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EXAMINING ISSUANCE
Comptroller of the Currency
Administrator of National Banks
Type:  Examining Circular
Subject:  Supervision Program for Chain Banks

TO:  Deputy Comptrollers; District Administrators; Department Heads;
     Division Directors; and Examining Personnel

PURPOSE

This circular establishes the supervisory policy for national banks in
chain banking organizations. The policy provides for a monitoring system
and establishes a strategic framework for coordinating examinations of
chain banks. Implementation of this policy is intended to enhance OCC's
ability to supervise chain banks by systematically identifying such
relationships and coordinating examinations of those chain banks that
possess characteristics warranting a higher degree of supervisory concern.
This will facilitate detection and control of the conditions that could
expose those institutions to undesirable systemic risks that may occur
throughout the chain group.

BACKGROUND

Generally, the term "chain banking" describes the form of banking
structure in which two or more independently chartered banks are
controlled either directly or indirectly by the same individual, family,
or group of individuals closely associated in their business dealings. A
registered multibank holding company and its subsidiary banks are not
ordinarily considered a chain banking organization unless the holding
company is linked to other banking organizations through common control.

While chain banking can be an effective and efficient form of banking
structure, providing many of the benefits common to multibank holding
company systems, it also provides the potential for unsafe and unsound
banking practices to impact more than one institution in the chain group.

The linkage of several banks or holding companies into a chain creates a
concentration of banking resources vulnerable to mutual risk. Mutually
shared risks that occasionally can arise in chain banking relationships
may result from poor loan participation practices; common deficiencies in
lending, investment or other policies; domineering or absentee ownership:
insider lending abuses or other self-serving practices. Detection and
correction of these problems is often complicated when the chain is
composed of institutions subject to multiple supervisory jurisdiction.

POLICY

OCC will supervise national banks that are part of a chain banking
organization in a manner that fully considers the consolidated chain's
impact on the safety and soundness of the subject national bank(s). This
supervisory strategy is intended to ensure that OCC resources are
efficiently and effectively deployed.

Therefore, supervision will be coordinated to address the risk posed by
the entire chain. OCC will initiate contacts with and cooperate with other
federal or state financial institution supervisory authorities to ensure
an effective evaluation of the condition and prospects of the chain group
and its member institutions.

PROCEDURES

Management Information System of Records:

Deputy Comptrollers (District) are responsible for implementing and
maintaining a system of records designated as the "Chain Banking
Organizations System." The System will consist of word processing or
microprocessing programs which detail two types of data:

o Name of an individual (or group of individuals acting in concert) that
  owns or controls two or more banks or financial institutions (including
  at least one national bank); and

o Information concerning individual chain banks, such as:  name and
  location, charter number, charter type, date of last examination,
  percentage of outstanding stock owned by controlling individual or group
  and, if applicable, name of intermediate holding entity and percentage
  of it held by controlling individual or group.

For purposes of this issuance, a presumption of effective control should
be made if the common owner has the ability, directly or indirectly, to
control the vote of 25% or more of any class of voting securities or to
direct the management or policies of the bank. However, the record should
also identify any known or suspected chain relationship regardless of the
percentage of voting control.

The system of records should adhere to the data format set forth in
Attachment A. The system should also comply with the policies and
practices for storage, retrieval, access, retention and disposal set forth
in Attachment B.

In addition, since the system is subject to the provisions of the Privacy
Act of 1974, procedures should be implemented by District Counsel to
process any Privacy Act access requests made regarding records in the
system, as set forth in Attachment B.

Scheduling Coordinated Examinations:

District Administrators are responsible for setting the overall
supervisory strategies for each chain organization. As part of the overall
supervisory strategy, on-site examinations should be coordinated with
other regulatory agencies. District Administrators or their designees are
responsible for initiating interagency planning sessions and making the
final decision regarding which chain banks will be examined in
coordination with other supervisory authorities. Decisions regarding
supervisory strategies and action plans for chain organizations should be
documented in the files of the affected banks.

Periodic examination planning sessions held with the Federal Deposit
Insurance Corporation regional offices and Federal Reserve System district
banks pursuant to the provisions of PPM 5400-2, should incorporate
consideration of concurrent or coordinated examinations of chain banking
groups. As appropriate, other affected regulatory authorities such as the
Federal Home Loan Bank Board or State officials should be invited to
participate.

District Administrators or their designees are responsible for seeing that
chains which operate on an inter-District basis are coordinated with their
counterparts. For those chains operating on an intra-District basis,
District Administrators or their designees should see that strategies and
examinations are coordinated with each affected Field Office.

In devising an appropriate supervisory action plan including deciding
whether to conduct concurrent or coordinated examinations the following
factors should be considered:

o The degree and nature of control or influence being exerted over
  individual banks in the chain. The managerial style and extent of direct
  control or influence at each institution in the chain.

o The relative complexity and sophistication of the chain's
  organizational structure including the degree of centralization of
  operations.

o The degree of interdependence among the individual institutions in the
  group with specific emphasis on the volume and frequency of interbank
  transactions such as: loan participations or sales; insider and related
  interests loans or transactions; BHC or bank stock loans; correspondent
  or interbank transfers; contractual obligations for services or other
  matters: purchases or sale of securities or other assets.

o The relative strengths and weaknesses of the individual institutions in
  the group including comparative size, overall condition and historical
  performance. The existence or suspicion of instability or weaknesses
  should be given particular weight.

Supervisory Follow-up and Monitoring:

District Administrators or their designees should ensure that the
condition of chain organizations are monitored on an ongoing basis. This
would include periodic on-site, as well as off-site monitoring of
information, including collection of information directly from the chain
and from other regulators.

Procedures should be established to assure the timely exchange of
significant information between the participating examining personnel and
other supervisory authorities. For guidance refer to the "Joint Statement
of Policy on Interagency Exchange of Supervisory Information" dated August
23, 1984.

Periodically, but at least annually, the examiner-in-charge of the
principal national bank in the group or other staff designated by the
District Administrator should review the results of off-site and on-site
analysis, including the examination of each entity in the group, and
render a summary analysis of the consolidated chain group.

The reviewer should prepare a written summary analysis of the consolidated
chain group's condition and include a brief description of the scope of
its operations, earnings and capital adequacy. Adverse comments common to
several institutions in the group should be discussed in detail. See
Attachment C for guidelines in preparing the written analysis. A copy of
the completed review should be retained in each affected bank's file. If
the chain contains one or more nondelegated banks, a copy of the written
analysis should be forwarded to the appropriate division in Washington.

The summary analysis may serve as a basis for updating individual
supervisory strategies and for deciding the frequency of future
coordinated examinations by the District. In any event, the analysis of
the chain should be updated at least annually. The District Administrator
or designee should also determine the need for more frequent updates of
the analysis depending on the overall condition of the chain.

ORIGINATING OFFICE

Chief National Bank Examiner's Office, Commercial Examinations Division,
(202) 447-1165.

Michael Patriarca
Deputy Comptroller of the Currency

Attachments

Date:  July 22, 1985