10/5/16 - OCC Takes Steps Toward Limited-Purpose Charter
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10/5/16 - OCC Takes Steps Toward Limited-Purpose Charter

The Office of the Comptroller of the Currency recently released a proposed rule setting out standards and a process for it to serve as receiver for uninsured national banks, whether trust banks or “other” limited-purpose banks. Meanwhile, in remarks about the OCC’s forthcoming framework on responsible innovation, Comptroller Thomas Curry reaffirmed the agency’s intention to supervise rigorously any limited-purpose national bank charter that it approves.

These developments are signs of movement toward a limited-purpose bank charter, although the prospects remain uncertain. The OCC did not issue its proposal because it suddenly discovered it needed a resolution regime for uninsured trust banks. Rather, the proposed rule represents a concrete step in settling the agency’s concern about receivership, which has deterred it from approving more uninsured national banks in the past. Comptroller Curry’s speech also suggests that the concerns of certain stakeholders will not necessarily dissuade the OCC from granting limited-purpose, innovation-oriented charters, should its policy considerations and key principles be adequately addressed. Understanding this evolution of the OCC’s thinking, and how to address the policy issues the agency is grappling with, will be key to the prospects of a limited-purpose national bank charter application.

The OCC’s Proposed Rule on Receivership

While only one piece of a larger puzzle, the OCC’s proposed rule on receivership is the first tangible public action suggesting that the agency is seriously contemplating reopening the door to granting new uninsured national bank charters.

Between 1933 and 1989, the Federal Deposit Insurance Corp. was the receiver for all failed national banks, whether insured or uninsured. However, statutory amendments in the early 1990s left the OCC in the role of receiver for uninsured national banks. Lacking a modern framework to exercise this power, the OCC has been reluctant to charter new uninsured national banks, except in the most conservative of circumstances. The OCC’s proposed rule would create such a framework.

Though all existing uninsured national banks are trust banks, the proposal affirms that “in addition to national trust banks, the OCC may charter other special purpose banks with business models that are within the business of banking.”

The proposal also alludes to the OCC’s effort — as part of its initiative on responsible innovation — to consider amending an OCC regulation that requires new non-trust banks to engage in one of three core banking functions (receiving deposits, paying checks, or lending money). Proposing and implementing such an amendment would be another step toward new limited-purpose national banks, but it will take time, emphasizing creative construction of the scope of the three core banking functions.

Comptroller Curry’s Remarks on the OCC’s Framework for Responsible Innovation

In his speech at the Marketplace Lending Policy Summit, Comptroller Curry discussed a number of policy questions related to the regulation of marketplace lending and fintech firms. While he initially focused on whether innovative products, services, and activities required changes in regulation, he was careful to distinguish these types of questions from the question of who should regulate particular organizations and activities. To the extent a company or activity merited a federal bank charter, he said, “it would be squarely under the supervision of the OCC.”

Comptroller Curry affirmed his agency’s intention to provide rigorous oversight of any limited-purpose national banks created. In response to concerns that these entities might face lighter supervision or fewer consumer protections, he emphasized that any limited-purpose national banks would be subject to the same supervisory standards and compliance requirements as other national banks.

Comptroller Curry’s speech also outlined eight principles guiding the creation of the OCC’s responsible innovation framework — although those principles are not the framework itself. Another OCC document apparently in the works would spell out the details of how innovative fintech companies could meet the OCC’s expectations. He again made it clear that any institution granted a limited-purpose charter would “be held to the same strict standards of safety, soundness, and fairness [as] other federally chartered institutions.” Thus, applications and associated business plans would need to fully address those standards in order to be successful.

The OCC intends to complete its framework this fall.

What These Developments Mean for Firms Interested in a Limited-Purpose Charter

The OCC’s proposed rule and Comptroller Curry’s remarks suggest that a limited-purpose charter is a real possibility. Companies interested in exploring an uninsured national bank charter should consider whether the costs and timing involved in applying for one would be appropriate for their businesses. These considerations include the:

  • Nature and business plan of the chartered entity, and its place in the applicant’s enterprise
  • Regulatory requirements and approval conditions to which the new charter could be subject
  • Prospects for regulatory approval
  • Advantages and disadvantages of a bank charter relative to the status quo and other options

None of these considerations is simple, particularly since the novelty of a limited-purpose charter application would make it difficult to identify the characteristics of a successful applicant. At least initially, a successful applicant would require significant knowledge of the OCC, a strong understanding of how to highlight the merits of its business, experience preparing bank-charter applications, and insight into the OCC’s policy concerns regarding limited-purpose charters.

Contact Promontory

Promontory routinely works with innovative financial institutions to develop strategic solutions, business plans, and charter options. Our risk and strategy practice is headed by individuals with decades of combined experience working with and for the OCC, and helping clients develop, gain approval for, and execute strategies involving new and restructured banks. We provide value through our tailored methodologies, regulatory expertise, and well-reasoned advice. For more information about the prospects of a limited-purpose national bank charter or how we can help your organization, please contact a member of our team.

Julie Williams
Managing Director and Director of Domestic Advisory Practice
+1 202 384 1087

BJ Sanford
Managing Director
+1 202 384 1200

Michele Meyer
+1 202 603 3709