On August 23, 2017, the Office of the Comptroller of the Currency (OCC) published guidance on filings required by national banks and federal savings associations (collectively referred to here as “banks”) pertaining to “substantial asset changes.” The guidance lists various events that are considered substantial asset changes for which banks must seek approval and describes the criteria analyzed by the OCC when making a decision on an application for a substantial asset change.
Substantial Asset Changes
Aside from changes that occurred as a result of a bank’s ordinary and ongoing business of originating and securitizing loans and certain changes the OCC had prior knowledge of—such as a change undertaken at the direction of the OCC—banks must file applications for and obtain OCC approval before engaging in any transaction or series of transactions that may constitute, or result in, a material alteration in the composition of the bank’s assets or liabilities. The following is an illustrative list of events that constitute substantial asset changes and for which banks must seek approval before engaging in:
- the sale or other disposition of all, or substantially all, of a bank’s assets in a transaction or a series of transactions;
- the sale or other disposition of all, or substantially all, of its assets, subsequent purchases or other acquisitions or other expansions of the bank’s operations;
- any other purchases, acquisitions, or other expansions of operations that are part of a plan to increase a bank’s size by more than 25 percent in a one-year period;
- any change in a bank charter’s purpose as described in 12 CFR 5.20(l)(2);
- any other material increase or decrease in a bank’s size or a material alteration in the composition of the types of assets or liabilities of a bank (including the entry or exit of business lines), on a case-by-case basis, as determined by the OCC;
- expansion of operations (i.e., the bank is a special purpose bank that wants to change to another special purpose, add another special purpose, or no longer be limited to a special purpose); and
- contraction of operations (i.e., the bank’s activities are not limited and the bank wants to limit its activities and become a special purpose bank).
The guidance states that the OCC considers the following criteria when deciding whether to approve an application for a substantial asset change:
- capital level of any resulting bank;
- conformity of the transaction to applicable laws, regulations, and supervisory policies;
- purpose of the transaction;
- impact of the transaction on the bank’s safety and soundness; and
- projected effect of the transaction on the bank’s depositors, other creditors, customers, and shareholders or members.
In addition to the above considerations, when reviewing applications for substantial asset changes that involve the purchase, other acquisition, or other expansion of a bank’s operations or that involve a change in charter purpose, the OCC also takes into account the federal policy considerations that apply to the organization of a new bank, codified at 12 C.F.R. § 5.20. Some examples of these latter considerations include the maintenance of a “safe and sound banking system,” promoting the “fair treatment of customers,” and a determination that the bank will have “capital that is sufficient to support the projected volume and type of business.”
Filing Requirements & Application Process
The OCC’s guidance also provided access to a sample substantial asset change application form and practical information on the filing requirements associated with substantial asset change applications and on the applications process itself. In its guidance, the OCC encourages potential applicants to make use of “exploratory meetings” and/or “prefiling meetings” to open a dialogue with the OCC regarding questions or concerns related to applicants’ substantial asset change applications.
In light of the OCC’s decision to publish this guidance pertaining to substantial asset change filings, it behooves banks to familiarize themselves with and to comply with the regulatory requirements associated with substantial asset changes.