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General Provisions Affecting Member Banks

1-292

DIRECTORS AND OFFICERS

Number of Directors Banking Act of June 16, 1933 (48 Stat. 194)
SECTION 31
After one year from the date of enactment of this Act, notwithstanding any other provision of law, the board of directors, board of trustees, or other similar governing body of every national banking association and of every State bank or trust company which is a member of the Federal Reserve System shall consist of not less than five nor more than twenty-five members, except that the Comptroller of the Currency may, by regulation or order, exempt a national bank from the 25-member limit established by this section. If any national banking association violates the provisions of this section and continues such violation after thirty days’ notice from the Comptroller of the Currency, the said Comptroller may appoint a receiver or conservator therefor, in accordance with the provisions of existing law. If any State bank or trust company which is a member of the Federal Reserve System violates the provisions of this section and continues such violation after thirty days’ notice from the Board of Governors of the Federal Reserve System, it shall be subject to the forfeiture of its membership in the Federal Reserve System in accordance with the provisions of section 9 of the Federal Reserve Act, as amended.
[12 USC 71a. As amended by act of Dec. 27, 2000 (114 Stat. 3034). The Banking Act of Aug. 23, 1935 (49 Stat. 708) amended section 4 of the act of June 16, 1934 (48 Stat. 971) so as to repeal a former provision of this section relating to stock ownership requirements of directors, trustees, and members of similar governing bodies of any national banking association or of any state bank or trust company that is a member of the Federal Reserve System.]
1-293

False Certification of Checks

Revised Statutes
SECTION 5208
It shall be unlawful for any officer, director, agent, or employee of any Federal reserve bank, or any member bank as defined in the Act of December 23, 1913, known as the Federal Reserve Act, to certify any check drawn upon such Federal reserve bank or member bank unless the person, firm, or corporation drawing the check has on deposit with such Federal reserve bank or member bank, at the time such check is certified, an amount of money not less than the amount specified in such check. Any check so certified by a duly authorized officer, director, agent, or employee shall be a good and valid obligation against such Federal reserve bank or member bank; but the act of any officer, director, agent, or employee of any such Federal reserve bank or member bank in violation of this section shall, in the discretion of the Board of Governors of the Federal Reserve System, subject such Federal reserve bank to the penalties imposed by section 11, subsection (h) of the Federal Reserve Act, and shall subject such member bank, if a national bank, to the liabilities and proceedings on the part of the Comptroller of the Currency provided for in section 5234, Revised Statutes, and shall, in the discretion of the Board of Governors of the Federal Reserve System, subject any other member bank to the penalties imposed by section 9 of said Federal Reserve Act for the violation of any of the provisions of said Act.
[12 USC 501. As amended by acts of Sept. 26, 1918 (40 Stat. 972); Feb. 25, 1927 (44 Stat. 1231); Aug. 23, 1935 (49 Stat. 704). The act of June 25, 1948 repealed the provision for a criminal penalty formerly contained in the last sentence of this section (12 USC 591) but the substance thereof was incorporated in 18 USC 1004.]
1-294

BRANCHES OF NATIONAL BANKS

Revised Statutes
SECTION 5155
The conditions upon which a national banking association may retain or establish and operate a branch or branches are the following:
(a) A national banking association may retain and operate such branch or branches as it may have in lawful operation at the date of the approval of this Act, and any national banking association which has continuously maintained and operated not more than one branch for a period of more than twenty-five years immediately preceding the approval of this Act may continue to maintain and operate such branch.
(b) (1) A national bank resulting from the conversion of a State bank may retain and operate as a branch any office which was a branch of the State bank immediately prior to conversion if such office—
(A) might be established under subsection (c) of this section as a new branch of the resulting national bank, and is approved by the Comptroller of the Currency for continued operation as a branch of the resulting national bank;
(B) was a branch of any bank on February 25, 1927; or
(C) is approved by the Comptroller of the Currency for continued operation as a branch of the resulting national bank.
The Comptroller of the Currency may not grant approval under clause (C) of this paragraph if a State bank (in a situation identical to that of the national bank) resulting from the conversion of a national bank would be prohibited by the law of such State from retaining and operating as a branch and identically situated office which was a branch of the national bank immediately prior to conversion.
(2) A national bank (referred to in this paragraph as the “resulting bank”), resulting from the consolidation of a national bank (referred to in this paragraph as the “national bank”) under whose charter the consolidation is effected with another bank or banks, may retain and operate as a branch any office which, immediately prior to such consolidation, was in operation as—
(A) a main office or branch office of any bank (other than the national bank) participating in the consolidation if, under subsection (c) of this section, it might be established as a new branch of the resulting bank, and if the Comptroller of the Currency approves of its continued operation after the consolidation;
(B) a branch of any bank participating in the consolidation, and which, on February 25, 1927, was in operation as a branch of any bank; or
(C) a branch of the national bank and which, on February 25, 1927, was not in operation as a branch of any bank, if the Comptroller of the Currency approves of its continued operation after the consolidation.
The Comptroller of the Currency may not grant approval under clause (C) of this paragraph if a State bank (in a situation identical to that of the resulting national bank) resulting from the consolidation into a State bank of another bank or banks would be prohibited by the law of such State from retaining and operating as a branch an identically situated office which was a branch of the State bank immediately prior to consolidation.
(3) As used in this subsection, the term “consolidation” includes a merger.
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(c) A national banking association may, with the approval of the Comptroller of the Currency, establish and operate new branches: (1) Within the limits of the city, town or village in which said association is situated, if such establishment and operation are at the time expressly authorized to State banks by the law of the State in question; and (2) at any point within the State in which said association is situated, if such establishment and operation are at the time authorized to State banks by the statute law of the State in question by language specifically granting such authority affirmatively and not merely by implication or recognition, and subject to the restrictions as to location imposed by the law of the State on State banks. In any State in which State banks are permitted by statute law to maintain branches within county or greater limits, if no bank is located and doing business in the place where the proposed agency is to be located, any national banking association situated in such State may, with the approval of the Comptroller of the Currency, establish and operate, without regard to the capital requirements of this section, a seasonal agency in any resort community within the limits of the county in which the main office of such association is located, for the purpose of receiving and paying out deposits, issuing and cashing checks and drafts, and doing business incident thereto: Provided, That any permit issued under this sentence shall be revoked upon the opening of a State or national bank in such community. Except as provided in the immediately preceding sentence, no such association shall establish a branch outside of the city, town, or village in which it is situated unless it has a combined capital stock and surplus equal to the combined amount of capital stock and surplus, if any, required by the law of the State in which such association is situated for the establishment of such branches by State banks, or, if the law of such State requires only a minimum capital stock for the establishment of such branches by State banks, unless such association has not less than an equal amount of capital stock.
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(d) Branches resulting from interstate merger transactions. A national bank resulting from an interstate merger transaction (as defined in section 44(f)(6) of the Federal Deposit Insurance Act) may maintain and operate a branch in a State other than the home State (as defined in subsection (g)(3)(B)) of such bank in accordance with section 44 of the Federal Deposit Insurance Act.
(e) Exclusive authority for additional branches.
(1) Effective June 1, 1997, a national bank may not acquire, establish, or operate a branch in any State other than the bank’s home State (as defined in subsection (g)(3)(B)) or a State in which the bank already has a branch unless the acquisition, establishment, or operation of such branch in such State by such national bank is authorized under this section or section 13(f), 13(k), or 44 of the Federal Deposit Insurance Act.
(2) In the case of a national bank which relocates the main office of such bank from 1 State to another State after May 31, 1997, the bank may retain and operate branches within the State which was the bank’s home State (as defined in subsection (g)(3)(B)) before the relocation of such office only to the extent the bank would be authorized, under this section or any other provision of law referred to in paragraph (1), to acquire, establish, or commence to operate a branch in such State if—
(A) the bank had no branches in such State; or
(B) the branch resulted from—
(i) an interstate merger transaction approved pursuant to section 44 of the Federal Deposit Insurance Act; or
(ii) a transaction after May 31, 1997, pursuant to which the bank received assistance from the Federal Deposit Insurance Corporation under section 13(c) of such Act.
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(f) Law applicable to interstate branching operations.
(1) (A) The laws of the host State regarding community reinvestment, consumer protection, fair lending, and establishment of intrastate branches shall apply to any branch in the host State of an out-of-State national bank to the same extent as such State laws apply to a branch of a bank chartered by that State, except—
(i) when Federal law preempts the application of such State laws to a national bank; or
(ii) when the Comptroller of the Currency determines that the application of such State laws would have a discriminatory effect on the branch in comparison with the effect the application of such State laws would have with respect to branches of a bank chartered by the host State.
(B) The provisions of any State law to which a branch of a national bank is subject under this paragraph shall be en forced, with respect to such branch, by the Comptroller of the Currency.
(C) The Comptroller of the Currency shall conduct an annual review of the actions it has taken with regard to the applicability of State law to national banks (or their branches) during the preceding year, and shall include in its annual report required under section 333 of the Revised Statutes (12 USC 14) the results of the review and the reasons for each such action. The first such review and report after the date of enactment of this subparagraph shall encompass all such actions taken on or after January 1, 1992.
(2) All laws of a host State, other than the laws regarding community reinvestment, consumer protection, fair lending, establishment of intrastate branches, and the application or administration of any tax or method of taxation, shall apply to a branch (in such State) of an out-of-State national bank to the same extent as such laws would apply if the branch were a national bank the main office of which is in such State.
(3) No provision of this subsection may be construed as affecting the legal standards for preemption of the application of State law to national banks.
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(g) State “opt-in” election to permit interstate branching through de novo branches.
(1) Subject to paragraph (2), the Comptroller of the Currency may approve an application by a national bank to establish and operate a de novo branch in a State (other than the bank’s home State) in which the bank does not maintain a branch if—
(A) there is in effect in the host State a law that—
(i) applies equally to all banks; and
(ii) expressly permits all out-of-State banks to establish de novo branches in such State; and
(B) the conditions established in, or made applicable to this paragraph by, paragraph (2) are met.
(2) (A) An application by a national bank to establish and operate a de novo branch in a host State shall be subject to the same requirements and conditions to which an application for an interstate merger transaction is subject under paragraphs (1), (3), and (4) of section 44(b) of the Federal Deposit Insurance Act.
(B) Subsections (c) and (d)(2) of section 44 of the Federal Deposit Insurance Act shall apply with respect to each branch of a national bank which is established and operated pursuant to an application approved under this subsection in the same manner and to the same extent such provisions of such section 44 apply to a branch of a national bank which resulted from an interstate merger transaction approved pursuant to such section 44.
(3) The following definitions shall apply for purposes of this section:
(A) The term “de novo branch” means a branch of a national bank which—
(i) is originally established by the national bank as a branch; and
(ii) does not become a branch of such bank as a result of—
(I) the acquisition by the bank of an insured depository institution or a branch of an insured depository institution; or
(II) the conversion, merger, or consolidation of any such institution or branch.
(B) The term “home State” means the State in which the main office of a national bank is located.
(C) The term “host State” means, with respect to a bank, a State, other than the home State of the bank, in which the bank maintains, or seeks to establish and maintain, a branch.
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(h) [Repealed]
(i) No branch of any national banking association shall be established or moved from one location to another without first obtaining the consent and approval of the Comptroller of the Currency.
(j) The term “branch” as used in this section shall be held to include any branch bank, branch office, branch agency, additional office, or any branch place of business located in any State or Territory of the United States or in the District of Columbia at which deposits are received, or checks paid, or money lent. The term “branch”, as used in this section, does not include an automated teller machine or a remote service unit.
(k) This section shall not be construed to amend or repeal section 25 of the Federal Reserve Act, as amended, authorizing the establishment of national banking associations of branches in foreign countries, or dependencies, or insular possessions of the United States.
(l) The words “State bank,” “State banks,” “bank,” or “banks,” as used in this section, shall be held to include trust companies, savings banks, or other such corporations or institutions carrying on the banking business under the authority of State laws.
[12 USC 36. As amended by acts of Feb. 25, 1927 (44 Stat. 1228); June 16, 1933 (48 Stat. 189, 190); Aug. 23, 1935 (49 Stat. 708); July 15, 1952 (66 Stat. 633); Sept. 28, 1962 (76 Stat. 667); Sept. 29, 1994 (108 Stat. 2349, 2352); Sept. 30, 1996 (110 Stat. 3009-405); and July 3, 1997 (111 Stat 239). The act referred to in subparagraph (a) above was approved Feb. 25, 1927.]
1-297

LOANS AND INVESTMENTS

Investment Securities and Corporate Stocks Revised Statutes
SECTION 5136
Upon duly making and filing articles of association and an organization certificate, the association shall become, as from the date of the execution of its organization certificate, a body corporate, and as such, and in the name designated in the organization certificate, it shall have power—
*     *     *     *     *
Seventh. To exercise by its board of directors or duly authorized officers or agents, subject to law, all such incidental powers as shall be necessary to carry on the business of banking; by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; by receiving deposits; by buying and selling exchange, coin, and bullion; by loaning money on personal security; and by obtaining, issuing, and circulating notes according to the provisions of this chapter. The business of dealing in securities and stock by the association shall be limited to purchasing and selling such securities and stock without recourse, solely upon the order, and for the account of, customers, and in no case for its own account, and the association shall not underwrite any issue of securities or stock: Provided, That the association may purchase for its own account investment securities under such limitations and restrictions as the Comptroller of the Currency may by regulation prescribe. In no event shall the total amount of the investment securities of any one obligor or maker, held by the association for its own account, exceed at any time 10 per centum of its capital stock actually paid in and unimpaired and 10 per centum of its unimpaired surplus fund, except that this limitation shall not require any association to dispose of any securities lawfully held by it on August 23, 1935. As used in this section the term “investment securities” shall mean marketable obligations, evidencing indebtedness of any person, copartnership, association, or corporation in the form of bonds, notes and/or debentures commonly known as investment securities under such further definition of the term “investment securities” as may by regulation be prescribed by the Comptroller of the Currency. Except as hereinafter provided or otherwise permitted by law, nothing herein contained shall authorize the purchase by the association for its own account of any shares of stock of any corporation. The limitations and restrictions herein contained as to dealing in, underwriting and purchasing for its own account, investment securities shall not apply to obligations of the United States, or general obligations of any State or of any political subdivision thereof, or obligations of the Washington Metropolitan Area Transit Authority which are guaranteed by the Secretary of Transportation under section 9 of the National Capital Transportation Act of 1969, or obligations issued under authority of the Federal Farm Loan Act, as amended, or issued by the thirteen banks for the cooperatives of any of them or the Federal Home Loan Banks, or obligations which are insured by the Secretary of Housing and Urban Development under title XI of the National Housing Act or obligations which are insured by the Secretary of Housing and Urban Development (hereafter in this sentence referred to as the “Secretary”) pursuant to section 207 of the National Housing Act, if the debentures to be issued in payment of such insured obligations are guaranteed as to principal and interest by the United States, or obligations, participations, or other instruments of or issued by the Federal National Mortgage Association or the Government National Mortgage Association, or mortgages, obligations, or other securities which are or ever have been sold by the Federal Home Loan Mortgage Corporation pursuant to section 305 or section 306 of the Federal Home Loan Mortgage Corporation Act, or obligations of the Federal Financing Bank or obligations of the Environmental Financing Authority, or obligations or other instruments or securities of the Student Loan Marketing Association, or such obligations of any local public agency (as defined in section 110(h) of the Housing Act of 1949) as are secured by an agreement between the local public agency and the Secretary in which the local public agency agrees to borrow from said Secretary, and said Secretary agrees to lend to said local public agency, monies in an aggregate amount which (together with any other monies irrevocably committed to the payment of interest on such obligations) will suffice to pay, when due, the interest on and all installments (including the final installment) of the principal of such obligations, which monies under the terms of said agreement are required to be used for such payments, or such obligations of a public housing agency (as defined in the United States Housing Act of 1937, as amended) as are secured (1) by an agreement between the public housing agency and the Secretary in which the public housing agency agrees to borrow from the Secretary, and the Secretary agrees to lend to the public housing agency, prior to the maturity of such obligations, monies in an amount which (together with any other monies irrevocably committed to the payment of interest on such obligations) will suffice to pay the principal of such obligations with interest to maturity thereon, which monies under the terms of said agreement are required to be used for the purpose of paying the principal of and the interest on such obligations at their maturity, (2) by a pledge of annual contributions under an annual contributions contract between such public housing agency and the Secretary if such contract shall contain the covenant by the Secretary which is authorized by subsection (g) of section 6 of the United States Housing Act of 1937, as amended, and if the maximum sum and the maximum period specified in such contract pursuant to said subsection 6(g) shall not be less than the annual amount and the period for payment which are requisite to provide for the payment when due of all installments of principal and interest on such obligations, or (3) by a pledge of both annual contributions under an annual contributions contract containing the covenant by the Secretary which is authorized by section 6(g) of the United States Housing Act of 1937, and a loan under an agreement between the local public housing agency and the Secretary in which the public housing agency agrees to borrow from the Secretary, and the Secretary agrees to lend to the public housing agency, prior to the maturity of the obligations involved, moneys in an amount which (together with any other moneys irrevocably committed under the annual contributions contract to the payment of principal and interest on such obligations) will suffice to provide for the payment when due of all instalments of principal and interest on such obligations, which moneys under the terms of the agreement are required to be used for the purpose of paying the principal and interest on such obligations at their maturity: Provided, That in carrying on the business commonly known as the safe-deposit business the association shall not invest in the capital stock of a corporation organized under the law of any State to conduct a safe-deposit business in an amount in excess of 15 per centum of the capital stock of the association actually paid in and unimpaired and 15 per centum of its unimpaired surplus. The limitations and restrictions herein contained as to dealing in and underwriting investment securities shall not apply to obligations issued by the International Bank for Reconstruction and Development, the European Bank for Reconstruction and Development, the Inter-American Development Bank, North American Development Bank, the Asian Development Bank, the African Development Bank, the Inter-American Investment Corporation, or the International Finance Corporation, or obligations issued by any State or political subdivision or any agency of a State or political subdivision for housing, university, or dormitory purposes, which are at the time eligible for purchase by a national bank for its own account, nor to bonds, notes and other obligations issued by the Tennessee Valley Authority or by the United States Postal Service: Provided, That no association shall hold obligations, issued by any of said organizations as a result of underwriting, dealing, or purchasing for its own account (and for this purpose obligations as to which it is under commitment shall be deemed to be held by it) in a total amount exceeding at any one time 10 per centum of its capital stock actually paid in and unimpaired and 10 per centum of its unimpaired surplus fund. Notwithstanding any other provision in this paragraph, the association may purchase for its own account shares of stock issued by a corporation authorized to be created pursuant to Title IX of the Housing and Urban Development Act of 1968, and may make investments in a partnership, limited partnership, or joint venture formed pursuant to section 907(a) or 907(c) of that Act. Notwithstanding any other provision of this paragraph, the association may purchase for its own account shares of stock issued by any State housing corporation incorporated in the State in which the association is located and may make investments in loans and commitments for loans to any such corporation: Provided, That in no event shall the total amount of such stock held for its own account and such investments in loans and commitments made by the association exceed at any time 5 per centum of its capital stock actually paid in and unimpaired plus 5 per centum of its unimpaired surplus fund. Notwithstanding any other provision in this paragraph, the association may purchase for its own account shares of stock issued by a corporation organized solely for the purpose of making loans to farmers and ranchers for agricultural purposes, including the breeding, raising, fattening, or marketing of livestock. However, unless the association owns at least 80 per centum of the stock of such agricultural credit corporation the amount invested by the association at any one time in the stock of such corporation shall not exceed 20 per centum of the unimpaired capital and surplus of the association: Provided further, That, notwithstanding any other provision of this paragraph, the association may purchase for its own account shares of stock of a bank insured by the Federal Deposit Insurance Corporation or a holding company which owns or controls such an insured bank if the stock of such bank or company is owned exclusively (except to the extent directors’ qualifying shares are required by law) by depository institutions or depository institution holding companies (as defined in section 3 of the Federal Deposit Insurance Act) and such bank or company and all subsidiaries thereof are engaged exclusively in providing services to or for other depository institutions, their holding companies, and the officers, directors, and employees of such institutions and companies, and in providing correspondent banking services at the request of other depository institutions or their holding companies (also referred to as a “banker’s bank”) but in no event shall the total amount of such stock held by the association in any bank or holding company exceed at any time 10 per centum of the association’s capital stock and paid in and unimpaired surplus and in no event shall the purchase of such stock result in an association’s acquiring more than 5 per centum of any class of voting securities of such bank or company. The limitations and restrictions contained in this paragraph as to an association purchasing for its own account investment securities shall not apply to securities that (A) are offered and sold pursuant to section 4(5) of the Securities Act of 1933 (15 U.S.C. 77d(5)); (B) are small business related securities (as defined in section 3(a)(53) of the Securities Exchange Act of 1934); or (C) are mortgage related securities (as that term is defined in section 3(a)(41) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(41))). The exception provided for the securities described in subparagraphs (A), (B), and (C) shall be subject to such regulations as the Comptroller of the Currency may prescribe, including regulations prescribing minimum size of the issue (at the time of initial distribution) or minimum aggregate sales prices, or both. A national banking association may deal in, underwrite, and purchase for such association’s own account qualified Canadian government obligations to the same extent that such association may deal in, underwrite, and purchase for such association’s own account obligations of the United States or general obligations of any State or any political subdivision thereof. For purposes of this paragraph—
(1) the term “qualified Canadian government obligations” means any debt obligation which is backed by Canada, any Province of Canada, or any political subdivision of any such Province to a degree which is comparable to the liability of the United States, any State, or any political subdivision thereof for any obligation which is backed by the full faith and credit of the United States, such State, or such political subdivision, and such term includes any debt obligation of any agent of Canada or any such Province or any political subdivision of such Province if—
(A) the obligation of the agent is assumed in such agent’s capacity as agent for Canada or such Province or such political subdivision; and
(B) Canada, such Province, or such political subdivision on whose behalf such agent is acting with respect to such obligation is ultimately and unconditionally liable for such obligation; and
(2) the term “Province of Canada” means a Province of Canada and includes the Yukon Territory and the Northwest Territories and their successors.
In addition to the provisions in this paragraph for dealing in, underwriting, or purchasing securities, the limitations and restrictions contained in this paragraph as to dealing in, underwriting, and purchasing investment securities for the national bank’s own account shall not apply to obligations (including limited obligation bonds, revenue bonds, and obligations that satisfy the requirements of section 142(b)(1) of the Internal Revenue Code of 1986) issued by or on behalf of any State or political subdivision of a State, including any municipal corporate instrumentality of 1 or more States, or any public agency or authority of any State or political subdivision of a State, if the national bank is well capitalized (as defined in section 38 of the Federal Deposit Insurance Act).
[12 USC 24. As amended by acts of Feb. 25, 1927 (44 Stat. 1226); June 16, 1933 (48 Stat. 184); Aug. 23, 1935 (49 Stat. 709); Feb. 3, 1938 (52 Stat. 26); June 11, 1940 (54 Stat. 261); June 29, 1949 (63 Stat. 298); July 15, 1949 (63 Stat. 439); April 9, 1952 (66 Stat. 49); Aug. 2, 1954 (68 Stat. 662); Aug. 23, 1954 (68 Stat. 771); July 26, 1956 (70 Stat. 667); Aug. 6, 1959 (73 Stat. 285); Aug. 7, 1959 (73 Stat. 301); Sept. 8, 1959 (73 Stat. 457); Sept. 16, 1959 (73 Stat. 563); Sept. 23, 1959 (73 Stat. 679); Sept. 2, 1964 (78 Stat. 800); March 16, 1966 (80 Stat. 72); Nov. 3, 1966 (80 Stat. 1277); May 25, 1967 (81 Stat. 28); Aug. 1, 1968 (82 Stat. 543, 545, 550, 605); Aug. 12, 1970 (84 Stat. 776); June 23, 1972 (86 Stat. 269); July 13, 1972 (86 Stat. 466); Oct. 18, 1972 (86 Stat. 902); Aug. 16, 1973 (87 Stat. 344); Dec. 29, 1973 (87 Stat. 941); Dec. 31, 1973 (87 Stat. 984); Aug. 22, 1974 (88 Stat. 668, 726); March 31, 1980 (94 Stat. 189); Aug. 13, 1981 (95 Stat. 743); Oct. 15, 1982 (96 Stat. 1511); Jan. 12, 1983 (96 Stat. 2509); Oct. 3, 1984 (98 Stat. 1691); Oct. 12, 1984 (98 Stat. 1884, 1885); Sept. 28, 1988 (102 Stat. 1877); Nov. 5, 1990 (104 Stat. 2036, 2037); Dec. 8, 1993 (107 Stat. 2167); Sept. 23, 1994 (108 Stat. 2199, 2226, 2241); and Nov. 12, 1999 (113 Stat. 1384). In effect amended by section 303(f) of National Housing Act. (See “capital contributions to Federal National Mortgage Association,” below.) The Banking Act of 1935, referred to in this paragraph, was approved Aug. 23, 1935.]
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Investments in State Housing Corporations

Public Law 93-100 of Aug. 16, 1973 (87 Stat. 344)
SECTION 5 * * *
(d) (1) The Federal Savings and Loan Insurance Corporation with respect to insured institutions, the Board of Governors of the Federal Reserve System with respect to State member insured banks, and the Federal Deposit Insurance Corporation with respect to State nonmember insured banks shall by appropriate rule, regulation, order, or otherwise regulate investment in State housing corporations.
(2) A State housing corporation in which financial institutions invest under the authority of this section shall make available to the appropriate Federal supervisory agency referred to in paragraph (1) such information as may be necessary to insure that investments are properly made in accordance with this section.
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(e) For the purposes of this section and any Act amended by this section—
(1) The term “insured institution” has the same meaning as in section 401(a) of the National Housing Act.
(2) The terms “State member insured banks” and “State nonmember insured banks” have the same meaning as when used in the Federal Deposit Insurance Act.
(3) The term “State housing corporation” means a corporation established by a State for the limited purpose of providing housing and incidental services, particularly for families of low or moderate income.
(4) The term “State” means any State, the District of Columbia, Guam, the Commonwealth of Puerto Rico, and the Virgin Islands.
[12 USC 1470(a) and (b).]
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Capital Contributions to Federal National Mortgage Association

National Housing Act of June 27, 1934
SECTION 303 * * *
(d) Notwithstanding any other provision of law, any institution, including a national bank or State member bank of the Federal Reserve System or any member of the Federal Deposit Insurance Corporation, trust company, or other banking organization, organized under any law of the United States, including the laws relating to the District of Columbia, shall be authorized to purchase additional shares of such stock, and to hold or dispose of such stock, subject to the provisions of this title.
[12 USC 1718(d). As added by section 201 of act of Aug. 2, 1954 (68 Stat. 615) known as Housing Act of 1954 and amended by acts of Aug. 1, 1968 (82 Stat. 538) and Oct. 28, 1992 (106 Stat. 3995). The Corporation referred to in this subsection is the Federal National Mortgage Association.]
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Shares of Stock in Small Business Investment Companies

Small Business Investment Act of August 21, 1958 (72 Stat. 692)
SECTION 302 * * *
(b) Financial institution investments.
(1) Notwithstanding the provisions of section 6(a)(1) of the Bank Holding Company Act of 1956, any national bank, or any member bank of the Federal Reserve System or nonmember insured bank to the extent permitted under applicable State law, may invest in any 1 or more small business investment companies, or in any entity established to invest solely in small business investment companies, except that in no event shall the total amount of such investments of any such bank exceed 5 percent of the capital and surplus of the bank.
(2) Notwithstanding any other provision of law, any Federal savings association may invest in any one or more small business investment companies, or in any entity established to invest solely in small business investment companies, except that in no event may the total amount of such investments by any such Federal savings association exceed 5 percent of the capital and surplus of the Federal savings association.
[15 USC 682. As amended by acts of June 11, 1960 (74 Stat. 196); Oct. 3, 1961 (75 Stat. 752); Oct. 11, 1967 (81 Stat. 270); June 4, 1976 (90 Stat. 666); Aug. 4, 1977 (91 Stat. 558); Dec. 2, 1997 (111 Stat. 2601); and Dec. 21, 2000 (114 Stat. 2763A-690). Section 6(a)(1) of the Bank Holding Company Act of 1956 was repealed by act of July 1, 1966 (80 Stat. 240).]
1-300

Obligations Issued Under Farm Credit Act

Farm Credit Act of 1971 (85 Stat. 583)
SECTION 4.7—Purchase and Sale by Federal Reserve System
Any member of the Federal Reserve System may buy and sell bonds, debentures, or other similar obligations issued under the authority of this Act and any Federal Reserve bank may buy and sell such obligations to the same extent and subject to the same limitations placed upon the purchase and sale by said banks of State, county, district, and municipal bonds under section 355 of title 12, United States Code.
[12 USC 2158.]
1-301

Rate of Interest on Loans, Discounts and Purchases

Revised Statutes
SECTION 5197
Any association may take, receive, reserve, and charge on any loan or discount made, or upon any notes, bills of exchange, or other evidences of debt, interest at the rate allowed by the laws of the State, Territory, or District where the bank is located, or at a rate of 1 per centum in excess of the discount rate on ninety-day commercial paper in effect at the Federal reserve bank in the Federal reserve district where the bank is located, whichever may be the greater, and no more, except that where by the laws of any State a different rate is limited for banks organized under State laws, the rate so limited shall be allowed for associations organized or existing in any such State under this chapter. When no rate is fixed by the laws of the State, or Territory, or District, the bank may take, receive, reserve, or charge a rate not exceeding 7 per centum, or 1 per centum in excess of the discount rate on ninety-day commercial paper in effect at the Federal reserve bank in the Federal reserve district where the bank is located, whichever may be the greater, and such interest may be taken in advance, reckoning the days for which the note, bill, or other evidence of debt has to run. The maximum amount of interest or discount to be charged at a branch of an association located outside of the States of the United States and the District of Columbia shall be at the rate allowed by the laws of the country, territory, dependency, province, dominion, insular possession, or other political subdivision where the branch is located. And the purchase, discount, or sale of a bona fide bill of exchange, payable at another place than the place of such purchase, discount, or sale, at not more than the current rate of exchange for sight drafts in addition to the interest, shall not be considered as taking or receiving a greater rate of interest.
[12 USC 85. As amended by acts of Oct. 29, 1974 (88 Stat. 1558); Nov. 5, 1979 (93 Stat. 789); Dec. 28, 1979 (93 Stat. 1235); and March 31, 1980 (94 Stat. 168).]
1-302

Loans by Bank on Its Own Stock

Revised Statutes
SECTION 5201
(a) General prohibition. No national bank shall make any loan or discount on the security of the shares of its own capital stock.
(b) Exclusion. For purposes of this section, a national bank shall not be deemed to be making a loan or discount on the security of the shares of its own capital stock if it acquires the stock to prevent loss upon a debt previously contracted for in good faith.
[12 USC 83. As amended by act of Dec. 27, 2000 (114 Stat. 3034).]
1-302.1

Mortgage Loans; Due-on-Sale Clauses

Garn-St Germain Depository Institutions Act of 1982 (96 Stat. 1505)
SECTION 341
(a) For the purpose of this section—
(1) the term “due-on-sale clause” means a contract provision which authorizes a lender, at its option, to declare due and payable sums secured by the lender’s security instrument if all or any part of the property, or an interest therein, securing the real property loan is sold or transferred without the lender’s prior written consent;
(2) the term “lender” means a person or government agency making a real property loan or any assignee or transferee, in whole or in part, of such a person or agency;
(3) the term “real property loan” means a loan, mortgage, advance, or credit sale secured by a lien on real property, the stock allocated to a dwelling unit in a cooperative housing corporation, or a residential manufactured home, whether real or personal property; and
(4) the term “residential manufactured home” means a manufactured home as defined in section 603(6) of the National Manufactured Home Construction and Safety Standards Act of 1974 which is used as a residence; and
(5) the term “State” means any State of the United States, the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, the Northern Mariana Islands, American Samoa, and the Trust Territory of the Pacific Islands.
1-302.2
(b) (1) Notwithstanding any provision of the constitution or laws (including the judicial decisions) of any State to the contrary, a lender may, subject to subsection (c), enter into or enforce a contract containing a due-on-sale clause with respect to a real property loan.
(2) Except as otherwise provided in subsection (d), the exercise by the lender of its option pursuant to such a clause shall be exclusively governed by the terms of the loan contract, and all rights and remedies of the lender and the borrower shall be fixed and governed by the contract.
(3) In the exercise of its option under a due-on-sale clause, a lender is encouraged to permit an assumption of a real property loan at the existing contract rate or at a rate which is at or below the average between the contract and market rates, and nothing in this section shall be interpreted to prohibit any such assumption.
1-302.3
(c) (1) In the case of a contract involving a real property loan which was made or assumed, including a transfer of the liened property subject to the real property loan, during the period beginning on the date a State adopted a constitutional provision or statute prohibiting the exercise of due-on-sale clauses, or the date on which the highest court of such State has rendered a decision (or if the highest court has not so decided, the date on which the next highest appellate court has rendered a decision resulting in a final judgment if such decision applies State-wide) prohibiting such exercise, and ending on the date of enactment of this section, the provisions of subsection (b) shall apply only in the case of a transfer which occurs on or after the expiration of 3 years after the date of enactment of this Act, except that—
(A) a State, by a State law enacted by the State legislature prior to the close of such 3-year period, with respect to real property loans originated in the State by lenders other than national banks, Federal savings and loan associations, Federal savings banks, and Federal credit unions, may otherwise regulate such contracts, in which case subsection (b) shall apply only if such State law so provides; and
(B) the Comptroller of the Currency with respect to real property loans originated by national banks or the National Credit Union Administration Board with respect to real property loans originated by Federal credit unions may, by regulation prescribed prior to the close of such period, otherwise regulate such contracts, in which case subsection (b) shall apply only if such regulation so provides.
(2) (A) For any contract to which subsection (b) does not apply pursuant to this subsection, a lender may require any successor or transferee of the borrower to meet customary credit standards applied to loans secured by similar property, and the lender may declare the loan due and payable pursuant to the terms of the contract upon transfer to any successor or transferee of the borrower who fails to meet such customary credit standards.
(B) A lender may not exercise its option pursuant to a due-on-sale clause in the case of a transfer of a real property loan which is subject to this subsection where the transfer occurred prior to the date of enactment of this Act.
(C) This subsection does not apply to a loan which was originated by a Federal savings and loan association or Federal savings bank.
1-302.4
(d) With respect to a real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home, a lender may not exercise its option pursuant to a due-on-sale clause upon—
(1) the creation of a lien or other encumbrance subordinate to the lender’s security instrument which does not relate to a transfer of rights of occupancy in the property;
(2) the creation of a purchase money security interest for household appliances;
(3) a transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;
(4) the granting of a leasehold interest of three years or less not containing an option to purchase;
(5) a transfer to a relative resulting from the death of a borrower;
(6) a transfer where the spouse or children of the borrower become an owner of the property;
(7) a transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an owner of the property;
(8) a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property; or
(9) any other transfer or disposition described in regulations prescribed by the Federal Home Loan Bank Board.
1-302.5
(e) (1) The Federal Home Loan Bank Board, in consulation with the Comptroller of the Currency and the National Credit Union Administration Board, is authorized to issue rules and regulations and to publish interpretations governing the implementation of this section.
(2) Notwithstanding the provisions of subsection (d), the rules and regulations prescribed under this section may permit a lender to exercise its option pursuant to a due-on-sale clause with respect to a real property loan and any related agreement pursuant to which a borrower obtains the right to receive future income.
(f) The Federal Home Loan Mortgage Corporation (hereinafter referred to as the “Corporation”) shall not, prior to July 1, 1983, implement the change in its policy announced on July 2, 1982, with respect to enforcement of due-on-sale clauses in real property loans which are owned in whole or in part by the Corporation.
(g) Federal Home Loan Bank Board regulations restricting the use of a balloon payment shall not apply to a loan, mortgage, advance, or credit sale to which this section applies.
[12 USC 1701j-3. As amended by act of Nov. 30, 1983 (97 Stat. 1237).]
1-304

CAPITAL STRUCTURE

Dividends; Accumulation of Surplus Revised Statutes
SECTION 5199
(a) In general. Subject to subsection (b), the directors of any national bank may declare a dividend of so much of the undivided profits of the bank as the directors judge to be expedient.
(b) Approval required under certain circumstances. A national bank may not declare and pay dividends in any year in excess of an amount equal to the sum of the total of the net income of the bank for that year and the retained net income of the bank for the preceding 2 years, minus the sum of any transfers required by the Comptroller of the Currency and any transfers required to be made to a fund for the retirement of any preferred stock, unless the Comptroller of the Currency approves the declaration and payment of dividends in excess of such amount.
[12 USC 60. As amended by acts of Aug. 23, 1935 (49 Stat. 712); Sept. 8, 1959 (73 Stat. 465); Sept. 23, 1994 (108 Stat. 2294); and Oct. 13, 2006 (120 Stat. 1970).]
1-305

Withdrawal of Capital—Unearned Dividends

Revised Statutes
SECTION 5204
No association, or any member thereof, shall, during the time it shall continue its banking operations, withdraw, or permit to be withdrawn, either in the form of dividends or otherwise, any portion of its capital. If losses have at any time been sustained by any such association, equal to or exceeding its undivided profits then on hand, no dividend shall be made; and no dividend shall ever be made by any association, while it continues its banking operations, to an amount greater than its net undivided profits, subject to other applicable provisions of law. But nothing in this section shall prevent the reduction of the capital stock of the association under section fifty-one hundred and forty-three.
[12 USC 56. As amended by act of Sept. 23, 1994 (108 Stat. 2294). Revised Statutes 5143 is 12 USC 59.]
1-306

Impairment of Capital

Revised Statutes
SECTION 5205
Every association which shall have failed to pay up its capital stock, as required by law, and every association whose capital stock shall have become impaired by losses or otherwise, shall, within three months after receiving notice thereof from the Comptroller of the Currency, pay the deficiency in the capital stock, by assessment upon the shareholders pro rata for the amount of capital stock held by each; and the Treasurer of the United States shall withhold the interest upon all bonds held by him in trust for any such association, upon notification from the Comptroller of the Currency, until otherwise notified by him. If any such association shall fail to pay up its capital stock, and shall refuse to go into liquidation, as provided by law, for three months after receiving notice from the Comptroller, a receiver may be appointed to close up the business of the association, according to the provisions of section fifty-two hundred and thirty-four: And provided, That if any shareholder or shareholders of such bank shall neglect or refuse, after three months’ notice, to pay the assessment, as provided in this section, it shall be the duty of the board of directors to cause a sufficient amount of the capital stock of such shareholder or shareholders to be sold at public auction (after thirty days’ notice shall be given by posting such notice of sale in the office of the bank, and by publishing such notice in a newspaper of the city or town in which the bank is located, or in a newspaper published nearest thereto), to make good the deficiency, and the balance, if any, shall be returned to such delinquent shareholder or shareholders.
[12 USC 55. As amended by act of June 30, 1876 (19 Stat. 64). As to determination of whether capital of member banks is impaired, see section 345 of Banking Act of Aug. 23, 1935 below.]
1-307
Banking Act of August 23, 1935 (49 Stat. 722)
SECTION 345
If any part of the capital of a national bank, State member bank, or bank applying for membership in the Federal Reserve System consists of preferred stock, the determination of whether or not the capital of such bank is impaired and the amount of such impairment shall be based upon the par value of its stock even though the amount which the holders of such preferred stock shall be entitled to receive in the event of retirement or liquidation shall be in excess of the par value of such preferred stock. If any such bank or trust company shall have outstanding any capital notes or debentures of the type which the Reconstruction Finance Corporation is authorized to purchase pursuant to the provisions of section 304 of the Emergency Banking and Bank Conservation Act, approved March 9, 1933, as amended, the capital of such bank may be deemed to be unimpaired if the sound value of its assets is not less than its total liabilities, including capital stock; but excluding such capital notes or debentures and any obligations of the bank expressly subordinated thereto. Notwithstanding any other provision of law, the holders of preferred stock issued by a national banking association pursuant to the provisions of the Emergency Banking and Bank Conservation Act, approved March 9, 1933, as amended, shall be entitled to receive such cumulative dividends on the purchase price received by the association for such stock and, in the event of the retirement of such stock, to receive such retirement price, not in excess of such purchase price plus all accumulated dividends, as may be provided in the articles of association with the approval of the Comptroller of the Currency. If the association is placed in voluntary liquidation, or if a conservator or a receiver is appointed therefor, no payment shall be made to the holders of common stock until the holders of preferred stock shall have been paid in full such amount as may be provided in the articles of association with the approval of the Comptroller of the Currency, not in excess of such purchase price of such preferred stock plus all accumulated dividends.
[12 USC 51b-1. As amended by act of March 31, 1980 (94 Stat. 186). For provisions relating to assessments on stockholders of national banks to make up impairment in capital, see section 5205, Revised Statutes. Section 304 of Emergency Banking Act of 1933 was repealed by act of June 30, 1947 (61 Stat. 208).]
1-308

AFFILIATES

Section 20 of the Banking Act of 1933 prohibits any member bank from being affiliated with any corporation, association, or similar organization engaged principally in the issue, flotation, underwriting, public sale, or distribution of securities.
As originally enacted, the act contained a provision specifically regulating affiliates that were bank holding companies. Section 19(e) of the act provided that a bank holding company could not vote the shares of a bank subsidiary without a permit from the Board and that a permit would not be granted unless the holding company agreed to divest itself within five years of its controlling interest in any company formed for the purpose of engaging “principally in” the issuance or underwriting of securities. Similarly, sections 2(b) and 20 of the act provided that a member bank could not be under common control with a corporation “engaged principally” in the issuance or underwriting of securities.
In 1966, Congress repealed the bank holding company provision contained in section 19(e). At the same time, Congress enlarged the coverage of section 20 by amending the definition of “affiliate” in section 2(b) of the act to include bank holding companies. As a result of these actions, the voting permit procedure was superceded and bank holding companies became subject to section 20’s qualified prohibition against engaging “principally” in the issuance or underwriting of securities.
On November 12, 1999, the Gramm-Leach-Bliley Act (Pub. L. 106-102, 113 Stat. 1338) was enacted “to enhance competition in the financial services industry by providing a prudential framework for the affiliation of banks, securities firms, insurance companies, and other financial service providers.” Section 101 of that act repealed section 20 effective March 11, 2000.
1-309

Definition of Terms

Banking Act of June 16, 1933 (48 Stat. 162)
SECTION 2
As used in this Act and in any provision of law amended by this Act—
(a) The terms “banks”, “national bank”, “national banking association”, “member bank”, “board”, “district”, and “reserve bank” shall have the meanings assigned to them in section 1 of the Federal Reserve Act, as amended.
(b) Except where otherwise specifically provided, the term “affiliate” shall include any corporation, business trust, association, or other similar organization—
(1) Of which a member bank, directly or indirectly, owns or controls either a majority of the voting shares or more than 50 per centum of the number of shares voted for the election of its directors, trustees, or other persons exercising similar functions at the preceding election, or controls in any manner the election of a majority of its directors, trustees, or other persons exercising similar functions; or
(2) Of which control is held, directly or indirectly, through stock ownership or in any other manner, by the shareholders of a member bank who own or control either a majority of the shares of such bank or more than 50 per centum of the number of shares voted for the election of directors of such bank at the preceding election, or by trustees for the benefit of the shareholders of any such bank; or
(3) Of which a majority of its directors, trustees, or other persons exercising similar functions are directors of any one member bank; or
(4) Which owns or controls, directly or indirectly, either a majority of the shares of capital stock of a member bank or more than 50 per centum of the number of shares voted for the election of directors of a member bank at the preceding election, or controls in any manner the election of a majority of the directors of a member bank, or for the benefit of whose shareholders or members all or substantially all the capital stock of a member bank is held by trustees.
[12 USC 221a. As amended by act of July 1, 1966 (80 Stat. 242).]
1-310

FINANCIAL SUBSIDIARIES OF NATIONAL BANKS

Revised Statutes
SECTION 5136A
(a) Authorization to conduct in subsidiaries certain activities that are financial in nature.
(1) Subject to paragraph (2), a national bank may control a financial subsidiary, or hold an interest in a financial subsidiary.
(2) 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); 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) or providing or issuing annuities the income of which is subject to tax treatment under section 72 of the Internal Revenue Code of 1986;
(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 4(k)(4) of the Bank Holding Company Act of 1956, except activities described in section 4(k)(4)(H) 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.
1-310.1
(3) (A) 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) 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) 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) solely as agent and not directly or indirectly as principal.
(5) Before the end of the 270-day period beginning on the date of the enactment of the Gramm-Leach-Bliley Act, the Comptroller of the Currency shall, by regulation, prescribe procedures to implement this section.
(6) 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) Section 4(l)(2) of the Bank Holding Company Act of 1956 applies to a national bank that controls a financial subsidiary in the manner provided in that section.
1-310.2
(b) Activities that are financial in nature.
(1) (A) 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 4(k)(4) of the Bank Holding Company Act of 1956; 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) (i)(I) 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) 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)(I) 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) 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.
1-310.3
(2) 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 and the Gramm-Leach-Bliley Act;
(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) 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 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.
1-310.4
(c) Capital deduction.
(1) 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) 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).
1-310.5
(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.
1-310.6
(e) Provisions applicable to national banks that fail to continue to meet certain requirements.
(1) If a national bank or insured depository institution affiliate does not continue to meet the requirements of subsection (a)(2)(C) or subsection (d), 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) 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) and subsection (d).
(3) 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) 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) In taking any action under this subsection, the Comptroller shall consult with all relevant Federal and State regulatory agencies and authorities.
1-310.7
(f) Failure to maintain public rating or meet applicable criteria.
(1) A national bank that does not continue to meet any applicable rating or other requirement of subsection (a)(2)(E) 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) 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.
1-310.8
(g) Definitions. For purposes of this section, the following definitions shall apply:
(1) The terms “affiliate”, “company” “control”, and “subsidiary” have the meanings given those terms in section 2 of the Bank Holding Company Act of 1956.
(2) The terms “appropriate Federal banking agency”, “depository institution”, “insured bank”, and “insured depository institution” have the meanings given those terms in section 3 of the Federal Deposit Insurance Act.
(3) 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 or the Bank Service Company Act.
(4) 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) The term “well capitalized” has the meaning given the term in section 38 of the Federal Deposit Insurance Act.
(6) 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.
[12 USC 24a. As added by act of Nov. 12, 1999 (113 Stat. 1373).]

FINANCIAL SUBSIDIARIES OF STATE BANKS

See Federal Deposit Insurance Act section 46 at 1-401.73.
1-311

RECEIPT OF DEPOSITS BY SECURITIES COMPANIES AND OTHER INSTITUTIONS

Banking Act of June 16, 1933 (48 Stat. 189)
SECTION 21
(a) After the expiration of one year after the date of enactment of this Act it shall be unlawful—
(1) For any person, firm, corporation, association, business trust, or other similar organization, engaged in the business of issuing, underwriting, selling, or distributing, at wholesale or retail, or through syndicate participation, stocks, bonds, debentures, notes, or other securities, to engage at the same time to any extent whatever in the business of receiving deposits subject to check or to repayment upon presentation of a passbook, certificate of deposit, or other evidence of debt, or upon request of the depositor: Provided, That the provisions of this paragraph shall not prohibit national banks or State banks or trust companies (whether or not members of the Federal Reserve System) or other financial institutions or private bankers from dealing in, underwriting, purchasing, and selling investment securities, or issuing securities, to the extent permitted to national banking associations by the provisions of section 5136 of the Revised Statutes, as amended (12 USC 24; Supp. VII, title 12, sec. 24): Provided further, That nothing in this paragraph shall be construed as affecting in any way such right as any bank, banking association, savings bank, trust company, or other banking institution, may otherwise possess to sell, without recourse or agreement to repurchase, obligations evidencing loans on real estate; or
(2) For any person, firm, corporation, association, business trust, or other similar organization to engage, to any extent whatever with others than his or its officers, agents or employees, in the business of receiving deposits subject to check or to repayment upon presentation of a passbook, certificate of deposit, or other evidence of debt, or upon request of the depositor, unless such person, firm, corporation, association, business trust, or other similar organization (A) shall be incorporated under, and authorized to engage in such business by, the laws of the United States, or of any State, Territory, or District, and subjected, by the laws of the United States, or of the State, Territory, or District wherein located, to examination and regulation, or (B) shall be permitted by the United States, any State, Territory, or District to engage in such business and shall be subjected by the laws of the United States, or such State, Territory, or District to examination and regulations or, (C) shall submit to periodic examination by the banking authority of the State, Territory, or District where such business is carried on and shall make and publish periodic reports of its condition, exhibiting in detail its resources and liabilities, such examination and reports to be made and published at the same times and in the same manner and under the same conditions as required by the law of such State, Territory, or District in the case of incorporated banking institutions engaged in such businesses in the same locality.
[12 USC 378(a). As amended by acts of Aug. 23, 1935 (49 Stat. 707); Sept. 8, 1959 (73 Stat. 466); Aug. 1, 1968 (82 Stat. 543), and Sept. 17, 1978 (92 Stat. 624). The date of enactment of this act, referred to in the first sentence of this subsection, was June 16, 1933.]
1-312
(b) Whoever shall willfully violate any of the provisions of this section shall upon conviction be fined not more than $5,000 or imprisoned not more than five years, or both, and any officer, director, employee, or agent of any person, firm, corporation, association, business trust, or other similar organization who knowingly participates in any such violation shall be punished by a like fine or imprisonment or both.
[12 USC 378(b).]
1-313

DEPOSITARIES OF PUBLIC MONEYS

Insured Banks as Depositaries Act of June 11, 1942 (56 Stat. 356)
SECTION 10
All insured banks designated for that purpose by the Secretary of the Treasury shall be depositaries of public money of the United States (including, without being limited to, revenues and funds of the United States, and any funds the deposit of which is subject to the control or regulation of the United States or any of its officers, agents, or employees, and Postal Savings funds), and the Secretary is hereby authorized to deposit public money in such depositaries, under such regulations as may be prescribed by the Secretary; and they may also be employed as financial agents of the Government; and they shall perform all such reasonable duties, as depositaries of public money and financial agents of the Government as may be required of them. The Secretary of the Treasury shall require of the insured banks thus designated satisfactory security by the deposit of United States bonds or otherwise, for the safekeeping and prompt payment of public money deposited with them and for the faithful performance of their duties as financial agents of the Government: Provided, That no such security shall be required for the safekeeping and prompt payment of such parts of the deposits of the public money in such banks as are insured deposits and each officer, employee, or agent of the United States having official custody of public funds and lawfully depositing the same in an insured bank shall, for the purpose of determining the amount of the insured deposits, be deemed a depositor in such custodial capacity separate and distinct from any other officer, employee, or agent of the United States having official custody of public funds and lawfully depositing the same in the same insured bank in custodial capacity. Notwithstanding any other provision of law, no department, board, agency, instrumentality, officer, employee, or agent of the United States shall issue or permit to continue in effect any regulations, rulings, or instructions or enter into or approve any contracts or perform any other acts having to do with the deposit, disbursement, or expenditure of public funds, or the deposit, custody, or advance of funds subject to the control of the United States as trustee or otherwise which shall discriminate against or prefer national banking associations, State bank members of the Federal Reserve System, or insured banks not members of the Federal Reserve System, by class, or which shall require those enjoying the benefits, directly or indirectly, of disbursed public funds so to discriminate. All Acts or parts thereof in conflict herewith are hereby repealed. The terms “insured bank” and “insured deposit” as used in this Act shall be construed according to the definitions of such terms in section 3 of the Federal Deposit Insurance Act, as amended (12 U. S. C., sec. 1813).
[12 USC 265. As amended by act of Sept. 3, 1954 (68 Stat. 1235).]
1-314

Depositaries of Proceeds of Sale of Government Obligations

U.S. Code, Title 31, Money and Finance
SECTION 3122
(a) The Secretary of the Treasury may designate incorporated banks and trust companies as depositaries for any part of proceeds of an obligation issued under this chapter. The Secretary may prescribe the conditions under which deposits may be made under this section, including the interest rate on amounts deposited and security requirements.
(b) The Secretary may designate a bank or trust company that is a depositary under subsection (a) of this section as a fiscal agent of the United States Government in selling and delivering bonds and certificates of indebtedness issued by the Government.
[31 USC 3122. Previously 31 USC 771 (Second Liberty Bond Act § 8 (40 Stat. 291)) and 772 (act of July 9, 1918 § 4 (40 Stat. 845)). Restated and recodified by act of Sept. 13, 1982 (96 Stat. 945).]
1-315

National Banks as Depositaries

Revised Statutes
SECTION 5153
All national banking associations, designated for that purpose by the Secretary of the Treasury, shall be depositaries of public money, under such regulations as may be prescribed by the Secretary; and they may also be employed as financial agents of the Government; and they shall perform all such reasonable duties, as depositaries of public money and financial agents of the Government, as may be required of them. The Secretary of the Treasury shall require the associations thus designated to give satisfactory security, by the deposit of United States bonds and otherwise, for the safekeeping and prompt payment of the public money deposited with them, and for the faithful performance of their duties as financial agents of the Government: Provided, That the Secretary shall, on or before the first of January of each year, make a public statement of the securities required during that year for such deposits. And every association so designated as receiver or depositary of the public money shall take and receive at par all of the national currency bills, by whatever association issued, which have been paid into the Government for internal revenue, or for loans or stocks: Provided, That the Secretary of the Treasury shall distribute the deposits herein provided for, as far as practicable, equitably between the different States and sections.
[12 USC 90. As amended by acts of March 3, 1901 (31 Stat. 1448); March 4, 1907 (34 Stat. 1290); Dec. 23, 1913 (38 Stat. 274); Aug. 4, 1914 (38 Stat. 682).]
1-316
Any national banking association may, upon the deposit with it of any funds by any State or political subdivision thereof or any agency or other governmental instrumentality of one or more States or political subdivisions thereof, including any officer, employee, or agent thereof in his official capacity, give security for the safekeeping and prompt payment of the funds so deposited to the same extent and of the same kind as is authorized by the law of the State in which such association is located in the case of other banking institutions in the State.
Any national banking association may, upon the deposit with it of any funds by any federally recognized Indian tribe, or any officer, employee, or agent thereof in his or her official capacity, give security for the safekeeping and prompt payment of the funds so deposited by the deposit of United States bonds and otherwise as may be prescribed by the Secretary of the Treasury for public funds under the first paragraph of this section.
[12 USC 90. As added by act of June 25, 1930 (46 Stat. 809); and amended by acts of Aug. 18, 1950 (64 Stat. 463) and Dec. 21, 1979 (93 Stat. 1120).]
1-320

Money of Estates

Bankruptcy Reform Act of November 6, 1978 (92 Stat. 2565)
(a) A trustee in a case under this title may make such deposit or investment of the money of the estate for which such trustee serves as will yield the maximum reasonable net return on such money, taking into account the safety of such deposit or investment.
(b) Except with respect to a deposit or investment that is insured or guaranteed by the United States or by a department, agency, or instrumentality of the United States or backed by the full faith and credit of the United States, the trustee shall require from an entity with which such money is deposited or invested—
(1) a bond—
(A) in favor of the United States;
(B) secured by the undertaking of a corporate surety approved by the United States trustee for the district in which the case is pending; and
(C) conditioned on—
(i) a proper accounting for all money so deposited or invested and for any return on such money;
(ii) prompt repayment of such money and return; and
(iii) faithful performance of duties as a depository; or
(2) the deposit of securities of the kind specified in section 9303 of title 31; unless the court for cause orders otherwise.
(c) An entity with which such moneys are deposited or invested is authorized to deposit or invest such moneys as may be required under this section.
[11 USC 345. As amended by acts of Sept. 13, 1982 (96 Stat. 1064); July 10, 1984 (98 Stat. 370); Oct. 27, 1986 (100 Stat. 3099); and Oct. 22, 1994 (108 Stat. 4125).]
1-321

Deposits of Indian Funds

Act of June 24, 1938 (52 Stat. 1037)
SECTION 1
(a) The Secretary of the Interior is authorized in his discretion, and under such rules and regulations as he may prescribe, to withdraw from the United States Treasury and to deposit in banks to be selected by him the common or community funds of any Indian tribe which are, or may hereafter be, held in trust by the United States and on which the United States is not obligated by law to pay interest at higher rates than can be procured from the banks. The said Secretary is also authorized, under such rules and regulations as he may prescribe to withdraw from the United States Treasury and to deposit in banks to be selected by him the funds held in trust by the United States for the benefit of individual Indians: Provided, That no individual Indian money shall be deposited in any bank until the bank shall have agreed to pay interest thereon at a reasonable rate, subject, however, to the regulations of the Board of Governors of the Federal Reserve System in the case of member banks, and of the Board of Directors of the Federal Deposit Insurance Corporation in the case of insured nonmember banks, except that the payment of interest may be waived in the discretion of the Secretary of the Interior on any deposit which is payable on demand. Provided further, That no tribal or individual Indian money shall be deposited in any bank until the bank shall have furnished an acceptable bond or pledged collateral security therefor in the form of any public-debt obligations of the United States and any bonds, notes, or other obligations which are unconditionally guaranteed as to both interest and principal by the United States, except that no such bond or collateral shall be required to be furnished by any such bank which is entitled to the benefits of section 12B of the Federal Reserve Act, with respect to any deposits of such tribal or individual funds to the extent that such deposits are insured under such section: Provided, however, That nothing contained in this Act, or in section 12B of the Federal Reserve Act, shall operate to deprive any Indian having unrestricted funds on deposit in any such bank of the full protection afforded by section 12B of said Federal Reserve Act, irrespective of any interest such Indian may have in any restricted Indian funds on deposit in the same bank to the credit of a disbursing agent of the United States.
*     *     *     *     *
[25 USC 162a(a). As amended by act of Oct. 25, 1994 (108 Stat. 4241). Provisions of former section 12B of Federal Reserve Act were withdrawn and enacted in Federal Deposit Insurance Act of Sept. 21, 1950 (12 USC 1812, et seq.).]
SECTION 3
Nothing contained in this Act shall be construed as affecting the provisions of the Federal Reserve Act or regulations issued thereunder relating to the payment of interest on deposits.
[25 USC 162a(a) note.]
1-322

COOPERATION OF AGENCIES IN MAKING INFORMATION AVAILABLE

U.S. Code, Title 44, Public Printing and Documents
SECTION 3510
(a) The Director may direct an agency to make available to another agency, or an agency may make available to another agency, information obtained by a collection of information if the disclosure is not inconsistent with applicable law.
(b) (1) If information obtained by an agency is released by that agency to another agency, all the provisions of law (including penalties) that relate to the unlawful disclosure of information apply to the officers and employees of the agency to which information is released to the same extent and in the same manner as the provisions apply to the officers and employees of the agency which originally obtained the information.
(2) The officers and employees of the agency to which the information is released, in addition, shall be subject to the same provisions of law, including penalties, relating to the unlawful disclosure of information as if the information had been collected directly by that agency.
[44 USC 3510. As added by act of Dec. 11, 1980 (94 Stat. 2822) and amended by act of May 22, 1995 (109 Stat. 180).]
1-323

EMERGENCY RESTRICTIONS ON BUSINESS

Emergency Banking Act of March 9, 1933 (48 Stat. 2)
SECTION 4
(a) In order to provide for the safer and more effective operation of the National Banking System and the Federal Reserve System, to preserve for the people the full benefits of the currency provided for by the Congress through the National Banking System and the Federal Reserve System, and to relieve interstate commerce of the burdens and obstructions resulting from the receipt on an unsound or unsafe basis of deposits subject to withdrawal by check, during such emergency period as the President of the United States by proclamation may prescribe, no member bank of the Federal Reserve System shall transact any banking business except to such extent and subject to such regulations, limitations and restrictions as may be prescribed by the Secretary of the Treasury, with the approval of the President. Any individual, partnership, corporation, or association, or any director, officer or employee thereof, violating any of the provisions of this section shall be deemed guilty of a misdemeanor and, upon conviction thereof, shall be fined not more than $10,000 or, if a natural person, may, in addition to such fine, be imprisoned for a term not exceeding ten years. Each day that any such violation continues shall be deemed a separate offense.
(b) (1) In the event of natural calamity, riot, insurrection, war, or other emergency conditions occurring in any State whether caused by acts of nature or of man, the Comptroller of the Currency may designate by proclamation any day a legal holiday for the national banking associations located in that State. In the event that the emergency conditions affect only part of a State, the Comptroller of the Currency may designate the part so affected and may proclaim a legal holiday for the national banking associations located in that affected part. In the event that a State or a State official authorized by law designates any day as a legal holiday for either emergency or ceremonial reasons for all banks chartered by that State to do business within that State, that same day shall be a legal holiday for all national banking associations chartered to do business within that State unless the Comptroller of the Currency shall by written order permit all national banking associations located in that State to remain open.
(2) For the purpose of this subsection, the term “State” means any of the several States, the District of Columbia, the Commonwealth of Puerto Rico, the Northern Mariana Islands, Guam, the Virgin Islands, American Samoa, the Trust Territory of the Pacific Islands, or any other territory or possession of the United States.
[12 USC 95: member banks of Federal Reserve System exempted from above provisions except as to paying out gold coin, gold bullion or gold certificates, etc., by Presidential Proclamation effective March 15, 1947 (No. 2725, 61 Stat. 1073); (12 USC 95, footnote). As amended by act of March 31, 1980 (94 Stat. 187).]
1-324

BANK SERVICE COMPANIES

Bank Service Corporation Act of October 23, 1962 (76 Stat. 1132); Redesignated as Bank Service Company Act (110 Stat. 3009-476)
SECTION 1
(a) Short title. This Act may be cited as the “Bank Service Company Act”.
(b) For the purpose of this Act—
(1) the term “appropriate Federal banking agency” shall have the meaning provided in section 3(q) of the Federal Deposit Insurance Act (12 U.S.C. 1813(q));
(2) the term “bank service company” means—
(A) any corporation—
(i) which is organized to perform services authorized by this Act; and
(ii) all of the capital stock of which is owned by 1 or more insured depository institutions; and
(B) any limited liability company—
(i) which is organized to perform services authorized by this Act; and
(ii) all of the members of which are 1 or more insured depository institutions.
(3) the term “Board” means the Board of Governors of the Federal Reserve System;
(4) the term “depository institution” means, except when such term appears in connection with the term “insured depository institution,” an insured bank, a savings association, a financial institution subject to examination by the appropriate Federal banking agency or the National Credit Union Administration Board, or a financial institution the accounts or deposits of which are insured or guaranteed under State law and are eligible to be insured by the Federal Deposit Insurance Corportion, the Federal Savings and Loan Insurance Corporation, or the National Credit Union Administration Board;
(5) the term “insured depository institution” has the same meaning as in section 3(c) of the Federal Deposit Insurance Act.
(6) the term “invest” includes any advance of funds to a bank service company, whether by the purchase of stock, the making of a loan, or otherwise, except a payment for rent earned, goods sold and delivered, or services rendered prior to the making of such payment;
(7) the term “limited liability company” means any company, partnership, trust, or similar business entity organized under the law of a State (as defined in section 3 of the Federal Deposit Insurance Act) which provides that a member or manager of such company is not personally liable for a debt, obligation, or liability of the company solely by reason of being, or acting as, a member or manager of such company;
(8) the term “principal investor” means the insured depository institution that has the largest dollar amount invested in the equity of a bank service company. In any case where two or more insured depository institutions have equal dollar amounts invested in a bank service company, the company shall, prior to commencing operations, select one of the insured depository institutions as its principal investor and shall notify the depository institution’s appropriate Federal banking agency of that choice within 5 business days of its selection; and
(9) the terms “State depository institution”, “Federal depository institution”, “State savings association” and “Federal savings association” have the same meanings as in section 3 of the Federal Deposit Insurance Act.
[12 USC 1861. As amended by acts of Oct. 15, 1982 (96 Stat. 1541); Jan. 12, 1983 (96 Stat. 2511); Sept. 30, 1996 (110 Stat. 3009-476); Oct. 13, 2006 (120 Stat. 1979); and July 21, 2010 (124 Stat. 1547).]
1-325

Amount of Investment in Bank Service Company

SECTION 2
Notwithstanding any limitation or prohibition otherwise imposed by any provision of law exclusively relating to banks or savings associations, other than the limitation on the amount of investment by a Federal savings association contained in section 5(c)(4)(B) of the Home Owners’ Loan Act, an insured depository institution may invest not more than 10 per centum of paid-in and unimpaired capital and unimpaired surplus in a bank service company. No insured depository institution shall invest more than 5 per centum of its total assets in bank service companies.
[12 USC 1862. As amended by acts of Oct. 15, 1982 (96 Stat. 1541); Sept. 30, 1996 (110 Stat. 3009-477); and Oct. 13, 2006 (120 Stat. 1978, 1979).]
1-326

Permissible Bank Service Company Activities for Depository Institutions

SECTION 3
Without regard to the provisions of sections 4 and 5 of this Act, an insured depository institution may invest in a bank service company that performs, and a bank service company may perform, the following services only for depository institutions: check and deposit sorting and posting, computation and posting of interest and other credits and charges, preparation and mailing of checks, statements, notices, and similar items, or any other clerical, bookkeeping, accounting, statistical, or similar functions performed for a depository institution.
[12 USC 1863. As amended by acts of Oct. 15, 1982 (96 Stat. 1541); Sept. 30, 1996 (110 Stat. 3009-477); and Oct. 13, 2006 (120 Stat. 1978).]
1-327

Permissible Bank Service Company Activities for Other Persons

SECTION 4
(a) A bank service company may provide to any person any service authorized by this section, except that a bank service company shall not take deposits.
(b) Except as permissible under subsection (c), (d), or (e) with the prior approval of the Board under section 5(b) of this Act in accordance with subsection (f) of this section—
(1) a bank service company shall not perform the services authorized by this section in any State other than that State in which its shareholders or members are located; and
(2) all insured bank shareholders or members of a bank service company shall be located in the same State.
(c) A bank service company in which a State bank or State savings association is a shareholder or member shall perform only those services that such State bank or State savings association shareholder or member is authorized to perform under the law of the State in which such State bank or State savings association operates and shall perform such services only at locations in the State in which such State bank or State savings association shareholder or member could be authorized to perform such services.
(d) A bank service company in which a national bank or Federal savings association is a shareholder or member shall perform only those services that such national bank or Federal savings association shareholder or member is authorized to perform under the law of the United States and shall perform such services only at locations in the State at which such national bank or Federal savings association shareholder or member could be authorized to perform such services.
(e) A bank service company may perform—
(1) only those services that each depository institution shareholder or member is otherwise authorized to perform under any applicable Federal or State law; and
(2) such services only at locations in a State in which each such shareholder or member is authorized to perform such services.
(f) Notwithstanding the other provisions of this section or any other provision of law, other than the provisions of Federal and State branching law regulating the geographic location of banks or savings associations to the extent that those laws are applicable to an activity authorized by this subsection, a bank service company may perform at any geographic location any service, other than deposit taking, that the Board has determined, by regulation, to be permissible for a bank holding company under section 4(c)(8) of the Bank Holding Company Act as of the day before the date of the enactment of the Gramm-Leach-Bliley Act.
[12 USC 1864. As amended by acts of Oct. 15, 1982 (96 Stat. 1542); Jan. 12, 1983 (96 Stat. 2511); Sept. 30, 1996 (110 Stat. 3009-477); Nov. 12, 1999 (113 Stat. 1342); and Oct. 13, 2006 (120 Stat. 1979).]
1-327.1

Prior Approval for Investments in Bank Service Companies

SECTION 5
(a) No insured depository institution shall invest in the capital stock of a bank service company that performs any service under authority of subsection (c), (d), or (e) of section 4 of this Act without prior notice, as determined by the appropriate Federal banking agency for the insured depository institution.
(b) No insured depository institution shall invest in the capital stock of a bank service company that performs any service authorized only under authority of section 4(f) of this Act and no bank service company shall perform any activity authorized only under section 4(f) of this Act without the prior approval of the Board.
(c) In determining whether to approve or deny any application for prior approval or whether to approve or disapprove any notice under this section, the Board or the appropriate Federal banking agency, as the case may be, is authorized to consider the financial and managerial resources and future prospects of any insured depository institution and bank service company involved, including the financial capability of the insured depository institution to make a proposed investment under this Act, and possible adverse effects such as undue concentration of resources, unfair or decreased competition, conflicts of interest, or unsafe or unsound banking practices.
(d) In the event the Board or the appropriate Federal banking agency, as the case may be, fails to act on any application under this section within 90 days of the submission of a complete application to the agency, the application shall be deemed approved.
[12 USC 1865. As amended by acts of Nov. 10, 1978 (92 Stat. 3677); Oct. 15, 1982 (96 Stat. 1865); Sept. 23, 1994 (108 Stat. 2227); Sept. 30, 1996 (110 Stat. 3009-478); and Oct. 13, 2006 (120 Stat. 1980).]
1-327.2

Services to Nonstockholders or Nonmembers

SECTION 6
No bank service company shall unreasonably discriminate in the provision of any services authorized under this Act to any depository institution that does not own stock in or is not a member of the service company on the basis of the fact that such depository institution is in competition with an institution that owns stock in or is a member of the bank service company, except that—
(1) it shall not be considered unreasonable discrimination for a bank service company to provide services to a nonstockholding or nonmember institution only at a price that fully reflects all of the costs of offering those services, including the cost of capital and a reasonable return thereon; and
(2) a bank service company may refuse to provide services to a nonstockholding or nonmember institution if comparable services are available from another source at competitive overall costs, or if the providing of services would be beyond the practical capacity of the service company.
[12 USC 1866. As added by act of Oct. 15, 1982 (96 Stat. 1543) and amended by act of Sept. 30, 1996 (110 Stat. 3009-478).]
1-327.3

Regulation and Examination of Bank Service Companies

SECTION 7
(a) A bank service company shall be subject to examination and regulation by the appropriate Federal banking agency of its principal investor to the same extent as its principal investor. The appropriate Federal banking agency of the principal shareholder or principal member of such a bank service company may authorize any other Federal banking agency that supervises any other shareholder or member of the bank service company to make such an examination.
(b) A bank service company shall be subject to the provisions of section 8 of the Federal Deposit Insurance Act (12 U.S.C. 1818) as if the bank service company were an insured depository institution. For this purpose, the appropriate Federal banking agency shall be the appropriate Federal banking agency of the principal investor of the bank service company.
(c) Notwithstanding subsection (a) of this section, whenever a depository institution that is regularly examined by an appropriate Federal banking agency, or any subsidiary or affiliate of such a depository institution that is subject to examination by that agency, causes to be performed for itself, by contract or otherwise, any services authorized under this Act, whether on or off its premises—
(1) such performance shall be subject to regulation and examination by such agency to the same extent as if such services were being performed by the depository institution itself on its own premises, and
(2) the depository institution shall notify such agency of the existence of the service relationship within 30 days after the making of such service contract or the performance of the service, whichever occurs first.
(d) The Board and the appropriate Federal banking agencies are authorized to issue such regulations and orders as may be necessary to enable them to administer and to carry out the purposes of this Act and to prevent evasions thereof.
[12 USC 1867. As added by act of Oct. 15, 1982 (96 Stat. 1543) and amended by acts of Oct. 15, 1982 (96 Stat. 2511); Sept. 30, 1996 (110 Stat. 3009-478); and Oct. 13, 2006 (120 Stat. 1980).]
1-330.1

Staff Opinion—Investment by Insured Bank in Out-of-State Mortgage Company

A mutual savings bank that qualifies as an insured bank under the Bank Service Corporation Act inquired whether the recent amendments to the Bank Service Corporation Act contained in section 709 of the Garn-St Germain Depository Institutions Act of 1982 would limit its authority to invest in the capital stock of an out-of-state mortgage company. The state in which the bank is located authorizes such acquisitions by mutual savings banks. The Bank Service Corporation Act was intended to authorize insured banks to make investments in bank service corporations to perform services and activities that the bank could perform or that could be performed by a bank holding company. The Bank Service Corporation Act was not intended in any respect to limit any other authority an insured bank might have under state or federal law to purchase capital stock of or invest in another corporation.
If the bank had sought to acquire the mortgage company under authority of section 4(f) of the Bank Service Corporation Act, section 5(b) of the act would require that it seek Federal Reserve Board approval, because the proposed acquisition would involve activities outside the bank’s home state. The bank was informed that prior approval by the Federal Reserve Board was not required, because the proposed acquisition is authorized under state law. STAFF OP. of Oct. 25, 1982.
Authority: Bank Service Corporation Act §§ 4(f) and 5(b), 12 USC 1864 and 1865.

Board Interpretation—Applicability of Bank Service Corporation Act to Bank Holding Company Situations

See 4-174.1.
1-331

FLOOD DISASTER PROTECTION

Flood Disaster Protection Act of December 31, 1973 (87 Stat. 975)
SECTION 3
(a) As used in this Act, unless the context otherwise requires, the term— * * *
(5) “Federal entity for lending regulation” means the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Comptroller of the Currency, the National Credit Union Administration, and the Farm Credit Administration, and with respect to a particular regulated lending institution means the entity primarily responsible for the supervision of the institution; * * * 
(8) the term “improved real estate” means real estate upon which a building is located;
(9) “lender” means a regulated lending institution or Federal agency lender;
(10) “regulated lending institution” means any bank, savings and loan association, credit union, farm credit bank, Federal land bank association, production credit association, or similar institution subject to the supervision of a Federal entity for lending regulation; and
(11) “servicer” means the person responsible for receiving any scheduled periodic payments from a borrower pursuant to the terms of a loan, including amounts for taxes, insurance premiums, and other charges with respect to the property securing the loan, and making the payments of principal and interest and such other payments with respect to the amounts received from the borrower as may be required pursuant to the terms of the loan.
[42 USC 4003(a). As amended by acts of Sept. 23, 1994 (108 Stat. 2255); July 21, 2010 (124 Stat. 1557); and July 6, 2012 (126 Stat. 958).]
1-332
SECTION 102 * * *
(b) Requirement for mortgage loans.
(1) Each Federal entity for lending regulation (after consultation and coordination with the Financial Institutions Examination Council established under the Federal Financial Institutions Examination Council Act of 1978) shall by regulation direct regulated lending institutions—
(A) not to make, increase, extend, or renew any loan secured by improved real estate or a mobile home located or to be located in an area that has been identified by the Administrator as an area having special flood hazards and in which flood insurance has been made available under the National Flood Insurance Act of 1968, unless the building or mobile home and any personal property securing such loan is covered for the term of the loan by flood insurance in an amount at least equal to the outstanding principal balance of the loan or the maximum limit of coverage made available under the Act with respect to the particular type of property, whichever is less; and * * *
(B) to accept private flood insurance as satisfaction of the flood insurance coverage requirement under subparagraph (A) if the coverage provided by such private flood insurance meets the requirements for coverage under such subparagraph.
1-332.1
(d) Escrow of flood insurance payments.
(1) Each Federal entity for lending regulation (after consultation and coordination with the Financial Institutions Examination Council) shall by regulation require that, if a regulated lending institution requires the escrowing of taxes, insurance premiums, fees, or any other charges for a loan secured by residential improved real estate or a mobile home, then all premiums and fees for flood insurance under the National Flood Insurance Act of 1968 for the real estate or mobile home shall be paid to the regulated lending institution or other servicer for the loan in a manner sufficient to make payments as due for the duration of the loan. Upon receipt of the premiums, the regulated lending institution or servicer of the loan shall deposit the premiums in an escrow account on behalf of the borrower. Upon receipt of a notice from the Administrator or the provider of the insurance that insurance premiums are due, the regulated lending institution or servicer shall pay from the escrow account to the provider of the insurance the amount of insurance premiums owed. * * *
(3) Escrow accounts established pursuant to this subsection shall be subject to the provisions of section 10 of the Real Estate Settlement Procedures Act of 1974.
(4) For purposes of this subsection, the term “residential improved real estate” means improved real estate for which the improvement is a residential building.
(5) This subsection shall apply only with respect to any loan made, increased, extended, or renewed after the expiration of the 1-year period beginning on the date of enactment of the Riegle Community Development and Regulatory Improvement Act of 1994.
1-332.2
(e) Placement of flood insurance by lender.
(1) If, at the time of origination or at any time during the term of a loan secured by improved real estate or by a mobile home located in an area that has been identified by the Administrator (at the time of the origination of the loan or at any time during the term of the loan) as an area having special flood hazards and in which flood insurance is available under the National Flood Insurance Act of 1968, the lender or servicer for the loan determines that the building or mobile home and any personal property securing the loan is not covered by flood insurance or is covered by such insurance in an amount less than the amount required for the property pursuant to paragraph (1), (2), or (3) of subsection (b), the lender or servicer shall notify the borrower under the loan that the borrower should obtain, at the borrower’s expense, an amount of flood insurance for the building or mobile home and such personal property that is not less than the amount under subsection (b)(1), for the term of the loan.
(2) If the borrower fails to purchase such flood insurance within 45 days after notification under paragraph (1), the lender or servicer for the loan shall purchase the insurance on behalf of the borrower and may charge the borrower for the cost of premiums and fees incurred by the lender or servicer for the loan in purchasing the insurance, including premiums or fees incurred for coverage beginning on the date on which flood insurance coverage lapsed or did not provide a sufficient coverage amount. * * *
[42 USC 4012a. As amended by acts of Aug. 1, 1968 (82 Stat. 574); Sept. 23, 1994 (108 Stat. 2257, 2258, 2259, 2260, 2262); and July 6, 2012 (126 Stat. 958, 966).]
1-333
SECTION 202 * * *
(b) In addition to the requirements of section 1364 of the National Flood Insurance Act of 1968, each Federal entity for lending regulation shall by regulation require the regulated lending institutions described in such section, and each Federal agency lender shall issue regulations requiring the Federal agency lender, described in such section to notify (as a condition of making, increasing, extending, or renewing any loan secured by property described in such section) the purchaser or lessee of such property of whether, in the event of a disaster caused by flood to such property, Federal disaster relief assistance will be available to such property.
[42 USC 4106(b). Act of Dec. 31, 1973 (87 Stat. 982). As amended by acts of July 2, 1975 (89 Stat. 256); Aug. 3, 1976 (90 Stat. 1075); Oct. 12, 1977 (91 Stat. 1144); and Sept. 23, 1994 (108 Stat. 2256).]
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National Flood Insurance Act of August 1, 1968 (82 Stat. 476)
SECTION 1364
(a) Notification of special flood hazards.
(1) Each Federal entity for lending regulation (after consultation and coordination with the Financial Institutions Examination Council) shall by regulation require regulated lending institutions, as a condition of making, increasing, extending, or renewing any loan secured by improved real estate or a mobile home that the regulated lending institution determines is located or is to be located in an area that has been identified by the Administrator under this title or the Flood Disaster Protection Act of 1973 as an area having special flood hazards, to notify the purchaser or lessee (or obtain satisfactory assurances that the seller or lessor has notified the purchaser or lessee) and the servicer of the loan of such special flood hazards, in writing, a reasonable period in advance of the signing of the purchase agreement, lease, or other documents involved in the transaction. The regulations shall also require that the regulated lending institution retain a record of the receipt of the notices by the purchaser or lessee and the servicer. * * *
1-334.01
(3) Written notification required under this subsection shall include—
(A) a warning, in a form to be established by the Administrator, stating that the building on the improved real estate securing the loan is located, or the mobile home securing the loan is or is to be located, in an area having special flood hazards;
(B) a description of the flood insurance purchase requirements under section 102(b) of the Flood Disaster Protection Act of 1973;
(C) a statement that flood insurance coverage may be purchased under the national flood insurance program and is also available from private insurers, as required under section 102(b)(6) of the Flood Disaster Protection Act of 1973 (42 U.S.C. 4012a(b)(6)); and
(D) any other information that the Administrator considers necessary to carry out the purposes of the national flood insurance program.
1-334.02
(b) Notification of change of servicer.
(1) Each Federal entity for lending regulation (after consultation and coordination with the Financial Institutions Examination Council) shall by regulation require regulated lending institutions, in connection with the making, increasing, extending, renewing, selling, or transferring any loan described in subsection (a)(1), to notify the Administrator (or the designee of the Administrator) in writing during the term of the loan of the servicer of the loan. Such institutions shall also notify the Administrator (or such designee) of any change in the servicer of the loan, not later than 60 days after the effective date of such change. The regulations under this subsection shall provide that upon any change in the servicing of a loan, the duty to provide notification under this subsection shall transfer to the transferee servicer of the loan. * * *
[42 USC 4104a. As amended by acts of Aug. 22, 1974 (88 Stat. 739); Sept. 23, 1994 (108 Stat. 2263); and July 6, 2012 (126 Stat. 958, 960).]
1-334.1

FOREIGN BOYCOTTS

Export Administration Act of 1979 (93 Stat. 503)
SECTION 8
(a) (1) For the purpose of implementing the policies set forth in subparagraph (A) or (B) of paragraph (5) of section 3 of this Act, the President shall issue regulations prohibiting any United States person, with respect to his activities in the interstate or foreign commerce of the United States, from taking or knowingly agreeing to take any of the following actions with intent to comply with, further, or support any boycott fostered or imposed by a foreign country against a country which is friendly to the United States and which is not itself the object of any form of boycott pursuant to United States law or regulation:
(A) Refusing, or requiring any other person to refuse, to do business with or in the boycotted country, with any business concern organized under the laws of the boycotted country, with any national or resident of the boycotted country, or with any other person, pursuant to an agreement with, a requirement of, or a request from or on behalf of the boycotting country. The mere absence of a business relationship with or in the boycotted country with any business concern organized under the laws of the boycotted country, with any national or resident of the boycotted country, or with any other person, does not indicate the existence of the intent required to establish a violation of regulations issued to carry out this subparagraph.
(B) Refusing, or requiring any other person to refuse, to employ or otherwise discriminating against any United States person on the basis of race, religion, sex, or national origin of that person or of any owner, officer, director, or employee of such person.
(C) Furnishing information with respect to the race, religion, sex, or national origin of any United States person or of any owner, officer, director, or employee of such person.
(D) Furnishing information about whether any person has, has had, or proposes to have any business relationship (including a relationship by way of sale, purchase, legal or commercial representation, shipping or other transport, insurance, investment, or supply) with or in the boycotted country, with any business concern organized under the laws of the boycotted country, with any national or resident of the boycotted country, or with any other person which is known or believed to be restricted from having any business relationship with or in the boycotting country. Nothing in this paragraph shall prohibit the furnishing of normal business information in a commercial context as defined by the Secretary.
(E) Furnishing information about whether any person is a member of, has made contributions to, or is otherwise associated with or involved in the activities of any charitable or fraternal organization which supports the boycotted country.
(F) Paying, honoring, confirming, or otherwise implementing a letter of credit which contains any condition or requirement compliance with which is prohibited by regulations issued pursuant to this paragraph, and no United States person shall, as a result of the application of this paragraph, be obligated to pay or otherwise honor or implement such letter of credit. * * * 
[50 USC App. 2407(a)(1).]
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