81 FR 96353 - Industrial and Commercial Metals
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency Federal Register Volume 81, Issue 251 (December 30, 2016)
Office of the Comptroller of the Currency
Federal Register Volume 81, Issue 251 (December 30, 2016)
| Page Range | 96353-96361 | |
| FR Document | 2016-31572 |
[Federal Register Volume 81, Number 251 (Friday, December 30, 2016)] [Rules and Regulations] [Pages 96353-96361] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-31572] ======================================================================= ----------------------------------------------------------------------- DEPARTMENT OF THE TREASURY Office of the Comptroller of the Currency 12 CFR Part 7 [Docket ID OCC-2016-0022] RIN 1557-AD93 Industrial and Commercial Metals AGENCY: Office of the Comptroller of the Currency (OCC), Treasury. ACTION: Final rule. ----------------------------------------------------------------------- SUMMARY: The OCC is finalizing a rule to prohibit national banks and federal savings associations from dealing or investing in industrial or commercial metals. DATES: This final rule is effective April 1, 2017. FOR FURTHER INFORMATION CONTACT: Casey Scott Laxton, Counsel, or Margo Dey, Counsel, Securities and Corporate Practices Division, (202) 649- 5510; Carl Kaminski, Special Counsel, Legislative and Regulatory Activities Division, (202) 649-5490; or, for persons who are deaf or hard of hearing, TTY, (202) 649-5597, 400 7th Street SW., Washington, DC 22019. SUPPLEMENTARY INFORMATION: I. Background In September 2016, the OCC issued a Notice of Proposed Rulemaking (NPRM) to prohibit national banks from dealing or investing in industrial or commercial metals.\1\ The OCC proposed to: (i) Exclude industrial and commercial metals from the terms ``exchange,'' ``coin,'' and ``bullion'' in the ``powers clause'' of the National Bank Act at 12 U.S.C. 24(Seventh); and (ii) provide that dealing or investing in industrial or commercial metal is not part of, or incidental to, the business of banking. The proposed prohibitions were generally consistent with recommendations made by the U.S. Senate Permanent Subcommittee on Investigations in 2014,\2\ as well as recommendations described in a September 2016 report to the U.S. Congress and the Financial Stability Oversight Council (FSOC) prepared by the OCC, the Board of Governors of the Federal Reserve System (``Board''), and the Federal Deposit Insurance Corporation pursuant to section 620 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (``Dodd-Frank Act'').\3\ --------------------------------------------------------------------------- \1\ 81 FR 63428 (Sept. 15, 2016). \2\ ``Wall Street Bank Involvement with Physical Commodities,'' U.S. Senate Permanent Subcommittee on Investigations, available at: http://www.hsgac.senate.gov/download/report-wall-street-involvement-with-physical-commodities (``PSI Report''). \3\ ``Report to Congress and the Financial Stability Oversight Council Pursuant to Section 620 of the Dodd-Frank Act,'' at 86-90 (September 2016), available at: https://www.occ.gov/news-issuances/news-releases/2016/nr-ia-2016-107a.pdf (``620 Study''). Section 620 of the Dodd-Frank Act required the federal banking agencies to conduct a study and prepare a report, including recommendations, on the types of activities and investments permissible for banking entities, the associated risks, and how banking entities mitigate those risks. In a parallel action, the Board also issued a proposed rule in September 2016. The proposed Board rule addressed the physical commodities activities and investments of banking holding companies and financial holding companies, including copper. Risk- Based Capital and Other Regulatory Requirements for Activities of Financial Holding Companies Related to Physical Commodities and Risk-Based Capital Requirements for Merchant Banking Investments, 81 FR 67220 (Sept. 30, 2016). --------------------------------------------------------------------------- A national bank may engage in activities that are part of, or incidental to, the business of banking under 12 U.S.C. 24(Seventh). Section 24(Seventh) lists several activities that are part of the business of banking; for example, it expressly provides that national banks may buy and sell exchange, coin, and bullion. In addition to these enumerated powers, section 24(Seventh) authorizes national banks to exercise all such incidental powers as shall be necessary to carry on the business of banking. National banks also are authorized to engage in any other activities not expressly enumerated in the statute that the Comptroller of the Currency [[Page 96354]] reasonably determines are part of the business of banking.\4\ --------------------------------------------------------------------------- \4\ NationsBank of N.C., N.A. v. Var. Ann. Life. Ins. Co. (VALIC), 513 U.S. 251, 258-59 (1995). --------------------------------------------------------------------------- In Interpretive Letter 693,\5\ issued approximately twenty-one years ago, the OCC authorized national banks to buy and sell copper on the grounds that trading copper was becoming increasingly similar to trading gold, silver, platinum, and palladium. The letter observed that copper was traded in liquid markets; that it was traded in a form standardized as to weight and purity; and that the bank seeking authority to engage in the activity traded copper under policies and procedures similar to those that governed the bank's trading of precious metals. The letter concluded that national banks could buy and sell copper under the express authority to buy and sell coin and bullion and as part of or incidental to the business of banking. The scope of the authorization in Interpretive Letter 693 was sufficiently broad to permit national banks to buy and sell copper in the form of cathodes, which are used for industrial purposes. --------------------------------------------------------------------------- \5\ 1995 WL 788816 (Nov. 14, 1995). --------------------------------------------------------------------------- In the NPRM, the OCC proposed to reconsider the interpretation set forth in Interpretive Letter 693. Now, the OCC is finalizing the NPRM and revising its regulations to prohibit national banks from dealing and investing in a metal (or alloy), including copper, in a form primarily suited to industrial or commercial use (industrial or commercial metal).\6\ The OCC has added a divestiture period to the final rule, provided clarifying language to the dealing and investing prohibition for national banks, and clarified federal savings associations' (FSA) authority to engage in activity that is not dealing or investing, but is otherwise finalizing the NPRM as proposed. The final rule: (i) Excludes industrial and commercial metals from the terms ``exchange,'' ``coin,'' and ``bullion'' in 12 U.S.C. 24(Seventh); and (ii) provides that dealing or investing in industrial or commercial metal is not part of, or incidental to, the business of banking. Examples of metals and alloys in a form primarily suited for industrial or commercial use include copper cathodes, aluminum T-bars, and gold jewelry. For the reasons stated in this preamble, the OCC has concluded that dealing or investing in these metals is not appropriate for national banks. The final rule supersedes Interpretive Letter 693.\7\ --------------------------------------------------------------------------- \6\ The OCC considers the definition of industrial or commercial metal to include a warehouse receipt for such metal. \7\ See Nat'l Cable & Telecomms. Ass'n v. Brand X Internet Servs., 545 U.S. 967, 981-82 (2005) (agency reconsiderations of prior interpretations entitled to judicial deference so long as the agency adequately explains the reasons for the change); Motor Vehicle Manufacturers Association of the U.S., Inc. v. State Farm Mutual Automobile Insurance Company, 463 U.S. 29, 43 (1983) (``agency must examine the relevant data and articulate a satisfactory explanation for its action including a `rational connection between the facts found and the choice made' ''). --------------------------------------------------------------------------- The final rule also applies to FSAs. The Home Owners' Loan Act does not expressly authorize FSAs to buy or sell exchange, coin, and bullion.\8\ While FSAs have incidental authority to buy and sell precious metals in certain cases and to sell gold and silver coins minted by the U.S. Treasury, the OCC has not identified any precedent authorizing FSAs to buy and sell any industrial or commercial metal.\9\ The OCC does not interpret FSAs' powers to buy and sell metals to be broader than those of national banks.\10\ To avoid doubt, and to further integrate national bank and FSA regulations, the final rule prohibits FSAs from dealing or investing in industrial or commercial metal.\11\ --------------------------------------------------------------------------- \8\ See 12 U.S.C. 1464(c). \9\ See, e.g., OTS Op. Ch. Couns. P-2006-1 (Mar. 6, 2006), 2006 WL 6195026 (engaging in precious metal transactions on behalf of customers); Gold Bullion Coin Transactions, 51 FR 34950 (Oct. 1, 1986); Letter from Jack D. Smith, Deputy General Counsel, Federal Home Loan Bank Board, 1988 WL 1021651 (May 18, 1988). All precedents (orders, resolutions, determinations, agreements, regulations, interpretive rules, interpretations, guidelines, procedures, and other advisory materials) made, prescribed, or allowed to become effective by the former Office of Thrift Supervision or its Director that apply to FSAs remain effective until the OCC modifies, terminates, sets aside, or supersedes those precedents. 12 U.S.C. 5414(b). \10\ See OTS Op. Ch. Couns. P-2006-1 (Mar. 6, 2006), 2006 WL 6195026 (permissibility of FSA metal activity is evaluated under a four-part test referencing the activities of national banks). \11\ The final rule indirectly applies to federal branches and agencies of foreign banks because they operate with the same rights and privileges (and subject to the same duties, restrictions, penalties, liabilities, conditions, and limitations) as national banks. 12 CFR 28.13(a)(1). The final rule also indirectly applies to insured state banks and state savings associations. See 12 U.S.C. 1831a, 1831e. --------------------------------------------------------------------------- II. Summary of the Comments on the Notice of Proposed Rulemaking The OCC received four comments on the NPRM. Two comments were from financial industry trade associations and two were from individuals. While the comments generally were supportive of the NPRM, the trade association commenters requested that the OCC confirm the permissibility of certain lending and leasing transactions involving physical metals and expressed concern about the potential impact of the rulemaking on the liquidity of the copper market. A detailed discussion of the commenters' concerns and the OCC's response follows. A. Prohibition on Dealing and Investing for Industrial and Commercial Metal (Including Copper) Two commenters offered general views on the proposed dealing and investing prohibition for industrial and commercial metal, including copper, under the proposed rule. One was generally supportive of the NPRM's treatment of copper cathodes as an industrial and commercial metal. This commenter noted the proposal was consistent with banks' treatment of copper, as banks currently buy and sell copper based on its value for industrial and commercial purposes rather than as a store of value. The commenter also offered additional support for the rulemaking, noting that banks that own copper are exposed to large fluctuations in copper prices, encounter potential conflicts of interest between house positions and client positions, and may be able to manipulate copper markets through large physical positions. This commenter asserted that the proposed treatment is appropriate because bank copper trading activities more closely resemble commercial enterprises rather than a banking business. The commenter pointed to the PSI Report and 620 Study to support these comments. The second commenter expressed concern that the OCC has not demonstrated a compelling reason to change its 1995 copper interpretation. The commenter argued that the reasons the OCC approved copper activities in Interpretive Letter 693 are still valid today and that the OCC should not pursue the rulemaking in the absence of a compelling need or corresponding regulatory benefit. After carefully considering these comments, the OCC continues to believe that dealing or investing in copper cathodes, and other industrial or commercial metal, is not appropriate for national banks. As the OCC explained in the NPRM, events subsequent to Interpretive Letter 693 have confirmed copper is a base metal and thus, should be distinguished from precious metals that are not held in industrial or commercial form.\12\ For example, in 2000, the London Metals Exchange (``LME'') introduced a futures contract on a base metal index containing copper, aluminum, and [[Page 96355]] zinc.\13\ In 2006, the LME followed with ``mini'' futures for copper, aluminum and zinc. By contrast, firms have launched exchange-traded funds (ETFs) that invest solely in gold, silver, palladium, platinum, or some combination thereof, indicating a widespread belief that these metals are a store of value. The OCC notes there are no copper ETFs. In addition, the OCC understands that national banks that trade copper treat it as a base metal and trade it alongside aluminum and zinc rather than gold and silver. Finally, the OCC considered the issues and risks identified in the PSI Report with respect to physical copper.\14\ The commenter's observations do not negate the information provided in the NPRM and these facts demonstrate that the OCC has adequately described its reasons for changing its 1995 interpretation. --------------------------------------------------------------------------- \12\ 81 FR 63430, n.21. \13\ The LME describes itself as ``the world centre for industrial metals trading.'' See https://www.lme.com/. \14\ See, e.g., PSI Report at 362-396. --------------------------------------------------------------------------- B. Physical Holdings The preamble to the NPRM explained that the OCC did not consider the proposed rule to prohibit national banks from buying or selling metal through a transitory title transfer entered into as part of a customer-driven financial intermediation business.\15\ The OCC explained that metal owned through a transitory title transfer typically does not entail physical possession of a commodity; the ownership occurs solely to facilitate the underlying transaction and lasts only for a moment in time. However, the OCC invited comment on whether transitory title transfers involving metals present risks that warrant treating such transactions as physical holdings. --------------------------------------------------------------------------- \15\ 81 FR 63431. --------------------------------------------------------------------------- Three commenters addressed transitory title transfers. Two commenters generally supported the OCC's proposed treatment of transitory title transfers. One of these commenters agreed with the assertion in the NPRM that there is no physical possession of the metal in transitory title transfers. This commenter noted that the risks of legal liability typically associated with physical commodity positions are not present in transitory title transfers and that these transactions more closely resemble customer-driven, cash-settled commodity derivatives than physical positions. Another commenter also supported the treatment of transitory title transfers, but suggested the final rule text should limit transitory title transfers to customer-driven financial intermediation transactions that are part of the business of banking. A third commenter disagreed that transitory title transfers are different from dealing and investing in physical metal just because the bank holds the metal for a legal instant. As discussed in detail below, the OCC continues to believe that transitory title transfers do not entail physical possession of industrial and commercial metals. The OCC also notes that relevant precedent already provides that transitory title transfers must be part of a customer- driven financial intermediation business.\16\ Therefore, the OCC is finalizing the rule as proposed. --------------------------------------------------------------------------- \16\ Interpretive Letter 1073, 26 OCC Q.J. 46, 2007 WL 5122911 (Oct. 19, 2006). --------------------------------------------------------------------------- In addition to addressing transitory title transfers, one of the commenters also requested that the OCC confirm that interests in unallocated metal accounts are not physical holdings under the final rule. The commenter identified various activities in which national banks are engaged that could involve an interest in an unallocated metals account. The OCC notes that these activities are fact specific, and determinations about fact-specific activities need to be evaluated on a case-by-case basis. Therefore, the OCC believes it is appropriate to address the applicability of the final rule to these activities on a case-by-case basis. National banks with questions regarding the permissibility of transactions that involve unallocated metals accounts should discuss the issue with the OCC. The OCC is willing to entertain requests for such determinations, consistent with its historical practice of providing interpretive opinions in cases where there is doubt about the permissibility of particular activities. C. Reverse Repurchase Agreements The NPRM explained that the OCC views national banks' lending authority to include reverse repurchase agreements that are the functional and economic equivalent of secured loans.\17\ Banks may use commodity reverse repurchase agreements to finance customer inventory.\18\ Using a standard reverse repurchase agreement for metal to provide financing for a bank customer rather than a traditional bank loan ordinarily does not indicate dealing or investing in the metal. However, the NPRM noted that the facts and circumstances of a particular transaction may warrant a different conclusion. For example, if a bank incurs commodity price risk or pledges, sells, or rehypothecates metal acquired under reverse repurchase agreements, the NPRM provided that the OCC may view the transaction to be dealing or investing in the metal. The OCC invited comment on the treatment of reverse repurchase agreements under the proposed rule. --------------------------------------------------------------------------- \17\ 81 FR 63431. \18\ 12 CFR 211.4(a)(7). --------------------------------------------------------------------------- Two commenters addressed the treatment of reverse repurchase agreements. One suggested the OCC prohibit all reverse repurchase agreements where there is commodity market or liquidity risk. This commenter wrote that a prohibition is a better approach than a facts and circumstances review in light of limited OCC resources. The other commenter asserted that OCC should confirm that these types of reverse repurchase agreements are permissible activities not affected by the rule. This commenter noted that the reuse of the collateral is a long- standing practice in asset-based financing and therefore pledging, selling, or rehypothecating metal owned under a reverse repurchase agreement should not be viewed as indicia of dealing activity. The OCC continues to have concerns that reverse repurchase agreements that involve commodity price risk or that involve pledging, selling, or rehypothecating metal could be structured in some circumstances in a manner that constitutes dealing or investing activity. The OCC recognizes, as a commenter suggested, that banks may enter into hedges to mitigate price risk that exists at the conclusion of certain reverse repurchase agreements and may pledge collateral for the purpose of funding its customer financing activities. Structuring a transaction in these ways could, in some circumstances, reduce indicia of investing or dealing activity. However, the OCC does not believe it is appropriate to conclude that all reverse repurchase agreements that involve commodity price risk or pledging, etc. of collateral are permissible. Therefore, the OCC continues to believe that it is appropriate to evaluate reverse repurchase agreements that involve commodity price risk or pledging, etc. of collateral on a facts and circumstances basis, as appropriate. This approach will allow the OCC an opportunity to evaluate transactions in context and to consider relevant facts before reaching a determination as to whether a transaction involves dealing or investing. The OCC is therefore declining to make the changes the commenters have requested. D. Other Permissible Transactions The proposed rule identified two incidental authorities under which [[Page 96356]] acquiring and selling metal would remain permissible for national banks: first, collateral foreclosure activities designed to mitigate loan losses; \19\ second, nominal physical hedges of customer-driven commodity derivatives. The OCC also explained in the preamble to the NPRM that a bank may buy and sell metal in conjunction with certain leasing authorities.\20\ --------------------------------------------------------------------------- \19\ 81 FR 63433. \20\ 81 FR 63431. --------------------------------------------------------------------------- One commenter addressed the proposed treatment of nominal hedging activities. This commenter suggested that the OCC require banks to disclose hedging amounts to the OCC. This commenter also suggested that the OCC require the hedge be designed to reduce risk in order to prevent commodity speculation. The OCC notes that it monitors bank hedging activity through its regular course of bank supervision. Additionally, banks that engage in commodity hedging activities already must do so in accordance with applicable law, including requirements that the hedge be designed to reduce risk.\21\ For these reasons, the OCC does not believe that the changes this commenter suggested are necessary. --------------------------------------------------------------------------- \21\ See, e.g., Interpretive Letter 684 (Aug. 4, 1995) 1995 WL 550219; OCC Bulletin 2015-3 (Aug. 4, 2015); 12 CFR 44.3(b) and 44.5(a) (Volcker Rule requirement that hedges be designed to reduce or otherwise significantly mitigate one or more specific identifiable risks). --------------------------------------------------------------------------- Another commenter asked that the OCC modify the final rule to expressly permit certain metals-based financing activities. The commenter described several metal leasing and metal consignment transactions. As explained in the NPRM and below, banks may not buy and sell industrial or commercial metal for the purposes of dealing or investing in that metal. However, banks may continue to buy and sell industrial or commercial metal under other incidental authorities that do not involve dealing or investing. To the extent a bank proposes to engage in a metals-based transaction that presents an interpretive issue(s) under the authorities provided for in 12 U.S.C. 24(Seventh), the OCC will address permissibility on a facts and circumstances basis. The OCC may issue interpretive analysis, as appropriate. E. Existing Holdings The OCC solicited comment in the NPRM on the treatment of existing holdings of industrial and commercial metals. Specifically, the OCC asked whether five years to divest non-conforming assets, with the possibility of a five-year extension, would be an appropriate period of time. The OCC also asked whether there were compelling reasons to grandfather existing industrial and commercial metal holdings indefinitely.\22\ --------------------------------------------------------------------------- \22\ 81 FR 63432. --------------------------------------------------------------------------- Two commenters addressed the issue of existing holdings of industrial and commercial metal. One commenter argued industrial and commercial metal held before the conformance date should be grandfathered because doing so would limit negative effects on copper markets and bank customers. This commenter also asked that the text of the rule include a minimum of five years to conform to the prohibition, arguing this would minimize the impact of the rule. Another commenter did not support allowing the banks additional time to divest their physical metals holdings. National banks do not currently engage in significant dealing or investing activities in relation to physical industrial and commercial metal. Nor do national banks currently hold significant stores of industrial and commercial metal. Therefore, the OCC finds no compelling reason to grandfather existing activities. However, the OCC does believe that a short divestiture period would be appropriate. Given national banks' limited industrial and commercial metal activities, the OCC concludes that a full five-year divestiture period is not necessary. The OCC is therefore including a provision in the final rule that requires national banks to divest existing holdings of industrial and commercial metal acquired through dealing or investing activities as soon as practicable, but not later than one year from the effective date of the rule.\23\ This provision enables the OCC to grant up to four separate one-year extensions of this divestiture period if the bank has made a good faith effort to dispose of the metal and the bank's retention of the metal is not inconsistent with its safe and sound operation. The OCC notes that the approach of granting a divestiture period with the possibility of an extension is consistent with the OCC's treatment of other types of nonconforming assets.\24\ This divestiture provision applies only to existing holdings; national banks may not acquire additional holdings of industrial and commercial metal through dealing or investing activities during, or after, the divestiture period. --------------------------------------------------------------------------- \23\ The final rule provides a divestiture period for both national banks and FSAs. The OCC does not expect that a divestiture period will be necessary for FSAs and most national banks. However, in order to ensure an orderly asset liquidation process for all institutions that hold metal subject to this prohibition, the divestiture provision is available to both national banks and FSAs. \24\ See, e.g., 12 U.S.C. 29 (holding period for other real estate owned). --------------------------------------------------------------------------- F. Impact of the Rule Three commenters discussed the impact of the proposed rule. Two commenters noted, very generally, that they expect the rule to increase cost for customers if finalized as proposed. One of these commenters also suggested the proposal would have a negative impact on the copper market as a whole, asserting that the costs of the rule will not be minimal. This commenter also argued there would be no regulatory benefit to this prohibition. Another commenter said the NPRM would reduce financial risk and conflicts of interests for banks while also allowing the OCC to impose limits on copper and other industrial and commercial metals. As noted above, national banks do not currently engage in significant dealing or investing activities in relation to physical industrial and commercial metal. Because these markets tend to be highly competitive, we expect that the removal of OCC-supervised institutions as just one class of potential investors/dealers will not have a material effect on these markets. Furthermore, as explained in more detail below, national banks may continue to buy and sell industrial and commercial metal under certain incidental authorities. The OCC expects these limited permissible activities will allow banks to continue to serve customers with interests in commercial and industrial metals in capacities that do not involve dealing or investing activities. III. Description of the Final Rule A. Industrial or Commercial Metal Is Not ``exchange, coin, and bullion'' As noted above, the National Bank Act authorizes national banks to buy and sell exchange, coin, and bullion. In this final rule, the OCC is interpreting these terms to exclude metals in a form primarily suited to industrial or commercial use. Banking Circular 58 (BC-58) \25\ sets forth general guidelines that apply to national banks' coin and bullion activities. It defines ``coin'' as ``coins held for their metallic value which are minted by a government, or exact restrikes of such coins minted at a later date by or under the authority of the issuing government.'' Contemporaneous OCC interpretive letters elaborated that ``coin'' referred only to media of exchange.\26\ BC-58 defines ``bullion'' as [[Page 96357]] ``uncoined gold or silver in bar or ingot form.'' These definitions do not encompass industrial or commercial metal. --------------------------------------------------------------------------- \25\ BC-58 (Rev.) (Nov. 3, 1981). The OCC published the original version in 1974. \26\ Interpretive Letter 326 (Jan. 17, 1985), 1985 WL 202590; Interpretive Letter 252 (Oct. 26, 1982), 1982 WL 54157; Letter from Peter Liebesman, Assistant Director, Legal Advisory Services Division (Feb. 18, 1982), 1982 WL 170844. But see Letter from Richard V. Fitzgerald, Deputy Chief Counsel (Nov. 4, 1983), 1983 WL 145720 (concluding that national banks could purchase and sell the Department of Treasury's commemorative Olympic coins based on their metallic value even though it was unlikely that the coins would be used as a medium of exchange). --------------------------------------------------------------------------- Interpretive letters published after BC-58 interpreted national banks' authority to buy coin and bullion to include other precious metals, namely platinum and palladium. Consistent with BC-58's definition of ``coin,'' the OCC in 1987 found that legal tender platinum coins held for their metallic value were ``coin.'' \27\ That same letter prohibited dealing in platinum bars. However, in 1991, the OCC concluded that market developments warranted treating platinum bars as bullion.\28\ The OCC also found trading in platinum bars to be incidental to trading in platinum coins.\29\ For similar reasons, the OCC concluded palladium was coin and bullion and national banks could trade and deal in palladium as part of the business of banking.\30\ In support of its position, the OCC noted that the London Platinum and Palladium Market had linked platinum and palladium for market making and regulatory purposes and that most of the Market's members were banks. --------------------------------------------------------------------------- \27\ Letter from William J. Stolte, Chief National Bank Examiner (July 29, 1987), 1987 WL 149775. \28\ Interpretive Letter 553 (May 2, 1991), 1991 WL 340660 (noting that (i) the financial press considered platinum coins and bars to be bullion, and (ii) a state statute defined ``bullion'' to include platinum). \29\ Id. \30\ Interpretive Letter 685 (Aug. 4, 1995), 1995 WL 550220. --------------------------------------------------------------------------- However, other interpretive letters recognized that not every precious metal is coin or bullion. Jewelry, the OCC determined, is not.\31\ --------------------------------------------------------------------------- \31\ See No-Objection Letter 88-8 (May 26, 1988), 1988 WL 284872 (selling gold and silver jewelry is impermissible general merchandising); Letter from Madonna K. Starr, Attorney (Oct. 3, 1986), 1986 WL 144029 (limited design jewelry is not exchange, coin, or bullion). --------------------------------------------------------------------------- The OCC has long concluded that ``exchange, coin, and bullion'' does not encompass industrial or commercial metal. The OCC believes this conclusion is consistent with the National Bank Act and current market practice. For example, in the mid-19th century, when Congress passed the National Bank Act, ``bullion'' meant metal suitable for coining, not metal suitable for making wires.\32\ The contemporary understanding of ``bullion'' is broader--most currency is no longer made of precious metal--but the contemporary understanding does distinguish bullion from industrial or commercial metal. For example, modern bullion markets trade precious metals by the kilogram.\33\ By contrast, industrial and commercial metals markets trade base metals in quantities suitable for industrial or commercial use.\34\ In general, gold, silver, platinum, and palladium are bullion today because they: --------------------------------------------------------------------------- \32\ See Act of June 22, 1874, 18 Stat. 202 (authorizing the transfer from the U.S. bullion fund of refined gold bars bearing the United States stamp of fineness, weight, and value, or bars from any melt of foreign coin or bullion of standard equal to or above that of the United States); Act of Feb. 12, 1873 Sec. 31, 17 Stat. 429 (``The bullion thus placed in the hands of the melter and refiner shall be subjected to the several processes which may be necessary to form it into ingots of the legal standard, and of a quality suitable for coinage.''). \33\ See, e.g., London Bullion Market Association, The Good Delivery Rules for Gold and Silver Bars 11 (Mar. 2015), available at http://www.lbma.org.uk/assets/market/gdl/GD_Rules_15_Final%2020160512.pdf; London Platinum & Palladium Market, ``The London/Zurich Good Delivery List,'' http://www.lppm.com/good-delivery/ (visited July 19, 2016). \34\ The LME describes itself as the ``world centre for the trading of industrial metals--more than three quarters of all non- ferrous metal futures business is transacted on [its] platforms.'' LME, ``About us,'' http://www.lme.com/about-us (visited July 19, 2016). The LME trades aluminum, aluminum alloys, copper, lead, nickel, tin, and zinc. LME, ``Metals,'' http://www.lme.com/metals (visited July 19, 2016). ---------------------------------------------------------------------------Trade in troy ounces or grams rather than metric tons; \35\ --------------------------------------------------------------------------- \35\ See, e.g., Bloomberg, ``Gold, Silver, and Industrial Metals Prices,'' http://www.bloomberg.com/markets/commodities/futures/metals. --------------------------------------------------------------------------- Trade in pure forms; \36\ --------------------------------------------------------------------------- \36\ See, e.g., London Bullion Market Association, The Good Delivery Rules for Gold and Silver Bars 6 (Mar. 2015) (minimum fineness for gold is 99.5 percent and for silver is 99.9 percent); London Platinum & Palladium Market, ``The London/Zurich Good Delivery List,'' http://www.lppm.com/good-delivery/ (minimum fineness for platinum and palladium is 99.95 percent). --------------------------------------------------------------------------- Trade in a form suitable for coining; Trade as precious metals in the world's major organized markets, including the London bullion markets; and Are considered currency by the International Organization for Standardization.\37\ Gold, silver, platinum, and palladium in industrial or commercial form are not exchange, coin, or bullion. --------------------------------------------------------------------------- \37\ ISO 4217 (Aug. 1, 2015), available at http://www.currency-iso.org/dam/downloads/lists/list_one.xls. --------------------------------------------------------------------------- B. Dealing or Investing in Industrial or Commercial Metal Is Neither Part of, nor Incidental to, the Business of Banking Interpretive Letter 693 concluded that national banks could buy and sell copper (including industrial copper) as a part of or incidental to the business of banking. The OCC has reviewed the bases for the conclusion in Interpretive Letter 693 that buying and selling industrial copper is part of the business of banking, including developments in copper markets that followed this letter. For the following reasons, the OCC has determined that buying and selling copper--or any other metal--in industrial or commercial form for the purpose of dealing or investing in that metal is not part of the business of banking. When the OCC issued Interpretive Letter 693 in 1995, the agency noted increasing similarity between transactions involving copper and those transactions already conducted by national banks with respect to gold, silver, platinum and palladium (precious metals). This increasing similarity informed the OCC's view at that time that buying and selling copper, including dealing and investing, was part of, or incidental to, the business of banking. However, copper markets have not increased in similarity to precious metal markets.\38\ Instead, as noted in detail above, copper is generally traded as a base metal.\39\ --------------------------------------------------------------------------- \38\ Events subsequent to Interpretive Letter 693 have confirmed copper's status as a base metal. In 2000, the LME introduced a future on a base metal index containing copper, aluminum, lead, nickel, tin, and zinc. Then, in 2006, it introduced ``mini'' futures for copper, aluminum, and zinc. Similarly, many firms have launched ETFs that invest solely in gold, silver, palladium, platinum, or some combination thereof, indicating a widespread belief that these metals are a store of value. However, there is no copper ETF. Finally, the OCC understands that national banks that trade copper treat it as a base metal and trade it alongside aluminum and zinc rather than gold and silver. \39\ See generally PSI Report at 364 (2014) (identifying banks, trading firms, analysts, and exchanges that treat copper as a base metal for trading and risk management purposes). --------------------------------------------------------------------------- The OCC believes that dealing or investing in industrial or commercial metals, including base and precious metals in this form, is not the functional equivalent of dealing or investing in coin and bullion. The paradigmatic example of functional equivalence is that a lease is in economic substance a secured loan.\40\ But the significant differences between dealing in industrial or commercial metals and dealing in coin and bullion demonstrate that the former is not, in economic substance, the same as the latter. Most importantly, industrial and commercial metals trade in base metal markets by the ton in cathode or other industrial form, while coin and bullion trade in precious metal markets by the troy ounce or kilogram in bar or ingot form. [[Page 96358]] In addition, banks' risk management systems distinguish between precious metals and base metals. --------------------------------------------------------------------------- \40\ See M&M Leasing Corp. v. Seattle First Nat'l Bank, 563 F.2d 1377 (9th Cir. 1977). --------------------------------------------------------------------------- The OCC has also considered other factors identified in relevant precedent for determining whether dealing in or investing in industrial or commercial metal is part of the business of banking.\41\ The OCC does not believe that analysis under these factors supports a conclusion that this activity is part of the business of banking. For example, the OCC has not seen evidence that this activity strengthens a bank by benefiting its customers or its business.\42\ Nor is the OCC aware of any state-chartered banks dealing in or investing in industrial or commercial metal.\43\ Indeed, the OCC has not identified any precedent authorizing that activity for state banks. Such activity would suggest dealing or investing in commercial metals may be part of the business of banking. --------------------------------------------------------------------------- \41\ See, e.g., Merchants' Nat'l Bank v. State Nat'l Bank, 77 U.S. 604, 648 (1871) (holding that national banks could certify checks because the activity had ``grown out of the business needs of the country.''). \42\ Currently, national banks' dealing and investments in industrial or commercial metal are limited, suggesting that the business needs of the U.S. economy are not meaningfully affected by national banks' dealing in industrial or commercial metal. Nor is there evidence that the amount of revenue from industrial or commercial metal dealing and investing meaningfully improve national banks' financial strength. In any case, the prospect for additional revenue alone is not sufficient to deem an activity to be part of the business of banking. See VALIC, 513 U.S. at 258 n.2. See also No-objection Letter 88-8 (May 26, 1988), 1988 WL 284872 (concluding that it is impermissible for a national bank to make substantial profits from the sale of merchandise). \43\ See Colorado Nat'l Bank v. Bedford, 310 U.S. 41, 49-50 (1940). --------------------------------------------------------------------------- As described above, under 12 U.S.C. 24(Seventh), a national bank has the power to exercise all such incidental powers as shall be necessary to carry on the business of banking. An activity is incidental to the business of banking if it is convenient or useful to an activity that is part of the business of banking.\44\ --------------------------------------------------------------------------- \44\ Interpretive Letter 1071 (Sept. 6, 2006), 26 OCC Q.J. 46, 2007 WL 5122909 (citing Arnold Tours, Inc. v. Camp, 472 F.2d 427, 431-32 (1st Cir. 1972)). --------------------------------------------------------------------------- The OCC believes that dealing or investing in industrial or commercial metal is not incidental to the business of banking. Some customers may wish to trade industrial or commercial metal with national banks. However, because few banks buy or sell industrial or commercial metal in the ordinary course of business, it does not appear that dealing or investing in industrial or commercial metal significantly enhances national banks' ability to offer banking products and services, including those related to precious metals. Moreover, dealing or investing in industrial or commercial metal does not appear to enable national banks to use capacity acquired for banking operations or otherwise avoid economic loss or waste. Therefore, the OCC concludes national banks may not deal or invest in industrial or commercial metal under their incidental powers. C. Transactions in Industrial or Commercial Metal That May Be Permissible National banks do have incidental authority to buy and sell industrial or commercial metal in limited cases. Buying or selling industrial or commercial metal could be incidental to lending activities. For example, a mining company could post a copper cathode as collateral for a loan. Pursuant to the national bank's authority to acquire property in satisfaction of debt previously contracted, the bank could seize and then sell the copper to mitigate loan losses if the borrower defaulted.\45\ National banks also have incidental authority to buy and sell nominal amounts of industrial or commercial metal to hedge customer-driven commodity derivatives.\46\ The final rule does not prohibit these purchases and sales because they are not dealing or investing.\47\ --------------------------------------------------------------------------- \45\ Cf. Cooper v. Hill, 94 F. 582 (8th Cir. 1899) (foreclosure of a mine); First Nat'l Bank of Parker v. Peavy Elevator Co., 10 S.D. 167, 170 (1897) (foreclosure of grain seed and subsequent sale). \46\ Interpretive Letter 684 (Aug. 4, 1995) (permitting physical delivery of commodities as hedges for customer-driven, non- speculative transactions), 1995 WL 550219; OCC Bulletin 2015-35, Quantitative Limits on Physical Commodity Transactions (Aug. 4, 2015) (explaining that ``nominal'' means 5 percent of the bank's short positions in a particular commodity). The final rule explicitly provides that national banks may continue to buy and sell physical metal to hedge a derivative. A similar provision is not necessary for FSAs because they do not engage in this activity. See 620 Study at 88; OCC Bulletin 2015-35, n. 1. \47\ Cf. First Nat'l Bank v. Nat'l Exch. Bank, 92 U.S. 122, 128 (1875) (``In the honest exercise of the power to compromise a doubtful debt owing to a bank, it can hardly be doubted that stocks may be accepted in payment and satisfaction, with a view to their subsequent sale or conversion into money so as to make good or reduce an anticipated loss. Such a transaction would not amount to a dealing in stocks. It was, in effect, so decided in Fleckner v. Bank U.S., 8 Wheat. 351 [22 U.S. 338 (1823)], where it was held that a prohibition against trading and dealing was nothing more than a prohibition against engaging in the ordinary business of buying and selling for profit, and did not include purchases resulting from ordinary banking transactions.''). Similarly, national banks may buy and sell industrial or commercial metal as part of their leasing business. 12 U.S.C. 24(Seventh); 12 U.S.C. 24(Tenth); 12 CFR 23.4. A car, for example, contains metal in a commercial form, but buying a car to lease it is not dealing or investing in commercial metal. Rather, a lease, like a reverse repurchase transaction, is a secured loan in a different form. National banks may also buy and sell industrial or commercial metals to install pipes and electrical wiring in their physical premises. 12 U.S.C. 29(First); 12 CFR 7.1000. This activity is clearly not dealing or investing in industrial or commercial metal. --------------------------------------------------------------------------- In certain situations, national banks may buy and sell industrial and commercial metal as reverse repurchase agreements that are the functional and economic equivalent of secured loans.\48\ In a reverse repurchase agreement, a bank extends credit by simultaneously buying collateral from a client and agreeing to sell the collateral back to the client at a future date. The difference between the sale and purchase price is effectively the interest the client pays for the extension of credit. If the reverse repurchase agreement counterparty defaults, the bank can mitigate its losses by selling the collateral without first foreclosing on it. Financing customer inventory is a traditional bank activity; using reverse repurchase agreements rather than loans to provide the financing is merely a different way of providing financing.\49\ Financing customer inventory using reverse repurchase agreements in itself does not indicate dealing or investing in the metal. However, pledging, selling, or rehypothecating metal acquired under reverse repurchase agreements could suggest dealing or investing activity. So, too, could assuming commodity price risk. For example, an agreement in which the counterparty sells a metal at a certain price to the bank and then repurchases the metal at a price that depends on the metal's then-current market price could indicate dealing or investing activity: The bank is assuming the metal's price risk and, in some circumstances, could act to benefit from spot market price appreciation of the metal. On the other hand, setting the repurchase price at the sale price plus a spread based on the time value of money is equivalent to a secured loan. The determination of whether a reverse repurchase agreement that varies from this secured loan structure is dealing or investing is highly dependent upon the facts of each transaction. National banks with questions regarding the permissibility of reverse repurchase agreements that involve characteristics identified in this discussion should discuss the issue with the OCC. The [[Page 96359]] OCC is willing to entertain requests for such determinations, consistent with its historical practice of providing interpretive opinions in cases where there is doubt about the permissibility of particular activities. --------------------------------------------------------------------------- \48\ See 12 CFR 211.4(a)(7) \49\ Under the National Bank Act, credit exposures from repurchase and reverse repurchase agreements are loans and extensions of credit subject to a national bank's lending limits. 12 U.S.C. 84(b)(1)(C). We note that Section 610 of the Dodd-Frank Act expanded the definition of ``loans and extensions of credit'' for purposes of lending limits to include credit exposure arising from repurchase agreements and reverse repurchase agreements, among other transactions. The OCC amended its lending limits regulation, 12 CFR 32, to implement the statutory change made by the Dodd-Frank Act. --------------------------------------------------------------------------- The final rule does not prohibit national banks from buying and selling metal through transitory title transfers entered into as part of a customer-driven financial intermediation business.\50\ Interpretive Letter 1073 \51\ provides that national banks may hedge metal derivative transactions on a portfolio basis with over-the- counter derivative transactions that settle in cash or transitory title transfer. Interpretive Letter 1073 also provides that a national bank may engage in transitory title transfers in metals for the accommodation of customers. The OCC concluded in Interpretive Letter 1073 that transitory title transfers involving metals do not entail the physical possession of commodities.\52\ The OCC's analysis in this letter noted that transitory title transfers do not involve the customary activities relating to, or risks attendant to, commodity ownership, such as storage costs, insurance, and environmental protection. For these reasons, OCC believes that transitory title transfers do not constitute physical possession of commodities and therefore does not consider transitory title transfers to be dealing or investing in industrial or commercial metal for purposes of the final rule.\53\ The OCC recognizes that banks may have questions about the permissibility of specific transitory title transfer transactions. The fact-specific nature of these issues merits a case-by-case review to determine the permissibility of the transaction. The OCC will continue to review requests for interpretive opinions on the permissibility of individual transactions proposed by a bank. Should the OCC become aware of additional risks that suggest transitory title transfer activity presents risks more closely akin to the risks of physical metal holdings, the OCC may reconsider the treatment of transitory title transfer transactions. --------------------------------------------------------------------------- \50\ For purposes of the final rule, the OCC considers a transitory title transfer to be back-to-back contracts providing for the receipt and immediate transfer of title to the metal. This means that a bank holds title to the metal for no more than a legal instant. See Interpretive Letter 962 (Apr. 21, 2003), 2003 WL 21283155 (``[T]ransitory title transfers preclude actual delivery by passing title down the chain from the initial seller to the ultimate buyer in a series of instantaneous back-to-back transactions. Each party in the chain has title for an instant but does not take actual physical delivery (other than the ultimate buyer which, in no case, will be the Bank.'')). \51\ 26 OCC Q.J. 46, 2007 WL 5122911 (Oct. 19, 2006). \52\ See also OCC Bulletin 2015-35 (Aug. 4, 2015) (noting that a physical commodity that a bank acquired and then immediately sold by transitory title transfer would not be included in the bank's physical inventory of that commodity). \53\ In contrast to transitory title transfers, the OCC considers a commodity held by warehouse receipt for more than a legal instant to entail physical possession of the commodity. See OCC Bulletin 2015-35 (``[A] bank that satisfies certain conditions may engage in physical commodity transactions (for example, by buying or selling title to a commodity via a warehouse receipt or bill of lading) to manage the risks of commodity derivatives.''); Interpretive Letter 684 (Aug. 4, 1995), 1995 WL 550219 (recognizing physical possession of a commodity by warehouse receipt). The OCC notes that the customary activities relating to, or risks attendant to, commodity ownership by warehouse receipt are distinguishable from those involving transitory title transfer. For example, Interpretive Letter 684 provides that the OCC expects a bank engaged in physical commodity hedging, either through warehouse receipt or ``pass-through'' delivery, to adopt and maintain ``safeguards designed to manage the risks associated with storing, transporting, and disposing of commodities of which the bank has taken delivery, including policies and procedures designed to ensure that the bank has adequate levels of insurance (including insurance for environmental liabilities) which, after deductions, are commensurate with the risks assumed.'' --------------------------------------------------------------------------- D. Divestiture Period The final rule prohibits banks from dealing or investing in industrial or commercial metal. However, in response to a request from a commenter, the final rule provides a divestiture period for banks that acquired industrial or commercial metal through dealing or investing in that metal before the effective date of the rule.\54\ Under the divestiture provision, banks must dispose of such metal as soon as practicable, but not later than one year from the effective date of the regulation. The OCC may grant up to four separate one-year extensions of this divestiture period for a national bank that makes a good faith effort to dispose of the metal and the bank's retention of the metal is not inconsistent with its safe and sound operation. The divestiture provision applies only to existing holdings; national banks may not acquire additional holdings of industrial and commercial metal through dealing or investing activities during, or after, the divestiture period. --------------------------------------------------------------------------- \54\ The final rule provides a divestiture period for both national banks and FSAs. The OCC does not expect that a divestiture period will be necessary for FSAs and most national banks. However, in order to ensure an orderly liquidation process for all institutions that hold metal subject to this prohibition, the divestiture provision is available to both national banks and FSAs. --------------------------------------------------------------------------- This divestiture period is generally consistent with the OCC's approach to other nonconforming assets. Banks with questions about the permissibility of activities or holdings involving industrial or commercial metal should ask the OCC for a review of the specific holding or activity. IV. Regulatory Analysis Paperwork Reduction Act Under the Paperwork Reduction Act, 44 U.S.C. 3501-3520, the OCC may not conduct or sponsor, and a person is not required to respond to, an information collection unless the information collection displays a valid Office of Management and Budget (OMB) control number. This final rule does not introduce any new collections of information, therefore, it does not require a submission to OMB. Regulatory Flexibility Act The Regulatory Flexibility Act, 5 U.S.C. 601 et seq., (RFA), requires an agency, in connection with a final rule, to prepare a Final Regulatory Flexibility Analysis describing the impact of the rule on small entities (defined by the Small Business Administration (SBA) for purposes of the RFA to include banking entities with total assets of $550 million or less) or to certify that the rule will not have a significant economic impact on a substantial number of small entities. As of December 31, 2015, the OCC supervised 1,032 small entities.\55\ Although the rule applies to all OCC-supervised small entities, and thus affects a substantial number of small entities, no small entities supervised by the OCC currently buy or sell metal in a physical form primarily suited to commercial or industrial use for the purpose of dealing or investing in that metal. Thus, the rule will not have a substantial impact on any OCC-supervised small entities. --------------------------------------------------------------------------- \55\ The OCC calculated the number of small entities using the SBA's size thresholds for commercial banks and savings institutions, and trust companies, which are $550 million and $38.5 million, respectively. Consistent with the General Principles of Affiliation, 13 CFR 121.103(a), the OCC counted the assets of affiliated financial institutions when determining whether to classify a national bank or FSA as a small entity. The OCC used December 31, 2015, to determine size because a ``financial institution's assets are determined by averaging the assets reported on its four quarterly financial statements for the preceding year.'' See footnote 8 of the SBA's Table of Size Standards. --------------------------------------------------------------------------- Therefore, the OCC certifies that the final rule will not have a significant economic impact on a substantial number of OCC-supervised small entities. Unfunded Mandates Reform Act of 1995 Determination The OCC analyzed the final rule under the factors set forth in the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1532). Under this analysis, the [[Page 96360]] OCC considered whether the rule includes a federal mandate that may result in the expenditure by state, local, and Tribal governments, in the aggregate, or by the private sector, of $100 million or more in any one year (adjusted annually for inflation). Although the final rule would apply to all OCC-supervised institutions, very few of these institutions are currently involved in activities involving dealing or investing in copper or other metals in a physical form primarily suited to commercial or industrial use. While the final rule may prevent OCC-supervised institutions from realizing potential gains from prohibited investments in physical metals, the rule also may protect them from realizing potential losses from investments in physical metals. The OCC is not able to estimate these potential gains or losses because they will depend on future fluctuations in the prices of the various physical metals. However, the OCC does expect OCC-supervised institutions to be able to achieve comparable returns in alternative non-prohibited investment opportunities. Thus, the OCC estimates that the opportunity cost of the final rule will be near zero. The final rule may impose one-time costs on affected institutions with respect to the disposal of current physical metal inventory that a bank may not deal in or invest in under the rule. This cost will depend to some extent on the amount of physical metal inventory that affected institutions must dispose of. Given the divestiture period in the final rule, a gradual sell-off should not affect market prices and the affected institutions would receive fair value for their metals. Under these circumstances, the OCC estimates that the disposal costs will also be minimal. Finally, by establishing that buying and selling physical metal in commercial or industrial form is generally not part of the business of banking, the rule implies that customers of OCC-supervised institutions will have to identify another reliable source of supply of physical metals and that OCC-supervised institutions will be less able to compete with non-bank metals dealers. Given how technology has made the physical metals markets more accessible, the OCC expects bank customers will face minimal costs associated with identifying another supplier of physical metals. The OCC also expects that losing the ability to compete with non-bank metal dealers will not significantly detract from the strength of OCC-supervised institutions, especially given that the final rule would recognize several business-of-banking incidental exceptions to the prohibition on buying and selling physical metal. These permissible activities should enable OCC-supervised institutions to continue to provide metals related services to bank customers that do not involve dealing or investing in commercial and industrial metals. For the reasons described above, the OCC has determined that the final rule would not result in expenditures by state, local, and Tribal governments, or by the private sector, of $100 million or more. Accordingly, the OCC has not prepared a written statement to accompany the final rule. List of Subjects in 12 CFR Part 7 Banks, banking, Computer technology, Credit, Federal savings associations, Insurance, Investments, Metals, National banks, Reporting and recordkeeping requirements, Securities, Surety bonds. For the reasons set forth in the preamble, OCC amends 12 CFR part 7 as follows: PART 7--ACTIVITIES AND OPERATIONS 0 1. The authority citation for part 7 is revised to read as follows: Authority: 12 U.S.C. 1 et seq., 25b, 71, 71a, 92, 92a, 93, 93a, 371, 371a, 481, 484, 1463, 1464, 1818, and 5412(b)(2)(B). 0 2. Add Sec. 7.1022 to subpart A to read as follows: Sec. 7.1022 National banks' authority to buy and sell exchange, coin, and bullion. (a) In this section, industrial or commercial metal means metal (including an alloy) in a physical form primarily suited to industrial or commercial use, for example, copper cathodes. (b) Scope of authorization. Section 24(Seventh) of the National Bank Act authorizes national banks to buy and sell exchange, coin, and bullion. Industrial or commercial metal is not exchange, coin, and bullion within the meaning of this authorization. (c) Buying and selling metal as part of or incidental to the business of banking. Section 24(Seventh) authorizes national banks to engage in activities that are part of, or incidental to, the business of banking. Buying and selling industrial or commercial metal for the purpose of dealing or investing in that metal is not part of or incidental to the business of banking pursuant to section 24(Seventh). Accordingly, national banks may not acquire industrial or commercial metal for purposes of dealing or investing. (d) Other authorities not affected. This section shall not be construed to preclude a national bank from acquiring or selling metal in connection with its incidental authority to foreclose on loan collateral, compromise doubtful claims, or avoid loss in connection with a debt previously contracted. This section also shall not be construed to preclude a national bank from buying and selling physical metal to hedge a derivative for which that metal is the reference asset so long as the amount of the physical metal used for hedging purposes is nominal. (e) Nonconforming holdings. National banks that hold industrial or commercial metal as a result of dealing or investing in that metal shall dispose of such metal as soon as practicable, but not later than one year from the effective date of this regulation. The OCC may grant up to four separate one-year extensions to dispose of industrial or commercial metal if a national bank makes a good faith effort to dispose of the metal and retention of the metal for an additional year is not inconsistent with the safe and sound operation of the bank. 0 3. Add Sec. 7.1023 to subpart A to read as follows: Sec. 7.1023 Federal savings associations, prohibition on industrial or commercial metal dealing or investing. (a) In this section, industrial or commercial metal means metal (including an alloy) in a physical form primarily suited to industrial or commercial use, for example, copper cathodes. (b) Federal savings associations may not deal or invest in industrial or commercial metal. (c) Other authorities not affected. This section shall not be construed to preclude a federal savings association from acquiring or selling metal in connection with its authority to foreclose on loan collateral, compromise doubtful claims, or avoid loss in connection with a debt previously contracted. (d) Nonconforming holdings. Federal savings associations that hold industrial or commercial metal as a result of dealing or investing in that metal shall dispose of such metal as soon as practicable, but not later than one year from the effective date of this regulation. The OCC may grant up to four separate one-year extensions to dispose of industrial or commercial metal if a federal savings association makes a good faith effort to dispose of the metal and retention of the metal for an additional year is not inconsistent with safe and sound operation of the association. [[Page 96361]] Dated: December 15, 2016. Thomas J. Curry, Comptroller of the Currency. [FR Doc. 2016-31572 Filed 12-29-16; 8:45 am] BILLING CODE 4810-33-P
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to 50% of the maximum base civil penalty a regulation under paragraph (a) of this to prohibit national banks from dealing
($46,666). section or a compliance order issued or investing in industrial or commercial
* * * * * under paragraph (b) of this section, not metals.1 The OCC proposed to: (i)
IX. Enforcement Actions
to exceed $258,811 for each violation. Exclude industrial and commercial
* * * * * metals from the terms ‘‘exchange,’’
* * * * * ‘‘coin,’’ and ‘‘bullion’’ in the ‘‘powers
1. Notice of Violation PART 1050—FOREIGN GIFTS AND clause’’ of the National Bank Act at 12
* * * * * DECORATIONS U.S.C. 24(Seventh); and (ii) provide that
(e) * * * dealing or investing in industrial or
(1) DOE may assess civil penalties of up to ■ 28. The authority citation for part commercial metal is not part of, or
$93,332 per violation per day on contractors 1050 continues to read as follows: incidental to, the business of banking.
(and their subcontractors and suppliers) that The proposed prohibitions were
Authority: The Constitution of the United
are indemnified by the Price-Anderson Act, generally consistent with
States, Article I, Section 9; 5 U.S.C. 7342; 22
42 U.S.C. 2210(d). See 10 CFR 851.5(a).
U.S.C. 2694; 42 U.S.C. 7254 and 7262; 28 recommendations made by the U.S.
* * * * * U.S.C. 2461 note. Senate Permanent Subcommittee on
■ 29. Section 1050.303 is amended by Investigations in 2014,2 as well as
PART 1013—PROGRAM FRAUD CIVIL recommendations described in a
revising the last sentence in paragraph
REMEDIES AND PROCEDURES September 2016 report to the U.S.
(d) to read as follows:
■ 24. The authority citation for part Congress and the Financial Stability
§ 1050.303 Enforcement. Oversight Council (FSOC) prepared by
1013 continues to reads as follows:
* * * * * the OCC, the Board of Governors of the
Authority: 31 U.S.C. 3801–3812; 28 U.S.C. (d) * * * The court in which such Federal Reserve System (‘‘Board’’), and
2461 note. action is brought may assess a civil the Federal Deposit Insurance
■ 25. Section 1013.3 is amended by penalty against such employee in any Corporation pursuant to section 620 of
revising paragraphs (a)(1)(iv) and amount not to exceed the retail value of the Dodd-Frank Wall Street Reform and
(b)(1)(ii) to read as follows: the gift improperly solicited or received Consumer Protection Act (‘‘Dodd-Frank
plus $19,621. Act’’).3
§ 1013.3 Basis for civil penalties and
assessments.
[FR Doc. 2016–31035 Filed 12–29–16; 8:45 am] A national bank may engage in
BILLING CODE 6450–01–P activities that are part of, or incidental
(a) * * * to, the business of banking under 12
(1) * * * U.S.C. 24(Seventh). Section 24(Seventh)
(iv) Is for payment for the provision lists several activities that are part of the
of property or services which the person DEPARTMENT OF THE TREASURY
business of banking; for example, it
has not provided as claimed, shall be Office of the Comptroller of the expressly provides that national banks
subject, in addition to any other remedy Currency may buy and sell exchange, coin, and
that may be prescribed by law, to a civil bullion. In addition to these enumerated
penalty of not more than $10,957 for 12 CFR Part 7 powers, section 24(Seventh) authorizes
each such claim. national banks to exercise all such
* * * * * [Docket ID OCC–2016–0022]
incidental powers as shall be necessary
(b) * * * RIN 1557–AD93 to carry on the business of banking.
(1) * * * National banks also are authorized to
(ii) Contains or is accompanied by an Industrial and Commercial Metals engage in any other activities not
express certification or affirmation of expressly enumerated in the statute that
AGENCY: Office of the Comptroller of the
the truthfulness and accuracy of the the Comptroller of the Currency
Currency (OCC), Treasury.
contents of the statement, shall be
subject, in addition to any other remedy ACTION: Final rule.
1 81 FR 63428 (Sept. 15, 2016).
that may be prescribed by law, to a civil SUMMARY: The OCC is finalizing a rule 2 ‘‘Wall Street Bank Involvement with Physical
penalty of not more than $10,957 for to prohibit national banks and federal Commodities,’’ U.S. Senate Permanent
each such statement. Subcommittee on Investigations, available at:
savings associations from dealing or http://www.hsgac.senate.gov/download/report-wall-
* * * * * investing in industrial or commercial street-involvement-with-physical-commodities
metals. (‘‘PSI Report’’).
PART 1017—IDENTIFICATION AND 3 ‘‘Report to Congress and the Financial Stability
PROTECTION OF UNCLASSIFIED DATES: This final rule is effective April Oversight Council Pursuant to Section 620 of the
CONTROLLED NUCLEAR 1, 2017. Dodd-Frank Act,’’ at 86–90 (September 2016),
available at: https://www.occ.gov/news-issuances/
INFORMATION FOR FURTHER INFORMATION CONTACT:
news-releases/2016/nr-ia-2016–107a.pdf (‘‘620
Casey Scott Laxton, Counsel, or Margo Study’’). Section 620 of the Dodd-Frank Act
■ 26. The authority citation for part Dey, Counsel, Securities and Corporate required the federal banking agencies to conduct a
1017 continues to read as follows: Practices Division, (202) 649–5510; Carl study and prepare a report, including
recommendations, on the types of activities and
Authority: 42 U.S.C. 7101 et seq.; 50 U.S.C. Kaminski, Special Counsel, Legislative investments permissible for banking entities, the
2401 et seq.; 42 U.S.C. 2168; 28 U.S.C. 2461 and Regulatory Activities Division, associated risks, and how banking entities mitigate
note. (202) 649–5490; or, for persons who are those risks. In a parallel action, the Board also
deaf or hard of hearing, TTY, (202) 649– issued a proposed rule in September 2016. The
■ 27. Section 1017.29 is amended by
srobinson on DSK5SPTVN1PROD with RULES
proposed Board rule addressed the physical
revising paragraph (c) to read as follows: 5597, 400 7th Street SW., Washington, commodities activities and investments of banking
DC 22019. holding companies and financial holding
§ 1017.29 Civil penalty. SUPPLEMENTARY INFORMATION: companies, including copper. Risk-Based Capital
* * * * * and Other Regulatory Requirements for Activities of
(c) Amount of penalty. The Director I. Background Financial Holding Companies Related to Physical
Commodities and Risk-Based Capital Requirements
may propose imposition of a civil In September 2016, the OCC issued a for Merchant Banking Investments, 81 FR 67220
penalty for violation of a requirement of Notice of Proposed Rulemaking (NPRM) (Sept. 30, 2016).
VerDate Sep<11>2014 18:11 Dec 29, 2016 Jkt 241001 PO 00000 Frm 00015 Fmt 4700 Sfmt 4700 E:\FR\FM\30DER1.SGM 30DER1](https://thefederalregister.org/doc/81_FR_96604/page/1.svg)
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‘‘uncoined gold or silver in bar or ingot understanding of ‘‘bullion’’ is broader— a part of or incidental to the business of
form.’’ These definitions do not most currency is no longer made of banking. The OCC has reviewed the
encompass industrial or commercial precious metal—but the contemporary bases for the conclusion in Interpretive
metal. understanding does distinguish bullion Letter 693 that buying and selling
Interpretive letters published after from industrial or commercial metal. industrial copper is part of the business
BC–58 interpreted national banks’ For example, modern bullion markets of banking, including developments in
authority to buy coin and bullion to trade precious metals by the kilogram.33 copper markets that followed this letter.
include other precious metals, namely By contrast, industrial and commercial For the following reasons, the OCC has
platinum and palladium. Consistent metals markets trade base metals in determined that buying and selling
with BC–58’s definition of ‘‘coin,’’ the quantities suitable for industrial or copper—or any other metal—in
OCC in 1987 found that legal tender commercial use.34 In general, gold, industrial or commercial form for the
platinum coins held for their metallic silver, platinum, and palladium are purpose of dealing or investing in that
value were ‘‘coin.’’ 27 That same letter bullion today because they: metal is not part of the business of
prohibited dealing in platinum bars. • Trade in troy ounces or grams banking.
However, in 1991, the OCC concluded rather than metric tons; 35 When the OCC issued Interpretive
that market developments warranted • Trade in pure forms; 36 Letter 693 in 1995, the agency noted
treating platinum bars as bullion.28 The • Trade in a form suitable for coining; increasing similarity between
OCC also found trading in platinum bars • Trade as precious metals in the transactions involving copper and those
to be incidental to trading in platinum world’s major organized markets, transactions already conducted by
coins.29 For similar reasons, the OCC including the London bullion markets; national banks with respect to gold,
concluded palladium was coin and and silver, platinum and palladium
bullion and national banks could trade • Are considered currency by the (precious metals). This increasing
and deal in palladium as part of the International Organization for similarity informed the OCC’s view at
business of banking.30 In support of its Standardization.37 that time that buying and selling copper,
position, the OCC noted that the London Gold, silver, platinum, and palladium including dealing and investing, was
Platinum and Palladium Market had in industrial or commercial form are not part of, or incidental to, the business of
linked platinum and palladium for exchange, coin, or bullion. banking. However, copper markets have
market making and regulatory purposes not increased in similarity to precious
and that most of the Market’s members B. Dealing or Investing in Industrial or
metal markets.38 Instead, as noted in
were banks. Commercial Metal Is Neither Part of, nor
detail above, copper is generally traded
However, other interpretive letters Incidental to, the Business of Banking
as a base metal.39
recognized that not every precious metal Interpretive Letter 693 concluded that The OCC believes that dealing or
is coin or bullion. Jewelry, the OCC national banks could buy and sell investing in industrial or commercial
determined, is not.31 copper (including industrial copper) as metals, including base and precious
The OCC has long concluded that metals in this form, is not the functional
‘‘exchange, coin, and bullion’’ does not of refined gold bars bearing the United States stamp equivalent of dealing or investing in
encompass industrial or commercial of fineness, weight, and value, or bars from any
coin and bullion. The paradigmatic
metal. The OCC believes this conclusion melt of foreign coin or bullion of standard equal to
example of functional equivalence is
is consistent with the National Bank Act or above that of the United States); Act of Feb. 12,
1873 § 31, 17 Stat. 429 (‘‘The bullion thus placed that a lease is in economic substance a
and current market practice. For in the hands of the melter and refiner shall be secured loan.40 But the significant
example, in the mid-19th century, when subjected to the several processes which may be
differences between dealing in
Congress passed the National Bank Act, necessary to form it into ingots of the legal
standard, and of a quality suitable for coinage.’’). industrial or commercial metals and
‘‘bullion’’ meant metal suitable for 33 See, e.g., London Bullion Market Association, dealing in coin and bullion demonstrate
coining, not metal suitable for making The Good Delivery Rules for Gold and Silver Bars that the former is not, in economic
wires.32 The contemporary 11 (Mar. 2015), available at http:// substance, the same as the latter. Most
www.lbma.org.uk/assets/market/gdl/GD_Rules_15_
WL 54157; Letter from Peter Liebesman, Assistant Final%2020160512.pdf; London Platinum & importantly, industrial and commercial
Director, Legal Advisory Services Division (Feb. 18, Palladium Market, ‘‘The London/Zurich Good metals trade in base metal markets by
1982), 1982 WL 170844. But see Letter from Richard Delivery List,’’ http://www.lppm.com/good- the ton in cathode or other industrial
V. Fitzgerald, Deputy Chief Counsel (Nov. 4, 1983), delivery/ (visited July 19, 2016). form, while coin and bullion trade in
1983 WL 145720 (concluding that national banks 34 The LME describes itself as the ‘‘world centre
could purchase and sell the Department of for the trading of industrial metals—more than
precious metal markets by the troy
Treasury’s commemorative Olympic coins based on three quarters of all non-ferrous metal futures ounce or kilogram in bar or ingot form.
their metallic value even though it was unlikely business is transacted on [its] platforms.’’ LME,
that the coins would be used as a medium of ‘‘About us,’’ http://www.lme.com/about-us (visited 38 Events subsequent to Interpretive Letter 693
exchange). July 19, 2016). The LME trades aluminum, have confirmed copper’s status as a base metal. In
27 Letter from William J. Stolte, Chief National aluminum alloys, copper, lead, nickel, tin, and zinc. 2000, the LME introduced a future on a base metal
Bank Examiner (July 29, 1987), 1987 WL 149775. LME, ‘‘Metals,’’ http://www.lme.com/metals (visited index containing copper, aluminum, lead, nickel,
28 Interpretive Letter 553 (May 2, 1991), 1991 WL July 19, 2016). tin, and zinc. Then, in 2006, it introduced ‘‘mini’’
340660 (noting that (i) the financial press 35 See, e.g., Bloomberg, ‘‘Gold, Silver, and futures for copper, aluminum, and zinc. Similarly,
considered platinum coins and bars to be bullion, Industrial Metals Prices,’’ http:// many firms have launched ETFs that invest solely
and (ii) a state statute defined ‘‘bullion’’ to include www.bloomberg.com/markets/commodities/futures/ in gold, silver, palladium, platinum, or some
platinum). metals. combination thereof, indicating a widespread belief
29 Id. 36 See, e.g., London Bullion Market Association, that these metals are a store of value. However,
30 Interpretive Letter 685 (Aug. 4, 1995), 1995 WL The Good Delivery Rules for Gold and Silver Bars there is no copper ETF. Finally, the OCC
550220. understands that national banks that trade copper
srobinson on DSK5SPTVN1PROD with RULES
6 (Mar. 2015) (minimum fineness for gold is 99.5
31 See No-Objection Letter 88–8 (May 26, 1988), percent and for silver is 99.9 percent); London treat it as a base metal and trade it alongside
1988 WL 284872 (selling gold and silver jewelry is Platinum & Palladium Market, ‘‘The London/Zurich aluminum and zinc rather than gold and silver.
impermissible general merchandising); Letter from Good Delivery List,’’ http://www.lppm.com/good- 39 See generally PSI Report at 364 (2014)
Madonna K. Starr, Attorney (Oct. 3, 1986), 1986 WL delivery/ (minimum fineness for platinum and (identifying banks, trading firms, analysts, and
144029 (limited design jewelry is not exchange, palladium is 99.95 percent). exchanges that treat copper as a base metal for
coin, or bullion). 37 ISO 4217 (Aug. 1, 2015), available at http:// trading and risk management purposes).
32 See Act of June 22, 1874, 18 Stat. 202 www.currency-iso.org/dam/downloads/lists/list_ 40 See M&M Leasing Corp. v. Seattle First Nat’l
(authorizing the transfer from the U.S. bullion fund one.xls. Bank, 563 F.2d 1377 (9th Cir. 1977).
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![96358 Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Rules and Regulations
In addition, banks’ risk management in industrial or commercial metal does In certain situations, national banks
systems distinguish between precious not appear to enable national banks to may buy and sell industrial and
metals and base metals. use capacity acquired for banking commercial metal as reverse repurchase
The OCC has also considered other operations or otherwise avoid economic agreements that are the functional and
factors identified in relevant precedent loss or waste. Therefore, the OCC economic equivalent of secured loans.48
for determining whether dealing in or concludes national banks may not deal In a reverse repurchase agreement, a
investing in industrial or commercial or invest in industrial or commercial bank extends credit by simultaneously
metal is part of the business of metal under their incidental powers. buying collateral from a client and
banking.41 The OCC does not believe agreeing to sell the collateral back to the
C. Transactions in Industrial or
that analysis under these factors client at a future date. The difference
Commercial Metal That May Be
supports a conclusion that this activity between the sale and purchase price is
Permissible
is part of the business of banking. For effectively the interest the client pays
example, the OCC has not seen evidence National banks do have incidental for the extension of credit. If the reverse
that this activity strengthens a bank by authority to buy and sell industrial or repurchase agreement counterparty
benefiting its customers or its commercial metal in limited cases. defaults, the bank can mitigate its losses
business.42 Nor is the OCC aware of any Buying or selling industrial or by selling the collateral without first
state-chartered banks dealing in or commercial metal could be incidental to foreclosing on it. Financing customer
investing in industrial or commercial lending activities. For example, a inventory is a traditional bank activity;
metal.43 Indeed, the OCC has not mining company could post a copper using reverse repurchase agreements
identified any precedent authorizing cathode as collateral for a loan. Pursuant rather than loans to provide the
that activity for state banks. Such to the national bank’s authority to financing is merely a different way of
activity would suggest dealing or acquire property in satisfaction of debt providing financing.49 Financing
investing in commercial metals may be previously contracted, the bank could customer inventory using reverse
part of the business of banking. seize and then sell the copper to repurchase agreements in itself does not
As described above, under 12 U.S.C. mitigate loan losses if the borrower indicate dealing or investing in the
24(Seventh), a national bank has the defaulted.45 National banks also have metal. However, pledging, selling, or
power to exercise all such incidental incidental authority to buy and sell rehypothecating metal acquired under
powers as shall be necessary to carry on nominal amounts of industrial or reverse repurchase agreements could
the business of banking. An activity is commercial metal to hedge customer- suggest dealing or investing activity. So,
incidental to the business of banking if driven commodity derivatives.46 The
too, could assuming commodity price
it is convenient or useful to an activity final rule does not prohibit these
risk. For example, an agreement in
that is part of the business of banking.44 purchases and sales because they are
which the counterparty sells a metal at
The OCC believes that dealing or not dealing or investing.47
a certain price to the bank and then
investing in industrial or commercial repurchases the metal at a price that
45 Cf. Cooper v. Hill, 94 F. 582 (8th Cir. 1899)
metal is not incidental to the business depends on the metal’s then-current
(foreclosure of a mine); First Nat’l Bank of Parker
of banking. Some customers may wish v. Peavy Elevator Co., 10 S.D. 167, 170 (1897) market price could indicate dealing or
to trade industrial or commercial metal (foreclosure of grain seed and subsequent sale). investing activity: The bank is assuming
with national banks. However, because 46 Interpretive Letter 684 (Aug. 4, 1995)
the metal’s price risk and, in some
few banks buy or sell industrial or (permitting physical delivery of commodities as
hedges for customer-driven, non-speculative circumstances, could act to benefit from
commercial metal in the ordinary course transactions), 1995 WL 550219; OCC Bulletin 2015– spot market price appreciation of the
of business, it does not appear that 35, Quantitative Limits on Physical Commodity metal. On the other hand, setting the
dealing or investing in industrial or Transactions (Aug. 4, 2015) (explaining that repurchase price at the sale price plus
commercial metal significantly ‘‘nominal’’ means 5 percent of the bank’s short
positions in a particular commodity). The final rule a spread based on the time value of
enhances national banks’ ability to offer explicitly provides that national banks may money is equivalent to a secured loan.
banking products and services, continue to buy and sell physical metal to hedge a The determination of whether a reverse
including those related to precious derivative. A similar provision is not necessary for
repurchase agreement that varies from
metals. Moreover, dealing or investing FSAs because they do not engage in this activity.
See 620 Study at 88; OCC Bulletin 2015–35, n. 1. this secured loan structure is dealing or
47 Cf. First Nat’l Bank v. Nat’l Exch. Bank, 92 U.S. investing is highly dependent upon the
41 See, e.g., Merchants’ Nat’l Bank v. State Nat’l
122, 128 (1875) (‘‘In the honest exercise of the facts of each transaction. National banks
Bank, 77 U.S. 604, 648 (1871) (holding that national power to compromise a doubtful debt owing to a
banks could certify checks because the activity had with questions regarding the
bank, it can hardly be doubted that stocks may be
‘‘grown out of the business needs of the country.’’). accepted in payment and satisfaction, with a view permissibility of reverse repurchase
42 Currently, national banks’ dealing and
to their subsequent sale or conversion into money agreements that involve characteristics
investments in industrial or commercial metal are so as to make good or reduce an anticipated loss. identified in this discussion should
limited, suggesting that the business needs of the Such a transaction would not amount to a dealing
U.S. economy are not meaningfully affected by
discuss the issue with the OCC. The
in stocks. It was, in effect, so decided in Fleckner
national banks’ dealing in industrial or commercial v. Bank U.S., 8 Wheat. 351 [22 U.S. 338 (1823)],
metal. Nor is there evidence that the amount of where it was held that a prohibition against trading U.S.C. 29(First); 12 CFR 7.1000. This activity is
revenue from industrial or commercial metal and dealing was nothing more than a prohibition clearly not dealing or investing in industrial or
dealing and investing meaningfully improve against engaging in the ordinary business of buying commercial metal.
national banks’ financial strength. In any case, the and selling for profit, and did not include purchases 48 See 12 CFR 211.4(a)(7)
prospect for additional revenue alone is not resulting from ordinary banking transactions.’’). 49 Under the National Bank Act, credit exposures
sufficient to deem an activity to be part of the Similarly, national banks may buy and sell from repurchase and reverse repurchase agreements
business of banking. See VALIC, 513 U.S. at 258 industrial or commercial metal as part of their are loans and extensions of credit subject to a
n.2. See also No-objection Letter 88–8 (May 26,
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leasing business. 12 U.S.C. 24(Seventh); 12 U.S.C. national bank’s lending limits. 12 U.S.C. 84(b)(1)(C).
1988), 1988 WL 284872 (concluding that it is 24(Tenth); 12 CFR 23.4. A car, for example, We note that Section 610 of the Dodd-Frank Act
impermissible for a national bank to make contains metal in a commercial form, but buying a expanded the definition of ‘‘loans and extensions of
substantial profits from the sale of merchandise). car to lease it is not dealing or investing in credit’’ for purposes of lending limits to include
43 See Colorado Nat’l Bank v. Bedford, 310 U.S.
commercial metal. Rather, a lease, like a reverse credit exposure arising from repurchase agreements
41, 49–50 (1940). repurchase transaction, is a secured loan in a and reverse repurchase agreements, among other
44 Interpretive Letter 1071 (Sept. 6, 2006), 26 OCC different form. National banks may also buy and transactions. The OCC amended its lending limits
Q.J. 46, 2007 WL 5122909 (citing Arnold Tours, Inc. sell industrial or commercial metals to install pipes regulation, 12 CFR 32, to implement the statutory
v. Camp, 472 F.2d 427, 431–32 (1st Cir. 1972)). and electrical wiring in their physical premises. 12 change made by the Dodd-Frank Act.
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![Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Rules and Regulations 96359
OCC is willing to entertain requests for banks may have questions about the ask the OCC for a review of the specific
such determinations, consistent with its permissibility of specific transitory title holding or activity.
historical practice of providing transfer transactions. The fact-specific
IV. Regulatory Analysis
interpretive opinions in cases where nature of these issues merits a case-by-
there is doubt about the permissibility case review to determine the Paperwork Reduction Act
of particular activities. permissibility of the transaction. The Under the Paperwork Reduction Act,
The final rule does not prohibit OCC will continue to review requests 44 U.S.C. 3501–3520, the OCC may not
national banks from buying and selling for interpretive opinions on the conduct or sponsor, and a person is not
metal through transitory title transfers permissibility of individual transactions required to respond to, an information
entered into as part of a customer-driven proposed by a bank. Should the OCC collection unless the information
financial intermediation business.50 become aware of additional risks that collection displays a valid Office of
Interpretive Letter 1073 51 provides that suggest transitory title transfer activity Management and Budget (OMB) control
national banks may hedge metal presents risks more closely akin to the number. This final rule does not
derivative transactions on a portfolio risks of physical metal holdings, the introduce any new collections of
basis with over-the-counter derivative OCC may reconsider the treatment of information, therefore, it does not
transactions that settle in cash or transitory title transfer transactions. require a submission to OMB.
transitory title transfer. Interpretive
Letter 1073 also provides that a national D. Divestiture Period Regulatory Flexibility Act
bank may engage in transitory title The final rule prohibits banks from The Regulatory Flexibility Act, 5
transfers in metals for the dealing or investing in industrial or U.S.C. 601 et seq., (RFA), requires an
accommodation of customers. The OCC commercial metal. However, in agency, in connection with a final rule,
concluded in Interpretive Letter 1073 response to a request from a commenter, to prepare a Final Regulatory Flexibility
that transitory title transfers involving the final rule provides a divestiture Analysis describing the impact of the
metals do not entail the physical period for banks that acquired industrial rule on small entities (defined by the
possession of commodities.52 The OCC’s or commercial metal through dealing or Small Business Administration (SBA)
analysis in this letter noted that investing in that metal before the for purposes of the RFA to include
transitory title transfers do not involve effective date of the rule.54 Under the banking entities with total assets of $550
the customary activities relating to, or divestiture provision, banks must million or less) or to certify that the rule
risks attendant to, commodity dispose of such metal as soon as will not have a significant economic
ownership, such as storage costs, practicable, but not later than one year impact on a substantial number of small
insurance, and environmental from the effective date of the regulation. entities.
protection. For these reasons, OCC The OCC may grant up to four separate As of December 31, 2015, the OCC
believes that transitory title transfers do one-year extensions of this divestiture supervised 1,032 small entities.55
not constitute physical possession of period for a national bank that makes a Although the rule applies to all OCC-
commodities and therefore does not good faith effort to dispose of the metal supervised small entities, and thus
consider transitory title transfers to be and the bank’s retention of the metal is affects a substantial number of small
dealing or investing in industrial or not inconsistent with its safe and sound entities, no small entities supervised by
commercial metal for purposes of the operation. The divestiture provision the OCC currently buy or sell metal in
final rule.53 The OCC recognizes that applies only to existing holdings; a physical form primarily suited to
national banks may not acquire commercial or industrial use for the
50 For purposes of the final rule, the OCC
additional holdings of industrial and purpose of dealing or investing in that
considers a transitory title transfer to be back-to-
back contracts providing for the receipt and commercial metal through dealing or metal. Thus, the rule will not have a
immediate transfer of title to the metal. This means investing activities during, or after, the substantial impact on any OCC-
that a bank holds title to the metal for no more than divestiture period. supervised small entities.
a legal instant. See Interpretive Letter 962 (Apr. 21, This divestiture period is generally Therefore, the OCC certifies that the
2003), 2003 WL 21283155 (‘‘[T]ransitory title
transfers preclude actual delivery by passing title consistent with the OCC’s approach to final rule will not have a significant
down the chain from the initial seller to the other nonconforming assets. Banks with economic impact on a substantial
ultimate buyer in a series of instantaneous back-to- questions about the permissibility of number of OCC-supervised small
back transactions. Each party in the chain has title activities or holdings involving entities.
for an instant but does not take actual physical
delivery (other than the ultimate buyer which, in industrial or commercial metal should
Unfunded Mandates Reform Act of 1995
no case, will be the Bank.’’)).
51 26 OCC Q.J. 46, 2007 WL 5122911 (Oct. 19,
Determination
distinguishable from those involving transitory title
2006). transfer. For example, Interpretive Letter 684 The OCC analyzed the final rule
52 See also OCC Bulletin 2015–35 (Aug. 4, 2015) provides that the OCC expects a bank engaged in under the factors set forth in the
(noting that a physical commodity that a bank physical commodity hedging, either through
acquired and then immediately sold by transitory warehouse receipt or ‘‘pass-through’’ delivery, to
Unfunded Mandates Reform Act of 1995
title transfer would not be included in the bank’s adopt and maintain ‘‘safeguards designed to manage (2 U.S.C. 1532). Under this analysis, the
physical inventory of that commodity). the risks associated with storing, transporting, and
53 In contrast to transitory title transfers, the OCC disposing of commodities of which the bank has 55 The OCC calculated the number of small
considers a commodity held by warehouse receipt taken delivery, including policies and procedures entities using the SBA’s size thresholds for
for more than a legal instant to entail physical designed to ensure that the bank has adequate commercial banks and savings institutions, and
possession of the commodity. See OCC Bulletin levels of insurance (including insurance for trust companies, which are $550 million and $38.5
2015–35 (‘‘[A] bank that satisfies certain conditions environmental liabilities) which, after deductions, million, respectively. Consistent with the General
srobinson on DSK5SPTVN1PROD with RULES
may engage in physical commodity transactions (for are commensurate with the risks assumed.’’ Principles of Affiliation, 13 CFR 121.103(a), the
example, by buying or selling title to a commodity 54 The final rule provides a divestiture period for OCC counted the assets of affiliated financial
via a warehouse receipt or bill of lading) to manage both national banks and FSAs. The OCC does not institutions when determining whether to classify
the risks of commodity derivatives.’’); Interpretive expect that a divestiture period will be necessary a national bank or FSA as a small entity. The OCC
Letter 684 (Aug. 4, 1995), 1995 WL 550219 for FSAs and most national banks. However, in used December 31, 2015, to determine size because
(recognizing physical possession of a commodity by order to ensure an orderly liquidation process for a ‘‘financial institution’s assets are determined by
warehouse receipt). The OCC notes that the all institutions that hold metal subject to this averaging the assets reported on its four quarterly
customary activities relating to, or risks attendant prohibition, the divestiture provision is available to financial statements for the preceding year.’’ See
to, commodity ownership by warehouse receipt are both national banks and FSAs. footnote 8 of the SBA’s Table of Size Standards.
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![Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Rules and Regulations 96361
Dated: December 15, 2016. evaluation, any comments received, and additional burden on any person.
Thomas J. Curry, other information. The address for the Therefore, we have determined that
Comptroller of the Currency. Docket Office (phone: 800–647–5527) is notice and public procedures are
[FR Doc. 2016–31572 Filed 12–29–16; 8:45 am] Docket Management Facility, U.S. unnecessary.
Department of Transportation, Docket
BILLING CODE 4810–33–P List of Subjects in 14 CFR Part 39
Operations, M–30, West Building
Ground Floor, Room W12–140, 1200 Air transportation, Aircraft, Aviation
New Jersey Avenue SE., Washington, safety, Incorporation by reference,
DEPARTMENT OF TRANSPORTATION Safety.
DC 20590.
Federal Aviation Administration FOR FURTHER INFORMATION CONTACT: Fnu Adoption of the Correction
Winarto, Aerospace Engineer, Systems
and Equipment Branch, ANM–130S, Accordingly, pursuant to the
14 CFR Part 39 authority delegated to me by the
FAA, Seattle Aircraft Certification
[Docket No. FAA–2015–3142; Directorate Office (ACO), 1601 Lind Avenue SW., Administrator, the Federal Aviation
Identifier 2015–NM–003–AD; Amendment
Renton, WA 98057–3356; phone: 425– Administration amends part 39 of the
39–18728; AD 2016–25–02] Federal Aviation Regulations (14 CFR
917–6659; fax: 425–917–6590; email:
RIN 2120–AA64 fnu.winarto@faa.gov. part 39) as follows:
SUPPLEMENTARY INFORMATION: PART 39—AIRWORTHINESS
Airworthiness Directives; The Boeing Airworthiness Directive 2016–25–02 (81
Company Airplanes DIRECTIVES
FR 90955, December 16, 2016), requires
AGENCY: Federal Aviation installing markers to limit the hydraulic ■ 1. The authority citation for part 39
Administration (FAA), DOT. system fluid used to a specific brand, continues to read as follows:
ACTION: Final rule; correction. doing hydraulic fluid tests of the Authority: 49 U.S.C. 106(g), 40113, 44701.
hydraulic systems, replacing hydraulic
SUMMARY: The FAA is correcting an system fluid if necessary, and doing all § 39.13 [Corrected]
airworthiness directive (AD) that applicable related investigative and ■ 2. The FAA amends § 39.13 by adding
published in the Federal Register. That corrective actions for certain The Boeing the following new airworthiness
AD applies to certain The Boeing Company Model 787–8 airplanes. directive (AD):
Company Model 787–8 airplanes. As Need for the Correction 2016–25–02 The Boeing Company:
published, the amendment number
As published, the amendment number Amendment 39–18728; Docket No.
specified in the preamble and regulatory FAA–2015–3142; Directorate Identifier
text is incorrect. This document corrects specified in the preamble and regulatory
2015–NM–003–AD.
that error. In all other respects, the text is incorrect. The incorrectly
original document remains the same. specified number was Amendment 39– (a) Effective Date
18725; the correct number is This AD is effective January 20, 2017.
DATES: This final rule is effective
Amendment 39–18728.
January 20, 2017. (b) Affected ADs
The Director of the Federal Register Related Service Information Under None.
approved the incorporation by reference 1 CFR Part 51
of a certain publication listed in this AD (c) Applicability
We have reviewed Boeing Alert
as of January 20, 2017 (81 FR 90955, This AD applies to The Boeing Company
Service Bulletin B787–81205– Model 787–8 series airplanes, certificated in
December 16, 2016). SB270026–00, Issue 002, dated June 13, any category, as identified in Boeing Alert
ADDRESSES: For service information 2016. This service information describes Service Bulletin B787–81205–SB270026–00,
identified in this final rule, contact procedures for installing markers to Issue 002, dated June 13, 2016.
Boeing Commercial Airplanes, limit the hydraulic system fluid used to
Attention: Contractual & Data Services (d) Subject
a specific brand, doing hydraulic fluid
(C&DS), 2600 Westminster Blvd., MC tests of the hydraulic systems, replacing Air Transport Association (ATA) of
110–SK57, Seal Beach, CA 90740; America Code 27, Flight Control Systems.
the hydraulic system fluid if necessary,
telephone 562–797–1717; Internet and related investigative and corrective (e) Unsafe Condition
https://www.myboeingfleet.com. You actions. This service information is This AD was prompted by reports of the
may view this referenced service reasonably available because the accumulation of very fine particle deposits in
information at the FAA, Transport interested parties have access to it the power control unit (PCU) electro-
Airplane Directorate, 1601 Lind Avenue through their normal course of business hydraulic servo valves (EHSVs) used in the
SW., Renton, WA. For information on or by the means identified in the flight control system; this accumulation
the availability of this material at the caused degraded performance due to reduced
ADDRESSES section.
FAA, call 425–227–1221. It is also EHSV internal hydraulic supply pressures,
Correction of Publication resulting in the display of PCU fault status
available on the Internet at http:// messages from the engine indication and
www.regulations.gov by searching for This document corrects an error and crew alerting system (EICAS). We are issuing
and locating Docket No. FAA–2015– correctly adds the AD as an amendment this AD to prevent failure of flight control
3142. to 14 CFR 39.13. Although no other part hydraulic PCUs, which could lead to reduced
of the preamble or regulatory controllability of the airplane.
Examining the AD Docket
information has been corrected, we are (f) Compliance
srobinson on DSK5SPTVN1PROD with RULES
You may examine the AD docket on publishing the entire rule in the Federal
the Internet at http:// Comply with this AD within the
Register. compliance times specified, unless already
www.regulations.gov; or in person at the The effective date of this AD remains done.
Docket Management Facility between 9 January 20, 2017.
a.m. and 5 p.m., Monday through Since this action only corrects an (g) Marker Installation
Friday, except Federal holidays. The AD amendment number, it has no adverse Within 36 months after the effective date
docket contains this AD, the regulatory economic impact and imposes no of this AD, install markers to allow servicing
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Document Created: 2016-12-30 05:16:34
Document Modified: 2016-12-30 05:16:34
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Rules and Regulations | |
| Action | Final rule. | |
| Dates | This final rule is effective April 1, 2017. | |
| Contact | Casey Scott Laxton, Counsel, or Margo Dey, Counsel, Securities and Corporate Practices Division, (202) 649- 5510; Carl Kaminski, Special Counsel, Legislative and Regulatory Activities Division, (202) 649-5490; or, for persons who are deaf or hard of hearing, TTY, (202) 649-5597, 400 7th Street SW., Washington, DC 22019. | |
| FR Citation | 81 FR 96353 | |
| RIN Number | 1557-AD93 | |
| CFR Associated | Banks; Banking; Computer Technology; Credit; Federal Savings Associations; Insurance; Investments; Metals; National Banks; Reporting and Recordkeeping Requirements; Securities and Surety Bonds |
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