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Federal Register / Vol. 86, No. 21 / Wednesday, February 3, 2021 / Proposed Rules
percentage be higher or lower than 50
percent?
Question Three: The OCC requests comment on whether ground floor retail space rented to a third party should be treated differently under the occupancy percentage calculation. For example, should ground floor retail space that is intended primarily for bank persons use be included in the numerator of the calculation even if third parties incidentally use the space? Should primarily be defined as more than 50
percent of use by bank persons? Or, should ground floor retail space that is not intended primarily for bank persons be excluded entirely from the occupancy percentage calculation as an incident of sound facilities management so that it would be included in neither the numerator nor the denominator? Or should retail space that is intended, but not primarily intended, for bank persons be excluded from the numerator but included in the denominator? Should other adjustments be made to the calculation? Should unused or less-used spaces such as stairwells, lobbies, and maintenance areas be excluded from the numerator, denominator, or both?
Question Four: How should land obtained by a national bank or Federal savings association as lessee be treated?
The proposed rule would treat all land obtained by the bank through lease for use as premises as subject to the rule and its calculation requirements.
Should certain types of leases e.g., operating leases or capital leases be treated differently or excluded from the calculation?
Bank persons is defined in proposed 7.1024a3 as a national banks or Federal savings associations employees, contractors, consultants, vendors, and any other individuals who are engaged in the national banks or Federal savings associations business.
Impermissible premises is defined in proposed 7.1024a4 as real estate that is not bank occupied premises or that otherwise does not conform with the requirements of this section.
Impermissible premises is any property not expressly permitted under this section, including real estate in which the national bank or Federal savings association uses 50 percent or less of the building or severable piece of land for bank persons or the facilitation of bank business operations. Impermissible premises would also include real estate in which a national bank or Federal savings association occupies 50 percent or more but does not comply with the excess space and capacity provisions of proposed 7.1024c. Real estate held under the transition provision in
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proposed 7.1024g would not be considered impermissible premises.
Shared space is defined in proposed 7.1024a5 as bank occupied office premises that a national bank or Federal savings association shares with a third party to enhance the national banks or Federal savings associations business operations. The OCC is proposing to remove the shared space provisions from 12 CFR 7.3001 and instead include them in proposed 7.1024e to eliminate confusion regarding the interaction of the shared space provisions with the permissibility provisions of 12 CFR 7.1024. These proposed provisions are substantively unchanged from the current rule.
Investments in Real Estate Necessary for the Transaction of Business 7.1024b Proposed 7.1024b provides that a national bank or Federal savings association may acquire, hold, or convey real estate for use as bank occupied premises.15 Under the proposed rule, bank occupied premises would be considered real estate necessary for the transaction of a national banks or Federal savings associations business, and thus a national bank or Federal savings association would be permitted to acquire, hold, and convey real estate that is included within the definition of bank occupied premises.
Excess Space or Capacity 7.1024c Proposed 7.1024c sets forth the principles of the excess capacity doctrine 16 recognizing national banks and Federal savings associations need to optimize the value of bank property by authorizing national banks and 15 12 U.S.C. 29 provides that national banks may only purchase, hold, and convey real estate for four specific purposes. The OCC interprets the words purchase, hold, and convey to encompass all forms of real estate acquisition, ownership, and transfer. The proposed rule would use the words acquire, hold, or convey to make clear that all forms of real estate acquisition and ownership would be covered by the proposed rule. Depending on the circumstances, the words acquire, hold, or convey may include real estate obtained by a national bank or Federal savings association via lease.
16 The excess capacity doctrine holds that a bank properly acquiring an asset to conduct its banking business is permitted, under its incidental powers, to make full economic use of the property if using the property solely for banking purposes would leave the property underutilized. See OCC
Conditional Approval No. 361 Mar. 3, 2000. In 2002, the OCC distilled this doctrine in a regulation that allowed national banks to sell excess electronic capacity, including data processing services. 12
CFR 7.5004. This regulation relied on the previous history of allowing the sale of excess real property.
67 FR 34992, 34995 May 17, 2002. The current proposal for the treatment of excess capacity in the real estate context is consistent with the distillation set forth in the electronic capacity rule.

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Federal savings associations to sell or lease excess space or capacity in that property.17 Although national banks and Federal savings associations may sell or lease excess capacity or space in property, the property must have been legitimately acquired for banking purposes, meaning the national bank or Federal savings association must acquire or hold such property because of its suitability for use in banking operations or by bank persons and not as a means to invest the banks funds in real property or to speculate in real estate.18
Proposed 7.1024c1 provides that a national bank or Federal savings association may, in order to optimize the use of bank occupied premises or avoid economic loss or waste, permit third parties to use excess space or capacity in real estate legitimately acquired or developed by the national bank or Federal savings association for its banking business. The proposal also provides that such excess space or capacity must have a nexus with the transaction of bank business or bank operations such that it is acquired or held to provide the national bank or Federal savings association with a business location rather than as an investment in real estate. A national bank or Federal savings association must be able to demonstrate a nexus between its ownership of the property and the transaction of its business or bank operations. One way to demonstrate such a nexus would be for the national bank or Federal savings association to show in its business plan how the property supports its business.
Demonstrating that there is a nexus between the ownership of property and the transaction of its business allows the national bank or Federal savings association to demonstrate that such property was acquired or developed in good faith and not for a speculative purpose, consistent with statutory requirements. Although a national bank or Federal savings association may sell or lease excess space or capacity legitimately acquired or developed, a national bank or Federal savings association acquiring or developing 17 See 12 U.S.C. 24 Seventh and 29; Perth Amboy National Bank v. Brodsky, 207 F. Supp. 785, 788 S.D.N.Y. 1962 It is clear beyond cavil that the statute 12 U.S.C. 29 permits a national bank to lease or construct a building, in good faith, for banking purposes, even though it intends to occupy only a part thereof and to rent out a large part of the building to others..
18 Brown v. Schleier, 118 F. 981, 984 8th Cir.
1902. . . . provided, always, that it acts in good faith, solely with a view of obtaining an eligible location, and not with a view of investing its funds in real property or embarking them in speculations in real estate..

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