Reference is made to our recent conference concerning the question of national banks acting as travel agents which has been the subject to prior correspondence and conferences with you over the past several months.

As you know, we have had this matter under study for a period of some months. It appears clear that national banks may, as an incidental power, provide travel services for their customers, as they have been doing for many years, and that they may have the reasonable rights and benefits that flow therefrom. We believe that you concede that national banks may as an incidental power furnish such services, but you take the position that they may not participate in the carriers' conference system which establishes uniform rates of compensation, and uniform obligations to perform, on all participating travel agents.

Whether national banks may so participate and whether they can or should enter into agreements in this connection would appear to be a matter to be determined by the banks concerned and their respective counsel, based upon the facts and circumstances of each particular case. As you know, some national banks have been doing

§ 7.2 National banks; service charges.

The Comptroller of the Currency has issued formal instructions concerning the service charges of banks as indicated in the following letter addressed to the presidents of all national banks: To the presidents of all national banks:

So that there may be no misunderstanding with respect to the policy of this Office concerning the service charges of banks, I am issuing these formal instructions to all national banks.

Agreements, arrangements, undertakings, understandings, etc., among banks, through clearing houses or otherwise, concerning service charges are not permissible in any form. It is the responsibility of the Board of Directors of each national bank to terminate promptly any of these practices which it may now be following.

Wherever a national bank has been involved in any of the practices cited, it should now review its scale of service charges independently of any other bank, and take appropriate corporate action to re-establish a scale of service charges independent of any relationships with any other bank. In tak

ing this action, it is appropriate to make such changes in the scale of service charges as are deemed necessary or desirable in the light of the individual bank's costs and competitive position. This review and re-establishment of the scale of service charges should be undertaken, even though there may have been no overt or implicit agreement, wherever there have been discussions of such charges among banks or their officers, either independently or in group meetings, or where the scale of service charges was adopted with knowledge of prospective adoption of similar charges by competitor banks.

It is recognized that identical charges for identical services may occur where there are no agreements or understandings among banks. Nevertheless, wherever this occurs, each national bank must be prepared to demonstrate conclusively that its scale of service charges was decided unilaterally, and not on the basis of any agreement or understanding, or even of discussion, among banks or their officers.

Our examiners have been instructed to explore, regularly and in detail, the methods by which the existing scale of service charges At was determined by each national bank. the time of the next examination of your bank, inquiry shall be made to determine whether appropriate action has been taken, where necessary, to conform to these instructions.

(R.S. 5240; 12 U.S.C. 1, 481) [27 F.R. 2278, Mar. 9, 1962]

§ 7.3

National banks; investment in mortgage loans guaranteed by Administrator of Veterans Affairs. The Comptroller of the Currency has interpreted section 24 of the Federal Reserve Act (12 U.S.C. 371), 38 U.S.C. 1802 (f) and 38 CFR 36.4600, 27 F.R. 2686 as indicated in the following letter addressed to counsel for a national bank:

We have your letter of April 9, 1962, requesting our opinion as to whether or not your client, a national bank, may properly under the provisions of section 24 of the Federal Reserve Act purchase from the Veterans' Administration (VA) residential mortgage loans which will shortly be offered for sale by the VA pursuant to section 36.4600 of the VA regulations.

The loans in question arise in the following manner: The VA has accumulated various residential properties by foreclosure or assignment as a result of defaults on mortgages guaranteed by the VA for veterans. The VA disposes of these houses on the best terms and conditions it can obtain in the market without reference to whether or not the purchaser is a veteran. In order to dispose of these properties, the VA has taken purchase money mortgages. It is these purchase money mortgages which the VA now proposes under its new regulation, section 36.4600, to sell to national banks and other financial institutions with the 100 percent guarantee of the Veterans' Administration.

The guarantee will take the form of an agreement by the VA to repurchase the loan from the national bank in the event of default which continues for a designated period of time and in certain other events of default, all of which are set forth in detail in section 36.4600 of the VA regulations.

The regulations of the VA authorizing the Administrator to make these guarantees have been issued pursuant to the authority granted to the Administrator in section 1820, Chapter 37 of Title 38 of the United States Code. Section 1820 confers the power on the Administrator to purchase and sell "upon such terms and for such prices as he deems to be reasonable" any real or personal property which has come into his possession pursuant to the operation of the Veterans' Administration. It would appear that the undertaking of the Administrator to guarantee the mortgages in question would be within his authority to dispose of such mortgages on such terms as he deems to be reasonable.

Section 1802(f) of Chapter 37, Title 38 provides as follows:

"(f) Any loan at least 20 per centum of which is guaranteed under this chapter may be made by any national bank or Federal savings and loan association, or by any bank, trust company, building and loan association, or insurance company, organized or authorized to do business in the District of

Columbia. Any such loan may be so made without regard to the limitations and restrictions of any other law relating to(1) ratio of amount of loan to the value of the property;

(2) maturity of loan;

(3) requirement for mortgage or other security;

(4) dignity of lien; or

(5) percentage of assets which may be invested in real estate loans."

The five restrictions listed in section 1802 (f) Title 38 just quoted, refer to section 24, Federal Reserve Act (12 U.S.C. 371). Since it appears that section 36.4600 of the VA regulations has been issued pursuant to authority granted in Chapter 37 of Title 38, United States Code, and since under section 1802 (f) any loan which is guaranteed in an amount over 20 percent by the Administrator pursuant to Chapter 37 of Title 38 may be held by a national bank without regard to the limitations and restrictions numbered 1 through 5, as listed in section 1802(f), we are of the opinion that a national bank may purchase these guaranteed residential mortgage loans without reference to the enumerated 5 restrictions of section 24 of the Federal Reserve Act.

[27 F.R. 4470, May 10, 1962]

§ 7.5 Appointment of directors.

(a) The Comptroller of the Currency has been requested to interpret the National Bank Act, 12 U.S.C. section 1 et seq., with respect to the propriety of action by the board of directors of a national bank to increase the number of directors between meetings of stockholders, and to appoint persons to fill such vacancies.

(b) The best interest of the bank and of the community are served when wellqualified persons may be added to the board of directors during the year without the expense attendant upon the calling of a special meeting of stockholders, and without the necessity of the resignation of an incumbent director of the bank in order to create a vacancy.

(c) The Comptroller is of the opinion that, if so authorized by the bank's Articles of Association or an amendment thereto, a majority of the full board of directors of a national bank may properly increase the number of directors within the limits specified in 12 U.S.C. 71a and appoint persons to fill the resulting vacancies between meetings of stockholders. It is, however, the Comptroller's view that such authority should not be exercised to increase the number of directors to a number which: (1) Exceeds by more than two the number of

directors last elected by shareholders where such number was fifteen or less; (2) which exceeds by more than four the number of directors last elected by shareholders where such number was sixteen or more.

(R.S. 324 et seq. as amended; 12 U.S.C. 1 et seq.) [27 F.R. 12811, Dec. 28, 1962, as amended at 30 F.R. 10981, Aug. 25, 1965]

§ 7.6 Preemptive rights.

(a) The Comptroller has been requested to reconsider the position expressed in paragraph 6110 of the Digest of Opinions, which states that all stockholders of a national banking association are entitled, in preference to any other persons, to the opportunity to purchase additional stock resulting from an increase in the bank's capital, in proportion to the number of shares held by them respectively.

(b) The Comptroller is of the opinion that, by vote of the holders of two-thirds of its voting stock, a national banking association may properly adopt Articles of Association or amend existing Articles of Association in order to modify or eliminate pre-emptive rights. The statement to the contrary in paragraph 6110 of the Digest of Opinions is hereby revoked.

(R.S. 324 et seq., as amended; 12 U.S.C. 1 et seq.) [27 F.R. 12811, Dec. 28, 1962] § 7.7 National banks; capital notes and debentures; relation to lending limit. The Comptroller of the Currency has ruled on the question of whether the proceeds of capital notes and capital debentures issued by National Banks may be included in the aggregate of unimpaired capital funds for the purpose of the loan limitation contained in 12 U.S.C. 84. The following is the text of a letter addressed to the President of a National Bank containing said ruling:

You have requested our opinion as to whether the proceeds of the $15,000,000, 5 percent Capital Notes due January 1, 1989, to be issued by the National Bank will be considered as part of the unimpaired capital funds of the bank for the purpose of the computation of the bank's loan limit.

The limit on loans to a single borrower is contained in 12 U.S.C. 84. That section provides that the total obligations to any national banking association of any person, copartnership, association, or corporation shall at no time exceed 10 per centum of the amount of the capital stock of such association actually paid in and unimpaired and 10 per centum of its unimpaired surplus fund.

Under the terms of the aforesaid Capital Notes, the right of payment of principal and interest thereon is expressly subordinated to the prior payment in full of all deposit liabilities of the Bank, whether outstanding at the date of the Capital Notes or incurred after the date of the Capital Notes. Capital Notes or debentures so limited have all of the protective effect of capital and surplus insofar as depositors are involved. An examination of the legislative history of the lending restrictions contained in 12 U.S.C. 84 indicated that protection of the depositors is the primary purpose of restricting the amount of loans to any person to a stated percentage of the capital and surplus. Consequently, capital debentures and notes which stand in the same relationship to depositors as traditionally recognized forms of capital and surplus may well be included in the loan base. The fact that, as to shareholders, the capital notes and debentures would have a preferential position is just as immaterial as is the fact that preferred shareholders take precedence over common shareholders.

We conclude that the proceeds of capital notes, capital debentures or other similar obligations issued by a National Bank, provided that such debentures, notes or other similar obligations are subordinate in right of payment to the prior payment in full of all deposit liabilities of the bank, may be included as part of the aggregate amount of unimpaired capital stock and unimpaired surplus funds for the purpose of the computation of the limit on loans to individual borrowers contained in 12 U.S.C. 84.

[28 F.R. 14239, Dec. 24, 1963]

§ 7.8 Corporate savings accounts.

The Comptroller of the Currency has frequently been requested for his opinion as to the legal basis by which profit making corporations or any other class of depositor may be precluded from maintaining a "savings account." The Comptroller is of the opinion that the authority contained in 12 U.S.C. 461 to define the terms "time deposits" and "savings deposits" extends only to the terms of the deposit contract such as a description of withdrawal requirements and interest rate limitations. There is nothing contained in 12 U.S.C. 461 which would preclude, or would authorize a regulation which would preclude, the maintenance of such accounts by any class of depositor. Accordingly, a national bank may, subject to withdrawal requirements and interest rate limitations imposed by applicable regulations, accept savings accounts without regard to whether the funds deposited are to the credit of one or more individuals, or of a corporation,

association, or other organization, whether operated for profit or otherwise. [28 F.R. 14240, Dec. 24, 1963]

§ 7.9 Loans to executive officers.

The Comptroller of the Currency has been asked by many national banks whether title alone makes an officer an "executive officer" within the meaning of 12 U.S.C. 375a. The Comptroller is of the opinion that the term "executive officer," as contemplated by the provisions of 12 U.S.C. 375a, means each officer of a bank who, by virtue of his position, has both voice in the formulation of the policy of the bank and responsibility for the implementation of such policy. Under this definition a person who acts solely as a director would not be an "executive officer.' Similarly, those officers whose sole responsibility is for the administration of the bank's policies are excluded from the definition "executive officer." Under this definition, it is the responsibility of and function performed by the individual, and not his title, which determines whether he is an "executive officer."

(b) Banks, unlike most other businesses, often have a number of responsible employees who are given official titles for various reasons including additional prestige in relations with the public, the execution of documents and the performance of other ministerial functions. Such employees are performing administrative functions and are not generally considered to be executive officers. Ordinarily, the president, the principal vice president, and the cashier are "executive officers." Where officers with other titles perform the functions ordinarily performed by the president, the principal vice president and the cashier, they must also be regarded as "executive officers." The provisions of 12 U.S.C. 375a do not authorize the expansion, by definition, of the term "executive offi

cers" to include persons who do not in fact and in law exercise executive functions. Accordingly, when a national bank makes a loan or extends credit to one of its officers, it should apply the standards contained in the foregoing definition in determining whether the loan or extension of credit is subject to the limitations of 12 U.S.C. 375a. [28 F.R. 14240, Dec. 24, 1963]

§ 7.10 Acquisition of controlling stock interest in subsidiary operations corporation.

(a) The Comptroller of the Currency has confirmed his position that a national bank may acquire and hold the controlling stock interest in a subsidiary operations corporation. A subsidiary operations corporation is a corporation the functions or activities of which are limited to one or several of the functions or activities that a national bank is authorized to carry on. The controlling stock interesting is ordinarily 51 percent or more of the voting stock issued by the corporation, but may be a lesser percentage of voting stock if, under appropriate circumstances, such lesser percentage constitutes effective working control of the corporation.

(b) (1) The Comptroller's position involves his interpretation of the sentence in 12 U.S.C. 24(7) which has been mistakenly characterized by some as a "stock-purchase prohibition." Such sentence reads as follows:

Except as hereinafter provided or otherwise permitted by law, nothing herein contained shall authorize the purchase by *** [a national banking] association for its own account of any shares of stock of any corporation. (Bracketed material added.) This sentence is plainly not a prohibition against any form of acquisition and ownership by a national bank of stock in another corporation. Indeed, the sentence is not even a stock-purchase pro

2

hibition. Instead, by its terms, the quoted sentence is only a disclaimer that certain of the provisions of 12 U.S.C. 24(7) shall not be interpreted to mean that a national bank may purchase stock in another corporation, except as immediately set forth thereafter. In other words, instead of being a prohibition, the quoted sentence simply disavows or negates any construction of certain provisions of 12 U.S.C. 24(7) as granting to national banks the power to purchase stock in other corporations."

(2) Logic compels the conclusion that the disclaimer sentence refers only to the investment securities provisions of 12 U.S.C. 24(7) within which the disclaimer sentence appears. Clearly, the disclaimer sentence is not applicable to all provisions of 12 U.S.C. 24(7) which precede such sentence." Such an interpretation of the words "nothing herein contained" would create a conflict between the disclaimer sentence and judicial de

3 "Except as hereinafter provided * Because the words "nothing herein contained" modify the subsequent words of the disclaimer sentence, the phrase "or otherwise permitted by law" is redundant with respect to statutes other than 12 U.S.C. 24(7). When another statute sanctions stock ownership by a national bank, such statute has effect regardless of the phrase "or otherwise permitted by law" because the other statute is not "herein contained" in 12 U.S.C. 24(7). Stated another way, even without the phrase "or otherwise permitted by law", a statute such as 12 U.S.C. 371c would not be in conflict with the disclaimer sentence of 12 U.S.C. 24(7) because the disclaimer sentence, as qualified by the words "nothing herein contained", refers only to provisions of 12 U.S.C. 24(7).

Therefore, although a particular statute which authorizes national banks to carry on a specified activity (other than 12 U.S.C. 24(7)), does not expressly permit a national bank to acquire and hold stock, such authority is derivable from such statute without conflict with the disclaimer sentence. Similar authority may also be derived from a provision of 12 U.S.C. 24(7) if such provision is not one to which the disclaimer sentence refers.

"By its initial phrase (“except as hereinafter provided") the disclaimer sentence is not applicable to the provisions of 12 U.S.C. 24(7) which follow it.

cisions which have held that national banks have the power to acquire and hold corporate stock where that action constitutes a reasonable and appropriate step toward the collection of indebtedness. These decisions, first handed down prior to the appearance in 12 U.S.C. 24(7) of the disclaimer sentence, are a construction of the "incidental powers" provision of 12 U.S.C. 24(7), which precede the disclaimer sentence. No one has contended that the disclaimer sentence has overruled these cases. Indeed, these decisions are still considered valid.

(3) In addition to the foregoing irrefutable logic, the legislative history of the disclaimer sentence demonstrates that it was designed to apply exclusively to the investment securities provisions. These provisions empower a national bank to deal in, underwrite, and invest in debt obligations of the Federal Government, municipalities, and private corporations. See Comptroller's Regulation 1 (Part 1 of this chapter). The purpose of the disclaimer sentence is to prevent a national bank from dealing in, underwriting, and otherwise speculatively investing in corporate stock in the same way as a national bank is empowered with respect to investment securities.

(4) It cannot be said the the disclaimer sentence was intended by Congress to generally circumscribe the authority of national banks to acquire and hold stock in any and all corporate subsidiaries. The legislative histories of the Banking Acts of 1933 and 1935 show that Congress' concern regarding corporate affiliates of national banks was limited to holding company affiliates and affiliates engaged in speculative stock trading, underwriting, and investment activities. Clearly, the legislative intent with respect to the disclaimer sentence was not to deny to national banks the authority to acquire and hold stock in corporations as an incident to and to facilitate the banks' conduct of their banking business.

(c) (1) When determining whether or not a particular function or activity of a national bank, including ownership of controlling stock in a corporation carrying on such function or activity, is within the business of banking, this Office cannot close its mind to the well-known fact that business, in general, is ever-changing and growing and that the banking business has developed rapidly during recent years to meet the requirements of business. Banks have, of necessity, been required to extend their functions and