Related Organizations

Subsidiaries

Except with respect to functionally regulated activities, national bank subsidiaries are normally supervised on a consolidated basis along with the parent bank. ^[22] For supervisory purposes, the bank and its operating subsidiaries are viewed as a single economic entity. The OCC ordinarily supervises national banks by business line, and, unless law or regulation provide otherwise, the terms and conditions that apply to national banks’ activities are the same whether those activities are conducted directly or through an operating subsidiary. The results of operations of operating subsidiaries are consolidated with those of its parent for purposes of applying statutory or regulatory limits, such as lending limits or dividend restrictions.

Financial subsidiaries are treated differently. A national bank may not consolidate the assets and liabilities of a financial subsidiary with those of the bank. In addition, GLBA provides that other regulators will functionally regulate insurance and securities activities conducted by a financial subsidiary of a national bank. Consistent with GLBA, the OCC assesses the consolidated risk profile of a bank and its systems for monitoring and controlling the risks that are presented by its functionally regulated subsidiaries.

When an investment in a subsidiary is subject to the standard review process or when a bank requests an opinion, the OCC is able to perform both a legal and supervisory assessment of the proposal and may impose certain conditions of approval. However, if the activity is subject to only after-thefact notice or if no notice or approval is required and the bank does not request an opinion, the OCC will not have an opportunity to evaluate and review the activity in advance for potential supervisory concerns.

In reviewing filings related to corporate activities, the examiner should ascertain that the OCC has issued final approval letters for the bank’s newly established subsidiaries, unless the subsidiary qualified for after-the-fact notice or no notice under the regulation. If these approvals were subject to conditions, the examiner should assess whether bank management and the board of directors have addressed such conditions. If the bank filed an after-the-fact notice or did not file any notice, examiners should determine that the bank was eligible to use this procedure and that the activity the bank is engaged in also qualifies for this treatment.

If the bank’s investment in the subsidiary is material or poses new or increased risks, the examiner should review the activities of the subsidiary to determine how the risk is managed and whether those activities are being conducted in a safe, sound, and legal manner. In determining the extent of this review, an examiner should consider:

• The subsidiary’s line of business, and the nature of and inherent risk in that line of business.

• The extent to which the parent bank participates in that line of business, and the adequacy of the parent bank’s policies, procedures, and risk management systems for that line of business.

• The percentage of ownership and the dollar amount invested in the subsidiary.

• The size of the subsidiary relative to the bank’s total assets and capitalization.

• The types of services the subsidiary performs for the bank or other related organizations.

• The subsidiary’s earnings contribution to the bank.

• The types and amounts of intercompany transactions, with a focus on compliance with sections 23A and 23B and Regulation W.

• The adequacy of the bank’s policies and procedures governing subsidiaries.

If the investment in the subsidiary is material or poses new or increased risks to the bank, the examiner will refer to the sections of the Comptroller’s Handbook that apply to the subsidiary’s line of business for detailed guidance and examination procedures.

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