Last month, the US Office of the Comptroller of the Currency (“OCC”) finalized extensive revisions (the “Revisions”) to its rules governing the activities and operations of national banks, federal savings associations and federally licensed branches of non-US banks (“Federal Institutions”).1 While many of the changes are procedural or cosmetic, a number codify or clarify substantive authorities and will affect the day-to-day operations of Federal Institutions. The Revisions are effective on April 1, 2021.

As the chartering authority for Federal Institutions, the OCC establishes rules that govern activities and transactions. These rules were last overhauled in 1996 and have since been amended in a piecemeal fashion and supplemented through interpretive letters and orders. The changes in the Revisions were proposed earlier this year in connection with the OCC’s efforts to modernize its rules and remove unnecessary burdens from Federal Institutions.2

The Revisions affect many sections in Part 7 of Title 12 (excluding the electronic activities rules, which are addressed in another proposal that remains pending). This Legal Update highlights some of the more significant changes.

Activities That Are Part of, or Incidental to, the Business of Banking

A national bank may engage in an activity that is part of, or incidental to, the business of banking. Previously, 12 C.F.R. § 7.5001 addressed electronic activities that were permissible for a national bank and set forth the four-factor test that the OCC uses to determine whether an activity is part of the business of banking.

The Revisions move the text from Section 7.5001 to a new Section 7.1000 and broaden the scope of the regulation to address all activities that are part of the business of banking (i.e., not just electronic activities). The Revisions also clarify that the four-factor test does not apply to activities that are explicitly permitted under the National Bank Act or other statutory authority.

Finder Authority and Federal Savings Association Powers Analysis

For many years, the OCC has permitted national banks to act as a finder by bringing together buyers and sellers of financial and nonfinancial products and services. However, that regulation did not extend to federal savings associations, the activities of which are governed by the Home Owners’ Loan Act (“HOLA”).

The Office of Thrift Supervision (“OTS”) had permitted federal savings associations to engage in facilitation activities, which are somewhat similar to finder activity (e.g., third-party referral and discount programs), but had not explicitly recognized the finder authority. There also was a statement from the OCC in 2015 indicating that federal savings association may engage in finder activities, but that was not reflected in the finder regulation.

To clarify the finder authority, the Revisions state that a federal savings association may act as a finder to the extent its activities are incidental to powers expressly authorized in HOLA. The Revisions also list the finder activities that have previously been determined to be authorized under HOLA. Notably, the OCC points out that the source of the finder authority for federal savings associations is different than and more limited and fact-specific than the authority that allows national banks to engage in finder activity. As a result, a federal savings associations should not engage in a finder activity that is permissible for a national bank unless it has determined that the finder activity also is permissible for a federal savings association.

The preamble to the Revisions also clarifies the OCC’s position regarding the test that is used to determine if an activity is permissible for a federal savings association. Historically, the OTS applied a four-factor test to determine whether an activity was incidental to powers expressly authorized in HOLA, and therefore, permissible for a federal savings association. This test was established by the OTS interpretive letters but had not been affirmed by the OCC since it acceded to the OTS’s authority in 2011. Even though all OTS precedent remains effective until changed by the OCC, the OCC used the Revisions as an opportunity to confirm that federal savings associations may rely on the four-factor test originally articulated by the OTS to determine whether a finder activity (or other activity) is permissible for a federal savings association.3

Operating Subsidiaries as Disbursement Locations

A national bank has been deemed to lend money at a location if the borrower receives loan proceeds in person directly from bank funds either (i) from the lending bank or its operating subsidiary; or (ii) at a facility that is established by the lending bank or its operating subsidiary. However, a national bank has not been deemed to lend money at a location if it uses a third-party to deliver the funds at a place that was not established by the lending bank or an operating subsidiary. This is important because a location from which money is lent may be a branch that is subject to additional limitations and regulation.

The Revisions codify an interpretive letter the OCC issued in 1997 to clarify that a national bank is not deemed to lend money at a location if it uses an operating subsidiary to distribute loan proceeds from funds maintained by the operating subsidiary or bank funds, directly to the borrower in person or at offices maintained by the operating subsidiary.4 Additionally, the operating subsidiary must provide similar services on substantially similar terms and conditions to customers of unaffiliated entities, including unaffiliated banks. However, the OCC declined to permit national banks to directly disburse loan proceeds from non-branch facilities of a bank, even if the facilities are used to provide services to noncustomers on substantially similar terms and conditions.

Credit Decisions at Non-Branch Locations

Historically the OCC maintained multiple regulations that addressed where a national bank could make credit decisions to avoid violating the restrictions on branching. Among other consequences, this approach may have created confusion regarding whether a national bank could make credit decisions at a loan production office.

The Revisions merge the credit decision regulations to make it clear that a national bank may use a loan production office to make credit decisions as long as money is not lent at that location and the location is not used to accept deposits or pay withdrawals. Additionally, the preamble to the Revisions reiterates that the OCC’s position that it abandoned the aggregation theory of branching in the 1990s, and therefore, money is not considered to be lent at an office if the office conducts both loan origination and loan approval activities (for the same loan or separate loans).

Remote Service Unit and Combination Authorities

The OCC previously treated drop boxes as branches, which was consistent with longstanding US Supreme Court precedent. In contrast, remote service units (e.g., an automated teller machine) were deemed not to be a branch under the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (“EGRPRA”). To address this incongruity and apply what the OCC now views as a better reading of the plain language of EGRPRA, the Revisions expand the definition of remote service unit to include an automated or unstaffed facility that explicitly includes drop boxes as an example of such facilities.

The Revisions also clarify the OCC’s combination regulation to make clear that a facility that combines a remote service unit with a loan or deposit production office is not a branch if the remote service unit is primarily operated by the customer with at most limited assistance from bank personnel. This clarification is consistent with prior OCC interpretive guidance.5

Tax Equity Finance Authority

In a tax equity finance (“TEF”) transaction, a national bank uses equity financing to fund a project and receives the tax credits or other tax benefits generated by that project. National banks have long been authorized to engage in TEF transactions, which were considered the functional equivalent of a loan as discussed in a string of OCC interpretive letters,6 but ambiguity and inconsistency in the standards and conditions imposed through these interpretive letters created uncertainty over the permissibility of investments. Additionally, the OCC had not previously addressed the permissibility of TEF transactions for federal savings associations.

The Revisions codify and clarify the authority of national banks to engage in TEF transactions and extend this authority to federal savings associations. To be a permissible investment, a TEF transaction must (i) qualify as the functional equivalent of a loan by meeting seven requirements derived from prior OCC interpretive letters and (ii) meet additional conditions including risk management and prior notice to the OCC with an evaluation of the risks presented by the transaction. The newly codified TEF authority is separate from the public welfare investment authority and community development investment authority and generally relies upon the lending authority. To the extent an investment would qualify under multiple authorities, the Federal Institution may determine which authority it is relying upon to make the investment. The Revisions also confirm that the OCC will permit TEF investments through investment funds for other fund-based structures as long as the investment meets all of the conditions and requirements to engage in TEF investments directly.

Payment System Membership Authority

The OCC has historically permitted national banks to join payment systems by adhering to conditions set forth in a series of interpretive letters.7 However, the OCC had not previously addressed the authority of federal savings associations to join payment systems or codified the requirements for national banks.

The Revisions codify the OCC’s interpretations regarding national bank membership in payment systems and extend the same authority to federal savings associations. Under the Revisions, at least thirty days advance written notice is required before joining a payment system that would expose the Federal Institution to “open-end liability” (a term described more extensively in the OCC’s interpretations that is further clarified by the Revisions). In cases where becoming a member of a payment system will not expose the institution to open-ended liabilities an after-the-fact notice must be filed within 30 days. This authority applies only to membership in payment systems; the Revisions do not affect OCC precedent applicable to memberships in clearing and settlement organizations or permit open-ended liability to those organizations.

Derivatives Authority

Several decades’ worth of OCC interpretive letters have defined the scope of, and conditions precedent to, the derivatives powers of national banks.8 Because no statute or regulation defined the specific categories of permissible derivatives activities, highly fact-specific, case-by-case approval from the OCC was required to engage in new derivatives activities, which resulted in a proliferation of interpretive letters.

The Revisions codify and consolidate the derivatives authority for national banks in a new section of the OCC’s regulations that is intended to streamline and standardize the OCC’s interpretive letter precedent. The Revisions define five categories of legally permissible derivatives activities:

  1. Derivatives transactions with payments based on underlying a national bank is permitted to purchase directly as an investment;
  2. Derivatives transactions with any underlying to hedge the risks arising from bank-permissible activities;
  3. Derivatives transactions as a financial intermediary with any underlying that are customer-driven, cash-settled, and either perfectly-matched or portfolio-hedged;
  4. Derivatives transactions as a financial intermediary with any underlying that are customer-driven, physically-settled by transitory title transfer, and either perfectly-matched or portfolio-hedged; and
  5. Derivatives transactions as a financial intermediary with any underlying that are customer-driven, physically-hedged, and either portfolio-hedged or hedged on a transaction-by-transaction basis, and provided that: (i) the national bank does not take physical delivery of any commodity by receipt of physical quantities of the commodity on bank premises; and (ii) physical hedging activities satisfy additional risk management requirements.

National banks must provide their examiners-in-charge with at least 30 days prior written notice when engaging in a derivatives activity for the first time, though some ambiguity remains over what constitutes a “new” activity requiring notice. The Revisions also define risk management and supervisory safety and soundness expectations for derivatives activities.

Corporate Governance Election

National banks are permitted to elect corporate governance procedures based on: (i) the law of the state in which the main office of the bank is located; (ii) the law of the state in which the holding company of the bank is incorporated; (iii) the Delaware General Corporation Law; or (iv) the Model Business Corporation Act.9 Among other concerns, this created an issue if a national bank elected to follow the corporate governance procedures of the law of the state in which its holding company was incorporated and the holding company subsequently was eliminated.

To address this issue and provide greater flexibility, the Revisions expand the list of permissible corporate governance standards to include the law of any state in which the national bank maintains a branch, the law of the state in which any holding company of the bank is incorporated (for banks controlled by more than one holding company), or the law of the state where the bank’s holding company was incorporated, even if the holding company is eliminated or no longer controls the bank.10 Additionally, the Revisions extend parallel options to federal savings associations.

Federal Savings Association Indemnification Authority

Federal savings associations were subject to a separate indemnification regulation that the OCC had integrated from the OTS’s rulebook but applied only to officers, directors, and employees of federal savings associations. The Revisions delete the prior OTS regulation and extends the national bank indemnification regulation to federal savings associations. This change has the effect of applying the OCC’s indemnification requirements to a federal savings association’s shareholders, independent contractors, consultants, and other institution-affiliated parties.11

Capital Stock-Related Activities of National Banks

The Revisions codify several OCC interpretations related to a national bank’s capital stock issuances and repurchases. While most of the provisions are based on longstanding publicly available precedent, one provision is based on much older precedent that may not be familiar to most banks. Specifically, the Revisions codify a 1977 interpretive letter which provided that a national bank’s preferred stock may be cumulative or non-cumulative and further that such preferred stock can have voting rights on one or more series of the preferred stock.


The Revisions reflect the OCC’s attempts to update and streamline activities and operations requirements for Federal Institutions. Given that some of the OCC’s changes could be seen as establishing new frameworks for conducting certain activities (e.g., TEF, derivatives), Federal Institutions should review their activities to determine if corresponding changes need to be made to internal procedures.

1 OCC, NR 2020-158 (Nov. 23, 2020), Federal branches and agencies are subject to many of the provisions in Part 7 of Title 12 because of Section 4(b) of the International Banking Act of 1978. The Revisions clarify certain language in certain provisions that is related to federal branches and agencies for ease of reference, but are not intended to exclude them from other provisions.

2 85 Fed. Reg. 40,794 (June 7, 2020). The OCC also released an advance notice of proposed rulemaking to address its electronic activities rules and other banking issues related to digital technology and innovation, but has not taken further action on that proposal. OCC, NR 2020-76 (June 4, 2020),

3 Historically the OTS required a federal savings association to provide prior notice before engaging in or expanding certain activities pursuant to incidental powers arising under HOLA. E.g., OTS Op. P-2000-7 (May 5, 2000). The Revisions do not clarify whether this notice requirement still applies effect, but the omission of a notice requirement from the information collection section of the Revisions supports the view that it has been abandoned by the agency.

4 See OCC, Interp. Ltr. No. 814 (Nov. 3, 1997).

5 See OCC Interp. Ltr. No. 1165 (June 28, 2019).

6 See, e.g., OCC Interp. Ltr. No. 1048 (Dec. 21, 2005), OCC Interp. Ltr. No. 1139 (Nov. 13, 2013), OCC Interp. Ltr. No. 1141 (Apr. 22, 2014).

7 See, e.g., OCC Interp. Ltr. No. 993 (May 16, 1997); OCC Interp. Ltr. No. 1140 (Jan. 13, 2014); OCC Interp. Ltr. No. 1157 (Nov. 12, 2017).

8 Permissible financial derivatives transactions for federal savings associations are addressed separately in 12 C.F.R. § 163.172.

9 12 C.F.R. § 7.2000(b).

10 However, a national bank may not adopt corporate governance provisions from the laws of different states.

11 Federal savings associations remain subject to the indemnification restrictions imposed by the Federal Deposit Insurance Corporation. 12 C.F.R. pt. 359.