OCC 2004-37 OCC BULLETIN Subject: Fundamental Change in Asset Composition of a Bank Description: Final Rule Date: August 19, 2004 TO: Chief Executive Officers of All National Banks, Department and Division Heads, All Examining Personnel and Other Interested Parties The OCC has issued a final rule that adds a new section 5.53 to the Office of the Comptroller of the Currency's (OCC's) regulations to require a national bank to obtain the OCC's prior written approval before making two types of fundamental changes in the composition of the bank's assets: (1) changing the composition of all, or substantially all, of its assets through sales or other dispositions; or (2) after having sold or disposed of all, or substantially all, of its assets, subsequently purchasing or otherwise acquiring assets or otherwise expanding its operations. The preamble to the final rule indicates that a national bank that has disposed of all or substantially all of its assets before the effective date of this regulation must comply with the prior approval requirement before it purchases or otherwise acquires new assets or expands its operations after this regulation takes effect. The rule was published in the Federal Register on August 16, 2004. The effective date of this new rule is October 1, 2004. The final rule contains three exceptions to this application requirement. First, the requirement does not apply to a bank that changes its asset composition as part of a voluntary liquidation pursuant to 12 USC 181 and 182 and 12 CFR 5.48, if the liquidating bank has stipulated in its notice of liquidation to the OCC that its liquidation will be completed, the bank dissolved, and its charter returned to the OCC. Second, national banks that change the composition of all, or substantially all, of their assets in response to direction from the OCC (e.g., in an enforcement action pursuant to 12 USC 1818) are not required to file an application pursuant to section 5.53. Third, the requirement does not apply to changes in asset composition that occur as a result of a bank's ordinary and ongoing business of originating and securitizing loans. The procedural rules in subpart A of part 5, "Rules of General Applicability," generally govern all application requirements in part 5 "unless otherwise stated."[1] Among other things, subpart A provides for a public notice and comment process, and, as part of that process, permits "any person" to submit a written request for a hearing. Section 5.53(d) of the final rule provides that those procedures do not apply to this new application requirement unless the OCC determines otherwise on account of the significance or novelty of the issues raised by a particular application. Section 5.53(c)(2) of the final rule provides that when reviewing an application filed under this section the OCC will consider the purpose of the transaction, its impact on the safety and soundness of the bank, and any effect on the bank's customers; further, we may deny the application if the transaction would have a negative effect in any of these respects. In addition, section 5.53(c)(2) provides that our review of any change in asset composition of a dormant bank through purchase or other acquisition or other expansions of its operations under paragraph 5.53(c)(1)(ii) includes, in addition to the foregoing factors, the factors governing the organization of a de novo bank under 12 CFR 5.20.[2] The preamble to the final rule states that the reasons for the proposed decrease in asset size, future plans for the bank charter (including any plans for liquidation), future asset growth, future plans to market or sell the charter, and future business plans, as applicable, will be relevant to our review of an application to dispose of all or substantially all of a bank's assets. In addition, depending on the circumstances presented in the bank's application, our approval of the bank's disposition of all or substantially all of its assets will address how long the dormant bank charter may continue, and could include a requirement that the bank submit a plan of liquidation. In reviewing an application in connection with an increase in the assets of a stripped charter, we also will consider the bank's future business plan and whether this plan involves activities that significantly deviate from the bank's original business plan or operations prior to its stripped status. Furthermore, we will consider the applicant's staffing plans, plans for oversight of the activity within the bank, and accountability to the board of directors, along with the applicant's plans to acquire, develop, or modify internal control systems adequate to monitor the new activity. The final rule also makes a conforming change to section 5.20 to provide that any use of the term "operating plan" or "operating plans" will be changed to "business plan or operating plan" or "business plans or operating plans," as appropriate. For further information, contact Heidi M. Thomas, special counsel, Legislative and Regulatory Activities Division, (202) 874-5090; Richard Cleva, senior counsel, Bank Activities and Structure Division, at 202 874- 5300; or Stephen Lybarger, director for Licensing Activities, at (202) 874-5060. _____________________________________ Julie L. Williams First Senior Deputy Comptroller and Chief Counsel Attachment: 69 FR 50293 [http://www.occ.treas.gov/fr/fedregister/69fr50293.pdf] _______________________________ 1 12 CFR 5.2(a). 2 When evaluating an application to establish a de novo bank, section 5.20 of our regulations provides that we consider whether the proposed bank (1) has organizers who are familiar with national banking laws and regulations; (2) has competent management, including a board of directors, with ability and experience relevant to the types of services to be provided; (3) has capital that is sufficient to support the projected volume and type of business; (4) can reasonably be expected to achieve and maintain profitability; and (5) will be operated in a safe and sound manner. In addition, section 5.20(f) provides that we also may consider additional factors listed in section 6 of the Federal Deposit Insurance Act, 12 USC 1816, including the risk to the federal deposit insurance fund, and whether the proposed bank's corporate powers are consistent with the purposes of the Federal Deposit Insurance Act and the National Bank Act.