12 U.S.C. § 24a — Financial subsidiaries of national banks

(a) Authorization to conduct in subsidiaries certain activities that are financial in nature (1) In general. Subject to paragraph (2), a national bank may control a financial subsidiary, or hold an interest in one. (2) Conditions and requirements. A bank may control, or hold an interest in, a financial subsidiary only if: (A) the subsidiary engages only in (i) activities that are "financial in nature" or incidental to a financial activity under subsection (b), and (ii) activities national banks may do directly, subject to the same terms and conditions that govern the bank itself; (B) the subsidiary's activities as a principal do not include (i) insuring, guaranteeing, or indemnifying against loss, harm, damage, illness, disability, or death — except as sections 302 or 303(c) of the Gramm-Leach-Bliley Act allow — or issuing annuities taxed under section 72 of title 26; (ii) real estate development or investment, unless another law expressly authorizes it; or (iii) any activity permitted under section 1843(k)(4)(H) or (I) of this title, except that some section 1843(k)(4)(H) activities may be permitted in accordance with section 122 of Gramm-Leach-Bliley; (C) the bank and each of its depository-institution affiliates are "well capitalized" and "well managed"; (D) the combined total assets of all the bank's financial subsidiaries do not exceed the lesser of (i) 45% of the bank's own consolidated total assets, or (ii) $50,000,000,000; (E) except as paragraph (4) allows, the bank meets credit-worthiness standards the Comptroller of the Currency sets, or the requirement in paragraph (3); and (F) the Comptroller has approved the financial subsidiary to engage in those activities, based solely on the factors this section sets out. (3) Requirement. (A) In general. A bank meets this paragraph if it is one of the 100 largest insured banks and has at least one outstanding debt issue meeting credit-worthiness standards the Secretary of the Treasury and the Federal Reserve Board jointly establish. (B) Consolidated total assets. A bank's size here is measured by its consolidated total assets at the end of each calendar year. (4) Financial agency subsidiary. The credit-worthiness requirement in paragraph (2)(E) does not apply to a financial subsidiary that engages in activities described in subsection (b)(1) solely as an agent, and not directly or indirectly as a principal. (5) Regulations required. Within 270 days of November 12, 1999, the Comptroller must, by regulation, prescribe procedures to implement this section. (6) Indexed asset limit. The dollar amount in paragraph (2)(D) is adjusted under an indexing mechanism the Secretary of the Treasury and the Federal Reserve Board jointly establish by regulation. (7) Coordination with section 1843(l)(2) of this title. That section applies to a national bank that controls a financial subsidiary the way that section describes. (b) Activities that are financial in nature (1) Financial activities. (A) In general. An activity is "financial in nature" or incidental to such an activity only if (i) it has already been defined that way for bank holding companies under section 1843(k)(4) of this title, or (ii) the Secretary of the Treasury determines it qualifies, following subparagraph (B). (B) Coordination between the Board and the Secretary of the Treasury. (i) Proposals raised before the Secretary of the Treasury. The Secretary must notify and consult with the Federal Reserve Board about any request, proposal, or application for this kind of determination. The Secretary cannot make the determination if the Board notifies the Secretary in writing, within 30 days of that notice (or a longer period the Secretary allows), that the Board believes the activity is not financial in nature or is not otherwise permissible under this section. (ii) Proposals raised by the Board. The Board may at any time recommend in writing that the Secretary find an activity financial in nature. Within 30 days of that recommendation (or a longer period both agree to), the Secretary must decide whether to start a public rulemaking proposing the activity be found financial in nature, and must notify the Board in writing of that determination — including, if the Secretary decides not to seek public comment, the reasons why. (2) Factors to be considered. In deciding whether an activity is financial in nature, the Secretary must weigh (A) the purposes of this Act and the Gramm-Leach-Bliley Act; (B) actual or expected changes in the marketplace in which banks compete; (C) actual or expected changes in the technology for delivering financial services; and (D) whether the activity is necessary or appropriate to let a bank and its subsidiaries compete effectively with other financial-service providers, efficiently deliver financial information and services through technology (including protecting the security of data and transaction systems), and offer customers new or emerging technology for financial services or document imaging. (3) Authorization of new financial activities. Following paragraph (1)(B), the Secretary must, by regulation or order and consistent with this Act and the Gramm-Leach-Bliley Act, define — and define the extent to which — the following are financial in nature or incidental to a financial activity: (A) lending, exchanging, transferring, investing for others, or safeguarding financial assets other than money or securities; (B) providing a device or other instrumentality for transferring money or other financial assets; and (C) arranging, effecting, or facilitating financial transactions for third parties. (c) Capital deduction (1) Capital deduction required. In checking compliance with capital standards, (A) the bank's total outstanding equity investment, including retained earnings, in all financial subsidiaries must be deducted from the bank's own assets and tangible equity; and (B) the financial subsidiaries' assets and liabilities are not consolidated with the bank's. (2) Financial statement disclosure of capital deduction. Any published financial statement of a bank that controls a financial subsidiary must, in addition to information prepared under generally accepted accounting principles, separately present the bank's financial information the way paragraph (1) requires. (d) Safeguards for the bank. A bank that establishes or maintains a financial subsidiary must assure that (1) its procedures for identifying and managing financial and operational risks within the bank and the subsidiary adequately protect the bank from those risks; (2) it has, for its own protection, reasonable policies and procedures to preserve the separate corporate identity and limited liability of the bank and its financial subsidiaries; and (3) it is complying with this section. (e) Provisions applicable to national banks that fail to continue to meet certain requirements (1) In general. If a bank or an insured depository institution affiliate stops meeting the requirements of subsection (a)(2)(C) or subsection (d), the Comptroller must promptly notify the bank, describing the conditions giving rise to the notice. (2) Agreement to correct conditions. Within 45 days of getting that notice (or a longer period the Comptroller allows), the bank must sign an agreement with the Comptroller, and any relevant affiliate must sign one with its own appropriate federal banking agency, to come back into compliance with subsection (a)(2)(C) and subsection (d). (3) Imposition of conditions. Until the conditions in the notice are corrected, (A) the Comptroller may impose limits on the conduct or activities of the bank or any of its subsidiaries that the Comptroller finds appropriate and consistent with this section's purposes; and (B) the affiliate's appropriate federal banking agency may impose similar limits on that affiliate or its subsidiary. (4) Failure to correct. If the conditions are not corrected within 180 days after the bank receives the notice, the Comptroller may require the bank — under terms and conditions the Comptroller sets, with any time extension the Comptroller allows — to divest control of the financial subsidiary. (5) Consultation. Before acting under this subsection, the Comptroller must consult with all relevant federal and state regulatory agencies and authorities. (f) Failure to meet standards of credit-worthiness or other applicable criteria (1) In general. A bank that stops meeting the Comptroller's credit-worthiness standards, or the requirement in subsection (a)(2)(E), after already acquiring or establishing a financial subsidiary, may not — directly or through a subsidiary — purchase or acquire any additional equity capital in any financial subsidiary until it meets those requirements again. (2) Equity capital. Here, "equity capital" includes, besides any equity instrument, any debt instrument a financial subsidiary issues, if that instrument qualifies as capital of the subsidiary under any applicable federal or state law, regulation, or interpretation. (g) Definitions. In this section: (1) "Affiliate," "company," "control," and "subsidiary" have the meanings given those terms in section 1841 of this title. (2) "Appropriate Federal banking agency," "depository institution," "insured bank," and "insured depository institution" have the meanings given those terms in section 1813 of this title. (3) "Financial subsidiary" means a company controlled by one or more insured depository institutions, other than a subsidiary that (A) engages solely in activities national banks may do directly, on the same terms that govern national banks doing them, or (B) a national bank is specifically authorized by the express terms of a federal statute (other than this section) — not by implication or interpretation — to control, such as under section 25 or 25A of the Federal Reserve Act, or the Bank Service Company Act. (4) "Eligible debt" means unsecured long-term debt that (A) is not backed by any credit enhancement, including a guarantee or standby letter of credit, and (B) is not held, in whole or any significant part, by an affiliate, officer, director, principal shareholder, or employee of the bank, or by anyone acting on behalf of, or with funds from, the bank or its affiliate. (5) "Well capitalized" has the meaning given that term in section 1831o of this title. (6) "Well managed" means (A) for a depository institution that has been examined — unless the appropriate federal banking agency determines otherwise in writing — (i) a composite rating of 1 or 2 (or an equivalent rating under an equivalent system) at its most recent examination or subsequent review, and (ii) at least a rating of 2 for management, if given; or (B) for a depository institution that has not been examined, the existence and use of managerial resources the appropriate federal banking agency determines are satisfactory.