12 USC 24a - Financial subsidiaries of national banks

U.S Code last checked for updates: Feb 21, 2025

§ 24a.

Financial subsidiaries of national banks

(a)

Authorization to conduct in subsidiaries certain activities that are financial in nature

(1)

In general

(2)

Conditions and requirements

A national bank may control a financial subsidiary, or hold an interest in a financial subsidiary, only if—

(A)

the financial subsidiary engages only in—

(i)

activities that are financial in nature or incidental to a financial activity pursuant to subsection (b); and

(ii)

activities that are permitted for national banks to engage in directly (subject to the same terms and conditions that govern the conduct of the activities by a national bank);

(B)

the activities engaged in by the financial subsidiary as a principal do not include—

(i)

insuring, guaranteeing, or indemnifying against loss, harm, damage, illness, disability, or death (except to the extent permitted under section 302 or 303(c) of the Gramm-Leach-Bliley Act [15 U.S.C. 6712 or 6713(c)]) or providing or issuing annuities the income of which is subject to tax treatment under section 72 of title 26;

(ii)

real estate development or real estate investment activities, unless otherwise expressly authorized by law; or

(iii)

any activity permitted in subparagraph (H) or (I) of section 1843(k)(4) of this title, except activities described in section 1843(k)(4)(H) of this title that may be permitted in accordance with section 122 of the Gramm-Leach-Bliley Act;

(C)

the national bank and each depository institution affiliate of the national bank are well capitalized and well managed;

(D)

the aggregate consolidated total assets of all financial subsidiaries of the national bank do not exceed the lesser of—

(i)

45 percent of the consolidated total assets of the parent bank; or

(ii)

$50,000,000,000;

(E)

except as provided in paragraph (4), the national bank meets standards of credit-worthiness established by the Comptroller of the Currency or other requirement set forth in paragraph (3); and

(F)

the national bank has received the approval of the Comptroller of the Currency for the financial subsidiary to engage in such activities, which approval shall be based solely upon the factors set forth in this section.

(3)

Requirement

(A)

In general

(B)

Consolidated total assets

(4)

Financial agency subsidiary

(5)

Regulations required

(6)

Indexed asset limit

(7)

Coordination with section 1843(l)(2) of this title

(b)

Activities that are financial in nature

(1)

Financial activities

(A)

In general

An activity shall be financial in nature or incidental to such financial activity only if—

(i)

such activity has been defined to be financial in nature or incidental to a financial activity for bank holding companies pursuant to section 1843(k)(4) of this title; or

(ii)

the Secretary of the Treasury determines the activity is financial in nature or incidental to a financial activity in accordance with subparagraph (B).

(B)

Coordination between the Board and the Secretary of the Treasury

(i)

Proposals raised before the Secretary of the Treasury

(I)

Consultation

(II)

Board view

(ii)

Proposals raised by the Board

(I)

Board recommendation

(II)

Time period for secretarial action

(2)

Factors to be considered

In determining whether an activity is financial in nature or incidental to a financial activity, the Secretary shall take into account—

(A)

the purposes of this Act 1

 So in original.

and the Gramm-Leach-Bliley Act;

(B)

changes or reasonably expected changes in the marketplace in which banks compete;

(C)

changes or reasonably expected changes in the technology for delivering financial services; and

(D)

whether such activity is necessary or appropriate to allow a bank and the subsidiaries of a bank to—

(i)

compete effectively with any company seeking to provide financial services in the United States;

(ii)

efficiently deliver information and services that are financial in nature through the use of technological means, including any application necessary to protect the security or efficacy of systems for the transmission of data or financial transactions; and

(iii)

offer customers any available or emerging technological means for using financial services or for the document imaging of data.

(3)

Authorization of new financial activities

The Secretary of the Treasury shall, by regulation or order and in accordance with paragraph (1)(B), define, consistent with the purposes of this Act ¹ and the Gramm-Leach-Bliley Act, the following activities as, and the extent to which such activities 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 any device or other instrumentality for transferring money or other financial assets.

(C)

Arranging, effecting, or facilitating financial transactions for the account of third parties.

(c)

Capital deduction

(1)

Capital deduction required

In determining compliance with applicable capital standards—

(A)

the aggregate amount of the outstanding equity investment, including retained earnings, of a national bank in all financial subsidiaries shall be deducted from the assets and tangible equity of the national bank; and

(B)

the assets and liabilities of the financial subsidiaries shall not be consolidated with those of the national bank.

(2)

Financial statement disclosure of capital deduction

(d)

Safeguards for the bank

A national bank that establishes or maintains a financial subsidiary shall assure that—

(1)

the procedures of the national bank for identifying and managing financial and operational risks within the national bank and the financial subsidiary adequately protect the national bank from such risks;

(2)

the national bank has, for the protection of the bank, reasonable policies and procedures to preserve the separate corporate identity and limited liability of the national bank and the financial subsidiaries of the national bank; and

(3)

the national bank is in compliance with this section.

(e)

Provisions applicable to national banks that fail to continue to meet certain requirements

(1)

In general

(2)

Agreement to correct conditions

(3)

Imposition of conditions

Until the conditions described in a notice under paragraph (1) are corrected—

(A)

the Comptroller of the Currency may impose such limitations on the conduct or activities of the national bank or any subsidiary of the national bank as the Comptroller of the Currency determines to be appropriate under the circumstances and consistent with the purposes of this section; and

(B)

the appropriate Federal banking agency may impose such limitations on the conduct or activities of any relevant insured depository institution affiliate or any subsidiary of the institution as such agency determines to be appropriate under the circumstances and consistent with the purposes of this section.

(4)

Failure to correct

(5)

Consultation

(f)

Failure to meet standards of credit-worthiness meet 2

 So in original. Probably should be “or meet”.

applicable criteria

(1)

In general

(2)

Equity capital

(g)

Definitions

For purposes of this section, the following definitions shall apply:

(1)

Affiliate, company, control, and subsidiary

(2)

Appropriate Federal banking agency, depository institution, insured bank, and insured depository institution

(3)

Financial subsidiary

The term “financial subsidiary” means any company that is controlled by 1 or more insured depository institutions other than a subsidiary that—

(A)

engages solely in activities that national banks are permitted to engage in directly and are conducted subject to the same terms and conditions that govern the conduct of such activities by national banks; or

(B)

a national bank is specifically authorized by the express terms of a Federal statute (other than this section), and not by implication or interpretation, to control, such as by section 25 or 25A of the Federal Reserve Act [12 U.S.C. 601 et seq., 611 et seq.] or the Bank Service Company Act [12 U.S.C. 1861 et seq.].

(4)

Eligible debt

The term “eligible debt” means unsecured long-term debt that—

(A)

is not supported by any form of credit enhancement, including a guarantee or standby letter of credit; and

(B)

is not held in whole or in any significant part by any affiliate, officer, director, principal shareholder, or employee of the bank or any other person acting on behalf of or with funds from the bank or an affiliate of the bank.

(5)

Well capitalized

(6)

Well managed

The term “well managed” means—

(A)

in the case of a depository institution that has been examined, unless otherwise determined in writing by the appropriate Federal banking agency—

(i)

the achievement of a composite rating of 1 or 2 under the Uniform Financial Institutions Rating System (or an equivalent rating under an equivalent rating system) in connection with the most recent examination or subsequent review of the depository institution; and

(ii)

at least a rating of 2 for management, if such rating is given; or

(B)

in the case of any depository institution that has not been examined, the existence and use of managerial resources that the appropriate Federal banking agency determines are satisfactory.

(R.S. § 5136A, as added Pub. L. 106–102, title I, § 121(a)(2), Nov. 12, 1999, 113 Stat. 1373; amended Pub. L. 111–203, title IX, § 939(d), July 21, 2010, 124 Stat. 1886.)

cite as: 12 USC 24a

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