Investment in Subsidiaries and Equities

Investment in Subsidiaries and Equities Comptroller's Licensing Manual Washington, DC July 2008 Investment in Subsidiaries and Equities Table of Contents Introduction.............................................................................................................1 Key Policies.............................................................................................................1 Applications and Notices..............................................................................1 Special Conditions........................................................................................2 Undercapitalized Banks................................................................................2 Publication ...................................................................................................3 Consolidated Financial Statements................................................................3 Multiple Transactions ...................................................................................3 Mergers and Acquisitions..............................................................................3 Offshore Subsidiaries....................................................................................4 Examination and Supervision........................................................................5 Operating Subsidiaries.............................................................................................5 Ownership....................................................................................................6 Partnership or Joint Venture..........................................................................6 Noncontrolling Interest.................................................................................6 Decision Criteria...........................................................................................7 Filing Process................................................................................................7 After-the-Fact Notice..........................................................................8 Standard Review............................................................................. 10 Specific Requirements ............................................................................... 11 Insurance........................................................................................ 11 Electronic Activities ........................................................................ 12 Fiduciary Powers ............................................................................ 12 Locations ................................................................................................... 13 Annual Reporting Requirement.................................................................. 13 Applicability of Law................................................................................... 13 Holding Company Dissolution .................................................................. 14 Financial Subsidiaries ........................................................................................... 14 Qualifications ............................................................................................ 14 Activities.................................................................................................... 15 Exceptions ................................................................................................. 16 Safeguards ................................................................................................. 16 Filing Process............................................................................................. 17 Certification with Subsequent Notice.............................................. 17 Combined Certification and

Notice................................................. 18 Failure to Continue to Meet Qualifications ................................................ 18 Bank Service Company......................................................................................... 19 Filing Process............................................................................................. 20 Decision Criteria........................................................................................ 20 After-the-Fact Notice.................................................................................. 20 No Filing Required .................................................................................... 21 Other Equity Investments...................................................................................... 21 Statutory Subsidiaries................................................................................. 22 Noncontrolling Investments....................................................................... 23 i Procedures............................................................................................................ 25 Operating Subsidiary and Bank Service Company – After-the-Fact Notice ................................................................................................. 25 Operating Subsidiary and Bank Service Company – Application ............... 27 Financial Subsidiary – Certification............................................................ 32 Financial Subsidiary – Notice .................................................................... 34 Financial Subsidiary -- Combined Certification and Notice ........................ 36 Noncontrolling Investments -- After-the-Fact Notice................................... 39 Appendix A -- Operating Subsidiary Guidelines.................................................... 42 Appendix B -- Noncontrolling Investment Guidelines........................................... 71 Glossary .............................................................................................................. 83 References............................................................................................................ 85 ii Investment in Subsidiaries and Equities Introduction Banks develop, and offer through various subsidiaries and other business entities, a wide range of products and services designed to increase profitability, improve service to customers, and respond to technological innovations and competition. These subsidiaries and other business entities include operating subsidiaries, financial subsidiaries, bank service companies, and noncontrolling interests in business entities performing bank permissible activities (subsidiaries or noncontrolling investments). This booklet describes various types of subsidiaries or noncontrolling investments that banks can establish and provides detailed guidance on permissible and incidental activities. The Comptroller of the Currency (OCC) has created procedures and conditions for the establishment and operations of subsidiaries or noncontrolling investments. This booklet outlines these procedures and conditions. To establish a subsidiary or make a noncontrolling investment, the OCC generally requires banks to submit an application and obtain prior approval. In some cases, banks can submit to the OCC an after-the-fact notice, when establishing or commencing new activities in subsidiaries or noncontrolling investments. This booklet contains policies and procedures to guide banks in filing these applications and notices and outlines exceptions to these requirements. It also provides information on the regulatory and statutory factors the OCC considers in making a decision; the application process (including the prefiling process, filing the application, and processing time frames); application issues; specific requirements for insurance, electronic, and fiduciary activities; and the post approval process. This booklet also provides a step-by-step procedures section for the applicant and the OCC to follow and a glossary of terms used. Throughout this booklet there are hyperlinks to filing samples and other booklets in the Comptroller’s Licensing Manual series, as well as other information applicants may use to file to establish various subsidiaries or noncontrolling investments. Key Policies Applications and Notices...

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