National Bank and Federal Savings Association Premises
| Published date | 03 February 2021 |
| Citation | 86 FR 7979 |
| Record Number | 2020-29277 |
| Section | Proposed rules |
| Court | The Comptroller Of The Currency Office |
Federal Register, Volume 86 Issue 21 (Wednesday, February 3, 2021)
[Federal Register Volume 86, Number 21 (Wednesday, February 3, 2021)]
[Proposed Rules]
[Pages 7979-7986]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-29277]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 86, No. 21 / Wednesday, February 3, 2021 /
Proposed Rules
[[Page 7979]]
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 7
[Docket No. OCC-2020-0045]
RIN 1557-AF07
National Bank and Federal Savings Association Premises
AGENCY: Office of the Comptroller of the Currency (OCC), Treasury.
ACTION: Notice of proposed rulemaking with request for public comment.
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SUMMARY: The OCC is inviting comment on a proposed rule that would
modify the requirements for national bank and Federal savings
association premises.
DATES: Comments must be received by March 22, 2021.
ADDRESSES: You may submit comments to the OCC by any of the methods set
forth below. Commenters are encouraged to submit comments through the
Federal eRulemaking Portal, if possible. Please use the title
``National Bank and Federal Savings Association Premises'' to
facilitate the organization and distribution of the comments. You may
submit comments by any of the following methods:
Federal eRulemaking Portal--``Regulations.gov'': Go to
www.regulations.gov. Enter ``Docket ID OCC-2020-0045'' in the Search
Box and click ``Search.'' Click on ``Comment Now'' to submit public
comments.
Click on the ``Help'' tab on the Regulations.gov home page
to get information on using Regulations.gov, including instructions for
submitting public comments.
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.
Instructions: You must include ``OCC'' as the agency name and
``Docket ID OCC-2020-0045'' in your comment.
Instructions: You must include ``OCC'' as the agency name and
``Docket ID OCC-2020-0045'' 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, 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 the following methods:
Viewing Comments Electronically: Go to
www.regulations.gov. Enter ``Docket ID OCC-2020-0045'' 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.
FOR FURTHER INFORMATION CONTACT: Matthew Tynan, Counsel; Sarah Turney,
Counsel; Henry Barkhausen, Counsel; Chief Counsel's Office (202) 649-
5490; Office of the Comptroller of the Currency, 400 7th Street SW,
Washington, DC 20219.
SUPPLEMENTARY INFORMATION:
I. Introduction
The Office of the Comptroller of the Currency (OCC) is issuing a
notice of proposed rulemaking to amend its regulations on national bank
or Federal savings association ownership of real property. The OCC also
proposes to consolidate 12 CFR 7.3001 on sharing national bank or
Federal savings association space and employees with the rule covering
ownership of property. The OCC proposes to continue to cover the
national bank and Federal savings association charters under the same
regulation, but, because different statutory regimes cover each
charter, the OCC seeks comment on whether to apply different
requirements to national banks and Federal savings associations.
II. Background
The 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. As part of the periodic review that resulted in
recent amendments to 12 CFR part 7, which take effect on April 1, 2021,
the OCC determined that it would propose revisions to the rules
governing national bank and Federal savings association premises
currently codified at 12 CFR 7.1000, which the recent amendments to 12
CFR part 7 redesignated as to 12 CFR 7.1024.\1\ The OCC determined that
the regulation may need significant revision and that such revisions
may involve significant policy considerations. To consider the matter
more fully and ensure the greatest benefit from public comment, the OCC
chose to propose revisions to redesignated 12 CFR 7.1024 separately
from the revisions to 12 CFR part 7 finalized in 2020.\2\ Because of
the redesignation of 12 CFR 7.1000 as 12 CFR 7.1024, this proposed rule
refers to 12 CFR 7.1024.\3\
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\1\ 85 FR 40794 (July 7, 2020). 12 CFR 7.1024 was previously
codified at 12 CFR 7.1000.
\2\ 85 FR 83686 (December 22, 2020).
\3\ Because the redesignation of 12 CFR 7.1000 as 12 CFR 7.1024
takes effect on April 1, 2021, the regulatory text of this proposed
rule must reflect this as an addition rather than an amendment. The
final rule will reflect the change as an amendment.
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National bank ownership of real estate is governed by 12 U.S.C. 29,
an original component of the National Bank Act. Twelve U.S.C. 29
generally prohibits national banks from purchasing, holding, or
conveying real estate except for a list of four exclusive exceptions.
The first such purpose covers the authority of a national bank to hold
real property ``[s]uch as shall be necessary for its accommodation in
the transaction of its business.'' \4\ As stated by the
[[Page 7980]]
Supreme Court, this statute was designed to promote the safety and
soundness of national banks by discouraging real estate speculation,
and was also designed to protect the national economy and consumers by
preventing banks from holding masses of property for their own
account.\5\ Consistent with the statutory framework, a national bank
investing in property should be doing so ``in good faith, solely with a
view of obtaining an eligible location'' and not for the purpose of
speculating or investing in real estate as a landlord.\6\
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\4\ The other three purposes all relate to the national bank
authority to own property taken for debts previously contracted and
other such means of securing debts. The proposed rule would not
affect the ability of national banks to rely on these other purposes
in 12 U.S.C. 29. The proposed rule would only interpret and
implement the meaning of the first purpose (``Such as shall be
necessary for its accommodation in the transaction of its
business'').
\5\ Union National Bank v. Matthews, 98 U.S. 621, 626 (1878)
(``to keep the capital of the banks flowing in the daily channels of
commerce; to deter them from embarking in hazardous real estate
speculations; and to prevent the accumulation of large masses of
such property in the banks' hands, to be held, as it were, in
mortmain'').
\6\ Brown v. Schleier, 118 F. 981, 984 (8th Cir. 1902), aff'd
194 U.S. 18 (1904).
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Federal savings association ownership of premises is governed by
the Home Owners Loan Act (HOLA). Although the HOLA does not
specifically address a Federal savings association's investment in
banking premises and there is no prohibition in the HOLA similar to 12
U.S.C. 29, historically, the Federal Home Loan Bank Board (FHLBB), the
Office of Thrift Supervision (OTS), and the OCC have interpreted the
HOLA to permit Federal savings associations to hold real estate only
for their offices and related facilities with permission to rent or
sell excess space in their offices and facilities and the OCC has
issued regulations governing a Federal savings association's investment
in banking premises pursuant to general supervisory and rulemaking
authority under the HOLA.\7\ After Title III of the Dodd-Frank Wall
Street Reform and Consumer Protection Act \8\ transferred to the OCC
all functions of the former OTS and the Director of the OTS relating to
Federal savings associations, the OCC began reviewing its rules
governing national banks and Federal savings associations to determine
which rules were appropriate to integrate into a single set of rules
for both national banks and savings associations.\9\ After this review,
the OCC did not find substantive differences between the then-banking
premises rules and related OTS guidance governing national banks and
Federal savings associations and determined that, as a supervisory
matter, it was appropriate to apply the rule governing national banks
to both national banks and Federal savings associations.\10\
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\7\ 80 FR 28346, 28377 (May 18, 2015).
\8\ Public Law 111-203, 124 Stat. 1376 (2010).
\9\ See footnote 7.
\10\ Id.
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The OCC implemented 12 CFR 7.1024 to cover national bank and
Federal savings association ownership of real estate for their own use.
However, 12 CFR 7.1024 does not provide a full set of standards
implementing the requirements of 12 U.S.C. 29 and the HOLA regarding
national bank and Federal savings association premises. Rather, 12 CFR
7.1024 is an interpretive rule that codifies specific OCC
interpretations of 12 U.S.C. 29. Thus, although the rule contains a
list of types of real estate that the OCC has found permissible for
national bank and Federal savings association ownership, that list is
not exhaustive. Moreover, significant standards relating to the
permissibility of real estate ownership, such as the minimum percentage
of bank occupancy required for a building to qualify as premises, are
not addressed anywhere in OCC regulation.
Instead, the OCC has long deferred to court cases and published OCC
precedent to cover the field of requirements for national bank and
Federal savings association ownership of premises. The OCC historically
chose not to define specific limitations for standards, such as
percentages of occupancy,\11\ instead relying on principles drawn from
precedent to preserve a flexible approach to new national bank
proposals while ensuring those principles continue to reflect the
purposes behind 12 U.S.C. 29.\12\ The OTS similarly did not set
percentages of occupancy within its premises regulation for Federal
savings associations.\13\
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\11\ OCC Interpretive Letter No. 1053 (Jan. 31, 2006) (``Neither
the OCC nor the courts have established a single occupancy
percentage test . . .'').
\12\ Outstanding precedent includes OCC Interpretive Letter No.
1072 (Sept. 15, 2006) (permitting a bank to lease out a portion of
its existing premises to retail businesses in arrangements under
which approximately 50 percent of the premises would be used by the
bank for its banking business); OCC Interpretive Letter No. 1053
(Jan. 31, 2006) (describing OCC analysis of permissibility of
premises in OCC Interpretive Letter No. 1045 and 1044); OCC
Interpretive Letter No. 1045 (Dec. 5, 2005) (permitting a national
bank to establish a hotel on its premises, of which the bank
intended to use more than 50 percent of the occupancy for out-of-
area bank employees, members of the bank's board of directors, and
selected vendors, shareholders, customers, and other visitors on
bank-related business); OCC Interpretive Letter No. 1044 (Dec. 5,
2005) (permitting a national bank to establish a mixed-use office,
hotel, and residences facility on its premises, in which the bank
would use less than 50 percent of the premises for banking
purposes); OCC Interpretive Letter No. 1043 (July 8, 1993)
(permitting a national bank to lease to third parties a bank
condominium when it is not being used for bank purposes); OCC
Interpretive Letter No. 1042 (Jan. 21, 1993) (permitting a bank to
retain a condominium used only for bank purposes); OCC Interpretive
Letter No. 1034 (April 1, 2005) (permitting a national bank to
construct new facilities on existing premises real estate, use less
than 50 percent of the premises for bank purposes, and lease unused
space as excess bank premises); Conditional Approval No. 298 (Dec.
15, 1998) (permitting a bank to use less than 50 percent of office
premises for its banking business); Interpretive Letter No. 758
(April 5, 1996) (permitting a national bank to lease out a portion
of its real estate held as premises for employee recreation purposes
to a third party to remove a hill and mine granite deposits). As
discussed below, this proposed rule would supersede existing
precedent to the extent it is inconsistent with the proposed rule.
However, the proposed rule would not necessarily supersede precedent
that is consistent with the requirements of the proposed rule or
precedent that addresses issues not covered by the proposed rule.
The OCC requests comment on whether and how outstanding precedent
should be affected by the proposed rule.
\13\ Former 12 CFR 560.37. In 2011, the OCC republished OTS
regulations set out in Chapter V of Title 12, including 12 CFR
560.37, with OCC part numbers changing the ``5'' to a ``1''. 12 CFR
560.37 became 12 CFR 160.37. 76 FR 48950 (August 9, 2011). 12 CFR
160.37 was subsequently removed when Federal savings associations
were integrated into the national bank rule. Prior OTS guidance
provided that a building would be a Federal savings association's
premises if the association used 25 percent or more of the building.
OTS Handbook, Section 252, Fixed Assets, April 1999, p.31
(rescinded).
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Although this precedent-based approach provides flexibility, it
comes with several limitations. First, since precedent is necessarily
responsive to presented facts, reliance on precedent means there is no
clear rule to give notice to banks or the public of what forms of real
estate ownership are permissible for a bank. Published OCC precedent by
its nature typically describes fact patterns found to be permissible.
Therefore, reliance on precedent alone makes it difficult for the
industry and the public to understand what set of facts would be
impermissible. Given the time and effort often required to plan an
investment in premises, delays and uncertainty caused by unclear legal
standards can be problematic.
Second, national bank premises precedent was largely formed at a
time when the banking industry was different than the one in existence
today. Many of the most important cases decided on premises occurred at
a time when most banks operated entirely out of a single headquarters.
The principles drawn from those cases remain relevant in the present
day, but the reality of a modern large bank is very different than a
bank that existed prior to interstate branching. Bank premises rules in
the present day must apply to both
[[Page 7981]]
community banks, some operating out of a single building or few
buildings, and large banks with tens of thousands of employees and
operations in all fifty states.
Finally, commercial real estate itself has changed greatly in the
past several decades in ways that are difficult to square with premises
precedent. The majority of OCC and OTS premises precedent concerns
either branches or standalone office space, as those were the typical
premises arrangements for banking operations in the 20th century.
Recent years have seen the growth of mixed-use developments combining
office space with retail space, residential space, and other uses not
typically found in a traditional office building. Some industries have
moved towards a comprehensive campus arrangement providing employees
with amenities and working arrangements previously not present in an
office environment. Finally, with the development of robust
teleconferencing and the arrival of the COVID-19 pandemic, many
companies are moving towards offsite, shared, or virtual work spaces.
It is increasingly difficult for national banks and Federal savings
associations to rely on precedent focusing on traditional office
arrangements to determine whether and to what extent they may own
mixed-use developments, install amenities to compete with those offered
by other industries (including technology companies), or make use of
alternative work arrangements.
For these reasons, the OCC proposes these revisions to 12 CFR
7.1024 to codify and clarify a transparent and consistent set of
principles for national bank and Federal savings association premises.
The OCC intends these regulations to meet the needs of modern national
banks and Federal savings associations while ensuring consistent
application of and adherence to the limitations of 12 U.S.C. 29 and the
HOLA.
Question One: Although current OCC regulations and the proposal
cover both the national bank and Federal savings association charters
in one section, there are differences in the statutory regimes covering
each charter. Would it be preferable to apply different requirements to
Federal savings association premises? Specifically, should the proposed
rule apply only to national banks? If so, what requirements should
apply to Federal savings associations? Should the OCC continue to apply
the current requirements to Federal savings associations even if it
adopts the proposed rule with respect to national banks? Should the OCC
adopt a requirement for Federal savings associations that is similar to
or identical to the requirement in effect before the integration of
national bank and Federal savings association requirements? \14\ Also,
should the proposed rule apply to federal branches and agencies of
foreign banks regulated by the OCC? If so, should modified requirements
be applied to such branches and agencies?
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\14\ 61 FR 66561, 66579 (Dec. 18, 1996) (``A federal savings
association may invest in real estate (improved or unimproved) to be
used for office and related facilities of the association, or for
such office and related facilities and for rental or sale, if such
investment is made and maintained under a prudent program of
property acquisition to meet the federal savings association's
present needs or its reasonable future needs for office and related
facilities. A federal savings association may not make an investment
that would cause the outstanding book value of all such investments
(including investments under Sec. 559.4(e)(2) of this chapter) to
exceed its total capital.'').
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III. The Proposed Rule
The OCC is proposing to revise Sec. 7.1024 to provide general
standards the OCC will use in determining whether the acquisition and
holding of real estate is necessary for the transaction of a national
bank's or Federal savings association's business. Revisions include
implementing an occupancy test and excess capacity standards that would
allow national banks and Federal savings associations to ascertain
better whether an acquisition or holding of real estate is permissible
under 12 U.S.C. 29 or the HOLA. The OCC has determined that national
banks and the public would benefit from clear standards related to the
requirements and expectations for real estate to be considered
necessary for the transaction of a national bank's or Federal savings
association's business as required by 12 U.S.C. 29 or the HOLA. Current
Sec. 7.1024 and various legal interpretations provided examples of
permissible holdings, but the OCC has determined that, for the reasons
articulated above, these examples do not provide general principles
national banks could apply to new acquisitions. Without clear
principles, there is the potential for inconsistent application of 12
U.S.C. 29, the HOLA, and 12 CFR 7.1024. The proposed revisions are
intended to provide for more consistent application of 12 U.S.C. 29,
the HOLA, and 12 CFR 7.1024.
Definitions (Sec. 7.1024(a))
Proposed Sec. 7.1024(a) provides certain definitions used in the
proposed rule. Bank occupied office premises is defined in proposed
Sec. 7.1024(a)(1) as bank occupied premises containing offices where
professional or clerical duties are performed.
Bank occupied premises is defined in proposed Sec. 7.1024(a)(2) as
real estate acquired and held in good faith in which more than 50
percent of each building or severable piece of land is used by bank
persons, including facilities that may be operated by third parties to
provide amenities and services to bank persons or otherwise facilitate
bank business operations. This definition encompasses a variety of
factual situations, including a bank's acquisition of a single premises
building or a bank's development of a premises campus. As reflected in
the above definition, in any factual situation the OCC would apply the
50 percent occupancy standard to each building or severable piece of
land. In order for a building or severable piece of land to be
considered bank occupied premises, more than 50 percent of the space
must be used by, or for, bank persons to facilitate bank business
operations. Space that facilitates bank business operations would
include facilities operated by third parties to provide amenities and
services to bank persons that facilitate bank business operations;
examples of such facilities include an office gym, cafeteria, daycare,
or printing center. In calculating the occupancy percentage, the
national bank or Federal savings association would look at each
building or severable piece of land using the amount of space that is
used by or for bank persons as the numerator and the overall space of
the building or severable piece of land as the denominator. As an
example, a national bank or Federal savings association that acquires
and holds a building in good faith and in which the national bank or
Federal savings association uses 4,000 square feet of the 6,000 square
foot building for a bank branch, bank offices, gym for bank persons'
use, and cafeteria for bank persons' use, the occupancy percentage
would be approximately 67 percent and the national bank or Federal
savings association could rent the remaining 2,000 square feet of the
building, for example as ground floor retail space, in order to avoid
economic loss or waste in the real estate consistent with Sec.
7.1024(c).
Question Two: The OCC requests comment on whether 50 percent is the
appropriate percentage for bank occupied premises. Should the
percentage be higher, such as 75 percent, or lower, such as 25 percent?
The OCC requests comments on all possible percentage limitations and
particularly the range of percentages between 25 and 75. Why should the
[[Page 7982]]
percentage be higher or lower than 50 percent?
Question Three: The OCC requests comment on whether ground floor
retail space rented to a third party should be treated differently
under the occupancy percentage calculation. For example, should ground
floor retail space that is intended primarily for bank persons use be
included in the numerator of the calculation even if third parties
incidentally use the space? Should ``primarily'' be defined as more
than 50 percent of use by bank persons? Or, should ground floor retail
space that is not intended primarily for bank persons be excluded
entirely from the occupancy percentage calculation as an incident of
sound facilities management so that it would be included in neither the
numerator nor the denominator? Or should retail space that is intended,
but not primarily intended, for bank persons be excluded from the
numerator but included in the denominator? Should other adjustments be
made to the calculation? Should unused or less-used spaces (such as
stairwells, lobbies, and maintenance areas) be excluded from the
numerator, denominator, or both?
Question Four: How should land obtained by a national bank or
Federal savings association as lessee be treated? The proposed rule
would treat all land obtained by the bank through lease for use as
premises as subject to the rule and its calculation requirements.
Should certain types of leases (e.g., operating leases or capital
leases) be treated differently or excluded from the calculation?
Bank persons is defined in proposed Sec. 7.1024(a)(3) as a
national bank's or Federal savings association's employees,
contractors, consultants, vendors, and any other individuals who are
engaged in the national bank's or Federal savings association's
business.
Impermissible premises is defined in proposed Sec. 7.1024(a)(4) as
real estate that is not bank occupied premises or that otherwise does
not conform with the requirements of this section. Impermissible
premises is any property not expressly permitted under this section,
including real estate in which the national bank or Federal savings
association uses 50 percent or less of the building or severable piece
of land for bank persons or the facilitation of bank business
operations. Impermissible premises would also include real estate in
which a national bank or Federal savings association occupies 50
percent or more but does not comply with the excess space and capacity
provisions of proposed Sec. 7.1024(c). Real estate held under the
transition provision in proposed Sec. 7.1024(g) would not be
considered impermissible premises.
Shared space is defined in proposed Sec. 7.1024(a)(5) as bank
occupied office premises that a national bank or Federal savings
association shares with a third party to enhance the national bank's or
Federal savings association's business operations. The OCC is proposing
to remove the shared space provisions from 12 CFR 7.3001 and instead
include them in proposed Sec. 7.1024(e) to eliminate confusion
regarding the interaction of the shared space provisions with the
permissibility provisions of 12 CFR 7.1024. These proposed provisions
are substantively unchanged from the current rule.
Investments in Real Estate Necessary for the Transaction of Business
(Sec. 7.1024(b))
Proposed Sec. 7.1024(b) provides that a national bank or Federal
savings association may acquire, hold, or convey real estate for use as
bank occupied premises.\15\ Under the proposed rule, bank occupied
premises would be considered real estate necessary for the transaction
of a national bank's or Federal savings association's business, and
thus a national bank or Federal savings association would be permitted
to acquire, hold, and convey real estate that is included within the
definition of bank occupied premises.
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\15\ 12 U.S.C. 29 provides that national banks may only
``purchase, hold, and convey real estate'' for four specific
purposes. The OCC interprets the words ``purchase, hold, and
convey'' to encompass all forms of real estate acquisition,
ownership, and transfer. The proposed rule would use the words
``acquire, hold, or convey'' to make clear that all forms of real
estate acquisition and ownership would be covered by the proposed
rule. Depending on the circumstances, the words ``acquire, hold, or
convey'' may include real estate obtained by a national bank or
Federal savings association via lease.
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Excess Space or Capacity (Sec. 7.1024(c))
Proposed Sec. 7.1024(c) sets forth the principles of the excess
capacity doctrine \16\ recognizing national banks' and Federal savings
associations' need to optimize the value of bank property by
authorizing national banks and Federal savings associations to sell or
lease excess space or capacity in that property.\17\ Although national
banks and Federal savings associations may sell or lease excess
capacity or space in property, the property must have been legitimately
acquired for banking purposes, meaning the national bank or Federal
savings association must acquire or hold such property because of its
suitability for use in banking operations or by bank persons and not as
a means to invest the bank's funds in real property or to speculate in
real estate.\18\
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\16\ The excess capacity doctrine holds that a bank properly
acquiring an asset to conduct its banking business is permitted,
under its incidental powers, to make full economic use of the
property if using the property solely for banking purposes would
leave the property underutilized. See OCC Conditional Approval No.
361 (Mar. 3, 2000). In 2002, the OCC distilled this doctrine in a
regulation that allowed national banks to sell excess electronic
capacity, including data processing services. 12 CFR 7.5004. This
regulation relied on the previous history of allowing the sale of
excess real property. 67 FR 34992, 34995 (May 17, 2002). The current
proposal for the treatment of excess capacity in the real estate
context is consistent with the distillation set forth in the
electronic capacity rule.
\17\ See 12 U.S.C. 24 (Seventh) and 29; Perth Amboy National
Bank v. Brodsky, 207 F. Supp. 785, 788 (S.D.N.Y. 1962) (``It is
clear beyond cavil that the statute [12 U.S.C. 29] permits a
national bank to lease or construct a building, in good faith, for
banking purposes, even though it intends to occupy only a part
thereof and to rent out a large part of the building to others.'').
\18\ Brown v. Schleier, 118 F. 981, 984 (8th Cir. 1902). (``. .
. provided, always, that it acts in good faith, solely with a view
of obtaining an eligible location, and not with a view of investing
its funds in real property or embarking them in speculations in real
estate.'').
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Proposed Sec. 7.1024(c)(1) provides that a national bank or
Federal savings association may, in order to optimize the use of bank
occupied premises or avoid economic loss or waste, permit third parties
to use excess space or capacity in real estate legitimately acquired or
developed by the national bank or Federal savings association for its
banking business. The proposal also provides that such excess space or
capacity must have a nexus with the transaction of bank business or
bank operations such that it is acquired or held to provide the
national bank or Federal savings association with a business location
rather than as an investment in real estate. A national bank or Federal
savings association must be able to demonstrate a nexus between its
ownership of the property and the transaction of its business or bank
operations. One way to demonstrate such a nexus would be for the
national bank or Federal savings association to show in its business
plan how the property supports its business. Demonstrating that there
is a nexus between the ownership of property and the transaction of its
business allows the national bank or Federal savings association to
demonstrate that such property was acquired or developed in good faith
and not for a speculative purpose, consistent with statutory
requirements. Although a national bank or Federal savings association
may sell or lease excess space or capacity legitimately acquired or
developed, a national bank or Federal savings association acquiring or
developing
[[Page 7983]]
space in order to serve as a landlord to tenants using space unrelated
to the transaction of its business or bank operations (for example, a
grocery store or a branded hotel) would likely not meet this
requirement as the national bank or Federal savings association would
not merely be avoiding economic waste in acquiring or developing real
estate for such purposes but likely actively investing in real estate
for a speculative non-banking purpose. In the case of leasing space to
tenants such as a grocery store or a branded hotel, the national bank
or Federal savings association would likely derive significant revenue
related to such activity and would need to demonstrate that the real
estate was not acquired primarily for its lease income but rather
because of its suitability for bank purposes or use by bank persons. A
national bank or Federal savings association can only lease legitimate
excess space or capacity, and if real estate is acquired or developed
in a volume or manner that is not consistent with the bank's operations
or business, for example as set forth in its business plan, such real
estate was likely not legitimately acquired or developed, and thus
would be impermissible.
Excess space is space in bank occupied premises that is not being
used by bank persons or for bank operations. Excess capacity in bank
occupied premises can be either temporal or space-based. An example of
temporal excess capacity is a bank auditorium that is used after bank
business hours by members of the local community. An example of space-
based excess capacity is a call center in which the bank needs space
for 100 employees during eight months of the year but only needs space
for 80 employees during the remaining four months of the year. In both
examples, the space can be used by non-bank persons as long as the
space was legitimately acquired or developed by the bank for its
operations or business as required by Sec. 7.1024(c)(1).
Proposed Sec. 7.1024(c)(2) discusses situations in which
legitimate excess space or capacity may be used by third parties.
Section Sec. 7.1024(c)(2)(i) through (iv) have analogous provisions in
the excess capacity provisions for electronic activities located in 12
CFR 7.5004. Section 7.1024(c)(2)(i) provides that excess space or
capacity can be used by third parties to the extent that the real
estate acquired is consistent with the real estate available in the
market. For example, if a national bank or Federal savings association
is located in an area in which strip malls are the predominant type of
commercial real estate, then a national bank or Federal savings
association may be able to acquire a strip mall if the national bank or
Federal savings association would occupy greater than 50 percent of the
space and lease out the remaining space. However, as the national bank
or Federal savings association must have good faith and a non-
speculative purpose in order for real estate to be legitimately
acquired, a national bank or Federal savings association would need to
analyze carefully whether this requirement would be met if many smaller
strip malls than the one it acquired were available or if there were
many free standing buildings more appropriately sized for bank purposes
available in the market.
Section 7.1024(c)(2)(ii) provides that a national bank or Federal
savings association may acquire and retain additional space or
capacity, beyond its present needs, if it is reasonably necessary for
planned future expansion or to meet the bank's future expected banking
needs as long as the bank uses the additional space or capacity in the
real estate acquired for future bank expansion within five years. A
national bank or Federal savings association may acquire real estate
intended to be used for future banking purposes and may permit third
parties to use this excess space or capacity, but the national bank or
Federal savings association must use this real estate for banking
purposes within five years of acquisition. The OCC understands that it
is prudent for a national bank or Federal savings association to plan
for future expansion and use, so a national bank or Federal savings
association may legitimately acquire and develop real estate intended
for future use as long as that real estate is used by the national bank
or Federal savings association within five years of its acquisition or
development. If the property does not become bank occupied premises
within five years, it will become Other Real Estate Owned (OREO) and,
subject to 12 U.S.C. 29 for national banks and 12 CFR 34.82 for
national banks and Federal savings associations, must be disposed of
within five years of becoming OREO, unless the bank requests an
extension of up to an additional five years.
Proposed Sec. 7.1024(c)(2)(iii) provides that a national bank or
Federal savings association may lease excess capacity resulting from a
fluctuation caused by the bank's need to use the full capacity of a
space during peak periods but not in other off-peak periods. This
situation is similar to the example discussed above related to a call
center which the bank uses all 100 available seats during eight months
of the year but only used 80 during the other four months. The bank may
allow third parties to use the excess 20 seats in its call center
provided the capacity was legitimately acquired for bank operations and
does not impede the safe and sound operation of the bank.
Proposed Sec. 7.1024(c)(2)(iv) provides that a national bank or
Federal savings association may lease excess capacity or space that is
no longer needed due to a decline in the level of banking operations.
In this situation, a bank acquired real estate for use in its banking
operations and, based on a decline in bank activity or operation, no
longer needs all of the space. The nexus between national bank or
Federal savings association ownership of a building and its banking
operations becomes clearer the closer the bank's occupancy approaches
one hundred percent. As with excess capacity in data processing, the
OCC presumes a certain percentage of use of the property to be
permissible. The bank may allow third parties to use the space provided
the bank still otherwise occupies more than 50 percent of the real
estate as required by Sec. 7.1024(a)(2).
Question Five: Should the OCC permit a national bank or Federal
savings association to lease out more than 50 percent of its premises
on a temporary basis, provided that the national bank brings its
percentage of occupancy back to at least 50 percent by a certain time
period?
Question Six: Should the OCC impose additional time-based
limitations on a bank's ability to lease out excess space or capacity?
For example, should a bank be permitted to lease out 50 percent of its
space for a limited period (for example, five years) but be subject to
a higher usage requirement (for example, 75 percent) on an ongoing
basis?
Question Seven: Should certain uses be permissible but subject to a
time-based limit?
Proposed Sec. 7.1024(c)(2)(v) provides that a national bank or
Federal savings association may permit third parties to use bank
occupied premises after bank business hours.\19\ For example, a bank
may permit community members to use a bank auditorium or conference
center after bank business hours. After hours
[[Page 7984]]
use by third parties will not affect the bank occupied premises
calculation.
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\19\ National banks and Federal savings associations are often
key anchors in a local community and can be called on to play an
important role in life-cycle events, for example supplying the use
of a conference room or the institution's board room for a funeral
viewing or community celebration during business hours. Occasional
use of facilities for such purpose is entirely consistent with the
institution's role in the local community and is not inconsistent
with section 29 or 1464 and this proposed rule.
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The OCC recognizes that often national banks and Federal savings
associations are asked or required by outside parties, such as a local
government, to make commitments to allow third party or public use in
order to acquire or hold real estate. When such commitments are
requested or required, the national bank or Federal savings association
should inform the appropriate OCC supervisory office of such requests
and share such commitments and other relevant information with the
appropriate OCC supervisory office.
Impermissible Premises (Sec. 7.1024(d))
Proposed Sec. 7.1024(d) provides that a national bank or Federal
savings association may not acquire or hold impermissible premises.
Proposed Sec. 7.1024(a)(4) defines impermissible premises as real
estate that is not bank occupied premises or that otherwise does not
conform with the requirements of this section. If the real estate
acquisition or holding would not conform with the requirements of Sec.
7.1024, then it would be impermissible.
Question Eight: Should the OCC include specific examples in Sec.
7.1024(d) of impermissible premises? If so, what examples should be
included? Should large retail operations, such as grocery stores, be
specifically impermissible? Should commercial lodging (rental
apartments, branded hotels) be specifically impermissible?
Question Nine: Courts have explained that, under 12 U.S.C. 29,
national banks investing in property should be doing so ``in good
faith, solely with a view of obtaining an eligible location'' and not
for the purpose of speculating or investing in real estate as a
landlord.\20\ Should the final rule retain the good faith requirement
to ensure that national banks and Federal savings associations are only
permitted to acquire additional real estate with the intention of using
it as premises? Should the final rule make further clarification that
national banks and Federal savings associations would not be permitted
to obtain real estate with the intention of using part of the real
estate for a non-premises purpose on an indefinite basis?
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\20\ Brown v. Schleier, 118 F. 981, 984 (8th Cir. 1902), aff'd
194 U.S. 18 (1904).
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Sharing National Bank or Federal Savings Association Space and
Employees in Jointly Held Bank Occupied Premises (Sec. 7.1024(e))
Proposed Sec. 7.1024(e) substantially imports current 12 CFR
7.3001 concerning the sharing of national bank or Federal savings
association space and employees in jointly held bank occupied office
premises covering situations where a bank and another business jointly
hold and share the same space as opposed to a bank leasing a separate
space within a building to a third party. Proposed Sec. 7.1024(e)
provides guidance on how to share offices and employees in a manner
that protects customers and is consistent with safe and sound banking
practices. The proposed rule would not alter or affect existing
precedent applicable to 12 CFR 7.3001. Proposed Sec. 7.1024(e)(4),
like current 12 CFR 7.3001(d), provides that in conducting sharing
arrangements, national banks and Federal savings associations would be
required to ensure that each arrangement complies with all applicable
laws or regulations. Proposed Sec. 7.1024(e)(4), like current 12 CFR
7.3001(d), lists three requirements, which are illustrative and not
exhaustive.
Permissible Means of Holding Real Estate and Fixed Assets (Sec.
7.1024(f))
Proposed Sec. 7.1024(f) provides technical information related to
permissible means of holding real estate and fixed assets. These
provisions are substantially similar to the provisions in current 12
CFR 7.1024(a)(3), (b), and (c).
Transition (Sec. 7.1024(g))
Proposed Sec. 7.1024(g) provides that as of XX, 20XX, a national
bank or Federal savings association that holds an investment in real
estate, fixed assets, banking premises, or other real property that
complies with the legal requirements in effect prior to XX, 20XX, but
would violate any provision of proposed Sec. 7.1024, would be
permitted to continue to hold the investment in accordance with the
prior legal requirements. However, a national bank or Federal savings
association holding such an investment cannot modify, expand, or
improve the investment, except for routine maintenance, without the
prior approval of the appropriate OCC supervisory office. Proposed
Sec. 7.1024(g) grandfathers national banks or Federal savings
associations that currently have permissible real estate investments
that would no longer be permissible under the proposed revisions. The
proposed rule would supersede outstanding OCC precedent (and former OTS
precedent) in this area to the extent it is inconsistent with the
proposed rule. While national banks and Federal savings associations
would be able to continue to rely on this precedent, including
interpretive letters, with respect to current real estate investments,
national banks and Federal savings associations would not be able to
rely on this precedent with respect to future real estate investments.
The proposed rule would not affect outstanding precedent regarding 12
CFR 7.1000 or 12 CFR 7.3001.
Question Ten: The OCC requests comment on the appropriate
parameters of a national bank or Federal savings association's ability
to hold real estate subject to the transition rule in Sec. 7.1024(g).
Specifically, should a renewal, modification, or termination of a lease
constitute a ``modification'' subject to the transition rule? Should
other activities besides ``routine maintenance'' be permitted under the
transition rule?
IV. Administrative Law Matters
Paperwork Reduction Act. In accordance with the requirements of the
Paperwork Reduction Act of 1995 (PRA), 44 U.S.C. 3501 et seq., the OCC
may not conduct or sponsor, and respondents are not required to respond
to, an information collection unless it displays a currently valid
Office of Management and Budget (OMB) control number. The OCC has
reviewed the notice of proposed rulemaking and determined that it would
not introduce any new or revise any existing collection of information
pursuant to the PRA. Therefore, no submission will be made to OMB for
review.
Regulatory Flexibility Act. 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 proposed rule on small entities (defined by the Small
Business Administration (SBA) 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) or to certify that the proposed rule would not have a
significant economic impact on a substantial number of small entities.
The OCC currently supervises approximately 745 small entities. The OCC
expects that all of these small entities would be impacted by the
proposed rule. Because the proposed rule applies to all OCC-supervised
depository institutions, the proposed
[[Page 7985]]
rule would affect all small OCC-supervised entities, and thus a
substantial number of them.
Unfunded Mandates Reform Act. Consistent with the Unfunded Mandates
Reform Act of 1995 (UMRA), 2 U.S.C. 1532, the OCC considers 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 adjusted for inflation
(currently $157 million) in any one year. The OCC estimates the
expenditures that may be associated with compliance costs for this
proposed rule, if implemented, would be as much as $412,000. The
estimate for expenditures is for modifying a bank's policies and
procedures on premises. However, it should be noted that the proposed
rule does not require banks to modify their policies and procedures.
Therefore, the OCC concludes that implementation of the proposed rule
would not result in an expenditure of $157 million or more annually by
state, local, and tribal governments, or by the private sector.
Riegle Community Development and Regulatory Improvement Act.
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 must consider, consistent with principles of safety and
soundness and the public interest, any administrative burdens that such
regulations would place on depository institutions, including small
depository institutions, and customers of depository institutions, as
well as the benefits of such regulations. In addition, section 302(b)
of RCDRIA, 12 U.S.C. 4802(b), requires new regulations and amendments
to regulations that impose additional reporting, disclosures, or other
new requirements on insured depository institutions generally to take
effect on the first day of a calendar quarter that begins on or after
the date on which the regulations are published in final form. Although
the proposed rule does not impose additional reporting, disclosures, or
other new requirements on insured depository institutions, the OCC
invites comments that will inform its consideration of the
administrative burdens and the benefits of its proposal, as well as the
effective date of the final rule.
List of Subjects in 12 CFR Part 7
Computer technology, Credit, Derivatives, Federal savings
associations, Insurance, Investments, Metals, National banks, Reporting
and recordkeeping requirements, Securities, Security bonds.
Authority and Issuance
For the reasons stated in the preamble, the OCC proposes to amend
12 CFR part 7 as follows.
PART 7--ACTIVITIES AND OPERATIONS
0
1. The authority citation for part 7 continues 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)
and 5412(b)(2)(B).
0
2. Amend Part 7 by adding Sec. 7.1024 to read as follows:
Sec. 7.1024 National bank or Federal savings association ownership of
property.
(a) Definitions.
(1) Bank occupied office premises means bank occupied premises
containing offices where professional or clerical duties are performed.
(2) Bank occupied premises means real estate acquired and held in
good faith and in which more than 50 percent of each building or
severable piece of land is, or consistent with paragraph (c)(2)(ii) of
this section--, will be used by bank persons for the transaction of a
national bank's or Federal savings association's business, including
facilities that may be operated by third parties to provide amenities
and services to bank persons or otherwise facilitate national bank or
Federal savings association business operations.
(3) Bank persons mean a national bank or Federal savings
association's employees, contractors, consultants, vendors, and any
other individuals who are engaged in the national bank or Federal
savings association's business.
(4) Impermissible premises means real estate that is not bank
occupied premises or that otherwise does not conform with the
requirements of this section.
(5) Shared space means bank occupied office premises that a
national bank or Federal savings association shares with a third party
to enhance the national bank's business operations.
(b) Investment in real estate necessary for the transaction of
business. A national bank or Federal savings association may acquire,
hold, or convey real estate for use as bank occupied premises.
(c) Excess space and capacity.
(1) A national bank or Federal savings association may, in order to
optimize the use of bank occupied premises or avoid economic loss or
waste, permit third parties to use excess space or capacity in real
estate legitimately acquired or developed by the national bank or
Federal savings association for its banking business. Such excess space
or capacity must have a nexus with the transaction of the bank's
business or bank operations for the national bank or Federal savings
association such that it is acquired or held to provide the bank with a
business location rather than as an investment in real estate.
(2) With respect to bank occupied premises, legitimate excess space
or capacity that may be used by third parties can arise in a variety of
situations, including the following:
(i) Due to the characteristics of the real estate available in the
market, the space or capacity to meet a national bank or Federal
savings association's requirements exceeds its present needs;
(ii) The acquisition and retention of additional space or capacity,
beyond present needs, reasonably may be necessary for planned future
expansion or to meet a national bank's or Federal savings association's
expected future banking needs as long as the national bank or Federal
savings association uses the additional capacity in the real estate
acquired for future national bank or Federal savings association
expansion or banking needs within five years;
(iii) Requirements for capacity fluctuate because a national bank
or Federal savings association may need to use the full capacity of a
space during peak periods resulting in periods when its capacity is
underutilized;
(iv) After the initial acquisition of real estate thought to be
fully needed for banking operations, a national bank or Federal savings
association experiences a decline in the level of banking operations or
an increase in efficiency resulting in underutilized space or capacity;
and
(v) A national bank or Federal savings association has capacity to
allow third parties after-hours use of bank occupied premises.
(d) Impermissible premises. A national bank or Federal savings
association may not acquire, hold, or convey impermissible premises,
except as otherwise permitted by 12 U.S.C. 29 or 1464, respectively, or
other applicable law.
(e) Sharing national bank space and employees in jointly held bank
occupied office premises.
(1) Shared space. A national bank or Federal savings association
may share space in bank occupied office premises
[[Page 7986]]
jointly held with one or more other businesses.
(2) Shared employees. When sharing space with other businesses as
described in paragraph (e)(1) of this section, a national bank or
Federal savings association may provide, under one or more written
agreements between the national bank or Federal savings association,
the other business, and their employees, that:
(i) A national bank or Federal savings association employee may act
as agent for the other business; or
(ii) An employee of the other business may act as agent for the
national bank or Federal savings association.
(3) Supervisory conditions. When a national bank or Federal savings
association engages in arrangements of the types listed in paragraphs
(e)(1) and (2) of this section, the national bank or Federal savings
association must ensure:
(i) The other business is conspicuously, accurately, and separately
identified;
(ii) Shared employees clearly and fully disclose the nature of
their agency relationship to customers of the national bank or Federal
savings association and of the other businesses so that customers will
know the identity of the national bank, Federal savings association, or
other business that is providing the product or service;
(iii) The arrangement does not constitute a joint venture or
partnership with the other business under applicable state law;
(iv) All aspects of the relationship between the national bank or
Federal savings association and the other business are conducted at
arm's length, unless a special arrangement is warranted because the
other business is a subsidiary of the national bank or Federal savings
association;
(v) Security issues arising from the activities of the other
business on the premises are addressed;
(vi) The activities of the other business do not adversely affect
the safety and soundness of the national bank or Federal savings
association;
(vii) The shared employees or the entity for which they perform
services are duly licensed or meet qualification requirements of
applicable statutes and regulations pertaining to agents or employees
of such other business; and
(viii) The assets and records of the parties are segregated.
(4) Other legal requirements. When entering into arrangements of
the types described in paragraphs (e)(1) and (2) of this section, and
in conducting operations pursuant to those arrangements, a national
bank or Federal savings association must ensure that each arrangement
complies with all applicable laws and regulations. If the arrangement
involves an affiliate or a shareholder, director, officer, or employee
of the national bank or Federal savings association:
(i) The national bank or Federal savings association must ensure
compliance with all applicable statutory and regulatory provisions
governing national bank or Federal savings association transactions
with these persons or entities;
(ii) The parties must comply with all applicable fiduciary duties;
and
(iii) The parties, if they are in competition with each other, must
consider limitations, if any, imposed by applicable antitrust laws.
(f) Permissible means of holding real estate and fixed assets.
(1) Permissible means of holding. A national bank or Federal
savings association may acquire and hold real estate under paragraph
(b) of this section by any reasonable and prudent means, including
ownership in fee, a leasehold estate, or in an interest in a
cooperative. A national bank or Federal savings association may hold
this real estate directly or through one or more subsidiaries. A
national bank or Federal savings association may organize a bank
occupied premises subsidiary as a corporation, partnership, limited
liability company, or any other similar entity.
(2) Fixed assets. A national bank or Federal savings association
may own fixed assets necessary for the transaction of its business,
such as fixtures, furniture, and data processing equipment.
(3) Investment in banking premises.
(i) Premises investment and approval. A national bank or Federal
savings association must comply with the investment and approval
requirements for investment in banking premises in 12 CFR 5.37(d).
(ii) Option to purchase. An unexercised option to purchase banking
premises or stock in a corporation holding banking premises is not an
investment in banking premises. However, a national bank or Federal
savings association seeking to exercise such an option must comply with
the requirements in 12 CFR 5.37(d).
(g) Transition. If, on XX, 20XX, a national bank or Federal savings
association holds an investment in real estate, fixed assets, banking
premises, or other real property that complies with the legal
requirements in effect prior to XX, 20XX, but would violate any
provision of this section, the national bank or Federal savings
association may continue to hold such investment in accordance with the
prior legal requirements. However, a national bank or Federal savings
association that holds such an investment may not modify, expand, or
improve this investment, except for routine maintenance, without the
prior approval of the appropriate OCC supervisory office.
Sec. 7.3001 [Removed]
0
3. Remove Sec. 7.3001.
Brian P. Brooks,
Acting Comptroller of the Currency.
Editorial Note: This document was received at the Office of the
Federal Register on December 31, 2020.
[FR Doc. 2020-29277 Filed 2-2-21; 8:45 am]
BILLING CODE 4810-33-P
