Lynn Woosley is a Senior Director with Treliant. She is a seasoned executive with extensive risk management experience in regulatory compliance, consumer and commercial credit risk, credit and compliance risk modeling, model governance, regulatory change management, acquisition due diligence, and operational risk in both financial services and regulatory environments.
Proposed Changes to National Bank Licensing Requirements
- Source: occ.gov
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On March 5, 2020, the Office of the Comptroller of the Currency (OCC) requested comments on proposals to eliminate unnecessary licensing requirements. If adopted, the proposal will modify 12 CFR §5, “Rules, Policies, and Procedures for Corporate Activities.”
Among other changes, the proposal would make several changes to ease regulatory burden associated with licensing requirements, including:
- Permitting national banks and federal savings associations to elect to follow the procedures applicable to state banks or state savings associations, respectively, for certain business combinations;
- Expanding the operating subsidiary notice and expedited review processes to include activities that are substantively the same as activities previously approved by the OCC; and
- Permitting non-controlling investments and pass-through investments in entities that have not agreed to OCC supervision, and permitting certain other investments without a filing.
The proposal also incorporates several new or revised definitions to be added to 12 CFR §5.3. Some of these terms are currently used in the rule, but are not defined:
- Nonconforming Assets. Assets that are impermissible for a national bank or federal savings association to hold, or if permissible, assets that are held in a manner that exceeds limits that are applicable to national banks or federal savings associations. This term would include a national bank’s or Federal savings association’s investments in subsidiaries or other entities. This term is currently used in §§5.23, 5.24, and 5.33.
- Nonconforming Activities. Activities that are impermissible for a national bank or federal savings association to conduct, or if permissible, activities that are conducted in a manner that exceeds limits that are applicable to national banks or federal savings associations. This term is currently used in §§5.23, 5.24, and 5.33.
- Previously Approved Activity. For a national bank, an activity approved in published OCC precedent for a national bank, an operating subsidiary of a national bank, or a non-controlling investment of a national bank. For a federal savings association, an activity approved in published OCC or Office of Thrift Supervision (OTS) precedent for a federal savings association, an operating subsidiary of a federal savings association, or a pass-through investment of a federal savings association. This term is currently used in §§5.34, 5.36, 5.38, and 5.58.
- Well Capitalized. This term is currently used with different meanings in different sections of part 5. The proposed definition is:
- For a national bank or federal savings association, the capital level described in 12 CFR §6.4; or
- For a federal branch or agency, the capital level described in 12 CFR §4.7(b)(1)(iii); or
- For other depository institutions, the capital level designated as “well capitalized” by the institution’s appropriate federal banking agency pursuant to section 38 of the Federal Deposit Insurance Act (12 U.S.C. 1831o).
- Well Managed. This term is currently used with two different meanings in part 5. The proposed definition of “well managed” is:
- For a national bank or federal savings association, a composite rating of 1 or 2 under the Uniform Financial Institutions Rating System (CAMELS rating) and a management rating of at least 2, if such a rating is given; or
- For a federal branch or agency, a composite ROCA (risk management, operational controls, compliance, and asset quality) rating of 1 or 2 and a risk management rating of at least 2, if such a rating is given; or
- For another depository institution, a composite CAMELS rating of 1 or 2 and a management rating of at least 2, if such a rating is given; or
- For banks, federal savings associations, federal branches or agencies, or other depository institutions that have not been examined by the appropriate federal banking agency, the existence and use of managerial resources that the appropriate federal banking agency determines are satisfactory.
- Eligible Bank or Eligible Savings Association. A national bank or federal savings association, respectively, that is well capitalized, has a composite CAMELS rating of 1 or 2, has a Community Reinvestment Act (CRA) rating of “Outstanding” or “Satisfactory,” has a consumer compliance rating of 1 or 2 under the Uniform Interagency Consumer Compliance Rating System (CC rating), and is not subject to cease and desist order (CD), consent order (CO), formal written agreement (WA), or Prompt Corrective Action directive under 12 CFR §6(B) (unless the institution is informed in writing by the OCC that the institution may still be treated as an “eligible bank or savings institution” for the purposes of §5.
- Eligible Depository Institution.
- With respect to a national bank, a state bank or federal or state savings institution that meets the requirements of “eligible bank or eligible savings association” and is insured by the Federal Deposit Insurance Corporation (FDIC).
- With respect to a federal savings association, a state or federal bank or state savings institution that meets the requirements of “eligible bank or eligible savings association” and is FDIC-insured.
- Troubled Condition. For the purposes of changes in directors and senior executive officers, the proposal clarifies that a national bank or federal savings association must be under cease and desist order, consent order, or formal written agreement requiring the institution to improve its financial condition to be considered in “troubled condition” solely as the result of the enforcement action.
- Senior Executive Officer. For institutions in troubled condition, Chief Risk Officer will be added to the list of senior executive officers requiring prior notice to the OCC.
- Control. For §5.55, the OCC proposes to replace “subsidiary” with “control” as defined in 12 U.S.C 1467a(a)(2).
- Short-Distance Relocation. The OCC proposes expanding the definition of short-distance relocation as follows:
- Within a principal city of an MSA, a two-thousand foot radius;
- Within an MSA, but not within a principal city, a two-mile radius; and
- Outside of an MSA, a four-mile radius.
- However, for relocations from a low- or moderate-income (LMI) area to a non-LMI area, the current definitions would continue to apply.
- Appropriate Federal Banking Agency. The proposal would cross-reference and adopt the definition in section 3(q) of the of the Federal Deposit Insurance Act (12 U.S.C. 1813(q)).
If adopted, the proposal should add significant clarity to the application and notice process, as well as increasing the portion of applications and notices that are eligible for expedited review.