§ 24a. — Financial subsidiaries of national banks.
[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 12USC24a]
TITLE 12--BANKS AND BANKING
CHAPTER 2--NATIONAL BANKS
SUBCHAPTER I--ORGANIZATION AND GENERAL PROVISIONS
Sec. 24a. Financial subsidiaries of national banks
(a) Authorization to conduct in subsidiaries certain activities that are
financial in nature
(1) In general
Subject to paragraph (2), a national bank may control a
financial subsidiary, or hold an interest in a financial subsidiary.
(2) Conditions and requirements
A national bank may control a financial subsidiary, or hold an
interest in a financial subsidiary, only if--
(A) the financial subsidiary engages only in--
(i) activities that are financial in nature or
incidental to a financial activity pursuant to subsection
(b) of this section; and
(ii) activities that are permitted for national banks to
engage in directly (subject to the same terms and conditions
that govern the conduct of the activities by a national
bank);
(B) the activities engaged in by the financial subsidiary as
a principal do not include--
(i) insuring, guaranteeing, or indemnifying against
loss, harm, damage, illness, disability, or death (except to
the extent permitted under section 302 or 303(c) of the
Gramm-Leach-Bliley Act [15 U.S.C. 6712 or 6713(c)]) or
providing or issuing annuities the income of which is
subject to tax treatment under section 72 of title 26;
(ii) real estate development or real estate investment
activities, unless otherwise expressly authorized by law; or
(iii) any activity permitted in subparagraph (H) or (I)
of section 1843(k)(4) of this title, except activities
described in section 1843(k)(4)(H) of this title that may be
permitted in accordance with section 122 of the Gramm-Leach-
Bliley Act;
(C) the national bank and each depository institution
affiliate of the national bank are well capitalized and well
managed;
(D) the aggregate consolidated total assets of all financial
subsidiaries of the national bank do not exceed the lesser of--
(i) 45 percent of the consolidated total assets of the
parent bank; or
(ii) $50,000,000,000;
(E) except as provided in paragraph (4), the national bank
meets any applicable rating or other requirement set forth in
paragraph (3); and
(F) the national bank has received the approval of the
Comptroller of the Currency for the financial subsidiary to
engage in such activities, which approval shall be based solely
upon the factors set forth in this section.
(3) Rating or comparable requirement
(A) In general
A national bank meets the requirements of this paragraph
if--
(i) the bank is 1 of the 50 largest insured banks and
has not fewer than 1 issue of outstanding eligible debt that
is currently rated within the 3 highest investment grade
rating categories by a nationally recognized statistical
rating organization; or
(ii) the bank is 1 of the second 50 largest insured
banks and meets the criteria set forth in clause (i) or such
other criteria as the Secretary of the Treasury and the
Board of Governors of the Federal Reserve System may jointly
establish by regulation and determine to be comparable to
and consistent with the purposes of the rating required in
clause (i).
(B) Consolidated total assets
For purposes of this paragraph, the size of an insured bank
shall be determined on the basis of the consolidated total
assets of the bank as of the end of each calendar year.
(4) Financial agency subsidiary
The requirement in paragraph (2)(E) shall not apply with respect
to the ownership or control of a financial subsidiary that engages
in activities described in subsection (b)(1) of this section solely
as agent and not directly or indirectly as principal.
(5) Regulations required
Before the end of the 270-day period beginning on November 12,
1999, the Comptroller of the Currency shall, by regulation,
prescribe procedures to implement this section.
(6) Indexed asset limit
The dollar amount contained in paragraph (2)(D) shall be
adjusted according to an indexing mechanism jointly established by
regulation by the Secretary of the Treasury and the Board of
Governors of the Federal Reserve System.
(7) Coordination with section 1843(l)(2) of this title
Section 1843(l)(2) of this title applies to a national bank that
controls a financial subsidiary in the manner provided in that
section.
(b) Activities that are financial in nature
(1) Financial activities
(A) In general
An activity shall be financial in nature or incidental to
such financial activity only if--
(i) such activity has been defined to be financial in
nature or incidental to a financial activity for bank
holding companies pursuant to section 1843(k)(4) of this
title; or
(ii) the Secretary of the Treasury determines the
activity is financial in nature or incidental to a financial
activity in accordance with subparagraph (B).
(B) Coordination between the Board and the Secretary of the
Treasury
(i) Proposals raised before the Secretary of the
Treasury
(I) Consultation
The Secretary of the Treasury shall notify the Board
of, and consult with the Board concerning, any request,
proposal, or application under this section for a
determination of whether an activity is financial in
nature or incidental to a financial activity.
(II) Board view
The Secretary of the Treasury shall not determine
that any activity is financial in nature or incidental
to a financial activity under this section if the Board
notifies the Secretary in writing, not later than 30
days after the date of receipt of the notice described
in subclause (I) (or such longer period as the Secretary
determines to be appropriate under the circumstances)
that the Board believes that the activity is not
financial in nature or incidental to a financial
activity or is not otherwise permissible under this
section.
(ii) Proposals raised by the Board
(I) Board recommendation
The Board may, at any time, recommend in writing
that the Secretary of the Treasury find an activity to
be financial in nature or incidental to a financial
activity for purposes of this section.
(II) Time period for secretarial action
Not later than 30 days after the date of receipt of
a written recommendation from the Board under subclause
(I) (or such longer period as the Secretary of the
Treasury and the Board determine to be appropriate under
the circumstances), the Secretary shall determine
whether to initiate a public rulemaking proposing that
the subject recommended activity be found to be
financial in nature or incidental to a financial
activity under this section, and shall notify the Board
in writing of the determination of the Secretary and, in
the event that the Secretary determines not to seek
public comment on the proposal, the reasons for that
determination.
(2) Factors to be considered
In determining whether an activity is financial in nature or
incidental to a financial activity, the Secretary shall take into
account--
(A) the purposes of this Act \1\ and the Gramm-Leach-Bliley
Act;
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\1\ So in original.
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(B) changes or reasonably expected changes in the
marketplace in which banks compete;
(C) changes or reasonably expected changes in the technology
for delivering financial services; and
(D) whether such activity is necessary or appropriate to
allow a bank and the subsidiaries of a bank to--
(i) compete effectively with any company seeking to
provide financial services in the United States;
(ii) efficiently deliver information and services that
are financial in nature through the use of technological
means, including any application necessary to protect the
security or efficacy of systems for the transmission of data
or financial transactions; and
(iii) offer customers any available or emerging
technological means for using financial services or for the
document imaging of data.
(3) Authorization of new financial activities
The Secretary of the Treasury shall, by regulation or order and
in accordance with paragraph (1)(B), define, consistent with the
purposes of this Act \1\ and the Gramm-Leach-Bliley Act, the
following activities as, and the extent to which such activities
are, financial in nature or incidental to a financial activity:
(A) Lending, exchanging, transferring, investing for others,
or safeguarding financial assets other than money or securities.
(B) Providing any device or other instrumentality for
transferring money or other financial assets.
(C) Arranging, effecting, or facilitating financial
transactions for the account of third parties.
(c) Capital deduction
(1) Capital deduction required
In determining compliance with applicable capital standards--
(A) the aggregate amount of the outstanding equity
investment, including retained earnings, of a national bank in
all financial subsidiaries shall be deducted from the assets and
tangible equity of the national bank; and
(B) the assets and liabilities of the financial subsidiaries
shall not be consolidated with those of the national bank.
(2) Financial statement disclosure of capital deduction
Any published financial statement of a national bank that
controls a financial subsidiary shall, in addition to providing
information prepared in accordance with generally accepted
accounting principles, separately present financial information for
the bank in the manner provided in paragraph (1).
(d) Safeguards for the bank
A national bank that establishes or maintains a financial subsidiary
shall assure that--
(1) the procedures of the national bank for identifying and
managing financial and operational risks within the national bank
and the financial subsidiary adequately protect the national bank
from such risks;
(2) the national bank has, for the protection of the bank,
reasonable policies and procedures to preserve the separate
corporate identity and limited liability of the national bank and
the financial subsidiaries of the national bank; and
(3) the national bank is in compliance with this section.
(e) Provisions applicable to national banks that fail to continue to
meet certain requirements
(1) In general
If a national bank or insured depository institution affiliate
does not continue to meet the requirements of subsection (a)(2)(C)
of this section or subsection (d) of this section, the Comptroller
of the Currency shall promptly give notice to the national bank to
that effect describing the conditions giving rise to the notice.
(2) Agreement to correct conditions
Not later than 45 days after the date of receipt by a national
bank of a notice given under paragraph (1) (or such additional
period as the Comptroller of the Currency may permit), the national
bank shall execute an agreement with the Comptroller of the Currency
and any relevant insured depository institution affiliate shall
execute an agreement with its appropriate Federal banking agency to
comply with the requirements of subsection (a)(2)(C) of this section
and subsection (d) of this section.
(3) Imposition of conditions
Until the conditions described in a notice under paragraph (1)
are corrected--
(A) the Comptroller of the Currency may impose such
limitations on the conduct or activities of the national bank or
any subsidiary of the national bank as the Comptroller of the
Currency determines to be appropriate under the circumstances
and consistent with the purposes of this section; and
(B) the appropriate Federal banking agency may impose such
limitations on the conduct or activities of any relevant insured
depository institution affiliate or any subsidiary of the
institution as such agency determines to be appropriate under
the circumstances and consistent with the purposes of this
section.
(4) Failure to correct
If the conditions described in a notice to a national bank under
paragraph (1) are not corrected within 180 days after the date of
receipt by the national bank of the notice, the Comptroller of the
Currency may require the national bank, under such terms and
conditions as may be imposed by the Comptroller and subject to such
extension of time as may be granted in the discretion of the
Comptroller, to divest control of any financial subsidiary.
(5) Consultation
In taking any action under this subsection, the Comptroller
shall consult with all relevant Federal and State regulatory
agencies and authorities.
(f) Failure to maintain public rating or meet applicable criteria
(1) In general
A national bank that does not continue to meet any applicable
rating or other requirement of subsection (a)(2)(E) of this section
after acquiring or establishing a financial subsidiary shall not,
directly or through a subsidiary, purchase or acquire any additional
equity capital of any financial subsidiary until the bank meets such
requirements.
(2) Equity capital
For purposes of this subsection, the term ``equity capital''
includes, in addition to any equity instrument, any debt instrument
issued by a financial subsidiary, if the instrument qualifies as
capital of the subsidiary under any Federal or State law,
regulation, or interpretation applicable to the subsidiary.
(g) Definitions
For purposes of this section, the following definitions shall apply:
(1) Affiliate, company, control, and subsidiary
The terms ``affiliate'', ``company'', ``control'', and
``subsidiary'' have the meanings given those terms in section 1841
of this title.
(2) Appropriate Federal banking agency, depository
institution, insured bank, and insured depository
institution
The terms ``appropriate Federal banking agency'', ``depository
institution'', ``insured bank'', and ``insured depository
institution'' have the meanings given those terms in section 1813 of
this title.
(3) Financial subsidiary
The term ``financial subsidiary'' means any company that is
controlled by 1 or more insured depository institutions other than a
subsidiary that--
(A) engages solely in activities that national banks are
permitted to engage in directly and are conducted subject to the
same terms and conditions that govern the conduct of such
activities by national banks; or
(B) a national bank is specifically authorized by the
express terms of a Federal statute (other than this section),
and not by implication or interpretation, to control, such as by
section 25 or 25A of the Federal Reserve Act [12 U.S.C. 601 et
seq., 611 et seq.] or the Bank Service Company Act [12 U.S.C.
1861 et seq.].
(4) Eligible debt
The term ``eligible debt'' means unsecured long-term debt that--
(A) is not supported by any form of credit enhancement,
including a guarantee or standby letter of credit; and
(B) is 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.
(5) Well capitalized
The term ``well capitalized'' has the meaning given the term in
section 1831o of this title.
(6) Well managed
The term ``well managed'' means--
(A) in the case of a depository institution that has been
examined, unless otherwise determined in writing by the
appropriate Federal banking agency--
(i) the achievement of a composite rating of 1 or 2
under the Uniform Financial Institutions Rating System (or
an equivalent rating under an equivalent rating system) in
connection with the most recent examination or subsequent
review of the depository institution; and
(ii) at least a rating of 2 for management, if such
rating is given; or
(B) in the case of any depository institution that has not
been examined, the existence and use of managerial resources
that the appropriate Federal banking agency determines are
satisfactory.
(R.S. Sec. 5136A, as added Pub. L. 106-102, title I, Sec. 121(a)(2),
Nov. 12, 1999, 113 Stat. 1373.)
References in Text
The Gramm-Leach-Bliley Act, referred to in subsecs. (a)(2)(B)(iii),
(b)(2)(A), (3), is Pub. L. 106-102, Nov. 12, 1999, 113 Stat. 1338.
Section 122 of the Act is set out as a note under section 1843 of this
title. For complete classification of this Act to the Code, see Short
Title of 1999 Amendment note set out under section 1811 of this title
and Tables.
Section 25 of the Federal Reserve Act, referred to in subsec.
(g)(3)(B), is classified to subchapter I (Sec. 601 et seq.) of chapter 6
of this title. Section 25A of the Federal Reserve Act is classified to
subchapter II (Sec. 611 et seq.) of chapter 6 of this title.
The Bank Service Company Act, referred to in subsec. (g)(3)(B), is
Pub. L. 87-856, Oct. 23, 1962, 76 Stat. 1132, as amended, which is
classified generally to chapter 18 (Sec. 1861 et seq.) of this title.
For complete classification of this Act to the Code, see section 1861 of
this title and Tables.
Prior Provisions
A prior section 5136A of the Revised Statutes was renumbered section
5136B by Pub. L. 106-102 and is classified to section 25a of this title.
Effective Date
Section effective 120 days after Nov. 12, 1999, see section 161 of
Pub. L. 106-102, set out as an Effective Date of 1999 Amendment note
under section 24 of this title.
Section Referred to in Other Sections
This section is referred to in sections 335, 371c, 1831w, 1843, 1971
of this title.
