Part 7 is important to virtually all banks and thrifts in two principal respects. First, it further levels the playing field by extending a substantial number national bank powers to federal savings associations. Second, the activities permitted for national banks and federal savings associations have long stood as the benchmark by which state and federal banking laws authorize activities permissible for state-chartered institutions.
While Part 7 originated as a convenient codification of interpretive rulings, it has evolved into a formal regulation carrying the full force of law. In this latest iteration, for the first time the OCC introduces Subpart A (Powers) of Part 7 with a new § 7.1000 that provides a framework for all powers that follow.
More specifically, § 7.1000 sets forth the criteria the OCC uses to determine whether an activity is authorized as part of, or incidental to, the banking business. If an activity is not explicitly named in statutory law, the OCC will consider four factors in granting or denying approval:
- whether it is functionally equivalent to, or a logical outgrowth of, a recognized banking activity;
- whether it strengthens the bank by benefitting its customers or its business;
- whether it involves risks similar to those already assumed by banks; and
- whether the activity is authorized for state-chartered banks.
For an activity to be authorized as incidental to the banking business, it must be convenient or useful to a specifically-authorized banking activity or an activity that is otherwise part of the banking business. For the OCC to determine convenience or usefulness, it will consider two factors:
- whether it facilitates the production or delivery of the bank’s products or services, enhances the bank’s ability to sell or market its products or services, or improves the effectiveness or efficiency of the bank’s operations – all in light of risks presented, innovations, strategies, techniques and new technologies; and
- whether it enables the bank to use capacity acquired for the bank’s operations or avoid economic loss or waste.
Facts and circumstances will affect the weight assigned by the OCC to each of these factors.
The revisions to Subpart A cover a potpourri of activities that are as diverse as they are, to some degree, relevant for every institution. A representative sample of topics includes:
- Acting as a finder
- Money lent at banking offices and other than banking offices
- Loan production offices
- Postal services
- Investment in small business investment companies (SBIC)
- Letters of credit and other independent undertakings
- Financial literacy programs
- Tax equity finance transactions
- Membership in payment systems
- Remote service units
- Derivatives transactions
In addition to Subpart A activities, the final rule makes significant revisions to the corporate practices provisions in Subpart B of Part 7. Among the topics addressed are:
- Corporate governance alignment with state law
- Anti-takeover provisions
- Shareholder and board meetings
- Oath of directors
- President as director
- Indemnification of institution-affiliated parties (IAP)
- Stock transfers and certificates
- Capital stock increases, decreases and related activities
Revisions also have been made to isolated sections in Subpart C (Operations), relating to operating hours and closings, and Subpart E (Electronic Activities), covering website development, Internet access and email, advisory and consulting services, and sale of electronic banking equipment.
All changes in Part 7 take effect on April 1, 2021. Clients will want to use the 3-month lead time to consider the strategic implications of the new regulatory framework.
Client Alert 2021-001
