Investment in Subsidiaries and Equities

Investment in
Subsidiaries and Equities

Comptroller's Licensing Manual

Washington, DC
August 2005

Investment in
Subsidiaries and Equities

Table of Contents

Introduction
Key Policies
Applications and Notices
Special Conditions
Undercapitalized Banks
Publication
Consolidated Financial Statements
Multiple Transactions
Mergers and Acquisitions
Operating Subsidiaries
Ownership
Partnership or Joint Venture
Noncontrolling Interest
Decision Criteria
Filing Process
After-the-Fact Notice
Standard Review
Specific Requirements
Insurance
Electronic Activities
Fiduciary Powers
Examination and Supervision
Locations
Annual Reporting Requirement
Applicability of Law
Holding Company Dissolution
Financial Subsidiaries
Qualifications
Activities
Exceptions
Safeguards
Filing Process
Certification with Subsequent Notice
Combined Certification and Notice
Examination and Supervision
Failure to Continue to Meet Qualifications
Bank Service Company
Filing Process
Decision Criteria
After-the-Fact Notice
No Filing Required
Examination and Supervision
Other Equity Investments
Statutory Subsidiaries
Noncontrolling Investments
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Procedures
Operating Subsidiary and Bank Service Company -After–the-fact Notice
Operating Subsidiary and Bank Service Company -- Application
Financial Subsidiary -- Certification
Financial Subsidiary -- Notice
Financial Subsidiary -- Combined Certification and Notice
Noncontrolling Investments -- After-the-fact Notice
Appendix A -- Operating Subsidiary Guidelines
Appendix B -- Noncontrolling Investment Guidelines
Glossary
References

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Investment in Subsidiaries and Equities
Introduction
Banks develop, and offer through various subsidiaries and other business entities, a
wide range of products and services designed to increase profitability, improve
service to customers, and respond to technological innovations and competition.
These subsidiaries and other business entities include operating subsidiaries,
financial subsidiaries, bank service companies, and noncontrolling interests in
business entities performing bank permissible activities (subsidiaries or
noncontrolling investments). This booklet describes various types of subsidiaries or
noncontrolling investments that banks can establish and provides detailed guidance
on permissible and incidental activities.
The Comptroller of the Currency (OCC) has created procedures and conditions for
the establishment and operations of subsidiaries or noncontrolling investments.
This booklet outlines these procedures and conditions.
To establish a subsidiary or make a noncontrolling investment, the OCC generally
requires banks to submit an application and obtain prior approval. In some cases,
banks can submit to the OCC an after-the-fact notice, when establishing or
commencing new activities in subsidiaries or noncontrolling investments. This
booklet contains policies and procedures to guide banks in filing these applications
and notices and outlines exceptions to these requirements. It also provides
information on the regulatory and statutory factors the OCC considers in making a
decision; the application process (including the prefiling process, filing the
application, and processing time frames); application issues; specific requirements
for insurance, electronic, and fiduciary activities; and the post approval process.
This booklet also provides a step-by-step procedures section for the applicant and
the OCC to follow and a glossary of terms used. Throughout this booklet there are
hyperlinks to filing samples and other booklets in the Comptroller’s Licensing
Manual series, as well as other information applicants may use to file to establish
various subsidiaries or noncontrolling investments.

Key Policies
Applications and Notices
In most cases, a national bank is required to submit an application or notice and
obtain OCC approval or “no objection” prior to establishing, acquiring, or investing
in an operating or financial subsidiary, or performing a new activity in an existing
operating or financial subsidiary. Banks must generally file a notice with the OCC
to make an investment in a bank service company or a noncontrolling equity
investment in an entity that performs bank permissible activities.
A national bank that is “well capitalized” and “well managed” (see Glossary) may
file an after-the-fact notice if it is planning to engage in certain qualifying activities.
If the activity does not qualify, or if the bank is not eligible to file an after-the-fact
notice, the bank must file an application. The qualifying criteria to establish a
subsidiary and the pre-approved activities that subsidiaries may perform are
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discussed in detail in this booklet. Applicants should contact the appropriate
director for district licensing to determine the eligibility of the bank and the activity
for the after-the-fact notice, or to determine if the OCC will require an application.
The OCC reviews a bank's filing to determine whether the proposed activities and
location are legally permissible, the activities comply with OCC policy, and the
activities will not endanger the safety and soundness of the bank.
The OCC will conduct a detailed analysis of the new activity, taking into
consideration the inherent risk characteristics of the activity, the condition of the
institution seeking to conduct the activity, and the proposed volume of the new
activity. The OCC will determine whether the proposed activity can be regulated
and supervised appropriately to address safety and soundness risks and to otherwise
serve the public interest. Protection of consumers and prevention of financial
crimes are examples of how the public interest is served.
The OCC will consider the applicant's efforts to identify, plan for, and manage
systems risks for those activities heavily reliant upon technology. These risks could
include software incompatibility, systems integration problems, or hardware system
failures. These systems risks are present, for example, when a bank’s operating
subsidiary performs data processing activities or provides electronic banking
services, such as stored value, remote banking, or electronic authentication
activities.
Any application that does not adequately address these risks could require
additional processing time, be subject to special enforceable conditions, or result in
an OCC decision to deny.

Special Conditions
The OCC may conditionally approve an application after reviewing the filing and
considering the relevant factors, and impose appropriate special conditions for the
activities of subsidiaries or noncontrolling investments. The OCC uses special
conditions to protect the safety and soundness of the bank, prevent conflicts of
interest, provide customer protection, or provide for other supervisory or policy
considerations.

Undercapitalized Banks
The OCC may approve an application from an undercapitalized bank to establish or
invest in subsidiaries or noncontrolling investments, or approve the entity to engage
in a new activity, if the OCC determines that:
•

The bank has submitted an acceptable capital restoration plan.

•

The bank is implementing the plan.

•

The proposed filing is consistent with and will further the plan’s achievement.

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Publication
Generally, the OCC does not require public notice for filings covered by this
booklet, unless the application presents significant and novel policy, supervisory, or
legal issues and a public notice is beneficial. (See the “Public Notice and
Comments” booklet, “Additional Public Notice by Applicant,” for more
information.)

Consolidated Financial Statements
Consolidated financial statements combine the assets, liabilities, revenues, and
expenses of the subsidiary with those of the reporting bank. Ownership interests
should be accounted for in accordance with generally accepted accounting
procedures (GAAP). Refer to Accounting, Related Organizations Handbook, for a
specific discussion and additional guidance.
The bank will combine pertinent financial data of the parent bank and its
subsidiaries to conform to applicable statutory limitations, unless otherwise
provided by statute or regulation. For example, the combined exposure of the
parent bank and all of its operating subsidiaries to a single borrower may not exceed
the bank’s lending limit.

Multiple Transactions
The OCC does not require a separate application and filing fee for subsidiaries or
noncontrolling investments when the entity is:
•

Retained in a merging or converting institution.

•

Established together with an application for a new national bank charter. (See
the “Charters” booklet for additional information.)

In these situations, the OCC will consider the subsidiaries or noncontrolling
investments with the primary filing and, if appropriate, may request a legal opinion
on the subsidiary's activities or the activities of the entity in which the bank has a
noncontrolling investment. The review period will run concurrently with the OCC's
processing and decision on the merger, conversion, or charter application. The
OCC will include its decision on the filing and any appropriate conditions in the
decision letter for the merger, conversion, or charter.

Mergers and Acquisitions
Generally, the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR) requires
that prior notice of certain proposed mergers and acquisitions, along with a filing
fee, be provided to the Federal Trade Commission (FTC) and Department of Justice
(DOJ). The HSR established pre-merger notification and waiting-period
requirements for certain merger and acquisition transactions exceeding certain
threshold tests.

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The threshold tests relate to the size of the parties to the transaction and to the size
of the ownership interest being acquired. Exceptions exist for acquisitions subject
to federal agency antitrust review and approval, such as applications under the Bank
Merger Act (BMA) and sections 3 and 4 of the Bank Holding Company Act (BHCA).
Frequently, however, the acquisition of operating and financial subsidiaries will be
done outside of the scope of the BMA or BHCA. In such cases, applicants should
carefully consider the thresholds and waiting periods established under the HSR.
Based on interpretations of the FTC and DOJ, transactions subject to the HSR
include acquisitions of financial subsidiaries, whether on a stand-alone basis or as
part of a BMA application. Transactions involving operating subsidiary acquisitions
as part of a BMA application are exempt from the HSR provided the assets or
subsidiaries acquired are held by the target of the BMA application. An acquisition
of an operating subsidiary triggering the threshold tests will be subject to the HSR
unless it is exempt under any of the relevant statutes specified in the HSR. The FTC
will not grant an exception for any portion of a bank transaction that may fall
outside of the BMA. The FTC refers to these types of acquisitions as “mixed
transactions” and requires HSR filing for any part of the transaction not acquired
pursuant to a BMA filing.
The acquirer and the target must determine the applicability of HSR to the proposed
transaction, and, if required, file a copy of the filing with the FTC and DOJ at least
30 days before planned consummation. The HSR authorizes the assessment of civil
money penalties for failure to comply with its provisions.

Operating Subsidiaries
An operating subsidiary is a corporation, limited liability company (LLC), or similar
entity a bank owns or controls in which it may conduct activities that the bank
could engage in directly, either as part of, or incidental to, the business of banking,
as determined by the OCC.
To determine if an activity is part of the business of banking, the OCC considers if it:
•

Is the functional equivalent to, or a logical out-growth of, a recognized banking
activity.

•

Strengthens the bank by benefiting its customers or its business.

•

Involves risks similar in nature to those already assumed by banks.

•

Is authorized for state-chartered banks.

To determine if an activity is incidental to the business of banking, the OCC
considers whether it is convenient or useful to the bank in conducting its banking
business.

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Ownership
A bank may invest in an operating subsidiary if the bank owns and maintains more
than 50 percent of the operating subsidiary’s voting stock or similar interest, or
otherwise controls the entity.
A bank may own 50 percent or less of the voting interest of an operating subsidiary
if it controls the subsidiary and no other party controls more than 50 percent (or a
percentage greater than the bank's interest) of the voting interest in the subsidiary.
A bank must file an application for OCC approval when proposing to own this type
of interest in an operating subsidiary.
The OCC will evaluate a bank’s control mechanisms in the review process to ensure
the bank has effective control over the operating subsidiary. The OCC will review
carefully the risks inherent in any proposal to ensure the bank is not exposed to
undue risks. The OCC also will consider if generally accepted accounting
principles or consolidated report of condition and income (Call Report) instructions
require consolidated financial statements for the bank and its operating subsidiary.
If the bank is required to consolidate its ownership of the subsidiary solely because
of the Financial Accounting Standards Board’s Interpretation No. 46, Consolidation
of Variable Interest Entities, the bank should contact the appropriate district
accountant or director for district licensing to determine the filing and approval
requirements prior to any filing.

Partnership or Joint Venture
A bank's operating subsidiary may be a general or limited partner in a partnership or
a member of a joint venture. If a bank proposes to enter such an arrangement
through an operating subsidiary, with the subsidiary being either a limited or a
general partner or member, the bank must file with the OCC and receive approval
for the subsidiary's activity. The operating subsidiary must be “adequately
capitalized” (refer to Glossary for definition) and operated appropriately to minimize
the risk of liability passing through the subsidiary to the bank.
Whenever an operating subsidiary joins a partnership or joint venture, it must either
control the conduct of the business, possess a veto power, or be able to withdraw
from the transaction to ensure the partnership or joint venture will perform only
activities that are part of, or incidental to, the business of banking, or are otherwise
authorized for a national bank.

Noncontrolling Interest
A bank proposing to own less than 50 percent of the voting (or similar) interest of a
business entity and not exercise control of it may be eligible to do so as an “other
equity investment” (12 CFR 5.36). In addition, the OCC may determine that
ownership of a noncontrolling interest in an entity (for example, an LLC) by an
operating subsidiary is permissible. Additional information and guidance may be
found in the “Other Equity Investments” section of this booklet.

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Decision Criteria
The OCC generally will grant approval for the investment in an operating
subsidiary, provided that:
•

The subsidiary's proposed activity is legally permissible.

•

The activity of the bank and its subsidiary is consistent with safe and sound
banking practices.

•

The bank's performance of the activity through the subsidiary is not in
contravention of OCC policy.

Filing Process
The bank's condition and the subsidiary's activity will determine the way a bank
files with the director for district licensing. Depending on these factors, the OCC
will permit the bank to submit an after-the-fact notice (notice process), will require a
standard application, or, in limited circumstances, will not require that an
application be filed (see below for specifics or 12 CFR 5.34).
Only “well capitalized” and “well managed” (see Glossary) banks may file under the
notice process, and the subsidiary's activities must be among those listed in the
regulation (12 CFR 5.34(e)(5)(v)). In addition to being listed in the regulation, the
activity must be conducted in a manner that does not raise OCC policy issues or
supervisory concerns. Making loans and other extensions of credit is an example of
a well-established activity previously approved by the OCC for operating
subsidiaries. This activity is listed in the regulation and is eligible for the notice
process. However, when the activity is conducted on terms other than those
considered standard by policy or guidelines, as in certain types of subprime lending,
there is a potential to create a policy issue or supervisory concern, and the activity
thereby becomes ineligible for the notice process.
For banks that do not qualify, or when activities proposed are not among those
eligible for the notice process, the bank must follow the standard filing process.
The OCC does not require an application or notice for a bank to acquire or establish
an operating subsidiary, provided that the bank is “adequately” or “well capitalized”
(see Glossary) and all of the following requirements are met:
•

Activities of the new operating subsidiary are limited to those activities
previously reported by the bank in connection with the prior establishment or
acquisition of an operating subsidiary.

•

Establishment or acquisition of the prior operating subsidiary was deemed
permissible by the OCC.

•

Activities in which the new subsidiary will engage continue to be legally
permissible.

•

Activities of the new operating subsidiary will be conducted in accordance with
any conditions imposed by the OCC in approving the conduct of these activities
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for any prior operating subsidiary of the bank and according to the OCC's
published guidelines for operating subsidiaries (see Appendix A).

After-the-Fact Notice
A bank meeting certain criteria may file an after-the-fact notice for specific activities
listed in the “activities eligible for notice” section of 12 CFR 5.34(e)(5)(v). The afterthe-fact notice category contains commonly accepted banking-related activities the
OCC has approved previously for operating subsidiaries. Under this process, a bank
files a written notice with the OCC within 10 days after establishing or acquiring the
operating subsidiary, or commencing a new activity in an existing operating
subsidiary, and need not seek prior OCC approval. The OCC's Operating
Subsidiary Guidelines (see Appendix A) describe the requirements or limitations for
activities eligible for the notice process.
To qualify for the notice process, the bank owning the subsidiary must be “well
capitalized” and “well managed” (see Glossary). Any bank filing an after-the-fact
notice under this section is deemed to have represented that the subsidiary will
conduct the activity in a manner consistent with OCC's guidance and under the
same terms and conditions as applicable if the activity were conducted directly by
the bank.
The activities qualifying for the notice process are:
•

Holding and managing assets acquired by the parent bank, including
investment assets and property acquired by the bank through foreclosure or
otherwise in good faith to compromise a doubtful claim, or in the ordinary
course of collecting a debt previously contracted.

•

Providing services to or for the bank or its affiliates, including accounting,
auditing, appraising, advertising and public relations, and financial advice and
consulting.

•

Making loans or other extensions of credit, and selling money orders, savings
bonds, and travelers checks.

•

Purchasing, selling, servicing, or warehousing loans or other extensions of
credit, or interests therein.

•

Providing courier services between financial institutions.

•

Providing management consulting, operational advice, and services for other
financial institutions.

•

Providing check guaranty, verification, and payment services.

•

Providing data processing, data warehousing and data transmission products,
services, and related activities and facilities, including associated equipment
and technology, for the bank or its affiliates.

•

Acting as investment adviser (including an adviser with investment discretion)
or financial adviser or counselor to governmental entities or instrumentalities,
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businesses, or individuals, including advising registered investment companies
and mortgage or real estate investment trusts, furnishing economic forecasts or
other economic information, providing investment advice related to futures and
options on futures, and providing consumer financial counseling.
•

Providing tax planning and preparation services.

•

Providing financial and transactional advice and assistance, including advice
and assistance for customers in structuring, arranging, and executing mergers
and acquisitions, divestitures, joint ventures, leveraged buyouts, swaps, foreign
exchange, derivative transactions, coin and bullion, and capital restructurings.

•

Underwriting and reinsuring credit related insurance to the extent permitted
under section 302 of the Gramm-Leach-Bliley Act (GLBA).

•

Leasing of personal property and acting as an agent or adviser in leases for
others.

•

Providing securities brokerage or acting as a futures commission merchant, and
providing related credit and other related services.

•

Underwriting and dealing, including making a market, in bank permissible
securities and purchasing and selling as principal, asset backed obligations.

•

Acting as an insurance agent or broker, including title insurance to the extent
permitted under section 303 of the GLBA.

•

Reinsuring mortgage insurance on loans originated, purchased, or serviced by
the bank, its subsidiaries, or its affiliates, provided that if the subsidiary enters
into a quota share agreement, the subsidiary assumes less than 50 percent of
the aggregate insured risk covered by the quota share agreement. A “quota
share agreement” is an agreement under which the reinsurer is liable to the
primary insurance underwriter for an agreed upon percentage of every claim
arising out of the covered book of business ceded by the primary insurance
underwriter to the reinsurer.

•

Acting as a finder to the extent permitted by published OCC precedent.

•

Offering correspondent services to the extent permitted by published OCC
precedent.

•

Acting as agent or broker in the sale of fixed or variable annuities.

•

Offering debt cancellation or debt suspension agreements.

•

Providing real estate settlement, closing, escrow, and related services; and real
estate appraisal services for the subsidiary, parent bank, or other financial
institutions.

•

Acting as a transfer or fiscal agent.

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•

Acting as a digital certification authority to the extent permitted by published
OCC precedent, subject to the terms and conditions contained in that
precedent.

•

Providing or selling public transportation tickets, event and attraction tickets,
gift certificates, prepaid phone cards, promotional and advertising material,
postage stamps, and Electronic Benefits Transfer (EBT) script, and similar media,
to the extent permitted by published OCC precedent, subject to the terms and
conditions contained in that precedent.

For published precedents, see OCC’s monthly publication “Interpretations and
Actions,” annual publication “Activities Permissible for A National Bank,” or the
Commerce Clearing House “Federal Banking Law Reporter.”
When filing an after-the-fact notice, the bank must:
•

Certify the bank and activity or activities are eligible for the after-the-fact notice
process.

•

Describe in detail the activity or activities to be conducted in the operating
subsidiary. (Refer to Specific Requirements for Insurance if this represents the
initial affiliation of the bank with a particular insurance company.)

•

Describe the investment amount and the percentage of the bank’s capital the
investment represents.

•

Represent that the proposed activity is being conducted and will be conducted
according to the OCC policies contained in the guidance issued for this activity
and subject to all terms, conditions, and restrictions applicable to national
banks.

Standard Review
The OCC’s standard review process is applicable when the activity of the operating
subsidiary that the bank intends to acquire or establish (or a new activity in an
existing operating subsidiary) does not qualify for an after-the-fact notice or when
the bank is not eligible for an after-the fact notice. The OCC also will use the
standard review process when the bank will control, but own 50 percent or less of,
an operating subsidiary. A bank must submit an application and a filing fee to the
OCC for the standard review process.
The OCC also may require the applicant to submit a legal analysis if the proposal is
novel, unusually complex, or raises substantial unresolved legal issues. In such
cases, the OCC encourages applicants to arrange a pre-filing meeting with the
director for district licensing. Additionally, any bank subject to supervisory
concerns should provide financial information to support the proposed transaction
(for example, capital or strategic plan, cost projections, or pro forma financial
projections).
Any bank filing under the standard operating subsidiary process must receive OCC’s
decision prior to establishing or acquiring the operating subsidiary or commencing
any new activity in an existing operating subsidiary.
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In an application, the bank must:
•

Describe in detail the activity or activities to be conducted in the operating
subsidiary. (Refer to Specific Requirements for Insurance if this represents the
initial affiliation of the bank with a particular insurance company.)

•

Certify that the bank owns more than 50 percent of the voting (or similar)
interest of the subsidiary or describe how the bank controls or will control the
subsidiary and its activities.

•

Describe the investment amount and the percentage of the bank’s capital that
the investment represents.

•

Represent that the proposed activity will be conducted according to the OCC
policies contained in the guidance issued for this activity and subject to all
terms, conditions, and restrictions applicable to national banks.

Specific Requirements
Insurance
Banks may conduct certain insurance activities in the bank or through an operating
subsidiary. They may engage in certain title insurance activities, sell credit related
insurance as an agent, and provide as principal (underwrite or reinsure) credit
related insurance. An operating subsidiary may reinsure private mortgage insurance
on loans originated, purchased, or serviced by the bank or its affiliates.
Additionally, an operating subsidiary may underwrite municipal bond insurance, as
well as safe deposit box insurance and business risk insurance of the bank and its
affiliates. (See Appendix A for further discussion).
In addition, national banks located in a place with a population of less than 5,000
inhabitants (as shown by the preceding decennial census) are authorized expressly
under 12 USC 92 to act “as the agent for any fire, life, or other insurance company.”
The OCC provided guidance on how bank insurance agents may conduct their
insurance business under this authority in Interpretive Letter 753 (November 4,
1996).
Any subsidiary filing from a bank requesting to sell insurance from a “place of
5,000” under 12 USC 92 should include a representation that the bank's proposal to
sell insurance will be consistent with Section 92 and the OCC's interpretation in
Interpretive Letter 753 (November 4, 1996). Insurance sales activities also should
be conducted in accordance with the operational standards and customer
safeguards described in OCC issuances (see the Insurance Activities Handbook).
The applicant must describe the type of insurance activity in which the company is
engaged and has plans to conduct, to the extent the application or notice relates to
the initial affiliation of the bank with a particular company engaged in insurance
activities (including a broker dealer selling annuities considered insurance products
under state law). The bank also must list for each state the lines of business for
which the company holds, or will hold, an insurance license, indicating the state in
which the company holds a resident license or charter, as applicable.

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Electronic Activities
A bank or its subsidiary may conduct certain activities using electronic technologies,
provided the activities are part of, or incidental to, the business of banking. To
determine if an electronic activity is part of the business of banking, the OCC
considers whether it:
•

Is the functional equivalent to, or a logical outgrowth of, a recognized banking
activity.

•

Strengthens the bank by benefiting its customers or its business.

•

Involves the types of risk similar to those already assumed by banks.

•

Is authorized for state-chartered banks.

To determine if an electronic activity is incidental to the business of banking, the
OCC considers whether it:
•

Facilitates the production or delivery of a bank’s products or services.

•

Enhances the bank’s ability to sell or market its products or services.

•

Improves the effectiveness or efficiency of the bank’s operations in light of risks
presented, innovations, strategies, techniques, and new technologies for
producing and delivering financial products and services.

•

Enables the bank to use capacity acquired for its banking operations or otherwise
avoid economic waste or loss.

The bank, or its subsidiary, must conduct these electronic activities in a manner
consistent with safety and soundness standards and OCC guidance. In addition, the
OCC may require the bank or its operating subsidiary to notify all potential
technology-related vendors in writing of the OCC’s examination and regulatory
authority. The OCC also may require that all final technology-related vendor
contracts stipulate that the performance of services provided by the vendors to the
operating subsidiary is subject to the OCC’s examination and regulatory authority.

Fiduciary Powers
If a subsidiary proposes to accept traditional fiduciary appointments for which
fiduciary powers are needed, as in acting as a trustee or an executor, then both the
bank and the subsidiary should have fiduciary powers. Fiduciary powers for the
subsidiary generally are accomplished by using a national bank limited to the
activities of a trust company or a state trust company as the subsidiary. If a limited
purpose national bank is proposed, the OCC processes the charter application
together with the operating subsidiary application.
If a subsidiary proposes only to exercise investment discretion on behalf of its
customers or to provide investment advice for a fee, but not accept traditional
fiduciary appointment, the subsidiary does not have to have fiduciary powers, but

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the bank must have OCC approval to exercise fiduciary powers, unless the
subsidiary:
•

Is registered under the Investment Advisers Act of 1940, or

•

Is registered or has filed a notice under the applicable provisions of the
Securities Exchange Act of 1934 as a broker, dealer, municipal securities dealer,
government securities broker, or government securities dealer; and the
subsidiary's performance of investment advisory services is solely incidental to
the conduct of its business as broker or dealer, and no special compensation is
made to the subsidiary for those advisory services. To determine whether the
subsidiary's performance of investment advisory services is solely incidental to
the conduct of its business as a broker or dealer, and no special compensation
is made to the subsidiary for those advisory services, the OCC will consider the
commission structure and other specific facts. See OCC Interpretive Letter 769
(January 28, 1997).

Examination and Supervision
Each operating subsidiary is subject to OCC examination and supervision
exclusively, to the same extent as the parent national bank, except where federal
law specifically provides otherwise, such as when the activity is subject to
functional regulation limitations and requirements. These functional regulation
provisions were enacted in GLBA. GLBA codified the concept of “functional
regulation,” which recognizes the roles of the Securities and Exchange Commission,
the Commodities Futures Trading Commission, and state insurance commissioners
as the regulators of securities, commodities, and insurance activities, respectively.
The appropriate functional regulator is responsible for supervising the particular
activities within the scope of its functional regulation, as defined under federal law.
The jurisdictional scope of these functional regulators may be complex; and the
functionally regulated activity also may be subject to OCC supervision for bank
safety and soundness reasons or based on separate statutory authority. GLBA also
established new standards limiting the OCC’s ability to examine and seek reports on
functionally regulated activities from a bank’s subsidiaries and affiliates.
If the OCC determines that the creation or operation of the operating subsidiary
violates a law, regulation, or written condition, or is unsafe or unsound, or threatens
the safety and soundness of the bank, the OCC may direct the bank or subsidiary to
take appropriate remedial action. Such action may include disposing of, or
liquidating all or part of, the subsidiary or discontinuing specific activities. Refer to
Related Organizations Handbook for further discussion of the OCC’s examination
and supervision of subsidiaries and other related organizations.

Locations
A bank proposing to establish, acquire, or operate an operating subsidiary at a
location at which it will perform branching functions (deposits received, checks
paid, or money lent) will need approval for a branch office at that location, if it has
not already been authorized as a branch. A separate application and filing fee are
not necessary, but a request for branch authorization should accompany the
operating subsidiary application. There are no geographical restrictions for

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operating subsidiaries performing permissible activities other than core branching
functions of receiving deposits, paying checks, or lending money.

Annual Reporting Requirement
The OCC requires that a bank file an annual report to identify its operating
subsidiaries that do business directly with consumers in the United States and are
not functionally regulated as defined in section 5(c)(5) of the BHCA, as amended
(12 USC 1844(c)(5)). Specifically, an operating subsidiary does business directly
with consumers if it provides products or services to individuals to be used primarily
for personal, family, or household purposes.
The bank submits an annual report on its operating subsidiaries to the OCC on or
before January 31 each year, containing information as of December 31 for the prior
year. This report may be filed electronically via the National BankNet secure
mailbox or by attaching the report to an e-mail. For specific guidance on filing this
report, refer to OCC Bulletin 2004-55.

Applicability of Law
All laws and regulations, including state laws, apply to national bank operating
subsidiaries to the same extent that they apply to the parent national bank, unless
otherwise addressed in federal law or OCC regulation.

Holding Company Dissolution
A bank may elect to use a shell operating subsidiary to merge with a holding
company to facilitate the liquidation or dissolution of the holding company. The
application for the shell subsidiary formation must be filed along with the related
business combination filing.
Generally, when filing, the holding company must represent that it has no
outstanding liabilities, including contingent liabilities. Prior to transferring its assets
to the operating subsidiary, it must divest of all assets ineligible for investment by a
national bank and assume the merger cost prior to its dissolution, including all
necessary payments to dissenting shareholders. All other regulatory approvals must
still be obtained (for example, FRB approval or waiver of the application). (See the
“Business Combinations” booklet for further details.)

Financial Subsidiaries
As authorized by the GLBA, a financial subsidiary is a corporation, limited liability
company, or similar entity, controlled by one or more insured depository
institutions. A financial subsidiary conducts activities that are “financial in nature”
or incidental to financial activities. Financial subsidiaries are bank subsidiaries that
are not operating subsidiaries (that is, subsidiaries engaged only in activities the
bank may engage in directly under the same terms and conditions applicable to
national banks) or subsidiaries that national banks otherwise are specifically
authorized to control by the express terms of a federal statute. However, a financial
subsidiary may perform activities permissible for national banks in addition to
activities that are financial in nature or incidental to financial activities. For a bank
13

to own an interest in a financial subsidiary, the bank and the subsidiary must meet
certain requirements and comply with specified safeguards.

Qualifications
A bank may control, directly or indirectly, a financial subsidiary or hold an interest
in a financial subsidiary only if:
•

The bank and each depository institution affiliate of the bank, which includes
any uninsured national trust bank, are “well capitalized” and “well managed”
(see Glossary for definitions).

•

The bank and each depository institution affiliate must have received a rating
of “satisfactory” or better at its most recent Community Reinvestment Act
(CRA) examination. A bank may not apply to commence any additional
expanded financial activity, or to directly or indirectly acquire control of a
company engaged in such activity, if it or any of its insured depository
institution affiliates received a less than “satisfactory” CRA rating on its most
recent CRA exam prior to when the bank would file its notice.
Banks that have not yet received a CRA rating, or special purpose banks which
are not CRA rated, may submit a notice if they meet all of the other
qualifications and safeguards.

•

The aggregate consolidated total assets of all financial subsidiaries of the bank
do not exceed the lesser of 45 percent of the consolidated total assets of the
parent bank or $50 billion [or such greater amount as is determined according
to an indexing mechanism jointly established by regulation by the Secretary of
the Treasury and the Federal Reserve Board (Federal Reserve)].

•

The bank has at least one issue of outstanding eligible debt (see Glossary)
currently rated in one of the three highest investment grade ratings categories
by a nationally recognized statistical rating organization if the bank is one of
the 100 largest insured banks, determined on the basis of the bank’s
consolidated total assets at the end of the calendar year.
If the national bank is one of the second 50 of the 100 largest insured banks,
the bank may satisfy the eligible debt requirement either by having outstanding
eligible debt or by satisfying alternative criteria the Secretary of the Treasury
and the Federal Reserve may establish jointly by regulations. Refer to the
discussion in Related Organizations Handbook or 12 CFR 1501.3.
If the financial subsidiary is engaged solely in activities in an agency capacity,
the eligible debt requirements do not apply.

Activities
A financial subsidiary may engage in:
•

Activities that are financial in nature and activities incidental to a financial
activity.
14

•

-

Lending, exchanging, transferring, investing for others, or safeguarding
money or securities.

-

Engaging as agent or broker in any state to insure, guarantee, or indemnify
against loss, harm, damage, illness, disability, death, defects in title, or
provide annuities as agent or broker.

-

Providing financial, investment, or economic advisory services, including
advising an investment company as defined in section 3 of the Investment
Company Act, 15 USC 80a-3.

-

Issuing or selling instruments representing interests in pools of assets
permissible for a bank to hold directly.

-

Underwriting, dealing in, or making a market in securities.

-

Engaging in any activity the Federal Reserve has determined, by order or
regulation in effect on November 12, 1999, to be so closely related to
banking or managing or controlling banks as to be a proper incident
thereto (subject to the same terms and conditions contained in the order or
regulation, unless the order or regulation is modified by the Federal
Reserve).

-

Engaging, in the United States, in any activity a bank holding company
may engage in outside the United States and the Federal Reserve has
determined, under regulations prescribed or interpretations issued
pursuant to the BHCA as in effect on November 11, 1999, to be usual for
the transaction of banking or other financial operations abroad.

Activities that may be conducted by an operating subsidiary or by the bank
directly, if it also performs activities that are financial in nature.

Exceptions
There are certain activities a financial subsidiary cannot engage in as principal:
•

Insuring, guaranteeing, or indemnifying against loss, harm, damage, illness,
disability or death, or defects in title, except to the extent permitted under GLBA
(certain types of insurance underwriting and reinsurance the OCC permitted
prior to January 1, 1999, are grandfathered) or providing or issuing annuities the
income of which is subject to tax treatment under section 72 of the Internal
Revenue Code.

•

Real estate development or real estate investment, unless otherwise expressly
authorized by law.

•

Activities authorized for bank holding companies by section 4(k)(4)(H) or (I) of
the BHCA (certain merchant banking investments), 12 USC 1843(k)(4)(H) or (I).

15

Safeguards
A bank is required to meet certain safety and soundness requirements when
engaging in activities through a financial subsidiary. Specifically, a bank
establishing a financial subsidiary must:
•

For regulatory capital purposes, deduct the aggregate amount of its
outstanding equity investment, including retained earnings, in its financial
subsidiaries from its total assets and tangible equity and deduct such
investment from its total risk-based capital (this deduction must be made
equally from Tier 1 and Tier 2 capital).

•

Not consolidate its assets and liabilities with those of its financial subsidiary or
subsidiaries.

•

Ensure that any published financial statements of the bank, in addition to
providing information prepared in accordance with generally accepted
accounting principles, separately present financial information for the bank in
a manner reflecting the capital adjustments previously described.

•

Have reasonable policies and procedures to preserve the separate corporate
identity and limited liability of the bank and its financial subsidiaries.

•

Have procedures for identifying and managing operational and financial risk
within the bank and the financial subsidiary that adequately protect the bank
from those risks.

•

Apply sections 23A and 23B of the Federal Reserve Act, as implemented by
Regulation W (12 CFR 223), to transactions with a financial subsidiary in the
following manner:
-

A financial subsidiary shall be deemed to be an affiliate and shall not be
deemed to be a subsidiary of the bank. A subsidiary that is a financial
subsidiary solely because it performs insurance or insurance brokerage
activities is not an affiliate for purposes of Regulation W.

-

The quantitative limitations on covered transactions with any individual
affiliate shall not apply to covered transactions between a bank and its
financial subsidiary.

-

The bank’s investment in the financial subsidiary shall not include
earnings retained or losses incurred by the financial subsidiary.
- Any purchase of, or investment in, the securities of a financial subsidiary
of a bank by an affiliate of the bank will be considered to be a purchase
of, or investment in, such securities by the bank.
- Any extension of credit by an affiliate of a bank to a financial subsidiary of
the bank is considered an extension of credit by the bank to the financial
subsidiary if the extension of credit is treated as capital of the financial
subsidiary under applicable law.

16

- Any other extension of credit by an affiliate of the bank to its financial
subsidiary is considered an extension of credit by the bank to the financial
subsidiary if the Federal Reserve determines that such treatment is
necessary or appropriate to prevent evasions of the Federal Reserve Act or
the GLBA.
•

Deem the financial subsidiary a subsidiary of a bank holding company and not a
subsidiary of the bank for purposes of the anti-tying prohibitions.

Filing Process
The GLBA requires OCC approval of financial subsidiaries to be based only on
specific statutory factors. The OCC considers financial subsidiary notices to be
approved upon receipt of the bank’s submission of a notice with the appropriate
certifications that it meets the required criteria. There are two options for filing a
notice to acquire control of, or hold an interest in, a financial subsidiary, or to
commence a new activity in an existing financial subsidiary.
Under the first option, the bank files a “Financial Subsidiary Certification” at any
time with its appropriate director for district licensing and files the subsequent
notice for OCC approval whenever it is ready to acquire control of, or hold an
interest in, a financial subsidiary, or to commence a new activity in an existing
financial subsidiary.
Under the second method, the bank files a combined “Certification and Notice” five
business days before it acquires control of, or holds an interest in, a financial
subsidiary, or commences a new activity in an existing financial subsidiary.

Certification with Subsequent Notice
When filing a “Financial Subsidiary Certification,” the bank must provide:
•

A list of the bank’s depository institution affiliates.

•

Certification that the bank and each depository institution affiliate is “well
capitalized,” “well managed,” and has not received a rating of less than
“satisfactory” at its most recent CRA examination.

After completing the formal certification, whenever the bank seeks OCC approval to
acquire or hold an interest in any financial subsidiary, the bank must file a written
“Financial Subsidiary Notice” with the appropriate director for district licensing
when it commences operations. This notice must:
•

State that the bank’s certification remains valid.

•

Describe in detail the activity or activities to be conducted in the financial
subsidiary. (Refer to Specific Requirements for Insurance if this represents the
initial affiliation of the bank with a particular insurance company.)

•

Cite the specific authority permitting the activity to be conducted within a
financial subsidiary. (Include a copy of the order or interpretation if the
17

authority relied upon is an agency order or interpretation under Sections 4(c)(8)
or 4(c)(13) of the BHCA.)
•

Certify that the bank will remain “well capitalized” after deducting the aggregate
amount of the bank’s outstanding equity investment, including retained
earnings, in its financial subsidiaries from its assets and tangible equity and
deducting such investment from its total risk-based capital (this deduction is
made equally from Tier 1 and Tier 2 capital).

•

Demonstrate that the aggregate consolidated total assets of all the financial
subsidiaries of the bank do not exceed the lesser of 45 percent of the bank’s
consolidated total assets or $50 billion (or the increased level established by the
Federal Reserve or the Secretary of Treasury).

•

Certify that the bank meets the eligible debt requirement, if applicable. If the
financial subsidiary is acting solely as agent, this certification is not necessary.

Combined Certification and Notice
As a second option, a bank may file a combined “Financial Subsidiary Certification
and Notice” with the appropriate director for district licensing at least five business
days before acquiring control of, or an interest in, a financial subsidiary, or before
starting a new activity in an existing financial subsidiary. This certification and
notice must provide all the information and certifications as outlined previously for
a certification with subsequent notice.

Examination and Supervision
Each financial subsidiary is subject to OCC examination and supervision. However,
some financial subsidiaries are subject to functional regulation limitations and
requirements. These functional regulation provisions were enacted in GLBA. GLBA
codified the concept of “functional regulation,” which recognizes the roles of the
Securities and Exchange Commission, the Commodities Futures Trading
Commission, and state insurance commissioners as the primary regulators of certain
securities, commodities, and insurance activities of banks. The appropriate
functional regulator is responsible for supervising the particular activities. However,
the functionally regulated activity remains subject to OCC’s supervision for bank
safety and soundness reasons or potentially subject to OCC’s supervision based on
separate statutory authority. GLBA also established new standards limiting the
OCC’s ability to examine and seek reports on functionally regulated activities from a
bank’s subsidiaries and affiliates.
If the OCC determines that the creation or operation of the financial subsidiary
violates a law, regulation, or written condition, or is unsafe or unsound, or threatens
the safety and soundness of the bank, the OCC may direct the bank or subsidiary to
take appropriate remedial action. Such action may include disposing of, or
liquidating all or part of, the subsidiary or discontinuing a specific activity. Refer to
Related Organizations Handbook for further discussion of the OCC’s examination
and supervision of subsidiaries and other related organizations.

18

Failure to Continue to Meet Qualifications
The bank and its affiliated depository institutions must continue to satisfy the
qualification requirements and safeguards following its acquisition of, control of, or
an interest in, a financial subsidiary. A bank failing to continue to satisfy these
requirements will be subject to the following procedures and requirements:
•

The OCC must give written notice to the bank (and, in the case of an affiliated
depository institution, to that depository institution’s appropriate federal
banking agency) outlining how or why the bank or its affiliated depository
institution does not continue to meet the qualification requirements. The bank
shall be deemed to have received the notice three business days after the OCC
mails the letter.

•

The bank must execute an agreement, no later than 45 days after the receipt of
the notice, with the OCC to comply with the qualification requirements, unless
the OCC grants the bank additional time.

•

The OCC may impose limitations on the conduct or activities of the bank or
any subsidiary of the bank as the OCC determines appropriate under the
circumstances.

•

The OCC may require the bank to divest control of a financial subsidiary if the
bank does not correct the conditions within 180 days after receipt of the letter.

A bank no longer meeting the eligible debt qualification, if applicable, may not
directly or through a subsidiary purchase or acquire any additional equity capital of
any financial subsidiary until the bank again meets the qualification.

Bank Service Company
A bank service company is a corporation, whose capital stock is owned by one or
more insured banks, or a limited liability company, whose members are insured
banks. Banks specifically are authorized to invest in bank service companies by the
express terms of the Bank Service Company Act. If the bank service company has
national and state bank shareholders or members, the activities conducted must be
permissible for all of the insured banks. Also all shareholders or members must be
located in the same state, unless the FRB approves an exception. When two or
more national banks wish to invest in the same bank service company, one filing on
behalf of all of the individual investors may be made as long as the other national
banks are identified. The OCC requires only one filing fee. A bank may not invest
(see Glossary) more than 10 percent of its capital and surplus in any bank service
company, and the bank’s total investment in all bank service companies may not
exceed 5 percent of the bank’s total assets.
A bank seeking to establish a bank service company may do so without giving
notice to the OCC if it only provides certain services to depository institutions.
Otherwise, the bank will be required to provide an application or an after-the-fact
notice, depending on the activity being performed. The bank will need to
determine if the activity or geographic locations where services are provided would
require a filing with the OCC. The OCC does not require a filing if a bank invests in
the capital stock or equity of a bank service company performing any service (other
19

than deposit taking) at any geographical location the Federal Reserve has
determined by regulation to be permissible for a bank holding company. In such
cases, however, the bank must obtain the approval of the Federal Reserve.

Filing Process
A bank intending to make an investment in a bank service company, or to perform a
new activity in a bank service company, generally must submit an application and
receive prior approval from the OCC. The application must include:
•

The name and location of the bank service company.

•

A detailed description of the activity or activities to be conducted in the bank
service company. (Refer to Specific Requirements for Insurance if this represents
the initial affiliation of the bank with a particular insurance company.)

•

Information demonstrating that the bank will comply with investment
limitations.

•

Information demonstrating that the bank service company and all the banks
investing in it are located in the same state, unless the Federal Reserve has
approved an exception to this requirement.

•

Information demonstrating that the bank service company will conduct these
activities only at locations in a state where the investing bank could be
authorized to perform the activities directly.

If there is more than one investing bank, the bank with the largest dollar amount
invested is deemed to be the principal investor (see Glossary).

Decision Criteria
The OCC generally will grant approval for the investment in a bank service
company, provided that:
•

The proposed activity is legally permissible.

•

The activity is consistent with safe and sound banking practices.

•

The bank's performance of the activity is not in contravention of OCC policy.

The OCC will consider a bank's request to invest in a bank service company and
make a final decision within 60 days of the date it receives the filing. If the OCC
fails to make a decision within that time, the investment is deemed to be approved,
unless the OCC notifies the bank of significant supervisory or compliance concerns
or legal or policy issues.

After-the-Fact Notice
No prior OCC approval is required if the bank service company engages only in
those activities eligible for an after-the-fact notice under 12 CFR 5.34(e)(5)(v), and
the bank is “well capitalized” as defined in 12 CFR 6.4(b) and “well managed” (see
20

Glossary for definitions). A bank may invest in a bank service company, or perform
a new activity in an existing bank service company, by providing the appropriate
director for district licensing written notice within 10 days of making the
investment. The written notice must include:
•

A complete description of the bank’s investment in the bank service company.

•

A detailed description of the activity or activities to be conducted in the bank
service company. (Refer to Specific Requirements for Insurance if this
represents the initial affiliation of the bank with a particular insurance
company.)

•

A representation and undertaking that the activity will be conducted in
accordance with OCC published guidance. (Any bank filing a notice is deemed
to have agreed the bank service company will conduct the activity in a manner
consistent with published OCC guidance.)

No Filing Required
No filing is required for a bank service company that provides the following services
only for depository institutions:
•

Check and deposit posting and sorting.

•

Computation and posting of interest and other credits and charges.

•

Preparation and mailing of checks, statements, notices, and similar items.

•

Any other clerical, bookkeeping, accounting, statistical, or similar function.

Additionally, the OCC does not require a filing if a bank invests in the capital stock
or equity of a bank service company performing any service (other than deposit
taking) at any geographical location the Federal Reserve has determined by
regulation to be permissible for a bank holding company. In such cases, however,
the bank must obtain the approval of the Federal Reserve.

Examination and Supervision
Each bank service company is subject to examination and supervision by the federal
banking agency that supervises the bank that is the principal investor in the
company. The appropriate federal banking agency will supervise the bank service
company to the same extent that it supervises the bank that is the principal investor,
subject to applicable functional regulation limitations and requirements. A bank
that is regularly examined by an appropriate federal banking agency, or any
subsidiary or affiliate that is subject to examination by the regularly examined
bank's federal banking regulator, may have services performed by a bank service
company. The services performed are subject to examination and supervision to the
same extent as if the bank itself performed the services on its own premises. The
services performed by a bank service company may be subject to functional
regulation limitations and requirements to the extent the bank service company
performing the services meets the GLBA definition of a functionally regulated
21

subsidiary or functionally regulated affiliate. These functional regulation provisions
were enacted in GLBA. GLBA codified the concept of “functional regulation,”
which recognizes the roles of the Securities and Exchange Commission, the
Commodities Futures Trading Commission, and state insurance commissioners as
the primary regulators of certain securities, commodities, and insurance activities of
banks. The appropriate functional regulator is responsible for supervising the
particular activities. However, the functionally regulated activity remains subject to
OCC supervision for bank safety and soundness reasons or potentially based on
separate statutory authority. GLBA also established new standards limiting the
OCC’s ability to examine and seek reports on functionally regulated activities from a
bank’s subsidiaries and affiliates.
If the OCC determines that the creation or operation of the bank service company
violates a law, regulation, or written condition, or is unsafe or unsound, or threatens
the safety and soundness of the bank, the OCC may direct the bank or bank service
company to take appropriate remedial action. Such action may include disposing of
or liquidating all or part of the bank service company or discontinuing specific
activities. Refer to Related Organizations Handbook for further discussion of the
OCC’s examination and supervision of subsidiaries and other related organizations.

Other Equity Investments
A national bank is permitted to make equity investments in various types of
corporations, partnerships, trusts, or similar types of entities pursuant to 12 USC
24(Seventh) and other statutes. These investments may be in statutory subsidiaries
or noncontrolling investments in entities, when the investment is part of or
incidental to the business of banking. These investments are in addition to
operating subsidiaries, financial subsidiaries, and bank service companies.
Pursuant to 12 CFR 24, a national bank may create a subsidiary corporation to
promote public welfare, including the welfare of low- and moderate-income
communities and families, such as providing housing, services, or jobs (see
Community Development Investments, Related Organizations Handbook for
specific discussion).

Statutory Subsidiaries
A bank may make a controlling and noncontrolling equity investment in the
following statutory subsidiaries without prior approval of the OCC:
•

An agricultural credit corporation. A bank may purchase stock of a
corporation organized to make loans to farmers and ranchers for agricultural
purposes for its own account. Such equity investments in agricultural credit
corporations are authorized under 12 USC 24(Seventh) and are limited to 20
percent of the unimpaired capital and surplus of the bank, unless it owns at
least 80 percent of the stock of the agricultural credit corporation. This
requires an after-the-fact notice.

•

A banker’s bank. A bank may invest up to 10 percent of its capital and surplus
in an insured banker’s bank or in the holding company of such a bank,
provided that it does not own more than 5 percent of any class of voting
securities.
22

•

A safe deposit corporation. Investment in a safe deposit corporation organized
under state law may not exceed 15 percent of the bank’s unimpaired, paid-in
capital and 15 percent of its unimpaired surplus.

•

A state housing corporation. A bank may make an equity investment in any
state housing corporation incorporated in the state in which the bank is
located, provided that its investments do not exceed 5 percent of its
unimpaired, paid-in capital stock plus 5 percent of its unimpaired surplus fund.

•

A small business investment company (SBIC). A bank may purchase SBIC
stock provided that the aggregate amount of such investments does not exceed
5 percent of the bank’s capital and surplus.

•

A community development corporation. A bank may invest in or conduct
activities in such an entity that primarily benefit low- and moderate-income
individuals, low- and moderate-income areas, or other areas targeted by a
governmental entity for redevelopment. If an eligible bank, this requires an
after-the-fact notice to the Director, Community Development Division (12
CFR 24).

•

A savings association. A savings association will be eligible to be acquired
because it is in default, experiencing severe financial difficulty, or is otherwise
determined by the FDIC to need financial assistance, at a time when severe
financial conditions threaten the stability of a significant number of savings
associations, or of savings associations possessing significant financial
resources. The OCC will consider a savings association acquired under this
authority (12 USC 1823(k)) to be a “statutory subsidiary.” For a bank to
otherwise own or control a federal savings association (FSA), the FSA must be
a financial subsidiary unless the FSA undertakes to limit its activities to those
permissible for a national bank. Additional information and guidance may be
found in the “Financial Subsidiaries” section of this booklet. This requires an
after-the-fact notice.

•

A bank premises corporation. A bank may invest in its bank premises or in a
corporation holding the bank's premises. Such equity investments in bank
premises corporations have been characterized as statutory subsidiaries, and
not operating subsidiaries. These equity investments do not require prior
approval unless the investment exceeds the limitation for investing in bank
premises. (See “Investment in Bank Premises” booklet).

•

Any other equity investment that may be authorized by statute after
February 12, 1990, if not covered by other applicable OCC regulation. This
requires an after-the-fact notice.

Filing Process: Generally, a bank must provide a written notice to the appropriate
director for district licensing within 10 days of making an equity investment in a
statutory subsidiary. The written notice must include a description and the amount
of the bank’s investment. The OCC reserves the right to require additional
information as necessary.

23

Noncontrolling Investments
Banks also may make noncontrolling equity investments in certain types of entities
when the investment is part of, or incidental to, the business of banking.
Investments of this type are permitted under a national bank's powers under 12 USC
24(Seventh) and 12 CFR 5.36(e). Refer to Appendix B for a summary of
noncontrolling investments.
A noncontrolling investment may be made directly by the bank or through its
operating subsidiary. The bank must satisfy the following standards to make such
an investment:
•

The activities of the entity or enterprise in which the investment is made must
be limited to activities that are part of, or incidental to, the business of
banking, or are otherwise authorized for a national bank.

•

The bank must be able to prevent the enterprise from engaging in activities not
meeting the foregoing standard or be able to withdraw its investment.

•

The bank's loss exposure must be limited, as a legal and accounting matter,
and the bank must not have open-ended liability for the obligations of the
enterprise.

•

The investment must be convenient or useful to the bank in carrying out its
business and not a mere passive investment unrelated to the banking business.

To use the after-the-fact notice, the investments must be in an enterprise whose
activity is listed under 12 CFR 5.34(e)(5)(v) or in activities that are substantively the
same as those contained in a published OCC precedent approving a noncontrolling
investment, provided the activities will be conducted under the same terms and
conditions as stated in the precedent. For published precedents, see OCC’s
monthly publication “Interpretations and Actions,” “Activities Permissible For A
National Bank,” or the Commerce Clearing House Federal Banking Law Reporter.
If the bank is not eligible to file a notice or wishes to make other types of equity
investments, it may request a legal opinion from the OCC about whether the
proposed investment is permissible.
Filing Process: A qualifying bank making a noncontrolling investment, directly or
through an operating subsidiary, may file a written notice with the appropriate
director for district licensing no later than 10 days after making the investment. The
OCC considers these notices to be approved upon receipt of the bank’s submission.
The bank must certify in the notice that it meets the required criteria. The written
notice must:
•

Describe the structure of the investment and the activity or activities conducted
by the enterprise in which the bank is investing. (Refer to Specific
Requirements for Insurance if this represents the initial affiliation of the bank
with a particular insurance company.)

•

State which paragraphs of 12 CFR 5.34(e)(5)(v) describe the activity or
activities, or state and describe how the activity is substantially the same as that
24

contained in a published OCC precedent approving a noncontrolling
investment by a bank or its operating subsidiary. If the activity or activities are
substantially the same as in a published OCC precedent, certify that the
activity will be conducted in accordance with the same terms and conditions
applicable to the activity covered by the precedent, and provide the citation to
the applicable precedent.
•

Certify that the bank is “well capitalized” and “well managed” at the time of
the investment (refer to Glossary for definitions).

•

Describe how the bank can prevent the enterprise from engaging in activities
not included in 12 CFR 5.34(e)(5)(v) or in a published OCC precedent
approving a noncontrolling investment by a bank or its operating subsidiary, or
how the bank otherwise can withdraw its investment.

•

Certify that the bank will account for its investment under the equity or cost
method of accounting. For investments that may be subject to the Financial
Accounting Standards Board’s Interpretation No. 46, Consolidation of Variable
Interest Entities, the bank should consult with its accountant to determine how
the bank should account for its investment and contact the appropriate director
for district licensing to determine how to comply with this certification.

•

Describe how the investment is convenient and useful to the bank in carrying
out its business and not a mere passive investment unrelated to the banking
business.

•

Certify that the bank’s loss exposure is limited, as a legal and accounting
matter, and that the bank does not have open-ended liability for the obligations
of the enterprise.

•

Certify that the enterprise in which the bank is investing agrees to be subject to
OCC supervision and examination, subject to the limitations and requirements
of 12 USC 1820a and 1831v.

The OCC reserves the right to require additional information as necessary.

25

Procedures: Operating Subsidiary and Bank Service
Company
After-the-fact Notice
Prefiling
Licensing Staff
1.

Refers a bank requesting instructions to the “General Polices and Procedures”
booklet and this booklet of the Comptroller's Licensing Manual.

Filing the Notice
Bank
2.

Submits a complete “After-the-fact Notice“ (notice) to the appropriate director
for district licensing.
The operating subsidiary or bank service company notice must provide:
•

A certification that the bank is “well capitalized” and “well managed,”
(see Glossary) and that the bank and activity or activities are eligible for
the notice process.

•

A complete description of the investment in the operating subsidiary or
bank service company, including the amount of the investment and the
percent of bank’s capital the investment represents.

•

A complete description of the activity, including the paragraph(s) of 12
CFR 5.34(e)(5)(v) that are applicable. To the extent the notice relates to
the initial affiliation of the bank with a particular company engaged in
insurance activities (including a broker dealer selling annuities that are
considered insurance products under state law), provide a description of
the type of insurance activity in which the company is engaged and has
present plans to conduct. The bank must also list for each state the lines
of business for which the company holds, or will hold, an insurance
license, indicating the state in which the company holds a resident
license or charter, as applicable.

•

The date the activity commenced or the investment was made.

•

A representation and undertaking stating that the activity or activities are
conducted and will continue to be conducted in a manner consistent
with OCC guidance and under the same terms and conditions as
applicable if the activity were conducted directly by the bank.

26

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.

5.

Reviews the notice and verifies that:

6.

•

The bank is “well capitalized” and “well managed” (see Glossary).

•

The description of the activity meets the regulatory criteria under 12 CFR
5.34(e)(5)(v) and the Operating Subsidiary Guidelines.

•

It contains the required notice criteria in step 2.

If the notice is sufficient, sends an acknowledgment letter to the bank,
providing a copy to the appropriate assistant deputy comptroller (ADC) or large
bank EIC and supervisory analyst. Proceeds to step 9.
If the notice relates to an investment in a company engaged in insurance
activities (including a broker dealer selling annuities that are considered
insurance under state law), prepares a cover letter and forwards a copy of the
notice to the insurance commissioner of the state in which the company holds a
resident license or charter, as applicable.
Proceed to step 9.

7.

If the notice is insufficient or filed incorrectly, contacts the bank for clarification
or the missing information.

8.

Reviews any additional information. If the notice is sufficient, sends an
acknowledgment letter to the bank, providing a copy to the appropriate
assistant deputy comptroller (ADC) or large bank EIC and supervisory analyst.
If the notice relates to an investment in a company engaged in insurance
activities (including a broker dealer selling annuities that are considered
insurance under state law), prepares a cover letter and forwards a copy of the
notice to the insurance commissioner of the state in which the company holds a
resident license or charter, as applicable.

Close Out
9. Makes appropriate CAIS entries.
10. Reviews the file for completeness and forwards the file to Central

Records.

27

Procedures: Operating Subsidiary and Bank Service
Company
Application
Prefiling
Licensing Staff
1.

Refers a bank that requests instructions to the “General Polices and Procedures”
booklet and this booklet of the Comptroller's Licensing Manual.

2.

Arranges a prefiling meeting with the applicant, if appropriate. Attendees
should include the appropriate OCC staff (for example, headquarters Licensing
(HQ LIC), legal, supervision, compliance, community development,
economics).

3.

If any prefiling discussions or meetings reveal policy, legal, supervisory, or
other novel issues, contacts HQ LIC to decide:

4.

•

If the application should be filed with HQ LIC (broad policy or legal
issues),

•

If specific issues should be separated from the application to be handled
by HQ LIC, while the application continues to be processed by the district
licensing staff, or

•

When the filing should be forwarded to HQ LIC.

Prepares a summary memorandum of policy or legal issues identified and
retains all pertinent information in the pending file.

Filing the Application
Bank
5.

Submits a complete operating subsidiary or bank service company application
(filing) and a filing fee to the appropriate director for district licensing.

Operating Subsidiary
The standard operating subsidiary filing must provide:
•

A complete description of:
– The bank's investment in the subsidiary.

28

– The investment amount and the percentage of the bank’s capital the
investment represents.
– The proposed activities of the subsidiary. To the extent the notice
relates to the initial affiliation of the bank with a particular company
engaged in insurance activities (including a broker dealer selling
annuities that are considered insurance products under state law),
provide a description of the type of insurance activity in which the
company is engaged and has present plans to conduct. The bank must
also list for each state the lines of business for which the company
holds, or will hold, an insurance license, indicating the state in which
the company holds a resident license or charter, as applicable.
– The organizational structure and management of the subsidiary.
– The relationship between the bank and the subsidiary.
– Any other information necessary to describe the proposal adequately.
•

The location(s) of the proposed activity, stating if any activity will be
conducted at a location other than the main office or a previously
approved branch of the bank.

•

A representation that the proposed activity will be conducted according
to the OCC policies contained in guidance issued for this activity.

•

An opinion of counsel or a legal analysis supporting the proposal if it is
novel, unusually complex, or raises substantial unresolved legal issues.

•

If the activity involves investment discretion:
–

Request approval to exercise fiduciary powers and include the
additional information required by 12 CFR 5.26.

–

State that the bank has approval to exercise fiduciary powers.

–

State that the subsidiary is registered or will be registered as an
investment adviser with the Securities and Exchange Commission
under the Investment Advisers Act of 1940 or as a broker dealer under
the Securities Exchange Act of 1934.

Bank Service Company
The standard bank service company filing must provide:
•

The name and location of the bank service company.

•

A complete description of the activities that the bank service company
will conduct. To the extent the notice relates to the initial affiliation of
the bank with a particular company engaged in insurance activities
(including a broker dealer selling annuities that are considered insurance
products under state law), provide a description of the type of insurance
activity in which the company is engaged and has present plans to
29

conduct. The bank must also list for each state the lines of business for
which the company holds, or will hold, an insurance license, indicating
the state in which the company holds a resident license or charter, as
applicable.
•

Information demonstrating that the bank will comply with the regulatory
investment limitations.

•

Information demonstrating that the bank service company and all banks
investing in it are located in the same state, unless the Federal Reserve
Bank has approved an exception to this requirement under the authority
of 12 USC 1865(b).

•

Information demonstrating that the bank service company will conduct
those activities only at locations in a state in which the investing bank
could be authorized to perform them directly, unless the Federal Reserve
has approved an exception to this requirement under the authority of 12
USC 1865(b).

Review
Licensing Staff
6.

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

7.

Establishes the official file to maintain all original documents.

8.

Forwards the correct filing fee and the deposit memorandum to: Comptroller
of the Currency, Attention: Accounts Receivable, 250 E Street SW, MS-4-8,
Washington, DC 20219. Retains a copy of the memorandum for the file.
(Requests a filing fee if not received.)

9.

Sends a letter within five business days of receipt, notifying the bank that its
filing will be processed under the standard review process and that the activity
cannot begin until the OCC provides written approval for the operating
subsidiary (or within 60 days of receipt for a bank service company).

10. Reviews the filing and any other relevant information about the bank. If the
filing presents novel, legal or policy issues, repeats step 3 and forwards a
memo to HQ LIC.
11. Within five business days of receipt, notifies appropriate ADC or large bank
EIC and supervisory analyst of the filing and solicits comments, as appropriate,
from district counsel, supervision, and other OCC divisions with a preliminary
response required by the 15th day after the filing date. For undercapitalized
banks, contacts the supervisory office for capital plan status.
12. Requires the bank to submit additional information or legal analysis, including
a specific date for reply, if the activity of the proposed subsidiary or bank
service company is unclear, the legality is in doubt, or if additional information

30

is necessary to make a decision about the permissibility of the proposed
investment.

Decision
Licensing Staff
13. Prepares the confidential memorandum and decision letter, recommending a
decision to the delegated official.
14. Decides application under delegated authority or forwards the official file to
HQ LIC for decision. If referred to HQ LIC, go to step 17.
15. Notifies the bank by telephone after the decision and sends the bank a
decision letter, with a copy to the appropriate ADC or large bank EIC and
supervisory analyst. (Decision letter, if applicable, will include any written
conditions or supervisory concerns.)
16. If the notice relates to an investment in a company engaging in insurance
activities, including a broker or dealer selling annuities that are considered
insurance under state law, forwards a copy of the notice with a brief cover
letter to the insurance commissioner of the state in which the company holds a
resident license or charter, as applicable.
17. Makes appropriate CAIS entries. Proceed to step 24.

HQ LIC
18. Reviews the file and solicits comments from other OCC divisions, as
appropriate.
19. Prepares and sends the confidential memorandum and decision letter,
recommending a decision to the delegated official.
20. After decision, notifies the director for district licensing and the bank by
telephone of the decision and sends the bank a decision letter, with a copy to
the appropriate ADC or large bank EIC and supervisory analyst. (Decision
letter, if applicable, will include any written conditions or supervisory
concerns.)
21. Makes appropriate CAIS entries.
22. For approved and conditionally approved filings, returns the official file to the
district for additional processing.
23. If denied, proceed to step 24.

31

Close Out
Licensing Staff
24. Makes appropriate CAIS entries to close filing.

25. Reviews the file for completeness and forwards it to Central Records.

32

Procedures: Financial Subsidiary–Certification
Prefiling
Licensing Staff
1. Refers a bank that requests instructions to the “General Polices and
Procedures” booklet and this booklet of the Comptroller's Licensing Manual.

Filing the Certification
Bank
2. Submits a Financial Subsidiary Certification to the appropriate director for
district licensing.
The financial subsidiary certification must:
•

Be labeled “Financial Subsidiary Certification.”

• Provide a complete listing of the bank’s affiliated depository institutions.
• Include a certification that the bank and each affiliated depository
institution:
− Is “well capitalized.”
− Is “well managed.”
− Has not received a less than “Satisfactory” CRA rating.

Review
Licensing Staff
3. Makes appropriate CAIS entries.
4. Establishes the official file to maintain all original documents.
5. Determines that the financial subsidiary certification is complete. (To be
complete the certification must include the items listed in step 2.)
6. Verifies that the bank and each depository affiliate is “well capitalized,” “well
managed,” and has not received less than a “satisfactory” CRA rating.
7.

If the financial subsidiary certification contains the required information, sends
an acknowledgment letter to the bank, with a copy to the appropriate ADC or
large bank EIC and supervisory analyst. Proceed to step 10.

33

8.

If the financial subsidiary certification is not complete, contacts the bank for
missing information.

9.

Reviews any additional information to determine completeness. Goes back to
step 5.

Close Out
Licensing Staff
10. Maintains a copy of the financial subsidiary certification in the district office
files to be used as reference for subsequent notice filings.

11. Makes appropriate CAIS entries.
12. Reviews the file for completeness and forwards the file to Central Records.

34

Procedures: Financial Subsidiary–Notice
Prefiling
Licensing Staff
1. Refers a bank that requests instructions to the “General Polices and Procedures”
booklet and this booklet of the Comptroller's Licensing Manual.

Filing the Notice
Bank
2. Submits a Financial Subsidiary Notice (notice) to the appropriate director for
district licensing.
The financial subsidiary notice must:
•

Be labeled “Financial Subsidiary Notice.”

•

Attest that the bank’s financial subsidiary certification remains valid.

•

Describe the activity or activities to be performed in the financial subsidiary.

•

If a notice relates to the initial affiliation of the bank with a particular
company involved in insurance activities (including a broker or dealer
selling annuities that are considered insurance products under state law),
describe the type of insurance activity that the company is engaged in and
has present plans to conduct and list for each state the lines of business for
which the company holds, or will hold, an insurance license, indicating the
state in which the company holds a resident license or charter, as
applicable.

•

Cite the specific authority permitting the activity to be conducted within a
financial subsidiary. Include a copy of the order or interpretation if the
authority relied upon is an agency order or interpretation under sections
4(c)(8) or 4(c)(13) of the Bank Holding Company Act, 12 USC 1843(c)(8) or
(c)(13).

•

Certify that the bank will remain “well capitalized” after deducting the
aggregate amount of its outstanding equity investment, including retained
earnings, in its financial subsidiaries from the assets and tangible equity of
the bank and deducting such investment from its total risk-based capital (this
deduction shall be made equally from Tier I and Tier 2 capital).

•

Demonstrate that the aggregate consolidated total assets of all the financial
subsidiaries of the national bank do not exceed the lesser of 45 percent of
the bank’s consolidated total assets or $50 billion (this $50 billion limit is
subject to adjustment according to an indexing mechanism established
jointly by the Secretary of the Treasury and the Federal Reserve).
35

•

Certify that the bank meets the eligible debt requirement of 12 CFR
5.39(g)(3), if applicable. If the financial subsidiary is acting solely as agent,
this certification is not necessary.

Review
Licensing Staff
3. Initiates and enters appropriate information into CAIS.
4. Establishes the official file to maintain all original documents.
5. Forwards a copy of the Financial Subsidiary Notice and any CAIS comments to
the appropriate ADC or large bank EIC and supervisory analyst.
6. Determines that a financial subsidiary certification is on file and that the
information outlined in step 2 is included with the notice.
7. If the notice relates to an investment in a company engaging in insurance
activities, including a broker dealer selling annuities that are considered
insurance under state law, forwards a copy of the notice with a brief cover
letter to the insurance commissioner of the state in which the company holds a
resident license or charter, as applicable.
8. If the notice contains the information previously outlined, sends an
acknowledgement letter to the bank with a copy to the appropriate ADC or
large bank EIC and supervisory analyst. Proceed to step 11.
9. If the notice is not complete, contacts the bank for submission of missing
information.
10. Reviews any additional information to determine the notice is complete. Goes
to step 8.

Close Out
Licensing Staff
11. Makes appropriate CAIS entries.
12. Reviews the file for completeness and forwards the file to Central Records.

36

Procedures: Financial Subsidiary–Combined
Certification and Notice
Prefiling
Licensing Staff
1. Refers a bank that requests instructions to the “General Polices and
Procedures” booklet and this booklet of the Comptroller's Licensing Manual.

Filing
Bank
2. Submits a Financial Subsidiary Certification and Notice to the appropriate
director for district licensing.
The financial subsidiary certification and notice must:
• Be labeled “Financial Subsidiary Certification and Notice.”
• List each of the bank’s affiliated depository institutions.
• Include a certification that the bank and each affiliated depository
institution:
− Is “well capitalized.”
− Is “well managed.”
− Has not received a less than “Satisfactory” CRA rating.
• Describe the activity or activities to be performed in the financial subsidiary.
• Cite the specific authority permitting the activity to be conducted within a
financial subsidiary. Include a copy of the order or interpretation if the
authority relied upon is an agency order or interpretation under Section
4(c)(8) or 4(c)(13) of the Bank Holding Company Act, 12 USC 1843(c)(8),
(c)(13).
• If a notice relates to the initial affiliation of a bank with a particular company
involved in insurance activities (including a broker dealer selling annuities
that are considered insurance products under state law), describe the type of
insurance activity that the company is engaged in and has present plans to
conduct and list for each state the lines of business for which the company
holds, or will hold, an insurance license, indicating the state in which the
company holds a resident license or charter, as applicable.

37

• Certify that the bank will remain “well capitalized” after deducting the
aggregate amount of its outstanding equity investment, including retained
earnings, in its financial subsidiaries from the assets and tangible equity of
the bank and deducting such investment from its total risk-based capital (this
deduction shall be made equally from Tier I and Tier 2 capital).
• Demonstrate that the aggregate consolidated total assets of all the financial
subsidiaries of the national bank do not exceed the lesser of 45 percent of
the bank’s consolidated total assets or $50 billion (this $50 billion limit is
subject to adjustment according to an indexing mechanism established
jointly by the Secretary of the Treasury and the Federal Reserve).
• Certify that the bank meets the eligible debt requirement of 12 CFR
5.39(g)(3), if applicable. If the financial subsidiary is acting solely as agent,
this certification is not necessary.

Review
Licensing Staff
4. Initiates and enters appropriate information into CAIS.
5. Establishes the official file to maintain all original documents.
6. Forwards a copy of the financial subsidiary certification and notice and any
CAIS comments to the appropriate ADC or large bank EIC and supervisory
analyst.
7. Determines the financial subsidiary certification and notice contains the
information outlined in step 2.
8. Determines the bank and each affiliated depository institution is “well
capitalized,” “well managed,” and has not received less than a “Satisfactory”
CRA rating.
9. If the notice relates to an investment in a company engaging in insurance
activities, including a broker dealer selling annuities that are considered
insurance under state law, forwards a copy of the notice with a brief cover
letter to the insurance commissioner of the state in which the company holds a
resident license, or charter, as applicable.
10. If the financial subsidiary certification and notice contains the information
outlined in step 2, sends an acknowledgement letter to the bank with a copy to
the ADC or large bank EIC and supervisory analyst. Proceed to step 13.
11. If the financial subsidiary certification or notice is not complete, contacts the
bank for submission of missing information.
12. Reviews any additional information to determine that financial subsidiary
certification and notice is complete. Proceed to step 10.

38

Close Out
Licensing Staff
13. Makes appropriate CAIS entries.
14. Makes a copy of financial subsidiary certification and notice and retains it in
the district office files for future reference.

15. Reviews the file for completeness and forwards the file to Central Records.

39

Procedures: Noncontrolling Investments
After-the-fact Notice
Prefiling
Licensing Staff
1.

Refers a bank requesting instructions to the “General Polices and Procedures”
booklet and this booklet of the Comptroller's Licensing Manual.

Filing the Notice
Bank
2.

Submits a complete after-the-fact notice (notice) and filing fee to the appropriate
director for district licensing.
The noncontrolling investment notice must provide:
•

A certification that the bank is “well capitalized” and “well managed.”

•

A complete description of the investment in the enterprise, including the
amount of the investment and the percent of the bank’s capital the
investment represents.

•

A complete description of the activities conducted by the enterprise in
which the bank is investing. To the extent the notice relates to the initial
affiliation of the bank with a particular company engaged in insurance
activities (including a broker dealer selling annuities that are considered
insurance products under state law), provide a description of the type of
insurance activity in which the company is engaged and has present
plans to conduct. The bank must also list for each state the lines of
business for which the company holds, or will hold, an insurance
license, indicating the state in which the company holds a resident
license or charter, as applicable.

•

A statement as to:
– Which paragraph(s) of 12 CFR 5.34(e)(5)(v) describes the activities, or
– How the activities are substantively the same as that contained in a
published OCC precedent (with citations provided), approving a
noncontrolling investment by a bank or its operating subsidiary, with
a statement that such activity will be conducted under the same
terms and conditions applicable to the activity covered by the
precedent.

40

•

A description of how the bank can prevent the enterprise from engaging
in activities not contained in 12 CFR 5.34(e)(5)(v) or in a published OCC
precedent approving a noncontrolling investment by a national bank or
its operating subsidiary, or how the bank can withdraw its investment.

•

A description of how the investment is convenient and useful to the bank
in carrying out its business and not merely a passive investment unrelated
to the bank’s banking business.

•

A statement certifying that:
-

The bank will account for its investment under the equity or cost
method of accounting.

-

The bank’s loss exposure is limited, as a legal and accounting matter,
and the bank does not have open-ended liability for the obligations
of the enterprise.

-

The enterprise in which the bank is investing agrees to be subject to
OCC supervision and examination, subject to the limitations and
requirements of 12 USC 1820a and 1831v.

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.

5.

Forwards the correct filing fee and the deposit memorandum to: Comptroller
of the Currency, Attention: Accounts Receivable, 250 E Street SW, MS 4-8,
Washington, D.C. 20219. Retains a copy of the memorandum for the file.
(Requests the filing fee, if not received.)

6.

Reviews the notice and verifies that:

7.

•

The bank is at least “well capitalized” and “well managed.”

•

The description of the activity meets the regulatory criteria of 12 CFR
5.34(e)(5)(v) and 5.36(e).

•

The notice contains all the required information as outlined in step 2.

•

Forwards copy of the notice to district counsel if the activity raises any
questions of permissibility.

If the notice is sufficient, sends an acknowledgment letter to the bank,
providing a copy to the appropriate ADC or large bank EIC and supervisory
analyst.
41

If the notice relates to an investment in a company engaged in insurance
activities (including a broker dealer selling annuities that are considered
insurance under state law), prepares a cover letter and forwards a copy of the
notice to the insurance commissioner of the state in which the company holds
a resident license or charter, as applicable.
Proceed to step 10.
8.

If the notice is insufficient, contacts the bank for clarification or the missing
information.

9.

Reviews any additional information. If the notice is sufficient, sends an
acknowledgment letter to the bank, providing a copy to the appropriate ADC
or large bank EIC and supervisory analyst.
If the notice relates to an investment in a company engaged in insurance
activities (including a broker dealer selling annuities that are considered
insurance under state law), prepares a cover letter and forwards a copy of the
notice to the insurance commissioner of the state in which the company holds
a resident license or charter, as applicable.

Close Out
Licensing Staff
10. Makes appropriate CAIS entries.
11. Reviews the file for completeness and forwards the file to Central Records.

42

Appendix A: Operating Subsidiary Guidelines
Introduction
These guidelines describe those activities of national banks that the Comptroller of
the Currency (OCC) has determined may be performed in an operating subsidiary
under the after-the-fact notice procedure available in the OCC’s operating subsidiary
regulation.1 The citations given in the guidelines for each of the activities listed
provide examples of OCC approvals.2

Operating Subsidiary Activities [5.34(e)(5)(v)]
(A) Holding and managing assets acquired by the parent bank, including
investment assets and property acquired by the bank through foreclosure or
otherwise in good faith to compromise a doubtful claim, or in the ordinary course
of collecting a debt previously contracted.
National banks and their operating subsidiaries may hold and manage assets
acquired by the parent bank or the operating subsidiary, including investment assets
and property acquired in satisfaction of debts previously contracted (DPC).
Investment Assets
National banks and their operating subsidiaries may own, hold, and manage all or
part of the parent bank's investment securities portfolio in accordance with the
bank's investment guidelines. Such activity is permissible as part of, or incidental to,
the business of banking. Moreover, a national bank or its operating subsidiary “may
purchase for its own account investment securities under such limitations and
restrictions as the OCC may by regulation prescribe.”3 The OCC's Investment
Securities Regulations at 12 CFR 1 prescribe limitations and restrictions on the
purchase of an investment security by a national bank for its own account. These
restrictions similarly apply to a national bank's operating subsidiary. Limits on
securities activities in Part 1 generally are applied to the bank and the operating
subsidiary combined.
DPC Property
Title 12 USC 29 governs the treatment of real property taken DPC. Banks should
consult 12 CFR 34, Subpart E, “Other Real Estate Owned,” for specific information
on the treatment of DPC real estate. In addition, banks are authorized to take other
property DPC under 12 USC 24 (Seventh), for sale to reduce the bank's losses on
the underlying debts. A bank may take appropriate steps to preserve the property's
value for sale. For example, if a national bank takes corporate stock DPC, it has the
implied power to operate the corporation's business, particularly when the resale
value depends on its uninterrupted operation, provided that the purpose of
operating the corporation's business is not to speculate on its future value.
1

12 CFR 5.34(e)(5)(iv) and (v).
The narrative section of this Investment in Subsidiaries and Equities booklet (booklet) provides
further information on the requirements governing the use of the after-the-fact notice procedure.
3
12 USC 24(Seventh).
2

43

Generally, real property must be disposed of within five years and cannot be used
for speculation. Transfer of the DPC assets to the operating subsidiary does not alter
the limitations on the bank's holding period for that asset. The property need not
have been collateral for the loan in question. The OCC may extend that period up
to five additional years if the bank has made a good faith attempt to dispose of the
real estate within the five-year period or its disposal within that period would be
detrimental to the bank.
A national bank also may hold securities in satisfaction of DPC for five years. This
holding period also may be extended up to an additional five years upon a clearly
convincing demonstration of why an additional holding period is needed.4 An
operating subsidiary that acquires stock of the parent bank must dispose of it within
six months.5
Operating subsidiaries established by the notice procedure to engage in DPC
activity also may enter into arrangements as a general or limited partner with
depository or nondepository co-lenders to engage in the orderly acquisition,
management, and disposition of DPC assets stemming from the parent bank's loans.6
DPC partnership activity must be conducted as follows: (1) the partnership must be
limited to the acquisition, management, and disposition of the DPC assets; (2)
partners will be limited to co-lenders and their agents; (3) the DPC assets must be
disposed of promptly within the previously described guidelines; and (4) the bank
must maintain at its headquarters office and make available to OCC examiners
current information on all DPC assets activities of its operating subsidiary, including
the name and location of each operating subsidiary, each partnership and relevant
agreement, and each DPC asset being held pending disposition.
National banks establishing operating subsidiaries that will engage in debt-equity
swap transactions7 must follow the standard processing procedures in section 5.34.
(B) Providing services to or for the bank or its affiliates, including accounting,
auditing, appraising, advertising and public relations, and financial advice and
consulting.
National banks and their operating subsidiaries may provide internal operation
services for the parent bank, its holding company, and their subsidiaries.8 These
services generally relate to the day-to-day operations of those entities.9 Real estate
appraisal services are covered at 12 CFR 5.34(e)(5)(v)(V).
National banks and their operating subsidiaries may provide advice, opinions,
research, analyses, reports and other information and opinion on any financial
4
12 CFR 1.7 clarifies how a bank must treat securities held in satisfaction of DPC and provides for
the five-year holding period with limited extensions. It also requires banks to account for those
holdings in accordance with GAAP and states that they may not be taken for speculative purposes.
5
12 USC 83.
6
Interpretive Letter No. 397 (September 15, 1987), reprinted in [1988-89 Transfer Binder] Fed.
Banking L. Rep. (CCH) ¶ 85,621.
7
No Objection Letter No. 87-10 (November 27, 1987), reprinted in [1988-89 Transfer Binder] Fed.
Banking L. Rep. (CCH) ¶ 84,039; No Objection Letter No. 88-7 (May 20, 1988), reprinted in [198889 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 84,047.
8
Interpretive Letter No. 811, supra; Interpretive Letter No. 513 (June 18, 1990), reprinted in [199091 Transfer Binder] Federal Banking L. Rep. (CCH) ¶ 83,215.
9
Letter from Robert Bloom, Deputy Comptroller for Policy (August 26, 1975).

44

matter to any affiliate of the operating subsidiary. Banks typically develop financial
information and analysis internally.
(C) Making loans or other extensions of credit, and selling money orders, savings
bonds, and travelers checks.
Making loans or other extensions of credit
National banks and their operating subsidiaries possess broad authority to engage in
lending and lending-related activities. Subject to safety and soundness guidelines,
they may originate (including asset-based lending) loans or other extensions of
credit for the bank’s or subsidiary’s account, or for the account of others. These
activities are permitted for any type of loan, or interest therein, including, among
other things, consumer loans, accounts receivable, credit card loans, commercial
loans, residential mortgage loans, and commercial real estate loans. For purposes of
this section, however, only lending activities that: (1) are well-established activities
previously approved by the OCC; and (2) do not raise significant policy or
supervisory issues, qualify for after-the-fact notice filings under 12 CFR Part 5. For
example, derivatives transactions are not considered lending transactions for
purposes of this section. Also, operating subsidiaries structured as real estate
investment trusts do not qualify for after-the-fact notice filings if the size of the
minority interest to be created is greater than the lesser of 1 percent of the bank's
Tier 1 capital or $1 million. Any bank that considers establishing a REIT as an
operating subsidiary is strongly encouraged to consult first with the OCC.
Except for lending limit, affiliate-transaction, and insider-transaction restrictions,
lending is generally permitted without a quantitative limit, but when performed for
the bank's or subsidiary's own account, may be subject to geographic restrictions
under the McFadden Act.
Real estate loans and certain other types of loans are also subject to certain
additional restrictions discussed as follows.
Personal and Commercial Loans
National banks and their operating subsidiaries are authorized expressly to lend
money on personal security.10 They may also discount, purchase, and negotiate
drafts, bills of exchange, and other evidences of debt. The general power to make
personal and commercial loans essentially is unrestricted.
Real Estate Loans and Related Activities
A national bank may make real estate loans pursuant to 12 USC 371 and 12 USC
24(Seventh). A national bank will find the standards for real estate-related lending
and associated activities at 12 CFR 34. Real estate lending may be performed for
the account of the bank, the operating subsidiary, or for third parties.11 National
banks and their operating subsidiaries may make (or participate in), arrange,
purchase, or sell loans or extensions of credit (or interests therein) secured by liens
or interests in residential or commercial real estate (including acquisition,
10

12 USC 24(Seventh).
Interpretive Letter No. 389 (July 7, 1987), reprinted in [1988-89 Transfer Binder] Fed. Banking L.
Rep. (CCH) ¶ 85,613.
11

45

development, and construction loans) without any special quantitative limit aside
from the general lending limit, but subject to applicable restrictions and
requirements of the OCC's regulations in 12 CFR 34 and accompanying Interagency
Guidelines for Real Estate Lending Policies. They may also perform various
activities that are closely related to the lending function, such as gathering census
tract information, auditing loan portfolios, preparing loan documentation,
performing flood insurance services, and inspecting real property.12
The authority to make such loans includes structuring them as “participating loans,”
when a portion of the interest, but not the principal, is contingent upon the success
of the borrower's enterprise. However, the lender may not take an ownership
interest in the underlying real estate.13
Certain permissible services (including lending, functions involved in loan
brokerage, preparation of loan documentation, performing flood insurance services,
inspecting real property, and others) qualify as “settlement services” under the Real
Estate Settlement Procedures Act (RESPA). As such, referrals of these services
among the bank and its lending affiliates are subject to the restrictions relating to
“affiliated business arrangements” (ABAs) as defined in RESPA. For additional
information and guidance, refer to (V) “Providing real estate settlement, closing,
escrow, and related services; and real estate appraisal services for the subsidiary,
parent bank, or other financial institutions” of this appendix.
Other Lending-Related Activities
In addition to direct lending activities, national banks and their operating
subsidiaries also may engage in lending-related activities on behalf of third parties,
that are part of or incidental to banking, such as conducting a general mortgage
banking business and providing loan brokerage services. For example, national
banks and their operating subsidiaries may provide real estate asset management
and advisory services, furnish debt collection services, set fees, offer credit reporting
services, arrange for the placement of equity interests in commercial real estate
between borrowers and investors,14 market and sell mortgage loans in the secondary
market, provide customer service support for a credit card business, negotiate and
close loans for third-party lenders, arrange loan commitments from third parties, act
as document custodians of residential mortgage loan documents for third parties,
assist state and local governments in placing funds made available through
mortgage revenue bonds, and engage in merchant processing activities.15

12
See, for example, Conditional Approval No. 322 (July 30, 1999); Conditional Approval No. 276
(May 8, 1998).
13
12 CFR 7.1006; Interpretive Letter No. 620 (July 15, 1992), reprinted in [1993-1994 Transfer
Binder] Fed. Banking L. Rep. (CCH) ¶ 83,502; Interpretive Letter No. 389, supra; Interpretive Letter
No. 244 (Jan. 26, 1982), reprinted in [1983-84 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶
85,408; and Interpretive Letter No. 204 (June 17, 1981), reprinted in [1981-82 Transfer Binder] Fed.
Banking L. Rep. (CCH) ¶ 85,285.
14
Subject to the conditions in Interpretive Letter No. 271, supra.
15
Interpretive Letter No. 389, supra; Interpretive Letter 387, supra; Interpretive Letter No. 271, supra;
S. rep. No. 536, 97th Cong., 2d Sess. 60 (1982); Interpretive Letter No. 944 (Aug. 12, 2002) [Current
Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81-469. See also Letter from J. Michael Shepherd,
Senior Deputy Comptroller (Nov. 19, 1990); Letter from Karen J. Wilson, Deputy Comptroller (Mar.
13, 1990); Letter from Karen J. Wilson, Deputy Comptroller (Nov. 29, 1989) and Letter from Emory
W. Rushton, Acting Deputy Comptroller (Dec. 19, 1986).

46

Activities undertaken for third parties, such as brokerage or servicing activities, may
be conducted at any location without regard to branching restrictions.
Selling money orders, savings bonds, or travelers checks.
National banks and their operating subsidiaries generally may sell these instruments
without regard to where the bank's branch offices are or could be located. In
addition, the OCC's interpretive ruling, “Sale of money orders at nonbanking
outlets,” 12 CFR 7.1014, allows bonded agents to sell money orders on behalf of
the bank or its operating subsidiary at nonbanking locations. See section (Y) below.
(D) Purchasing, selling, servicing, or warehousing loans or other extensions of
credit, or interests therein.
National banks and their operating subsidiaries may, subject to safety and
soundness considerations, engage in purchasing (including factoring), selling,
servicing, or warehousing loans or other extensions of credit for the bank’s or
subsidiary’s account or for the account of others. These activities are permitted for
any type of loan, or interest therein, including, among other things, consumer loans,
accounts receivable, credit card loans, commercial loans, residential mortgage
loans, and commercial real estate loans. Most such loans and activities are subject
to the same general authorities and limitations as apply to the origination of loans
(see section (C) above).
The OCC interprets the general lending authority of section 24(Seventh) as
permitting national banks and their operating subsidiaries to act as agent in selling,
warehousing or servicing mortgage and other loans.16 Warehousing loans generally
involves holding loans that are closed and awaiting sale or delivery to an investor.
National banks and their operating subsidiaries may engage in mortgage collateral
warehousing for third parties, which involves the receipt, verification, and storage of
loan documentation for lenders.17 In addition, they may provide warehousing
services to extend credit to the loan originator in exchange for an assignment of the
loans.
(E) Providing courier services between financial institutions.
National banks and their operating subsidiaries may transport items pertaining to
banking operations between the offices of the bank, the bank and its affiliated
financial institutions; the bank and nonaffiliated financial institutions; offices of nonaffiliated financial institutions; offices of noncustomers of the bank; and between
noncustomers of the bank and their financial institutions.18 National banks may
provide courier services for financial institutions under the following circumstances:
•

For the bank itself: transportation of items related solely to the internal
operations of the bank.19 This includes transportation of cash between bank
offices or for the restocking of the bank’s ATMs.20

16
Conditional Approval No. 338 (Nov.10, 1999); Conditional Approval No. 264 (Dec.29, 1997);
Conditional Approval No. 243 (May 9, 1997); Interpretive Letter No. l87, supra.
17
Letter from Michael Patriarca, Deputy Comptroller (May 28, 1986).
18
Corp. Dec. 2003-9 (June 25, 2003).
19
Letter from Peter Liebesman, Assistant Director, Legal Advisory Services Division (March 7, 1983).
20
12 CFR 5.34(e)(v)(E); Corp. Dec. 2003-9 (June 25, 2003); Interpretive Letter No. 513 (June
18,1990), reprinted in [1990-91 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 83,215; No-

47

•
•

For the bank itself and for its affiliated financial institutions: transportation of
items related to banking transactions, such as checks, data processing
materials, and interoffice mail.21
For the bank and affiliated and nonaffiliated financial institutions:
transportation of cash and documents related to banking, such as checks,
commercial paper, non-negotiable instruments, audit and accounting media,
and other business records.22

A courier service performing the previously mentioned functions pursuant to the
after-the-fact notice procedure must not constitute a branch of any bank—that is, the
service must not constitute branching transactions (the receipt of deposits, payment
of withdrawals, or disbursement of loan proceeds) with its customers. If the service
does constitute a branch, branching approval must be sought under the procedures
set forth in 12 CFR 5.30.
(F) Providing management consulting, operational advice, and services for other
financial institutions.
National banks and their operating subsidiaries may gather information and provide
advice to any unaffiliated depository institution, in the form of information or
opinion about its management and operation, and provide other services tailored to
the management and operational needs of a depository institution customer. Banks
traditionally have performed those activities in their correspondent relationships,
under which they act on behalf of other banks in conducting the banking business.
See also subsection (S), infra, “Offering correspondent services to the extent
permitted by published OCC precedent.” Operating subsidiaries may provide a
broad range of services to other depository institutions under this authority.23
Services offered pursuant to this authority must be those that reflect and incorporate
the unique nature of the banking business.24
Any actions taken or decisions made by a depository institution customer, based on
services provided by the operating subsidiary, must be a function of the
management or board of directors of the customer, with the operating subsidiary
refraining from engaging in a management role or exercising any form of operating
control over the customer.25

Objection No. 89-04 (July 11, 1989), reprinted in [1989-1990 Transfer Binder] Fed. Banking Law.
Rep. (CCH) ¶ 83,061; Letter from Richard V. Fitzgerald, Director, Legal Advisory Services Division
(May 22, 1981).
21
Letter from Thomas G. DeShazo, Deputy Comptroller (April 26, 1974).
22
Corp. Dec. 2003-9 (June 25, 2003); Interpretive Letter No. 513 (June 18, 1990), reprinted in
[1990-91 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 83,215; No-Objection Letter No. 89-04
(July 11, 1989), reprinted in [1989-1990 Transfer Binder] Fed. Banking Law. Rep. (CCH) ¶ 83,061;
Letter from Richard V. Fitzgerald, Director, Legal Advisory Services Division (May 22, 1981).
23
Interpretive Letter No. 811, supra; Letter from Emory Rushton, Deputy Comptroller (February 16,
1988) Interpretive Letter No. 137 (December 27, 1979), reprinted in [1981-82 Transfer Binder] Fed.
Banking L. Rep. (CCH) ¶ 85,218; Letter from John Shockey, Deputy Chief Counsel (April 12, 1976);
Letter from H. Joe Shelby, Deputy Comptroller (October 2, 1975); Letter from Thomas G. DeShazo,
Deputy Comptroller (August 22, 1975).
24
Interpretive Letter No. 137, supra.
25
Letter from Emory Rushton, Deputy Comptroller (February 16, 1988).
48

(G) Providing check guaranty, verification, and payment services.
National banks and their operating subsidiaries may agree to “guarantee” or “verify”
the checks that will be drawn upon the bank by its customers.26 In essence, the
bank or the operating subsidiary agrees with its customers to extend credit, if
necessary, to honor the checks. They may also provide check-cashing services to
the general public without regard to where the bank’s branch offices are or could be
located.
(H) For the bank or its affiliates, providing data processing, data warehousing and
data transmission products, services, and related activities and facilities, including
associated equipment and technology.
National banks and their operating subsidiaries may collect, process, transcribe,
analyze, and store banking, financial, and economic data for themselves and their
customers as part of the business of banking.27 Permissible processing of eligible
data includes provision of data processing services, data transmission services,
facilities – including equipment, technology, and personnel – databases, and
advice. It also includes providing access to such services, facilities, databases, and
advice. Economic data includes anything of value in banking and financial
decisions.28
In addition to the processing of banking, financial, or economic data, national banks
and their subsidiaries may, as activities incidental to the business of banking,
provide limited amounts of non-financial information processing to their customers
to enhance marketability or use of a banking service.29 For example, a national
bank selling home banking services can also provide customers with access to nonbanking services “to increase the customer base for and the usage of” the home
banking service.30
Banks and their subsidiaries that engage in financial or non-financial data processing
will be expected to comply with all applicable supervisory requirements and
guidance.31
(I) Acting as investment adviser (including an adviser with investment discretion)
or financial adviser or counselor to governmental entities or instrumentalities,
businesses, or individuals, including advising registered investment companies and
26

12 USC 24(Seventh).
12 CFR 7.5006; Interpretive Letter No. 928, (Dec. 24, 2001), reprinted in [Current Transfer Binder]
Fed. Banking L. Rep. (CCH) ¶ 81-453; Corporate Decision No. 2000-08 (Jun. 1, 2000); Interpretive
Letter No. 811, supra; Letter from Emory Rushton, Deputy Comptroller (February 16, 1988);
Interpretive Letter No. 137, supra
28
Interpretive Letter No. 928, supra; Corporate Decision No. 2000-08, supra; Conditional Approval
No. 361 (Mar. 3, 2000); Interpretive Letter No. 856 (Mar. 5, 1999), reprinted in [1998-1999 Transfer
Binder] Fed. Banking L. Rep. (CCH) ¶81-313.
29
Conditional Approval No. 369 (Feb. 25, 2000); Interpretive Letter No. 742, (Aug. 19, 1996).
reprinted in [1996-1997 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81-106.
30
Interpretive Letter No. 611, (Nov. 23, 1992), reprinted in [1992-1993 Transfer Binder] Fed.
Banking L. Rep. (CCH) ¶ 83,449.
31
For example, OCC Alert No. 2001-04 (Apr. 24, 2001) (Network Security Vulnerabilities); OCC
Advisory Letter No. 2000-12 (Nov. 28, 2000) (Risk Management of Outsourcing Technology); OCC
Bulletin No. 2000-14 (May 15, 2000) (Infrastructure Threats-Intrusion Risks–Message to Bankers and
Examiners); Federal Financial Institutions Examination Council, Information Systems Examination
Handbook (1996 ed.), available at http://www.ncua.gov/ref/ffiec/ffiechandbook.html.
27

49

mortgage or real estate investment trusts, furnishing economic forecasts or other
economic information, providing investment advice related to futures and options
on futures, and providing consumer financial counseling.
General Description
National banks and their operating subsidiaries may provide investment and
financial advisory services and financial counseling as part of banking powers
authorized under 12 USC 24(Seventh), or, in the case of activities that are fiduciary
in nature, pursuant to their fiduciary powers under 12 USC 92a.32
Advisory activities may be provided to individuals, corporations, institutional
investors, correspondent financial institutions, pension and other retirement plans,
and others.33 Those activities include individualized investment advice, business
advisory services, financial advice, financial planning, investment
recommendations, and analyses of economic trends.34 Various administrative and
shareholder functions also are incidental to the provision of advisory services
including, but not limited to, recordkeeping, accounting, and other services.35
Operating subsidiaries seeking to engage in different advisory activities should
consult other sections of these guidelines, as applicable, for the scope of permissible
activities. Any bank with an operating subsidiary engaging in these activities must
comply with applicable provisions of the Interagency Statement on Retail Sales of
Nondeposit Investment Products, February 15, 1994.
Depending on the advisory services offered, the operating subsidiary may need to
register with the Securities and Exchange Commission (SEC) as an investment
adviser under the Investment Advisers Act of 1940 (Advisers Act) and comply with
any applicable state laws.36 Banks are excluded specifically from the definition of
investment adviser under the Advisers Act, unless they advise registered investment
companies. Bank operating subsidiaries are fully subject to the Advisers Act.37
Adviser with Investment Discretion
Investment discretion means, with respect to an account, the sole or shared
authority (whether or not that authority is exercised) to determine what securities or
32

12 CFR 9.2(e); Interpretive Letter No. 769 (January 28, 1997), reprinted in [1996-97 Transfer
Binder] Fed. Banking L. Rep. (CCH) ¶ 81-133; Interpretive Letter No. 648 (May 4, 1994), reprinted in
[1994 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 83,557; Interpretive Letter No. 367 (August 19,
1986), reprinted in [1985-87 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 85,537; Interpretive
Letter No. 329 (March 4, 1985), reprinted in [1985-87 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶
85,499; Decision of the Comptroller of the Currency Concerning an Application by American
National Bank of Austin, Texas, to Establish an Operating Subsidiary to Provide Investment Advice
(American National Decision) (September 23, 1983), reprinted in [1983-84 Transfer Binder] Fed.
Banking L. Rep. (CCH) ¶ 99,732.
33
Interpretive Letter No. 298 (July 23, 1984), reprinted in [1985-87 Transfer Binder] Fed. Banking L.
Rep. (CCH) ¶ 85,468; American National Decision, supra.
34
Interpretive Letter No. 516 (July 12, 1990), reprinted in [1990-91 Transfer Binder] Fed. Banking L.
Rep. (CCH) ¶ 83,220; Interpretive Letter No. 367, supra; Letter from Judith A. Walter, Senior Deputy
Comptroller for National Operations, dated July 17, 1986; American National Decision, supra.
35
Interpretive Letter No. 647 (April 15, 1994), reprinted in [1994 Transfer Binder] Fed. Banking L.
Rep. (CCH) ¶83,558; Interpretive Letter No. 386 (June 19, 1987), reprinted in [1988-89 Transfer
Binder] Fed. Banking L. Rep. (CCH) ¶85,610.
36
Interpretive Letter No. 403 (December 9, 1987), reprinted in [1988-89 Transfer Binder] Fed.
Banking L. Rep. (CCH) ¶ 85,627; Interpretive Letter No. 367, supra.
37
15 USC 80b-2(a)(11).
50

other assets to purchase or sell on behalf of the account. A bank that delegates its
authority over investments and a bank that receives delegated authority over
investments are both deemed to have investment discretion.38 If an operating
subsidiary proposes to exercise investment discretion on behalf of customers or
provide investment advice for a fee, the national bank must have prior OCC
approval to exercise fiduciary powers pursuant to 12 CFR 5.26, unless the
subsidiary is required to be registered with the SEC. 12 CFR 5.34(e)(5)(vii).
Financial adviser or counselor to governmental entities or instrumentalities,
businesses or individuals
to governmental entities or instrumentalities
National banks and their operating subsidiaries may advise state, local, and foreign
governments on financing projects and assist them in the marketing of their
securities. National banks may provide such advice pursuant to their incidental
powers.39
to businesses or individuals
Banks may provide financial advice, financial planning, and counseling to
businesses and consumers in a variety of contexts,40 including advice and
counseling on employee benefits and human resources41 and financial planning.42
Financial planning services generally include collecting and analyzing a customer’s
financial data; identifying a customer’s financial goals and objectives; preparing a
comprehensive financial plan consisting of recommendations on how to achieve the
identified financial goals and objectives; evaluating personal, banking, financial,
and related economic data and implementation of the financial plan, that is,
purchasing the relevant products or services.43 A comprehensive financial plan may
contain tax planning and financial advice, and may recommend the purchase or sale
of specific investments or securities.44 A national bank financial planner may also
use financial plans to make other recommendations, such as the consolidation of
loans and purchase of life insurance.45
38
12 CFR 9.2(i); Interpretive Letter No. 850 (January 27, 1999), reprinted in [1998-89 Transfer
Binder] Fed. Banking L. Rep. (CCH) ¶ 81-307; Corporate Decision No. 2000-07 (May 10, 2000).
39
12 USC 24(Seventh); Interpretive Letter No. 122 (August 1, 1979), reprinted in [1981 - 1982
Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 85,203. See also The Bank of Tokyo, Ltd., 76 Fed.
Reserve Bull. 654 (1990); The Bank of Nova Scotia, 74 Fed. Reserve Bull. 249 (1988).
40
Interpretive Letter No. 769, supra.
41
Conditional Approval No. 384 (April 25, 2000); Corporate Decision No. 99-43; Corporate
Decision No. 98-51 (November 30, 1998); Corporate Decision 98-13 (February 9, 1998).
42
Interpretive Letter No. 677 (June 28, 1995), reprinted in [1994-1995 Transfer Binder] Fed. Banking
L. Rep. (CCH) ¶ 83,625; Interpretive Letter No. 611, supra; Interpretive Letter No. 403, supra ;
Interpretive Letter No. 386, supra; No-Action Letter No. 85-1 (July 30, 1985), reprinted in [19881989 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 84,001.
43
See Interpretive Letter No. 653 (December 22, 1994), reprinted in [1994-1995 Transfer Binder]
Fed. Banking L. Rep. (CCH) ¶ 83,601; Interpretive Letter No. 516, supra; No-Objection Letter No.
90-1 (February 16 1990), reprinted in [1989-1990 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶
83,095; Interpretive Letter No. 386, supra; Letter from Justin T. Watson, Deputy Comptroller of the
Currency (January 15, 1975).
44
Interpretive Letter No. 367, supra; American National Decision, supra ; Letter from David H.
Baris, Regional Counsel (February 11, 1980); Interpretive Letter No. 137, supra; Letter from Justin T.
Watson, Deputy Comptroller of the Currency (January 15, 1975).
45
See for example, Interpretive Letter No. 386, supra; Interpretive Letter No. 367, supra.

51

Advising Registered Investment Companies
National banks and their operating subsidiaries may act as an investment adviser to
an investment company as part of banking powers authorized under 12
USC 24(Seventh), or pursuant to their fiduciary powers under 12 USC 92a.46
Various administrative and shareholder functions may be provided in connection
with the provision of investment advisory services, including, but not limited to,
recordkeeping, accounting, and other services.47 Further, operating subsidiaries may
sponsor, organize, manage, and act as investment advisers to closed-end investment
companies.48 Banks and their operating subsidiaries advising registered investment
companies must comply with the restrictions in sections 23A and 23B of the Federal
Reserve Act, 12 USC 371c and 371c-1.49
The Investment Company Act of 1940 governs the formation, operation, and
registration with the Securities and Exchange Commission (SEC) of investment
companies.50 Serving as an investment adviser to an investment company is defined
in section 2(a)(20) of the Investment Company Act of 1940 and includes furnishing
advice to the investment company on the desirability of investing in, purchasing, or
selling securities.51
Investment advisers to investment companies must register with the SEC under the
Investment Advisers Act of 1940 (Advisers Act), unless an exemption is available.52
Banks specifically are excluded from the definition of investment adviser under the
Advisers Act, unless they advise registered investment companies. Bank operating
subsidiaries are fully subject to the Advisers Act.53 Operating subsidiaries also must
comply with any applicable state laws.
Advising Mortgage or Real Estate Investment Trusts
National banks and their operating subsidiaries may provide investment advice and
manage a portfolio of real estate loans and equity investments held or proposed to
be held by a mortgage or real estate investment trust. Furnishing real estate asset
management and advisory services, including servicing, advice, and
recommendations for loan participations and mortgages and for real estate held,
falls under the financial and investment advisory authority of banks in 12 USC
24(Seventh), and a national bank may act as an advisory company for a mortgage or
real estate investment trust.54

46
Conditional Approval No. 270 (Jan 21, 1998); Conditional Approval Letter No. 164 (December 9,
1994); Interpretive Letter No. 648, supra; Interpretive Letter No. 647, supra; Interpretive Letter No.
622 (April 9, 1993), reprinted in [1993-94 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 83,504;
Interpretive Letter No. 403, supra; Board of Governors of the Federal Reserve System v. Investment
Company Institute, 450 U.S. 46 (1981); Securities Industry Association v. Board of Governors of the
Federal Reserve System, 821 F.2d 810 (D.C. Cir. 1987), cert. denied, 484 U.S. 1005 (1988).
47
Interpretive Letter No. 647, supra; Interpretive Letter No. 386, supra; Interpretive Letter No. 332
(March 8, 1985), reprinted in [1985-87 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 85,502.
48
Conditional Approval Letter No. 164 (December 9, 1994); 12 CFR 225.28(b)(6)(i).
49
12 CFR 223 ( 67 Fed. Reg. 76560) (Dec. 12, 2002) (Regulation W). See also FRS, Transactions
Between Banks and their Affiliates, 66 Fed. Reg. 24186 (May 11, 2001) (proposed rule).
50
15 USC 80a-1 et. seq.
51
15 USC 80a-2(a)(20).
52
15 USC 80b-1 et seq.
53
15 USC 80b-2(a)(11).
54
Interpretive Letter No. 389, supra.

52

Furnishing Economic Information
National banks and their operating subsidiaries may provide advisory services about
financial and investment planning and advice on general economic, business, and
financial outlooks, and general trends in the stock and bond markets.55
Providing Investment Advice Related to Futures and Options
National banks and their operating subsidiaries may advise customers in
transactions involving financial and commodity futures.56 Operating subsidiaries
also may provide advice on futures and options on futures contracts as an
introducing broker (IB) or a commodity-trading advisor (CTA). An operating
subsidiary, acting as an IB, is engaged in soliciting or in accepting orders (in more
than a clerical capacity) to purchase and sell any commodities futures or options.
An IB does not extend credit or accept any money, securities, or property to margin,
guarantee, or secure any trades or contracts that result or may result from the
solicitation or acceptance of orders. Alternatively, an operating subsidiary, acting as
a CTA, advises others, through publications, writings, electronic media, or other
direct communication or by the regular issuance of analyses and reports, on the
value or advisability of trading in any contract on commodities futures or options on
commodities futures.57 An operating subsidiary, acting as a futures commission
merchant (FCM), also may provide advice in connection with its FCM activities.
Providing Consumer Financial Counseling
National banks and their operating subsidiaries may provide financial advice to
individuals directly or through the use of written materials, computer programs,
seminars, or other methods. Providing financial advice includes advising persons
on financial matters and marketing by-products of the bank's financial advisory
capabilities.58
(J) Providing tax planning and preparation services.
National banks and their operating subsidiaries may assist customers in tax planning
and preparing and filing their tax returns, including by electronic means, either
gratuitously or for a reasonable fee.59 They are not restricted to serving only their
55

Letter from Michael A. Mancusi, Senior Deputy Comptroller (May 30, 1985); Letter from David L.
Chew, Senior Deputy Comptroller (August 7, 1984); American National Decision, supra.
56
“Financial futures” include those futures contracts and options on futures contracts relating to
assets that a national bank may purchase for its own account; that is, United States securities and
United States government agency securities; domestic and Eurodollar money market instruments;
bank certificates of deposit, foreign currencies; and gold, silver, platinum and palladium.
“Commodity futures” include futures contracts and options on futures contracts for all other financial
equities and non-financial (agricultural, petroleum, and metals) assets.
57
Interpretive Letter No. 507 (May 5, 1990), reprinted in [1990-1991 Transfer Binder] Fed. Banking
L. Rep. (CCH) ¶ 83,205; Interpretive Letter No. 494 (December 20, 1989), reprinted in [1989-1990
Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 83,083; Interpretive Letter No. 422 (April 11, 1988),
reprinted in [1988-1989 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 85,646; Interpretive Letter
No. 380 (December 29, 1986), reprinted in [1988-1989 Transfer Binder] Fed. Banking L. Rep. (CCH)
¶ 85,604; Interpretive Letter No. 365 (August 11, 1986), reprinted in [1985-87 Transfer Binder]
(CCH) ¶ 85,535.
58
See “Activities Permissible For A National Bank, Consulting and Financial Advice, p. 3 (April
2003); Letter from Wallace Nathan, District Counsel (June 11, 1985).
59
12 CFR 5.34(e)(5)(v)(J); id. 7.1008; Interpretive Letter No. 545 (March 6, 1991), [1990-1991
Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 83,257; Interpretive Letter No. 611, supra.
53

existing customers for other services.60 As a logical extension of these activities,
national banks and their operating subsidiaries may refer customers to a service that
represents taxpayers before the Internal Revenue Service.61 They may also provide
tax-planning services to other banks as a correspondent service.62 However, they
may not engage in the practice of law.63
(K) Providing financial and transactional advice and assistance, including advice
and assistance for customers in structuring, arranging, and executing mergers and
acquisitions, divestitures, joint ventures, leveraged buyouts, swaps, foreign
exchange, derivative transactions, coin and bullion, and capital restructurings.
Structuring, Arranging, and Executing Mergers, Acquisitions, Divestitures, Joint
Ventures, Leveraged Buyouts, and Capital Restructurings
National banks and their operating subsidiaries may furnish advice on financing the
sale, acquisition, or capitalization of a business and other merchant banking
transactions and the related activity of acting as an intermediary to arrange thirdparty financing through loans or the private placement of debt or equity interests.
Acting as agent for a customer in the private placement of the customer's securities
is permitted under 12 USC 24(Seventh). In conducting private placement activity,
the subsidiary must comply with applicable securities laws.64 See Gramm-LeachBliley Act, P.L. 106-102, Section 201 (Nov. 12, 1999) (amending, effective May
2001, the brokerage exemption in 15 USC 78c(a)(4) by limiting permissible private
placement activities).
Executing Swaps, Foreign Exchange, Derivative Transactions, Coin and Bullion
National banks and their operating subsidiaries may advise, structure, arrange, and
execute transactions, as agent or principal, in connection with interest rate, basis
rate, currency, currency coupon, and cash-settled commodity, commodity price
index, equity and equity index swaps, and other related derivative products, such as
caps, collars, floors, swaptions, forward rate agreements, and other similar products
commonly known as derivatives. National banks may originate, trade, and make
markets in these products. National banks may arrange matched swaps or enter into
unmatched swaps on an individual or portfolio basis and may offset unmatched
positions with exchange-traded futures and options contracts or over-the-counter
cash-settled options. National banks may provide financial advice and counseling
for these activities under 12 USC 24(Seventh).65
60

Letter from Alan Priest, Senior Attorney, Legal Advisory Services Division (October 24, 1984).
Interpretive Letter No. 437 (July 27, 1988), [1988-1989 Transfer Binder] Fed. Banking L. Rep.
(CCH) ¶ 85,661.
62
Letter from David H. Baris, Regional Counsel (February 11, 1980).
63
Letter from David H. Baris, supra.
64
Corporate Decision No. 2000-02 (Feb. 25, 2000); Trust Interpretation No. 256 (July 9, 1990),
reprinted in [1990-91 Transfer Binder] Fed. Banking L. Rep (CCH) ¶ 83,227; Letter from J. Michael
Shepherd, Senior Deputy Comptroller (June 20, 1988); No-objection letter No. 87-4 (May 19, 1987),
reprinted in [1988-89 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 84,033; Securities Industry
Assn. v. Board of Governors of the Federal Reserve System, 807 F.2d 1052 (D.C. Cir 1987), cert.
denied, 483 U.S. 1005 (1987).
65
Interpretive Letter No. 725 (May 10, 1996), reprinted in [1995-1996 Transfer Binder] Fed. Banking
L. Rep. (CCH) ¶ 81-040; Interpretive Letter No. 652 (September 13, 1994), reprinted in [1994
Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 83,600; Letter from Jimmy F. Barton, Deputy
Comptroller (May 13, 1992); Letter from Horace G. Sneed, Senior Attorney, Legal Advisory Services
Division (March 2, 1992); No-Objection Letter No. 90-1 (February 16, 1990), reprinted in [198961

54

National banks and their operating subsidiaries are expressly authorized to engage
in the business of “buying and selling exchange, coin, and bullion.” Pursuant to this
authority, a national bank and its operating subsidiary may buy and sell gold, silver,
platinum, palladium, copper, coins, and bullion.66 The express power to buy and
sell exchange, coin, and bullion encompasses transactions for the account of the
operating subsidiary and its parent bank. Operating subsidiaries are also authorized
to buy and sell foreign currency, because it is a form of exchange.67
National banks and their operating subsidiaries may provide customer advice and
structure, arrange, and execute financial transactions involving foreign exchange,
coin, and bullion for its own account and for the account of customers. An
operating subsidiary may become a member of an exchange and act as specialist,
market-maker, floor trader, and broker-dealer of exchange-traded options on foreign
exchange, coin, and bullion to execute trades for its own account and that of
affiliated and unaffiliated customers. An operating subsidiary may obtain clearing
membership to clear such trades for its own account, for the parent bank, and for
customers. Operating subsidiaries may also engage in over-the-counter (OTC)
trading in the cash and spot markets, and in forwards, futures, swaps, and options
contracts on foreign exchange, coin, and bullion. Operating subsidiaries of national
banks may maintain partnership interests in partnerships that engage in foreign
currency options and futures transactions provided that the parent bank notifies the
OCC of any change in the potential liability arising from the partnership's exchange
registrations and memberships.68
National bank operating subsidiaries that join exchanges and clearinghouses in
order to engage in foreign exchange, coin and bullion, and derivatives activities
may file a notice to engage in these activities if they can comply with certain
restrictions.69 Specifically, a national bank's operating subsidiary may not join any
exchange or clearing association that requires the bank or any other of its
subsidiaries to guarantee or otherwise become liable for trades executed or cleared
by the operating subsidiary other than those trades executed or cleared on behalf of
the bank and any of its affiliates or other operating subsidiaries. Moreover, a
national bank's operating subsidiary may not become a clearing member of any
exchange or clearing association that requires the bank also to become a member of
that exchange or clearing association, unless the bank obtains a waiver of that
requirement. Finally, a national bank may not guarantee or assume responsibility
1990 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 83,095; Interpretive Letter No. 462 (December
19, 1988), reprinted in [1988-1989 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 85,686; NoObjection Letter No. 87-5 (July 20, 1987), reprinted in [1988-1989 Transfer Binder] Fed. Banking L.
Rep. (CCH) ¶ 84,034; Interpretive Letter No. 365, supra.
66
Interpretive Letter No. 693 (November 14, 1995), reprinted in [1995-96 Transfer Binder] Fed.
Banking L. Rep. (CCH) ¶ 81-008.
67
Interpretive Letter No. 685 (August 4, 1995), reprinted in [1994-1995 Transfer Binder] Fed.
Banking L. Rep. (CCH) ¶ 83,999; Interpretive Letter No. 553 (May 2, 1991), reprinted in [1990-1991
Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 83,300.
68
12 USC 24(Seventh); Interpretive Letter No. 624 (June 30, 1993), reprinted in [1993-1994 Transfer
Binder] Fed. Banking L. Rep. (CCH) ¶ 83,506; Letter from Jimmy F. Barton, Deputy Comptroller (May
13, 1992) Interpretive Letter No. 494, supra; Interpretive Letter No. 433 (June 3, 1988), reprinted in
[1988-1989 Transfer Binder], Fed. Banking L. Rep. (CCH) ¶ 85,657; Interpretive Letter No. 422,
supra; Interpretive Letter 384 (May 19, 1987), reprinted in [1988-1989 Transfer Binder] Fed. Banking
L. Rep. (CCH) ¶ 85,608; Interpretive Letter No. 372 (November 7, 1986), reprinted in [1985-1987
Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 85,542; Interpretive Letter No. 365, supra.
69
Interpretive Letter No. 929 (February 11, 2002), reprinted in [Current] Fed. Banking L. Rep. (CCH)
¶ 81-454.
55

for any liability of its operating subsidiary other than those trades executed or
cleared on behalf of the bank and any of its affiliates or other operating subsidiaries.
A national bank may file a notice only if its loans to, and investments in, its
operating subsidiary (and its partnership interests) in the aggregate do not
exceed its legal lending limit at the time of the loan or investment. A
national bank may not make investments of equity capital in its operating
subsidiary or its partnership interest) that exceed the lending limit without
the OCC's prior written consent. To calculate the lending limit according to
this limitation, a national bank's investment in its operating subsidiary is
deemed unsecured. A national bank may, however, lend its operating
subsidiary (and its partnership interest) in the aggregate an additional 10
percent of its unimpaired capital and surplus, if secured by readily
marketable collateral as provided in 12 USC 84.
Arranging Commercial Real Estate Equity Financing
National banks and their operating subsidiaries may act as an intermediary to
arrange for the placement of equity interests in commercial or investment real
estate, generally on behalf of owners and developers, to finance the development of
the property under the lending and financing authority of national banks in 12 USC
371 and 24(Seventh) and their authority to arrange for private placements of all
types of investments pursuant to the incidental powers of a national bank to carry
on the business of banking granted in 12 USC 24(Seventh).70
Neither the operating subsidiary nor any affiliate should expect to acquire an equity
interest in any project financed by the private placement or to have a role in the
development, management, or syndication of the project. The fee received by the
subsidiary may not be based on the profits earned from the project. The subsidiary
may not intend to become a general real estate broker, nor will it list or advertise
properties for sale. The subsidiary should deal solely with sophisticated institutional
investors. If the subsidiary or the parent bank engages in any lending for this
activity, it should be limited to traditional debt financing, but may include taking
interests as permitted by 12 CFR 7.1006.
(L) Underwriting and reinsuring credit related insurance to the extent permitted
under section 302 of the GLBA (15 USC 6712).
National banks and their operating subsidiaries may continue to underwrite and
reinsure any credit related insurance products being provided by national banks as
of 1/1/99 or that were authorized in writing by the OCC as of that date.71
Credit-related insurance products guarantee or secure payment of an outstanding
obligation in a credit transaction in the event that the borrower is unable to pay.
Credit-related insurance products often are sold in conjunction with installment
loans, automobile loans, credit cards, and residential mortgages. There are various
types of credit-related products, including credit life insurance, credit disability
insurance (also known as credit accident and health insurance), and mortgage life
70

Interpretive Letter No. 271, supra; Interpretive Letter No. 387, supra.
See 15 USC 6712 (as added by section 302 of GLBA); Corporate Decision No. 2001-10 (April
23,2001); Corporate Decision No. 2000-16 (August 29, 2000); Interpretive Letter 886 (March 27,
2000), reprinted in [2000-01 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81-405.
71

56

and disability insurance.72 For example, a credit life insurance product on a
relatively small decreasing balance installment loan typically will pay off the
balance due on the loan if the borrower should die before the loan is repaid.
Similarly, if an insured debtor becomes disabled or is killed accidentally, a credit
accident and health insurance product policy may pay the policy premiums during
the period of disability or pay off the loan or both. The precise terms of creditrelated insurance products may vary based on the terms and conditions of a
particular loan.73
Credit-related insurance products provide benefits for both the borrower and the
lender by easing the financial burden on each in the event of unforeseen
circumstances, such as death, disability, or unemployment. Credit-related insurance
exists as a unique kind of insurance product that is an integral part of certain credit
transactions. Hence, underwriting credit-related insurance products serves as a risk
management tool linked to the credit function of lending institutions.
The OCC has established the authority of national banks and their subsidiaries to
sell as agent and underwrite credit-related insurance products as part of, or
incidental to, the business of banking through a long line of precedents.74 The OCC
has concluded that national banks and their subsidiaries may underwrite creditrelated insurance products in connection with loans by the bank itself and by
lenders other than the bank.75
Prior to January 1, 1999, the OCC had “determined in writing” that national banks
and their subsidiaries may provide credit-related insurance products as principal in
connection with loans made by a financial institution lender other than the bank
itself.76
(M) Leasing of personal property and acting as an agent or adviser in leases for
others.
This activity includes:
•
•

Leases in which the bank may invest pursuant to 12 USC 24(Seventh).
Leases in which the bank may invest pursuant to 12 USC 24(Tenth).

72

See 12 CFR 2.2(b).
Certain other insurance arrangements could also be considered “credit-related” when the existence
of the insurance is integral to the borrower’s ability to repay a loan in the event specified events
occur.
74
See, for example, Corporate Decision No. 98-28 (May 11, 1998); Corporate Decision No. 97-92
(Oct. 17, 1997); Interpretive Letter No. 283 (March 16, 1984), reprinted in [1983-1984 Transfer
Binder] Fed. Banking L. Rep. (CCH) ¶ 85,447; Interpretive Letter No. 277 (Dec. 21, 1983), reprinted
in [1983-1984 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 85,441; 12 CFR 2; IBAA v. Heimann,
613 F.2d 1164 (D.C. Cir. 1979), cert. denied, 449 U.S. 823 (1980). See also, Interpretive Letter No.
338 (May 2, 1985), reprinted in [1985-1987 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 85,508;
American Insurance Association v. Clarke, 656 F. Supp. 404 (D.D.C. 1987), aff’d, 865 F.2d 278
(D.C. Cir. 1989).
75
Corporate Decision No. 97-92 (Oct. 17, 1997).
76
Prior to January 1, 1999, the OCC had also determined in writing that national banks and their
subsidiaries may provide as principal other insurance products, including safe deposit box liability
insurance and self insurance of business risks. See Corporate Decision No. 97-92 (October 17,
1997); Interpretive letter No. 845 (October 20, 1998), reprinted in [1998-1999 Transfer Binder Fed.
Banking. L Rep. (CCH) ¶ 81-300. However underwriting and reinsuring credit-related insurance are
the only insurance underwriting activities that qualify for the notice procedures under 12 CFR
5.34(e)(5)(v)(L).
73

57

•

Acting as agent, broker, or adviser in leases for others. The notice process for
any leasing activity under this paragraph is not available, however, if the notice
involves the direct or indirect acquisition by the bank of any low-quality asset
from an affiliate in connection with a transaction subject to this section. For
purposes of this paragraph (M), the terms “low-quality asset” and “affiliate” have
the same meaning as provided in section 23A of the Federal Reserve Act, 12
USC 371c.

Pursuant to 12 USC 24(Seventh) and 24(Tenth), national banks and their
operating subsidiaries may act as lessors and engage in the financing of fullpayout, net leases for personal property, subject to the requirements of 12 CFR
23. Section 24(Seventh) leases have long been permitted on the ground that
they are the functional equivalent of loans. Section 24(Seventh) leases are
authorized for both tangible and intangible personal property and are subject
to specific restrictions set forth in Subparts A and C of 12 CFR 23, including a
limitation on reliance of residual value. Part 23 requires national banks and
their subsidiaries to receive prior OCC approval for certain activities and
should be consulted to determine whether a separate filing under that part is
needed.
Section 24(Tenth) leases are authorized pursuant to express statutory authority and
are subject to specific restrictions set forth in Subparts A and B of 12 CFR 23,
including a 10 percent-of-assets limitation on the aggregate book value of section
24(Tenth) leases and a minimum lease term of 90 days. In addition, the authority
conferred by section 24(Tenth) is limited to the leasing of tangible personal
property. Tangible personal property includes such items as vehicles, manufactured
homes, machinery, equipment, and furniture. Unlike section 24(Seventh) leases,
section 24(Tenth) leases are not viewed as a form of lending. Whether property is
considered “personal” property depends on state law. Both types of leases are also
subject to lending limits and affiliate-transactions restrictions.
National banks and their subsidiaries generally have not been authorized to engage
in the lease financing of real property,77 but may do so when the real estate lease is
incidental to a personal property leasing transaction.78 They may, however, engage
in the “placement of real estate lease transactions, specifically, locating investors as
potential lessors to a potential lessee and brokering the debt portion of any such
lease.”79
To establish a leasing relationship with a lessee, banks and subsidiaries may acquire
property to be leased by purchasing specific property based on a legally binding
commitment to lease or a legally binding written agreement, indemnifying the bank
against loss from the acquisition of the leased property. Banks and their subsidiaries
may also acquire property to be leased in the absence of a commitment to lease or
indemnification agreement if the bank satisfies certain conditions (set forth in 12
CFR 23.4), demonstrating that the acquisition of property is not speculative. Finally,
banks may acquire leases by purchasing them from another lessor, but in the case of
77

Interpretive Letter No. 556 (Aug. 6, 1991), reprinted in [1991-92 Transfer Binder] Fed. Banking L.
Rep. (CCH) ¶ 83,306; Letter from Frank Maguire, Acting Senior Deputy Comptroller (May 20, 1993).
78
12 CFR 23; see also Interpretive Letter No. 770 (Feb. 10, 1997), reprinted in [1996-97 Transfer
Binder] Fed. Banking L. Rep. (CCH) ¶ 81-134; Conditional Approval No. 295 (Dec. 3, 1998);
Corporate Decision No. 98-35 (June 10, 1998)
79
Letter from Wallace S. Nathan, District Counsel (Oct. 28, 1985).
58

section 24(Seventh) leases, the residual value requirement must be met at the time
of the lease purchase(s). Thus, if a bank or its subsidiary purchases an existing
section 24(Seventh) lease, that lease must be a “conforming lease” (as defined in 12
CFR 23) at the time of its acquisition.
Banks and their subsidiaries may also provide certain lease-related services to third
parties to the extent that they are incidental to the business of banking. National
banks are expressly authorized to act as finder or similar agent or broker.80 In
addition, the OCC has opined that national banks and their operating subsidiaries
may provide lease consulting services (including financial advice); management,
brokerage, and finder services; and lease servicing for third parties.81
A special category of leasing activities is permitted by 12 CFR 7.3300. National
banks and their operating subsidiaries may purchase or construct municipal
buildings, such as schools or similar public facilities, for lease to a municipality or
other public authority.82
Upon expiration of the lease, the lessee must become the owner of the building or
facility. The bank lessor must be repaid entirely by the payments from the lessee.
(N) Providing securities brokerage or acting as a futures commission merchant,
and providing related credit and other related services.
Providing securities brokerage
National banks and their operating subsidiaries may provide brokerage services,
related securities credit, advisory services, and administrative services as part of or
incidental to the business of banking. The specific language of 12 USC 24(Seventh)
recognizes that banks may purchase and sell “securities and stock without recourse,
solely upon the order, and for the account of, customers, and in no case for its own
account.”
Securities brokerage services involve the buying and selling of a wide variety of
financial investment products as agent upon the order and for the account of
customers. Such investment products include annuities, shares of mutual funds,
units in unit investment trusts, equity and fixed income securities, sold on an agency
basis. In addition, an integral part of the brokerage business is advertising and
marketing services and products to attract customers.83
Brokerage services include buying and selling securities in the secondary market as
“riskless principal.” A riskless principal transaction involves the operating subsidiary
purchasing or selling a security upon the order of a customer, while conducting a
80

12 CFR 7.7200; see also Letter from Sue E. Auerbach, Senior Attorney (Aug. 19, 1996).
Interpretive Letter No. 567 (Oct. 29, 1991) reprinted in [1991-92 Transfer Binder] Fed. Banking L.
Rep. (CCH) ¶ 83,337; Letter from Wallace Nathan, District Counsel (Oct. 28, 1985); Letter from
Peter Liebesman, Assistant Director, Legal Advisory Services Division (June 15, 1981).
82
Interpretive Letter No. 847 (Oct. 28, 1998), reprinted in [1998-99 Transfer Binder] Fed. Banking L.
Rep. (CCH) ¶81-302.
83
Conditional Approval Letter No. 164 (December 9, 1994); Interpretive Letter No. 648, supra;
Interpretive Letter No. 647, supra; Interpretive Letter No. 622, supra; Securities Industry Association
v. Board of Governors of the Federal Reserve System, 468 U.S. 207 (1984); Securities Industry
Association v. Comptroller of the Currency, 577 F. Supp. 252 (D.D.C. 1983), aff'd per curiam, 758
F.2d 739 (D.C. Cir. 1985), cert. denied, 474 U.S. 1054 (1986) (brokerage issue).
81

59

simultaneous offsetting sale or purchase of a security upon the order of another
customer.84 Operating subsidiaries also may act as agent for a customer in the
private placement of the customer's securities as described more fully under Section
K of the notice procedures, supra.
Related securities credit offered by an operating subsidiary as part of its securities
brokerage services involves the extension or maintenance of credit to customers for
the purchase or carrying of securities. This activity must be consistent with 12 USC
36 and 12 CFR 7.1004.85 The Federal Reserve Board's regulations on margin loans
are applicable to banks under Regulation U86 and to brokers under Regulation T.87
Operating subsidiaries providing securities brokerage services may furnish other
related activities, including investment advisory and administrative services.
Various administrative and shareholder functions are incidental to the provision of
the brokerage services, including but, not limited to, recordkeeping, accounting,
and other services.88
Operating subsidiaries established to engage in these activities may conduct them in
a partnership structure. For example, a subsidiary of a national bank may enter into
a general partnership arrangement or joint venture with one or more subsidiaries or
affiliates of an investment bank, provided that certain conditions relating to
partnership issues are met.89
Banks with operating subsidiaries that engage in these activities must comply with
applicable provisions of the Interagency Statement on Retail Sales of Nondeposit
Investment Products, February 15, 1994, and 12 CFR Part 14. Banks and their
operating subsidiaries advising registered investment companies must comply with
the restrictions in sections 23A and 23B and Regulation W.
Acting as futures commission merchant.
National banks and their operating subsidiaries may act as futures commission
merchants (FCM). A FCM operating subsidiary typically solicits or accepts orders to
purchase or sell financial or agricultural futures contracts and options on such
contracts on major exchanges. An FCM may extend credit or accept any money,
securities, or property, to margin, guarantee, or secure any trades or contracts,
resulting from the solicitation or acceptance of orders.90 An FCM may act as
84

Interpretive Letter No. 626 (July 7, 1993), reprinted in [1993-94 Transfer Binder] Fed. Banking L.
Rep. (CCH) ¶ 83,508; Interpretive Letter No. 371 (June 13, 1986), reprinted in [1985-87 Transfer
Binder] ¶ 85,541.
85
Clarke v. Securities Industry Assn., 479 U.S. 388 (1987) (branching issue); Interpretive Letter No.
403, supra; American National Decision, supra.
86
12 CFR 221.
87
12 CFR 220.
88
Interpretive Letter No. 647, supra; Interpretive Letter No. 386, supra; Interpretive Letter No. 332
(March 8, 1985), reprinted in [1985-87 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 85,502.
89
Interpretive Letter No. 889 (April 24, 2000), reprinted in [2000-01 Transfer Binder] Fed. Banking L.
Rep. (CCH) ¶ 81-408; Interpretive Letter No. 625 (July 1, 1993), reprinted in [1993-94 Transfer
Binder] Fed. Banking L. Rep. (CCH) ¶ 83,507; Interpretive Letter No. 622, supra; Interpretive Letter
No. 516, supra; Interpretive Letter No. 411 (January 20, 1988), reprinted in [1988-89 Transfer
Binder] Fed. Banking L. Rep. (CCH) ¶ 85,635; Interpretive Letter No. 289 (May 15, 1984), reprinted
in [1983-84 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 85,453.
90
“Financial futures” include those futures contracts and options on futures contracts relating to
assets that a national bank may purchase for its own account; that is, United States securities and
60

intermediary between a customer and exchange members that actually execute or
clear trades. Alternatively, an FCM may be a member of an exchange and serve as a
clearing member. Operating subsidiaries may also offer advisory services, including
financial and market analysis, strategy development, research, and discretionary
funds management in connection with its FCM activities.91
National bank operating subsidiaries that join futures exchanges and clearinghouses
may file a notice to engage in these activities if they can comply with certain
restrictions.92 A national bank's FCM may not join any exchange or clearing
association that requires the bank or any other of its subsidiaries to guarantee or
otherwise become liable for trades executed or cleared by the FCM other than those
trades executed or cleared by the bank and any of its affiliates or other operating
subsidiaries. Moreover, a national bank's FCM may not become a clearing member
of any exchange or clearing association that requires the bank to also become a
member of that exchange or clearing association, unless the bank obtains a waiver
of that requirement. Finally, a national bank may not guarantee or assume
responsibility for any liability of its FCM other than those trades executed and/or
cleared for and on behalf of the bank and any of its affiliates or other operating
subsidiaries.
A national bank establishing an operating subsidiary to engage in the activities
described in this section may file a notice, only if its loans to, and investments in, its
FCM (and its partnership interests) in the aggregate do not exceed its legal lending
limit at the time of the loan or investment. A national bank may not make
investments of equity capital in its FCM (or its partnership interest) that exceed the
lending limit without the OCC's prior written consent. To calculate the lending
limit according to this limitation, a national bank's investment in its FCM is deemed
unsecured. A national bank may, however, lend its FCM (and its partnership
interest) in the aggregate an additional 10 percent of its unimpaired capital and
surplus, if secured by readily marketable collateral as provided in 12 USC 84.
(O) Underwriting and dealing, including making a market, in bank permissible
securities and purchasing and selling as principal, asset backed obligations.
National banks and their operating subsidiaries may underwrite and deal in Type I
and Type II securities.93
Specifically, they may underwrite and deal in Type I securities, which include: (1)
obligations of the United States, a department or agency of the United States,
general obligations of states and their political subdivisions; (2) obligations of
certain quasi-governmental corporations, such as the Federal National Mortgage
Association and the Government National Mortgage Association; (3) other
obligations (such as qualified Canadian government obligations) specifically listed in
12 USC 24(Seventh); and (4) other securities the OCC determines to be eligible
Type I securities under 12 USC 24(Seventh). National banks may underwrite and
United States government agency securities; domestic and Eurodollar money market instruments;
bank certificates of deposit, foreign currencies; and gold, silver, platinum and palladium.
“Commodity futures” include futures contracts and options on futures contracts for all other financial
equities and non-financial (agricultural, petroleum, and metals) assets.
91
Interpretive Letter No. 507, supra ; Interpretive Letter No. 494, supra; Interpretive Letter No. 422,
supra; Interpretive Letter No. 380, supra; Interpretive Letter No. 365, supra.
92
Interpretive Letter No. 929, supra.
93
See 12 CFR 1.
61

deal in such obligations without limitation, subject to safety and soundness
considerations.94 A well-capitalized national bank may underwrite and deal in
municipal revenue bonds without limit.95
National banks and their operating subsidiaries also may underwrite and deal in
Type II securities, which include: (1) obligations of certain international and
multilateral development banks, such as the International Bank for Reconstruction
and Development (World Bank); (2) obligations issued by any state or political
subdivision for housing, university, or dormitory purposes; (3) other obligations
listed specifically in 12 USC 24(Seventh); and (4) other securities the OCC
determines to be eligible as Type II securities, subject to a limitation that the
obligations of any single issuer may not exceed 10 percent of the bank's capital and
surplus.96 A national bank’s ability to hold Type II securities is subject to a limitation
that the obligations of any single issuer may not exceed 10 percent of the bank's
capital and surplus.97
National banks and their operating subsidiary may securitize and sell assets that
they hold as part of their banking business. The amount of securitized loans and
obligations that may be sold is not limited to a specific percentage of the bank’s
capital and surplus.98
The operating subsidiary must provide the OCC with evidence that it has developed
suitable policies and internal controls to ensure the safe and sound conduct of the
proposed activity. The operating subsidiary also should coordinate its trading
positions with those of the bank itself.99
(P) Acting as an insurance agent or broker, including title insurance to the extent
permitted under section 303 of the GLBA (15 USC 6713).
Sales Pursuant to Section 92
National banks generally may sell insurance pursuant to section 92 in the same
nationwide market as is generally available to licensed insurance agencies in the
state where the bank agency operates.100 National banks may sell insurance to
customers wherever the customers are located.101 National banks may sell insurance
directly or through an operating subsidiary if the national bank is located and doing
business in a place of 5,000 or less in population.102 Any area designated by the
Census Bureau as a place is a place for purposes of section 92.103 National banks
94

12 USC 24 (Seventh); 12 CFR 1.2(l); and 12 CFR 1.3(a).
12 USC 24(Seventh).
96
12 USC 24 (Seventh); 12 CFR 1.2(j); and 12 CFR 1.3(b).
97
12 CFR 1.3(b).
98
12 CFR 1.3(g).
99
Letter from Jimmy F. Barton, Deputy Comptroller (July 25, 1991).
100
Interpretive Letter No. 753 (November 4, 1996), reprinted in [1996-1997 Transfer Binder] Fed.
Banking L. Rep. (CCH) ¶ 81,107.
101
See NBD Bank, N.A. v. Bennett, 67 F.3d 629 (7th Cir. 1995); Independent Insurance Agents of
America, Inc. v. Ludwig, 997 F.2d 958 (D.C. Cir. 1993); Shawmut Bank Connecticut v. Googins, 965
F. Supp. 304 (D. Conn. 1997).
102
12 USC 92; Conditional Approval No. 384 (April 25, 2000); Corporate Decision 99-44 (Sept. 10,
1999); Corporate Decision No. 97-24 (April 15, 1997). See Interpretive Letter No. 819 (Jan. 20,
1998), reprinted in [1997-1998 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81-268.
103
Interpretive Letter No. 823 (February 27, 1998), reprinted in [1997-98 Transfer Binder] Fed.
Banking L. Rep. (CCH) ¶ 81-272.
95

62

and their subsidiaries with insurance agencies may rely on OCC opinions to
establish satellite offices outside the place of 5,000 (including satellite offices in
states outside the state where the insurance business is located) to solicit and sell
insurance in the same manner generally permissible for state insurance agencies.104
National trust companies may sell insurance from a trust office that is located in a
place of 5,000 if the office performs core fiduciary functions (accepting fiduciary
appointments, executing trust documents, and making decisions regarding the
investment and distribution of fiduciary assets).105
Sales of Credit-related Insurance as Agent under 12 USC 24(Seventh)
National banks and their subsidiaries may engage in various credit-related insurance
agency activities under 12 USC 24(Seventh). This law authorizes national banks to
engage in the “business of banking,” and to exercise “all such incidental powers as
shall be necessary to carry on the business of banking.” Although an insurance
product sold under this authority could also be sold under 12 USC 92, there are no
geographic “place of 5,000” limits under 12 USC 24 (Seventh).
Pursuant to 12 USC 24(Seventh), national banks and their subsidiaries may sell
credit-related insurance products, including:
•
•
•
•
•

Credit life insurance (as defined in 12 CFR 2.2(b));106
Involuntary unemployment insurance (protects the bank if the borrower
becomes involuntarily unemployed);107
Vendors single interest insurance108 and vendors double interest insurance109
(insures the bank or the bank and the borrower, respectively, against loss or
damage to personal property pledged as loan collateral);
Mechanical breakdown insurance (protects a loan customer against most
major mechanical failures of collateral securing a loan during the loan’s
life);110 and,
Vehicle service contracts (protects the value of loan collateral from
mechanical breakdown for the term of the contract).111

104
Interpretive Letter No. 882 (Feb. 22, 2000), reprinted in [2000-01 Transfer Binder] Fed. Banking L.
Rep. (CCH) ¶ 81-401; Interpretive Letter No. 864 (May 19, 1999), reprinted in [1999-2000 Transfer
Binder] Fed. Banking L. Rep. (CCH) ¶ 81-358; Interpretive Letter No. 873 (December 1, 1999),
reprinted in [1999-2000 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81-367; Interpretive Letter
No. 844 (October 20, 1998), reprinted in [1998-99 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶
81-299.
105
Interpretive Letter No. 877 (December 13, 1999), reprinted in [1999-2000] Fed. Banking L. Rep.
(CCH) ¶ 81-371.
106
See Interpretive Letter No. 283 (March 16, 1984), reprinted in [1983-1984 Transfer Binder] Fed.
Banking L. Rep. (CCH) ¶ 85,447; 12 CFR Part 2; IBAA v Heimann, 613 F.2d 1164 (D.C. Cir. 1979),
cert. denied, 449 U.S. 823 (1980).
107
See Interpretive Letter No. 283 (March 16, 1984), supra.
108
See interpretive Letter No. 283 (March 16, 1984), supra.
109
Letter from William B. Glidden, Assistant Director, Legal Advisory Services Division (June 3,
1986).
110
Letter from William B. Glidden, Assistant Director, Legal Advisory Services Division (June 17,
1993).
111
Interpretive Letter 724 (April 22, 1996), reprinted in [1995-1996 Transfer binder] Fed. Banking L.
Rep. (CCH) ¶ 81,039; Interpretive Letter No. 671 (July 10, 1995) reprinted in [1994-1995 Transfer
Binder] Fed. Banking L. Rep. (CCH) ¶ 83,619.

63

Title Insurance
A national bank may not underwrite or sell title insurance unless the national bank
falls within an exception:
(1) National banks and their subsidiaries may sell title insurance as agents in a state
to the same extent as permitted for state banks;112 or,
(2) A national bank and its subsidiaries may continue to conduct title insurance
activities, including underwriting, in which the national bank or subsidiary were
lawfully engaged before November 12, 1999, subject to some exceptions if affiliates
are providing insurance as principal.113
However, if a state law in effect before November 12, 1999 prohibits all persons in
a state from selling or underwriting title insurance, a national bank may not sell title
insurance.
(Q) Reinsuring mortgage insurance on loans originated, purchased, or serviced by
the bank, its subsidiaries, or its affiliates, provided that if the subsidiary enters into
a quota share agreement, the subsidiary assumes less than 50 percent of the
aggregate insured risk covered by the quota share agreement. A "quota share
agreement" is an agreement under which the reinsurer is liable to the primary
insurance underwriter for an agreed upon percentage of every claim arising out of
the covered book of business ceded by the primary insurance underwriter to the
reinsurer.
National banks may reinsure mortgage insurance on loans originated, purchased, or
serviced by the bank, its subsidiaries, or its affiliates.114 Mortgage insurance protects
an investor holding a mortgage loan against default by the mortgagor.
Under an “excess loss” arrangement, the primary insurer pays, and is solely
responsible for, claims arising out of a given book of business up to a predetermined
percentage, after which the reinsurer is obligated to reimburse the primary insurer’s
claims up to another predetermined percentage. Thereafter, the primary insurer is
solely responsible for claims in excess of the reinsurer’s tier of losses on a given
book. A "quota share agreement" is an agreement under which the reinsurer is
liable to the primary insurance underwriter for an agreed upon percentage of every
claim arising out of the covered book of business ceded by the primary insurance
underwriter to the reinsurer. Quota share arrangements have involved the
assumption of less than 50 percent of the aggregate insured risk covered by the
quota share agreement.
A national bank’s captive mortgage reinsurance subsidiary may enter a mortgage
reinsurance agreement with a Cayman Island segregated portfolio company to
reinsure private mortgage insurance on loans originated or purchased by the bank

112

15 USC 6713.
15 USC 6713.
114
12 CFR 5.34, Corporate Decision No. 99-37 (October 29, 1999); Corporate Decision No. 99-36
(October 29, 1999); Corporate Decision No. 99-32 (Sept. 20, 1999); Corporate Decision No. 99-26
(Sept. 2, 1999).
113

64

or one of its affiliates.115 National banks may participate in a mortgage reinsurance
exchange where the exchange will provide for the reinsurance of private mortgage
insurance on loans originated or purchased by participating lenders.116
(R) Acting as a finder pursuant to 12 CFR 7.1002 to the extent permitted by
published OCC precedent.
General
The OCC has long recognized the finder function as a permissible banking activity
that includes identifying potential parties, making inquiries as to interest,
introducing or arranging contacts or meetings between interested parties, acting as
an intermediary between interested parties, and bringing the parties together for
transactions that the parties themselves negotiate and consummate.117 As a finder,
national banks and their operating subsidiaries may convey information about
available products or services to potential markets for them,118 arrange for third-party
providers to offer reduced rates to those customers referred by the bank, 119
communicate to the seller an offer to purchase or a request for information,120
provide certain administrative, clerical, and recordkeeping functions,121 supply
financial information to one party about the other, and act as a conduit in conveying
information from one party to another.122
Acting as a Web Site Host
The OCC has determined that Web site hosting is a form of finder activity. A
national bank may establish, register, and host the commercially enabled Web site
in the name of the retailer.123 The bank may store the data representing the retailer’s
online catalog and provide periodic reports to the retailer of site-related activities.124
The bank may also provide associated payments and deposit services resulting from
Web-based transactions.125 A national bank also may host a Web site for a
government agency, where the site will allow the public, consumers, and other
agencies to access or purchase services, information forums, and products from the
agency.126
115

Interpretive Letter No. 862 (June 7, 1999), reprinted in [1999-2000 Transfer Binder] Fed. Banking
L. Rep. (CCH) ¶ 81-356.
116
Interpretive Letter No. 828 (April 6, 1998), reprinted in [1997-1998 Transfer Binder] Fed. Banking
L. Rep. (CCH) ¶ 81-277.
117
12 CFR 7.1002(b); Conditional Approval No. 221 (Dec. 4, 1996); Interpretive Letter No. 741,
reprinted in [1996-1997 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81-105 (Aug. 19, 1996);
Interpretive Letter No. 653, supra.
118
Interpretive Letter No. 741, supra; Interpretive Letter No. 630 (May 11, 1993) reprinted in [19931994 Transfer Binder] Fed. Banking Law. Rep. (CCH) ¶ 83,513).
119
Conditional Approval No. 347 (Jan. 29, 2000).
120
Interpretive Letter No. 824, reprinted in [1997-1998 Transfer Binder] Fed. Banking L. Rep. (CCH)
¶ 81-273 (Feb. 27, 1998); Letter from James M. Kane, District Counsel (Oct. 24, 1985); Letter from
F.H. Ellis, Chief National Bank Examiner (Oct. 6, 1970).
121
Interpretive Letter No. 850, supra; Corporate Decision No. 98-13 (Feb. 9, 1998); Interpretive
Letter No. 607, reprinted in [1992-1993 Transfer Binder] Fed. Banking L. Rep. ¶ 83,445 (Aug. 24,
1992).
122
Letter from Elizabeth H. Corey, Attorney (May 18, 1989); Letter from John M. Miller, Acting
Deputy Chief Counsel (Jul. 26, 1977).
123
12 CFR 7.5002(a)(1)(i).
124
12 CFR 7.5002(a)(1)(iv)(A).
125
Interpretive Letter No. 875, supra. Interpretive Letter No. 856, supra.
126
Conditional Approval No. 361 (March 3, 2000); 12 CFR 7.5002(a)(1)(iv)(B).
65

A national bank, in the exercise of the finder authority, may establish hyperlinks
between its home page and the Internet home pages of third-party providers so that
bank customers will be able to access those nonbank Web sites from the bank
site.127 The OCC also has permitted national banks, as a form of finder activity, to
operate a “virtual mall.” A virtual mall provides a collection of links to Web sites of
third-party vendors. The collection of links, organized by product type and made
available to bank customers, enables the customers to shop for a range of financial
and nonfinancial products and services via the links.128
In addition, the OCC has determined that, as a finder, a national bank may establish
an Internet site that will function as an electronic central facility enabling businesses
to negotiate and organize among themselves aggregate buying, selling, or financing
efforts, and for other collaborative efforts.129
Incidental to its offering of commercially engaged Web site hosting, a national bank
may provide Web design services to its merchant customers.130
Acting as Finder for Insurance
National banks may provide finder services in connection with insurance products
and services. To identify permissible national bank finder arrangements in the
insurance context (as an alternative to section 92 authority), the OCC considers: (1)
the scope of the proposed activities; (2) the existence or absence of another
insurance agent or broker in the arrangement; (3) whether the bank has a
contractual relationship with an insurance company for selling its products, and if
so, the nature of the relationship; and (4) the bank’s compensation arrangement for
the proposed activities. For example, national banks may participate in sharing
arrangements with other banks whereby they combine their efforts to use the
services of a group of independent agencies that would solicit and sell insurance
services to bank customers on site, sharing pro rata in referred business.131
Acting as Finder for Investment Advisory Services
National banks may act as finder by referring bank customers to investment
advisors.132
Acting as a Finder for Marketing of Trust Services
National and state banks as well as other individuals and institutions, including
registered investment advisors, savings associations, savings banks, credit unions,
financial planners, benefit consultants, independent insurance agents and brokers,
certified public accountants, and attorneys may refer trust business to a national
bank pursuant to written agreements.133
127

12 CFR 7.5002(a)(1)(ii); Conditional Approval No. 347, supra.; Conditional Approval No. 221,
supra.
128
12 CFR 7.5002(a)(1)(iii); Conditional Approval No. 369 (Feb. 25, 2000); Interpretive Letter No.
875, supra.
129
Conditional Approval No. 369, supra.
130
Interpretive Letter No. 875, supra.
131
Interpretive Letter No. 824, supra; Conditional Approval No. 99-38 (Oct. 29, 1999).
132
Interpretive Letter No. 850, supra.
133
Interpretive Letter No. 607, supra.
66

(S) Offering correspondent services to the extent permitted by published OCC
precedent.
National banks have traditionally performed for their affiliates and other financial
institutions an array of activities called “correspondent services.” The OCC has long
permitted national banks and their operating subsidiaries to offer these
correspondent services as part of the business of banking.134 A national bank may
perform as a correspondent service for its affiliates and other financial institutions
any service it may perform for itself.135 Examples of correspondent services include
providing: computer networking packages and related hardware; data processing
services and the sale of software that performs data processing functions; document
control and recordkeeping; financial and consulting services; flood hazard
determinations; security consulting services; loan collection and repossession
services; and vault cash.136
(T) Acting as agent or broker in the sale of fixed or variable annuities.
National banks may sell fixed and variable annuities without regard to the place of
5,000 restriction in 12 USC 92 on the sale of insurance products.137
(U) Offering debt cancellation or debt suspension agreements.
National banks and their operating subsidiaries are authorized to enter into debt
cancellation agreements under which a bank agrees to cancel all or part of a
customer’s obligation to repay an extension of credit from that bank upon the
occurrence of a specified event under the standards set forth in OCC’s regulations.138
Under those regulations, a national bank and its operating subsidiaries also are
authorized to enter into debt suspension agreements under which a bank agrees to
suspend all or part of a customer’s obligation to repay an extension of credit from
that bank upon the occurrence of a specified event. The agreement may be separate
from or part of other loan documents. Debt suspension agreements do not include
loan payment deferral arrangements in which the triggering event is the borrower’s
unilateral election to defer repayment or the bank’s unilateral decision to allow a
deferral of repayment.139
(V) Providing real estate settlement, closing, escrow, and related services; and real
estate appraisal services for the subsidiary, parent bank, or other financial
institutions.
134

Interpretive Letter No. 875, supra; Interpretive Letter No 811, supra; Corporate Decision No. 9779 (Jul. 11, 1997).
135
12 CFR 7.5007; Interpretive Letter No. 868, (August 16, 1999), reprinted in [1999-2000 Transfer
Binder] Fed. Banking L. Rep. (CCH) ¶ 81-362; Interpretive Letter No. 854, reprinted in [1998-1999
Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81-311 (February 25, 1999); Interpretive Letter No.
467, reprinted in [1988-1989 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 85,691 (January 24,
1989).
136
See 12 CFR 7.5007.
137
Texas Bankers Ass'n v. Bomer, 1997 U.S. Dist. LEXIS 13422 (W.D. Tex. Aug. 7, 1997);
Nationsbank v. Variable Annuity Life Insurance Co., 513 U.S. 251 (1995). See Conditional Approval
311 (April 29, 1999); Interpretive Letter No. 749 (Sept. 13, 1996), reprinted in [1996-1997 Transfer
Binder] Fed. Banking L. Rep. (CCH) ¶ 81-119.
138
12 CFR 37, 67 Fed. Reg. 58962 (Sept. 19, 2002) (Part 37); Interpretive Letter No. 640 (Jan. 7,
1994), reprinted in [1993-94 Transfer Binder] Fed. Banking. L. Rep. (CCH) ¶ 83,527.
139
Part 37; Interpretive Letter No. 827 (April 3, 1998), reprinted in [1997-98 Transfer Binder] Fed.
Banking L. Rep. (CCH) ¶ 81-276.
67

Closing, escrow and related services
National banks and their operating subsidiaries may conduct loan closing,
settlement and escrow services for themselves and for other lenders.140 Such
services may include receipt and assembly of real estate settlement and loan
documents, obtaining signatures for such documents, receipt as escrow agent of
loan funds, payoff of prior mortgages and liens, payment of prorated taxes and
utility bills, disbursement of net loan proceeds to the seller, and recording of
mortgage deeds and other documents.
Closing and escrow services for loans made by the bank and its subsidiaries should
be conducted in accordance with OCC rules regarding the origination and making
of loans at banking and other than banking offices.141 In particular, where services
include the disbursement of loan proceeds, closings should occur either at a main
or branch office of the bank or at the office of an unaffiliated entity, such as a
lawyer’s office or other location, that is not owned by the bank or any of its
affiliates.
Appraisal and evaluation services
National banks and their operating subsidiaries may offer appraisal and evaluation
services. These services may be performed for the subsidiary, parent bank, or other
financial institutions.143 Federally regulated institutions must obtain appraisals
prepared by a certified or licensed appraiser in connection with federally related
transactions. A federally related transaction is any real estate-related financial
transaction made on or after August 9, 1990 by a regulated institution that requires
the services of an appraiser.
Title 12 CFR 34, Subpart C sets forth the occasions upon which appraisals are
required and the standards that appraisals must meet. Certain real estate-related
financial transactions are exempt from the requirements of 12 CFR 34 but require an
evaluation to be prepared in accordance with the Interagency Appraisal and
Evaluation Guidelines.144 Banks and operating subsidiaries should consult the
guidelines for specific information about the regulatory standards for appraisals and
evaluations. If appraisal or evaluation services are offered to other financial
institutions, the proper controls must be in place to ensure confidentiality.
Affiliated business arrangements (ABAs) and compliance with RESPA
Some permissible services qualify as "settlement services" under the Real Estate
Settlement Procedures Act (RESPA), which prohibits persons from giving or
receiving any fee or other compensation for the referral of real estate settlement
services. RESPA, however, permits persons or entities to invest in settlement service
providers and share in the income of those providers in proportion to their
ownership interest in the provider, in addition to receiving bona fide compensation
140

See, for example, Conditional Approval No. 322, supra; Corporate Decision No. 99-06 (January
29, 1999); Conditional Approval No. 276, supra; Interpretive Letter No. 776, (March 18, 1997),
reprinted in [1997 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81-203.
141
12 CFR 7.1003, 7.1004, and 7.1005.
142
12 USC 2601.
143
Interpretive Letter No. 467, supra.
144
Comptroller’s Handbook, Commercial Real Estate and Construction Lending, Appendix E
(November 1995), “Transactions That Require Evaluations,” p. 118.
68

for goods and services rendered by the investor. These providers are referred to as
ABAs and include operating subsidiaries that provide such services. Banks and
these subsidiaries should ensure compliance with the requirements of RESPA. No
lender may require a consumer to purchase settlement services from a particular
provider as a condition of obtaining a loan, unless expressly authorized by RESPA;
the party making the referral must make certain disclosures, and the compensation
restrictions must be followed.
In addition, the Department of Housing and Urban Development (HUD) has issued
guidelines for determining whether an ABA is a "bona fide" provider of settlement
services and thus is not a sham or shell entity organized to circumvent RESPA's
restrictions on payment of fees or other compensation for the referral of real estate
settlement services business. These guidelines list a variety of factors that are to be
taken into account in determining whether an ABA is bona fide, though conformance
to the guidelines does not necessarily require conformance to each of the factors. The
factors include, among others: the adequacy of the entity's initial capital and net
worth; whether the entity is staffed by its own employees; whether the entity manages
its own business affairs; whether it has its own office separate from an office of one of
its parents or, if not, whether it pays a general market value rent for the facility;
whether it provides substantial services and incurs the risks and rewards of any
comparable enterprise, or whether it contracts work out; whether it competes in the
market place for business; and whether it sends business exclusively to one of the
settlement service providers that created it, or to a number of entities. A full
discussion and explanation of these guidelines is in the Department of Housing and
Urban Development’s RESPA Statement of Policy 1996-2 Regarding Sham Controlled
Business Arrangements, 61 Federal Register 29258 (June 7, 1996). See also OCC
Bulletin 2005-27.
(W) Acting as a transfer or fiscal agent.
National banks may act as transfer agents. A transfer agent acts on behalf of an
issuer of securities or on behalf of itself as an issuer of securities and performs the
following functions: (1) countersigning securities upon issuance, (2) monitoring the
issuance of securities to prevent unauthorized issuance, (3) registering the transfer of
securities, (4) exchanging or converting securities, and/or (5) transferring record
ownership of securities by bookkeeping entry without physical issuance of securities
certificates. A national bank or national bank subsidiary must register with the OCC
if it performs transfer agent functions for any security registered under Section 12 of
the Exchange Act or any security that would be required to be registered, except for
the exemption for registered investment company exemption and certain insurance
company securities.145 National banks without trust powers may perform transfer
agent functions only for their own securities or for securities of affiliates.146
National banks may act as fiscal agents as the collection and remittance of funds are
part of the business of banking.147

145

OCC, National Bank Transfer Agents’ Guide (August 1995). See Securities Exchange Act 17A(c);
12 CFR 9.20(a).
146
OCC, National Bank Transfer Agents’ Guide (August 1995)(relying on 12 USC § 92a).
147
See Interpretive Letter No. 731 (July 1, 1996), reprinted in [1995-96 Transfer Binder] Fed.
Banking L. Rep. (CCH) ¶ 81-048; Conditional Approval No. 361 (March 3, 2000); Conditional
Approval No. 324 (August 17, 1999).
69

(X) Acting as a digital certification authority to the extent permitted by published
OCC precedent, subject to the terms and conditions contained in that precedent.
National banks and their operating subsidiaries may act as a digital certification
authority, issuing digital certificates and acting as a repository of public keys and
certificate information.148 In addition, they may hold in escrow keys that are used
for encryption.149 Such certification and escrow activities do not require trust
powers under 12 USC 92a. National banks and their operating subsidiaries
engaging in these activities may also provide connected data processing services
and may sell or rent equipment, including specialized, limited purpose software and
hardware to be used in connection with the certification authority and repository
services and other digital signature or data security systems. They may also provide
and sell software generating public/private key pairs for subscribers and software
enabling subscribers to create or receive messages with digital signatures, verify
digital signatures with public keys, and confirm that the messages were properly
signed. They may also provide consulting or advisory services to help customers,
including other banks, to implement digital signature systems.
National banks and their subsidiaries also may establish and operate a system for
participant organizations to use in order to create and issue digital certificates,
acting as the root certification authority (CA) of such a system. In addition to acting
as the root CA, the national bank or operating subsidiary may establish business
rules so that a customer of the participant organizations can quickly and easily
obtain verification of a certificate issued by another CA in the system.150
Certification authority activities must be undertaken in conformity with OCC
precedent151 and OCC guidance as issued from time to time.152
(Y) Providing or selling public transportation tickets, event and attraction tickets,
gift certificates, prepaid phone cards, promotional and advertising material,
postage stamps, and Electronic Benefits Transfer (EBT) script, and similar media, to
the extent permitted by published OCC precedent, subject to the terms and
conditions contained in that precedent.
National banks and their operating subsidiaries may provide or sell a variety of
“alternate media,” including public transportation tickets or passes, event and
attraction tickets, merchant gift certificates, prepaid telephone cards, and EBT
script.153 Because they have also long been permitted to provide or sell through

148

Conditional Approval Letter No. 267 (Jan. 12, 1998).
Id.
150
Conditional Approval Letter No. 339 (Nov. 16, 1999).
151
To date, OCC precedent has addressed the use of digital certificates in “closed” systems only.
152
See OCC Bulletin 99-20 (May 4, 1999).
153
12 CFR 5.34(e)(5)(v)(Y); Interpretive Letter No. 718 (March 14, 1996), reprinted in [1995-1996
Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81-033; Conditional Approval No. 285 (August 14,
1998); Interpretive Letter No. 854, supra; Interpretive Letter No. 890 (May 15, 2000), reprinted in
[2000-2001 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81-409.
149

70

traditional means advertising and promotional material,154 postage stamps,155
travelers’ checks,156 money orders,157 and credit and debit cards,158 these items may
also be provided electronically, such as through ATMs.159 For any items that are
sold through an ATM, a printed receipt complying with the requirements of Federal
Reserve Board Regulation E, 12 CFR 205, must be provided.160

154

Interpretive Letter No. 316 (December 4, 1984), reprinted in [1985-1987 Transfer Binder] Fed.
Banking L. Rep. (CCH) ¶ 85,486.
155
12 CFR 5.34(e)(5)(v)(Y); 12 CFR § 7.1010; Interpretive Letter No. 890, supra.
156
12 CFR 5.34(e)(5)(v)(C); letter of John G. Heimann, Comptroller of the Currency (November 10,
1977), reprinted in [1978-1979 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 85,067; Interpretive
Letter No. 890, supra; see No-Objection Letter No. 89-02 (April 17, 1989), reprinted in [1989-1990
Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 83,014; Arnold Tours, Inc. v. Camp, 472 F.2d 427,
438 (1st Cir. 1972). [See also section(C) in these guidelines.]
157
12 CFR 5.34(e)(5)(v)(C); Interpretive Letter No. 890, supra; see 12 CFR 7.1014. [See also section
(C) in these guidelines.]
158
Former Interpretive Ruling 7.7378, 12 CFR 7.7378 (removed 1996 because the ability to issue
credit cards “is well established and a specific interpretive ruling is not needed”); see No-Objection
Letter No. 89-02, supra.
159
Interpretive Letter No. 718, supra.
160
Id.
71

Appendix B: Noncontrolling Investment Guidelines
Introduction
National banks and their operating subsidiaries are permitted to make a noncontrolling
investment, or hold a minority interest, in certain enterprises. The OCC regulation
provides for an after-the-fact notice process if the enterprise is engaged in an activity
permissible for after-the-fact notice under the OCC’s operating subsidiary regulation or if
the activity is substantively the same as that contained in published OCC precedent on
noncontrolling investments.161
The following is a summary of noncontrolling investments or minority interests approved
by published OCC precedent.162

Noncontrolling Investment Activities
Lending
•

Appraisal Services. Providing appraisals of the value of collateral before creditors
make a mortgage loan.163

•

Automobile Loans. Providing automobile loans. Loan customers are persons who
purchase cars over the Internet from other, nonbank investors in the LLC.164

•

Commercial Real Estate Loans. Originating and selling commercial real estate
loans.165

•

Credit Card Banking. Making, purchasing, selling, servicing, or warehousing credit
card accounts.166

•

Credit Reporting. Engaging in credit reporting activities, including operation of a
credit-reporting bureau.167

•

Credit Reporting Services. Providing credit reporting services in connection with
the origination of loans.168

•

Data Processing Mortgage Rights. Providing data processing services that facilitate
the transfer of mortgage servicing rights, mortgage ownership, and the release of

161

12 CFR 5.36(e).
The narrative section of this booklet provides further information on the requirements governing the
use of the after-the-fact notice procedure. The Operating Subsidiary Guidelines (Appendix A to the
booklet) provides information on activities permissible for after-the-fact notice under the operating
subsidiary regulation. 12 CFR 5.34(e)(5)(v).
163
Conditional Approval No. 276 (May 8, 1998).
164
Conditional Approval No. 321 (July 28, 1999).
165
Conditional Approval No. 215 (September 11, 1996).
166
Interpretive Letter No. 852 (Dec. 11, 1998), reprinted in [1998-99 Transfer Binder] Fed. Banking L.
Rep.¶ 81-309. See also Conditional Approval No. 269 (January 13, 1998).
167
Conditional Approval No. 322 (July 30, 1999)
168
Conditional Approval No. 336 (November 2, 1999)
162

69

mortgage rights through an electronic “book-entry” system to register and track
mortgage rights.169
•

Escrow Services. Engaging in escrow services.170

•

Home Equity Lines of Credit (Loans for Personal, Family, or Household Purposes
(for example Consumer Loans)). Lending to customers through home equity lines
of credit, such as home improvement loans secured by second liens on family
homes.171

•

Loan-Closing Services.
−

Conducting loan-closing services for both themselves and for other lenders.
Loan closing services may include the disbursement of loan proceeds.172

−

Conducting loan-closing services as an affiliated business arrangement (ABA)
as defined by, and in accordance with, the Real Estate Settlement Procedures
Act.173

•

Loan Document Preparation. Preparing loan documents that describe the rights
and duties of the creditor and the borrower.174

•

Loan Origination and Servicing Activities.
−

Engaging in loan origination and servicing activities, as well as commercial
mortgage loan brokerage services.175

−

Engaging in loan origination and servicing activities that qualify the bank to
receive a share of the New Markets Tax Credits awarded the entity in which
the bank is investing.176

•

Loans Secured by Residential Real Estate. Originating and selling residential real
estate mortgage loans.177

•

Mortgage Banking Activities. Buying, selling, and otherwise dealing in
mortgages.178

169

Conditional Approval No. 333 (October 19, 1999)
Conditional Approval No. 308 (April 8, 1999)
171
Interpretive Letter No. 694 (Dec. 13, 1995), reprinted in [1995-1996 Transfer Binder] Fed. Banking L.
Rep , (CCH) ¶ 81-009. See also Conditional Approval No. 264 (December 29, 1997).
172
Conditional Approval No. 322 (July 30, 1999)
173
Conditional Approval No. 243 (May 9, 1997). The ABA’s structure, operating agreement and activities
must be consistent with guidelines of the Department of Housing and Urban Development. See also (V)
“Providing real estate settlement, closing, escrow, and related services; and real estate appraisal services
for the subsidiary, parent bank, or other financial institutions” of Appendix A.
174
Conditional Approval No. 276 (May 8, 1998). See also Conditional Approval No. 322 (July 30, 1999).
175
Conditional Approval No. 293 (November 24, 1998).
176
Interpretive Letter No. 996 (July 7, 2004) (to be published in CCH).
177
Interpretive Letter No. 853 (February 16, 1999), reprinted in [1998-1999 Transfer Binder] Fed. Banking
L. Rep. (CCH) ¶ 81-310. See also Conditional Approval No. 225 (November 25, 1996).
178
Interpretive Letter No. 889 (April 24, 2000), reprinted in [2000-2001 Transfer Binder] Fed. Banking L.
Rep. (CCH) ¶ 81-408. See also Interpretive Letter No. 711 (Feb. 23, 1996), reprinted in [1995-1996
Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81-026; Conditional Approval No. 338 (November 10,
170

73

•

Real Estate Tax Services. Providing complete real estate tax services, including, for
example, procuring state and local tax bills, reporting such information to the
servicers in time for establishing escrow accounts and paying tax bills, and data
processing and administration services for escrows, taxes, and delinquencies.179

•

Real Property Conveyed as Security for DPC. Acquiring, managing, and selling
real property conveyed to the bank as security for or in satisfaction of debt
previously contracted (DPC).180

•

Student Loans. Originating and marketing student loans.181

Leasing
•

Equipment and Personal Property Leasing. Engaging in leasing, specifically, aircraft
leasing.182

•

Leasing/Selling Excess Capacity. Providing back-up call answering for a hotline to
persons who are not bank customers if there is good faith excess capacity.183

•

Point-of-Sale Terminals. Leasing point-of-sale terminals.184

•

Prime Auto Leasing. Engaging in the origination, purchase, and securitization of
prime auto leases.185

Payment Services
•

Cash Management. Providing cash management services.186

•

Check Cashing and Processing. Engaging in check cashing through sales and
leases of check cashing machines to third parties.187

•

Check Certification. Providing check guarantee and verification services.188

1999); Conditional Approval No. 243 (May 9, 1997); Conditional Approval No. 241 (May 1, 1997);
Conditional Approval No. 318 (July 21, 1999).
179
Conditional Approval No. 276 (May 8, 1998).
180
Interpretive Letter No. 735 (July 15, 1996), reprinted in [1995-1996 Transfer Binder] Fed. Banking L.
Rep. (CCH) ¶ 81-052; Interpretive Letter No. 657 (March 31, 1995), reprinted in [1994-1995 Transfer
Binder] Fed. Banking L. Rep. (CCH) ¶ 83,605; and Conditional Approval No. 210 (July 15, 1996).
181
Conditional Approval No. 216 (September 11, 1996). See also Interpretive Letter No. 692, supra.
182
Interpretive Letter No. 887 (April 30, 2000), reprinted in [2000-2001 Transfer Binder] Fed. Banking L.
Rep. (CCH) ¶ 81-406. See also Conditional Approval 316 (June 30, 1999); M&M Leasing Corp. v. Seattle
First Nat’l Bank, 563 F.2d 1377, 1382-83 (9th Cir. 1977), cert. denied, 436 U.S. 956 (1978); OCC
Corporate Decision No. 97-54 (June 26, 1997); Conditional Approval No. 281 (July 30, 1998);
Conditional Approval No. 295 (December 3, 1998)
183
Conditional Approval No. 361 (March 3, 2000).
184
Conditional Approval Letter No. 269 (January 13, 1998).
185
Interpretive Letter No. 898 (July 14, 1998).
186
Interpretive Letter No. 756 (Nov. 5, 1996), reprinted in [1996-97 Transfer Binder] Fed. Banking L. Rep.
(CCH)¶ 81-120. See also Conditional Approval No. 324 (Aug. 17, 1999).
187
Conditional Approval No. 307 (March 19, 1999).
188
Conditional Approval No. 287 (September 4, 1998).
74

Data Processing and Correspondent Services
•

Analyzing Customer Information. Analyzing customer information to determine
potential needs and including brochures in statements about the availability of
nonbanking products from venders.189

•

Electronic Imaging Services. Providing electronic imaging services to financial
institutions. Electronic imaging systems use digital technology to capture, index,
store, and retrieve electronic images of paper documents.190

•

Internet Merchant Hosting Services. Providing Internet merchant hosting services
to other financial institutions for resale to their merchants.191

•

Medical Claims Processing. Engaging in medical claims processing, including
using electronic data interchange facilities, billing, and facilitating payment through
funds transfer and credit card processing.192

•

Merchant Processing Services. Providing merchant credit and debit card
processing services. Merchant processing generally involves verifying credit and
debit card authorizations at the time of purchase, processing card transactions,
settlement of card transactions, and depositing funds in merchants’ accounts.193

•

Payment and Information Processing Services. Providing payment and information
processing services. The entity may provide electronic data processing and data
interchange facilities to assist health care providers in communicating billing and
payment-related information to insurance carriers responsible for providing medical
benefits. Noncontrolling investments also may provide lockbox services. In
addition, noncontrolling investments may provide ATM and POS-related services to
depository institutions.194

•

Payroll Processing Services. Offering payroll processing services by traditional as
well as electronic means to commercial customers. Payroll processing services
may include payroll computations, deductions and tax escrow account

189

Conditional Approval No. 265 (December 29, 1997).
Interpretive Letter No. 805 (October 9, 1997), reprinted in [1997-1998 Transfer Binder] Fed. Banking L.
Rep. (CCH) ¶ 81-252). See also OCC Bulletin 94-8 (January 27, 1994); Conditional Approval No. 658
(October 13, 2004).
191
Interpretive Letter No. 875 (October 31, 1999), reprinted in [1999-2000 Transfer Binder] Fed. Banking
L. Rep. (CCH) ¶ 81-369).
192
Interpretive Letter No. 836 (March 12, 1996), reprinted in [1998-1999 Transfer Binder] Fed. Banking L.
Rep. (CCH) ¶ 81-290.
193
Interpretive Letter No. 813 (October 14, 1997), reprinted in [1997-1998 Transfer Binder] Fed. Banking
L. Rep. (CCH) ¶81-261. See also Conditional Approval No. 289 (October 2, 1998); Conditional Approval
No. 248 (June 27, 1997); Interpretive Letter No. 720 (January 26, 1996), reprinted in [1995-1996 Transfer
Binder] Fed. Banking L. Rep. (CCH) ¶ 81,035); Interpretive Letter No. 731 (July 1, 1996), reprinted in
[1995-1996 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81-048; Interpretive Letter No. 689 (August 9,
1995), reprinted in [1995-1996 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81-004; and Banking
Bulletin 92-94, Merchant Processing (May 5, 1992); Conditional Approval No. 265 (December 29, 1997);
Conditional Approval No. 255 (September 25, 1997).
194
Conditional Approval No. 282 (July 31, 1998); Letter to Wells Fargo Bank, NA (December 30, 1996);
Interpretive Letter No. 705 (October 25, 1995), reprinted in [1995-1996 Transfer Binder] Fed. Banking L.
Rep. (CCH) ¶ 81-020.
190

75

management, and processing salary payments to employees either by direct deposit
or by check preparation.195
•

Processing of Banking, Financial, or Economic Data. Collecting, transcribing,
processing, analyzing, and storing banking, financial, or related economic data for
customers as part of the business of banking.196
Consulting and Financial Advice
•

Consumer Financial Advice. Providing financial advice to bank consumers,
including advice regarding acquisitions and dispositions of businesses.197

•

Investment Advice. Providing investment advice as part of or incidental to the
business of banking.198

Finder Activities
•

Acting as Finder for Government Agencies. Hosting Web sites for government
agencies and providing an electronic communications pathway for product
ordering and payment as a finder activity.199

•

Acting as Finder for Insurance Activities. Bringing together a potential purchaser
of insurance and the seller of insurance by making inquiries as to interest,
introducing or arranging meetings of interested parties, and otherwise bringing
parties together for a transaction that the parties themselves negotiate and
consummate.200

•

Acting as Finder for Internet Vendors. Providing bank customers links to
nonbanking, third-party vendors’ Internet Web sites.201

•

Acting as Finder for Like-Kind Exchanges. Providing finder services for the
owners of investment property.202

195

Interpretive Letter No. 771 (February 24, 1997), reprinted in [1996-1997 Transfer Binder] Fed. Banking
L. Rep. (CCH) ¶ 81-135.
196
Conditional Approval No. 361 (March 3, 2000); Interpretive Letter No. 516 (July 12 1990), reprinted in
[1990-1991 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 83,220.
197
Interpretive Letter No. 871 (October 14, 1999), reprinted in [1999-2000 Transfer Binder] Fed. Banking
L. Rep. (CCH) ¶ 81-365.
198
Interpretive Letter No. 871, supra. See also Interpretive Letter No. 851 (December 8, 1998), reprinted
in [1998-1999 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81-308; Letter to Premier Bank, NA (March
16, 1995); Conditional Approval No. 241 (May 1, 1997); Conditional Approval No. 270 (January 21,
1998); Conditional Approval No. 300 (January 13, 1999).
199
Interpretive Letter No. 883 (March 3, 2000), reprinted in [2000-2001 Transfer Binder] Fed. Banking L.
Rep. (CCH) ¶ 81-402.
200
Interpretive Letter No. 889, supra.; Interpretive Letter No. 824 (February 27, 1998); reprinted in [19971998 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81-273 (Feb. 27, 1998); Conditional Approval No.
221 (December 4, 1996).
201
Conditional Approval No. 221 (December 4, 1996). See also Conditional Approval No. 361 (March 3,
2000); Conditional Approval No. 369 (February 25, 2000) and Interpretive Letter No. 611 (November 23,
1992), reprinted in [1992-1993 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 83,449.
202
Conditional Approval 322 (July 30, 1999).
76

•

Acting as Finder for Merchants through the Internet. Hosting merchants’
commercial Web sites, bringing potential customers and merchants together for a
transaction that the parties’ themselves negotiate and consummate.203

•

Acting as Finder for Real Estate Transactions. Acting as a finder and bringing
together parties wishing to finance the purchase, construction, development, or
placement of real estate equity interests, and securities related to real estate.204

Real Estate Related Activities
•

Appraisal Services. Performing real estate appraisals for the bank and for other
lenders.205

•

Property for Bank Premises. Acquiring property for bank premises if (1) the
aggregate amount of the investment is less than or equal to the national bank’s
capital stock; or (2) the aggregate amount of the investment is less than or equal
to 150 percent of the national bank’s capital and surplus, and the national bank is
“well capitalized” and has a CAMEL rating of 1 or 2, provided that the bank
provides the OCC with notice 30 days after this investment. Prior OCC approval
is required for investments in bank premises that do not meet the above criteria.206

•

Property Inspections. Engaging in property inspections in connection with
lending activities.207

•

Real Estate Tax and Management Service. Engaging in real estate reporting and
management services in connection with certain loans made by the bank or its
lending affiliates. A national bank also may hold a noncontrolling interest in an
entity that provides real estate tax services that assure that real estate taxes are
paid on time.208

•

Title Abstracting Services. Engaging in residential and commercial title
abstracting services; that is, the preparation of reports of chains of title drawn
from public record, but without interpretations, conclusions, or expressions of
opinion as to the validity of title.209

•

Title Insurance and Loan Closing Services. Providing title insurance and
engaging in loan closing management activities.210

Support Services
•

Agent for Deposit Placement. Acting as agent and placing customers’ funds in
foreign currency time deposits with foreign banks.211

203

Interpretive Letter No. 875, supra.
Conditional Approval No. 241 (May 1, 1997); Conditional Approval No. 284 (August 14, 1998).
205
Conditional Approval No. 322 (July 30, 1999).
206
Conditional Approval No. 298 (December 15, 1998).
207
Conditional Approval No. 322 (July 30, 1999).
208
Conditional Approval No. 317 (July 19, 1999); Conditional Approval No. 276 (May 8, 1998).
209
Conditional Approval 308 (April 8, 1999).
210
Conditional Approval No. 327 (September 14, 1999); Interpretive Letter No. 842 (September 28,
1998), reprinted in [1998-1999 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81-297; Conditional
Approval No. 276 (May 8, 1998).
204

77

•

Employee Benefit and Payroll Services. Providing employee benefit services and
payroll services to financial institutions and nonfinancial companies.212

•

Professional Employer Organization. Marketing human resource and employeerelated administrative services to small and medium-sized customers.213

Fiduciary Activities
•

Trust Bank Stock. Holding interests in trust banks.214

Insurance and Annuities Activities
•

Insurance Company Products and Investment Funds Hedging. Holding interests
through subsidiaries in various insurance company products and investment
funds containing bank-ineligible securities to hedge, on a dollar-for-dollar basis,
the subsidiary's obligations to make payments to employees under nonqualified
deferred compensation plans.215

•

Marketing and Consulting Services to Insurance Agencies. Providing marketing
and consulting services to insurance agencies.216

•

Place of 5000 Satellite Offices. In an entity located in a “place of 5,000,”
soliciting and selling insurance in the same manner permissible in New York for
New York licensed insurance agencies generally and as authorized by the
investment’s state insurance license. In particular, a noncontrolling investment
may sell insurance through satellite offices, in addition to the investment’s “place
of 5,000” location, as permitted under state law.217

•

Scope of Market. Holding an interest in a LLC that does business as an insurance
agency or broker, including acting as agent in the sale of disability and life
insurance.218

•

Title Insurance. Selling title insurance as agent.219

211

Interpretive Letter No. 778 (March 20, 1997), reprinted in [1997 Transfer Binder] Fed. Banking L. Rep.
(CCH) ¶81-205.
212
Interpretive Letter No. 909 (May 2, 2001), reprinted in [Current Transfer Binder] Fed. Banking Law.
Rep. (CCH) ¶ 81-433; Interpretive Letter No. 994 (June 14, 2004).
213
Conditional Approval No. 456 (March 10, 2001).
214
Interpretive Letter No. 697 (November 15, 1995), reprinted in [1995-1996 Transfer Binder] Fed.
Banking L. Rep. (CCH) ¶ 81-016. See also Interpretive Letter No. 815 (December 2, 1997), reprinted in
[1997-1998 Transfer Binder] (CCH) 81-263; Interpretive Letter No. 831 (June 8, 1998), reprinted in [19971998 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 81-285.
215
Interpretive Letter No. 878 (December 22, 1999), reprinted in [1999-2000 Transfer Binder] Fed.
Banking L. Rep. (CCH) ¶ 81-375.
216
Conditional Approval No. 302 (January 21, 1999).
217
Interpretive Letter No. 873 (December 1, 1999), reprinted in [1999-2000 Transfer Binder] Fed. Banking
L. Rep. (CCH) ¶ 81-367. See also Interpretive Letter No. 819 (January 20, 1998), reprinted in [1997-1998
Transfer Binder] (CCH) ¶ 81-268; Conditional Approval No. 236 (April 3, 1997).
218
Conditional Approval No. 242 (May 7, 1997). See also Conditional Approval No. 303 (February 16,
1999).
219
Conditional Approval No. 371 (March 20, 2000).
78

•

Title Insurance and Annuity Sales. Acting as insurance agent, owning interest in
title insurance agency, and engaging in annuity sales as agent.220

•

Reinsurance of Credit Life, Credit Accidental Death, and Credit Disability
Insurance. Reinsuring mortgage life, mortgage accidental death, and mortgage
disability insurance on loans originated by lenders with an ownership interest in
the investment entity.221

•

Reinsurance of Private Mortgage Insurance. Reinsuring mortgage insurance on
loans originated, purchased, or serviced by lenders with an ownership interest in
the investment entity.222

•

Professional Liability Insurance. Incidental purchase of securities by a bank of an
insurance carrier where purchase of the securities is necessary to obtain
professional liability insurance.223

Securities Activities
•

Business Trusts. Having interests in certificates of participation in business trusts
created to hold and manage a substantial portion of the bank’s investment
securities portfolio.224

•

Clearinghouse Membership. Purchasing a share in a clearinghouse to enable
participation in permissible exchange and clearinghouse activities.225

•

Investment Funds Management. Holding limited equity interests in certain
private investment funds for which a national bank serves as investment
manager.226

•

Investment Portfolio Management. Providing investment portfolio
management.227

•

Investment Advisory Company. Providing investment advisory services through a
company that owns limited equity interests in investment funds to which it
provides services.228

•

Principal in Bank Eligible Securities. Investing and trading as principal in bank
eligible securities.229

220

Conditional Approval No. 574 (January 27, 2003).
Interpretive Letter No. 835 (July 31, 1998), reprinted in [1998-1999 Transfer Binder] Fed. Banking L.
Rep. (CCH) ¶ 81-289.
222
Interpretive Letter No. 985 (January 14, 2004), reprinted in [Current Transfer Binder] Fed. Banking L.
Rep. (CCH) ¶ 81-511.
223
Interpretive Letter No. 965 (February 24, 2003)
224
Interpretive Letter No. 745 (August 27, 1996), reprinted in [1996-1997 Transfer Binder] Fed. Banking L.
Rep. (CCH) ¶ 81-110).
225
Interpretive Letter No. 929 (February 11, 2002).
226
Interpretive Letter No. 940 (May 24, 2002).
227
Conditional Approval No. 289 (October 2, 1998).
228
Interpretive Letter No. 897 (Oct. 23, 2000), reprinted in [2000-2001 Transfer Binder] Fed.Banking Law.
Rep. (CCH) ¶ 81-416.
229
Interpretive Letter No. 889, supra.; Interpretive Letter No. 652 (Sept. 13, 1994), reprinted in [1994
Transfer Binder] Fed. Banking L. Reg. (CCH) ¶ 83,600.
221

79

•

Private Placement of Securities. Arranging private placements of debt and equity
securities for bank customers. 230

•

Riskless Principal. Buying and selling securities on an agency or riskless
principal basis.231

•

Securities Brokerage. Providing full service securities brokerage services
(investment advisory services and brokerage services) to the bank’s customers.232

•

Small Business Investment Companies. Having an interest in, and making loans
to, a small business investment company that will make loans and invest in
securities permissible under the SBIC Act.233

•

Warrants for Common Stock. Having an interest in a subsidiary that holds
warrants of acquired shares of common stock.234

Technology and Electronic Activities
•

Internet Banking Powers. Offering Internet home banking services.235

•

Commercial Web Site Hosting Services. Providing a package of Internet-based
services that include hosting merchants’ Web sites on its server; providing an
electronic pathway for product ordering and payment; maintaining merchants’
data associated with the Web sites on its server; providing reports on transactions,
Web site hits, and sales data; and payment processing.236

•

Hyperlinks between Bank Web Sites and Third-Party Sites. Establishing
hyperlinks between its home pages and the Internet pages of third-party providers
so that bank customers will be able to access those nonbank sites from the bank
site.237

•

Research and Development. Engaging in research and development to establish
identity certification services.238

230

Interpretive Letter No. 871, supra.
Interpretive Letter No. 889, supra.; Interpretive Letter No. 622 (April 9, 1993), reprinted in [1993-1994
Transfer Binder] Fed. Banking L. Reg. (CCH) ¶ 83,504; Interpretive Letter No. 626 (July 7, 1993), reprinted
in [1993-1994 Transfer Binder] Fed. Banking L. Reg. (CCH) 83,508; Interpretive Letter No. 371 (June 13,
1986), reprinted in [1984-1987 Transfer Binder] Fed. Banking L. Reg. (CCH) ¶ 85,541.
232
Interpretive Letter No. 871, supra.; Securities Industry Association v. Comptroller of the Currency, 577
F. Supp. 252 (D.D.C. 1983), aff’d. 758 F.2d 739 (D.C. Cir. 1985), cert. denied, 474 U.S. 1054 (1986);
Securities Industry Association v. Board of Governors of the Federal Reserve System, 468 U.S. 207 (1984).
See also Conditional Approval No. 303 (February 16, 1999).
233
Conditional Approval No. 305 (March 15, 1999). See also Interpretive Letter No. 832 (June 18, 1998),
reprinted in [1998-1999 Transfer Binder] Fed. L. Banking Reg. (CCH) ¶ 81-286.
234
Conditional Approval No. 319 (July 26, 1999).
235
Conditional Approval No. 289 (October 2, 1998).
236
Conditional Approval No. 361 (March 3, 2000).
237
Conditional Approval No. 221 (December 4, 1996).
238
Conditional Approval No. 301 (January 15, 1999).
231

80

•

Trade Finance. Facilitating trade financing between United States exporters and
Latin American importers by arranging financing, obtaining credit insurance, and
acting as escrow agent.239

•

Virtual Malls. Operating a “virtual mall,” where a bank-hosted set of Web pages
with a collection of links to third-party Web sites that allow customers to shop for
a range of financial and non-financial products and services via links to sites of
third-party vendors and merchants, can electronically confirm payment
authorization before shipping goods.240

•

Web Design and Development Services. Providing Web design and
development services to the bank’s merchant customers.241

Electronic Bill Payments
•

Electronic Bill Payment and Presentment Services through the Internet. Offering
electronic bill payment and presentment services over the Internet.242

•

Electronic Interbank Switch. Holding an interest in a switch to support electronic
bill presentment services over the Internet.243

•

Electronic Bill Payment, Money Transfer, and Related Data Processing. Holding
an interest in an LLC that offers electronic bill payment, transfer of money, and
related data processing for these services.244

Stored Value
•

Closed Stored Value Card Systems. Designing, installing, and supporting
“closed” stored value card systems at universities and other institutions.245

•

Creation, Sale, and Redemption of Stored Value Cards. Providing “open” stored
value card systems and engaging in the development, marketing, delivery, and
maintenance of stored value and information systems.246

•

Stored Value System. Providing an electronic payments system that enables nondepositor customers to store pre-paid value on a card, but that is maintained in a
central database.247

Electronic Data Interchange (EDI) Services
239

Conditional Approval No. 436 (December 19, 2000).
Interpretive Letter No. 875, supra.
241
Interpretive Letter No. 875, supra. See also Interpretive Letter No. 883, supra.
242
Conditional Approval No. 304 (March 5, 1999). See also Conditional Approval No. 289 (October 2,
1998).
243
Conditional Approval No. 332 (October 18, 1999).
244
Conditional Approval No. 389 (May 19, 2000).
245
Interpretive Letter No. 737 (August 19, 1996), reprinted in [1996-1997 Transfer Binder] Fed. Banking L.
Rep. (CCH) ¶ 81-101.
246
Interpretive Letter No. 855 (March 1, 1999), reprinted in [1998-1999 Transfer Binder] Fed. Banking L.
Rep. (CCH) ¶ 81-312. See also Conditional Approval No. 220 (December 2, 1996); Corporate Decision
No. 98-39 (March 27, 1998).
247
Conditional Approval No. 568 (December 31, 2002).
240

81

•

EDI Services. Holding interests in companies that allow businesses to send and
receive payments, invoices, and orders worldwide. Specifically, these companies
may design and develop a network for electronic transfer of funds and financial
information, along with the development and marketing of related software.248

•

Electronic Funds Transfer Network. Engaging in a broad range of EFT-related
activities, including operating the networks, data processing, and providing
consulting services to depository institutions.249

•

Operation of an Electronic Toll Collection System. Using modern technology in
serving as a government fiscal agent.250

•

Dispensing Prepaid Alternative Media. Dispensing “alternative media” through
ATMs, including event tickets, vouchers, and gift certificates.251

Digital Certification
•

Digital Certification. Acting as a certification authority to enable subscribers to
generate digital signatures that verify the identity of a sender of an electronic
message.252

•

Multiple Bank Certification Authority (CA) Network System. Establishing an
entity that will support a multiple bank CA network system. The central entity
will act as the root CA for the sub-CA banks and will establish business rules so
that customers of any sub-CAs can quickly and easily obtain verification of a
certificate issued by any other CA bank in the system.253

Internet Access Service
•

Internet Access Service. Establishing and operating an electronic distribution
channel for providing electronic financial services to customers of participating
financial institutions.254

•

Internet Access and Sale of Excess Capacity. Providing back-up call answering
for a hotline to persons who are not bank customers if there is good faith excess
capacity.255

Software Development and Production
•

Software Development, Distribution and Support. Providing services and
technology to facilitate secure electronic payments over the Internet.256

248

Interpretive Letter No. 732 (May 10, 1996), reprinted in [1995-1996 Transfer Binder] Fed. Banking L.
Rep. (CCH) ¶ 81-049.
249
Interpretive Letter No. 854 (February 25, 1999), reprinted in [1998-1999 Transfer Binder] Fed. Banking
L. Rep. (CCH) ¶ 81-311; Interpretive Letter No. 890 (May 15, 2000); Interpretive Letter No. 993 (May 16,
1997); CRA Decision Letter No. 122 (June 23, 2004).
250
Conditional Approval No. 361 (March 3, 2000)
251
Conditional Approval No. 285 (August 14, 1998).
252
Conditional Approval No. 339 (November 16, 1999); Conditional Approval No. 301 (January 15,
1999); CRA Decision Letter No. 122 (June 23, 2004); Corporate Decision No. 2002-4 (February 18, 2002).
253
Conditional Approval No. 339 (November 16, 1999).
254
Conditional Approval No. 221 (December 4, 1996).
255
Conditional Approval No. 361 (March 3, 2000).
82

Other
•

Interest in Airplane. Owning a noncontrolling interest in a LLC that will own and
operate a single small airplane to use in the conduct of the bank’s business.257

•

ATM Sales/Leases to Third Parties. Selling and leasing ATMs, as well as their
proprietary software and hardware, to enable check cashing services.258

•

Interest in a Banker’s Bank. Owning a noncontrolling interest in an institution
organized as a banker’s bank, not otherwise authorized under 12 USC 27(b).259

256

Interpretive Letter No. 868 (August 16, 1999), reprinted in [1999-2000 Transfer Binder] Fed. Banking L.
Rep. (CCH) ¶ 81-362; Interpretive Letter No. 677 (June 28, 1995), reprinted in [1994-1995 Transfer
Binder] Fed. Banking L. Rep. (CCH) ¶ 83,625. See also Interpretive Letter No. 756, supra.; Conditional
Approval No. 254 (August 21, 1997); Conditional Approval No. 289 (October 2, 1998).
257
Interpretive Letter No. 943 (July 24, 2002), reprinted in [Current Transfer Binder] Fed. Banking Law.
Rep. (CCH) ¶ 81-468.
258
Conditional Approval No. 307 (March 19, 1999).
259
Interpretive Letter No. 970 (June 25, 2003)
83

Glossary
An adequately capitalized bank means the capital level is as described in
12 CFR 6.4(b)(2).
A bank service company is a corporation, a limited liability company
(LLC), or similar entity organized to provide services authorized by the
Bank Service Company Act, 12 USC 1861 through 1867, all of whose
capital stock is owned by one or more insured banks in the case of a
corporation, or all of the members of which are one or more insured banks
in the case of an LLC.
A depository institution is any bank or savings association. For bank
service company purposes, a depository institution is defined as an insured
bank, a financial institution subject to examination by the Office of Thrift
Supervision (OTS) or the National Credit Union Administration (NCUA)
Board, or a financial institution whose accounts or deposits are insured or
guaranteed under state law and eligible to be insured by the Federal
Deposit Insurance Corporation or the NCUA Board.
A depository institution affiliate, for purposes of investing in a financial
subsidiary, is any bank or savings association that qualifies as an affiliate
under Section 2 of the Bank Holding Company Act of 1956, 12 USC 1841.
Eligible debt means unsecured long-term debt that is:
• Not supported by any form of credit enhancement, including a guaranty
or standby letter of credit; and
• Not held in whole or in any significant part by any affiliate, officer,
director, principal shareholder, or employee of the bank or any other
person acting on behalf of or with funds from the bank or an affiliate of
the bank.
A financial subsidiary is a corporation, LLC, or similar entity, controlled by
one or more insured depository institutions, conducting activities that are
financial in nature or incidental to financial activities. Financial
subsidiaries do not include operating subsidiaries, bank service companies,
or statutory subsidiaries.
Investing in a bank service company includes making any advance of
funds to a bank service company, whether by the purchase of stock, the
making of a loan, or otherwise, except a payment for rent earned, goods
sold and delivered, or services rendered before the payment was made.
A limited liability company (LLC) or a similar entity is an unincorporated
business entity organized under state law, providing its members limited
liability. It does not include a limited partnership.
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Long-term debt for a financial subsidiary means any debt obligation with
an initial maturity of 360 days or more.
An operating subsidiary is a separate corporation, LLC, or similar entity, in
which a national bank maintains more than a 50 percent voting or similar
type of controlling interest, or otherwise controls the subsidiary and no
other party controls more than 50 percent of the voting (or similar type of
controlling) interest of the subsidiary. An operating subsidiary may engage
in activities that are part of, or incidental to, the business of banking, or are
otherwise authorized for a national bank, under 12 USC 24(Seventh), or in
other activities authorized for national banks or their subsidiaries under
other statutes. (An operating subsidiary does not include statutory
subsidiaries or a subsidiary in which the bank acquired shares, in good
faith, through foreclosure on collateral, by compromise of a doubtful claim,
or to avoid a loss in connection with a debt previously contracted.)
A principal investor is the insured bank that has the largest amount
invested in the equity of a bank service company. When two or more
insured banks have equal amounts invested, the bank service company
must designate one of them as its principal investor.
An undercapitalized bank means the capital level is as described in 12
CFR 6.4(b)(3).
A well-capitalized bank means the capital level is as described in 12 CFR
6.4(b)(1).
A well-managed bank means that, unless otherwise determined in writing
by the OCC:
• The bank has a composite CAMELS rating of 1 or 2; and for financial
subsidiaries at least a management rating of 2; or
• If the bank has not been examined, the existence and use of managerial
resources that OCC Bank Supervision determines satisfactory.

85

References
Affiliate Transactions, Sections 23A and 23B of the Federal Reserve Act
Laws
12 USC 371c, 371c-1
Regulation
12 CFR 223
Agricultural Credit Corporations
Law

12 USC 24(Seventh)

Annuities
Law

12 USC 24(Seventh)

Bank Holding Company Act of 1956
Laws

12 USC 1841 - 1850

Bank Ownership of Property
Law
Regulation

12 USC 29
12 CFR 7.1000

Bank Service Company
Laws
Regulation

12 USC 1843(c)(8), 1861-1867
12 CFR 5.35

Branches
Law
Regulation

12 USC 36
12 CFR 5.30

Business of Banking
Law

12 USC 24 (Seventh)

Capital

Laws
Regulations

12 USC 51a-60, 3907
12 CFR 3, 6

Community Development Corporation or Entity
Laws
12 USC 24(Eleventh)
Regulation
12 CFR 24
Data Processing
Laws
Regulation

12 USC 24(Seventh), 1863
12 CFR 7.5006

Decisions
Regulation

12 CFR 5.13

Electronic Banking Activities
Regulations
Issuance

12 CFR 7.5000 - 7.5010
FFIEC IT Handbook Series

Eligible Activities—Notice Procedures
Regulation

12 CFR 5.34(e)(5)(v)

86

Examination Authority
Laws

12 USC 481, 484,1820a, 1831v
12 USC 1867(c)
12 CFR 7.400

Regulation
Federal Deposit Insurance Act
Law

12 USC 1831v

Fiduciary Powers
Law
Regulations

12 USC 92a
12 CFR 5.26, 9

Filing Fees
Regulation

12 CFR 5.5

Financial Activities
Law
Regulation

12 USC 24a
12 CFR 5.39

Financial Statements, Statutory Limits
Law

12 USC 32, 56, 60, 84, 371d

Financial Subsidiaries
Law
Regulation

12 USC 24a
12 CFR 5.39

Finder

Regulation

12 CFR 7.1002

Freedom of Information Act Request
Issuance
Gramm-Leach-Bliley Act
Laws

PPM 2100-15, Sup. 1
12 USC 24a (Section 121)
12 USC 1820a (Section 115)
15 USC 6712 (Section 302)
15 USC 6713 (Section 303)
15 USC 6801 (Section 501)

Hart-Scott-Rodino Antitrust Improvements Act of 1976
Law
15 USC 18a
Insurance
Laws

12 USC 24(Seventh), 92
15 USC 6712, 6713
12 CFR 2, 14
Comptroller’s Handbook for Insurance
Activities

Regulations
Issuance
Investment Advisors Act of 1940
Laws

15 USC 80b-1 - 21

87

Investment Company Act
Laws

15 USC 80a-1 - 64

Investment Discretion
Regulation

12 CFR 9.2(i)

Investment in Bank Premises
Law
Regulations

12 USC 371d
12 CFR 5.37, 7.1000

Leasing

Law
Regulation

12 USC 24(Tenth)
12 CFR 23

Legal Lending Limit
Law
Regulation

12 USC 84
12 CFR 32

Limited Liability Company
Law
Regulations

12 USC 1861
12 CFR 5.34, 5.35, 5.36

Operating Subsidiaries
Law
Regulation
Issuance

12 USC 24(Seventh)
12 CFR 5.34
Bulletin 2004-55
PPM 2100-15, Sup. 1

Other Equity Investments
Law
Regulation

12 USC 24(Seventh)
12 CFR 5.36

Nonconforming Assets
Law

12 USC 35

Privacy

Law

15 USC 6801-6827

Related Organizations
Issuance

Comptroller’s Handbook for
Related Organizations

Safe Deposit Subsidiary
Law

12 USC 24(Seventh)

Savings Association Eligible to be Acquired
Law
12 USC 1823
Regulation
12 CFR 5.36
Securities Exchange Act of 1934
Laws

15 USC 78a – 78mm

88

Self-Dealing
Laws
Regulations
Issuance

12 USC 375, 375a, 375b, 376
12 CFR 9, 31, 215
Comptroller’s Handbook on Insider
Activities

Small Business Investment Company
Law
Regulation

12 USC 682(b)
12 CFR 7.1015

State Law
Regulation

12 CFR 7.4006

Transactions with Affiliates, Sections 23A and 23B of the Federal Reserve Act
Laws
12 USC 371c, 371c-1
Regulation
12 CFR 223

89