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Federal Register / Vol. 86, No. 21 / Wednesday, February 3, 2021 / Proposed Rules
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Supreme Court, this statute was designed to promote the safety and soundness of national banks by discouraging real estate speculation, and was also designed to protect the national economy and consumers by preventing banks from holding masses of property for their own account.5
Consistent with the statutory framework, a national bank investing in property should be doing so in good faith, solely with a view of obtaining an eligible location and not for the purpose of speculating or investing in real estate as a landlord.6
Federal savings association ownership of premises is governed by the Home Owners Loan Act HOLA. Although the HOLA does not specifically address a Federal savings associations investment in banking premises and there is no prohibition in the HOLA similar to 12
U.S.C. 29, historically, the Federal Home Loan Bank Board FHLBB, the Office of Thrift Supervision OTS, and the OCC have interpreted the HOLA to permit Federal savings associations to hold real estate only for their offices and related facilities with permission to rent or sell excess space in their offices and facilities and the OCC has issued regulations governing a Federal savings associations investment in banking premises pursuant to general supervisory and rulemaking authority under the HOLA.7 After Title III of the Dodd-Frank Wall Street Reform and Consumer Protection Act 8 transferred to the OCC all functions of the former OTS
and the Director of the OTS relating to Federal savings associations, the OCC
began reviewing its rules governing national banks and Federal savings associations to determine which rules were appropriate to integrate into a single set of rules for both national banks and savings associations.9 After this review, the OCC did not find substantive differences between the then-banking premises rules and related OTS guidance governing national banks debts previously contracted and other such means of securing debts. The proposed rule would not affect the ability of national banks to rely on these other purposes in 12 U.S.C. 29. The proposed rule would only interpret and implement the meaning of the first purpose Such as shall be necessary for its accommodation in the transaction of its business.
5 Union National Bank v. Matthews, 98 U.S. 621, 626 1878 to keep the capital of the banks flowing in the daily channels of commerce; to deter them from embarking in hazardous real estate speculations; and to prevent the accumulation of large masses of such property in the banks hands, to be held, as it were, in mortmain.
6 Brown v. Schleier, 118 F. 981, 984 8th Cir.
1902, affd 194 U.S. 18 1904.
7 80 FR 28346, 28377 May 18, 2015.
8 Public Law 111203, 124 Stat. 1376 2010.
9 See footnote 7.

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and Federal savings associations and determined that, as a supervisory matter, it was appropriate to apply the rule governing national banks to both national banks and Federal savings associations.10
The OCC implemented 12 CFR 7.1024
to cover national bank and Federal savings association ownership of real estate for their own use. However, 12
CFR 7.1024 does not provide a full set of standards implementing the requirements of 12 U.S.C. 29 and the HOLA regarding national bank and Federal savings association premises.
Rather, 12 CFR 7.1024 is an interpretive rule that codifies specific OCC
interpretations of 12 U.S.C. 29. Thus, although the rule contains a list of types of real estate that the OCC has found permissible for national bank and Federal savings association ownership, that list is not exhaustive. Moreover, significant standards relating to the permissibility of real estate ownership, such as the minimum percentage of bank occupancy required for a building to qualify as premises, are not addressed anywhere in OCC regulation.
Instead, the OCC has long deferred to court cases and published OCC
precedent to cover the field of requirements for national bank and Federal savings association ownership of premises. The OCC historically chose not to define specific limitations for standards, such as percentages of occupancy,11 instead relying on principles drawn from precedent to preserve a flexible approach to new national bank proposals while ensuring those principles continue to reflect the purposes behind 12 U.S.C. 29.12 The 10 Id.
11 OCC Interpretive Letter No. 1053 Jan. 31, 2006
Neither the OCC nor the courts have established a single occupancy percentage test . . ..
12 Outstanding precedent includes OCC
Interpretive Letter No. 1072 Sept. 15, 2006
permitting a bank to lease out a portion of its existing premises to retail businesses in arrangements under which approximately 50
percent of the premises would be used by the bank for its banking business; OCC Interpretive Letter No. 1053 Jan. 31, 2006 describing OCC analysis of permissibility of premises in OCC Interpretive Letter No. 1045 and 1044; OCC Interpretive Letter No. 1045 Dec. 5, 2005 permitting a national bank to establish a hotel on its premises, of which the bank intended to use more than 50 percent of the occupancy for out-of-area bank employees, members of the banks board of directors, and selected vendors, shareholders, customers, and other visitors on bank-related business; OCC
Interpretive Letter No. 1044 Dec. 5, 2005
permitting a national bank to establish a mixed-use office, hotel, and residences facility on its premises, in which the bank would use less than 50 percent of the premises for banking purposes; OCC
Interpretive Letter No. 1043 July 8, 1993
permitting a national bank to lease to third parties a bank condominium when it is not being used for bank purposes; OCC Interpretive Letter No. 1042

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OTS similarly did not set percentages of occupancy within its premises regulation for Federal savings associations.13
Although this precedent-based approach provides flexibility, it comes with several limitations. First, since precedent is necessarily responsive to presented facts, reliance on precedent means there is no clear rule to give notice to banks or the public of what forms of real estate ownership are permissible for a bank. Published OCC
precedent by its nature typically describes fact patterns found to be permissible. Therefore, reliance on precedent alone makes it difficult for the industry and the public to understand what set of facts would be impermissible. Given the time and effort often required to plan an investment in premises, delays and uncertainty caused by unclear legal standards can be problematic.
Second, national bank premises precedent was largely formed at a time when the banking industry was different than the one in existence today. Many of the most important cases decided on premises occurred at a time when most banks operated entirely out of a single headquarters. The principles drawn from those cases remain relevant in the present day, but the reality of a modern large bank is very different than a bank that existed prior to interstate branching. Bank premises rules in the present day must apply to both Jan. 21, 1993 permitting a bank to retain a condominium used only for bank purposes; OCC
Interpretive Letter No. 1034 April 1, 2005
permitting a national bank to construct new facilities on existing premises real estate, use less than 50 percent of the premises for bank purposes, and lease unused space as excess bank premises;
Conditional Approval No. 298 Dec. 15, 1998
permitting a bank to use less than 50 percent of office premises for its banking business;
Interpretive Letter No. 758 April 5, 1996
permitting a national bank to lease out a portion of its real estate held as premises for employee recreation purposes to a third party to remove a hill and mine granite deposits. As discussed below, this proposed rule would supersede existing precedent to the extent it is inconsistent with the proposed rule. However, the proposed rule would not necessarily supersede precedent that is consistent with the requirements of the proposed rule or precedent that addresses issues not covered by the proposed rule. The OCC requests comment on whether and how outstanding precedent should be affected by the proposed rule.
13 Former 12 CFR 560.37. In 2011, the OCC
republished OTS regulations set out in Chapter V
of Title 12, including 12 CFR 560.37, with OCC part numbers changing the 5 to a 1. 12 CFR 560.37
became 12 CFR 160.37. 76 FR 48950 August 9, 2011. 12 CFR 160.37 was subsequently removed when Federal savings associations were integrated into the national bank rule. Prior OTS guidance provided that a building would be a Federal savings associations premises if the association used 25
percent or more of the building. OTS Handbook, Section 252, Fixed Assets, April 1999, p.31
rescinded.

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