Types of Activities and Filing Qualifications

A bank that intends to acquire or establish an operating subsidiary, perform a new activity in an existing operating subsidiary, or make a new noncontrolling investment through an operating subsidiary, usually must submit an application or notice to the OCC. The bank’s condition and the subsidiary’s activity determine the way a bank files with the OCC.

Operating subsidiary filings may take one of two forms: an after-the-fact notice or a standard application. Only well-capitalized and well-managed banks may file under the notice process for "eligible activities." If a bank does not qualify or if the activities proposed are not eligible for the after-thefact notice process, the bank must follow the standard application process. (See the Comptroller’s Licensing Manual for detailed guidance on operating subsidiary filing procedures.)

After-the-Fact Notice

The after-the-fact notice category contains commonly accepted banking-related activities that the OCC has previously approved for subsidiaries. Under this process, a well-capitalized and well-managed bank may file an after-the-fact notice for specific activities as listed in the "activities eligible for notice" section (12 CFR 5.34(e)(5)(v)) in the regulation. Under this process, a bank files a written notice with the OCC within 10 days after establishing or acquiring the subsidiary, or commencing the activity, and need not seek prior OCC approval.

To qualify for the notice process, the bank that wishes to establish or acquire the subsidiary must be "well managed" as set forth in 12 CFR 5.34(d)(3) and "well capitalized" as defined at 12 CFR 6.4(b):

• Unless otherwise determined in writing by the OCC, to be "well managed" a national bank must have a composite rating of 1 or 2 under the Uniform Financial Institutions Rating System or an equivalent system on its most recent examination. If the institution has not been examined, then it must have managerial resources that the OCC determines are satisfactory.

• "Well capitalized" means that the capital level is designated as "well capitalized" pursuant to 12 CFR 6.4(b) (Prompt Corrective Action). ^[2]

Any bank receiving approval pursuant to the notice process is deemed to have represented that the subsidiary will conduct the activity in a manner consistent with the OCC’s guidance and under the same terms and conditions as would apply if the activity were conducted directly by the bank.

The activities qualifying for the after-the-fact notice process are listed in appendix A of this booklet.

Operating Subsidiary Application

A proposal to acquire or establish an operating subsidiary or to perform new activities in an existing subsidiary must undergo the OCC’s standard application review process when the proposed activities do not qualify for after-the-fact notice, when the bank will control and own 50 percent or less of the interest in an operating subsidiary, or when the bank is not "well capitalized" and "well managed" as defined by the regulation.

The OCC may require the applicant to submit a legal analysis if the proposal is novel, is unusually complex, or raises substantial unresolved legal issues. In such cases, the OCC encourages applicants to arrange a pre-filing meeting with the OCC. Additionally, any bank subject to supervisory concerns should provide financial information to support the proposed transaction (e.g., strategic plan, cost projections, or pro forma financial projections).