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Federal Register / Vol. 86, No. 21 / Wednesday, February 3, 2021 / Proposed Rules community banks, some operating out of a single building or few buildings, and large banks with tens of thousands of employees and operations in all fifty states.
Finally, commercial real estate itself has changed greatly in the past several decades in ways that are difficult to square with premises precedent. The majority of OCC and OTS premises precedent concerns either branches or standalone office space, as those were the typical premises arrangements for banking operations in the 20th century.
Recent years have seen the growth of mixed-use developments combining office space with retail space, residential space, and other uses not typically found in a traditional office building. Some industries have moved towards a comprehensive campus arrangement providing employees with amenities and working arrangements previously not present in an office environment. Finally, with the development of robust teleconferencing and the arrival of the COVID19
pandemic, many companies are moving towards offsite, shared, or virtual work spaces. It is increasingly difficult for national banks and Federal savings associations to rely on precedent focusing on traditional office arrangements to determine whether and to what extent they may own mixed-use developments, install amenities to compete with those offered by other industries including technology companies, or make use of alternative work arrangements.
For these reasons, the OCC proposes these revisions to 12 CFR 7.1024 to codify and clarify a transparent and consistent set of principles for national bank and Federal savings association premises. The OCC intends these regulations to meet the needs of modern national banks and Federal savings associations while ensuring consistent application of and adherence to the limitations of 12 U.S.C. 29 and the HOLA.
Question One: Although current OCC
regulations and the proposal cover both the national bank and Federal savings association charters in one section, there are differences in the statutory regimes covering each charter. Would it be preferable to apply different requirements to Federal savings association premises? Specifically, should the proposed rule apply only to national banks? If so, what requirements should apply to Federal savings associations? Should the OCC continue to apply the current requirements to Federal savings associations even if it adopts the proposed rule with respect to national banks? Should the OCC adopt
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a requirement for Federal savings associations that is similar to or identical to the requirement in effect before the integration of national bank and Federal savings association requirements? 14 Also, should the proposed rule apply to federal branches and agencies of foreign banks regulated by the OCC? If so, should modified requirements be applied to such branches and agencies?
III. The Proposed Rule The OCC is proposing to revise 7.1024 to provide general standards the OCC will use in determining whether the acquisition and holding of real estate is necessary for the transaction of a national banks or Federal savings associations business.
Revisions include implementing an occupancy test and excess capacity standards that would allow national banks and Federal savings associations to ascertain better whether an acquisition or holding of real estate is permissible under 12 U.S.C. 29 or the HOLA. The OCC has determined that national banks and the public would benefit from clear standards related to the requirements and expectations for real estate to be considered necessary for the transaction of a national banks or Federal savings associations business as required by 12 U.S.C. 29 or the HOLA. Current 7.1024 and various legal interpretations provided examples of permissible holdings, but the OCC
has determined that, for the reasons articulated above, these examples do not provide general principles national banks could apply to new acquisitions.
Without clear principles, there is the potential for inconsistent application of 12 U.S.C. 29, the HOLA, and 12 CFR
7.1024. The proposed revisions are intended to provide for more consistent application of 12 U.S.C. 29, the HOLA, and 12 CFR 7.1024.
Definitions 7.1024a Proposed 7.1024a provides certain definitions used in the proposed rule.
Bank occupied office premises is defined in proposed 7.1024a1 as bank occupied premises containing 14 61 FR 66561, 66579 Dec. 18, 1996 A federal savings association may invest in real estate improved or unimproved to be used for office and related facilities of the association, or for such office and related facilities and for rental or sale, if such investment is made and maintained under a prudent program of property acquisition to meet the federal savings associations present needs or its reasonable future needs for office and related facilities. A federal savings association may not make an investment that would cause the outstanding book value of all such investments including investments under 559.4e2 of this chapter to exceed its total capital..

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offices where professional or clerical duties are performed.
Bank occupied premises is defined in proposed 7.1024a2 as real estate acquired and held in good faith in which more than 50 percent of each building or severable piece of land is used by bank persons, including facilities that may be operated by third parties to provide amenities and services to bank persons or otherwise facilitate bank business operations. This definition encompasses a variety of factual situations, including a banks acquisition of a single premises building or a banks development of a premises campus. As reflected in the above definition, in any factual situation the OCC would apply the 50 percent occupancy standard to each building or severable piece of land. In order for a building or severable piece of land to be considered bank occupied premises, more than 50 percent of the space must be used by, or for, bank persons to facilitate bank business operations.
Space that facilitates bank business operations would include facilities operated by third parties to provide amenities and services to bank persons that facilitate bank business operations;
examples of such facilities include an office gym, cafeteria, daycare, or printing center. In calculating the occupancy percentage, the national bank or Federal savings association would look at each building or severable piece of land using the amount of space that is used by or for bank persons as the numerator and the overall space of the building or severable piece of land as the denominator. As an example, a national bank or Federal savings association that acquires and holds a building in good faith and in which the national bank or Federal savings association uses 4,000 square feet of the 6,000 square foot building for a bank branch, bank offices, gym for bank persons use, and cafeteria for bank persons use, the occupancy percentage would be approximately 67 percent and the national bank or Federal savings association could rent the remaining 2,000 square feet of the building, for example as ground floor retail space, in order to avoid economic loss or waste in the real estate consistent with 7.1024c.
Question Two: The OCC requests comment on whether 50 percent is the appropriate percentage for bank occupied premises. Should the percentage be higher, such as 75
percent, or lower, such as 25 percent?
The OCC requests comments on all possible percentage limitations and particularly the range of percentages between 25 and 75. Why should the
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