The Office of the Comptroller of the Currency (“OCC”) recently finalized two outstanding regulatory proposals. The OCC adopted a final rule addressing receiverships of national banks that lack federal deposit insurance (“uninsured national banks”). The OCC also finalized its rule on restrictions on a national bank’s transactions in industrial and commercial metals, including a ban on currently-permissible dealing and investing in copper.
Uninsured national bank receiverships
The final rule on uninsured national bank receiverships is based on the relevant provisions of the National Bank Act and case law, and sets out the basic framework for uninsured national bank receiverships. The majority of national banks chartered by the OCC all carry federal deposit insurance and in the event of a failure, would be resolved by the Federal Deposit Insurance Corporation (FDIC) as receiver appointed by the OCC.
However, the OCC can charter special purpose national banks that do not carry federal deposit insurance. The currently uninsured national banks are all limited to fiduciary activities. The OCC recently issued a paper for public comment that discusses the possibility of chartering special purpose national banks that engage in financial technology (“fintech”) activities, and our blog post on the OCC paper can be found here. Some commenters on the proposed rule raised concerns about receiverships of uninsured special purpose national fintech banks, but the OCC did not address them in the final rule.
The final rule does not cover receiverships of OCC-licensed branches and limited branches of non-US banks.
The rule is effective January 19, 2017.
OCC restrictions on dealing and investing in certain metals
The OCC’s final rule on a national bank’s ability to buy and sell “exchange, coin and bullion” prohibits national banks and federal savings associations from dealing or investing in industrial and commercial metals, which are defined as metals “in physical form primarily suited to industrial or commercial use, for example, copper cathodes.” The OCC’s original proposal was in reaction to recent Congressional and regulatory recommendations.
The inclusion of copper in the final rule’s prohibitions overturns a 1995 interpretive letter that determined that copper could be considered as coin or bullion, joining gold, silver, platinum and palladium as permissible commodities that a national bank could buy, sell and hold for its own purposes as part of or incidental to the business of banking as defined in the National Bank Act. Acquiring such metals as part of foreclosing on or collecting a debt, or acquiring a nominal amount to hedge a derivative in which the metal is the reference asset, would remain permissible.
The final rule substantively is the same as the proposal but adds a divestiture period for national banks and federal savings associations that may be holding copper or other now-prohibited metals. Such banking organizations are required to divest of such metals “as soon as practicable,” but no later than April 1, 2018, which is one year from the effective date of the final rule. The OCC may grant up to four one-year extensions to divest provided that the banking organization has made good faith efforts to divest and the extension is not inconsistent with the organization’s safe and sound operation.
The OCC’s rulemaking is related in part to a more expansive regulatory proposal by the Federal Reserve Board (“FRB”) to restrict the ability of a financial holding company to engage in physical commodity activities, our blog post on which can be accessed here. Readers should note that the original comment deadline on the FRB’s proposal was December 22, 2016, but the FRB now has extended the comment deadline until February 20, 2017.