Charters

Charters

Comptroller’s Licensing Manual

Washington, DC
May 2006

Charters

Table of Contents

Introduction ............................................................................................................ .1
Charter Policy ......................................................................................................... .1
Insider’s Roles and Responsibilities .............................................................. .2
Organizing Group’s Role and Responsibilities ............................................. .2
Sponsored Organizations ............................................................................. .4
Sponsor’s Role .................................................................................. .4
Conflicts of Interest ........................................................................... .4
Affiliate Transactions ......................................................................... .5
Parallel-Owned Banking Organizations............................................. .7
Management and Director’s Banking Experience ......................................... .8
Directors ........................................................................................... .8
Selection of the CEO………………………………………………………….. 10
Senior Executive Officers ..................................................................11
Insider Policy ...............................................................................................12
Transactions with Insiders ............................................................................12
Insider Personal and Financial Commitments ...............................................13
Insider Compensation ..................................................................................13
Regulatory Review ............................................................................13
Unacceptable Forms of Compensation..............................................14
Excessive Compensation ...................................................................15
Prohibited Golden Parachute Payments ............................................16
Accounting Considerations and Shareholder Disclosures ..................16
Organizer’s Business Plan ............................................................................16
Business Plan Requirements..............................................................16
Avoiding Potential Problems .............................................................17
OCC Evaluation of Proposal.........................................................................18
Capital Considerations .................................................................................18
Organizers’ Responsibilities ..............................................................18
Policy and Legal Issues......................................................................19
Key Capital Considerations ...............................................................19
Raising Capital .................................................................................20
Raising Capital Prior to OCC’s Decision.................................21
Offerings ................................................................................21
Stock Brokers, Underwriters, or Other Consultants.................22
Funds Collected by an Organizing Bank ................................22
Structural Issues ................................................................................22
Preferred Stock .......................................................................22
Debt-based Capitalization ......................................................22
Assessment of Community Credit Needs......................................................23
Compliance Issues .......................................................................................23
Electronic Banking (e-banking) Concerns .....................................................23
Application Process.................................................................................................24
Exploratory Calls or Meetings.......................................................................24
Prefiling Meeting..........................................................................................24
Filing the Application...................................................................................26
Biographical and Financial Reports ...................................................26
National Bank Identifying Information...............................................27
Publication Requirements and Comment Periods..............................27
Filing Fees.........................................................................................27
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Types of Filings .................................................................................27
Standard Review ....................................................................27
Expedited Review...................................................................27
Contracts and Other Arrangements ...................................................28
Use of Third-Party Service Providers .................................................29
Certification ......................................................................................30
Deposit Insurance and Filing with the FDIC ......................................30
Filings with Other Regulators ............................................................30
Additional Information ......................................................................31
Amendments.....................................................................................31
Review of the Application............................................................................31
Background Investigations.................................................................31
Field Investigations............................................................................31
Decision ......................................................................................................32
Standard and Special Requirements ..................................................32
Special Conditions ............................................................................33
Organization Phase .........................................................................................................34
Becoming a Corporate Body ...................................................................................34
Establishing Bank Premises .....................................................................................34
Internal and External Audits ....................................................................................35
Fidelity and Other Insurance...................................................................................36
Organization Costs .................................................................................................37
Significant Changes.................................................................................................37
Identification................................................................................................38
Ownership and Capital Raising Efforts..........................................................39
Repayment of Organization Costs to Organizers .....................................................39
Preopening Examination .........................................................................................39
Expiration of Revocation of Preliminary Conditional Approval................................40
Extensions....................................................................................................40
Revocation...................................................................................................40
Notification..................................................................................................41
Final Approval ........................................................................................................41
Post-Opening Considerations ...........................................................................................42
Significant Deviations after Opening.......................................................................42
Expansion or Contraction of Assets or Activities ......................................................42
Change in Control...................................................................................................43
OCC Review of Management..................................................................................43
Special Purpose or Narrow Focus Proposals.....................................................................43
Types of Special Purpose Banks ..............................................................................44
Credit Card Banks ........................................................................................44
Trust Banks or Trust Companies ...................................................................46
Community Development Bank ...................................................................49
Cash Management Bank...............................................................................49
Bankers’ Banks.............................................................................................50
Narrow Focus Proposals .........................................................................................50
Supervisory Risks .........................................................................................50
CRA Policy Issues ........................................................................................52
Capital Considerations .................................................................................52
Procedures: Prefiling .......................................................................................................53
Procedures: Application Process .....................................................................................57
Procedures: Organization Phase......................................................................................63
Appendix A: Parallel-Owned Banking Organizations ......................................................76
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Appendix B: Directors’ Duties and Responsibilities,
Qualifications, and Other Issues.................................................................80
Appendix C: Stock Benefit Plans .....................................................................................85
Appendix D: Supervision and Oversight Highlights ........................................................89
Appendix E: Community Reinvestment Act Highlights ...................................................95
Appendix F: Compliance Highlights...............................................................................97
Appendix G: Significant Deviations after Opening ........................................................ 103
Glossary......................................................................................................................... 106
References ..................................................................................................................... 112

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Charters
Introduction
Each organizing group must apply to, and obtain approval from, the Office of the
Comptroller of the Currency (OCC) before establishing a national bank. New banks
may be chartered for full service or special purpose operations, such as trust banks,
credit card banks, bankers’ banks, community development (CD) banks, and cash
management banks.
This booklet of the Comptroller’s Licensing Manual (manual) provides organizers and
sponsors applying for a national bank charter with OCC policies and procedures
used in the charter application process, along with detailed guidance and
instructions. It discusses the statutory factors that the OCC considers in deciding a
proposed bank’s application. It describes the application process, including the
prefiling process, filing and review of the application, the decision, and the
organization phase. It also provides information about the on-going supervision of a
national bank and issues applicable to a special purpose or a narrow focus bank.
A glossary of terms used in the booklet is provided along with a reference section
that provides statutory and regulatory cites and other useful materials. Throughout
the electronic edition of this booklet at www.occ.treas.gov are hyperlinks to sample
documents, such as the Interagency Charter and Federal Deposit Insurance
Application (interagency application), and other information that an applicant may
find useful.

Charter Policy
The OCC approves proposals to establish national banks that have a reasonable
chance of success, will foster healthy competition, and will be operated in a safe and
sound manner. OCC approval does not assure that a proposal to establish a national
bank is without risk to the organizers or the investors. In reaching its decision, the
OCC considers whether the proposed bank:
•

Has organizers who are familiar with national banking laws and regulations.

•

Has competent management, including the board of directors, that has ability
and experience relevant to the type of products and services to be provided
and the size and scope of projected risks.

•

Has capitalization, access to liquidity, and risk management systems that are
sufficient to support the projected volume and type of business.

•

Can reasonably be expected to achieve and maintain profitability.

•

Will be operated in a safe and sound manner.

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The OCC considers a proposed bank’s plans for meeting the credit needs of its entire
community, including low- and moderate-income neighborhoods, consistent with
the safe and sound operation of the bank. The OCC also may consider the risk to the
Federal Deposit Insurance Fund and whether the proposed bank’s corporate powers
are consistent with the intent of the Federal Deposit Insurance Act (FDIA) and the
National Bank Act.
The OCC encourages each organizing group interested in establishing a national
bank to contact the OCC to obtain information about the process and guidance
about specific issues that are unique to the group’s proposal. The OCC normally
requires all of the organizers of a national bank and the proposed chief executive
officer (CEO) to attend a prefiling meeting prior to filing the application.
The organizing group should file an interagency application for deposit insurance
with the FDIC when it submits its charter application to the OCC. Each charter
application must include accurate statements, fully developed plans, and a
determination that the transaction complies with all applicable statutes and
regulations.
Questions and issues often arise in the application process. With any application,
the OCC may require additional information, which may extend the application
review. Requests for additional information are more likely if the organizers propose
unusual banking services or corporate arrangements.
The OCC grants approval of charter applications in two steps: preliminary
conditional approval (decision) and final approval. Preliminary conditional approval
permits the organizers to proceed with organizing the bank. The OCC defines the
organization phase as the time period between the decision and the bank opening
(see “Organization Phase” discussion in this booklet). During the organization
phase, the organizing bank’s officers and directors hire management and staff, raise
capital, prepare bank premises, and develop policies and procedures that will guide
the bank’s operations.
The OCC requires the organizers to raise capital within 12 months after its decision
date. The bank must open within 18 months after the OCC’s decision date. A bank
cannot begin the business of banking or engage in fiduciary or other activities until
the OCC grants final approval.

Insiders’ Roles and Responsibilities
A strong organizing group, board of directors, and CEO are essential to gain the
OCC’s approval of a charter proposal. The OCC considers proposed organizers,
directors, principal shareholders, and executive officers of the proposed national
bank as insiders. Individually and collectively, they must have the experience,
competence, willingness, and ability to actively direct the proposed bank’s affairs in
a safe, sound, and legal manner.

Organizing Group’s Role and Responsibilities
A strong organizing group generally includes persons with diverse business and
financial interests and community involvement. The business plan and other
2

information supplied in the application must demonstrate an organizing group’s
collective ability to establish and operate a successful bank in the economic and
competitive conditions of the market the bank will serve. A poor business plan
reflects adversely on the organizing group’s ability, and the OCC will deny such
applications.
The organizing group must be composed of five or more persons. Normally, all of
the organizers serve as the bank’s initial board of directors.
The organizers are responsible for:
•

Ensuring that the group consists of persons with diverse business and financial
interests and community involvement and includes persons with some
banking experience.

•

Having a personal history that reflects responsibility, honesty, and integrity.

•

Exhibiting substantial personal and financial commitment to the proposed
bank relative to their individual and collective financial strength.

•

Selecting a capable CEO and, early in the organization process, other
executive officers who will have the necessary experience to successfully
implement the proposed business plan and, thus, enhance the proposed
bank’s likelihood of success.

•

Developing a business plan that:
−

Demonstrates the group’s collective ability to establish and operate a
successful bank in the economic and competitive conditions of the
market to be served.

−

Articulates the risks of the proposed operation and the systems and
processes that the bank will use to monitor and control those risks.

•

Understanding their role in the successful implementation of the business
plan.

•

Designing senior executive officer and other compensation proposals that are
consistent with the OCC’s guidelines (see the Insider Compensation
discussion in this booklet).

The OCC requires each group to appoint a spokesperson or contact person (contact
person) who serves as the primary liaison between the OCC and the organizers. The
contact person must be a member of the organizing group and a proposed director,
unless the proposed bank has a sponsor, such as an existing bank holding company
(BHC), in which case a representative of the sponsor may serve in that capacity. The
president or CEO of the proposed bank often serves as the contact person.

3

Sponsored Organizations
A new bank may be affiliated with another organization, also called a sponsor, rather
than choose to operate independently. A sponsor usually is an existing holding
company, regardless of whether it is a BHC. If the new bank will be affiliated with
an existing BHC (see Glossary), the OCC will consider the BHC to be the sponsor of
the new bank. The OCC will look closely at the proposed relationships between the
bank and other organization(s) within the holding company to determine whether to
permit the affiliation.
The OCC does not consider as a sponsor a new BHC that is established at the same
time as a new national bank. Such a BHC generally does not offer significant
financial and managerial resources to support the bank’s operations. In addition, a
new BHC has few activities separate from those of the bank.

Sponsor’s Role
When a new bank proposal has a sponsor, the OCC considers primarily the financial
and managerial resources of the sponsor and the sponsor’s record of performance,
rather than the financial and managerial resources of the organizing group. The
OCC will review, for consistency and compatibility with the proposed bank’s
business plan, a sponsor’s record of performance, overall philosophy, capital,
management, profitability, and plans, such as its strategic plan.
When the sponsor serves as a substantial source of strength, the OCC may approve
an application, even in a market in which economic conditions are marginal or
competitive conditions are intense. In such cases, the OCC may require the bank to
execute a written agreement with its holding company that provides for capital
maintenance and liquidity support from the holding company. (See the Special
Conditions discussion.) Conversely, the OCC may deny a sponsored new bank
application if the condition of the parent company or any affiliate is subject to
supervisory concern or otherwise detracts from the application.
With the OCC’s prior approval, a sponsor may eliminate certain information from, or
provide abbreviated information with, the charter application. However, to reduce
the application burden of a proposal involving an insured bank, the OCC encourages
the sponsor to file the same interagency application with both the OCC and the
FDIC. A BHC, or a company that would become a BHC because of its ownership of
a proposed bank, must obtain Federal Reserve Board (FRB) approval to acquire a
newly established bank before the OCC will grant final approval.
Sometimes a company, not qualifying as a BHC under federal law, still could be
considered a BHC under state law. State law may prohibit certain holding company
activities permitted by federal law. Consequently, each sponsor of a proposed bank
must demonstrate that its interagency application meets all standards imposed by
both federal and state law.

Conflicts of Interest
Conflicts may arise between a sponsored bank and its sponsoring entity in
maintaining sufficient corporate separateness between the organizations. This is
especially true with special purpose or narrow focus banks. To enhance the
4

corporate separateness of the organizations, the sponsor should evaluate the bank’s
activities and operations closely and address in the charter application, at a
minimum, the following issues:
•

The need for bank directors to act primarily in the best interest of the bank
rather than the bank’s sponsor and to exercise objective judgment in carrying
out their duties, independent of undue influence from sponsor management
and affiliates. This independence is especially critical when the bank
directors are considering:
−

Employment of bank management and employees dedicated to
support the bank’s operations.

−

Maintenance of separate books and records for the bank, the sponsor,
and other bank affiliates.

−

Implementation of bank board-approved internal and external audit
programs, internal controls and risk management policies, and other
policies and procedures necessary to ensure safe, sound, and legal
bank operations.

•

Evaluation of the extent to which the bank itself needs to retain core
operations and staff to conduct the bank’s business, as opposed to being
essentially a “shell operation” (see Glossary).

•

Adoption of third-party service provider or vendor management policies that
may include affiliated entities functioning as service providers for the bank.

Affiliate Transactions
The discussion that follows addresses only a few of the most common issues that
may arise in connection with new bank charters. For further detail on affiliate
transactions, see the “Related Organizations” booklet of the Comptroller’s Handbook
for National Banks.
A bank that has a sponsor or other affiliate (see Glossary for definition of affiliate)
must be aware of the laws governing affiliate transactions. Sections 23A and 23B of
the Federal Reserve Act (FRA), 12 USC 371c and 371c-1, respectively, are designed
to protect a bank from transactions with its affiliates that are disadvantageous or
abusive to the bank. The FRB implemented sections 23A and 23B of the FRA
through Regulation W, 12 CFR 223. The regulation, which became effective April 1,
2003, codifies existing FRB interpretations of sections 23A and 23B and prescribes
detailed new requirements, such as rules for valuing the amounts of covered
transactions. Thus, newly formed banks and their affiliates must comply with the
provisions of this rule as well as the statutes.
Generally, most subsidiaries of banks are not considered to be affiliates of the bank
for purposes of Sections 23A and 23B as implemented by Regulation W.
Subsidiaries that are treated as affiliates include insured depository institutions,
financial subsidiaries, and subsidiaries (including uninsured depository institutions)
that are also controlled by one or more affiliates of the bank that are not themselves
depository institutions. In addition, as previously noted, the OCC and the FRB can
5

determine that an otherwise exempt subsidiary should be treated as an affiliate. (For
more information on the treatment of subsidiaries of banks under Regulation W, see
the “Investment in Subsidiaries and Equities” booklet.)
Section 23A, as implemented by Regulation W, controls risk to banks by, among
other things:
•

Limiting “covered transactions” with any single affiliate to no more than 10
percent of the bank’s capital and surplus, and aggregate transactions with all
affiliates to no more than 20 percent of capital and surplus. Covered
transactions include:
−

A bank’s extensions of credit to, or guarantees on behalf of, its affiliates
or purchases of assets from its affiliates.

−

Investments in securities issued by affiliates.

−

Other specified transactions exposing the bank to risk of abuse by its
affiliates.

•

Requiring that all transactions between a bank and its affiliates be made on
terms consistent with safe and sound banking practices.

•

Prohibiting the purchase of low-quality assets from the bank’s affiliates.

•

Requiring that all “credit transactions” (including, among other things,
guarantees and extensions of credit to an affiliate) be secured by a statutorily
defined amount of collateral. A full or partial exemption from these
restrictions may be available for certain types of transactions. (For example,
see Section 23A(d) and 12 CFR 223.41 and .42.)

Section 23B of the FRA, as implemented by Regulation W, requires a bank to engage
in certain transactions with its nonbank and uninsured bank affiliates only on terms
and under circumstances that are substantially the same or at least as favorable to the
bank as those prevailing at the time for comparable transactions with unaffiliated
companies. This requirement generally means that the bank must conduct
transactions with these affiliates on an arm’s-length basis. Thus, for example, pricing
or transaction valuation must usually reflect fair market value. Section 23B applies
this restriction to any covered transaction, as defined by section 23A, and to other
specified transactions, such as a bank’s sale of securities or other assets to an affiliate
and the payment of money or the furnishing of services to an affiliate. However,
section 23B does not prohibit banks from receiving goods or services from affiliates
at below market prices. In addition, transactions between a bank and an insured
bank affiliate are generally exempt from section 23B. As is the case under section
23A, transactions between a bank and an uninsured bank affiliate are generally not
exempt from section 23B.
Regulation W sets forth exemptions from certain restrictions of sections 23A and
23B. Exemptions that may be of importance to sponsors of new banks include the
so-called “sister-bank” exemption and the exemption for newly formed banks. The
“sister-bank” exemption exempts many “covered transactions” between a bank and
an insured bank affiliate from the quantitative limits and collateral requirements of
6

section 23A. Under Regulation W, however, covered transactions between a bank
and an affiliated uninsured bank, such as a trust company, are not eligible for the
sister-bank exemption.
The exemption for newly formed banks allows such banks to purchase assets from an
affiliate without regard to the restrictions of either section 23A or 23B. To qualify for
these exemptions, the appropriate federal banking agency (the OCC, for national
banks) must approve the asset purchase in writing in connection with its review of
the formation of the bank. (See sections 223.42(i) and 223.52(a)(1).) If a sponsor
plans to rely on these exemptions, it should provide details of any proposed asset
purchases in the business plan.

Parallel-Owned Banking Organizations
In a parallel-owned banking group, at least one United States bank and at least one
foreign bank are independently chartered but controlled either directly or indirectly
by the same individual, family, or group of individuals who are closely associated in
their business dealings or who otherwise act in concert. These persons will be
considered members of the establishing party. Processing a charter application that
creates a parallel-owned banking organization generally is more complex and time
consuming than processing a typical charter application. This processing disparity
reflects the OCC’s need to understand the following: How the overall strategy and
management of the parallel-owned banking organization will affect the national
bank; how the activities of the foreign bank are supervised; how home-country
supervisors view the condition and operations of foreign affiliates; and how affiliates
might affect the national bank. The preceding matters of supervisory interest add to
the concerns addressed in the OCC’s standard analysis of the background and
financial information of the individual(s) filing the charter application.
Concerns for the national bank that arise from a potential parallel-owned banking
organization typically result in expanded application requirements. The degree to
which the OCC will expand requirements varies, reflecting the specific structure of
the proposed transaction and resulting organization. The OCC may request
commitments or representations to facilitate the supervision of parallel-owned
banking organizations. (See Appendix A, Parallel-Owned Banking Organizations for
specific examples.)
For purposes of applying legal restrictions on a bank’s transactions with its affiliates
within a parallel-owned banking group, the 25 percent control threshold in sections
23A and 23B and Regulation W is relevant. Members of a parallel-owned banking
group that are affiliates cannot take advantage of the sister bank exemption because
that exemption requires ownership by a holding company.
Because of the complexity of proposals that would establish a parallel-owned
banking organization and the case-by-case nature of their processing, potential
applicants are strongly encouraged to meet with Licensing staff prior to submitting an
application.

7

Management and Directors’ Banking Experience
The OCC requires all organizing groups and senior management teams to
demonstrate sufficient banking experience to operate a national bank successfully.
The OCC grants a charter application only to a management team, including both
the proposed management and directorate, that it considers strong. Strong
management teams are usually characterized by:
•

High-caliber senior executive officers that have the relevant experience
necessary to implement the proposed business plan and to exercise corrective
action in response to changing internal and external factors.

•

Successful business and community leaders, including some with prior
banking experience, who effectively oversee the management of the bank's
activities in their capacity as directors.

Directors
Each organizer and proposed director is responsible for understanding the chartering
process and the role of a national bank director. Each organizer and proposed
director should review this booklet to become familiar with the chartering process.
The affairs of each national banking association must be managed by directors who,
initially, are elected by the shareholders at a meeting held before the association is
authorized to commence business and, afterward, at meetings to be held at least
annually, on a day specified in the bylaws.
Each member of the proposed bank’s board of directors must act in the best interests
of the bank and in accordance with his or her fiduciary duties. In addition, each
member must exercise objective judgment in carrying out his or her duties,
independent of undue influence from management and any controlling companies.
The board of directors of a national bank provides oversight to and direction of the
bank’s activities. It may delegate the day-to-day routine of conducting the bank’s
business to the bank’s officers and employees, but directors cannot delegate their
responsibilities to ensure that the bank’s affairs are conducted in a safe and sound
manner. The directorate is responsible for safeguarding the interests of the
depositors and shareholders through the lawful, informed, efficient, and able
administration of the institution.
The board of directors’ primary duty is to select and appoint executive officers who
are qualified to administer the bank’s affairs effectively and soundly. Selection
criteria should include integrity, technical competence, character, and experience in
the financial services industry. The board also must dispense with services of officers
who prove unable to meet reasonable standards of executive performance.
The board’s oversight responsibilities include reviewing, approving, and monitoring
adherence to major corporate actions and corporate strategies, business plans, risk
policies, and risk tolerances. The board also must review appropriate regulatory and
audit reports, and take appropriate action on all matters requiring board attention.
8

Directors must have sufficient experience, competence, willingness, and ability to be
active in overseeing the safety and soundness of the bank’s affairs. The OCC
developed The National Bank Director’s Toolkit as a reference to assist national
bank directors in understanding their roles and responsibilities. (Appendix B,
Directors’ Duties and Responsibilities, Qualifications, and Other Issues, provides a
broader discussion of the duties and responsibilities of directors.)
The OCC will expect the organizing group to recommend a stronger team of senior
executive officers to compensate for a proposed directorate that has limited banking
experience or community involvement. The OCC is likely to consider an organizing
group’s banking experience to be satisfactory if at least a quarter of the bank’s
outside directors (directors who are neither officers nor employees of the bank) have
recent experience (see Glossary) as directors or executive officers of a well-run
financial institution. At a minimum, at least one outside board member should have
recent banking experience that is relevant to the proposed new bank’s business plan.
If for any reason the OCC is concerned about the recent experience of proposed
outside directors, it will consider the following factors in its evaluation of the group’s
banking experience:
•

The proposed board’s collective business expertise.

•

The group’s efforts to obtain directors with recent banking experience.

•

Individual bank circumstances, such as a proposed bank with noncomplex
operations located in a rural area for which experienced directors are not
readily available.

•

Commitments or representations by the organizing group to obtain director
education.

•

Individual experiences in highly regulated industries; for example, insurance
or stock brokerage.

Director education and orientation are available from a variety of sources, including
the proposed bank’s management, bank consultants, or seminars or “colleges” for
new directors offered by local and national industry associations.
To conclude that a representation or commitment for director education is
satisfactory, the OCC requires the following to be present:
•

A specific plan with time frames.

•

Initial training prior to the bank opening that focuses on the duties and
responsibilities of new bank directors. This training should include the
importance of an effective, independent risk-monitoring program to assist the
board in its oversight of the bank's risk management system.

•

Additional training during the first year of the bank’s operations tailored to the
directors’ needs relative to the bank’s proposed business plan.

•

Ongoing education about new risks, products, and services.
9

Selection of the CEO
Selection of a qualified CEO is the organizing group’s single most important decision
affecting the success of the new bank. The proposed CEO should:
•

Be involved actively in developing the proposed business plan, since the CEO
must implement the proposed plan successfully once the bank opens.

•

Have strong leadership skills with successful experience managing a bank or
serving as a bank officer in a similar financial institution in areas relevant to
the proposed bank’s marketing strategy and needs.

•

Possess skills that complement those of the directors and other proposed
members of the executive officer team, including extensive experience in
bank operations or lending.

Selection of a CEO who the OCC finds unqualified for the position, whose prior
banking experience is unsatisfactory, or who otherwise is unacceptable, reflects
negatively on the organizers and will result in disapproval or revocation of
preliminary conditional approval. The OCC does not grant approvals subject to the
condition that the organizers propose a more suitable CEO. Decisions about a
proposed CEO are based on a person’s suitability for that position with a specific
new bank and are not intended to determine that person’s eligibility for other jobs.
Each organizing group must disclose its proposed CEO to the OCC at the time it files
the charter application. If the proposed CEO would like to have his or her name
withheld from the public until the OCC grants preliminary conditional approval, the
organizers should:
•

Include a request for confidential treatment with the materials submitted in
the charter application.

•

Provide support for their request that disclosure would constitute an
unwarranted invasion of personal privacy under exemption 6 of the Freedom
of Information Act (FOIA) or result in substantial competitive harm to the
organizers or the proposed CEO under exemption 4 of FOIA.

•

List in the application the criteria that were used in the selection process.

•

Provide a detailed description of the person’s background, experience, and
qualifications in the public portion of the application that is sufficiently
specific to permit matching the application information with the person once
his or her identity is disclosed.

•

Discuss the proposed terms of employment for the CEO, including
compensation and benefits.

The organizing group must submit an Interagency Biographical and Financial Report
(see the “Background Investigations” booklet) for the CEO. In addition, the group
must submit documentation of its investigation of the proposed CEO’s background
10

and qualifications (see Appendix A: Management Review Guidelines in the
“Background Investigations” booklet).

Senior Executive Officers
The organizers are responsible for hiring and retaining senior executive officers with
skills and qualifications appropriate to the size of the institution, its corporate
structure, and the nature, scope, and risk of its activities. The organizers must
evaluate each proposed executive officer.
Senior executive officers will be responsible for managing and supervising the dayto-day activities of the bank. They should be able to identify and manage the
material risks associated with the bank’s activities and provide appropriate and
accurate reports to the board of directors of the bank’s condition and risk profile. As
such, each proposed executive officer should exhibit strong, relevant experience for
the specific position for which he or she is proposed. While the lack of previous
experience in a specific position may not disqualify a person for the position, the
proposed officer must be able to demonstrate that he or she has the knowledge,
skills, and abilities required to execute the duties of the position effectively.
The organizing group should include the following information in its application for
each senior executive officer candidate:
•

An Interagency Biographical and Financial Report (see the “Background
Investigations” booklet).

•

A job description outlining responsibilities for each officer’s position.

•

A detailed outline of each candidate’s banking or other relevant experience.

•

An assessment of each candidate’s qualifications for the position and his or
her ability to implement the business plan (see the Management Review
Guidelines in the “Background Investigations” booklet).

The organizers should allow the OCC adequate time to complete its review of each
officer’s qualifications. The organizers must receive a no objection determination on
the CEO before soliciting stock subscriptions and on other senior executive officers
before opening, unless the organizing group is soliciting stock prior to OCC decision
(see “Raising Capital Prior to OCC Decision”). They should make no final
commitments of employment to any officer prior to the OCC’s review. The OCC
will assess the strength of the senior executive officers by considering:
•

The extent and quality of the proposed candidate’s experience.

•

The candidate’s skills for the position, including his or her level of knowledge
of the businesses and activities that the candidate will manage, the attendant
risks, and appropriate risk management functions.

•

The complexity of the proposed bank’s business plan.

•

The use of information technology in the bank’s business plan.
11

If, after appropriate investigation and consideration of a proposed senior executive
officer, the OCC objects to that person, he or she cannot assume that position in the
bank. Objection to a proposed senior executive officer does not mean that the
person may not be suitable for a different position in the same bank or a similar
position in another bank. It means only that the OCC does not consider the person
acceptable for the particular position for which the organizers have proposed in that
new national bank.
After considering the qualifications of all proposed officers, the OCC will determine
if the overall organizing group is strong.

Insider Policy
The OCC requires each national bank to adopt a written insider policy addressing its
code of conduct and conflicts of interest. This policy must detail business practices
the board of directors deems acceptable. The OCC requires this policy in writing for
each bank, regardless of its complexity or the degree of sophistication of its systems.
The board of directors must take the lead in protecting the bank from conflicts of
interest. One way a board of directors can fulfill that role is by adopting and
enforcing clear insider policies to govern conduct and transactions between the bank
and its directors and principal shareholders and their related interests and with its
officers and employees.

Transactions with Insiders
Bank insiders (directors, executive officers and principal shareholders) have positions
of responsibility and leadership in the community and must be careful to avoid even
the appearance of conflicts of interest. Insiders can do this by making sure that their
transactions with the bank reflect the same terms and conditions offered to other
bank customers. Transactions involving insiders must show no compromise of the
bank's interests.
Any financial or other business arrangement, direct or indirect, flowing from the
bank to the organizing group or other insiders must be made on terms that are at
market value or comparable standards. The bank may receive preferential treatment
from the insider, but the insider may not charge the bank a higher rate or require
more favorable terms than those prevalent in the market. Additional restrictions and
requirements apply to loans made to executive officers. Banking statutes and
regulations also impose a number of reporting and record keeping requirements.
[See the “Insider Activities” booklet of the Comptroller’s Handbook for National
Bank Examiners (Comptroller’s Handbook).]
The bank must comply with the limitations and prohibitions of 12 USC 375a and
375b, as implemented by the FRB’s Regulation O (12 CFR 215) and the OCC’s Part
31 (12 CFR 31), whenever it makes a loan or extension of credit to its insiders or
their related interests. Under those statutes and regulations, a bank (subject to a
number of regulatory and statutory exceptions) may not make a loan to an insider in
an amount that exceeds the bank’s lending limit (15 percent of the bank’s capital and
surplus for unsecured loans, and an additional 10 percent for loans secured by
readily marketable collateral). In addition, a bank cannot extend preferential loans to
insiders. Large loans also require the prior approval of the lending bank’s board of
12

directors. Insiders must abstain from discussions about and voting on their own
loans or those concerning related interests.

Insider Personal and Financial Commitments
The OCC expects all organizers and directors to exhibit substantial personal and
financial commitment to a new national bank. Personal commitment includes
contributions of time and expertise to the bank’s organization (see Appendix B).
Personal wealth is not a prerequisite to becoming an organizer or director of a
national bank. However, purchases of shares of bank stock, individually and in the
aggregate, should reflect a financial commitment to the success of the national bank
that is reasonable in relation to the individual and collective financial strength of the
organizers. Financial commitment includes contributions of initial funding and stock
subscriptions relative to each person’s individual financial capacity. Further,
organizers should act prudently on all financial and other aspects of the proposal.
Organizers should not bill excessive charges to the bank for professional and
consulting services or unduly rely upon these fees as a source of income. Normally,
the bank should not compensate organizers for marketing or aiding in stock
solicitation. Directors of new banks should not be dependent upon bank dividends,
fees, or other bank-related compensation to satisfy financial obligations. Directors
are often the primary source of additional capital for a bank that is not affiliated with
an established holding company. Accordingly, an organizer who also is proposed as
a director should be able to supply capital, or have a realistic plan to enable the bank
to obtain capital, if needed.
All insiders, including senior executive officers, should make substantial personal
commitments to the organizing bank. Principal shareholders should demonstrate
financial commitment through their stock purchases. Directors and principal
shareholders also may provide support for the new bank by moving personal and
business banking relationships to the bank that will help the bank achieve success.
(See the discussion on Transactions with Insiders.)

Insider Compensation
Any national bank insider’s compensation can include salaries, bonuses, fees,
benefits, or other goods and services. For a proposed bank charter, the organizing
group should include in its interagency application a description of all forms of
insider compensation, including stock-based compensation plans.
Organizers should establish compensation plans that are in the best interest of the
bank and commensurate with the services the organizers propose to offer. A new
bank may include a stock benefit or compensation plan (stock benefit plan),
including stock options, stock warrants, and similar stock-based compensation, in its
overall compensation for organizers, directors, and officers, provided that it
structures the plans appropriately.

Regulatory Review
The OCC evaluates each proposed bank’s total compensation package, including its
stock benefit plan (see Appendix C for a discussion of stock benefit plans), to
13

determine if it is reasonable considering each person’s contribution of time,
expertise, and financial commitment. The OCC assesses the amount and basis of
any cash or stock payments an organizer may receive as a return for funds placed at
risk or for services rendered. In addition, the OCC considers the number and
percentage of additional stock warrants or options that the organizers propose
relative to the number of shares the bank will issue at the time it opens. The OCC’s
conclusions about the acceptability of the proposed insider compensation package
have a bearing on the OCC’s overall assessment of the charter application.
The OCC also reviews proposed insider compensation plans for each newly
organized BHC or non-BHC parent for consistency with the OCC’s criteria set forth
in this booklet and compliance with applicable laws and regulations. The organizers
should provide documentation to support the reasonableness of its compensation
package, including the methodology used to value any stock options (such as a stock
option pricing model or discounted cash flow analyses and relevant comparable
data). The OCC has no preference about which method the organizing group uses
for its valuation of stock options.
Generally, a material change to the new bank’s overall compensation package after
the application is filed is a “significant change,” which will require the OCC’s prior
no objection before the bank may open. In some cases, the organizers develop a
stock benefit plan for directors or senior executive officers after filing the application.
The OCC also would consider this development a “significant change.” (See
Significant Changes discussion.)
An established company may have existing compensation plans in which the
proposed national bank’s management and board may participate. The OCC will
review such plans closely. In limited circumstances, the OCC may allow bank
management and board management to participate in an existing plan that otherwise
would be inconsistent with the general criteria for new bank stock benefit plans. In
such cases, the OCC will consider whether the compensation, in combination with
other forms of compensation, is reasonable.
The FDIC reviews compensation plans in its assessment of each deposit insurance
application. The OCC and the FDIC apply similar standards to their separate
evaluations of compensation plans. If the organizers would like the OCC and the
FDIC to review proposals that may not conform to the stock benefit plan guidelines
provided in this booklet, they should provide information and justification to support
a deviation from established policies.
In some circumstances, the exercise of rights granted by a stock benefit plan trigger a
filing to the OCC under the Change in Bank Control Act (CBCA) (12 USC 1817(j)) or
the OCC’s implementing regulation, 12 CFR 5.50. The OCC’s review of stock
benefit plans in connection with a charter application does not satisfy the prior
notice requirements under the CBCA. If an option holder’s exercise of rights would
trigger the prior notice requirements, the holder must fulfill the CBCA prior notice
requirement before exercising the option.

Unacceptable Forms of Compensation
The OCC considers as unacceptable any new bank compensation proposal that
allows insiders to:
14

•

Purchase stock at an original issue price lower than that paid by other
investors.

•

Purchase or acquire a separate class of bank or BHC stock at a price lower
than that offered other subscribers or with greater voting rights.

•

Receive a cash payment based on the market value of the bank’s stock.

•

Remove cash from the bank’s capital accounts.

•

Obtain more than one option or warrant for each share of stock subscribed for
Type 1 and Type 2 plans at the time of the bank’s opening (see the Primary
Types of Insider Stock Benefit Plans discussion in Appendix C).

•

Receive stock options or warrants issued to a holder other than the name of
the bank insider, such as a partnership, corporate entity, spouse, or other
family member.

•

Exercise “cashless” stock options, such as stock appreciation rights or
phantom shares.

These compensation arrangements cause concerns about the bank’s ability to raise
additional capital, allow control without a proportionate financial investment, and
make it difficult for other shareholders to remove directors if they manage the bank
in an unsafe or unsound manner.

Excessive Compensation
Each national bank should maintain safeguards to prevent the payment of
compensation that is excessive or that could lead to material financial loss to the
bank. Excessive compensation is an unsafe and unsound practice and is prohibited
by regulatory safety and soundness standards. The commitment to pay, or payment
of, unacceptable or excessive compensation also reflects negatively on the
organizing group’s charter proposal.
The OCC considers compensation excessive when amounts paid are unreasonable
or disproportionate to the services performed by any person for a national bank. The
OCC may request additional information from the organizing group to support the
compensation or may require the organizers to change or eliminate the form or
amount of compensation before it will authorize the bank to open for business. If
excessive compensation is discovered before the bank opens, the OCC will disallow
payment of that compensation from bank funds and may preclude the bank from
opening.
After the bank opens, if the OCC determines that compensation has become
excessive, the board is responsible for taking corrective action and seeking
restitution. The “Interagency Guidelines Establishing Standards for Safety and
Soundness” address excessive compensation and list the factors the OCC considers
to evaluate compensation packages (refer to 12 CFR 30, Appendix C).

15

Prohibited Golden Parachute Payments
The ability of insured national banks to enter into contracts to pay and to make
golden parachute payments to institution-affiliated parties (IAP) is limited when the
bank is in "troubled condition" (see Glossary). This limitation is imposed in 12 CFR
359. A "golden parachute payment" generally is considered to be any payment in
the nature of compensation to an IAP that is contingent on, or payable on or after,
the termination of that party's employment and is received when the bank making
the payment is troubled. An IAP is broadly defined and includes directors, officers,
and employees, among others. The regulation prohibits a troubled bank from
entering a contract to pay a golden parachute payment and from making such a
payment, subject to exceptions. A procedure also is set forth under which a bank
may request permission to enter a contract to pay or to make what would otherwise
be a prohibited payment. In light of these restrictions, banks may wish to include in
their employment agreements a provision noting that the bank is not contractually
obligated to make any payments that are prohibited under 12 CFR 359.

Accounting Considerations and Shareholder Disclosures
Organizers and boards must assure that each component of a bank’s compensation
package is accounted for properly and that public and periodic regulatory reports
(such as Consolidated Reports of Condition and Income (call reports) and securities
filings under Part 16) are accurate. In addition, they should refer to the Internal
Revenue Code for guidance about shareholder approval and disclosure. Under Part
16, organizers must disclose and describe fully insider compensation, including
stock benefit plans, to all prospective stock subscribers in the registration statement
or private placement document, regardless of whether shareholder approval is
required for the stock benefit plans.

Organizers’ Business Plan
Organizers of a proposed national bank must submit a business plan that adequately
addresses regulatory and policy considerations presented in this booklet and set forth
in 12 CFR 5.20(e) and (f)(2). The plan must reflect sound banking principles. The
organizing group’s business plan, including its financial projections, analysis of risk,
and planned risk management systems and controls, is critical to the OCC’s decision
of whether to grant approval to the group’s charter proposal.

Business Plan Requirements
The interagency application includes Business Plan Guidelines that list the
components of the plan the OCC requires. The business plan should be an integral
part of the management and oversight of a national bank and should establish the
bank’s goals and objectives. The business plan is a written summary of how the
bank will organize its resources to meet its goals and how the financial institution
will measure progress.
The business plan should be comprehensive and reflect the institution’s organizers’
and management’s in-depth planning. The plan should cover the greater of three
years or the time period until the bank is expected to achieve stable profitability. It
should provide detailed proposed actions to accomplish the primary functions of the
bank. It should realistically forecast market demand, customer base, competition,
16

and economic conditions. The business plan should contain sufficient information to
give realistic assessments of risk related to economic and competitive conditions in
the market the bank will serve. Assumptions should be consistent with all other
information presented in the application.
The organizing group demonstrates in the business plan its management and
planning abilities by assuming reasonable risks and by developing a comprehensive
alternative business strategy. The organizers should describe clearly their assessment
of risks inherent in the products and services of the bank and the design of related
risk management controls and management information systems. (See Risk
Assessments and Risk Management discussions in Appendix D.)
The group should integrate an alternative business strategy into its business and
strategic plans and bank policies. Through the alternative business strategy, the
organizing group demonstrates that it can manage potential scenarios prudently,
efficiently, and effectively when the asset or deposit mixes, interest rates, operating
expenses, marketing costs, or growth rates differ significantly from the original plan.
This alternative plan should include realistic plans for how the board would access
additional capital should it be needed. (See Appendix D of this booklet and the
“Bank Supervision Process” booklet of the Comptroller’s Handbook, which includes
a thorough discussion of each type of risk.)
Organizers for a bank that will have a special purpose or narrow focus should tailor
the contents of their business plan as appropriate. The OCC also expects these
business plans to articulate clearly a comprehensive alternative business strategy
should original plans not materialize. (See the Special Purpose and Narrow Focus
Proposals section in this booklet.) The organizers should not omit or delete sections
of the business plan without prior consultation with OCC staff. In addition to the
financial information required by the interagency application and business plan, the
OCC requires each application sponsored by a holding company, including a BHC,
to provide consolidated financial projections using the interagency format and time
periods.

Avoiding Potential Problems
Management and the board should have similar goals for the bank and similar plans
about how the goals will be achieved. Management and the board should be
committed to the proposed business plan and agree on the amount of risk that the
bank is willing to take. They can identify and work out differences of opinion and
potential problems before the bank opens through:
•

Careful development of policies and procedures for functional areas of the
bank, including systems and controls that will be used to manage and control
attendant risks.

•

Preparation of financial projections.

In addition, organizers should be prepared to handle difficulties in hiring qualified
personnel. They also should be able to project and control compensation and
overhead expenses and to factor those expenses into their evaluations of capital
adequacy.
17

OCC Evaluation of Proposal
The OCC evaluates the organizing group and its business plan at the same time. The
OCC must be able to determine that the bank has a reasonable chance for success,
will operate in a safe and sound manner, and will have capital that is adequate to
support the proposed risk profile.
An organizing group and its business plan must be stronger in markets where
economic conditions are marginal or competition is intense. The OCC’s judgment
concerning one may affect its evaluation of the other. It may offset deficiencies in
one factor by strengths in one or more other factors. However, deficiencies in some
factors, such as unrealistic earnings prospects or inadequate risk management
systems, will have a negative influence on the OCC’s evaluation of other factors,
such as capital adequacy. Some deficiencies may be serious enough to result in
denial of an application. The OCC considers inadequacies in a business plan to
reflect negatively on the organizing group’s ability to operate a successful bank.
The OCC assesses how well an organizing group has evaluated each of the nine
categories of risks in its preparation of the charter application and how well it
integrates risk management into its bank operations. (See Risk Assessments and Risk
Management discussions in Appendix D.) The OCC considers safety and soundness
issues and compliance with applicable laws and regulations in its evaluation of the
business plan. The OCC has adopted interagency safety and soundness standards,
which are found in the appendices to 12 CFR 30. These standards cover operations,
management, compensation, and safeguarding of customer information. Additional
guidance on prudent risk management practices can be found in the various booklets
of the Comptroller’s Handbook.
The OCC may conditionally approve an application to ensure that appropriate
supervisory safeguards are in place when a bank opens for business. Alternatively,
the OCC will deny an application if it is not satisfied that the organizers have met
these requirements. The OCC generally will not grant final approval for a bank to
open unless and until the organizers have addressed adequately all substantive risk
management concerns.

Capital Considerations
The organizing group is responsible for funding the proposed bank’s operations until
the bank opens for business. The organizers must propose and raise capital for the
bank’s operations. Throughout the chartering process, the organizers must be aware
of capital policy and capital regulatory requirements.

Organizers’ Responsibilities
The organizing group is responsible for proposing an appropriate level of capital
based upon:
•

A thorough assessment of the proposed business plan and the risks inherent in
that plan.

•

Management’s skills, experience, and ability relative to those required to
execute the plan successfully.
18

•

The degree of competition in the marketplace.

•

Prevailing economic conditions in the proposed market.

The organizers also must demonstrate a clear ability to raise additional capital, if
needed.

Policy and Legal Issues
Because charter proposals present varying degrees of complexity, the OCC does not
mandate a minimum dollar level of capital for national bank charter applications.
Instead, consistent with the OCC’s philosophy for supervising all national banks on
the basis of risk, the OCC evaluates sufficiency of the proposed capital level in light
of the risks present.
The OCC expects projected capital for a new bank to remain at or above the “well
capitalized” level as defined in 12 CFR 6.4(b)(1) for the first three years of operations
and until the bank is expected to achieve stable profitability. These are “minimum
capital standards.” The OCC may determine that higher amounts of capital from
those the organizers proposed are warranted based on local market conditions or the
proposed business plan.
Generally, the OCC will require higher levels of capital to support the operations of
more complex bank proposals. A complex charter proposal, for example, might
offer a nontraditional or narrow range of products, propose an unproven business
strategy resulting in uncertain financial projections, or operate in a highly
competitive market. Conversely, a charter application for a community bank that
would offer traditional products and services, operate within a small geographic area
lacking intense competition, and have a management team implementing a proven
business strategy would be noncomplex and, generally, would not require higher
capital.
As appropriate, the OCC will focus on the consolidated company risk profile when
reviewing a BHC-sponsored charter application. The risk assessment also may
include significant affiliated entities when the OCC considers it appropriate.
The FDIC has capital requirements for obtaining federal deposit insurance that are
similar to the OCC’s requirements. The FDIC requires that initial capital should be
sufficient to provide a Tier 1 capital-to-assets leverage ratio of not less than 8 percent
throughout the first three years of operations.

Key Capital Considerations
Organizers must address key considerations in supporting the proposed capital level
including:
•

On-and-off balance-sheet composition, including credit risk, concentration
risks, market risks, and risks associated with any nontraditional products,
services, or operating characteristics.

19

•

Plans and prospects for growth, including management’s past experience in
managing growth.

•

Stability or volatility of sources of funds.

•

Access to capital sources.

•

If sponsored by a holding company, the sponsor’s track record when
implementing plans and confronting emerging risks or needs.

Raising Capital
The organizing group provides initial funding through personal funds or bank loans
to cover the expenses associated with making application for and organizing a
national bank. Organizers may not repay those loans until after the capital funds are
deposited in the bank, the shareholders authorize repayment, and the OCC
authorizes release of escrowed funds. The organizing group must lead the bank’s
efforts to raise capital in the marketplace by raising capital that is sufficient to:
•

Pay for all organization costs.

•

Enable the bank to compete effectively in the market area.

•

Support the proposed bank’s business plan until the bank can achieve and
sustain profitable operations.

•

Address uncertainties in the marketplace.

Prior to soliciting and selling stock, the organizers must:
•

Comply with the OCC’s Securities Offering Disclosure Rules (12 CFR 16).

•

Receive a declaration from OCC legal staff that the registration statement is
“effective” prior to initiating the sale of bank stock, if a registration statement
is filed under 12 CFR 16.

•

Designate an unrelated insured depository institution as escrow agent of the
stock subscription funds.

•

Obtain sufficient fidelity insurance coverage (see “Fidelity and Other
Insurance” discussion).

All organizing groups must raise capital within 12 months of the OCC’s preliminary
conditional approval. Most groups do not solicit bank stock until after the OCC
makes that decision. However, groups may solicit stock prior to that time if they
adhere to certain criteria.

20

Raising Capital Prior to OCC’s Decision
A charter applicant may raise capital prior to the OCC’s decision on the application
based on the following criteria:
•

Organizers submit to the appropriate district Licensing unit or to Headquarters
Licensing (HQ LIC) a completed application and filing fee, including a
business plan and the appropriate Interagency Biographical and Financial
Report on all identified insiders.

•

The OCC determines that the application is not materially deficient.

•

The organizers adopt and file with the OCC articles of association and an
organization certificate. Applicants should follow OCC policies and
procedures described in the “General Policies and Procedures” booklet.

The organizers may file the articles of association, the organization certificate,
and the registration statement required under 12 CFR 16 with the application
or subsequent to filing the application. The applicant should disclose in the
cover letter to the application, or the letter accompanying a subsequent
submission of securities and organization documents, that the organizing group
plans to raise capital prior to the OCC’s charter decision. During the prefiling
meeting, Licensing staff will communicate this disclosure procedure to the
organizers. Even if the group raises all capital prior to the OCC’s decision, the
OCC makes no assurances that it will grant preliminary conditional approval to
the application. Material changes may occur during the bank’s organization
that could require amendments to the bank’s disclosures and rescission offers
to stock subscribers.
A charter applicant raising capital prior to decision must follow all other policies and
procedures for raising capital, such as designating an escrow agent and adhering to
fidelity bond requirements.

Offerings
All organizing banks issuing securities must comply with 12 CFR 16 by filing a
registration statement or by relying on a filing exemption. A national bank seeking to
sell or offer its securities must comply with both the applicable federal securities
laws, including anti-fraud provisions, and OCC regulations. These requirements
apply when organizers capitalize a newly chartered bank, or when shareholders
raise additional capital to support the bank’s growth.
Organizers should consult with securities counsel in preparing Part 16 filings or refer
to guidance and sample forms provided in the regulation. The OCC will not declare
the registration statement effective until the organizers have met all requirements.
Amended registration statements also must comply with 12 CFR 16.
The sale of holding company stock may require filing documents and registering
them with the SEC. Organizers should discuss securities law issues with their legal
counsel and appropriate OCC legal staff as part of the application process. De novo
BHCs that plan to raise capital prior to filing a charter application with the OCC are
expected to designate an unrelated depository institution as escrow agent to hold
21

capital subscriptions, invest funds only in United States government securities, and
maintain adequate fidelity bond coverage.

Stock Brokers, Underwriters, or Other Consultants
Some organizing groups rely upon third parties to raise capital. These third parties
include brokers, underwriters, consultants, and marketing firms. Engaging third
parties may be part of the original business plan or represent a significant change in
the original business plan, particularly if the organizing group has trouble raising
capital. When banks raise capital through a third party, the market test (see Glossary)
may be a less reliable indicator of market acceptance, especially if a significant
portion of the stock is subscribed from outside the local market.
If the organizers use a third party, the charter proposal must still demonstrate that the
target market will support the proposed bank, particularly if local stock subscriptions
are limited. Local stock subscriptions include subscriptions from organizers who
reside in, or otherwise have a meaningful presence in, the target market.

Funds Collected by an Organizing Bank
The amount of funds collected under the terms of a registration statement may
exceed the amount proposed. To raise additional capital after the initial offering
closes, the organizing directors must authorize additional shares and prepare an
amendment to the registration statement or rely on an applicable exemption under
12 CFR 16. Furthermore, the organizing board may wish to authorize more shares
than it intends to issue initially to facilitate future capital changes, such as stock sales
and stock splits, without holding a shareholders’ meeting to amend the articles of
association. Once opened, the bank must issue shares in accordance with 12 CFR
5.46 (see the “Capital and Dividends” booklet).
“Capital surplus” generally is created when stock is sold. Capital surplus is required
for a bank to pay dividends and may be required for a bank with branches or trust
powers. Accordingly, all money invested in the bank must be distributed between
the bank’s capital and capital surplus accounts consistent with Generally Accepted
Accounting Principles (GAAP). Also, consistent with GAAP, direct costs associated
with the sale of stock must be deducted from the related proceeds and the net
amount recorded in the contributed capital accounts.

Structural Issues
Generally national banks have only one class of common stock. National banks may
not create classes of common stock with different or no voting rights. Federal
banking law provides, without exception, that common shareholders are entitled to
one vote per share in all matters, except the election of directors for which the
common shareholders have cumulative voting rights. If a bank proposes to issue
more than one class of common stock, legal, supervisory, and policy issues must be
considered. A bank should consult with the OCC prior to issuing more than one
class of common stock.
A national bank may be organized as a Subchapter S corporation. A Subchapter S
corporation generally has no more than 100 shareholders. However, all members of
22

a family may elect to be treated as one shareholder to determine the total number of
shareholders of an S corporation.

Preferred Stock
The OCC has no general prohibition against the inclusion of preferred stock in the
initial capital structure of a new national bank, provided that all relevant terms and
conditions are set forth in the application. However, the OCC may determine that
the inclusion of a significant amount of preferred stock in a bank’s capital structure
could lead to instability in the bank ownership or otherwise adversely affect the
safety and soundness of the institution. Such a determination would justify
disapproval of the charter application or revocation of a preliminary conditional
approval already issued. To be included as Tier 1 capital, the preferred stock must
be perpetual and noncumulative.

Debt-based Capitalization
The OCC generally is opposed to debt-based capitalization of a new bank, especially
for an independent bank. If a sponsor or affiliate issues any debt to capitalize the
bank, the organizing group must demonstrate that the sponsor or affiliates can meet
debt service requirements without reliance on cash flows from the bank.

Assessment of Community Credit Needs
The organizing group must comply with the Community Reinvestment Act (CRA) by
demonstrating in the application its knowledge of and plans for serving the proposed
bank’s assessment area or areas. The organizing group must evaluate the banking
needs of the community, including its consumer, business, nonprofit, and
government sectors. (See Appendix E, “Community Reinvestment Act Highlights,”
for more information about responsibility under CRA, the CRA assessment area, and
performance standards. Also, see the “Community Reinvestment Act Examination
Procedures” booklet of the Comptroller’s Handbook for Compliance for an
expanded discussion of this topic.)

Compliance Issues
The OCC also considers compliance with laws and regulations in its review of
charter applications. Issues often arise about fair lending statutes, Bank Secrecy Act
(BSA) and anti-money laundering provisions, privacy, and advertising. (See
Appendix F, “Compliance Highlights,” and the Comptroller’s Handbook for
Compliance for expanded discussions of these topics.)

Electronic Banking (e-banking) Concerns
Novel questions and issues often arise in the application process about the use of the
Internet for delivery of banking products and services. The OCC approves proposals
to establish national banks that will use an electronic delivery channel when the
bank reasonably may be expected to operate successfully and in a safe and sound
manner.

23

The information technology-related risks and controls are similar for the various ebanking channels but may vary from the risks associated with traditional banking
operations. Risks associated with liquidity, vendor management, information system
security, weblinking, firewalls, encryption, intrusion detection, and e-banking
support services are discussed in the “E-Banking” and “Information Security”
booklets of the FFIEC IT Examination Handbook series.
A bank’s business plan that is heavily reliant upon e-banking may underestimate the
marketing and operating expenses necessary to attract and retain new deposits over
the Internet. Consequently, this may increase a bank’s risk, especially liquidity risk.
A bank should discuss in its business plan how it expects to manage such increased
liquidity risk. (See the “Bank Supervision Process” booklet of the Comptroller’s
Handbook for a discussion of liquidity risk.) Likewise, excessive reliance on deposits
generated by Internet solicitations can raise special concerns. (See Advisory Letter
2001-5, “Brokered and Rate-Sensitive Deposits.”)

Application Process
The OCC encourages organizers to review the OCC’s Web site for written guidance
about the application process, including relevant charter policies and procedures.
The Web site contains decision statements on previous OCC charter decisions and
provides information on the policy matters that the OCC considers prior to making a
decision on an application. The Web site also contains opinions and legal
interpretations addressing a variety of permissible activities and the manner in which
the activities may be established and conducted.
Before filing an application, the OCC encourages each organizing or investor group
to contact the director for district licensing at the appropriate OCC district office to
discuss its proposal. Each group should include requests for confidential treatment
under the FOIA with each submission of materials for which it seeks confidentiality
(see “General Policies and Procedures” booklet for further discussion about
confidential treatment).

Exploratory Calls or Meetings
After reviewing this booklet and other related information on the OCC’s Web site,
the contact person may call the Licensing staff at the appropriate district office to ask
for further information or assistance. As the organizing group develops key ideas,
the contact person may request an exploratory conference call or meeting to ask
questions, clarify concerns, and become acquainted with the regulatory
environment. The district Licensing staff will coordinate an initial conference
meeting or call for the contact person and other key people associated with the
proposal to discuss issues with appropriate OCC staff. The contact person should
submit written briefing materials, if any, early enough for OCC staff to review prior to
the conference call or meeting.

Prefiling Meeting
The contact person for the organizing group should contact the OCC’s Licensing staff
in the appropriate district office to schedule a prefiling meeting when the organizing
24

group is almost ready to file its charter application. Prior to this meeting, the
organizers must submit briefing materials to the OCC that include:
•

A brief description of the proposal.

•

Biographical information on each member of the organizing group.

•

Identification of the CEO.

•

A summary of insider transactions.

•

The proposed amount of capital and subscription method.

The OCC rarely waives the prefiling meeting for applications that are accorded
standard review. The OCC expects all organizers of the proposed new national bank
to attend this meeting. When requested, OCC staff members may conduct the
prefiling meeting at an appropriate location proposed by the filer rather than at the
OCC office.
At the prefiling meeting, or in informal discussions, the Licensing staff reviews with
the organizing group the OCC’s chartering policy and procedures. Licensing staff
also discusses supervisory perspectives that may affect the proposal and the
requirements for filing a charter application and organizing a national bank. The
topics discussed include:
•

The attributes of a national bank charter.

•

The composition of the board of directors and the banking and business
experience of its members.

•

The management team and its banking experience.

•

Submission requirements, including confidentiality requests.

•

The business plan with attention to the following items:
−

Alternative business strategy.

−

Planned risk management systems and functions, including audit,
compliance, and internal controls.

−

Planned information systems technology architecture.

−

Management of third-party service providers.

−

Compliance issues.

FDIC staff also may participate in the prefiling meeting to discuss pertinent
procedures and requirements for obtaining deposit insurance. (See the FDIC’s
deposit insurance policy statement, available from its Communications Office, Public
Information Center, 801 17th Street NW, Washington, DC 20434, or from its Web
site at http://www.fdic.gov.)
25

Filing the Application
After the prefiling meeting, the organizing group files an interagency application,
including a business plan and the appropriate Interagency Biographical and Financial
Report on all identified insiders. Each applicant must:
•

Prepare accurately and completely the charter application submitted to
enable the OCC to reach an informed decision.

•

Sign a certification stipulating that the charter application and all
supporting materials contain no misrepresentations or omissions.

•

Determine compliance with all applicable statutes and regulations.

•

Seek advice from its own legal counsel, as appropriate.

The OCC will not accept an application for filing unless the organizers identify the
CEO. (See the “Selection of the CEO” discussion in this booklet for guidance about
requesting confidential treatment.)
The contact person should advise the OCC promptly whenever “significant changes”
occur from the bank’s original plan after the application is filed. (See “Significant
Changes” discussion in this booklet.)

Biographical and Financial Reports
The OCC normally requires each proposed insider to submit the Interagency
Biographical and Financial Report. The OCC usually does not require insiders to
complete the financial report portion of the report if a holding company will provide
the new bank’s financial strength (see “Types of Filings” discussion in this booklet).
Sponsors must submit a Corporate Background and Financial Report and the
following or similar financial information:
•

Federal Reserve Y-6 filings for the last three years.

•

SEC 10K filings for the last three years.

•

Annual report for the most recent fiscal period.

In the special case of a bankers’ bank, the participating banks and depository
institution holding companies are the organizers. Each participating bank must
submit its call reports as of June 30 and December 31 for the last three years and the
annual report for the most recent fiscal period. In addition, each depository
institution holding company must complete a Corporate Background and Financial
Report and submit financial data similar to that required from participating banks.

26

National Bank Identifying Information
The name of the proposed bank must include the word ”national” or ”national
association.” If the exact location is unknown at the time the application is filed, the
organizers must provide a ”vicinity of” location. The amount of detail needed to
identify the location is based on the size of the community. For instance, if the new
charter will be located in a heavily populated area, the location should be specific to
within 1000 feet. If the desired location is rural, identification of an area within a
one-mile radius could be acceptable, if no public confusion would result. If the
mailing and street addresses differ, organizers should provide both.

Publication Requirements and Comment Periods
Each organizing group or sponsor must publish a notice of its charter application in a
general circulation newspaper in the community in which the proposed bank will be
located as close to the date of filing as practicable (see 12 CFR 5.8). If the
application is an interstate filing (one that is filed by a BHC located1 in a different
state than the proposed charter), the OCC may extend the 30-day public comment
period to allow sufficient time for all interested parties to comment (see the “Public
Notice and Comments” booklet).

Filing Fees
The filing fee, payable by check or other means to the Comptroller of the Currency,
should accompany the application. The OCC does not require a corporate filing fee
for a proposed new bank to be located in an area that meets the following two
requirements:
•

The area is a low- or moderate-income area (see Glossary).

•

No other depository institution operates a branch or main office in that area.

Refer to the “General Policies and Procedures” booklet for a more detailed
discussion of fees.

Types of Filings
The OCC has two types of guidelines for charter filings: standard review and
expedited review.

Standard Review
Most organizing groups and many sponsors must file their charter applications using
the OCC’s standard submission guidelines outlined in the interagency application.
These applications are subject to a 30-day comment period. A well-researched and
thoughtfully prepared application helps the OCC to make a timely decision. The
OCC seeks to make a decision within 120 days after receipt or as soon as possible
1
A BHC is located in the state in which the total deposits of all of its banking subsidiaries was the
largest on the later of July 1, 1966, or the date on which it became a BHC under the Bank Holding
Company Act.
27

thereafter. Charter proposals that receive standard review are not approved
automatically.

Expedited Review
An application to establish a full-service national bank sponsored by a BHC, whose
lead depository institution is an eligible bank or eligible depository institution (see
Glossary), is deemed to receive preliminary conditional approval on the 15th day
after the close of the public comment period, or the 45th day after receipt of the
application, whichever is later, unless:
•

The OCC notifies the applicant prior to that date that the filing is not eligible
for expedited review or the expedited review process is extended under 12
CFR 5.13(a)(2); or

•

The OCC determines that the proposed bank will offer banking services that
are materially different than those offered by the lead depository institution.

The applicant must provide identifying information about the lead depository
institution for an application to qualify for expedited review. If one or more
institutions are approximately the same size, the applicant must furnish additional
information to support identification of the selected institution as the lead depository
institution. Such information should include:
•

Full legal names, locations (city and state of each main office), and OCC
charter or FDIC certificate numbers for the institutions.

•

Total assets for each institution as reported in the most recent call report (or
comparable thrift report) and the date of that report.

•

Total assets for each institution as reported in the reports of condition (or
comparable thrift financial reports) as of the date one year earlier than the
most recent report.

Contracts and Other Arrangements
As part of its application, each organizing group must submit a description of any
contract, transaction, professional fees, or any other type of business relationship
involving the institution, the holding company, its affiliates, and any insider (see
Glossary). The OCC reviews each insider contract to be sure that it is made on
nonpreferential terms. If the contract involves an insider, the OCC requires the
submission of at least one independent appraisal of the contract or other
arrangement (see the “Investment in Bank Premises” booklet of the manual for
guidelines) that includes:
•

A description of the assets, property, or service.

•

The terms of the contract, including responsibilities, liability, rights for audits
and reviews, and termination requirements.

•

Evidence showing that the contract is fair, reasonable, and comparable to
similar arrangements that could have been made with unrelated parties.
28

The organizing group also must disclose each insider contract or arrangement to
proposed or current shareholders (see the “Insider Activities” booklet of the
Comptroller’s Handbook). The organizing group must maintain copies of the
disclosures in the bank’s files and provide them to shareholders upon request.
Typical contracts or other arrangements include:
•

The sale or other transfer of any organizer’s stock in the proposed national
bank, including a voting trust or other voting agreement.

•

An organizer acting as representative of, or on behalf of, the proposed bank or
any person associated with the proposed bank.

•

The payment or receipt of any money or item of value as compensation for
services rendered or property transferred in organizing the proposed national
bank. This may include the purchase or lease of banking premises, furniture,
equipment, fixtures, or supplies; consultant or legal fees; preparation of a
registration statement or nonpublic offering; or sale of stock.

Regardless of insider involvement, every contract or other arrangement should
include provisions addressing obligations of, and options available to, the parties if
the OCC (1) experiences delays in processing the application; (2) denies the
application; (3) revokes its preliminary conditional approval letter; or (4) objects to a
person serving in any proposed capacity. Such contract or arrangement would
include real estate or employment commitments.
A proposed national bank may not pay any fee contingent or dependent upon an
OCC action or decision. Such action is grounds for denial of the application or
revocation of preliminary conditional approval.

Use of Third-Party Service Providers
A bank may rely on third-party service providers for a variety of critical functions,
including product delivery, information technology, loan servicing, efficiency
improvement, and expertise. Before selecting each third-party service provider, the
bank should perform due diligence. It also should have a formal service agreement
with each provider that clearly addresses the duties and responsibilities of the parties
involved and that meets the needs of the bank’s business and strategic plans.
Organizers should enter into contracts contingent on preliminary conditional
approval of their application.
The organizing group should include in its application details about functions the
bank will outsource and those it will perform internally. For those functions that will
be outsourced, the organizers should include the name of each service provider
under consideration along with related background information, number of years in
business, financial condition (statements), and a copy of any contract. Also,
organizers should describe the extent of due diligence conducted for each service
provider that assesses the operation, evaluates the total cost pricing, and outlines
criteria for ongoing monitoring of the third party and the service level.
For example, many bank customers use the telephone to conduct banking activities.
Many banks have a telephone call center that operates 24 hours a day, seven days a
week so that customers can conduct banking activities at their convenience. While
29

outsourcing this call center to a service provider may be more efficient and
economical, it may increase the bank’s transaction, compliance, and reputation risks
if customer calls are mishandled.
A bank is responsible for the security of its customer and bank records. When thirdparty service providers are used, the bank also must ensure that the third party
secures those records properly.
The process of subcontracting activities that the bank would otherwise perform
triggers the requirements of the Bank Service Company Act, in particular 12 USC
1867(c). Specifically, services performed for the bank, by contract or otherwise, are
subject to OCC’s regulation and examination. A bank should notify potential service
providers or vendors in writing of the OCC’s examination and regulatory jurisdiction
should they contract with the bank. The OCC requires that all final contracts specify
the OCC’s examination and regulatory jurisdiction. For additional guidance, see the
“Third-Party Relationships” OCC issuances included in the References section of this
booklet.
Before the bank is granted final approval and allowed to open, it must develop a
service provider or vendor management program. The OCC will review this
program during the preopening examination. (See Preopening Examination
discussion.)

Certification
Each proposed organizer must sign and date the OCC certification in the interagency
application. Organizers for a bankers’ bank may request an exemption from the
”natural person” requirement of 12 USC 21. A natural person is a human being and
not a trust, corporation, or other organization or unit. If the OCC grants an
exemption to a bankers’ bank, an authorized representative from each of the
participating depository institutions or depository institution holding companies must
sign the application. Such authorization must be evidenced by a corporate
resolution from the participating institutions or holding companies.

Deposit Insurance and Filing with the FDIC
The OCC generally requires FDIC deposit insurance for all national bank charters,
except for national trust bank charters (see “Trust Banks” discussion). The FDIC’s
Statement of Policy for deposit insurance discusses the criteria the FDIC considers
when evaluating deposit insurance applications, which are similar to those of the
OCC. The OCC and the FDIC encourage simultaneous submission of the
interagency application to each agency to expedite processing.
To the extent possible, the OCC and the FDIC coordinate their application
investigations to minimize the burden to the applicant and to eliminate duplicative
regulatory efforts. For example, the FDIC may rely upon OCC background
investigations and may conduct its field investigation concurrently with OCC staff.
The FDIC may take final action on its deposit insurance application before the OCC
decides its application. Likewise, the OCC may make its decision on the charter
application prior to actions of other agencies on related applications, such as FDIC
30

action on the deposit insurance application or Federal Reserve action on a BHC
proposal.

Filings with Other Regulators
If an organizing group or persons representing the same interest file substantially
similar state and national charter applications, the OCC generally will consider the
national bank application abandoned. The OCC may consider an exception if the
organizing group requests one and unusual circumstances exist.

Additional Information
The OCC may require additional information at any time to reach an informed
judgment about the application. The OCC will request clarifications or additional
information through the contact person. Those requests generally will not reflect
negatively on the organizing group. Conversely, the OCC will deny the proposal if
the additional information the organizers provide is insufficient to determine the
bank’s prospects for success.

Amendments
Organizers may file amendments to the application during the review process.
However, the OCC may conclude that the submission of numerous or significant
amendments during the review period has rendered the original application
obsolete. In such cases, the OCC may deem the original application to be
withdrawn or deny it. The organizers must then file a new application and submit a
filing fee for the OCC to consider this ”new” proposal.

Review of the Application
The OCC begins to process each application immediately upon receipt. The OCC
reviews and analyzes the proposal, completes background and field investigations,
and resolves any unusual or novel issues.

Background Investigations
The OCC conducts background checks to assess each insider’s competence,
experience, integrity, and financial ability. The OCC will determine independently
the accuracy and completeness of information submitted for each person. The OCC
must reach a decision to object to each insider serving in the proposed position. The
“Background Investigations” booklet of the manual provides more information about
this review process, the authority of the OCC to object to a filer, and actions that it
may take if the materials submitted contain a misrepresentation or omission that
could be misleading.

31

Field Investigations
The field investigation is an important component in the review process for any
proposed national bank charter. The findings from the field investigation are major
factors in the OCC’s overall analysis and review of the application. However, it is
only one of the components that are evaluated prior to making a decision. The OCC
conducts a field investigation for every charter sponsored by an independent group
and for most BHC-sponsored charter applications. Generally, the field investigation
is intended to develop background information and determine whether:
•

The organizing group is capable of successfully implementing the business
plan.

•

Executive officers are knowledgeable and can execute the proposed business
plan in a safe and sound manner.

•

The financial projections are realistic for the proposed market.

•

The organizers have made any major changes to the business plan that were
not reported previously to the OCC.

The OCC tailors the scope of each investigation, depending on the complexity of the
application, with input from the supervisory office and other OCC divisions.
National bank examiners (examiners) with appropriate expertise conduct the field
investigation. The OCC normally schedules a field investigation approximately 45 to
60 days after the application is filed. Whenever possible, the OCC coordinates its
investigation with that of FDIC staff to minimize burden on the applicant.
During the investigation, OCC staff members review relevant material, interview
insiders and other identified persons, and explore matters related to the proposed
bank’s operations. The field investigation team typically discusses certain aspects of
the proposal with organizers, principal shareholders, and management.
Additionally, to assess market needs and support within the community, the team
may meet with community groups, local government officials, and financial (bank
and thrift) and nonbank competitors.
The examiners will meet with the organizing group and management at the
conclusion of the investigation to recap the field investigation and its importance to
the charter decision process, discuss any significant issues, and communicate the
investigation findings in general terms.

Decision
Following review of the application and the field investigation, the OCC will
determine whether the proposed bank charter has a reasonable chance of success
and will be operated in a safe and sound manner. It then decides whether to grant
preliminary conditional approval or deny the application. The OCC will notify the
contact person and interested parties (see the “Public Notice and Comments”
booklet) in writing of its decision.
Preliminary conditional approval: (1) indicates the OCC’s permission to proceed
with the organization of the bank according to the plan set forth in the application;
32

(2) specifies standard requirements, including minimum policies and procedures;
and (3) may identify special requirements unique to the application for the proposed
bank. In addition, the OCC requires the organizers to raise capital within 12 months
of the OCC’s preliminary conditional approval and to open within 18 months from
that date.
A preliminary conditional approval decision is not an assurance that the OCC will
grant final approval for a new bank charter. The organizing group must satisfy
standard and special requirements, as well as certain procedural requirements,
before the OCC will grant final approval. In addition, the OCC sometimes imposes
special conditions that remain in place after the bank opens.

Standard and Special Requirements
When the OCC grants preliminary conditional approval to a charter proposal, it
imposes standard requirements on the proposal. The organizing group must meet
most of the standard requirements before opening (see Bank–Filer Samples, Standard
Requirements on the OCC’s Web site).
The OCC places special requirements on all new bank charters with certain
characteristics, such as special purpose banks. The OCC also imposes requirements
tailored to the specific individual proposal. While each organizing group must raise
the minimum level of capital, net of organization costs, specified in its application,
the OCC may require a group to raise an amount higher than it originally proposed.
Other requirements may include:
•

Submitting for review and prior approval a complete description of the bank’s
final information systems and operations architecture and related control
plans.

•

Implementing a comprehensive written information security program that
includes administrative, technical, and physical safeguards appropriate to the
size and complexity of the bank and the nature and scope of its activities.

The organizing group generally must satisfy special requirements before the bank
opens.

Special Conditions
Unlike standard or special requirements, special conditions are considered
”conditions imposed in writing” within the meaning of 12 USC 1818.2 The OCC
places two types of special conditions on new bank charters. Some apply to all new
bank charters, such as obtaining the OCC’s nonobjection to any significant change in
the business plan. Others are tailored to specific proposals, such as:
•

Maintaining a specified minimum capital floor.

A condition imposed in writing is one that is enforceable under 12 USC 1818. At a minimum, the
OCC will cite and include in its examination report a violation of a Regulatory Condition Imposed in
Writing (RCIW). A violation of a RCIW can provide the basis for the assessment of civil money
penalties or other enforcement actions.
33
2

•

Maintaining a certain percentage of Tier 1 capital (leverage ratio) for a
specified period after the bank opens. For example, the OCC normally
expects that a new national bank will maintain no less than an 8 percent
leverage ratio for the first three years of operations if it will offer a traditional
array of products and services.

•

Executing a written agreement between the proposed bank and its holding
company that provides for capital maintenance, liquidity support, or other
assurances to the bank, if and when necessary.

•

Developing a contingency business plan agreement between the proposed
bank and the OCC setting forth certain actions that the bank will take if the
bank does not achieve original business plan results. The agreement could
include, but need not be limited to, obtaining additional capital; developing
and implementing a corrective action plan or new satisfactory business plan
to remedy plan shortfalls or failures; or developing and implementing a
contingency plan to sell, merge, or liquidate the bank at no cost to the FDIC.

•

Requiring all final third-party relationship contracts to stipulate that the
performance of services provided by the vendors to the bank are subject to
the OCC’s examination and regulatory authority.

In most cases, the OCC requires these conditions to be met by the time the bank
opens and to remain in place until removed by the OCC. The OCC includes the
following language in each preliminary conditional approval letter if the applicant’s
Certification did not contain this language:
This preliminary conditional approval and the activities and communications
by OCC employees in connection with the filing do not constitute a contract,
express or implied, or any other obligation binding upon the OCC, the United
States, any agency or entity of the United States, or an officer or employee of
the United States, and do not affect the ability of the OCC to exercise its
supervisory, regulatory, and examination authorities under applicable law and
regulations. The foregoing may not be waived or modified by any employee
or agent of the OCC or the United States.

Organization Phase
The organization phase for a national bank covers the period between the time the
OCC grants preliminary conditional approval and the day the bank opens for
business. During the organization phase, the organizing group must satisfy the
standard requirements, special requirements, and most special conditions imposed
before the OCC will grant final charter approval. In addition, the organizers hire the
remainder of the bank’s management team, establish the bank’s premises at the
proposed site, raise capital, develop policies and procedures, test the information
technology architecture, and establish management information and control systems.

Becoming a Corporate Body
A national bank becomes a corporate body or legal entity on the date the organizers
sign the organization certificate and adopt the articles of association. After becoming
a legal entity, an organizing group elects a board of directors. As a corporate body,
34

the organization may enter into contracts and perform all necessary actions to form
the bank other than engaging in the business of banking.

Establishing Bank Premises
The organizing group must decide to lease or purchase bank premises consistent
with statutory and regulatory requirements (see the “Investment in Bank Premises”
booklet). The organizing group finances the initial construction or acquisition of
bank premises. The OCC will review lease or purchase agreements for
reasonableness and will disallow any that are not made in the bank’s best interest.
There are statutory limits on investments in bank premises, provided in 12 USC
371d. Unless the OCC has previously approved an exception, proceeds from the
sale of stock must be held in escrow and may not be used to finance the construction
or acquisition of bank premises. For example, the OCC may approve an exception if
an organizer has obtained approval from the OCC to receive stock for premises the
bank has purchased from the organizer.
Construction of the bank facility must comply with the minimum security standards
in 12 USC 1882 and 12 CFR 21. Once open, the bank’s security officer will file an
annual report with the board of directors certifying that the bank complies with the
stated security standards (see 12 CFR 21.4).

Internal and External Audits
The OCC requires each national bank to adopt an internal audit system appropriate
to its size, nature, and scope of activities. Some new banks may elect to adopt a
system that incorporates independent reviews instead of dedicated audit staff (see the
“Internal and External Audits” booklet of the Comptroller’s Handbook). An effective
audit program will include an evaluation of the quality of internal controls, including
the reliability of financial information, safeguarding of assets, and the detection of
errors and irregularities.
As a condition of preliminary approval of a newly chartered national bank, the OCC
and the FDIC normally require banks to have an annual independent external audit
for a period of three years after they open. The external audit must be of sufficient
scope to enable the auditor to render an opinion on the financial statements of the
bank or consolidated holding company.
The first audit should occur no later than 12 months after the bank opens for business.
For example, if a bank becomes a corporate body on April 15, the audit period must
begin on April 15 and may end no later than March 31 of the following year. Since
most banks adopt a calendar year end, the first audit normally would be performed as
of December 31 of the year the organizers form the bank as a corporate body.
The OCC may grant exemptions from this external audit requirement to a new bank
subsidiary of a BHC when:
•

The new bank’s financial statements are included in the audited consolidated
financial statements of the parent BHC.
35

•

The sponsoring BHC is an existing holding company that has operated for
three years or more under Federal Reserve Bank supervision and does not
have any institutions subject to special supervisory concerns.

•

Adequate internal audit coverage will be maintained at the bank level. At a
minimum, the internal audit program must evaluate the quality of internal
controls, including the reliability of financial information, safeguarding of
assets, and the detection of errors and irregularities.

The OCC and the FDIC will coordinate determinations about external audit
exemptions consistent with the “Interagency Policy Statement on External Auditing
Programs of Banks and Savings Associations.” This statement focuses on banks
holding less than $500 million in total assets. If the OCC grants an exemption, it will
include that determination in its preliminary conditional approval letter. If any of the
requirements listed above are not met during the first three years of the bank’s
operation, the OCC may withdraw the exemption at its discretion.
Management of new banks should be aware of the general limitations contained in
the Sarbanes–Oxley Act of 2002 (Sarbanes–Oxley). Sarbanes–Oxley prohibits an
accounting firm from acting as an external auditor of a public company during the
same period that the firm provides internal audit outsourcing services. This
prohibition applies to companies with securities registered with the Securities and
Exchange Commission (SEC) or a federal banking agency. Accordingly, national
banks that are subject to the Securities Exchange Act Disclosure Rule requirements of
12 CFR 11 and 16 would be covered by separate audit requirements.

Fidelity and Other Insurance
The bank’s board of directors is responsible for the adequacy of the fidelity bond and
other insurance needs. They must research and document in meeting minutes their
assessment of the bank’s fidelity insurance and excess coverage needs.
From the effective date of the registration statement until the bank opens for
business, the proposed bank must have fidelity insurance coverage in an amount
equal to the total amount of capital that the organizers will raise. Alternatively, the
proposed bank may address its fidelity coverage needs by relying, to some extent,
upon the insurance coverage in effect for the independent escrow agent receiving
the proposed bank’s stock subscriptions.
If the bank’s board chooses the alternative approach, the proposed bank still must
have fidelity bond coverage in place from the date the registration statement is
effective until it opens for business. Fidelity bond coverage must be at least equal to
the greater of: (1) the amount of insurance and excess coverage that the bank will
otherwise need after it opens for business; or, (2) the maximum amount of funds that
all persons (excluding the escrow agent) are authorized to collect, receive, or deposit
from stock subscriptions.
After the bank opens for business, it must assess the four factors listed in 12 CFR
7.2013 and obtain adequate fidelity bond coverage. They are:
•

Internal auditing safeguards employed.
36

•

Number of employees.

•

Amount of deposit liabilities.

•

Amount of cash and securities normally held by the bank.

The OCC will not grant final approval of the charter until the bank has selected a
permanent fidelity insurance carrier. The OCC must receive assurances from the
bank that permanent insurance coverage will be in place on or before the bank’s
proposed opening date.
A bank also may acquire liability insurance to mitigate any loss it might incur for
inadequate or faulty systems. Some insurance companies offer specialty policies to
businesses that assume the risk of legal liability, including errors and omissions.
Errors and omissions policies usually cover lawsuits from negligence and
performance failure of a product or service.

Organization Costs
An organizing group funds all organization costs of a national bank (see Glossary).
At the first shareholders’ meeting, shareholders review documentation for
organization costs and commitments, evaluate their reasonableness, and authorize
them as appropriate. Normally, the OCC will allow the organizing group to charge
expenses incurred in applying for and organizing a bank to the bank’s current
earnings.
Newly chartered banks must expense the cost of start-up activities, including all
organization costs, as incurred. The organizers must document the expenses as
incurred during the organization phase and may not charge them to the bank until
the shareholders approve them.
Organizers should capitalize the cost of purchasing and leasing bank premises and
amortize these costs using the straight-line method over their useful lives (or term of
the lease). Organizers can amortize expenses, such as interest costs incurred during
the period the bank premises are under construction.
The OCC considers preopening expenses, including allocated internal costs, as the
cost of start-up activities. Accordingly, the organizers cannot capitalize these costs
and must allocate internal costs, such as management salaries, as preopening
expenses. The bank should report preopening expenses incurred from the bank’s
inception through the date it commences operations on the income statement during
the calendar year that the bank begins operating.
Detailed instructions for the definition of start-up activities and the inclusion of these
costs in the bank’s report of income are included in the “Start-up Activities” section
to the call report. This guidance conforms to AICPA Statement of Position 98–5,
“Reporting on the Costs of Start-up Activities.” (See OCC Bulletin 98–29:
Accounting for Computer Software Costs.)
The registration statement and proxy materials must disclose fully all fees and
organization costs to prospective shareholders. The organizers must provide
37

sufficient information to assist the shareholders in evaluating the reasonableness of
the expenses.
The OCC reviews all expenses associated with the proposal prior to granting final
approval for the bank charter. The existence of undocumented, unnecessary,
inappropriate, or excessive organizational costs reflects poorly on the organizing
group. The OCC may prohibit the bank from reimbursing the organizers for such
costs. In such cases, the organizers personally are responsible for any expenses the
OCC disallows. Under certain circumstances, the OCC may require that the
organizers raise additional capital to offset unplanned, but legitimate, expenses.

Significant Changes
Proposed changes throughout the chartering process may alter materially the
underlying factors upon which the OCC based its decision on the application.
Those changes may have a positive or negative effect on the application. The OCC
will evaluate each significant change to the original charter proposal to determine
the overall impact on the proposal and decide whether to:
•

Allow organization of the bank to continue.

•

Impose additional conditions on the approval.

•

Revoke preliminary conditional approval.

In some cases, the OCC may consider the change so materially different from the
original application that the OCC will consider the application abandoned. In such
cases, the OCC requires the organizers to submit a new application.

Identification
Licensing staff will maintain contact with the contact person throughout the
organization phase and monitor any deviation from the business plan to identify
significant changes. Organizers must notify the OCC promptly of significant changes
when they occur or are proposed. Matters subject to this notification include, but
are not limited to, changes in the:
•

Organizing group’s cohesiveness or its composition, including the addition or
loss of organizers, directors, or principal shareholders.

•

CEO or other members of the proposed management team.

•

Biographical or financial information of the CEO or organizers different from
what they previously disclosed to the OCC.

•

Ownership distribution (see the “Ownership and Capital Raising Efforts”
discussion that follows).
38

•

Manner in which the organizers raise capital, if different than what is
described in the charter application (see the “Ownership and Capital Raising
Efforts” discussion that follows).

•

Development of, or a change in the terms to, a stock benefit plan.

•

Business plan, including changes to proposed products, services, activities,
growth plans, marketing plans, risk profile (such as more aggressive
underwriting criteria or adding a fiduciary operation to a commercial bank’s
operations), or risk management controls.

•

Location of the main or branch offices.

Ownership and Capital Raising Efforts
The OCC will review the shareholders’ list prior to, or during, the preopening
examination to confirm that the organizers’ and directors’ subscriptions are
consistent with their original stock purchase commitments. The OCC also will verify
that the organizing group’s effort to raise capital is consistent with the plans
described in the application. Failure to raise capital, as described, is an example of a
deviation that can occur late in the chartering process. For example, organizers may
make last-minute material capital contributions, or a BHC may purchase stock in a
bank that originally planned to raise capital in the local community.
Licensing staff will consider if a deviation from described capital-raising efforts has
the effect of constituting a sale of the charter because of a material change in
ownership. Higher capital contributions by insiders than originally planned may
reflect a lack of community support for the proposal. In some cases when the
deviation strengthens a proposal without altering other aspects, such as
implementation of the business plan, the OCC may decide not to require submission
of a new application.

Repayment of Organization Costs to Organizers
Organizers may not be reimbursed for personal loans or advances of funds made to
the bank organizing effort until after the capital funds are deposited in the bank, the
shareholders authorize repayment, and the OCC authorizes release of the escrowed
capital funds. When it opens for business, the bank can repay organizers in cash.
Alternatively, the organizing group may request prior OCC approval so that an
organizer can receive stock, or a combination of stock and cash. The OCC will
review the expenses and approve the request provided that:
•

The organizers document and disclose in the proxy material expenses
incurred by shareholders, providing the shareholders with information to
evaluate the reasonableness of the expenses.

•

The OCC determines that the expenses are reasonable.

•

The stock is issued at no less than par value.

39

Preopening Examination
The preopening examination (POE) is the last major step of the chartering process for
national banks. Organizers submit a request to the OCC to schedule this
examination at least 60 days before the proposed opening date. An examiner will
visit the bank at least 14 days prior to the proposed opening date to determine
whether the board of directors and management are prepared to commence
operations.
The examination may be broad in scope and include an evaluation of the bank’s
final plans to identify, measure, monitor, and control all relevant risks. (See
Appendix D for information about the categories of risk and risk assessment.) After
the preopening examination, the examiner will meet with the board of directors and
management to discuss examination findings.
The OCC may decide on a case-by-case basis to waive or perform an abbreviated
POE for an organizing national bank sponsored by an existing BHC or other
sponsoring company. The OCC will base its decision primarily upon the OCC’s
prior knowledge of, and experience with, the sponsor and the sponsor’s policies and
procedures. At a minimum, each BHC-sponsored organizing national bank that will
not receive an on-site review must certify completion of certain organizational
procedures and file remaining corporate documents with the OCC.

Expiration or Revocation of Preliminary Conditional Approval
A bank must raise initial capital, net of organizational and preopening expenses, to
meet or exceed the amount stated in the preliminary conditional approval letter. If
the capital for the new bank is not raised within 12 months of the preliminary
conditional approval, the organizing group fails to meet the market test (see
Glossary) and preliminary conditional approval expires. The OCC generally will not
extend the time for raising capital.
If the organizers meet the market test deadline, they must open the bank no later
than 18 months from the date the OCC granted preliminary conditional approval.
The OCC’s preliminary conditional approval also expires for failure to open the bank
within 18 months.

Extensions
The OCC normally does not grant extensions of time for either deadline. Under
extenuating circumstances, the organizing group may request an extension of the
time following approval from the Licensing staff in the appropriate district office.
The organizing group must provide sufficient information with its request to prove
that the reason for the delay is beyond its control (for example, unforeseeable
environmental cleanup that the organizers must complete before they can build a
facility).

40

Revocation
The OCC will revoke preliminary conditional approval if:
•

The OCC discovers material violations of law, misrepresentations, or any
fraudulent activity by the organizers, directors, or officers.

•

Prior to opening, the OCC learns of any information that gives it sufficient
cause to:
−

Change its evaluation of the proposed new national bank’s prospect
for success (such as significant changes in proposed senior
management, status of ownership or directors, deterioration of an
affiliate institution, or a change in capitalization or deposit insurance
status).

−

Question that the bank will be operated in a safe and sound manner.

Notification
The OCC will convey reasons in writing why it denied an application or withdrew
preliminary conditional approval. The organizing group and directors alone are
responsible for all expenses incurred for a withdrawn, expired, or disapproved
application. They personally must pay all expenses incurred regarding the proposal.

Final Approval
The OCC determines whether a bank will be authorized to open. A national bank
may begin the business of banking or engage in fiduciary activities only when the
OCC grants final approval. The OCC may delay opening if:
•

During the POE, the examiner identifies deficiencies that the directors must
correct prior to opening. Such deficiencies may include systems or bank
premises that are not ready to support bank operations.

•

The directors have not selected a fidelity insurance carrier, or the fidelity
insurance coverage will not be in effect when the bank opens.

•

The OCC determines through other means that a significant change has
occurred or that the organizing bank is not prepared to open. Significant
deviations or changes that the OCC has not approved during the organization
phase may be grounds for delaying issuance of the charter or revoking its
preliminary conditional approval.

•

The OCC determines that the organizers have not adequately addressed any
substantive risk management concerns identified in the chartering process or
POE.

The OCC imposes the following standard condition on each preliminary conditional
and final approval:
41

The bank: (i) shall give the appropriate OCC supervisory office at least 60
days prior written notice of the bank’s intent to significantly deviate or change
from its business plan or operations,3 and (ii) shall obtain the OCC’s written
determination of no objection before the bank engages in any significant
deviation or change from its business plan or operations. The OCC may
impose additional conditions it deems appropriate in a written determination
of no objection to a bank’s notice. For the first three years of operation, the
bank also must provide a copy of such notice to the appropriate FDIC
regional supervisory office.
This condition of approval is a condition “imposed in writing by the agency in
connection with the granting of any application or other request” within the
meaning of 12 USC 1818. As such, this condition is enforceable under 12
USC 1818.
Until final approval is granted, the OCC has the right to alter, suspend, or revoke
preliminary conditional approval should the OCC deem that any interim
development warrants such action.

Post-Opening Considerations
The OCC continuously supervises national banks through on-site supervisory activity
and periodic off-site monitoring. (See the “Large Banks Supervision” and
“Community Bank Supervision” booklets of the Comptroller’s Handbook.) Those
activities help determine the condition of individual banks and the overall stability of
the national banking system. (Also see Appendix D in this booklet.)

Significant Deviations After Opening
A bank’s significant deviations (see Glossary) or changes from its proposed business
plan after opening for business may alter materially the underlying factors upon
which the decision to approve the charter application was based. Those deviations
may have a positive or negative effect on the bank. A new national bank may not
change its operations significantly without the OCC’s review and nonobjection.
After a bank opens for business, management and the board may discover that the
bank is achieving slower or more rapid growth than anticipated. Management and
the board also may determine that the bank is not able to generate quality loans or
attract a significant volume of deposits. There also may be concerns about poor risk
management practices. Management and the board should investigate thoroughly
the underlying reason(s) for each item before taking action.
Examiners will evaluate proposed significant deviations to determine if they are
prudent. (See Appendix G for specific guidance on identifying and evaluating
significant deviations, communication requirements, and related procedures.)

Expansion or Contraction of Assets or Activities
3

If such deviation is the subject of an application filed with the OCC, no separate notice to the
supervisory office is required.
42

Apart from the significant deviation requirements, bank management that wishes to
expand or contract the bank’s primary business may need to file with the OCC prior
to implementing the proposed change. (Refer to this same subject in the General
Policies and Procedures booklet for specific details.)
The OCC has a long-standing practice of discouraging a national bank from
removing substantially all of the assets and liabilities of the bank, creating a dormant
bank or shell operation (see Glossary). The OCC has serious supervisory concerns
including how the management or the board may use such a dormant charter; the
nature of the services and products that might later be initiated; and increased
operations and concentration risk. For a detailed discussion, refer to the General
Policies and Procedures booklet.

Change in Control
Unless a transaction is subject to the Bank Merger Act (12 USC 1828(c)) or other
statutory exemptions, the OCC will apply the definitions and standards in the
Change in Bank Control Act (CBCA) and the OCC’s implementing regulation (12
USC 1817(j) and 12 CFR 5.50, respectively) to determine whether a change in
ownership interest constitutes a change in control. This includes transactions that
may result in control following the exercise of warrants or options by insiders under
stock benefit plans.
If the OCC finds that a change in control would result from a change in ownership,
the OCC will require the new owner(s) to file a change in control notice, generally,
prior to the proposed transaction. The OCC will then decide whether to disapprove
the proposed change. No person (see Glossary) may take any action that would
result in a change in control of the bank without prior OCC review, as provided in
the CBCA, unless the transaction is subject to approval under certain other statutes
(see the “Change in Bank Control” booklet).

OCC Review of Management
The OCC must review and not object to the hiring of any officer or the appointment
or election of any director for two years from the date the bank commences business.
During this time period, each person proposed as an officer or director must provide
the appropriate OCC supervisory office with the required Interagency Biographical
and Financial Reports. The OCC will provide a written decision about each person
submitted for review.

Special Purpose or Narrow Focus Proposals
A national bank is authorized by its charter to exercise all express or implied powers
of national banks. Special purpose or narrow focus banks offer only a small number
of products, target a limited customer base, incorporate nontraditional elements, or
have narrowly focused business plans.
Special purpose banks and those with a narrow focus must meet the same statutory
and regulatory requirements as other nationally chartered banks, unless applicable
laws or regulations provide otherwise. Organizers of such banks must adhere to
43

established charter policies and procedures that are set forth in 12 CFR 5 and this
manual. Organizers should tailor the contents of the application to be consistent
with the special purpose or narrow focus nature of the proposed charter.
The OCC’s review of a special purpose or narrow focus proposal may exceed
traditional processing time frames because of the time needed to evaluate the
supervisory risks associated with each application. Special purpose and narrow focus
bank charter applications normally must provide the information required by the
OCC’s standard review process. The OCC requires each special purpose or narrow
focus bank to indicate the nature of its operations in its articles of association.

Types of Special Purpose Banks
Special purpose proposals include those banks whose operations are limited to credit
card operations, fiduciary activities, community development, or cash management
activities. Bankers’ bank proposals also fall into this category.

Credit Card Banks
National credit card banks take two basic forms. First, a BHC or individual
shareholders may own an insured bank that engages exclusively or predominantly in
credit card activities. This bank may legally offer additional commercial banking
services unless prohibited by its articles of association. The bank may expand its
activities by following the Expansion or Contraction of Activities requirements
previously discussed in this booklet. These banks are “banks” under the Bank
Holding Company Act (BHCA), and so a company that owns one is a BHC subject to
the activity and geographic limitations of the BHCA.
Second, there are insured national credit card banks that are not “banks” under the
BHCA. The Competitive Equality Banking Act of 1987 (CEBA) created the BHCA
exemption for these banks (CEBA credit card banks). The company that owns a
CEBA credit card bank does not become a BHC solely by virtue of owning the bank,
and so the parent company is not subject to the activity and geographic limitations
generally applicable to BHCs under the BHCA. Thus, nonbank holding companies,
commercial entities, or banks that wish to have a subsidiary credit card bank usually
own these banks. However, a BHC that wants to operate a credit card bank in a
state in which it is not able to establish a de novo BHCA bank also could own a
CEBA credit card bank in that state. This type of bank must meet all of the
requirements for the credit card bank exemption created by the CEBA amendment to
the BHCA (12 USC 1841(c)(2)(F)). The bank:
•

Must engage only in credit card activities.

•

May not accept demand deposits or deposits that the depositor may withdraw
by check or similar means for payment to third parties.

•

May not accept any savings or time deposits of less than $100,000, unless
they are used as collateral for secured credit card loans.

•

May maintain only one office that accepts deposits.
44

•

May not engage in the business of making commercial loans.

Those limitations must appear in the bank’s articles of association.
Although commercial entities may have proven experience in managing a credit card
operation, the OCC expects a senior management team that can demonstrate sufficient
banking experience necessary to operate as a national bank in a regulatory environment.
A CEBA credit card proposal will be processed as a narrowly focused charter application.
Proposals with any of the following features will be subject to greater scrutiny:
•

Issuance of cards with closed-end credit features.

•

The absence of a parent organization with an investment grade rating of A or
higher by Moody’s or Standard and Poor’s.

•

Issuance of cards to low- and moderate-income (LMI) customers with a higher
credit risk profile or higher default probabilities, large upfront fees, higher
than usual annual percentage rates, or collateral issues (collectively, subprime
lending issues).

•

E-banking and Internet primary operations.

Each applicant should evaluate thoroughly and discuss potential issues with
appropriate OCC staff before filing. Third-party relationships or vendor management
issues may increase significantly a bank’s risk profile, notably strategic, reputation,
compliance, and transaction risks. (See the “Third-Party Relationships” section in this
booklet.) Because those issues are sometimes complex, an applicant also may wish
to consult its regulatory counsel.
A credit card bank must maintain its status as an ”insured depository institution”
within the meaning of 12 USC 1813(c)(2) and apply for membership in the Federal
Reserve System. If the FDIC initiates or takes any action to terminate the bank’s
status as an ”insured depository institution,” the OCC reserves the right to impose
additional conditions upon the bank.
A credit card bank also must comply with the CRA. However, it may seek
designation as a limited-purpose bank under 12 CFR 25.25 for CRA purposes.
Many credit card bank proposals raise affiliate transactions issues under sections 23A
(12 USC 371c) and 23B (12 USC 371c–1) of the Federal Reserve Act and the
implementing regulation, Regulation W, 12 CFR 223. The most common issues
relate to:
•

Initial capitalization of a newly chartered credit card bank.

•

Transfers of assets between the credit card bank and its affiliates.

•

The possibility that credit extended by a proprietary credit card bank to its
cardholders may be treated as a loan to an affiliate, if customers use their
credit cards to purchase goods and services from bank affiliates.

45

Regulation W contains an exemption from the restrictions of sections 23A and 23B
that permits a newly formed bank to purchase assets from an affiliate, thus
eliminating many of the issues pertaining to providing initial capitalization of any
new bank, including a credit card bank.
Under section 23A’s attribution rule, an extension of credit by a member bank to a
nonaffiliated entity is treated as an extension of credit to an affiliate if the proceeds
are transferred to, or used for the benefit of, an affiliate of the bank. These
transactions thus become covered transactions. Accordingly, if a credit cardholder
purchases goods or services from an affiliate of the member bank that issued the
credit card, then the extension of credit to the cardholder is attributed to the affiliate
because the affiliate receives the benefit of the loan proceeds.
Regulation W contains complex rules regarding the treatment of credit cards under the
attribution rule. The regulation provides an exemption from the attribution rule if the
extension of credit is made through a “general purpose credit card.” This is a credit
card issued by a member bank that is widely accepted by merchants that are not
affiliates of the bank and that satisfies a test set forth in the regulation. Specifically, the
value of goods and services purchased with the card from affiliates of the bank must
be less than 25 percent of the total value of all goods and services purchased with the
card. Compliance with the test may be demonstrated in several ways. Organizers of a
CEBA credit card bank with a sponsoring company should consult the regulation for
details. If a card fails this test, all card transactions with affiliates are subject to the
attribution rule.
Issuers of credit cards that cannot qualify as general purpose credit cards may still
avoid the collateralization and other requirements for covered transactions by
making use of the exemption provided in Regulation W for an intraday extension of
credit. This is defined as an extension of credit to an affiliate that the bank expects to
be repaid, sold, or terminated, or to qualify for a complete exemption under
Regulation W, by the end of the United States business day. CEBA credit card banks
commonly qualify for this exemption by selling their receivables to an affiliate or
other entity at the end of each business day. Organizers of a CEBA credit card bank
with a sponsoring company should consult the regulation concerning requirements
to qualify for the intraday exemption.

Trust Banks or Trust Companies
The OCC may grant approval for a national bank that will limit its operations to
those of a trust bank and activities related to trust services pursuant to its authority in
12 USC 27 and 92a and the licensing requirements in 12 CFR 5.20 and 5.26.
National banks that choose to so limit their services are referred to as national trust
banks or national trust companies (trust banks). Most trust banks choose not to apply
for deposit insurance; however, FDIC insurance may be available for national trust
banks, and the organizers should consider applying for it, if appropriate.
An organizing group or sponsor seeking to charter a trust bank should review this
booklet as well as the “Fiduciary Powers” booklet. The OCC requires that a national
trust bank’s articles of association limit the bank to the exercise of fiduciary powers
and incidental activities.

46

A trust bank typically is not a bank for purposes of the BHCA, and so a company
other than a BHC may own a trust bank. There are two ways for a trust bank not to
be a bank under the BHCA. First, a trust bank does not meet the general definition
of a bank under (12 USC 1841(c)(1), if the trust bank (a) is not insured and (b) does
not accept demand deposits and make commercial loans. Second, even if a trust
bank is insured and otherwise would meet the definition of a bank, a trust bank is
not considered a bank for purposes of the BHCA if it meets certain conditions
(12 USC 1841(c)(2)(D)). These conditions are:
•

The institution must function solely in a trust or fiduciary capacity.

•

All or substantially all of the trust bank deposits are in trust funds and are
received in a bona fide fiduciary capacity.

•

No trust bank deposits insured by the FDIC are offered or marketed by or
through an affiliate.

•

The trust bank does not make commercial loans or accept demand deposits or
deposits that the depositor may withdraw by check or similar means for
payment to third parties or others.

•

The trust bank may not obtain payment or payment-related services from any
Federal Reserve Bank.

•

The trust bank may not exercise Federal Reserve Bank discount or borrowing
privileges.

Transactions with uninsured banks are subject to special restrictions under sections
23A and 23B of the FRA, as implemented by Regulation W. For instance, a bank’s
transactions with an uninsured trust bank owned directly by the same parent
company do not qualify for certain exemptions from sections 23A and 23B that are
available to a bank engaging in the same transactions with an insured bank affiliate.
Thus, transactions between the bank and its uninsured trust bank affiliate generally
must comply with all relevant requirements of sections 23A and 23B.
On the other hand, an uninsured trust bank that is wholly owned by a bank is not
treated as an “affiliate” of the parent bank for purposes of sections 23A or 23B. Thus,
from the perspective of the parent bank, transactions between the parent bank and
the subsidiary uninsured trust bank are exempt from sections 23A and 23B. From
the perspective of the uninsured trust bank, sections 23A and 23B apply to covered
transactions with the bank parent but the so-called sister bank exemption or another
exemption may be available.
Organizers of a trust bank or a bank that will operate a trust department should
include the following information in the charter application:
•

Detailed pro forma financial reports. Organizers should provide projections
for three years or until stable profitability is achieved, whichever period is
longer.

•

A timetable that demonstrates how and when the trust bank will achieve
stable profitability.
47

•

A comprehensive alternative business strategy. This alternative strategy
should articulate plans to manage potential scenarios in which revenue,
margins, or expenses differ significantly from original plans. In addition, it
should include a realistic plan for how the bank would access additional
capital, if needed, or ultimately liquidate or exit the national banking system,
if necessary.

•

If a charter application involves an existing trust operation, copies of the last
three years’ annual regulatory reports relating to the trust operations (such as
the year-end RC-T schedule from the call report and financial reports filed
with state regulators).

•

Representations that the trust bank:
−

Shall not make any major acquisition(s) of fiduciary or fiduciary-related
assets or services from another bank or company during its first three
years of operation without the prior written approval of the appropriate
OCC supervisory office.

−

Will consult with the appropriate OCC supervisory office prior to
undertaking an aggressive or significant expansion of its trust
operations into another state or prior to undertaking any geographic
expansion that poses novel or problematic legal issues.

−

Will consult with the appropriate OCC supervisory office prior to
offering any service or product, either in its home state or another
state, where the bank’s ability to supervise the activity will be limited
because of its reliance on nonbank personnel or limited staff or
resources to market or administer the bank’s fiduciary or fiduciaryrelated services.

−

Shall file quarterly call reports, prepared by someone with appropriate
financial management experience, in accordance with relevant
instructions.

Trust banks are required by statute (12 USC 92a) to have capital no less than that
required by state law for companies offering similar services in the state in which the
bank will be located. In addition, the balance sheet assets of a national trust bank
are subject to the minimum leverage and risk-based capital ratios defined in 12 CFR
3. However, these ratios are not optimal measures of capital adequacy for national
trust banks because off-balance-sheet asset management activities are not captured in
the capital ratio calculations. Accordingly, the OCC expects organizers for national
trust bank charters to provide a detailed analysis supporting their proposed capital
level. Organizers should use the analysis factors outlined in OCC Bulletin 2000–26
as a guideline for capital adequacy analyses.
Based on the OCC’s assessment of risk, management, and the ability of the bank to
raise capital after commencing operations, the OCC may impose as a condition of
approval for a national trust bank charter application initial and minimum capital
requirements above those required by statute and regulation. In addition, the OCC
may impose a separate special condition on a national trust bank charter that would
48

trigger Prompt Corrective Action-type remedies should the bank fail to maintain the
specified minimum capital level. Further, if a national trust bank’s assets under
management increase significantly, or the national trust bank assumes additional risk,
the OCC may require the bank to maintain higher levels of capital. In determining
the appropriate capital and other supervisory safeguards, the OCC considers whether
or not the proposed trust bank is a subsidiary of a national bank or BHC or otherwise
has a financially strong parent that can provide support.
Organizers of a national trust bank should refer to OCC Bulletin 2000–26, for further
guidance on OCC expectations of national trust bank directors and management to
ensure that adequate capital and liquidity are maintained at national trust banks. In
addition, organizers should refer to recent national trust charter approvals available
in Interpretations and Actions on the OCC’s Web site to gain insight into the OCC’s
capital expectations for national trust bank charters.

Community Development Bank
A community development (CD) bank is a depository institution with a stated
mission to primarily benefit the underserved communities in which it is chartered to
conduct business. A CD bank pursues this specialized mission by providing
financial services to LMI individuals or communities or benefiting other areas
targeted for redevelopment by the local, state, tribal, or the federal government. The
bank’s articles of association must indicate the express intent to lend, invest, and
provide services primarily to LMI individuals or communities in which it is chartered
to conduct business. Typically, this means that the CD bank’s activities will support
one or more of the following activities:
•

Affordable housing, community services, or permanent jobs for LMI
individuals.

•

Equity or debt financing for small businesses.

•

Area revitalization or stabilization.

•

Other activities, services, or facilities that primarily promote the public
welfare.

The CD bank charter makes it possible for other banks to invest in the institution
pursuant to the investment authority of 12 USC 24 (Eleventh) and 12 CFR 24 in
addition to the investments that might be possible under 12 USC 24 (Seventh) and
12 CFR 5.36. For additional guidance regarding 12 CFR 24 or 12 CFR 5.36
requirements for national banks with a CD focus, see the OCC memo to “Prospective
Community Development Bank Organizing Groups.”
The OCC provides technical assistance to organizers of each CD bank to assist in
addressing unique features associated with each application. OCC staff will respond
to the group’s questions and communicate options to assist in accomplishing the
organizers’ objectives.
As part of providing technical assistance, the OCC encourages groups to explore
fully unique aspects of their proposals prior to submitting a draft for OCC staff
review. The OCC will review one draft application for the organizing group. The
49

OCC’s technical assistance on the bank’s proposal ends when the charter application
is filed. OCC technical assistance does not include providing instructions and
direction to the bank organizers on developing a business plan, creating the group’s
strategies, or actually preparing the proposal or application.

Cash Management Bank
A cash management national bank normally is affiliated through a BHC structure
with other banks that engage in a full array of commercial activities. A cash
management bank provides certain financial services to its large corporate
customers. In the cash management bank, all accounts are swept into money market
mutual funds or repurchase agreements of the cash management bank at the end of
each day as each customer clears its accounts daily to zero. Fees for services
typically are charged to each customer based on the number of services used and the
number of items processed. Cash management banks incur high operational risks.
Some cash management banks are chartered as de novo institutions. However, most
are created by stripping down the operations of an existing bank to those of a cash
management bank following a purchase and assumption transaction. In the latter
case, a bank must follow the “Contraction of Activities” requirements provided in the
“General Policies and Procedures” booklet.
A key consideration when a bank alters its operation in this manner is the
appropriate level of capital. The BHC may wish to reallocate its capital and reduce
capital in the cash management bank (see the “Capital and Dividends” booklet).
Normally, the OCC will expect capital at the cash management bank to be
maintained at the ”well-capitalized” level as defined in 12 CFR 6.4(b)(1).
The CRA does not apply to a special purpose bank that is engaged only in providing
cash management, controlled disbursement services to the public.

Bankers’ Banks
A group organizing a bankers’ bank (see Glossary) may request that the OCC waive
compliance with certain statutes or regulations based on their operations. Requests
for such waivers should accompany the application and must be supported by
adequate justification and legal analysis. The OCC will review each waiver request
by a national bankers’ bank and decide whether it is justified. However, the OCC
cannot waive statutory requirements that apply specifically to a bankers’ bank.
National banks investing in a bankers’ bank may own no more than 5 percent of any
class of its voting securities. In addition, a national bank’s total investment in the
stock of one or more bankers’ banks is limited to 10 percent of the investing bank’s
unimpaired capital and surplus.
Stock in a bankers’ bank may be sold only to depository institutions or their holding
companies. The CRA does not apply to bankers’ banks that do not perform
commercial or retail banking services by granting credit to the public in the ordinary
course of business, other than as incidental to their specialized operations.

50

Narrow Focus Proposals
The OCC receives numerous inquiries and proposals from individuals and groups
expressing interest in establishing a national bank to conduct new business or
transfer existing operations into a new bank. Organizers of banks that will have a
narrow focus propose to offer limited services or anticipate serving a narrowly
defined market niche. For example, an organizing group may propose a lending
portfolio that is heavily concentrated or targets a restricted customer base.

Supervisory Risks
Certain supervisory risks, such as credit risks, will be increased in a narrow focus
bank due to its concentration in a single, or a very limited number of, business
activities. The OCC may discourage the filing of or deny a charter proposal that
would focus primarily or exclusively on activities or services that will carry a high
degree of risk or are determined to be predatory in nature.
The OCC requires any proposal for a narrow focus bank to have well-defined
business strategies (including contingency plans, sound funding sources, and
projected capital commensurate with the risks) and specialized management. The
OCC will review each business plan for a narrow focus proposal to ensure that the
organizers address adequately the following risks:
•

Concentrations. Narrow focus banks, by their very nature, are not as
diversified as traditional banks, and a bank’s business plan should address
how the bank will mitigate any concentration risk. Diversified asset and
liability portfolios, product selection, funding sources, and target markets help
make a bank less vulnerable to a downturn that could significantly affect its
income, liquidity, or asset quality.

•

Funding and liquidity. The organizers should clarify in the business plan how
the bank’s sources of funding are reasonably diverse, how it intends to
maintain adequate liquidity, and how credit-sensitive funding risks will be
managed.

•

Access to capital. The business plan should identify sufficient capital to
address uncertainties and provide a clear ability to raise capital, if needed.
Initial capital should be sufficient, at a minimum, to support the bank’s
operations and absorb anticipated losses until profitability is achieved, while
maintaining capital at an appropriate level to support safe and sound
operations. If the bank fails to achieve its projected levels of profitability, the
OCC expects the directors to take steps to restore capital to an adequate level.
Depending on the risk profile of a narrow-focused bank’s business plan, the
OCC may require higher capital levels. This level of initial capital is
particularly important if the bank relies on an Internet-only platform for
distribution of products and services.

•

Customer authentication and security. The application of a bank using the
Internet as a significant means of product delivery must address authentication
and security issues. The bank’s method of customer authentication and fraud
detection is critical because of the lack of personal contact with bank
customers. Internet banking platforms allow bank customers to access
51

information and systems directly, including those that enable funds transfers
between banks (such as automated clearing houses, SWIFT, Fed Wire, and
CHIPS). Also, pursuant to the Bank Secrecy Act, banks must report and record
customer transactions that exceed certain thresholds. In an Internet
environment, a bank may need to modify its systems for monitoring customer
transactions. (Refer to the FFIEC IT Examination Handbook Series, E-Banking
booklet, dated August 2003, for specific information.)
•

Strategic planning. Narrow focused banks often target a limited customer
base and frequently have ill-defined contingency plans for redirecting efforts
should the business plan prove unsuccessful. Organizers should define
clearly in the business plan their targeted audience (for example, by
identifying products and geographic areas) and the strategic alternatives. In
developing the strategic plan, the organizers must keep potential conflicts of
interest in mind. (See “Conflicts of Interest” previously discussed.)

CRA Policy Issues
The CRA does not apply to uninsured banks and certain special purpose banks, such
as bankers’ banks and banks that engage in only the following activities: providing
cash management controlled disbursement services or serving as correspondent
banks, trust companies, or clearing agents (see 12 CFR 25.11(c)(3)). In those cases,
the organizers may omit the CRA plan discussion from the business plan.
Some other banks may seek designation as a limited-purpose or wholesale bank (see
12 CFR 25.12(o) and (w), and 12 CFR 25.25(b)). A limited purpose bank offers only
a narrow product line, such as credit card or motor vehicle loans, to a regional or
broader market. A wholesale bank is not in the business of extending home
mortgage, small business, small farm, or consumer loans to retail customers.
The organizers must submit a request, in writing, with the charter application to be
designated as a limited purpose or wholesale bank. As limited purpose and
wholesale banks are subject to evaluation under the community development test,
the organizers should submit a targeted discussion of the bank’s CRA plan as part of
the charter application.

Capital Considerations
The OCC requires proposed banks with higher risk profiles to have higher capital
reserves than banks that present lower risk. The OCC normally does not approve
tiered capital injections during the first three years of the business plan unless the
bank has an established parent company to serve as a source of capital strength.
Therefore, the business plan must indicate that all necessary capital for the three-year
plan will be available upon opening.

52

Procedures: Prefiling
Exploratory Inquiry, Conference Call, or Meeting
Licensing Staff
1.

Confirms that the organizers have reviewed the information available on the
OCC’s Web site concerning the OCC’s policies and procedures to establish a
national bank. This information includes this booklet and other applicable
booklets of the manual. Forwards any requested information about these
processes to the contact person or contact person (contact person) for the
organizing group.

2.

Confirms that the organizers have reviewed the electronic banking (e-banking)
information on the FFIEC’s Web site. The information available includes
several e-banking booklets and summary presentations of the booklet’s
contents.

3.

Contacts Headquarters Licensing (HQ LIC), if necessary, about an inquiry,
providing names of the organizers, proposed location (city, state), business

lines, and any issues raised.

Organizers
4.

Review the written guidance and information about the chartering process and
begin to develop the proposal by preparing the bank’s business plan.

5.

When key ideas are framed, may request an exploratory conference call or
meeting through the contact person to clarify any questions or concerns. Mail
or fax a copy of any written documents that describe the proposal to the district
Licensing (LIC) staff for review prior to the call or meeting. Allow adequate
time for OCC staff to review the material.

Licensing Staff
6.

Schedules an exploratory conference call or meeting with proposed organizers
along with the appropriate district supervisory, legal, and LIC staff, and, in
some cases, OCC headquarters staff. The organizers may choose to include
counsel and consultants in discussions and meetings with the OCC.

7.

Conducts a conference call or meeting with all appropriate parties.

Organizers
8.

Request information about the chartering process from the LIC staff in the
appropriate district office if it has not been requested previously. If information
was previously requested, skips to step 12.
53

Licensing Staff
9.

Refers the organizing group to applicable booklets of the manual for guidance
about the OCC’s policies and procedures to charter a national bank, if not
previously provided.

10.

Forwards information about the chartering process to the organizers.

11.

Decides whether to waive a prefiling meeting with the organizing group, if
the group requested a waiver.

Organizers
12.

Review information about the chartering process.

Prefiling Meeting
Contact Person
13.

When the filing materials are substantially complete, requests that a prefiling
meeting be scheduled. This meeting includes all the organizers for a charter,
including the contact person and chief executive officer (CEO) (collectively,
the organizing group). Provide briefing materials about the proposal to the
LIC staff allowing for adequate time (at least two weeks) to review the
materials.

14.

Request that a prefiling meeting be scheduled.

Licensing Staff
15.

16.

Schedules a prefiling meeting with the organizing group to review the
requirements and procedures for organizing a national bank.
•

Invites the appropriate supervisory office and FDIC staff to participate in
the prefiling meeting.

•

Sends a copy of any written material to the appropriate supervisory office,
FDIC staff, and, if appropriate, HQ LIC for review prior to the meeting.

Conducts the prefiling meeting and discusses the following subjects, as
appropriate, with the group:
•

The OCC’s role and, as applicable, that of the FDIC and the Federal
Reserve.

•

The OCC’s licensing and supervisory interactions for filings.

•

The key policies and specific requirements affecting the chartering
process, including:
54

− The OCC’s policies to approve only a proposal with a strong
management team and business plan.
− The OCC’s requirement of full disclosure by insiders and advance
discussion of background investigation issues that may be problematic.
− Capital, funding and liquidity, management selection, CRA plan,
Internet technology, and vendor selection.
− Procedures to raise capital prior to OCC decision.
− Market test.
− The importance of a comprehensive, well-developed business plan,
including the markets the proposed bank will serve, the products and
services to be offered, and the risk management systems that will be
used to identify and control the attendant risks.
− The OCC’s significant change standard requirement that will be
applied to the bank prior to opening and the significant deviation
condition that will apply to the bank after opening (see Significant
Changes discussion in this booklet and significant deviation discussion
in Appendix G).
− The OCC’s ability to specify certain requirements that must be met
before opening and to impose conditions in writing in addition to the
significant deviation condition.
− The need to incorporate a multi-scenario alternative business strategy
into the business plan. If a BHC or non-BHC parent is organizing,
discuss how it will be expected to provide liquidity support and how it
should demonstrate that support in the alternative business strategy.
− Whether the application qualifies for expedited versus standard
review.
− How to file the charter application and follow the chartering
procedures, including the time involved after submission.
− An overview of the organization phase.
− Common problems associated with new banks (see Avoiding Potential
Problems discussion).

Organizers
17.

Provide information about:
•

How the group came together and the factors that led to the decision to
file.

•

The organizers’ qualifications, both individually and collectively.
55

•

An overview of the proposal, including a discussion of the business plan
and the market with particular emphasis on any unique aspects or novel
policy or legal issues.

Contact person
18. [For bankers’ bank] If necessary, provides a written request and justification
for waiver of certain legal requirements.

Licensing Staff
19. Answers questions posed by those attending the meeting.
20. Contacts HQ LIC to decide, if any prefiling discussion or meetings revealed
significant policy, legal, CRA, compliance, information technology, or
supervisory issues:

•

•

Whether the application should be filed with HQ LIC, if broad issues are
involved.

•

Whether specific issues should be carved out for HQ LIC action, while the
application continues to be processed in the appropriate district office.

•

When the filing should be forwarded to HQ LIC.

21. Ensures that specific issues are brought to the attention of the appropriate
OCC staff if any prefiling discussion or meeting reveals significant policy,
legal, compliance, or supervisory issues.
22. Prepares a memo of the meeting and holds it in a pending file.
23. Sends the summary memo to the appropriate supervisory office if no
supervisory representative attended the prefiling meeting.

56

Procedures: Application Process
Filing the Application and Publication
Organizers
1.

Submit a complete application, including the Interagency Biographical and
Financial Reports, and filing fee to the director for district licensing in the
appropriate district office or to Headquarters Licensing (HQ LIC).

2.

Publish a notice on the date of filing or as soon as practicable before or after
the date of filing (see the “Public Notice and Comments” booklet).

Initial Review
Licensing Staff
3.

Initiates and enters appropriate information into the Corporate Activities
Information System (CAIS).

4.

Establishes the official file to maintain all original documents and initiates
background checks, as appropriate (see the “Background Investigations”
booklet for procedures).

5.

Forwards the filing fee and the deposit memorandum (Form 6043-01) to the
Comptroller of the Currency, Accounts Receivable, 250 E Street, S.W.,
MS 4-8, Washington, DC 20219. Retains a copy of the memorandum.
Contacts the applicant if the filing fee is not received or is inaccurate.

6.

If the application is submitted by a sponsor, determines if the sponsor’s lead
depository institution meets the necessary criteria and is eligible for expedited
review of the application; and

7.

•

If the lead depository institution is not an eligible bank, prepares and
sends a letter to the contact person providing notice of standard review
within five business days of receipt.

•

(If appropriate) If the lead depository institution is an eligible bank,
acknowledges (refer to Acknowledgment of Receipt in the “General
Policies and Procedures” booklet’s OCC samples) filing within five
business days of receipt.

Reviews the application, relevant information about proposed affiliates and
ownership, and biographical and financial information (see the “Background
Investigations” booklet) filed to determine if the filing contains all information
necessary to reach a decision. If not, requests information from the contact
person to be provided by a specific due date.

57

8.

Within five business days of receipt, after reviewing the filing, notifies the
appropriate assistant deputy comptroller (ADC) and ADC analyst or large
bank examiner-in-charge (EIC) (after this referred to as supervisory office) of
receipt and requests that a field investigation tentatively be planned in 45 to
60 days. At the same time, forwards a copy of the filing to appropriate OCC
staff, including the appropriate supervisory office and OCC expert staff (such
as Credit Risk and Treasury and Market Risk), along with a brief summary of
the application, business plan, and the main organizers. Solicits preliminary
comments from OCC staff within 15 days of receipt by staff.

9.

If the filing does not contain all information needed by the OCC, including
the appropriate supervisory office and OCC expert staff, to reach a decision,
requests necessary information in writing and establishes a specific due date
to provide the information. E-mails a copy of the request for additional
information to the appropriate supervisory office, and other appropriate OCC
staff.

10.

Contacts HQ LIC if the proposal will affect significantly the quality of the
environment or affect any district, site, building, or structure listed in, or
eligible for listing in, the National Register of Historic Places (see the
“General Policies and Procedures” booklet).

11.

For bankers’ banks, routes a request for an exemption or waiver from statutes
or regulations to the Law Department.

Field Investigation
(Generally not applicable for an application accorded expedited review. Skips to
step 21.)
12.

Decides to conduct a field investigation, particularly if one or more of the
following circumstances exist:
•

The organizers are an independent group.

•

There is insufficient information available to the district office about
the organizing group, the chief executive officer, or the accuracy and
quality of the research and analysis comprising the business plan.

•

It is necessary to verify the accuracy and quality of the information
contained in the business plan or to meet with members of the
organizing group, its contact person, the proposed chief executive
officer, or interested members of the public.

13.

Requests a field investigation from the appropriate supervisory office and
solicits its input to determine the scope of the investigation.

14.

Provides the national bank examiner (examiner) documents to assist him or
her in conducting the field investigation and outlines the tailored scope of the
investigation.

58

National Bank Examiner
15.

Contacts the contact person to arrange for the investigation.

16.

Coordinates the investigation with the FDIC when possible.

17.

Reviews documents, interviews insiders and other identified persons, and
explores matters related to the proposed bank’s operations consistent with the
scope tailored for the proposed bank by Licensing (LIC) staff with input from
other OCC staff.

18.

Meets with the organizing group and proposed management to summarize
the field investigation and its importance, discusses any significant issues, and
communicates the investigation findings without offering a preliminary
opinion about the likely decision on the charter application.

19.

Prepares investigation findings, submits report for supervisory office approval,
and forwards the completed report to LIC staff.

Licensing Staff
20.

Receives and reviews the field investigation report. Circulates copies to
appropriate OCC staff.

Public Comments and Hearings
21.

If the public or interested persons request copies of the application, follows
the Information Request Procedures in the “General Policies and Procedures”
booklet.

22.

If public comments are filed or a hearing is requested, refers to the “Public
Notice and Comments” booklet for guidance and procedures.

23.

Determines whether the comments are material.

Review and Decision
24.

25.

[For applications accorded expedited treatment only] After the close of the
public comment period, determines whether the filing should be disqualified
from expedited review, and if:
•

No, continues processing.

•

Yes, immediately notifies the contact person that the proposed bank no
longer qualifies for expedited review and identifies the specific reason.

Requests the appropriate supervisory office to sign off on supervisory office
comments, including any examination and investigation reports. Copies the
ADC analyst or large bank EIC on all such requests.

Supervisory Office
59

26.

[For established BHC applications only.] Consults with the appropriate
supervisory office staff of the BHC or affiliated banks.

Licensing Staff
27.

Consults with HQ LIC if significant or novel policy, legal, supervision, or
compliance issues have been identified.

28.

Prepares confidential memorandum and decision letter recommending a
decision to the delegated official.

29.

Sends a copy of the confidential memo and draft decision letter to the
appropriate supervisory office, if appropriate. Solicits final comments.

Supervisory Office
30.

Communicates with the supervisory office of the bank. Responds to Licensing
staff within five business days.

Licensing Staff
31.

Solicits concurrence with the supervisory office comments and signoff from
appropriate deputy comptroller, unless the filing meets expedited processing
criteria. Provides a copy of the confidential memo, draft decision letter, and
supervisory office comments, if desired by the deputy comptroller.

Director for District Licensing
32.

Takes one of the following actions:
•

Decides application under delegated authority if it is eligible for expedited
processing or the director for district licensing and deputy comptroller
concur on the outcome.

•

Forwards the official file to HQ LIC if the director for district licensing and
deputy comptroller’s recommendations differ or if the decision is not
delegated to the director for district licensing. If forwarded to HQ LIC,
skips to step 39.

Licensing Staff
33.

Notifies contact person, interested parties, and appropriate supervisory office
of decision, if appropriate.

34.

Sends the contact person a decision letter.

35.

Makes appropriate CAIS entries.

36.

Informs contact person that the bank will not be allowed to open unless and
60

until all substantive matters, including risk management concerns, have been
addressed.
37.

Completes applicable sections of the New Bank Handoff Checklist and
forwards copies of the following documents to the supervisory office: the
confidential memorandum, preliminary conditional approval letter (including
enclosures), updated CAIS comments, and additional material highlighting
any supervisory or licensing concerns.

38.

Makes entry for all conditions imposed in writing under 12 USC 1818
(including the significant deviation condition) in the “Enforcement Actions”
section of the OCC’s electronic information system as Type “Regulatory
Condition in Writing.”

39.

Forwards a copy with signature and an electronic copy of the preliminary
conditional approval letter to the secretary to the Director, Licensing
Activities.

HQ LIC
40.

Makes appropriate CAIS entries.

41.

Reviews the file and all relevant information; solicits comments from other
OCC divisions, as appropriate. If applicable, resolves differing
recommendations between the deputy comptroller and the director for district
licensing. Makes a recommendation and forwards the official file to the
appropriate official for decision.

42.

Notifies the contact person, interested parties, the appropriate supervisory
office, and director for district licensing of the decision. If there were differing
recommendations between the deputy comptroller and the director for district
licensing, notifies the senior deputy comptroller and documents the final
resolution of the differences in the official file.

43.

Sends the contact person a decision letter.

44.

Forwards a copy of the confidential memorandum, decision document, and
transmittal letter to the director, Licensing Activities if a special condition is
imposed. Forwards a copy with signature and an electronic copy of the
preliminary conditional approval or denial letter to the secretary to the
director, Licensing Activities.

45.

Makes appropriate CAIS entries.

46.

Completes applicable sections of the New Bank Handoff Checklist,
forwarding electronic copies of the following documents, at a minimum, to
the supervisory office: the confidential memorandum, preliminary
conditional approval letter (including enclosures), updated CAIS comments,
and additional material highlighting any supervisory or licensing concerns.

47.

Makes entry for all conditions imposed in writing (including the significant
deviation condition) in the “Enforcement Actions” section of the OCC’s
electronic information system as Type “Regulatory Condition in Writing.”
61

48.

For conditionally approved filings, returns the official file to the director for
district licensing in the appropriate district office for additional processing
during the organization phase.

49.

If denied, skips to step 51.

Organizers
50.

Proceed to organize the bank (see the Organization Phase Procedures in this
booklet).

Close Out
HQ LIC
51.

For denied applications only, reviews the file for completeness and forwards it
to Central Records.

52.

Makes appropriate CAIS entries.

62

Procedures: Organization Phase
Organizing the Bank
Organizers
1.

2.

Within 30 days after receiving preliminary conditional approval:
•

Establish process for maintaining minutes of all meetings of the organizers
and organizing board at the bank’s corporate headquarters.

•

At the First Meeting of Organizers or by unanimous written consent:
−

Execute Articles of Association and Organization Certificate and
submit an original of each to the appropriate district office for
processing by Licensing (LIC) staff.

−

Fix the number of organizing directors to serve until the first meeting
of the shareholders.

−

Elect as organizing directors the persons who have been cleared by
the OCC, including the chief executive officer (CEO).

−

Review and document in the minutes the OCC’s preliminary
conditional approval letter and all other correspondence from the
OCC.

−

Designate the organizing chairperson, secretary, or CEO as the
person to initiate and receive all future correspondence from the
OCC. If different than the contact person during the pre-decision
phase of the application, advise the OCC of the new designee.

−

Forward to the OCC a copy of any filing, including registration
statements or nonpublic offering statements, with the Federal Reserve
or the SEC.

Advise the LIC staff of significant changes at any time during the organization
phase.

Licensing Staff
3.

Makes necessary Corporate Activities Information System (CAIS) entries
throughout the organization of the bank.

4.

Reviews for conformance to the business plan and other components of the
charter application any filing with other agencies, such as registration
statements or nonpublic offering statements with the Federal Reserve or the
SEC.
63

5.

6.

7.

Reviews Articles of Association and Organization Certificate for compliance
with legal and policy requirements, and:
•

If any deficiencies are found, contacts the contact person and requests
corrections.

•

When all requirements have been met, sends Acceptance of Articles of
Association and Organization Certificate Letter and a copy of each
accepted document to the contact person.

•

Places accepted originals of the Articles of Association and the
Organization Certificate in the OCC’s charter application file.

Monitors organizing efforts including:
•

Capital raising efforts.

•

Budget to actual organization expenses.

•

Significant changes in management, the business plan, or organization
activities.

Evaluates or identifies any potential significant change at any time during the
organization phase, and:
•

Notifies Headquarters Licensing (HQ LIC) about any significant changes
made during the organization phase.

•

Allows organization to continue if the Licensing staff, in cooperation with
other OCC staff, determines that the change is not significant, does not
affect the proposal negatively, or otherwise does not warrant a change in
the conditions imposed in the preliminary conditional approval letter.

•

Allows the group to alter or withdraw the proposed change if the
Licensing staff determines that it is significant and would adversely affect
the proposal.

•

Prepares a recommendation and forwards it to HQ LIC for final evaluation
of the significant change if the Licensing staff determines that the proposed
change is significant, has occurred already, affects the proposal adversely,
and such a change would require additional conditions or revocation of
the preliminary conditional approval.

HQ LIC
8.

Takes one of the following actions on any significant change:
•

Allows the organization to continue after review and nonobjection.

•

Revises the preliminary conditional approval letter to impose additional
conditions and communicates conditions to the organizing group.
64

•

9.

Revokes preliminary conditional approval and advises Licensing staff to
have escrow agent return funds to subscribers if capital has been, or is in
the process of being, subscribed. Then skips to step 56.

Notifies the Licensing staff and the organizing group of the decision and makes
appropriate CAIS entries.

Organizing Directors
10. Hold the organizing board’s first meeting. Make appropriate notations in the
minutes of each of the following items of business:
•

Execute Joint Oath of Bank Directors. (See Instructions.) Execute an
individual Oath of the Bank Director later, if necessary.

•

Authorize, at a minimum, the organizing chairperson and the organizing
secretary to the board to sign checks and other documents.

•

Adopt a corporate seal.

•

Adopt a stock certificate form containing all information required by 12
USC 52. The par value of the stock should not appear on the face of the
certificate, since par value is subject to change throughout the life of the
bank.

•

Adopt bylaws.

•

[Generally not applicable for established holding companies.] Discuss
stock solicitation issues, including, as appropriate, some or all of the
following items and:
−

Designate an unrelated insured depository institution as escrow agent
of stock subscription funds according to 12 CFR 16.31. Send a copy
of the depository agreement to the OCC.

−

Advise the escrow agent that the funds may be invested only in
United States government securities, including a mutual fund
consisting exclusively of such securities.

−

Authorize the solicitation of stock subscriptions, including setting the
price at which stock will be sold.

−

Authorize the preparation and filing of a registration statement with
the appropriate district office (see 12 CFR 16.15 for required
information).

•

Authorize the purchase of adequate insurance, including fidelity bond
insurance.

•

Approve the specific location of the bank’s office(s) and advise the OCC of
any change in location from the one(s) identified in the charter
65

application. The OCC may construe a change in location as a “significant
change” and, if the organization is permitted to proceed, may necessitate
republication and changes in the proposed bank’s business plan.
•

Approve organization costs consistent with the OCC’s organization costs
policy. Attach to the minutes a copy of approved organization costs.

•

Review 12 USC 1972 on the use of interbank deposits as compensating
balances for loans to persons connected with the depositing bank.

•

Adopt a written insider policy that conforms to the guidelines in the
“Insider Activities” booklet of the Comptroller’s Handbook.

•

Adopt appropriate written policies pertaining to other areas of bank
operations (see Minimum Policies and Procedures).

•

Establish an internal control system to ensure ongoing compliance with
the currency reporting and record keeping requirements of the Bank
Secrecy Act. Refer to Appendix F and the “Bank Secrecy Act” booklet of
the Comptroller’s Handbook for Compliance for details. [Not applicable
to bankers’ banks.]

•

Apprise directors of legal requirements that affect purchases from and sales
to directors (12 USC 375); loans to executive officers, directors, and
principal shareholders of member banks (12 USC 375a, 375b, and 12 CFR
215); and correspondent accounts (12 USC 1972).

Establishing Management and Site
Steps 11 through 18 normally are not applicable for established BHCs that are
accorded expedited review.
11.

Meet at least monthly as a group with the CEO and others, as needed, to
oversee the organization of the bank.

12.

Select remaining management officials and other insiders, including but not
limited to a cashier or chief financial officer, a compliance officer, and a security
officer. Submit to the OCC materials on each proposed management official,
including the Interagency Biographical and Financial Reports and the director’s
investigative findings. Also submit appropriate biographical and financial
information on newly identified directors and principal shareholders (see the
”Background Investigations” booklet), sending appropriate documentation to
Licensing staff for prior review.

13.

Thoroughly investigate background and qualifications of each proposed
executive officer, using criteria no less stringent than those detailed in the
Management Review Guidelines of “Background Investigations.”

66

Contact person
14. Submits to the OCC materials on proposed management officials, including the
Interagency Biographical and Financial Report from the “Background
Investigations” booklet and the organizing group’s investigative findings on
each. Also submits appropriate biographical and financial information on
newly identified directors and principal shareholders.
15. [For bankers’ banks only] Submits to the OCC financial reports on newly
identified banks that would like to participate in the bankers’ bank that are
consistent with those submitted by the organizing banks.

Licensing Staff
16. Provides the supervisory office with a copy of materials on any newly proposed
management officials, identified directors, and principal shareholders (insiders).
Requests their reviews and recommendations as part of the review process.
17. Within 30 days after receipt of materials for each proposed management
official, director, or principal shareholder, notifies the organizing group by
telephone and by letter through the contact person whether the OCC:
•

Has no objection to the proposed insider.

•

Needs more time to perform its background investigation of the proposed
insider.

•

Desires to conduct a personal interview with the proposed insider.

•

If a personal interview is conducted, includes the supervisory office in the
interview process and documents the meeting for the file.

•

Identifies initial concerns with the proposed insider.

18. If the OCC identifies concerns with the proposed insider, performs the
following steps, otherwise, skips to step 19:
•

For adverse information considered minor in nature, notifies the person of
the reason for the OCC’s initial concerns and allows the person to respond
to the concerns prior to the OCC making a decision.

•

For adverse information considered substantive in nature, notifies the
person by registered or certified mail of the basis for the OCC's concerns
and allows the person to complete, correct, or challenge the adverse
information prior to the OCC making a decision.

•

Depending on the nature of the adverse information, notifies the
organizers (through the contact person) of the basis for the OCC's
concerns and may invite submission of additional information from the
organizing directors.
67

19.

•

After considering any response from the person or organizers, the OCC
may request by registered or certified mail additional information to follow
up a response prior to making a decision.

•

At its discretion, the OCC may interview the person or other persons to
gather additional information.

•

After appropriate due process, prepares and forwards a recommendation
and a draft objection letter to HQ LIC for decision.

Decides the recommendation for the management official and, for objections,
sends an Objection Letter to the person and the organizing directors through
the contact person. The OCC will omit any confidential or sensitive
information about the person in its letter to the contact person.

Organizing Directors
20. Review and document in the minutes of the board:
•

Any transactions with insiders. Include the following information for each
transaction:
−

Name and address of owner of property or provider of service.

−

Relationship to the bank.

−

Asset or service to be acquired.

−

Date the current owner acquired the property, if applicable.

−

Cost of property to current owner or estimate of the cost of services, if
applicable.

−

An independent appraisal of any property acquired or an
independent evaluation of lease terms.

−

Any other relevant information that demonstrates the proposed
transaction is fair, reasonable, and comparable with similar
arrangements that could have been made with unrelated parties.

−

A board resolution approving the specific details in advance of the
transaction.

•

If the site of the bank’s building will have an adverse effect on a historical
property as identified by the State’s Historic Preservation Office, pursue
receipt of a letter from the state that eliminates or resolves the concern.
(See the National Historic Preservation Act discussion in the “General
Policies and Procedures” booklet.)

•

The lease or purchase agreement for all bank premises.
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Capitalizing the Bank
Organizing Directors
21. Take appropriate action to capitalize the bank and comply with the
requirements of 12 CFR 16. If necessary, submit a registration statement to the
Licensing staff. Skips to step 35 if an established BHC will provide the capital.

Licensing Staff
22. Reviews the registration statement for conformance to the business plan and
other components of the charter application. Forwards a copy of the registration
statement to OCC Legal staff for review if required under 12 CFR 16.

OCC Legal Staff
23. Reviews the registration statement, identifies and attempts to resolve any issues
or concerns; declares if the submission is effective, and notifies the contact
person for the organizing directors.

Organizing Directors
24. Before soliciting stock, verifies that:
•

The OCC has reviewed the registration statement and declared the
submission effective.

•

The OCC has reviewed and not objected to a proposed president, if
different from the CEO, and that the president has been employed.

•

Adequate fidelity bond insurance is in effect.

25. Solicits stock by providing each prospective shareholder with the approved
registration statement, Subscription Offer, and any other information required
under 12 CFR 16.
26. Instructs each prospective subscriber, verbally and through the registration
statement, to send subscription funds directly to the escrow agent identified in
the subscription letter. On an isolated basis, deposits funds inadvertently
collected by the organizing bank with the escrow agent. (The escrow agent
must have no association with the organizers or organizing directors.)

Escrow Agent
27. Invests escrow funds received from subscribers directly in United States
government securities, such as bills, bonds, and notes or in a mutual fund
consisting solely of those securities. (Repurchase agreements are not
considered direct deposits and cannot be used as escrow funds.)

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Organizing Directors
28. If the stock is fully subscribed during the offering period, goes to step 36.
29. If the period for offering the registration statement expires prior to the sale of all
shares of stock, cease soliciting stock and request an extension from the
Licensing staff. The organizing directors may request an extension before the
statement expires if it appears likely to expire before the stock will be
subscribed fully.
30. If the original offering documents are revised, submit an amended registration
statement to the Licensing staff.

Licensing Staff
31. Reviews request for an extension of the registration statement, makes a
decision, and notifies the contact person.

Organizing Directors
32. Prepare an addendum to the registration statement for OCC legal staff review
prior to the continuation of sales to any party.

OCC Legal Staff
33. Reviews revised offering documents, identifies and attempts to resolve any
issues or concerns; declares if the submission is effective, and notifies the
contact person.

Organizing Directors
34. If the extension is approved, add an addendum to the registration statement
prior to the continuation of sales to any parties who may choose to increase
their subscriptions, including insiders and other subscribers.
35. Continue with subscription efforts.
36. [Applicable only for an established BHC that will capitalize the organizing
bank.] Separately account for the funds to capitalize the new bank. It is not
necessary to establish an escrow account with another institution or to invest
the funds in government securities.
37. Prepare and retain at the bank a shareholders’ list that conforms to the
requirements of 12 USC 62.

Meeting of Shareholders and Directors
38. Mail the Notice of First Shareholders’ Meeting and Proxy Statement to
shareholders at least 10 days before the scheduled shareholders’ meeting.
Submit a copy of each document to the Licensing staff.
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Shareholders
39. Conduct business that properly may arise and document those activities,
including the following actions, in the Minutes of the First Shareholders’
Meeting:
•

Fix the number of directors.

•

Elect to the board of directors those persons approved by the OCC and
identified in the registration statement.

•

Approve an itemized list of organization costs that should be attached to
the minutes, and additional expenses, accrued but not paid, that will be
paid or reimbursed from capital funds.

•

Ratify the Articles of Association, Organization Certificate, and all official
acts of the organizers, organizing directors, and officers since the
organization of the association.

Directors
40. Hold the organization meeting. Document the following accomplishments, at a
minimum, in the Minutes of the First Meeting of Directors:
•

Complete a Waiver of Notice of the First Board Meeting.

•

Execute the Oath of Bank Director or Joint Oath of Bank Directors.

•

Elect the chairman, secretary, and other officers of the board and appoint
the president, CEO, cashier, and other executives.

•

Certify and execute the Capital Stock Payment Certificate before a notary
public.

•

Ratify the Bylaws.

•

Elect standing committees as set out in the Bylaws.

•

Select a depository bank.

•

Authorize the CEO (or another person) to maintain contact with the FDIC
about the status of the bank’s deposit insurance application, if the bank
will be insured.

Organizing Bank Operations
CEO
41. Orders the forms and establishes the operating, risk management, and control
systems needed to conduct banking business.
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42. Advises the OCC if there has been a change in location (for example, a specific
location for a ”vicinity of” location), since the OCC granted preliminary
conditional approval to the application.

Licensing Staff
43. Determines whether a change in location constitutes a significant change.

Preopening Examination (POE)
CEO
44. At least 60 days before the proposed opening date, submits an Organization
Completed letter to Licensing staff and requests the POE, indicating readiness
for opening.

Licensing Staff
45. Upon receipt of the Organization Completion letter, requests a national bank
examiner to conduct the POE at least 14 days prior to the proposed bank
opening date. LIC determines the scope of the POE with input from the
appropriate supervisory office.
46. Places oaths in the bank’s charter file and retains for 10 years consistent with
the requirement in 12 USC 73.

Examiner
47. Contacts the CEO to arrange for the POE.
48. Coordinates with other units and the FDIC, if needed.
49. Conducts the POE. Determines whether all substantive issues, including risk
management concerns, have been addressed adequately.
50. Meets with management and the board of directors at the conclusion of the visit
to inform them of the POE findings, but does not convey a recommendation
about the final approval for the bank’s opening.
51. Prepares the POE report.

Licensing Staff
52. Reviews the POE report and takes one of the following actions:
•

Notifies the bank that it may not open, until certain specific outstanding
matters, including any remaining risk management and other concerns,
have been resolved.

72

•

Prepares a memorandum to discuss issues that the OCC should impose as
additional conditions to the preliminary conditional approval.

•

Prepares a memorandum to discuss significant adverse factors and
recommends to HQ LIC that the bank’s preliminary conditional approval
be revoked.

•

Notifies the bank that it may open subject to completion of step 56.

HQ LIC
53. If LIC staff recommends revocation or additional conditions, takes one of the
following actions:
•

Imposes additional conditions to the preliminary conditional approval of
the charter and allows bank to open subject to completion of step 55.

•

Revokes preliminary conditional approval and advises Licensing staff to
have escrow agent return funds to subscribers.

•

Directs Licensing staff to permit the bank to open subject to completion of
step 55.

Continuing to Organize Bank Operations
CEO
54.

Requests from the Federal Reserve application forms for membership.

55. Submits application forms for membership to the appropriate Federal Reserve
Bank governing the bank at least two weeks prior to the projected opening
date.

Chartering and Commencing Business
CEO
56.

Takes the following actions, as needed:
•

Resolves outstanding matters and advises Licensing staff members.

•

Continues with opening preparations, including:
− Confirms receipt of final deposit insurance approval from the FDIC, if
the bank will be insured.
− Confirms receipt of bank membership in the Federal Reserve System.
− Notifies the OCC and other federal regulators of any opening date
delay, if appropriate.
73

− Requests certification letter for capital funds from the escrow agent.

Escrow Agent
57.

Sends certification letter for capital funds to the CEO.

CEO
58. Sends a copy of the certification letter for capital funds from the escrow agent to
the OCC.

Contact person
59.

Confirms the bank’s opening date with the OCC one business day prior to
opening.

Licensing Staff
60.

Verifies receipt of Capital Stock Payment Certificate.

61.

Notifies the bank that it may open and sends final approval.

62.

Notifies the escrow agent to release funds.

Escrow Agent
63.

After receiving authorization from the OCC to disburse the funds, takes one of
the following actions:
•

Returns funds to subscribers, if preliminary conditional approval has been
revoked.

•

Releases funds to the bank (approximately two to three days before the
scheduled opening date).

CEO
64.

Pays organizing expenses approved by the organizing board of directors,
shareholders, and board of directors.

65.

On the opening day:
•

Notifies Licensing staff members that the bank has opened.

•

Issues stock certificates to the stockholders.

•

Pays or capitalizes organizing expenses, including bank premises, that are
approved by the shareholders, consistent with generally accepted
74

accounting principles (GAAP) accounting treatment, and not objected to
by the OCC.

Close Out
Licensing Staff
66.

Makes CAIS entries.

67.

Completes the Charter Handoff Checklist and, as appropriate, provides copies
to the supervisory office of the remaining information listed in the New Bank
Handoff Package and other pertinent facts.

68.

Forwards the Charter Certificate to the bank. Files two copies of the bank’s
Charter Certificate in the OCC’s charter file.

69.

Forwards all original documents to Central Records after reviewing the files for
completeness.

70.

Updates the OCC’s electronic information system with the effective date for all
conditions imposed in writing under 12 USC 1818 (including the significant
deviation condition) in the “Enforcement Actions” section of the OCC’s
electronic information system as Type “Regulatory Condition in Writing.”

75

Appendix A: Parallel-Owned Banking Organizations
Possible Representations or Commitments for Charter Applications
Resulting in a Parallel-Owned Banking Organization
Concerns for the national bank that arise from a parallel-owned banking organization
typically result in expanded assurances regarding the bank’s operations (see previous
discussion in Parallel-owned Banking Organizations section). The following are
examples that the OCC may require to facilitate the supervision of parallel-owned
banking organizations:
1.

Establishing party agrees to provide all information, without regard to whether
such information is located within or outside the United States, when
requested, relating to:
(a)

Enforcement or possible enforcement of, or any proceeding under, any
United States law;

(b)

The direct or indirect ownership or control of the bank [bank holding
company, if appropriate]; and

(c)

The operations or activities of the bank [bank holding company (BHC),
if appropriate], or any institution-affiliated parties (IAP) regarding each
thereof under United States law, including any unsafe or unsound
practice or breach of fiduciary duty by the bank [BHC, if appropriate],
or by any IAP with respect to each thereof.

2.

Establishing party agrees to provide the OCC and its staff access to, to permit
the OCC and its staff to examine, and to provide the OCC and its staff with
copies of, all books and records; access to electronic records that accurately
reflect the information in the books and records; and any other information, of
or concerning the bank, as requested by the OCC or its staff, without regard to
whether such books and records or other information are located within or
outside the United States.

3.

Based on the opinions of counsels in the foreign jurisdictions where each
establishing party is a citizen, and where each party resides, each party
understands and represents that there are no statutory or regulatory
requirements of, or judicial interpretations in, these jurisdictions that would
preclude or limit examination in such jurisdictions, or use in the United
States, of the books and records of applicant by the OCC and its staff. In
addition, based on these opinions of counsels, each establishing party
understands and represents that there are no statutory or regulatory
requirements of, or judicial interpretations in, these jurisdictions that
otherwise would limit the ability of the parties to comply fully with
commitments and representations 1 and 2 above, except to the extent that
waivers of confidentiality by establishing persons would be necessary to
permit such examination or use of establishing persons’ books and records,
which waivers persons hereby grant and agree to grant on a continuing basis.
Each establishing person understands and represents that there are no
statutory or regulatory requirements of any jurisdiction that preclude, limit, or
76

make ineffective, in whole or in part, any waiver of confidentiality as
described in this commitment or representation.
4.

Each establishing person consents and submits to the personal jurisdiction of
any United States federal court of competent jurisdiction and of any federal
banking authority for purposes of any investigation or possible investigation,
action, subpoena, examination, or proceeding by any federal banking
authority, the United States Department of Justice, or the United States
Department of the Treasury, relating to the administration or enforcement of
any United States law or pursuant to any United States law, including, in
particular, section 8 of the Federal Deposit Insurance Act. For purposes of
this commitment or representation, each establishing person shall, at all times,
maintain in the United States a designated agent, acceptable to the OCC, to
accept service on the acquiring person’s behalf, including service of any
process, notice, order, or subpoena. Each establishing person, as of the date
hereof, designates [name of agent], located at [address, city, and state], as his
or her agent to accept such service. An establishing person will not change
this designation without notice to, and consent of, the OCC or its staff.

5.

Each establishing person agrees to submit the following documents to the
OCC prior to the OCC's consideration of the proposal in connection with
which these commitments or representations are submitted:

6.

(a)

A notarized and authenticated or certified document, designating the
agent(s) specified in commitment or representation (No. 4 above) to
accept service on behalf of each establishing person;

(b)

An opinion of independent counsel in the jurisdiction where applicant
is a citizen and, if different, where applicant resides: (i) that each of
the commitments or representations is enforceable under the laws of
the relevant jurisdiction, and (ii) that there are no statutory or
regulatory requirements of, or judicial interpretations in, the relevant
jurisdiction that would limit the ability of the applicant to comply fully
with commitments or representations 1 and 2 above, subject to the
need for a waiver of confidentiality as provided in commitment or
representation (No. 3 above), or that would preclude, limit, or make
ineffective, in whole or in part, any such waiver of confidentiality that
is granted; and

(c)

Properly executed written documentation to effect a full waiver of
confidentiality under the law of the relevant jurisdiction, as provided
in commitment or representation (No. 3 above).

No later than the time of consummation of the transaction, each establishing
person will provide to the bank a list of his or her "related interests" (as
defined in section 215.2 of Regulation O, 12 CFR 215.2) and a list of the
bank's affiliates (as defined in 12 USC 371c(b)(1) and Regulation W, 12 CFR
223.2) to be maintained by the bank. Each establishing person will update
these lists annually or more frequently as changes occur in "related interests"
or affiliates. Each establishing party and each company that from time to time
is controlled directly or indirectly by any establishing party, acting alone or in
concert with one or more other persons, will be deemed to be "insiders" of
the bank in all dealings with the bank for purposes of Regulation O (12 CFR
77

215).
7.

[NOTE: The OCC will require one of the following commitments or
representations or a similar commitment or representation after considering
such factors as the adequacy of foreign supervision, the ability and willingness
of the foreign supervisors to cooperate and share information cross-border,
and the condition of the bank and foreign bank.]
(a)

There will be no transactions between the Bank and foreign affiliates.

(b)

There will be no covered transactions under 12 USC 371c or 371c-1,
or Regulation W, 12 CFR 223, between Bank and foreign affiliates.

(c)

Each establishing person commits or represents that dealings between
the bank and any company that is an "affiliate" of the bank, which may
include certain companies in which applicant holds an interest, will be
subject to the restrictions in 12 USC 371c and 371c-1, as implemented
by Regulation W. For purposes of this commitment or representation,
an extension of credit also includes a deposit by the bank with an
affiliate.

8.

Each establishing person and the bank commit or represent that they will
notify the OCC if the bank engages in the following types of affiliate
transactions: (1) transactions that will materially affect the bank's capital, (2)
transactions that will materially affect the affiliate's financial position, and (3)
any back-to-back loan transactions between the bank and any person
(including affiliates) that benefit members of the organizing group.

9.

Each establishing person or the bank will notify the OCC of any loan or
deposit made by the bank to an affiliate that has deposited or loaned funds to
the bank, provided the funding for the loan or deposit by the bank is directly
or indirectly linked to the affiliate's funds on loan or deposit with the bank.

10.

Each establishing person or the bank will notify the OCC of any increase in
permanent capital when the capital funds invested were received from any
person who has obtained a loan or a deposit from a bank or any affiliate,
provided the funds for the increase in capital are directly or indirectly linked
to the funds from the loan or deposit from the bank.

11.

Each establishing person will notify the OCC of any loan received by a
member of the organizing group from any person who has obtained a loan or
a deposit from the bank, provided the funding for the organizing group loan is
directly or indirectly linked to the funds from the loan or deposit from the
bank.

12.

While a charter application is pending, the establishing parties will promptly
notify the OCC of any changes or pending changes in affiliation.

13.

Each establishing person and the bank commit or represent that the bank will
not engage directly in the international transfer, remittance, or payment of
customer or bank funds except through an unaffiliated correspondent bank.
Approval of the OCC will be obtained before the bank begins to engage
directly in the international transfer of funds.
78

Alternatively:
Each establishing person and the bank agree that the bank will not engage in
the international transfer, remittance, or payment of customer or bank funds
except in compliance with safe and sound formally adopted internal control
procedures and operational safeguards, which shall include, in all cases,
written documentation of all relevant information concerning each such
transfer, remittance and payment, as adopted as a policy of the bank and in
compliance with all laws, regulations, orders, and directives applicable to the
bank and its officers, directors, and affiliates.
14.

Each establishing person represents that the funds being used to establish the
bank are not derived directly or indirectly from the foreign bank or its
affiliates, except to the extent that these funds are derived from usual profits
and dividends from the foreign bank or its affiliates obtained over the years.

15.

Neither an establishing person nor the bank will incur any additional debt
(other than small amounts incurred in the ordinary course of business) to any
third party without the prior approval of the OCC.

16.

None of the capital stock or debt of the bank will be transferred or pledged to
any third party without the prior approval of the OCC.

17.

Each establishing person commits that the bank will maintain total risk-based
capital ratios so that the bank is, at all times, considered well-capitalized
under 12 CFR 6.

79

Appendix B: Directors’ Duties and Responsibilities,
Qualifications, and Other Issues
The Comptroller of the Currency expects each director to be familiar with the
statutory responsibilities associated with that position. The board of directors of a
national bank may not delegate responsibility for its duties, but may entrust the dayto-day bank operation to bank management. Directors can refer to OCC
publications specifically addressing director responsibilities (refer to The National
Bank Director’s Toolkit and the “Duties and Responsibilities of Directors” booklet of
the Comptroller’s Handbook).

Duties and Responsibilities of Directors
A national bank, as other corporate organizations, has shareholders who elect a
board of directors. A bank’s board of directors oversees the management of the
bank’s activities. Directors must exercise reasonable care when guiding the bank’s
affairs.
Bank directors face unique challenges because banks differ from other corporations.
Although banks, like other corporations, use their capital to support their activities,
most of the funds banks put at risk belong to others, primarily depositors. Banks lend
and invest customers’ deposits to earn a profit and a reasonable return to
shareholders and to meet the credit needs of the community. Properly managing risk
to serve those interests is a critical challenge faced by the board and bank
management.
As corporate board members, bank directors have duties to the banking corporations
they serve. Those duties are known as the duties of diligence and loyalty.
The duty of diligence means that directors must devote the time and attention
necessary to enhance safe, sound, and legal operations of the bank. Directors must
attend directors’ meetings, review meeting materials, and ask questions and seek
explanations to understand the issues completely. They must use independent
judgment and be objective when overseeing the bank’s affairs. A director’s decisionmaking process should involve careful consideration of reasonably available and
relevant information. A director should abstain from discussing or voting on any
transaction that the bank may consider undertaking with the director or any company
or other related interest of that director as defined in Regulation O.
The duty of loyalty means that directors must never put their own or other competing
interests above those of the bank they serve. The duty of loyalty requires directors to
administer the affairs of the bank with candor, personal honesty, and integrity.
Relationships with the bank must always be at arms-length. In addition, directors
may not take business opportunities away from the bank inappropriately.
National banks and their directors are accountable, not only to their shareholders
and depositors, but also to their regulators. The risks inherent in banking, the safety
net provided by deposit insurance, and the importance of a safe and sound banking
system to the nation’s economy make this oversight appropriate.
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Although a board of directors does not guarantee the bank’s success, it must oversee
bank operations to ensure that the bank conducts business in a safe and sound
manner. The board must keep informed about the bank’s operating environment;
hire and retain competent management; and ensure that the bank has a risk
management structure and process suitable for the bank’s size and activities. The
board also must oversee the bank’s business performance and ensure that the bank
serves the community’s credit needs. Problems arising from failures in any of those
areas represent the board’s failure to exercise properly its oversight responsibilities
and can result in individual liability if a director has not acted as a reasonably
prudent director would act in similar circumstances.
To strengthen corporate governance, financial disclosures, and auditor
independence, Congress passed the Sarbanes-Oxley Act of 2002 (Act). While many
of the provisions of this Act will not be applicable to a newly chartered bank,
directors and bank management should be familiar with the requirements of the Act.
They should implement similar standards when appropriate based on the size,
complexity, and risk tolerance of the bank.
Management works for the board of directors; the board of directors does not work
for management. The long-term health of a bank depends on a strong, independent,
and attentive board. A board should evaluate its effectiveness periodically and
determine whether it is taking steps necessary to fulfill its responsibilities. The board
also should consider orientation programs for new directors. Ongoing education
programs that describe emerging industry developments, opportunities, and risks
also are often helpful.
When searching for new bank directors, banks should seek persons who will
exercise independent judgment and actively participate in decision making. The
principal qualities of an effective bank director include strength of character, an
inquiring and independent mind, practical wisdom, and sound judgment.
In summary, the qualifications of a candidate seeking to become a member of the
board of directors of a national bank include:
•

Basic knowledge of the banking industry, the financial regulatory system, and
the laws and regulations that govern the operation of an institution.

•

A willingness to put the interests of the bank ahead of personal interests.

•

A willingness to avoid conflicts of interest.

•

Knowledge of the communities served by the bank.

•

Background, knowledge, and experience in business or other disciplines.

•

A willingness and ability to commit the time necessary to prepare for and
regularly attend board and committee meetings.

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The primary responsibilities of the board of directors of a national bank include:
•

Being aware of the bank’s operating environment. Directors should
understand generally both the bank’s business environment and the legal and
regulatory framework within which the bank’s activities operate.

•

Hiring and retaining competent management. A profitable and sound bank
usually is the result of talented and capable management.

•

Maintaining an appropriate board structure. The board should establish
appropriate committees that have the responsibility of overseeing significant
functions or activities within the bank, including the audit function, a loan
review program, and a compliance review function.

•

Monitoring operations. Although the board may depend on management’s
expertise to run the bank’s daily operations, the board remains ultimately
responsible for monitoring the operations of the bank.

•

Remaining independent. The board must remain independent of undue
influence of management and controlling owners.

•

Overseeing business performance. Sound business performance is one of the
board’s primary objectives and responsibilities as well as a key indicator of
management’s success.

•

Serving community credit needs. Every insured national bank is required to
fulfill its responsibilities under the Community Reinvestment Act (CRA).

More information about the role of a bank director is available in The Director’s
Book: The Role of the National Bank Director (The Director’s Book) and Internal
Controls, A Guide for Directors (refer to The National Bank Director’s Toolkit).

Director Qualifications
Each national bank director must meet the qualification requirements found in 12
USC 72, unless a residency or citizenship waiver request is submitted to and
approved by the OCC (see the “Director Waivers” booklet of the Comptroller’s
Licensing Manual). Specifically, each director must:
•

Hold a minimum $1,000 par value or fair market value of stock in his or her
own right in the bank or an equivalent interest in the parent company that
controls the national bank.

•

Be a citizen of the United States throughout his or her term of service, except
that the OCC may waive this requirement for a minority of the total number
of directors.

At least a majority of the directors must have resided in the state, territory, or district
in which the bank is located, or within 100 miles of the bank’s location, for at least
one year immediately preceding election as directors, unless the OCC grants a
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residency waiver. The directors must continue to meet this requirement unless the
OCC grants a residency waiver.

Election of Directors
The bank’s shareholders elect the directors at their annual meeting. National banks
must have at least five directors and ordinarily no more than 25, but the OCC may
waive the 25-member limit. Once directors meet the 12 USC 72 qualification
requirements, they take the oath of office before a notary or other official authorized
by state law. Under 12 USC 71, directors shall hold office for a period of not more
than three years and until their successors have been elected and qualified.
Directors may serve staggered terms if authorized by the bank’s bylaws.

Vacancies on the Board
Directors remaining on the board appoint a replacement if a vacancy occurs. The
replacement must meet the director qualification requirements previously discussed.
The newly appointed director serves until the next annual election of directors by the
bank’s shareholders.

Depository Institution Management Interlocks Act
The Depository Institution Management Interlocks Act (Interlocks Act) generally
prohibits a bank or BHC management official from simultaneously serving as a
management official of an unaffiliated depository institution or depository institution
holding company.
There are certain exemptions from these interlock prohibitions. Some management
interlocks are exempted by statute and some qualify for exemption under the OCC’s
regulation without filing an application. Other interlocks may be exempted if the
OCC approves a specific application. The OCC may exempt a prohibited
management interlock if it determines that dual service would not result in a
monopoly or substantial lessening of competition and would not present safety and
soundness concerns.
OCC regulations provide for two broad categories of permissible exemptions: the
Small Market Share Exemption and the General Exemption. The Small Market Share
Exemption applies to depository organizations with limited control of an area’s
deposits. This exemption does not require an application or prior OCC approval.
Under the General Exemption, the OCC may, through the application process,
exempt a management official’s service that the Interlocks Act otherwise would
prohibit.
The OCC’s regulations provide that in certain instances in which a general
exemption is sought, the agency will apply a rebuttable presumption that an
interlock will not result in a monopoly or substantial lessening of competition. Under
the OCC’s regulation governing the General Exemption, 12 CFR 26.6(b), these
instances include a depository institution seeking to add a management official when
it:
•

Serves primarily low- or moderate-income areas.
83

•

Is controlled or managed by members of a minority group or women.

•

Has been chartered for less than two years.

•

Is deemed to be in “troubled condition” by the OCC.

Organizers interested in establishing a management interlock should review the
OCC’s Management Official Interlocks regulation before submitting a request for an
interlock exemption. Organizers should include their request with their charter
application. See the “Management Interlocks” booklet for more complete
information.

Potential Liability
Directors, officers, and employees may face personal liability in the performance
of their duties and responsibilities as prescribed by banking laws and other
regulations. A director can obtain some protection against large financial losses
through indemnification agreements and liability insurance.
The bank may make or agree to make indemnification payments to an institutionaffiliated party, as defined at 12 USC 1813(u), for damages and expenses, including
the advancement of expenses and legal fees. This may occur in cases involving an
administrative proceeding or civil action initiated by a federal banking agency only if
such payments are reasonable and in accordance with 12 USC 1828(k) and the
OCC’s and FDIC’s implementing regulations, 12 CFR 7.2014 and 12 CFR 359,
respectively. For administrative proceedings or civil actions not initiated by a federal
banking agency, such payments must be made 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.

•

The relevant provisions of the Model Business Corporation Act (1984, as
amended 1994, and as amended thereafter), or Delaware General Corporation
Law, Del. Code Ann. tit. 8 (1991, as amended 1994, and as amended thereafter).

Payments also must be consistent with safe and sound banking practices.
The OCC may review any indemnification payments made by the bank to evaluate
whether they are consistent with safe and sound banking practices, standards
adopted by the bank in its bylaws, and applicable laws and regulations.

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Appendix C: Stock Benefit Plans
Bank organizers should structure any proposed stock benefit plan to encourage the
participants’ continued involvement in the bank. The plan also should serve as an
incentive for the successful, long-term operation of the bank.
Stock benefit plans should contain no feature that would:
•

Encourage speculative or high-risk activities.

•

Serve as an obstacle or otherwise impede the sale of additional stock to the
general public.

•

Be structured to convey control of a national bank or otherwise provide
preferential treatment to the bank’s insiders.

Primary Types
In general, two primary types of stock benefit plan exist:
•

Type 1 plans grant options or warrants to directors and active senior executive
officers to reward future performance.

•

Type 2 plans grant options or warrants to organizers as compensation for:
− Financial risk borne to fund the formation or organization of a bank (seed
money).
− Noncash contribution of assets (such as land for a banking facility) (see the
“Capital and Dividends” booklet of the manual).
− The guarantee of a loan to finance a bank’s organization.
− Professional services (for example, legal, accounting, or underwriting services)
rendered to facilitate the establishment of the bank.

Type 1 Plans
Banks typically use Type 1 plans to reward senior executive officers and directors for
future performance. Accordingly, their continuing involvement to support successful
operations of the bank after it opens is required for participation in Type 1 plans.
The plan need not grant stock options to all senior executive officers or directors of
the new bank, but the organizing group should provide support for the number of
options made available to each plan participant.
In some new banks, CEOs and other key officers may receive stock options at the
bank opening similar to “signing bonuses,” which are intended to compensate them
for financial risks they assume in joining a new bank’s management team. Financial
risks to senior executive officers can be twofold. First, they often leave positions in
established institutions that they may have held for extended periods. Second, these
85

officers may find themselves subsequently unemployed for an extended period of
time or need to take a lesser position in another institution if the new positions do
not work out and they leave after a relatively short tenure. The OCC requires the
terms of these stock option plans to conform to OCC policy guidelines. In addition,
the OCC considers this form of compensation in its evaluation of overall
compensation.

Type 2 Plans
Organizers may participate in Type 2 plans. Type 2 plans provide vehicles for
organizing groups to reimburse organizers for financial risk borne during the
organization phase, such as providing seed money, contributing organization funds
or noncash assets, or guaranteeing a loan. An organizer could elect to receive as
compensation either cash or stock or any combination of the two.
The number of shares received is determined by dividing the amount to be
reimbursed by the value of each share. Organizers may not receive stock options for
additional stock subscribed that would exceed the amount for which they are being
reimbursed. If stock options or warrants are received in exchange for an organizer’s
guarantee of a loan, each person’s options or warrants should not exceed his or her
pro rata amount of the loan guarantee or the amount drawn, if less than the
guaranteed amount of the loan.
Professional services normally are paid for in cash. Professional service providers,
however, may participate in Type 2 plans if the service provider lowers the cash
payment for the service rendered to the organization as a result of plan participation.
If an organizer, who is also a service provider, is fully reimbursed in cash for all
professional services, he or she can participate in a Type 2 plan only if stock
compensation is elected for reimbursement of seed money, organization funds,
contributions of noncash assets, or loan guarantee.

Type 1 and Type 2 Plan Requirements
Type 1 and 2 stock benefit plans must include:
•

A limited duration of rights (maximum of 10 years).

•

An exercise, or strike, price of stock rights, which shall be no less than the fair
market value of the stock at the time that the rights are granted.

•

A clause that allows the OCC to direct the bank to require plan participants to
“exercise or forfeit” their stock rights if one of the following occurs:
−

Capital falls below regulatory minimums as set forth in 12 CFR 3, or a
higher requirement as the OCC may determine.

−

The existence of outstanding warrants impairs the bank’s ability to
raise capital.

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Additional Type 1 Requirements
Type 1 stock benefit plans also must include the following requirements:
•

A maximum of one option or warrant for each share subscribed or purchased
in the initial offering (in other words, a “one for one” stock option or warrant
plan).

•

Vesting requirements that encourage the participant to remain involved in the
bank’s operations (for example, vesting approximately equal percentages each
year over the initial three years of operations).

•

Restrictions on the transferability of the options or warrants, except transfer to
a holder’s estate in the event of death or permanent disability.

•

Rights upon termination of relationship with the bank.

Acceleration and Vesting of Unearned Options or Warrants
The OCC permits acceleration and vesting of earned and unearned options or
warrants if:
•

The stock benefit plan required a three-year minimum vesting period, and

•

The three-year period has elapsed.

The OCC permits immediate acceleration and vesting without regard to the previous
criteria if a senior executive officer or director becomes permanently disabled or
dies. The OCC requires a senior executive officer or director to forfeit unvested
options or warrants under all other circumstances.

Rights of Termination
A senior executive officer or director who ceases to be an active participant in the
bank’s operations must exercise or forfeit options or warrants within 90 days after
separation from or termination by the bank. In the event of permanent disability or
death, the stock option holder or the person’s estate should exercise options or
warrants within 12 months or else forfeit the options.

Additional Type 2 Requirements
Type 2 stock benefit plans, unlike Type 1 plans, do not require vesting, transferability
restrictions, or continued association with the national bank. Type 2 stock
compensation plans must meet the following additional plan requirements:
•

A maximum of one option or warrant per share subscribed for the
contribution of organization funds, noncash assets, or guaranty of a loan for
the new bank.

•

A maximum of one option or warrant per share subscribed for the payment of
professional services.
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Management and Employee Stock Benefit Plans
In addition to Type 1 and Type 2 plans, the bank’s board of directors may authorize
a prospective management stock benefit plan (also called a stock incentive plan) for
its senior executive officers or an employee stock option plan for its employees. In
this context, the definition of senior executive officer is not confined to that included
in Regulation O. Any insider who participates in a management stock incentive plan
also would be considered a senior executive officer. Directors may participate in the
plan as a method of payment for their services to the bank. In many cases,
participation may be tied to specific individual or bank performance criteria.
Management and employee stock benefit plans should encourage the continued
involvement of the participants and serve as an incentive for the successful, longterm operation of the bank. In addition, such plans should:
•

Be viewed as part of a person’s total compensation.

•

Be reasonable, relative to the service provided.

•

Include compliance with appropriate other laws, including applicable federal
and state tax laws.

The bank should conform the terms of these plans to the requirements of Type 1
plans. Management and employee stock benefit plans, like other stock benefit plans,
should not encourage speculative or high-risk activities or serve as an obstacle to, or
otherwise impede, the sale of additional stock to the general public.
The exercise of rights granted by a stock benefit plan may trigger a filing to the OCC
under the Change in Bank Control Act (CBCA) (12 USC 1817(j)) or the OCC’s
implementing regulation, 12 CFR 5.50. If an option holder’s exercise of rights would
trigger the prior notice requirements, the holder must fulfill the CBCA prior notice
requirement before exercising the option.

Accounting for Employee Stock Options
A national bank should account for employee stock compensation in accordance
with generally accepted accounting principles (GAAP). Charter applicants should
consider the effect of the Statement of Financial Accounting Standards Number 123
(Revised 2004): Shared-Based Payment in developing stock benefit plans and
financial projections. The accounting entries likely will result in an increase in
permanent capital with an offsetting decrease to retained earnings (refer to the
“Capital and Dividends” booklet for specific details when preparing the financial
projections).

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Appendix D: Supervision and Oversight Highlights
The Comptroller of the Currency (OCC) strives to deliver to all national banks the
highest possible quality of bank supervision. Supervisory efforts are directed toward
identifying material problems, or emerging problems, in individual banks or the
banking system, and toward ensuring that such problems are corrected appropriately.
Because banking is essentially a business of managing risk, supervision is centered
on the accurate evaluation and management of risks. The OCC applies that
philosophy in all supervision activities it conducts, which include safety and
soundness, consumer compliance, information technology (IT), and asset
management activities.
Clear and meaningful communication between the OCC and the banks it supervises
is a vital component of high-quality supervision. To that end, the OCC publishes on
its Web site examination procedures and guidance about evolving issues so that
bankers are apprised of OCC examination and supervision activities. Further, the
OCC believes that bankers, and not regulators, should manage their banks; as a
result, it expects banks to establish and follow appropriate risk management
practices.

The Evaluation Process
The OCC determines the frequency of its onsite examinations (the supervisory cycle)
based on the bank’s size, complexity, risk profile, and condition. Full-scope onsite
examinations normally are conducted either annually or up to every 18 months (12
CFR 4.6), but examination activities may be spread throughout the supervisory cycle.
Examiners meet with bank management and the bank’s board of directors throughout
the supervisory cycle to obtain information or discuss issues. At the completion of
the cycle, the examiners prepare a report and conduct a meeting with the bank’s
board of directors to discuss the results. Those meetings allow participants to discuss
the objectives of the OCC’s supervision; strategic issues that may be confronting the
bank; any major concerns, risks, or issues that may need to be addressed; and other
matters of mutual interest. Directors review and sign the report of examination.
An environment in which examiners and board members openly and honestly
communicate benefits a bank. OCC examiners and professional staff have
experience with a broad range of banking activities and can provide independent,
objective information on safe and sound banking principles and compliance with
laws and regulations.

Risk Assessments
The OCC recognizes that banking is a business of taking risk in order to earn profits.
Risk levels, however, must be appropriately managed and controlled. Banking risks
also must be evaluated in terms of their significance. These assessments should be
ongoing.
The OCC’s primary supervisory objective is to assess each bank’s ability to identify,
measure, monitor, and control risks through its risk management systems. The OCC
89

does this through its risk assessment systems, one tailored to community banks and
another to large banks. The OCC has defined nine categories of risk for bank
supervisory purposes. Those risks are credit, interest rate, liquidity, price, foreign
currency translation, transaction, compliance, strategic, and reputation. The
organizers must become familiar with these nine risk categories as they apply to the
their charter proposal. They are discussed thoroughly in the “Bank Supervision
Process” booklet of the Comptroller’s Handbook.
From a supervisory perspective, risk is the potential that events, expected or
unanticipated, may have an adverse impact on the bank’s earnings and capital. The
simple existence of risk is not necessarily reason for concern. To put risks in
perspective, the OCC determines whether the risks a bank plans to undertake are
warranted. Generally, risks are warranted when they are understandable,
measurable, controllable, and within the bank’s capacity to readily withstand adverse
performance.

Risk Management
Because market conditions and company structures vary, no single risk management
system works for all banks. Each institution should develop its own risk management
program tailored to its needs and circumstances. The sophistication of the risk
management system will increase with the size, complexity, and geographic diversity
of each bank. All sound risk management systems, however, have several common
fundamentals. For example, bank staff responsible for implementing sound risk
management systems performs those duties independent of the bank’s risk-taking
activities. Regardless of the risk management program’s design, each program
should include:
•

Risk identification. Proper risk identification focuses on recognizing and
understanding existing risks or risks that may arise from new business
initiatives. Risk identification should be a continuous process and occur at
both the transaction and portfolio level.

•

Risk measurement. Accurate and timely measurement of risks is a critical
component of effective risk management. A bank that does not have a risk
measurement system has limited ability to control or monitor risk levels.
Further, the sophistication of the bank’s risk measurement tools should reflect
the complexity and levels of risks it has assumed. The bank should verify
periodically the integrity of the measurement tools it uses. Good risk
measurement systems assess both the individual transactions and portfolios.

•

Risk control. The bank should establish and communicate limits through
policies, standards, and procedures that define responsibility and authority.
These control limits should be meaningful management tools that can be
adjusted if conditions or risk tolerances change. The bank should have a
process to authorize exceptions or changes to risk limits when they are
warranted.

•

Risk monitoring. Banks should monitor risk levels to ensure timely review of
risk positions and exceptions. Monitoring reports should be frequent, timely,
accurate, and informative, and should be distributed to appropriate people to
ensure action when needed.
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Effective risk management requires an informed board of directors. The board must
guide the bank’s strategic direction. A key component of strategic direction is
endorsing the bank’s risk tolerance by approving policies that set standards, either
orally or in writing. Well-designed monitoring systems allow the board to hold
management accountable for operating within established tolerance levels.
Capable management and appropriate staffing also are critical to effective risk
management. Bank management is responsible for the implementation, integrity,
and maintenance of risk management systems. Management also must keep the
directors adequately informed. Management must:
•

Implement the bank’s strategic direction.

•

Develop policies that define the institution’s risk tolerance that are compatible
with the bank’s strategic goals.

•

Oversee the development and maintenance of management information
systems to ensure they are timely, accurate, and informative.

•

Ensure that strategic direction and risk tolerances are communicated
effectively and adhered to through the bank’s organization structure.

When the OCC evaluates risk management systems, it considers policies, processes,
personnel, and control systems. A significant deficiency in one or more of these
components constitutes a deficiency in risk management. All of those systems are
important, but the sophistication of each will vary depending upon the complexity of
the bank. Noncomplex community banks normally have less formalized polices,
processes, and control systems in place than do large banks. Those systems are
defined as:
•

Policies are written statements of the bank’s commitment to pursue certain
results. Policies often set standards (on risk tolerances, for example) and
recommend courses of action. Policies should express a bank’s underlying
mission, values, and principles. A policy review should always be triggered
when a bank’s activities or risk tolerances change.

•

Processes are the procedures, programs, and practices that impose order on
the bank’s pursuit of its objectives. Processes define how daily activities are
carried out. Effective processes are consistent with the underlying policies,
efficient, and governed by appropriate checks and balances (such as internal
controls).

•

Personnel are the staff and managers who execute or oversee processes. Good
staff and managers are qualified, competent, and perform as expected. They
understand the bank’s mission, values, policies, and processes. Banks should
design compensation programs to attract, develop, and retain qualified
personnel.

•

Control systems are tools and information systems (for example, internal and
external audit programs) that bank managers use to measure performance,
make decisions about risk, and assess the effectiveness of processes.
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Feedback should be timely, accurate, and pertinent (in other words,
appropriate to the level and complexity of risk taking).

Risk Assessments and Ratings
After each bank opens for business, examiners assess the quantity of risk and the
quality of risk management. They then assign each risk an aggregate assessment
(low, moderate, or high) and determine whether that risk is expected to decrease,
increase, or remain stable over the next 12 months.
Additionally, all financial institutions are evaluated and rated under the Federal
Financial Institutions Examination Council’s (FFIEC) Uniform Financial Institutions
Rating System. This system assesses six components of a bank’s performance:
Capital adequacy, Asset quality, Management administration, Earnings, Liquidity,
and Sensitivity to market risk. This is referred to as the CAMELS rating. Each
component is rated on a scale of 1 to 5, with 1 being the most favorable rating.
A composite or overall rating ranging from 1 to 5 also is assigned under the CAMELS
rating system. A rating of ”1” indicates the strongest performance and risk
management practices relative to the institution’s size, complexity, and risk profile.
Those institutions present the least level of supervisory concern. Conversely, a 5rated institution demonstrates critically deficient performance, inadequate risk
management practices, and the highest level of supervisory concern.

Specialized Area Supervision
The OCC also reviews and assigns ratings to specialized functions and areas not
specifically addressed in the CAMELS ratings, including consumer compliance,
information technology (see OCC Bulletins 2001-17 and 99-3), and asset
management (see OCC Bulletin 98-46). These supervisory programs are risk-based
and generally integrated into the CAMELS reviews. Examiners with greater
knowledge of the specialized area typically conduct the reviews of areas and
activities that are deemed high-risk.

Assessment of Consumer Compliance
Under the uniform rating system, the OCC assigns each bank a consumer
compliance rating based on an evaluation of its present compliance with consumer
protection and civil rights statutes and regulations and the adequacy of its operating
systems designed to ensure continuing compliance. Ratings are given on a scale of 1
through 5 in increasing order of supervisory concern. Thus, 1 represents the highest
rating and consequently the lowest level of supervisory concern; while 5 represents
the lowest, most critically deficient level of performance and, therefore, the highest
degree of supervisory concern.

OCC Assessment of CRA
The CRA requires the OCC and other federal regulators to provide written public
evaluations of banks’ records of performance under the law. The four ratings that
may be assigned for a CRA evaluation are: “outstanding,” “satisfactory,” “needs to
improve,” and “substantial noncompliance.” The OCC assigns those ratings, which
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are included in the public evaluation, on the basis of the bank’s performance under
its applicable assessment method.
CRA evaluations ordinarily are performed on a three-, four-, or five-year cycle,
depending on size and overall CRA rating. However, the first CRA examination of a
de novo bank will be conducted about 24-36 months after opening.

Assessment of Information Technology Operations
The OCC and the other FFIEC regulatory agencies use the Uniform Rating System for
Information Technology (URSIT) to uniformly assess financial institution and service
provider risks introduced by information technology. URSIT consists of a composite
rating and four component ratings:
•

The composite rating is a 1-5 scale reflecting the significance of technologyrelated risks. The higher the composite rating, the greater the risk. The OCC
assigns the URSIT composite rating to all national banks.

•

The component ratings, using a 1-5 scale, correspond to the functional
activities and related areas of risk that support information technology services
and processes. The functional components include the adequacy of the
organization’s overall IT audit program (Audit); the abilities of the board and
management as they apply to all aspects of IT acquisition, development, and
operations (Management); an organization’s ability to identify, acquire, install,
and maintain appropriate information technology solutions (Development and
Acquisition); and an organization’s ability to provide technology services in a
secure environment (Support and Delivery). Full URSIT ratings, component
and composite, are assigned only during OCC examinations of entities that
provide technology services to national banks.

Assessment of Asset Management Activities
The core assessment for onsite asset management examinations is structured
according to the Uniform Interagency Trust Rating System (UITRS). Each bank is
assigned a component rating based on an evaluation and rating of five essential
components of an institution’s fiduciary activities. Those components are: the
capability of management; the adequacy of operations, controls, and audits; the
quality and level of earnings; compliance with governing instruments, applicable law
(including self-dealing and conflicts of interest laws and regulations); sound fiduciary
principles; and the management of fiduciary assets.
Composite and component ratings are assigned based on a 1 to 5 numerical scale.
As with other examination areas, a 1 is the highest rating and indicates the strongest
performance and risk management practices and the least degree of supervisory
concern. A 5 is the lowest rating and indicates the weakest performance and risk
management practices and, therefore, the highest degree of supervisory concern.
Evaluation of the composite and components considers the size and sophistication,
the nature and complexity, and the risk profile of the institution's fiduciary activities.

93

Enforcement Actions
The OCC can respond in several ways to violations of laws, rules, regulations, or
unsafe or unsound practices or conditions. It will take corrective and remedial
action upon discovery of serious safety and soundness or compliance problems. The
“report of examination” identifies and communicates clearly the OCC’s assessment
of a bank’s condition and describes its problems, areas of concern or weaknesses,
and the primary cause of each. Bank senior management and the board of directors
will be expected to take appropriate corrective measures once the OCC has
communicated those problems to them. Those actions will be important in
determining whether and what enforcement action the OCC should take.
The OCC may take enforcement actions against the bank or against parties affiliated
with banks. The OCC’s enforcement actions are brought most commonly against
banks and their officers and directors. Actions against shareholders are rare, unless
the shareholders are involved directly in bank management or in an illegal, unsafe,
or unsound activity with the bank. Enforcement actions may be informal or formal.
(See The Director’s Book for a more complete discussion of enforcement actions
available to the OCC.)

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Appendix E: Community Reinvestment Act Highlights
Responsibility under the Community Reinvestment Act (CRA)
Each national bank has a responsibility under the CRA to help meet the credit needs
of its entire community, consistent with the safe and sound operations of such
institution. The application should demonstrate how the proposed bank would
respond to those needs. The Comptroller of the Currency’s (OCC) CRA regulation
(12 CFR 25) establishes the framework and criteria by which the OCC assesses a
bank’s record of helping to meet the credit needs of its community.

CRA Assessment Area
The CRA regulation requires each bank to delineate at least one assessment area. A
retail bank’s assessment area or areas generally must consist of one or more
metropolitan statistical area or areas (MSAs) or one or more contiguous political
subdivisions, such as counties, cities, or towns. It must include the geographies4 in
which the bank has its main office, branches, and deposit-taking ATMs, if any, as
well as the surrounding geographies in which the bank has originated or purchased a
substantial portion of its loans.5 A bank may adjust the boundaries of its assessment
area6 to include only the portion of a political subdivision that it reasonably can be
expected to serve.
Each bank’s assessment area(s):
•

Must consist only of whole geographies.

•

May not reflect illegal discrimination or redlining.

•

May not arbitrarily exclude low- or moderate-income geographies, taking into
account the bank’s size and financial condition.

•

May not extend substantially beyond a consolidated metropolitan statistical
area boundary or beyond a state boundary unless the assessment area is
located in a multistate metropolitan statistical area.7

4

”Geography” is defined in the CRA regulation to mean a census tract or block numbering area
delineated by the United States Bureau of the Census in the most recent decennial census. 12 CFR
25.12(l).
5
12 CFR 25.41(c).
6
12 CFR 25.41(d).
7
12 CFR 25.41(e).
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Performance Standards
The CRA regulation provides the methods by which the OCC evaluates a national
bank’s record of helping to meet the credit needs of its assessment area(s). Different
evaluation methods are employed based on the bank’s size and business strategy. A
description of the evaluation methods follows.
•

Small banks are banks reporting total assets of less than $1 billion as of
December 31 of either of the prior two calendar years. The OCC evaluates
the CRA performance of a small bank with total assets of less than $250
million through the small bank lending test. This test focuses primarily on
lending and lending-related activities in the bank’s assessment area. It
includes an evaluation of the bank’s loan-to-deposit ratio, percentage of loans
and other lending-related activities located in the bank’s assessment area, the
record of lending to and engaging in other lending-related activities for
borrowers of different income levels and businesses and farms of different
sizes, the geographic distribution of the bank’s loans, and the bank’s record of
taking action, if warranted, in response to written complaints about its
performance in helping to meet credit needs in its assessment area(s).

•

Intermediate small banks are small banks with assets of at least $250 million
as of December 31 of both of the prior two calendar years and less than $1
billion as of December 31 of either of the prior two calendar years. The
overall CRA rating for an intermediate small bank is based both on the rating
from the small bank lending test, described in the preceding paragraph, and
the rating from a community development test that is applicable to
intermediate small banks only. The community development test evaluates
the number and amount of community development loans, the number and
amount of qualified investments, and the provision of community
development services, and the bank's responsiveness through such activities
to community development lending, investment, and service needs. The
bank’s responsiveness to assessment area community development needs is
evaluated in the context of the bank’s capacity and business strategy, as well
as the community development opportunities in the assessment area.
The CRA regulation allows both small and intermediate small banks the
option to be examined as a large bank under the lending, investment, and
service tests (as described under the following bullet), provided the bank
collects, maintains, and reports the data required by the CRA regulations. The
asset threshold dollar figures for both small and intermediate small banks are
adjusted annually based on the year-to-year change in the average of the
Consumer Price Index for Urban Wage Earners and Clerical Workers, not
seasonally adjusted, for each 12-month period ending in November, with
rounding to the nearest million. The asset threshold adjustments are
published in the Federal Register. For further details regarding the definition
of small and intermediate small banks, refer to OCC-Bulletin 2005-28, dated
August 24, 2005.

•

Large banks (those that do not meet the definition of a small bank) typically
are evaluated under the lending, investment, and service tests. As their names
imply, these tests focus on the banks’ performance in lending (home
mortgage, small business, and small farm, and generally, at the bank’s option,
96

consumer lending), as well as community development (CD) lending, with a
primary focus on the bank’s assessment area; making investments (qualified
investments that benefit the bank’s assessment area or a broader statewide or
regional area that includes the assessment area); and providing services (retail
banking services, alternative delivery systems, and CD services).
•

The community development test (CD test) is available to banks that the OCC
has designated as limited-purpose or wholesale banks (see Glossary). This test
evaluates the bank’s CD lending, qualified investments, and CD services —
first in the bank’s assessment areas or the broader statewide or regional area
that includes its assessment areas, and, if the bank has adequately addressed
credit needs in that area, nationwide.

•

The strategic plan evaluation method is available to all banks without regard
to size or business strategy. A bank electing this evaluation method seeks
informal and formal public comment during the development of its plan. The
plan, which is submitted to the OCC for approval, may have a term of up to
five years. It must include annual interim measurable goals for helping to
meet the credit needs of the bank’s assessment area through various lending,
investment, and service activities. Although a plan must address all three
types of activities, emphasis may be placed on one or more of the activities,
depending on the bank’s capacity and constraints, product offerings, and
business strategy. If a bank meets the goals specified in the plan for
satisfactory performance, the bank will be rated satisfactory. (The bank also
may include goals that represent outstanding performance.) The strategic plan
option provides a more flexible alternative to a bank that is concerned that
the requirements of the other tests are too rigid for the nature of its operations.
Some banks open under the small bank test or the lending, investment, and
service tests, but plan to develop a strategic plan after a period of transactional
history.

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Appendix F: Compliance Highlights
This Appendix highlights some of the concerns that the Comptroller of the Currency
frequently identifies about fair lending statutes, the Bank Secrecy Act (BSA), and antimoney laundering provisions, privacy, and advertising. More detailed information
about compliance with these and other consumer compliance issues is available in
pertinent booklets in the Comptroller’s Handbook.

Fair Lending Statutes
The federal fair lending statutes are the Equal Credit Opportunity Act (ECOA) and the
Fair Housing Act (FH Act). The ECOA prohibits discrimination in any part of a credit
transaction. The ECOA applies to any extension of credit, including extensions of
credit to persons, small businesses, corporations, partnerships, and trusts. The FH
Act applies to residential real estate related transactions. Both of these acts prohibit
discrimination based on race, color, religion, sex, or national origin. The ECOA also
prohibits discrimination based on age, marital status, receipt of public assistance, or
the exercise of a right under the Consumer Credit Protection Act. The FH Act also
prohibits discrimination based on handicap or familial status. Generally,
discrimination in a credit transaction against persons because they are (or are not)
members of a group previously categorized violates the ECOA and, if the transaction
is related to residential real estate, violates the FH Act.

Bank Secrecy Act and Anti-Money Laundering Provisions
The Bank Secrecy Act (BSA) and its implementing regulations require financial
institutions to file certain currency and monetary instrument reports and to maintain
certain records for possible use in criminal, tax, and regulatory proceedings (31 USC
5311, 31 CFR 103, 12 CFR 21.21). Congress enacted the BSA to attempt to prevent
financial institutions from being used as intermediaries for the movement of
criminally derived funds to conceal the true source, ownership, or use of the funds,
that is, money laundering. Although attempts to launder money through a legitimate
financial institution can emanate from many different sources, certain kinds of
businesses, transactions, or geographic locations may lend themselves more readily
to potential criminal activity than others.
All banks must establish and maintain procedures reasonably designed to ensure and
monitor their compliance with the BSA and its implementing regulations. This
requires national banks to establish a compliance program that includes, at a
minimum, adequate BSA policies and procedures, designation of a compliance
officer, and BSA training and audits. In addition, national banks should be aware of
various criminal statutes prohibiting money laundering and structuring of deposits to
evade the BSA reporting requirements. (See 18 USC 1956, 1957 and 31 USC 5324.)
Banks must ensure that they have reasonable policies and procedures to verify the
identity of people seeking to open an account at the bank and to detect suspicious
activity. Each bank must file a Suspicious Activity Report (SAR) whenever it
identifies:
•

A known or suspected violation of law.
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•

A suspicious transaction that:
—

Has no business or apparent lawful purpose.

—

Is not the sort of transaction in which a particular customer normally
would be expected to engage.

—

Has no reasonable explanation.

•

A suspicious transaction for more than $5,000 involving potential money
laundering.

•

A suspicious transaction that is an apparent attempt to evade the provisions of
the BSA.

The SAR reporting requirements are provided in 12 CFR 21.11.
The USA PATRIOT Act of 2001 (Patriot Act) amended the BSA by providing strong
measures to prevent, detect, and prosecute terrorism and international money
laundering. The Patriot Act establishes new rules and responsibilities affecting
United States banking organizations, other financial institutions, and nonfinancial
commercial businesses. The Patriot Act:
•

Provides the Secretary of the Treasury with the authority to impose special
measures on jurisdictions, institutions, or transactions that are of “primary
money-laundering concern.”

•

Requires financial institutions to increase their due diligence standards when
dealing with foreign private banking and correspondent accounts.

•

Prohibits correspondent accounts with foreign “shell” banks.

•

Expands the ability of the public and private sectors to share information
related to terrorism and money laundering investigations.

•

Facilitates records access and requires banks to respond to regulatory requests
for information within 120 hours.

•

Establishes minimum standards for customer identification at account opening
and requires checks against government-provided lists of known or suspected
terrorists.

•

Extends an anti-money laundering program requirement to all financial
institutions.

•

Increases the civil and criminal penalties for money laundering.

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Safeguarding Customer Information
Information is one of the bank’s most important assets. As mandated by Section 501
of Gramm-Leach-Bliley Act of 1999 (GLBA), a bank must establish appropriate
processes to safeguard customer information. Such safeguards must:
•

Ensure the security and confidentiality of customer records and information.

•

Protect against any anticipated threats or hazards to the security or integrity of
such records.

•

Protect against unauthorized access to or use of such records or information
that could result in substantial harm or inconvenience to any customer.

The bank must implement a comprehensive written information security program
that includes administrative, technical, and physical safeguards appropriate to the
size and complexity of the bank and the nature and scope of its activities. (Refer to
OCC Bulletin 2001-35 and OCC Bulletin 2001-8 for the specific guidelines for
safeguarding customer information. Also see the FFIEC IT Examination Handbook
Series, Information Security booklet.)

Verification
Each bank must implement effective processes to verify the identity of new
customers at account opening and to authenticate existing customers when they
initiate transactions. A bank offering deposit-related products and services must
ensure that it adequately verifies the identity of its customer. Deposit-related
products and services include noninterest-bearing demand deposits, interest
checking, money market accounts, certificates of deposit, and electronic bill
payment.
The OCC expects banks to exercise appropriate caution and due diligence when
opening accounts. Customer verification is the process that a bank uses for new
accounts to corroborate the identity of new customers. A new account process
involves requesting a variety of customer information items, including name,
address, phone number, social security number, and driver’s license information,
among other things. The bank independently verifies the accuracy of this
information.
Internal systems and controls should include appropriate procedures to verify
customer information as part of the account opening process and to monitor for fraud
and suspicious activity after an account has been opened. A bank should monitor
the verification and account authorization procedures continually to ensure a
rigorous process for identifying, measuring, and managing the risk exposures. This
process should include a regular audit function to test the controls and ensure they
continue to meet the defined control objectives.
These procedures for access control also are essential for preventing fraud, money
laundering, and other abuses. To limit the risk of money laundering, some banks
restrict the type of business they will accept. For example, some banks do not
accept, or they place additional controls over, accounts from foreign government
officials, certain money service businesses, military equipment sales companies, and
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political or gambling organizations. Banks also may restrict account activity by
prohibiting cash or monetary instrument deposits.

Privacy
National banks are subject to a number of federal statutes and regulations that
govern the disclosure of consumer information. The most comprehensive of these
provisions is Title V of the GLBA that requires banks and other financial institutions
to provide consumers of their financial products or services with privacy notices and
an opportunity to opt out of certain information sharing with nonaffiliated third
parties. Banks also are subject to the Fair Credit Reporting Act (FCRA), which
governs the use and disclosure of consumer reporting information. Additionally,
banks should be aware of the Electronic Fund Transfer Act, the Right to Financial
Privacy Act, the Children’s Online Privacy Protection Act, and the Federal Trade
Commission Act.

GLBA Privacy Provisions
The GLBA enacted privacy-related provisions applicable to financial institutions.
The federal banking regulatory agencies promulgated final rules (see 12 CFR 40) to
implement these provisions.
In general, the regulations require banks to provide their customers with notices that
accurately describe their privacy policies and practices, including their policies for
the disclosure of nonpublic personal information8 to their affiliates and to
nonaffiliated third parties. The notices must be provided at the time the customer
relationship is established and annually thereafter. Notices must be clear and
conspicuous and provided so that each intended recipient reasonably could be
expected to receive actual notice. The notices must be in writing or may be
delivered electronically if the consumer agrees.
Subject to specified exceptions that permit banks to share information in the ordinary
course of business, banks may not disclose nonpublic personal information about
consumers to any nonaffiliated third party, unless consumers are given a reasonable
opportunity to direct that their information not be shared (opt out). Thus, before a
bank may disclose nonpublic personal information about a consumer (even if not a
“customer”) to a nonaffiliated third party, the bank must provide the consumer with
an initial privacy notice and an opt-out notice (which may be included in the privacy
notice).
The GLBA regulations also provide that a bank generally may not disclose an
account number or similar form of access number or code for a credit card account,
deposit account, or transaction account of a consumer to any nonaffiliated third party
for use in marketing. A bank may, however, disclose its customer account numbers
to third-party agents or servicers to market the bank’s own products or services,
8

Generally this means any information that is provided by a consumer to a bank to obtain a financial
product or service, that results from a transaction between a bank and a consumer involving a
financial product or service, or that is otherwise obtained by a bank in connection with providing a
financial product or service to a consumer. If a bank obtains information about its consumers from a
publicly available source, that information will not be protected (that is, subject to notice and opt out)
unless the information is disclosed as part of a list, description, or other grouping of a bank’s
consumers.
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provided the bank does not authorize the third party to initiate charges to customer
accounts. The regulations also limit the redisclosure and reuse of nonpublic
personal information obtained from other nonaffiliated financial institutions.

FCRA Information Sharing Provisions
The FCRA sets standards for the collection, communication, and use of information
bearing on a consumer’s creditworthiness, credit standing, credit capacity, character,
general reputation, personal characteristics, or mode of living. The communication
of this type of information may be a “consumer report” subject to the FCRA’s
requirements. However, the FCRA specifically excepts from the definition of
consumer report: (1) the disclosure of a bank’s own transaction and experience
information to any third party; and, (2) the disclosure of consumer reporting
information to a bank’s affiliates if the bank first notifies its consumers that it intends
to share such information and allows them to opt out of this information sharing
(affiliate information sharing) (12 CFR 40).
As a general matter, a bank will not be subject to the FCRA’s requirements that apply
to consumer reporting agencies9 if the bank communicates information only in a
manner consistent with the two exceptions described previously. However, a bank
may be subject to other FCRA requirements, for example, as a user of credit reports.
Banks’ information disclosures may be subject to both the GLBA and the FCRA.
Therefore, banks must understand the differences between the GLBA and the FCRA
provisions to reduce compliance risks in this area. The statutes differ in the scope of
their coverage and their requirements for a bank’s treatment of consumer
information. As a result, what may be a permissible disclosure under one statute
may be prohibited or subject to different conditions under the other statute. Because
compliance with one statute will not entail compliance with the other, banks are
strongly advised to evaluate the requirements of both laws in connection with their
disclosures of consumer information. (For a more detailed discussion, see OCC
Bulletin 2000-25, Privacy Laws and Regulations.)

Other Privacy Provisions
Banks and their subsidiaries should be aware of the following federal laws that may
affect their consumer financial information practices:
•

The Electronic Fund Transfer Act and Regulation E require that banks make
certain disclosures when a consumer contracts for an electronic transfer
service or before the first electronic fund transfer is made involving the
consumer’s account.

•

The Right to Financial Privacy Act prohibits a bank from disclosing a
customer’s financial record to the federal government, except in limited
circumstances, such as pursuant to the customer’s authorization, an
administrative subpoena or summons, a search warrant, a judicial subpoena,

9
These requirements relate to furnishing consumer reports only for permissible purposes, maintaining
high standards for ensuring the accuracy of information in consumer reports, resolving consumer
disputes, and other matters.
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or a formal written request for a legitimate law enforcement inquiry, or to a
supervisory agency for its supervisory, regulatory, or monetary functions.
•

The Children’s Online Privacy Protection Act (COPPA) establishes
requirements applicable to the collection, use, or disclosure of personal
information about children that is collected through the Internet or another
online service. Banks are subject to COPPA if they operate a Web site or
online service (or portion thereof) directed to children, or have actual
knowledge that they are collecting or maintaining personal information from
a child online.

•

The Federal Trade Commission Act (FTC Act) prohibits unfair or deceptive
acts or practices in or affecting commerce, and provides a basis for
government enforcement actions against deception resulting from misleading
statements concerning a company’s privacy practices or policies, or failures to
abide by a stated policy.

Advertising
Advertisements on Web sites must meet the advertising requirements of Regulation B
(Equal Credit Opportunity Act), Regulation M (Consumer Leasing), Regulation Z
(Truth in Lending), Regulation DD (Truth in Savings), and the FTC Act.10 Interim final
rules, published March 30 and April 4, 2001, 11 establish uniform standards for using
electronic communications under Regulations B, E, M, Z, and DD. Although
compliance with the interim rules is not mandatory, they provide effective guidance
that banks should consider when developing electronic disclosures.
Banks must be aware of the regulatory requirements for the prominence of certain
disclosures in their advertisements. Banks also must consider the requirements of
Regulations M and Z that permit creditors and lessors to provide required advertising
disclosures on more than one page, if certain conditions are met. Banks should
monitor carefully amendments to these regulations to ensure compliance with
multipage advertising in the context of electronic advertisements. Banks must
comply with the triggering term requirements of Regulations M, Z, and DD ensuring
that the terms are disclosed appropriately and are set forth clearly and conspicuously.

10
There are no FTC Act regulations addressing electronic advertisements. However, electronic
advertisements, such as print advertisements, may not be unfair or deceptive.
11
66 Fed. Reg. 17779 (April 4, 2001) (Regulation B). 66 Fed. Reg. 17786 (April 4, 2001) (Regulation
E). 66 Fed. Reg. 17322 (March 30, 2001) (Regulation M). 66 Fed. Reg. 17329 (March 30, 2001)
(Regulation Z). 66 Fed. Reg. 17795 (April 4, 2001) (Regulation DD).
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Appendix G: Significant Deviations After Opening
The Comptroller of the Currency (OCC) requires each national bank to provide prior
notice and obtain a no objection letter from the appropriate OCC supervisory office
before making a significant deviation from the business plan submitted with its
charter application. This is a condition imposed in writing within the meaning of 12
USC 1818.

Purpose
Generally, the OCC uses this significant deviation condition to address heightened
supervisory risk that exists during the first several years of a new bank charter’s
operations, or that exists in unusual cases after a conversion, merger, or other filing.
This condition is a standard condition required for all new bank charter approvals.
New banks are particularly vulnerable to internal and external risks until they
achieve a certain level of stability and profitability, clearly justifying the imposition of
the significant deviation condition. The condition provides the OCC with the
opportunity to evaluate any enhanced risks presented before the bank initiates a
significant change to its business plan or operations.

Identification
A significant deviation or change for the purposes of this condition is defined as “a
material variance from the bank’s business plan or operations that occurs after the
proposed bank has opened for business.” Significant deviations may include, but are
not limited to, deviations in the bank’s:
•

Projected growth, such as planned significant growth in a product or service.

•

Strategy or philosophy, such as significantly reducing the emphasis on its
targeted niche (for example, small business lending) in favor of significantly
expanding another area (for example, funding large commercial real estate
projects).

•

Lines of business, such as initiating a new program for subprime lending.

•

Funding sources, such as shifting from core deposits to brokered deposits.

•

Scope of activities, such as establishing transactional Internet banking or
entering new, untested markets.

•

Stock benefit plans for de novo banks, including the introduction of plans that
were not previously reviewed during the chartering process with “no
objection” by the OCC.

•

Relationships with a parent company or affiliate, such as a shift to significant
reliance on a parent or affiliate as a funding source or provider of back-office
support.
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Changes in bank control or management are not considered significant deviations for
purposes of this condition because existing law and regulation12 provide other means
for prior notification and an opportunity for OCC objection.
Deviations in financial performance alone are not significant deviations under this
condition. However, the OCC still may consider the underlying reason(s) for a
deviation in financial performance a significant deviation. For example, a bank
could deviate from its pro forma balance sheet or budget because of significant
growth caused by a new product that was not disclosed in the business plan or initial
plan of operations. This is an example of a significant deviation that requires prior
written notification to, and a written determination of no objection from, the
supervisory office. On the other hand, if the bank’s strategies are consistent with the
business plan, but the bank simply experiences significantly more growth than
planned, that growth, by itself, does not qualify as a significant deviation for this
condition.
Nevertheless, examiners will evaluate the supervisory risk that deviations from
projected financial performance may pose to the bank, and what, if any, supervisory
response is appropriate under the circumstances. For example, an examiner could
determine that the bank’s risk management systems are no longer adequate given the
magnitude of the unplanned growth, and that deficient systems are a Matter
Requiring Attention.

Evaluation
Upon receipt of a prior notice, the supervisory office will evaluate the proposed
deviation. The evaluation should determine whether the deviation significantly
elevates the bank’s risk profile. The OCC assesses risk by its potential impact on a
bank’s earnings and capital. The OCC recognizes that some deviations are necessary
or prudent. For example, a deviation from the business plan may be necessary to
meet changes in local market conditions.
Examiners will determine whether the risks that a bank undertakes, or proposes to
undertake, are properly managed. Generally, risks are warranted if they are
identified, understood, measured, monitored, controlled, and within the bank’s
capacity to withstand any financially adverse results. If examiners determine that
risks are unwarranted, they will communicate to the bank’s management and
directors that a need exists to mitigate or eliminate the excessive risks. Appropriate
actions may include reducing exposures, increasing capital, or strengthening risk
management processes. (See the “Bank Supervision Process” booklet of the
Comptroller’s Handbook for more detailed discussions of risks and risk management
systems.)
Examiners, bank management, and directors may find it beneficial to consult their
district’s Licensing staff when reviewing adherence to, or evaluating significant
deviations from, a bank’s business plan.
12
The Change in Bank Control Act in 12 USC 1817(j) and the OCC’s implementing regulation in 12
CFR 5.50 generally require prior notification of a change in bank control. As a condition of the
charter approval, the OCC retains the right to object to and preclude the hiring of any officer, or the
appointment or election of any director, for a two-year period from the date the bank commences
business (12 CFR 5.20(g)(2)).
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Supervisory Actions and Communications
If the evaluation of a proposed significant deviation results in little or no supervisory
concern, the supervisory office should send a “no objection” letter to the bank. To
mitigate concerns, the supervisory office may determine that it is prudent to
condition its no objection. In these cases, the no objection letter will identify the
conditions as conditions “imposed in writing by the agency in connection with the
granting of any application or other request.” The OCC is required to publish
documents containing enforceable conditions. Accordingly, the supervisory office
must submit a copy of all conditional no objection letters to headquarters Licensing
for publication in Interpretations and Actions.
If the evaluation discloses supervisory concerns with a proposed deviation, the
supervisory office sends an “objection” letter detailing the reasons for this
determination. If, despite the issuance of an objection letter, a bank subsequently
engages in actions that reflect a significant deviation to, or change from, its business
plan, additional supervisory or enforcement action will be considered, consistent
with the OCC’s Enforcement Policy (PPM 5310-3 Revised).
If a significant deviation from the bank’s business plan is disclosed during a
supervisory activity (examination or periodic monitoring), and the bank has failed to
obtain prior written determination of no objection, the resulting supervisory action
will reflect the degree of supervisory concern with the deviation. At a minimum, a
national bank examiner will cite a violation of the Regulatory Condition Imposed in
Writing (RCIW) (in other words, the significant deviation condition — 12 USC 1818).
A violation of an RCIW can provide the basis for the assessment of civil money
penalties or other enforcement actions. The OCC will communicate all supervisory
actions to the bank in writing.

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Glossary
The term affiliate includes, among other things, any “company” that controls a bank
and any company that is controlled by the same person or company as controls the
bank (12 USC 371c as implemented by Regulation W, 12 CFR 223).
An entity controlling a bank must register with the Federal Reserve Board as a bank
holding company (BHC), if the controlled bank is covered by the definition of a bank
found in the Bank Holding Company Act (BHCA) (12 USC 1841(c)). Certain limited
purpose banks, such as Competitive Equality Banking Act of 1987 (CEBA) credit card
banks and trust banks, are not defined as banks under the BHCA.
A bankers’ bank is a national bank owned exclusively, except for directors’
qualifying shares, by other depository institutions or depository institution holding
companies. Bankers’ bank activities are limited to providing:
•

Services to or for other depository institutions, their holding companies, or the
officers, directors, and employees of such institutions.

•

Correspondent banking services at the request of other depository institutions
or their holding companies.

A Business Continuity Plan addresses all critical services and operations that are
provided by internal departments and external sources. The planning process
reviews the various departments, units, or functions and assesses each area’s
importance for the viability of the organization and provision of customer services.
Plans are developed to cover restoring critical areas should they be affected by
physical disasters, such as fires or flooding; environmental disasters (such as
hurricanes or tornados); or other disasters (such as power or telecommunication
failure).
A central city, as defined in 12 CFR 5.3(e), means the city or cities identified in the
complete title of the Metropolitan Statistical Area (MSA) in which the relocating
office is located.13
The contact person (also spokesperson) is an organizer and proposed director of a
proposed bank, who is designated by the organizing group to represent it in all
contacts with the OCC. In certain circumstances (excluding independent charters),
the contact person instead may be a representative of:
•

A holding company sponsor.

•

People currently affiliated with other depository institutions.

13
The Office of Management and Budget’s (OMB) lists of MSAs and Central Cities can be found on the
Internet at http://www.census.gov. At the ”Subjects A-Z” menu, click on ”M,” then on Metropolitan
Areas, then on Metropolitan Area Definitions, then on Central Cities of Metropolitan Areas. Copies of
the OMB list may also be obtained by requesting the most recent ”List of Metropolitan Area
Definitions” (accession no. PB96-180575) from National Technical Information Services (NTIS),
Document Sales, 5205 Port Royal Road, Springfield, VA 22161, (703) 487-4650.

107

•

People who, in the OCC’s view, otherwise are collectively experienced in
banking and have demonstrated the ability to work together effectively.

Control has the same meaning as used in the BHCA (12 USC 1841(a)(2)), except
when the term is used in connection with affiliated transactions, in which case,
“control” has the meaning set forth at 12 CFR 223.3(g).
A de novo BHC is one that has been in existence less than three years, including one
that is in the process of formation.
The decision date for a new bank charter is the date that the OCC grants preliminary
conditional approval.
A director is a member of the board of directors of a bank. Collectively, the
directors have a critical role in the successful operation of the bank. They are
ultimately responsible for the conduct of a bank’s affairs, and the health of the bank
depends upon their being strong, independent, and attentive. They also are
accountable to the bank’s shareholders and the bank’s depositors, regulators, and the
communities served by the bank. For purposes of determining applicability of, and
compliance with, 12 USC 375b as implemented by Regulation O, the term "director"
is defined at 12 CFR 215.2(d) and means any director of the company or bank,
whether or not receiving compensation, and includes certain advisory directors.
A Disaster Recovery Plan is a part of the business resumption plan. It includes
protection against physical disasters and other disruptions to operations; backup
considerations related to hardware, software, applications, documentation,
procedures, data files, and telecommunication; and insurance policies regardless of
the type of computer equipment and software, and size of the information systems
facilities within the organization.
A dormant bank is a bank that is no longer engaged in core banking activities other
than on a de minimis basis. This definition includes, for example, a bank that has
significantly reduced its activities and services or that has contracted out significant
portions of its operations to third party service providers, other than in the ordinary
course of the bank’s ongoing business.
E-banking is the automated delivery of new and traditional banking products and
services directly to consumers through electronic, interactive communication
channels. E-banking includes the systems that enable financial institution customers,
individuals, or businesses, to access accounts, transact business, or obtain
information on financial products and services through a public or private network,
including the Internet.
An eligible bank is a national bank that:
•

Has a composite CAMELS rating of 1 or 2.

•

Has a satisfactory or better CRA rating. (This factor does not apply to an
uninsured bank, an uninsured federal branch, or a special purpose bank
covered by 12 CFR 25.11(c)(3).)
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•

Is well capitalized as defined in 12 CFR 6.4(b)(1).

•

Is not subject to a cease and desist order, consent order, formal written
agreement, or prompt corrective action directive; or, if subject to any such
order, agreement, or directive, is informed in writing by the Comptroller of
the Currency (OCC) that the bank still may be treated as an ”eligible bank.”

An eligible depository institution means a state bank or a federal or state savings
association that meets the criteria for an “eligible bank” under 12 CFR 5.3(g) and is
FDIC-insured.
An established company is one that has been operating for more than three years
and will become a parent of a national bank when the bank opens for business,
regardless of whether it will also become a BHC.
An executive officer of a company or bank means a person who participates or has
the authority to participate (other than in the capacity of a director) in major
policymaking functions of the company or bank, whether or not the officer has an
official title, the title designates the officer as an assistant, or the officer is serving
without compensation. Executive officer positions normally include the chairman of
the board, the president, every vice president, the cashier, the secretary, and the
treasurer, consistent with the definition in 12 USC 375b, as implemented by
Regulation O at 12 CFR 215.2(e)(1).
An existing BHC is one that received Federal Reserve System approval to become a
BHC and has been operating as a BHC for at least three years prior to filing its
application to organize a new bank.
To be experienced in banking, the majority of an organizing group’s members must
have five or more years of recent significant involvement in policy making as
directors or executive officers in the same institution or affiliated federally insured
institutions that the OCC finds have performed satisfactorily. (See recent
experience.)
Feasibility analysis is the process of determining the likelihood that a proposal will
fulfill specified objectives.
Final approval means the OCC action of issuing a charter certificate and authorizing
a national bank to open for business.
A financial subsidiary is any company controlled by one or more insured depository
institutions. It is not a subsidiary that engages solely in activities that a national bank
may engage in directly (in other words, an operating subsidiary) or a subsidiary that
is specifically authorized by the express terms of a federal statute other than 12 USC
24a, such as a bank service company. A financial subsidiary may engage in
specified activities that are financial in nature or incidental to financial activities if the
bank and the subsidiary meet certain requirements and comply with stated
safeguards. For purposes of Regulation W (12 CFR 223), a financial subsidiary does
not include a company that is only a financial subsidiary solely because it engages in
the sale of insurance as agent or broker in a manner that is not permitted for a
national bank.
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Holding company means any company that controls or proposes to control a
national bank regardless of whether it is a BHC under 12 USC 1841(a)(1).
A hyperlink is an item on a Web page that contains coding that transfers the user
directly to another location in a hypertext document or to another Web page,
perhaps on a different machine. Also called a “link.”
An insider is a proposed organizer, director, principal shareholder, or executive
officer of the proposed national bank. For purposes of determining applicability of,
and compliance with, 12 USC 375a and 375b as implemented by Regulation O, the
term "insider" is defined at 12 CFR 215.2(h) and means an executive officer, director,
or principal shareholder, and includes any related interest of such a person.
An insider contract is any financial or other business, voting, or ownership
agreement, arrangement, or transaction, direct or indirect, oral or written, between
any insider and the proposed bank.
Internet banking is a system that enables bank customers to access accounts and
general information on bank products and services through a personal computer (PC)
or other electronic device. Also see e-banking definition.
Internet service provider is an entity that provides access or service related to the
Internet, generally for a fee.
Lead depository institution means the largest depository institution controlled by a
BHC, based on a comparison of the total assets controlled by each depository
institution as reported in its Consolidated Report of Condition and Income (call
report) required to be filed for the immediately preceding four calendar quarters.
Limited purpose bank means a bank that offers only a narrow product line (such as
credit card or motor vehicle loans) to a regional or broader market and for which a
designation as a limited purpose bank is in effect. A bank may request the OCC to
designate it as a limited purpose bank for CRA purposes as provided in 12 CFR
25.25(b).
A low- or moderate-income area, as provided in 12 USC 1831r-1, means a census
tract for which the median family income is: (1) less than 80 percent of the median
family income for the MSA in which the census tract is located; or, (2) in the case of
a census tract that is not located in an MSA, less than 80 percent of the median
family income for the state in which the census tract is located, as determined
without considering family income in MSAs in such state.
The market test reflects an organizing group’s ability to raise the required capital
stated in its business plan, and in the manner described, within 12 months of
preliminary conditional approval.
A narrow focus bank is one that offers limited services or anticipates serving a
narrowly defined market niche. For example, a narrow focus bank would include
one that proposes to offer a lending portfolio that is heavily concentrated or targets a
restricted customer base.
A national bank means an insured or uninsured national banking association.
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A newly organized BHC or non-BHC parent is one that has been operational for less
than three years.
The organization phase for a national bank covers the period between the time the
OCC grants preliminary conditional approval to the application and the day the
national bank opens for business.
Organization costs are the direct costs incurred to incorporate and charter a bank.
Such direct costs include, but are not limited to, professional fees (such as legal,
accounting, and consulting) and printing costs related directly to the chartering or
incorporation process, filing fees paid to chartering authorities, and the cost of
economic impact studies. Organization costs incurred by newly chartered banks
should be capitalized.
Organizers are the persons who filed and signed the charter application. The OCC
may approve additional organizers and organizing directors throughout the charter
process subject to review and no objection (see “Background Investigations”
booklet).
Organizing group means five or more persons acting on their own behalf, or serving
as representatives of a sponsoring holding company, who apply to the OCC for a
national bank charter.
Person, as defined in this booklet, has the same meaning as set forth in the Change
in Bank Control Act (CBCA) and the OCC’s implementing regulation (12 USC
1817(j) and 12 CFR 5.50, respectively). In the context of affiliate transactions,
“person” has the meaning set forth in 12 CFR 223.3(bb) of Regulation W.
Preliminary conditional approval means a decision by the OCC permitting an
organizing group to proceed with the organization of a proposed national bank. A
preliminary conditional approval generally is subject to certain requirements and
conditions that an applicant must satisfy before the OCC will grant final approval,
and it is also subject to special conditions that will remain in place after the bank
opens for business.
Preopening expenses, such as salaries, employee benefits, rent, depreciation,
supplies, directors’ fees, training, travel, postage, and telephone, are not considered
organization costs and should not be capitalized. In addition, allocated internal
costs, such as management salaries, shall not be capitalized as organization costs.
A principal shareholder is a person, other than an insured bank, that directly or
indirectly, or acting through or in concert with one or more persons, owns, controls,
or has the power to vote more than 10 percent of any class of voting securities of the
proposed bank consistent with the definition in 12 USC 375b, as implemented by
Regulation O, 12 CFR 215.2(m).
Recent experience means service as a director or executive officer of a well-run
financial institution for a minimum of two consecutive years, with at least part of this
service within the five years immediately preceding filing of the charter application.
A related interest of a principal shareholder, executive officer or director (person)
includes (1) a company that is controlled by that person or (2) a political or campaign
111

committee that is controlled by that person or the funds or services of which will
benefit that person. All of these terms are further defined by 12 CFR 215.2.
A shell operation occurs when a bank significantly reduces its activities and services
or when a bank contracts out significant portions of its operations to third-party
service providers. Such a bank is referred to sometimes as a shell bank.
A significant deviation is a material variance from the bank’s business plan or
operations that occurs after the proposed bank has opened for business.
Spokesperson is a term sometimes used for a contact person (see definition of
contact person).
A new bank is a subsidiary of a holding company if 25 percent or more of its voting
stock will be owned or controlled by a holding company or if the FRB (or the OCC,
as appropriate) determines that a holding company otherwise has the power to elect
a majority of the directors or to control the bank in any other manner.
Troubled condition means a bank that has a composite rating of 4 or 5; or is subject
to a cease and desist order, a consent order or a formal written agreement (unless
otherwise informed in writing by the OCC); or is informed in writing by the OCC
that as a result of an examination it has been so designated.
Weblinking is the use of hyperlinks to direct users to Web pages of other entities.
Wholesale bank means a bank that is not in the business of extending home
mortgage, small business, small farm, or consumer loans to retail customers, and for
which designation as a wholesale bank is in effect. A bank may request the OCC to
designate it as a wholesale bank for CRA purposes as provided in 12 CFR 25.25(b).

112

References
Advertising
Law
Regulations

12 USC371c-1
12 CFR 213, 226, 230

Affiliates, Transactions with
Laws
Regulation

12 USC 371c, 371c-1
12 CFR 223

Articles of Association
Laws
Cumulative Voting
Regulation
Indemnification
Law
Regulations
Lost Stock Certificates
Regulation
Preemptive Rights
Regulation
Quorum
Regulation
Shareholder Meetings
Laws
Regulations
Vacancies in Board
Law
Regulation

12 USC 21, 21a
12 CFR 7.2006
12 USC 1828(k)
12 CFR 7.2014, 359
12 CFR 7.2018
12 CFR 7.2021
12 CFR 7.2009
12 USC 71, 75
12 CFR 7.2001, 7.2003
12 USC 74
12 CFR 7.2007

Audit, Internal and External
Laws
Regulations
Issuance

15 USC 78j-1, 1831m
12 CFR 30, 363
OCC Bulletin 2003-12
(March 17, 2003,
Interagency Policy
Statement on Internal
Audit and Internal
Audit Outsourcing)
Comptroller’s
Handbook, “Internal
And External Audits”

Authorization to Commence Banking Business
Laws

113

12 USC 26, 27

Background Investigations
Regulations

12 CFR 5.7, 28 CFR
16.34, 50.12

Bank Holding Company Act
Laws
Regulation

12 USC 1841-1850
12 CFR 225

Bank Service Company Act
Laws
Regulation

12 USC 1861-1867
12 CFR 5.35

Bank Premises, Investment in
Law
Regulation

12 USC 371d
12 CFR 5.37

Bank Protection Act
Laws
Regulation

12 USC 1882, 1884
12 CFR 21

Bank Secrecy Act
Laws
Regulations

31 USC 5311-5328
12 CFR 21.21, 31 CFR
103

Bank Stock Loans
Laws
Regulation

12 USC 83, 1828(v)
12 CFR 7.2019

Bankers’ Bank
Laws
Regulation

12 USC 24(7), 27(b)
12 CFR 5.20

Branches

Law
Regulations

12 USC 36
12 CFR 5.30, 7.10037.1005, 7.4003-7.4005

Bylaws

Law
Regulation
Cashier
Regulation
Lost Stock Certificates
Regulation
Quorum of Directors
Regulation

12 USC 24(6)
12 CFR 7.2000
12 CFR 7.2015
12 CFR 7.2018
12 CFR 7.2009
114

Shareholder Meetings
Laws
Regulations

12 USC 71, 75
12 CFR 7.2001, 7.2003

Stock Certificate Signatures
Law
Regulation

12 USC 52
12 CFR 7.2017

Capital Requirements
Laws
Regulations
Issuance

12 USC 51c, 3907
12 CFR 3, 6
OCC Bulletin 2000-26
(September 29, 2000,
Supervision of National
Trust Banks - Capital
and Liquidity); OCC
Bulletin 95-10,
Regulatory Capital
Treatment for Deferred
Tax Assets

Capital Stock
Laws

12 USC 51a, 51b, 51c,
52, 55
12 CFR 7.2016,
7.2017, 7.2018 7.2023

Regulations
Capital Stock Required to Commence Business
Law

12 USC 53

Capital Structure Change
Laws
Regulations

12 USC 56, 57, 59
12 CFR 5.46, 7.2020

CEBA Credit Card Bank
Law
Regulations

12 USC 1841(c)(2)(F)
12 CFR 5.20, 223

Certificate
Laws
Filing and Preservation
Law

12 USC 23

Change in Control
Laws
Regulation

12 USC 1817(j)
12 CFR 5.50

12 USC 22, 27

115

Change in Directors and Senior Executive Officers
Law
Regulation
Charters

Laws

12 USC 1831i
12 CFR 5.51
12 USC 21, 22, 23, 26,
27, 92a, 222,1815,
1816, and 2903
12 CFR 5.20

Regulation
Civil Money Penalties
Laws

12 USC 93, 504,
1818(i)
PPM-5000-7 (Rev.)
(June 16, 1993, Civil
Money Penalties)

Issuance

Community Development Corporation and Project Investments
Law
12 USC 24(11)
Regulation
12 CFR 24
Community Development Financial Institutions
Laws

12 USC 4701-4750

Community Development Investments
Law
Regulation

12 USC 24(11)
12 CFR 24

Community Reinvestment Act
Laws
Regulation

12 USC 2901-2908
12 CFR 25

Compensation Plans
Law
Regulations

12 USC 1828(k)
12 CFR 7.2011, 30, 359

Consumer Credit Protection Act
Laws

15 USC 1601-1693r

Convicted Individuals
Law

12 USC 1829

Corporate Governance Procedures
Laws
Regulations
Issuance

15 USC 78j-1, 78m (k)
12 CFR 7.2000-7.2023
OCC Bulletin 2003-12
(March 17, 2003,
Interagency Policy
Statement on Internal
Audit and Internal
116

Audit Outsourcing)
Corporate Powers and Investment Securities
Law
Regulation

12 USC 24
12 CFR 1

Covered Transactions
Laws
Regulation

12 USC 371c, 371c-1
12 CFR 223

Cumulative Voting
Law
Regulation

12 USC 61
12 CFR 7.2006

Depository Institution Management Interlocks Act
Laws
Regulation

12 USC 3201-3208
12 CFR 26

Directors
Citizenship Requirement
Law
Convicted of a Crime
Law
Delegation of Duties
Regulation
Election
Laws
Regulations
Extensions of Credit to
Laws

12 USC 72
12 USC 1829
12 CFR 7.2010
12 USC 61, 71, 75
12 CFR 7.2003, 7.2006
12 USC 375b, 15 USC
78m(k)
12 CFR 31, 215

Regulations
Honorary
Regulation
Indemnification of
Law
Regulations
Liability
Laws
Number of
Laws
Oath of
Law
Regulation
Payment of Interest to
Law
President, as
Law
Regulation

12 CFR 7.2004
12 USC 1828(k)
12 CFR 7.2014, 359
12 USC 93, 503, 1818
12 USC 71, 71a
12 USC 73
12 CFR 7.2008
12 USC 376
12 USC 76
12 CFR 7.2012
117

Proxy, as
Regulation
Purchases from and Sales by
Law
Qualifications of
Law
Regulation
Quorum of
12 CFR 7.2009
Residency
Law
Responsibilities
Regulation
Publications

12 CFR 7.2002
12 USC 375
12 USC 72
12 CFR 7.2005
Regulation
12 USC 72
12 CFR 7.2010
The Director’s Book:
The Role of a National
Bank Director and
Internal Controls,
A Guide for Directors

Vacancy in
Law
Regulation

12 USC 74
12 CFR 7.2007

Electronic Banking
Regulations
Publications

12 CFR 7.5000-7.5010
FFIEC IT Examination
Handbook Series

Electronic Fund Transfer Act
Laws
Regulation

15 USC 1693-1693r
12 CFR 205

Employee Retirement Income Security Act (ERISA) of 1974
Laws
29 USC 1001 et seq.
Examination of National Banks
Laws
Regulation
•
Executive Officers
Cashier
Laws

12 USC 481, 484
12 CFR 7.4000

12 USC 24 (5), 26, 51a,
52, 57, 62, 92a(g), 161
12 CFR 7.2015

Regulation
Extensions of Credit to
Laws

12 USC 375a, 375b,
15 USC 78m(k)
12 CFR 31, 215

Regulations
Liability
Laws
Payment of Interest to

12 USC 93, 504, 1818
118

Law

12 USC 376

Fair Credit Reporting Act
Laws
Issuance

15 USC 1681-1681u
AL 99-3 (March 29,
1999, Fair Credit
Reporting Act
Comptroller’s
Handbook for
Compliance, “Fair
Credit Reporting Act”

Publication

Fair Housing Act
Laws
Regulation
Publication

42 USC 3601 et seq.
24 CFR 100
Comptroller’s
Handbook for
Compliance, “Fair
Lending”

FDIC Insurance
Laws
Regulations
Issuance

12 USC 1815, 1816
12 CFR 303, 327, 328
Deposit Insurance
Policy Statement (63
Fed. Reg. 44756

Federal Reserve Membership
Laws

12 USC 222, 282, 466,
501a
12 CFR 209

Regulation
Federal Trade Commission Act
Law
Issuance

15 USC 45
AL 2002-3 (March 22,
2002, Guidance on
Unfair or Deceptive
Acts or Practices)

Fidelity Insurance
Law
Regulation

12 USC 1828(e)
12 CFR 7.2013

Fiduciary Activities
Law
Regulation

12 USC 92a
12 CFR 9

119

Filing Fees
Regulation
Issuance

12 CFR 5.5
OCC Bulletin 2003-45
(December 1, 2003,
“Notice of Comptroller
of the Currency Fees
for Year 2004”)

Fraudulent Statements
Law

18 USC 1001

Golden Parachute Payments
Regulation

12 CFR 359

Gramm-Leach-Bliley Act
Laws

12 USC 24a,
15 USC 6801
12 CFR 5.39, 40

Regulations
Holidays
Law
Regulation

12 USC 95
12 CFR 7.3000

Indemnification of Directors, Officers, and Employees
Law
Regulations

12 USC 1828(k)
12 CFR 7.2014, 359

Independent External Audit
Laws

12 USC 1831m,
15 USC 78j-1
12 CFR 11, 363 and 17
CFR 210
OCC Bulletin 2003-12
(March 17, 2003,
Interagency Policy
Statement on Internal
Audit and Internal
Audit Outsourcing)

Regulations
Issuance

Information Security
Laws
Regulation
Issuances

15 USC 6801, 6805(b)
12 CFR 30
OCC Alert 2000-1
(February 11, 2000,
Internet Security:
Distributed Denial of
Service Attacks); OCC
Bulletin 98-31 (July 30,
1998, Guidance on
Electronic Financial
Services and Consumer
120

Compliance – FFIEC
GD); OCC Bulletin
2000-14 (May 15,
2000, Infrastructure
Threats – Intrusion
Risks – Message to
Bankers and
Examiners)
FFIEC IT Examination
Handbook Series

Publication
Insider Activities
Laws

12 USC 375, 375a,
375b, 376
12 CFR 31, 215
Comptroller’s
Handbook, “Insider
Activities”

Regulations
Publication

Insurance, Sale of
Laws
Regulation

12 USC 92, 1831x
12 CFR 14

Interbank Deposits
Laws

12 USC 463, 1972

Interest
Paying of
Laws
Regulation
Receiving
Laws
Regulation

12 USC 371a, 376
12 CFR 217
12 USC 85, 86
12 CFR 7.4001

Interlocking Directors and Officers
Laws

12 USC 3201-3208,
15 USC 19
12 CFR 26

Regulation
Lending Limits
Law
Regulation

12 USC 84
12 CFR 32

Location, Change of Main Office
Law
Regulation

12 USC 30
12 CFR 5.40

Minority Banks
Issuance

March 28, 2001
Policy Stmt on MinorityOwned National Banks
121

Name
Laws
Regulation

12 USC 22, 30, 35
12 CFR 5.42

National Environmental Policy Act
Laws
Regulations

42 USC 4321-4347
40 CFR 1500 et seq.

National Historic Preservation Act
Laws
Regulation

16 USC 470-470x-6
36 CFR 800

Organization Certificate
Laws

12 USC 22, 23

Organization Costs
Regulation
Issuance

12 CFR 5.20
Glossary Instructions to
the Consolidated Reports of
Condition and Income

Organization of National Bank
Laws
Regulation

12 USC 21-23
12 CFR 5.20

Place of Business
Laws

12 USC 22, 81

Lotteries
Law

12 USC 25a

Privacy
Laws
Regulation
Issuance

15 USC 6801 et seq.
12 CFR 40
OCC Bulletin 2000-25
(September 8, 2000, Privacy
Laws and Regulations)

Publication of Application
Regulation

12 CFR 5.8

Real Estate Lending
Law
Regulation

12 USC 371
12 CFR 34

Record Keeping and Confirmation Requirements for Securities Transactions
Regulation
12 CFR 12
122

Reserve Requirements
Laws

12 USC 461, 464, 465,
466
12 CFR 204

Regulation
S Corporation
Law

26 USC 1361

Safety and Soundness Standards
Law
Regulation

12 USC 1831p-1
12 CFR 30

Sale of Insurance
Law
Regulation

12 USC 92, 1813x
12 CFR 14

Sarbanes-Oxley Act of 2002
Law
Issuance

15 USC 78m(k)
OCC Bulletin 2003-12
(March 17, 2003, Interagency Stmt on Internal
Audit and Internal Audit
Outsourcing)
Rushton Memorandum,
Sarbanes-Oxley Act
Section 404 Attestations,
MM 2004-4 (October 18,
2004)

Securities Offering Disclosure Rules
Regulation

12 CFR 16

Security Devices and Procedures
Laws
Regulation

12 USC 1882, 1884
12 CFR 21

Shareholders’ List
Law

12 USC 62

Shareholder’s Meetings
Regulation

12 CFR 7.2001

Theft, Embezzlement, or Misapplication
Law
Regulation

18 USC 656
12 CFR 21

Third-Party Relationships
Law

12 USC 1831g, 1867(c)
123

Title

Issuances

FFIEC IT Handbook,
Outsourcing Technology
Services, June 2004; AL
2000-12 (November 28,
2000, Risk Mgmt of
Outsourcing
Technology); Alert
2000-9 (August 29,
2000, Third–Party Risk);
OCC Bulletin 2001–47
(November 1, 2001,
Third–Party
Relationships: Risk
Mgmt Principles); OCC
Bulletin 2002–16 (May
15, 2002, Bank Use of
Foreign–Based Third–
Party Service Providers)

Laws
Regulation

12 USC 22, 30, 35
12 CFR 5.42

Trust Bank
Laws

12 USC 27, 92a,
1841(c)(2)(D)
12 CFR 5.26, 9, 223

Regulations
Vendors
See Third-Party Relationships
Voting Trusts
Regulations

12 CFR 5.50, 7.2022

124