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PART 5-LOANS MADE BY NA- be determined by the use of accepted and TIONAL BANKS SECURED BY LIENS

reliable methods of appraising leasehold UPON LEASEHOLDS

values including, in areas where such

information is available, a consideration Sec.

of the sales prices of comparable lease5.1 Scope and application.

holds. 5.2 General authorization. 5.3 Appraisals.

[28 F.R. 14239, Dec. 24, 1963) 5.4 Convenants and restrictions. 5.5 Loans insured or guaranteed.

§ 5.4 Covenants and restrictions. AUTHORITY: The provisions of this Part 5 In order to qualify as an acceptable issued under sec. 24, 38 Stat. 273, as amended;

leasehold for security for a real estate 12 U.S.C. 371.

loan made by a national bank, the coveSOURCE: The provisions of this part 5 ap- nants and restrictions contained in the pear at 25 F.R. 2158, Mar. 16, 1960, unless

lease which provide for forfeiture or reotherwise noted.

version in the event of a breach must not $ 5.1 Scope and application.

be more onerous or burdensome than This part is issued by the Comptroller

those contained in leases in general use of the Currency under authority of sec

in the area in which such bank is located,

and the lease should permit acquisition tion 24 of the Federal Reserve Act, as

of the leasehold by the lending bank by amended (12 U.S.C. 371). It applies to real estate loans made by national banks

voluntary conveyance or assignment by secured by liens on leaseholds.

the lessee, and acquisition and sale under

judicial process, without being subject $ 5.2 General authorization.

to such restrictions as would jeopardize Any national bank may make or ac

recovery of the security value of such quire a loan, in accordance with this leasehold. regulation, secured by a first lien on a § 5.5 Loans insured or guaranteed. leasehold under a lease which does not pire for at least ten years beyond the

The provisions of $ $ 5.3 and 5.4 do not maturity date of the loan.

apply to loans where the bank in its

judgment relies principally on the insur$ 5.3 Appraisals.

ance or guaranty of a governmental The “appraised value” of a leasehold, agency in making the loan. for the purposes of 12 U.S.C. 371, shall [28 F.R. 14239, Dec. 24, 1963)



OF THE UNITED STATES Sec. 6.1 Scope and application. 6.2 General authorization.

AUTHORITY: The provisions of this Part 6 issued under R.S. 5200, as amended; 12 U.S.C. 84(8).

SOURCE: The provisions of this part 6 appear at 30 F.R. 14365, Nov. 17, 1965, unless otherwise noted. 8 6.1 Scope and application.

(a) This part is issued by the Comptroller of the Currency with the approval of the Secretary of the Treasury under authority of paragraph (8) of section 5200 of the Revised Statutes, as amended (12 U.S.C. 84), and section 321 (b) of the act of August 23, 1935 (49 Stat. 713);

(b) This part applies to loans made by National Banks secured by either direct obligations of the United States or obligations fully guranteed both as to principal and interest by the United States.

General authorization. The obligations to any national banking association of any person, copartnership, association, or corporation secured by not less than a like amount (at par or face value) of either direct obligations of the United States or obligations fully guaranteed both as to principal and interest by the United States, shall not be subject to any limitation based upon the capital and surplus of the association.

$ 6.2

$ 7.2

PART 7-INTERPRETATIONS Sec. 7.1 National banks acting as travel agents. 7.2 National banks; service charges. 7.3 National banks; investment in mort

gage loans guaranteed by Admin

istrator of Veterans Affairs. 7.5 Appointment of directors. 7.6 Preemptive rights. 7.7 National banks; capital notes and

debentures; relation to lending limit. 7.9 Loans to executive officers. 7.10 Acquisition of controlling stock interest

in subsidiary operations corporation.

$ 7.1 National banks acting as travel

agents. The Comptroller of the Currency has interpreted R.S. 5136, as amended (12 U.S.C. 24), as indicated in the following letter addressed to counsel for the American Society of Travel Agents: Dear Mr.

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 so.

It is anticipated that the above position will be made public at an early date.

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 taking 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 was determined by each national bank.

At 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)


Very truly yours,


Comptroller of the Currency. (R.S. 5136; 12 U.S.C. 24) [24 F.R. 1900, Mar. 17, 1959)

8 7.3 National banks ; investment in

Columbia. Any such loan may be so made mortgage loans guaranteed by Ad. without regard to the limitations and reministrator of Veterans Affairs.

strictions of any other law relating to

(1) ratio of amount of loan to the value The Comptroller of the Currency has

of the property; interpreted section 24 of the Federal Re

(2) maturity of loan; serve Act (12 U.S.C. 371), 38 U.S.C. 1802 (3) requirement for mortgage or other (f) and 38 CFR 36.4600, 27 F.R. 2686 as security; indicated in the following letter ad- (4) dignity of lien; or dressed to counsel for a national bank:

(5) percentage of assets which may be in

vested in real estate loans." We have your letter of April 9, 1962, re- The five restrictions listed in section 1802 questing our opinion as to whether or not

(f) Title 38 just quoted, refer to section 24, your client, a national bank, may properly Federal Reserve Act (12 U.S.C. 371). Since under the provisions of section 24 of the it appears that section 36.4600 of the VA Federal Reserve Act purchase from the Vet- regulations has been issued pursuant to auerans' Administration (VA) residential mort- thority granted in Chapter 37 of Title 38, gage loans which will shortly be offered for United States Code, and since under section sale by the VA pursuant to section 36.4600 1802(f) any loan which is guaranteed in an of the VA regulations.

amount over 20 percent by the AdministraThe loans in question arise in the following tor pursuant to Chapter 37 of Title 38 may manner: The VA has accumulated various be held by a national bank without regard residential properties by foreclosure or as- to the limitations and restrictions numbered signment as a result of defaults on mort- 1 through 5, as listed in section 1802(1), we gages guaranteed by the VA for veterans.

are of the opinion that a national bank may The VA disposes of these houses on the best purchase these guaranteed residential mortterms and conditions it can obtain in the

gage loans without reference to the enumarket without reference to whether or not merated 5 restrictions of section 24 of the the purchaser is a veteran. In order to dis- Federal Reserve Act. pose of these properties, the VA has taken

(27 F.R. 4470, May 10, 1962) purchase money mortgages. It is these purchase money mortgages which the VA now $ 7.5 Appointment of directors. proposes under its new regulation, section 36.4600, to sell to national banks and other

(a) The Comptroller of the Currency financial institutions with the 100 percent has been requested to interpret the Naguarantee of the Veterans' Administration. tional Bank Act, 12 U.S.C. section 1 et

The guarantee will take the form of an seq., with respect to the propriety of agreement by the VA to repurchase the loan action by the board of directors of a from the national bank in the event of de

national bank to increase the number fault which continues for a designated period of time and in certain other events of

of directors between meetings of stockdefault, all of which are set forth in detail

holders, and to appoint persons to fill in section 36.4600 of the VA regulations.

such vacancies. The regulations of the VA authorizing the (b) The best interest of the bank and Administrator to make these guarantees of the community are served when wellhave been issued pursuant to the authority qualified persons may be added to the granted to the Administrator in section 1820,

board of directors during the year withChapter 37 of Title 38 of the United States Code. Section 1820 confers the power on the

out the expense attendant upon the callAdministrator to purchase and sell "upon

ing of a special meeting of stockholders, such terms and for such prices as he deems

and without the necessity of the resignato be reasonable" any real or personal prop

tion of an incumbent director of the erty which has come into his possession pur

bank in order to create a vacancy. suant to the operation of the Veterans' (c) The Comptroller is of the opinion Administration. It would appear that the that, if so authorized by the bank's undertaking of the Administrator to guar

Articles of Association or an amendment antee the mortgages in question would be within his authority to dispose of such mort

thereto, a majority of the full board of gages on such terms as he deems to be

directors of a national bank may properly reasonable.

increase the number of directors within Section 1802(f) of Chapter 37, Title 38 the limits specified in 12 U.S.C. 71a and provides as follows:

appoint persons to fill the resulting “(f) Any loan at least 20 per centum of

vacancies between meetings of stockwhich is guaranteed under this chapter may holders. It is, however, the Comptrolbe made by any national bank or Federal savings and loan association, or by any bank,

ler's view that such authority should not trust company, building and loan associa

be exercised to increase the number of tion, or insurance company, organized or

directors to a number which: (1) Exauthorized to do business in the District of ceeds by more than two the number of

99-127 0-69—7

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) 8 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,


$ 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 respon

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