Related Organizations

Noncontrolling Equity Investments

The OCC permits banks to own, either directly or through an operating subsidiary, a noncontrolling interest in an enterprise. The enterprise may be a corporation, limited partnership, LLC, or similar entity. Certain noncontrolling equity investments are governed by 12 CFR 5.36.

12 CFR 5.36 provides an after-the-fact notice procedure for qualifying national banks to make certain types of noncontrolling investments. To meet the qualifying requirements, national banks must be well capitalized and well managed, as those terms are defined for operating subsidiaries. The notice must be filed no later than 10 days after making the investment and must contain the following information:

• A clear description of the activities conducted by the entity in which the bank invests.

• A statement that the entity engages in activities listed in 12 CFR 5.34(e)(5)(v), or alternatively an explanation of how the activities are substantively the same as those described in published OCC precedent for noncontrolling investments, and certification that the activities will be conducted in accordance with the same terms and conditions as stated in the precedent.

• A description of how the bank is able to prevent the enterprise from engaging in activities that do not meet the foregoing standards, or how it is able to withdraw its investment.

• A description of how the investment is convenient or useful to the bank in carrying out the bank’s business and not a mere passive investment unrelated to its banking business.

• Certification that the bank’s loss exposure will be limited, as a legal and accounting matter, and that the bank will not have open-ended liability for the obligations of the enterprise.

• Certification that the bank will account for its investment under the equity or cost method of accounting.

• Certification that the entity agrees to be subject to OCC supervision and examination (subject to certain limits regarding functionally regulated entities and activities).

When a national bank that is not well capitalized or well managed seeks to make a noncontrolling investment directly or when a national bank wishes to invest in an enterprise that engages in activities that are not eligible for the after-the-fact notice procedure, the OCC determines eligibility case by case.

When owning a minority interest in an enterprise, a bank should participate in the company’s affairs to the extent practicable in order to identify and be in a position to control any risks that the company presents to the bank. Information documenting the lines of business and current financial status of all such companies should be maintained in the bank’s head office.

In addition, banks may own, either directly or indirectly, a noncontrolling interest in an enterprise pursuant to specific statutory authorization. Examples include community and economic development entities (12 USC 24(Eleventh) and 12 CFR Part 24) and small business investment companies (15 USC 682(b)).

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