs
                as provided in 12 CFR 160.30.
                 (c) Qualifying SBIC. A national bank or Federal savings association
                may invest in a SBIC that is either (1) already organized and has
                obtained a license from the Small Business Administration, or (2) in
                the process of being organized.
                0
                13. Amend Sec. 7.1016 by:
                0
                a. Revising the section heading;
                0
                b. Revising paragraph (a);
                0
                c. In paragraph (b)(1) introductory text, removing the word ``banks''
                wherever it appears and adding in its place the words ``national banks
                and Federal savings associations'';
                0
                d. Revising paragraph (b)(1)(iv);
                0
                e. In paragraph (b)(2)(ii), removing the word ``bank's'' and adding in
                its place the words ``national bank's or Federal savings
                association's'';
                0
                f. In paragraphs (b)(1)(iii)(B), (1)(iii)(C), (2)(i), (2)(iii), (3),
                and (4), removing the word ``bank'' and adding in its place the words
                ``national bank or Federal savings association'';
                0
                g. In paragraphs (b)(1)(iii)(B), (2)(iii) and (4), adding the words
                ``or savings association's'' after the word ``bank's''; and
                0
                h. In paragraph(b)(2)(i), adding the words ``or savings association''
                after the word ``bank'' wherever it appears.
                 The revisions read as follows:
                Sec. 7.1016 Independent undertakings issued by a national bank or
                Federal savings association to pay against documents.
                 (a) In general. A national bank or Federal savings association may
                issue and commit to issue letters of credit and other independent
                undertakings within the scope of applicable laws or rules of practice
                recognized by law.\1\ Under such independent undertakings, the national
                bank's or Federal savings association's obligation to honor depends
                upon the presentation of specified documents and not upon
                nondocumentary conditions or resolution of questions of fact or law at
                issue between the applicant and the beneficiary. A national bank or
                Federal savings association may also confirm or otherwise undertake to
                honor or purchase specified documents upon their presentation under
                another person's independent undertaking within the scope of such laws
                or rules. As used in this section, the term national bank includes
                Federal branches and agencies of a foreign bank.
                ---------------------------------------------------------------------------
                 \1\ Examples of such laws or rules of practice include: The
                applicable version of Article 5 of the Uniform Commercial Code (UCC)
                (1962, as amended 1990) or revised Article 5 of the UCC (as amended
                1995); the Uniform Customs and Practice for Documentary Credits
                (International Chamber of Commerce (ICC) Publication No. 600 or any
                applicable prior version); the Supplements to UCP 500 & 600 for
                Electronic Presentation (eUCP v. 1.0, 1.1, & 2.0) (Supplements to
                the Uniform Customs and Practices for Documentary Credits for
                Electronic Presentation); International Standby Practices (ISP98)
                (ICC Publication No. 590); the United Nations Convention on
                Independent Guarantees and Stand-by Letters of Credit (adopted by
                the U.N. General Assembly in 1995 and signed by the U.S. in 1997);
                and the Uniform Rules for Bank-to-Bank Reimbursements Under
                Documentary Credits (ICC Publication No. 725).
                ---------------------------------------------------------------------------
                 (b) * * * (1) * * *
                * * * * *
                 (iv) The national bank or Federal savings association either should
                be fully collateralized or have a post-honor right of reimbursement
                from the applicant or from another issuer of an independent
                undertaking. Alternatively, if the national bank's or Federal savings
                association's undertaking is to purchase documents of title,
                securities, or other valuable documents, the bank or savings
                association should obtain a first priority right to realize on the
                documents if the bank or savings association is not otherwise to be
                reimbursed.
                * * * * *
                0
                14. Revise Sec. 7.1021 to read as follows:
                Sec. 7.1021 Financial literacy programs not branches of national
                banks
                 A financial literacy program is a program the principal purpose of
                which is to be educational for members of the community. The premises
                of, or a facility used by, a school or other organization at which a
                national bank participates in a financial literacy program is not a
                branch for purposes of 12 U.S.C. 36 provided the bank does not
                establish and operate the premises or facility. The OCC considers
                establishment and operation in this context on a case by case basis,
                considering the facts and circumstances. However, the premises or
                facility is not a branch of the national bank if the safe harbor test
                in 12 CFR 7.1012(c)(2) applicable to messenger services established by
                third parties is satisfied. The factor discussed in Sec.
                7.1012(c)(2)(i) can be met if bank employee participation in the
                financial literacy program consists of managing the program or
                conducting or engaging in financial education activities provided the
                school or other organization retains control over the program and over
                the premises or facilities at which the program is held.
                Sec. 7.1022 [Amended]
                0
                15. Amend Sec. 7.1022 by:
                0
                a. In paragraph (d), removing the word ``shall'' and adding in its
                place the word ``may'' wherever it appears; and
                0
                b. In paragraph (e), removing the word ``shall'' and adding in its
                place the word ``must'' and removing the words ``the effective date of
                this regulation'' and adding in its place the words ``April 1, 2018''.
                Sec. 7.1023 [Amended]
                0
                16. Amend Sec. 7.1023 by:
                0
                a. In paragraph (c), removing the word ``shall'' and adding in its
                place the word ``may'' and removing the words ``federal savings
                association'' and adding in its place the words ``Federal savings
                association''; and
                0
                b. In paragraph (d):
                0
                i. Removing the word ``shall'' and adding in its place the word
                ``must'';
                0
                ii. Removing the words ``the effective date of this regulation'' and
                adding in its place the words ``April 1, 2018''; and
                0
                iii. Removing the words ``federal savings association'' and adding in
                its place the words ``Federal savings association''.
                Sec. 7.1024 [Amended]
                0
                17. Amend redesignated Sec. 7.1024 by:
                0
                a. In paragraphs (c)(2)(i) and(ii), and (d), removing the word
                ``shall'' and adding in its place the word ``must'' wherever it
                appears; and
                0
                b. In paragraph (e), removing the word ``shall'' and adding in its
                place the word ``may''.
                0
                18. Add Sec. 7.1025 to read as follows:
                Sec. 7.1025 Tax equity finance transactions.
                 (a) Tax equity finance transactions. A national bank or Federal
                savings association may engage in a tax equity finance transaction
                pursuant to 12 U.S.C. 24(Seventh) and 1464 only if the transaction is
                the functional equivalent of a loan, as provided in paragraph (c) of
                this section, and the transaction satisfies applicable conditions in
                paragraph (d) of this section.
                 (b) Definitions. For purposes of this section:
                 (1) Tax equity finance transaction means a transaction in which a
                national bank or Federal savings association provides equity financing
                to fund a project that generates tax credits and other tax benefits and
                the use of an equity-based structure allows the transfer of those
                credits and other tax benefits to the national bank or Federal savings
                association.
                 (2) Capital and surplus has the same meaning that this term has in
                12 CFR 32.2.
                 (c) Functional equivalent of a loan. A tax equity finance
                transaction is the functional equivalent of a loan if:
                [[Page 40822]]
                 (1) The structure of the transaction is necessary for making the
                tax credits and other tax benefits available to the national bank or
                Federal savings association;
                 (2) The transaction is of limited tenure and is not indefinite,
                such as a limited investment interest required by law to obtain
                continuing tax benefits;
                 (3) The tax benefits and other payments received by the national
                bank or Federal savings association from the transaction repay the
                investment and provide the implied rate of return;
                 (4) Consistent with paragraph (c)(3) of this section, the national
                bank or Federal savings association does not rely on appreciation of
                value in the project or property rights underlying the project for
                repayment;
                 (5) The national bank or Federal savings association uses
                underwriting and credit approval criteria and standards that are
                substantially equivalent to the underwriting and credit approval
                criteria and standards used for a traditional commercial loan;
                 (6) The national bank or Federal savings association is a passive
                investor in the transaction and is unable to direct the affairs of the
                project company; and
                 (7) The national bank or Federal savings association appropriately
                accounts for the transaction initially and on an ongoing basis and has
                documented contemporaneously its accounting assessment and conclusion.
                 (d) Conditions on tax equity finance transactions. A national bank
                or Federal savings association may engage in tax equity finance
                transactions only if:
                 (1) The national bank or Federal savings association cannot control
                the sale of energy, if any, from the project;
                 (2) The national bank or Federal savings association limits the
                total dollar amount of tax equity finance transactions undertaken
                pursuant to this section to no more than five percent of its capital
                and surplus, unless the OCC determines, by written approval of a
                written request by the national bank or Federal savings association to
                exceed the five percent limit, that a higher aggregate limit will not
                pose an unreasonable risk to the national bank or Federal savings
                association and that the tax equity finance transactions in the
                national bank's or Federal savings association's portfolio will not be
                conducted in an unsafe or unsound manner; provided, however, that in no
                case may a national bank or Federal savings association's total dollar
                amount of tax equity finance transactions undertaken pursuant to this
                section exceed 15 percent of its capital and surplus;
                 (3) The national bank or Federal savings association has provided
                written notification to the OCC prior to engaging in each tax equity
                finance transaction that includes its evaluation of the risks posed by
                the transaction; and
                 (4) The national bank or Federal savings association can identify,
                measure, monitor, and control the associated risks of its tax equity
                finance transaction activities individually and as a whole on an
                ongoing basis to ensure that such activities are conducted in a safe
                and sound manner.
                 (e) Applicable legal requirements. The transaction is subject to
                the substantive legal requirements of a loan, including the lending
                limits prescribed by 12 U.S.C. 84 and 12 U.S.C. 1464(u), as
                appropriate, as implemented by 12 CFR 32, and if the active investor or
                project sponsor of the transaction is an affiliate of the bank, to the
                restrictions on transactions with affiliates prescribed by 12 U.S.C.
                371c and 371c-1, as implemented by 12 CFR 223.
                0
                19. Add Sec. 7.1026 to read as follows:
                Sec. 7.1026 Payment systems memberships.
                 (a) In general. National banks and Federal savings associations may
                become members of payment systems, subject to the requirements of this
                section.
                 (b) Definitions. As used in this section:
                 (1) Appropriate OCC supervisory office means the OCC office that is
                responsible for the supervision of a national bank or Federal savings
                association, as described in subpart A of 12 CFR part 4;
                 (2) Member includes a national bank or Federal savings association
                designated as a ``member,'' or ``participant,'' or other similar role
                by a payment system, including by a payment system that requires the
                national bank or Federal savings association to share in operational
                losses or maintain a reserve with the payment system to offset
                potential liability for operational losses;
                 (3) Open-ended liability refers to liability for operational losses
                that is not capped under the rules of the payment system and includes
                indemnifications provided to third parties as a condition of membership
                in the payment system;
                 (4) Operational loss means a charge resulting from sources other
                than defaults by other members of the payment system; and
                 (5) Payment system means ``financial market utility'' as defined in
                12 U.S.C. 5462(6), wherever operating, and includes both retail and
                wholesale payment systems. Payment system does not include a
                derivatives clearing organization registered under the Commodity
                Exchange Act, a clearing agency registered under the Securities
                Exchange Act of 1934, or foreign organization that would be considered
                a derivatives clearing organization or clearing agency were it
                operating in the United States.
                 (c) Notice requirements.
                 (1) Prior notice required. A national bank or Federal savings
                association must provide written notice to its appropriate OCC
                supervisory office at least 30 days prior to joining a payment system
                that exposes it to open-ended liability.
                 (2) After-the-fact notice. A national bank or Federal savings
                association must provide written notice to its appropriate OCC
                supervisory office within 30 days of joining a payment system that does
                not expose it to open-ended liability.
                 (d) Content of notice.
                 (1) In general. A notice required by paragraph (c) of this section
                must include representations that the national bank or Federal savings
                association:
                 (i) Has complied with the safety and soundness review requirements
                in paragraph (e)(1) of this section; and
                 (ii) Will comply with the safety and soundness review and
                notification requirements in paragraphs (e)(2) and (3) of this section.
                 (2) Payment system limits on liability or no liability. A notice
                filed under paragraph (c)(2) of this section also must include a
                representation that either:
                 (i) The rules of the payment system do not impose liability for
                operational losses on members; or
                 (ii) The national bank's or Federal savings association's liability
                for operational losses is limited by the rules of the payment system to
                specific and appropriate limits that do not exceed the lower of:
                 (A) the legal lending limit under 12 CFR 32; or
                 (B) the limit set for the bank or savings association by the OCC.
                 (e) Safety and soundness procedures.
                 (1) Prior to joining a payment system, a national bank or Federal
                savings association must:
                 (i) Identify and evaluate the risks posed by membership in the
                payment system, taking into account whether the liability of the bank
                or savings association is limited; and
                 (ii) Ensure that it can measure, monitor, and control the risks
                identified pursuant to paragraph (e)(1)(i) of this section.
                 (2) After joining a payment system, a national bank or Federal
                savings association must manage the risks of the payment system on an
                ongoing basis. This ongoing risk management must:
                [[Page 40823]]
                 (i) Identify and evaluate the risks posed by membership in the
                payment system, taking into account whether the liability of the bank
                or savings association is limited; and
                 (ii) Measure, monitor, and control the risks identified pursuant to
                paragraph (e)(2)(i) of this section.
                 (3) If the national bank or Federal savings association identifies
                risks during the ongoing risk management required by paragraph (e)(2)
                of this section that raise safety and soundness concerns, such as a
                material change to the bank's liability or indemnification
                responsibilities, the national bank or Federal savings association
                must:
                 (i) Notify the appropriate OCC supervisory office as soon as the
                safety and soundness concern is identified; and
                 (ii) Take appropriate actions to remediate the risk.
                 (4) A national bank or Federal savings association that believes
                its open-ended liability is otherwise limited (e.g., by negotiated
                agreements or laws of an appropriate jurisdiction) may consider its
                liability to be limited for purposes of the reviews required by
                paragraphs (e)(1) and (2) of this section so long as:
                 (i) Prior to joining the payment system, the bank or savings
                association obtains an independent legal opinion that:
                 (A) Describes how the payment system allocates liability for
                operational losses; and
                 (B) Concludes the potential liability for operational losses for
                the national bank or Federal savings association is in fact limited to
                specific and appropriate limits that do not exceed the lower of:
                 (1) The legal lending limit under 12 CFR 32; or
                 (2) The limit set for the bank or savings association by the OCC;
                and
                 (ii) There are no material changes to the liability or
                indemnification requirements of the bank or savings association since
                the issuance of the independent legal opinion.
                0
                20. Add Sec. 7.1027 to read as follows:
                Sec. 7.1027 Establishment and operation of a remote service unit by a
                national bank.
                 A remote service unit (RSU) is an automated or unstaffed facility,
                operated by a customer of a bank with at most delimited assistance from
                bank personnel, that conducts banking functions such as receiving
                deposits, paying withdrawals, or lending money. A national bank may
                establish and operate an RSU pursuant to 12 U.S.C. 24(Seventh). An RSU
                includes an automated teller machine, automated loan machine, automated
                device for receiving deposits, personal computer, telephone, other
                similar electronic devices, and drop boxes. An RSU may be equipped with
                a telephone or tele-video device that allows contact with bank
                personnel. An RSU is not a ``branch'' within the meaning of 12 U.S.C.
                36(j), and is not subject to State geographic or operational
                restrictions or licensing laws.
                0
                21. Add Sec. 7.1028 to read as follows:
                Sec. 7.1028 Establishment and operation of a deposit production
                office by a national bank.
                 (a) In general. A national bank or its operating subsidiary may
                engage in deposit production activities at a site other than the main
                office or a branch of the bank. A national bank or its operating
                subsidiary may solicit deposits, provide information about deposit
                products, and assist persons in completing application forms and
                related documents to open a deposit account at a deposit production
                office (DPO). A DPO is not a branch within the meaning of 12 U.S.C.
                36(j) and 12 CFR 5.30(d)(1) so long as it does not receive deposits,
                pay withdrawals, or make loans. All deposit and withdrawal transactions
                of a bank customer using a DPO must be performed by the customer,
                either in person at the main office or a branch office of the bank, or
                by mail, electronic transfer, or a similar method of transfer.
                 (b) Services of other persons. A national bank may use the services
                of, and compensate, persons not employed by the bank in its deposit
                production activities.
                0
                22. Add Sec. 7.1029 to read as follows:
                Sec. 7.1029 Combination of national bank loan production office,
                deposit production office, and remote service unit.
                 A location at which a national bank operates a loan production
                office (LPO), a deposit production office (DPO), and a remote service
                unit (RSU) is not a ``branch'' within the meaning of 12 U.S.C. 36(j) by
                virtue of that combination. Since an LPO, DPO, or RSU is not,
                individually, a branch under 12 U.S.C. 36(j), any combination of these
                facilities at one location does not create a branch. The RSU at such a
                combined location must be primarily operated by the customer with at
                most delimited assistance from bank personnel.
                0
                23. Add Sec. 7.1030 to read as follows:
                Sec. 7.1030 Permissible derivatives activities for national banks.
                 (a) Authority. This section is issued pursuant to 12 U.S.C. 24
                (Seventh). A national bank may only engage in derivatives transactions
                in accordance with the requirements of this section.
                 (b) Definitions. For purposes of this section:
                 (1) Customer-driven means a transaction is entered into for a
                customer's valid and independent business purpose (and a customer-
                driven transaction does not include a transaction the principal purpose
                of which is to deliver to a national bank assets that the national bank
                could not invest in directly);
                 (2) Perfectly-matched means two back-to back derivatives
                transactions that offset risk with respect to all economic terms (e.g.,
                amount, maturity, duration, and underlying);
                 (3) Portfolio-hedged means a portfolio of derivatives transactions
                that are hedged based on net unmatched positions or exposures in the
                portfolio;
                 (4) Physical hedging or physically-hedged means holding title to or
                acquiring ownership of an asset (for example, by warehouse receipt or
                book-entry) solely to manage the risks arising out of permissible
                customer-driven derivatives transactions;
                 (5) Physical settlement or physically-settled means accepting title
                to or acquiring ownership of an asset;
                 (6) Transitory title transfer means accepting and immediately
                relinquishing title to an asset; and
                 (7) Underlying means the reference asset, rate, obligation, or
                index on which the payment obligation(s) between counterparties to a
                derivative transaction is based.
                 (c) In general. A national bank may engage in the following
                derivatives transactions after notice in accordance with paragraph (d)
                of this section, as applicable:
                 (1) Derivatives transactions with payments based on underlyings a
                national bank is permitted to purchase directly as an investment;
                 (2) Derivatives transactions with any underlying to hedge the risks
                arising from bank-permissible activities;
                 (3) Derivatives transactions as a financial intermediary with any
                underlying that are customer-driven, cash-settled, and either
                perfectly-matched or portfolio-hedged;
                 (4) Derivatives transactions as a financial intermediary with any
                underlying that are customer-driven, physically-settled by transitory
                title transfer, and either perfectly-matched or portfolio-hedged; and
                 (5) Derivatives transactions as a financial intermediary with any
                underlying that are customer-driven, physically-settled (other than by
                transitory title transfer), physically-hedged, and either perfectly-
                matched or portfolio-hedged, and provided that (i) the national bank
                does not take physical
                [[Page 40824]]
                delivery of any commodity by receipt of physical quantities of the
                commodity on bank premises and (ii) physical hedging activities meet
                the requirements of paragraph (e) of this section.
                 (d) Notice procedure. (1) A national bank must provide notice to
                its Examiner-in-Charge prior to engaging in any of the following with
                respect to derivatives transactions with payments based on underlyings
                that a national bank is not permitted to purchase directly as an
                investment:
                 (i) Engaging in derivatives hedging activities pursuant to
                paragraph (c)(2) of this section;
                 (ii) Expanding the bank's derivatives hedging activities pursuant
                to paragraph (c)(2) of this section to include a new category of
                underlying for derivatives transactions;
                 (iii) Engaging in customer-driven financial intermediation
                derivatives activities pursuant to paragraphs (c)(3), (4) or (5) of
                this section; and
                 (iv) Expanding the bank's customer-driven financial intermediation
                derivatives activities pursuant to paragraphs (c)(3), (4) or (5) of
                this section to include any new category of underlyings.
                 (2) The notice pursuant to paragraph (d)(1) of this section must be
                submitted in writing at least 30 days before the national bank
                commences the activity and include the following information:
                 (i) A detailed description of the proposed activity, including the
                relevant underlyings;
                 (ii) The anticipated start date of the activity; and
                 (iii) A detailed description of the bank's risk management system
                (policies, processes, personnel, and control systems) for identifying,
                measuring, monitoring, and controlling the risks of the activity.
                 (e) Additional requirements for physical hedging activities. (1) A
                national bank engaging in physical hedging activities pursuant to
                paragraph (c)(5) of this section must hold the underlying solely to
                hedge risks arising from derivatives transactions originated by
                customers for the customers' valid and independent business purposes.
                 (2) The physical hedging activities must offer a cost-effective
                means to hedge risks arising from permissible banking activities.
                 (3) The national bank must not take anticipatory or maintain
                residual positions in the underlying except as necessary for the
                orderly establishment or unwinding of a hedging position.
                 (4) The national bank must not acquire equity securities for
                hedging purposes that constitute more than 5 percent of a class of
                voting securities of any issuer.
                 (5) With respect to physical hedging involving commodities:
                 (i) A national bank's physical position in a particular physical
                commodity (including, as applicable, delivery point, purity, grade,
                chemical composition, weight, and size) must not be more that 5 percent
                of the gross notional value of the bank's derivatives that are in that
                particular physical commodity and allow for physical settlement within
                30 days. Title to commodities acquired and immediately sold by a
                transitory title transfer does not count against the 5 percent limit;
                and
                 (ii) The physical position must more effectively reduce risk than a
                cash-settled hedge referencing the same commodity.
                0
                24. Amend Sec. 7.2000 by:
                0
                a. Revising the section heading;
                0
                b. Revising paragraph (a);
                0
                c. In paragraph (b):
                0
                i. Removing the word ``procedures'' wherever it appears and adding in
                its place the word ``provisions'';
                0
                ii. Removing the words ``the state in which the main office of the
                bank'' and adding in its place the words ``any State in which the main
                office or any branch of the bank'';
                0
                iii. Removing the words ``the state in which the holding company of the
                bank'' and adding in its place the words ``the State in which a holding
                company of the bank''; and
                0
                iv. Removing the word ``shall'' and adding in its place the word
                ``must'';
                0
                d. Redesignating paragraph (c) as paragraph (d) and revising it; and
                0
                e. Adding a new paragraph (c).
                 The addition and revisions are set forth below.
                Sec. 7.2000 Corporate governance.
                 (a) In general. The corporate governance provisions in a national
                bank's articles of association and bylaws and the bank's conduct of its
                corporate governance affairs must comply with applicable Federal
                banking statutes and regulations and safe and sound banking practices.
                * * * * *
                 (c) Continued use of former holding company State. A national bank
                that has elected to follow the corporate governance provisions of the
                law of the State in which its holding company is incorporated may
                continue to use those provisions even if the bank is no longer
                controlled by that holding company.
                 (d) Request for OCC staff position. A national bank may request the
                views of OCC staff on the permissibility of a national bank's adoption
                of a particular State corporate governance provision. Requests must
                include the following information:
                 (1) The name of the national bank;
                 (2) Citation to the State statutes or regulations involved;
                 (3) A discussion as to whether a similarly situated State bank is
                subject to or may adopt the corporate governance provision;
                 (4) Identification of all Federal banking statutes or regulations
                that are on the same subject as, or otherwise have a bearing on, the
                subject of the proposed State corporate governance provision; and
                 (5) An analysis of how the proposed practice is not inconsistent
                with applicable Federal statutes or regulations and is not inconsistent
                with bank safety and soundness.
                0
                25. Add Sec. 7.2001 to read as follows:
                Sec. 7.2001 National bank adoption of anti-takeover provisions.
                 (a) In general. Pursuant to 12 CFR 7.2000(b), a national bank may
                adopt anti-takeover provisions included in State corporate governance
                law if the provisions are not inconsistent with Federal banking
                statutes or regulations and not inconsistent with bank safety and
                soundness.
                 (b) State anti-takeover provisions that are not inconsistent with
                Federal banking statutes or regulations. State anti-takeover provisions
                that are not inconsistent with Federal banking statues or regulations
                include the following:
                 (1) Restriction on business combinations with interested
                shareholders. State provisions that prohibit, or that permit the
                corporation to prohibit in its certificate of incorporation or other
                governing document, the corporation from engaging in a business
                combination with an interested shareholder or any related entity for a
                specified period of time from the date on which the shareholder first
                becomes an interested shareholder, subject to certain exceptions such
                as board approval. An interested shareholder is one that owns an amount
                of stock specified in the State provision.
                 (2) Poison pill. State provisions that provide, or that permit the
                corporation to provide in its certificate of incorporation or other
                governing document, that all the shareholders, other than the hostile
                acquiror, have the right to purchase additional stock at a substantial
                discount upon the occurrence of a triggering event.
                 (3) Requiring all shareholder action to be taken at a meeting.
                State provisions that provide, or that permit the corporation to
                provide in its certificate
                [[Page 40825]]
                of incorporation or other governing document, that all actions to be
                taken by shareholders must occur at a meeting and that shareholders may
                not take action by written consent.
                 (4) Limits on shareholders' authority to call special meetings.
                State provisions that provide, or that permit the corporation to
                provide in its certificate of incorporation or other governing
                document, that:
                 (i) Only the board of directors, and not the shareholders, have the
                right to call special meetings of the shareholders; or
                 (ii) If shareholders have the right to call special meetings, a
                high percentage of shareholders is needed to call the meeting.
                 (5) Shareholder removal of a director only for cause. State
                provisions that provide, or that permit the corporation to provide in
                its certificate of incorporation or other governing document, that
                shareholders may remove a director only for cause, and not both for
                cause and without cause.
                 (c) State anti-takeover provisions that are inconsistent with
                Federal banking statutes or regulations. The following State anti-
                takeover provisions are inconsistent with Federal banking statutes or
                regulations:
                 (1) Supermajority voting requirements. State provisions that
                require, or that permit the corporation to require in its certificate
                of incorporation or other governing document, a supermajority of the
                shareholders to approve specified matters are inconsistent when applied
                to matters for which Federal banking statutes or regulations specify
                the required level of shareholder approval.
                 (2) Restrictions on a shareholder's right to vote all the shares it
                owns. State provisions that prohibit, or that permit the corporation in
                its certificate of incorporation or other governing document to
                prohibit, a person from voting shares acquired that increase their
                percentage of ownership of the company's stock above a certain level
                are inconsistent when applied to shareholder votes governed by 12
                U.S.C. 61.
                 (d) Bank safety and soundness. (1) In general. Except as provided
                in paragraph (d)(2) of this section, any State corporate governance
                provision, including anti-takeover provisions, that would render more
                difficult or discourage an injection of capital by purchase of bank
                stock, a merger, the acquisition of the bank, a tender offer, a proxy
                contest, the assumption of control by a holder of a large block of the
                bank's stock, or the removal of the incumbent board of directors or
                management is inconsistent with bank safety and soundness if:
                 (i) The bank is less than adequately capitalized (as defined in 12
                CFR part 6);
                 (ii) The bank is in troubled condition (as defined in 12 CFR
                5.51(c)(7));
                 (iii) Grounds for the appointment of a receiver under 12 U.S.C. 191
                are present; or
                 (iv) The bank is otherwise in less than satisfactory condition, as
                determined by the OCC.
                 (2) Exception. Anti-takeover provisions are not inconsistent with
                bank safety and soundness if, at the time the bank adopts the
                provisions:
                 (i) The bank is not subject to any of the conditions in paragraph
                (d)(1) of this section; and
                 (ii) The bank includes, in its articles of association or its
                bylaws, as applicable pursuant to paragraph (f) of this section, a
                limitation that would make the provisions ineffective if:
                 (A) The conditions in paragraph (d)(1) of this section exist; or
                 (B) The OCC otherwise directs the bank not to follow the provision
                for supervisory reasons.
                 (e) Case-by-case review. (1) OCC Determination. Based on the
                substance of the provision or the individual circumstances of a
                national bank, the OCC may determine that a State anti-takeover
                provision, as proposed or adopted by a bank, is:
                 (i) Inconsistent with Federal banking statutes or regulations,
                notwithstanding paragraph (b) of this section; or
                 (ii) Inconsistent with bank safety and soundness other than as
                provided in paragraph (d) of this section.
                 (2) Review. The OCC may initiate a review, or a bank may request
                OCC review pursuant to 12 CFR 7.2000(d), of a State anti-takeover
                provision.
                 (f) Method of adoption for anti-takeover provisions. (1) Board and
                shareholder approval. A national bank must follow the provisions for
                approval by the board of directors and approval of shareholders for the
                adoption of an anti-takeover provision in the State corporate
                governance law it has elected to follow. However, if the provision is
                included in the bank's articles of association, the bank's shareholders
                must approve the amendment of the articles pursuant to 12 U.S.C. 21a,
                even if the State law does not require approval by the shareholders.
                 (2) Documentation. If the State corporate governance law requires
                the anti-takeover provision to be in the company's articles of
                incorporation, certificate of incorporation, or similar document, the
                national bank must include the provision in its articles of
                association. If the State corporate governance law does not require the
                provision to be in the company's articles of incorporation, certificate
                of incorporation, or similar document, but allows it to be in the
                bylaws, then the national bank must include the provision in either its
                articles of association or in its bylaws, provided, however, that if
                the State corporate governance law requires shareholder approval for
                changes to the corporation's bylaws, then the national bank must
                include the provision in its articles of association.
                Sec. 7.2002 [Amended]
                0
                26. Amend Sec. 7.2002 by adding the words ``for shareholder voting''
                after the word ``proxy'' wherever it appears.
                0
                27. Amend Sec. 7.2005 by:
                0
                a. Revising the heading in paragraph (a); and
                0
                b. Removing in paragraph (c)(3)(ii), the word ``shall'' and adding in
                its place the word ``must''.
                 The revision reads as follows:
                Sec. 7.2005 Ownership of stock necessary to qualify as director.
                 (a) In general. * * *
                * * * * *
                Sec. 7.2006 [Amended]
                0
                28. Amend Sec. 7.2006 in the first sentence by removing the word
                ``shall'' and adding in its place the word ``must''.
                Sec. 7.2008 [Amended]
                0
                29. Amend Sec. 7.2008 by:
                0
                a. In paragraph (a), removing the word ``state'' and adding in its
                place the word ``State''; and
                0
                b. In paragraph (b), removing the word ``shall'' and adding in its
                place the word ``must'' wherever it appears.
                Sec. 7.2009 [Amended]
                0
                30. Amend Sec. 7.2009 by removing the word ``shall'' and adding in its
                place the word ``must''.
                Sec. 7.2010 [Amended]
                0
                31. Amend Sec. 7.2010 in the first sentence by removing the word
                ``shall'' and adding in its place the word ``must''.
                0
                32. Revise Sec. 7.2012 to read as follows:
                Sec. 7.2012 President as director.
                 Pursuant to 12 U.S.C. 76, the person serving as, or in the function
                of, president of a national bank, regardless of title, must be a member
                of the board of directors. A director other than the person serving as,
                or in the function of, president may be elected chairman of the board.
                0
                33. Revise Sec. 7.2014 to read as follows:
                [[Page 40826]]
                Sec. 7.2014 Indemnification of institution-affiliated parties.
                 (a) Indemnification under State law. Subject to the limitations of
                paragraph (b) of this section, a national bank or Federal savings
                association may indemnify an institution-affiliated party for damages
                and expenses, including the advancement of expenses and legal fees, in
                accordance with the law of the State the bank or savings association
                has designated for its corporate governance pursuant to Sec. 7.2000(b)
                (for national banks), 12 CFR 5.21(j)(3)(iii) (for Federal mutual
                savings associations), or 12 CFR 5.22(j)(2)(iii) (for Federal Stock
                savings associations), provided such payments are consistent with safe
                and sound banking practices. The term ``institution-affiliated party''
                has the same meaning as set forth at 12 U.S.C. 1813(u).
                 (b) Administrative proceedings or civil actions initiated by
                Federal banking agencies. With respect to an administrative proceeding
                or civil action initiated by any Federal banking agency, a national
                bank or Federal savings association may only make or agree to make
                indemnification payments to an institution-affiliated party that are
                reasonable and consistent with the requirements of 12 U.S.C. 1828(k)
                and the implementing regulations thereunder.
                 (c) Written agreement required for advancement. Before advancing
                funds to an institutional-affiliated party under this section, a
                national bank or Federal savings association must obtain a written
                agreement that the institution-affiliated party will reimburse the bank
                or savings association, as appropriate, for any portion of that
                indemnification that the institution-affiliated party is ultimately
                found not to be entitled to under 12 U.S.C. 1828(k) and the
                implementing regulations thereunder, except to the extent that the
                bank's or savings association's expenses have been reimbursed by an
                insurance policy or fidelity bond.
                 (d) Insurance premiums. A national bank or Federal savings
                association may provide for the payment of reasonable premiums for
                insurance covering the expenses, legal fees, and liability of
                institution-affiliated parties to the extent that the expenses, fees,
                or liability could be indemnified under this section.
                0
                34. Amend Sec. 7.2016 by:
                0
                a. Revising the section heading;
                0
                b. Redesignating paragraph (a) as paragraph (a)(1) and adding a
                paragraph heading to paragraph (a);
                0
                c. Redesignating paragraph (b) as paragraph (a)(2); and
                0
                d. Adding a new paragraph (b).
                 The revision and additions read as follows:
                Sec. 7.2016 Restricting transfer of stock and record dates; stock
                certificates.
                 (a) Restricting transfer of stock and record dates.
                 (b) Bank stock certificates. (1) A national bank may prescribe the
                manner in which its stock must be transferred in its bylaws or articles
                of association. A bank issuing stock in certificated form must comply
                with the requirements of 12 U.S.C. 52, including as to:
                 (i) The name and location of the bank;
                 (ii) The name of the holder of record of the stock represented
                thereby;
                 (iii) The number and class of shares which the certificate
                represents;
                 (iv) If the bank issues more than one class of stock, the
                respective rights, preferences, privileges, voting rights, powers,
                restrictions, limitations, and qualifications of each class of stock
                issued (unless incorporated by reference to the articles of
                association);
                 (v) Signatures of the president and cashier of the bank, or such
                other officers as the bylaws of the bank provide; and
                 (vi) The seal of the bank.
                 (2) The requirements of paragraph (b)(1)(v) of this section may be
                met through the use of electronic means or by facsimile.
                Sec. Sec. 7.2017 through 7.2018 [Removed]
                0
                35. Remove Sec. Sec. 7.2017 through 7.2018.
                Sec. 7.2020 [Removed]
                0
                36. Remove Sec. 7.2020.
                Sec. 7.2022 [Amended]
                0
                37. Amend Sec. 7.2022 by removing the word ``state'' and adding in its
                place the word ``State''.
                Sec. 7.2024 [Amended]
                0
                38. Amend Sec. 7.2024 paragraphs (a) and (c) by removing the word
                ``shall'' and adding in its place the word ``must'' wherever it
                appears.
                0
                39. Add Sec. 7.2025 to read as follows:
                Sec. 7.2025 Capital stock-related activities of a national bank.
                 (a) In general. A national bank must obtain the necessary
                shareholder approval required by 12 U.S.C. 51a, 57, or 59 for any
                change in its permanent capital. An increase or decrease in the amount
                of a national bank's common or preferred stock is a change in permanent
                capital subject to the notice and approval requirements of 12 CFR 5.46
                and applicable law. A national bank may obtain the required shareholder
                approval of changes in permanent capital, as provided in paragraphs
                (b), (c), and (d) of this section.
                 (b) Issuance of previously approved and authorized common stock. In
                compliance with 12 U.S.C. 57, a national bank may issue common stock up
                to an amount previously approved and authorized in the national bank's
                articles of association by holders of two-thirds of the national bank's
                shares without obtaining additional shareholder approval for each
                subsequent issuance within the authorized amount.
                 (c) Issuance, Repurchase, and Redemption of Preferred Stock
                Pursuant to Certain Procedures. Subject to the requirements of 12
                U.S.C. 51a and 59, a national bank may adopt procedures to authorize
                the board of directors to issue, determine the terms of, repurchase,
                and redeem one or more series of preferred stock, if permitted by the
                corporate governance provisions adopted by the bank under 12 CFR
                7.2000. To satisfy the shareholder approval requirements of 12 U.S.C.
                51a and 59, the adoption of such procedures must be approved by
                shareholders in advance through an amendment to the national bank's
                articles of association. Any amendment to a national bank's articles of
                association that authorizes both the issuance and the repurchase and
                redemption of shares must be approved by holders of two-thirds of the
                national bank's shares.
                 (d) Share repurchase programs. Subject to the requirements of 12
                U.S.C. 59, a national bank may establish a program for the repurchase,
                from time to time, of the national bank's common or preferred stock, if
                permitted by the corporate governance provisions adopted by the bank
                under 12 CFR 7.2000. To satisfy the shareholder approval requirement of
                12 U.S.C. 59, the repurchase program must be approved in advance by the
                holders of two-thirds of the national bank's shares, including through
                an amendment to the national bank's articles of association that
                authorizes the board of directors to repurchase the national bank's
                common or preferred stock from time to time under board-determined
                parameters that can limit the frequency, type, aggregate limit, or
                purchase price of repurchases.
                 (e) Preferred Stock Features. A national bank's preferred stock may
                be cumulative or non-cumulative and may or may not have voting rights
                on one or more series.
                0
                40. Revise the heading for subpart C of this part to read as follows:
                Subpart C--National Bank and Federal Savings Association Operations
                0
                41. Revise Sec. 7.3000 to read as follows:
                [[Page 40827]]
                Sec. 7.3000 National bank and Federal savings association banking
                hours and closings.
                 (a) Banking hours. The board of directors of a national bank or
                Federal savings association, or an equivalent person or committee of a
                Federal branch or agency, should review its hours of operations for
                customers and, independently of any other bank, savings association, or
                Federal branch or agency, take appropriate action to establish a
                schedule of operating hours for customers.
                 (b) Emergency closings declared by the Comptroller. Pursuant to 12
                U.S.C. 95(b)(1) and 1463(a)(1)(A), the Comptroller of the Currency
                (Comptroller), may declare any day a legal holiday if emergency
                conditions exist. That day is a legal holiday for national banks,
                Federal savings associations, and Federal branches or agencies in the
                affected geographic area (i.e., throughout the United States, in a
                State, or in part of a State), and national banks, Federal savings
                associations, and Federal branches and agencies may temporarily limit
                or suspend operations at their affected offices, unless the Comptroller
                by written order directs otherwise. Emergency conditions may be caused
                by acts of nature or of man and may include natural and other
                disasters, public health or safety emergencies, civil and municipal
                emergencies, and cyber threats or other unauthorized intrusions (e.g.,
                severe flooding, a pandemic, terrorism, a cyber-attack on bank systems,
                or a power emergency declared by a local power company or government
                requesting that businesses in the affected area close). The Comptroller
                may issue a proclamation authorizing the emergency closing in
                anticipation of the emergency condition, at the time of the emergency
                condition, or soon thereafter. In the absence of a Comptroller
                declaration of a bank holiday, a national bank, Federal savings
                associations, or Federal branch or agency may choose to temporarily
                close offices in response to an emergency condition. The national bank,
                Federal savings associations, or Federal branch or agency should notify
                the OCC of such temporary closure as soon as feasible.
                 (c) Emergency and ceremonial closings declared by a State or State
                official. In the event a State or a legally authorized State official
                declares any day to be a legal holiday for emergency or ceremonial
                reasons in that State or part of the State, that same day is a legal
                holiday for national banks, Federal savings associations, and Federal
                branches or agencies or their offices in the affected geographic area.
                National banks, Federal savings associations, and Federal branches or
                agencies or their affected offices may close their affected offices or
                remain open on such a State-designated holiday, unless the Comptroller
                by written order directs otherwise.
                 (d) Liability. A national bank, Federal savings association, or
                Federal branch or agency should assure that all liabilities or other
                obligations under the applicable law due to its closing are satisfied.
                 (e) Definition. For the purpose of this subpart, the term ``State''
                means any of the several States, the District of Columbia, the
                Commonwealth of Puerto Rico, the Northern Mariana Islands, Guam, the
                Virgin Islands, American Samoa, the Trust Territory of the Pacific
                Islands, or any other territory or possession of the United States.
                Sec. 7.3001 [Amended]
                0
                42. Amend Sec. 7.3001 by:
                0
                a. In paragraph (a)(1), removing the words ``Lease excess space'' and
                adding in its place the words ``Consistent with Sec. 7.1024 of this
                title, lease excess space'';
                0
                b. In paragraph (c) introductory text, removing the word ``shall'' and
                adding in its place the word ``must''; and
                0
                c. In paragraph (c)(3), removing the word ``state'' and adding in its
                place the word ``State''.
                Sec. Sec. 7.4003 through 7.4005 [Removed]
                0
                43. Remove Sec. Sec. 7.4003 through 7.4005.
                Sec. 7.4010 [Amended]
                0
                44. Amend the section heading for Sec. 7.4010 by removing the word
                ``state'' and adding in its place the word ``State''.
                Sec. 7.5001 [Removed]
                0
                45. Remove Sec. 7.5001.
                PART 145--FEDERAL SAVINGS ASSOCIATIONS--OPERATIONS
                0
                46. The authority citation for part 145 continues to read as follows:
                 Authority: 12 U.S.C. 1462a, 1463, 1464, 1828, 5412(b)(2)(B).
                Sec. 145.121 [Removed]
                0
                47. Remove Sec. 145.121.
                PART 160--LENDING AND INVESTMENT
                0
                48. The authority citation for part 160 continues to read as follows:
                 Authority: 12 U.S.C. 1462a, 1463, 1464, 1467a, 1701j-3, 1828,
                3803, 3806, 5412(b)(2)(B); 42 U.S.C. 4106.
                Sec. 160.50 [Removed]
                0
                49. Remove Sec. 160.50.
                Sec. 160.120 [Removed]
                0
                50. Remove Sec. 160.120.
                Brian P. Brooks,
                Acting Comptroller of the Currency.
                [FR Doc. 2020-12435 Filed 7-6-20; 8:45 am]
                 BILLING CODE 4810-33-P
                

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