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Proposed Rules Federal Register Vol. 81, No. 179

Thursday, September 15, 2016

This section of the FEDERAL REGISTER • Fax: (571) 465–4326. and Regulatory Activities Division, contains notices to the public of the proposed Instructions: You must include (202) 649–5490. issuance of rules and regulations. The ‘‘OCC’’ as the agency name and ‘‘Docket SUPPLEMENTARY INFORMATION: purpose of these notices is to give interested ID OCC–2016–0022’’ in your comment. persons an opportunity to participate in the In general, the OCC will enter all rule making prior to the adoption of the final I. Background rules. comments received into the docket and publish them on the Regulations.gov A national bank may engage in Web site without change, including any activities that are part of, or incidental DEPARTMENT OF THE TREASURY business or personal information that to, the business of banking under 12 you provide such as name and address U.S.C. 24(Seventh). Section 24(Seventh) Office of the Comptroller of the information, email addresses, or phone lists several activities that are part of the Currency numbers. Comments received, including business of banking; for example, it attachments and other supporting expressly provides that national banks 12 CFR Part 7 materials, are part of the public record may buy and sell exchange, coin, and and subject to public disclosure. Do not bullion. [Docket ID OCC–2016–0022] include any information in your In addition to these enumerated RIN 1557–AD93 comment or supporting materials that powers, section 24(Seventh) authorizes you consider confidential or Industrial and Commercial Metals national banks to exercise all such inappropriate for public disclosure. incidental powers as shall be necessary AGENCY: Office of the Comptroller of the You may review comments and other to carry on the business of banking. Currency (OCC), Treasury. related materials that pertain to this National banks also are authorized to rulemaking action by any of the ACTION: Notice of proposed rulemaking. engage in any other activities not following methods: • expressly enumerated in the statute that SUMMARY: The OCC is proposing to Viewing Comments Electronically: the Comptroller of the Currency prohibit national banks and federal Go to www.regulations.gov. Enter reasonably determines are part of the savings associations from dealing and ‘‘Docket ID OCC–2016–0022’’ in the business of banking.1 investing in industrial and commercial Search box and click ‘‘Search.’’ Click on 2 metal. ‘‘Open Docket Folder’’ on the right side In Interpretive Letter 693, issued approximately twenty years ago, the DATES: You must submit comments by of the screen and then ‘‘Comments.’’ OCC authorized national banks to buy November 14, 2016. Comments can be filtered by clicking on ‘‘View All’’ and then using the filtering and sell copper on the grounds that ADDRESSES: Because paper mail in the trading copper was becoming Washington, DC area and at the OCC is tools on the left side of the screen. • Click on the ‘‘Help’’ tab on the increasingly similar to trading gold, subject to delay, commenters are silver, platinum, and palladium. The encouraged to submit comments Regulations.gov home page to get information on using Regulations.gov. letter observed that copper was traded through the Federal eRulemaking Portal in liquid markets; that it was traded in or email, if possible. Please use the title Supporting materials may be viewed by clicking on ‘‘Open Docket Folder’’ and a form standardized as to weight and ‘‘Industrial and Commercial Metals’’ to purity; and that the bank seeking facilitate the organization and then clicking on ‘‘Supporting authority to engage in the activity traded distribution of the comments. You may Documents.’’ The docket may be viewed copper under policies and procedures submit comments by any of the after the close of the comment period in similar to those that governed trading following methods: the same manner as during the comment • period. precious metals. The letter concluded Federal eRulemaking Portal— • ‘‘Regulations.gov’’: Go to Viewing Comments Personally: You that national banks could buy and sell www.regulations.gov. Enter ‘‘Docket ID may personally inspect and photocopy copper under the express authority to OCC–2016–0022’’ in the Search Box and comments at the OCC, 400 7th Street buy and sell coin and bullion and as click ‘‘Search.’’ Click on ‘‘Comment SW., Washington, DC. For security part of or incidental to the business of Now’’ to submit public comments. reasons, the OCC requires that visitors banking. The scope of the authorization • Click on the ‘‘Help’’ tab on the make an appointment to inspect in Interpretive Letter 693 was Regulations.gov home page to get comments. You may do so by calling sufficiently broad to permit national information on using Regulations.gov, (202) 649–6700 or, for persons who are banks to buy and sell copper in the form including instructions for submitting deaf or hard of hearing, TTY, (202) 649– of cathodes, which are used for public comments. 5597. Upon arrival, visitors will be industrial purposes. • Email: regs.comments@ required to present valid government- In this notice of proposed rulemaking, occ.treas.gov. issued photo identification and submit the OCC proposes to prohibit national • Mail: Legislative and Regulatory to security screening in order to inspect banks from dealing and investing in a Activities Division, Office of the and photocopy comments. metal (or alloy), including copper, in a Comptroller of the Currency, 400 7th FOR FURTHER INFORMATION CONTACT: form primarily suited to industrial or Street SW., suite 3E–218, mail stop 9W– Casey Scott Laxton, Counsel, Beth commercial use (industrial or 11, Washington, DC 20219. Kirby, Assistant Director, or Ted Dowd, • Hand Delivery/Courier: 400 7th Director, Securities and Corporate 1 NationsBank of N.C., N.A. v. Var. Ann. Life. Ins. Street SW., Suite 3E–218, mail stop 9W– Practices Division, (202) 649–5510; Carl Co., (VALIC) 513 U.S. 251, 258–59 (1995). 11, Washington, DC 20219. Kaminski, Special Counsel, Legislative 2 1995 WL 788816 (Nov. 14, 1995).

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commercial metal).3 The proposal: (i) II. Description of the Proposed Rule position, the OCC noted that the London Platinum and Palladium Market had Excludes industrial and commercial A. Industrial or Commercial Metal Is linked platinum and palladium for metals from the terms ‘‘exchange,’’ Not ‘‘Exchange, Coin, and Bullion’’ ‘‘coin,’’ and ‘‘bullion’’ in 12 U.S.C. market making and regulatory purposes 24(Seventh); and (ii) provides that As noted above, the National Bank and that most of the Market’s members dealing or investing in them is not part Act authorizes national banks to buy were banks. and sell exchange, coin, and bullion. In of, or incidental to, the business of However, other interpretive letters this notice of proposed rulemaking, the banking. Examples of metals and alloys recognized that not every precious metal OCC is proposing to exclude from the is coin or bullion. Jewelry, the OCC in a form primarily suited for industrial scope of these terms metals in a form determined, is not.14 or commercial use include copper primarily suited to industrial or The OCC proposes to conclude that cathodes, aluminum T-bars, and gold commercial use. ‘‘exchange, coin, and bullion’’ does not jewelry. The OCC does not believe that Banking Circular 58 (BC–58) 8 sets encompass industrial or commercial dealing or investing in these metals is forth general guidelines that apply to metal. The OCC believes this conclusion appropriate for national banks. The national banks’ coin and bullion is consistent with the National Bank Act proposed rule would supersede activities. It defines ‘‘coin’’ as ‘‘coins and current market practice. For Interpretive Letter 693.4 held for their metallic value which are example, in the mid-19th century, when The proposed rule also applies to minted by a government, or exact Congress passed the National Bank Act, federal savings associations (FSA). The restrikes of such coins minted at a later ‘‘bullion’’ meant metal suitable for Home Owners’ Loan Act does not date by or under the authority of the coining, not metal suitable for making issuing government.’’ Contemporaneous 15 expressly authorize FSAs to buy or sell wires. The contemporary OCC interpretive letters elaborated that exchange, coin, and bullion.5 FSAs do understanding of ‘‘bullion’’ is broader— ‘‘coin’’ referred only to media of most currency is no longer made of have incidental authority to buy and sell exchange.9 BC–58 defines ‘‘bullion’’ as precious metal—but the contemporary precious metals in certain cases and to ‘‘uncoined gold or silver in bar or ingot understanding does distinguish bullion sell gold and silver coins minted by the form.’’ These definitions do not from industrial or commercial metal. 6 U.S. Treasury. However, the OCC is not encompass industrial or commercial For example, modern bullion markets aware of any precedent authorizing metal. trade precious metals by the kilogram.16 FSAs to buy and sell any industrial or Interpretive letters published after By contrast, industrial and commercial commercial metal. The OCC does not BC–58 interpreted national banks’ metals markets trade base metals in interpret FSAs’ incidental powers to authority to buy coin and bullion to quantities suitable for industrial or buy and sell metals to be broader than include other precious metals, namely commercial use.17 The following table those of national banks. To avoid doubt, platinum and palladium. Consistent illustrates trading differences between and to further integrate national bank with BC–58’s definition of ‘‘coin,’’ the bullion markets and industrial or and FSA regulations, the proposed rule OCC in 1987 found that legal tender commercial metal markets. prohibits FSAs from dealing and platinum coins held for their metallic investing in industrial or commercial value were ‘‘coin.’’ 10 That same letter Contract Contract size metal.7 prohibited dealing in platinum bars. However, in 1991, the OCC concluded Industrial/Commercial Metal Markets that market developments warranted 3 The OCC considers the definition of industrial 11 LME physical copper 25,000 kg. or commercial metal to include a warehouse receipt treating platinum bars as bullion. The OCC also found trading in platinum bars for such metal. 14 See No-Objection Letter 88–8 (May 26, 1988), 4 See Nat’l Cable & Telecomms. Ass’n v. Brand X to be incidental to trading in platinum 1988 WL 284872 (selling gold and silver jewelry is Internet Servs., 545 U.S. 967, 981–82 (2005) (agency coins.12 For similar reasons, the OCC impermissible general merchandising); Letter from reconsiderations of prior interpretations entitled to concluded palladium was coin and Madonna K. Starr, Attorney (Oct. 3, 1986), 1986 WL judicial deference so long as the agency adequately bullion and national banks could trade 144029 (limited design jewelry is not exchange, explains the reasons for the change). coin, or bullion). and deal in palladium as part of the 15 See Act of June 22, 1874, 18 Stat. 202 5 See 12 U.S.C. 1464(c). business of banking.13 In support of its (authorizing the transfer from the U.S. bullion fund 6 See, e.g., OTS Op. Ch. Couns. P–2006–1 (Mar. of refined gold bars bearing the United States stamp 6, 2006), 2006 WL 6195026 (engaging in precious 8 BC–58 (Rev.) (Nov. 3, 1981). The OCC published of fineness, weight, and value, or bars from any metal transactions on behalf of customers); Gold the original version in 1974. melt of foreign coin or bullion of standard equal to Bullion Coin Transactions, 51 FR 34950 (Oct. 1, or above that of the United States); Act of Feb. 12, 9 Interpretive Letter 326 (Jan. 17, 1985), 1985 WL 1873 § 31, 17 Stat. 429 (The bullion thus placed in 1986); Letter from Jack D. Smith, Deputy General 202590; Interpretive Letter 252 (Oct. 26, 1982), 1982 the hands of the melter and refiner shall be Counsel, Federal Home Loan Bank Board, 1988 WL WL 54157; Letter from Peter Liebesman, Assistant subjected to the several processes which may be 1021651 (May 18, 1988). All precedents (orders, Director, Legal Advisory Services Division (Feb. 18, necessary to form it into ingots of the legal resolutions, determinations, agreements, 1982), 1982 WL 170844. But see Letter from Richard standard, and of a quality suitable for coinage.) regulations, interpretive rules, interpretations, V. Fitzgerald, Deputy Chief Counsel (Nov. 4, 1983), 16 1983 WL 145720 (concluding that national banks See, e.g., London Bullion Market Association, guidelines, procedures, and other advisory The Good Delivery Rules for Gold and Silver Bars could purchase and sell the Department of materials) made, prescribed, or allowed to become 11 (Mar. 2015), available at http:// Treasury’s commemorative Olympic coins based on effective by the former Office of Thrift Supervision www.lbma.org.uk/assets/market/gdl/GD_Rules_15_ their metallic value even though it was unlikely or its Director that apply to FSAs remain effective Final%2020160512.pdf; London Platinum & that the coins would be used as a medium of until the OCC modifies, terminates, sets aside, or Palladium Market, ‘‘The London/Zurich Good exchange). supersedes those precedents. 12 U.S.C. 5414(b). Delivery List,’’ http://www.lppm.com/good- 10 Letter from William J. Stolte, Chief National 7 delivery/ (visited July 19, 2016). The proposed rule indirectly applies to federal Bank Examiner (July 29, 1987), 1987 WL 149775. 17 The London Metal Exchange (LME) describes branches and agencies of foreign banks because 11 Interpretive Letter 553 (May 2, 1991), 1991 WL they operate with the same rights and privileges itself as the ‘‘world centre for the trading of 340660 (noting that (i) the financial press industrial metals—more than three quarters of all (and subject to the same duties, restrictions, considered platinum coins and bars to be bullion non-ferrous metal futures business is transacted on penalties, liabilities, conditions, and limitations) as and (ii) a state statute defined ‘‘bullion’’ to include [its] platforms.’’ LME, ‘‘About us,’’ http:// national banks. 12 CFR 28.13(a)(1). The proposed platinum). www.lme.com/about-us (visited July 19, 2016). The rule also indirectly applies to insured state banks 12 Id. LME trades aluminum, aluminum alloys, copper, and state savings associations. See 12 U.S.C. 1831a, 13 Interpretive Letter 685 (Aug. 4, 1995), 1995 WL lead, nickel, tin, and zinc. LME, ‘‘Metals,’’ http:// 1831e. 550220. www.lme.com/metals (visited July 19, 2016).

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Contract Contract size bases for the conclusion in Interpretive systems distinguish between precious Letter 693 that buying and selling metals and base metals. LME copper future .... 25,000 kg. industrial copper is part of the business The OCC has also considered other COMEX copper future 25,000 lbs. (about of banking, including developments in factors identified in relevant precedent 11,340 kg). copper markets that followed this letter. for determining whether dealing in or SHFE copper future .. 5,000 kg. For the following reasons, the OCC now investing in industrial or commercial LME physical alu- 25,000 kg. believes that buying and selling metal is part of the business of minum. 24 LME aluminum future 25,000 kg. copper—or any other metal—in banking. The OCC does not believe COMEX aluminum fu- 25,000 kg. industrial or commercial form for the that analysis under these factors ture. purpose of dealing or investing in that supports a conclusion at this time that SHFE aluminum fu- 5,000 kg. metal is not part of the business of this activity is part of the business of ture. banking. banking. For example, the OCC has not When the OCC issued Interpretive seen evidence that this activity Bullion Markets Letter 693 in 1995, the agency noted strengthens a bank by benefiting its increasing similarity between customers or its business.25 Nor is the LBMA physical gold .. 350–430 troy oz. transactions involving copper and those (about 11–13 kg). OCC aware of any state-chartered banks LBMA physical silver 750–1100 troy oz. transactions already conducted by dealing in or investing in industrial or (about 23–34 kg). national banks with respect to gold, commercial metal.26 Indeed, the OCC LPPM physical plat- 1–6 kg. silver, platinum and palladium has not identified any precedent inum. (precious metals). This increasing authorizing that activity for state banks. LPPM physical palla- 1–6 kg. similarity informed the OCC’s view at As described above, under 12 U.S.C. dium. that time that buying and selling copper, 24 (Seventh), a national bank has the including dealing and investing, was Key: power to exercise all such incidental LME: London Metals Exchange. part of the business of banking. powers as shall be necessary to carry on COMEX: Commodity Exchange. However, copper markets have not the business of banking. An activity is SHFE: Shanghai Futures Exchange. increased in similarity to precious metal incidental to the business of banking if LBMA: London Bullion Market Association. markets.21 Instead, as noted in detail LPPM: London Platinum & Palladium it is convenient or useful to an activity Market. above, copper is generally traded as a that is part of the business of banking.27 base metal.22 The OCC believes that dealing and In general, gold, silver, platinum, and The OCC believes that dealing and investing in industrial or commercial palladium are bullion today because investing in industrial or commercial metal is not incidental to the business they: metals, including base and precious of banking. Some customers may wish • Trade in troy ounces or grams metals in this form, is not the functional to trade industrial or commercial metal rather than metric tons; 18 equivalent of dealing and investing in • Trade in pure forms; 19 with national banks. However, because • coin and bullion. The paradigmatic few banks buy or sell industrial or Trade in a form suitable for coining; example of functional equivalence is • Trade as precious metals in the commercial metal in the ordinary course that a lease is in economic substance a of business, it does not appear that world’s major organized markets, secured loan.23 But the significant including the London bullion markets; dealing or investing in industrial or differences between dealing in commercial metal significantly and industrial or commercial metals and • Are considered currency by the enhances national banks’ ability to offer dealing in coin and bullion demonstrate International Organization for banking products and services, 20 that the former is not, in economic including those related to precious Standardization. substance, the same as the latter. Most Gold, silver, platinum, and palladium metals. Moreover, dealing and investing importantly, industrial and commercial in industrial or commercial form are not in industrial or commercial metal does metals trade in base metal markets by exchange, coin, or bullion. not appear to enable national banks to the ton in cathode or other industrial use capacity acquired for banking B. Dealing and Investing in Industrial or form, while coin and bullion trade in operations or otherwise avoid economic Commercial Metal Is Neither Part of, precious metal markets by the troy Nor Incidental to, the Business of ounce or kilogram in bar or ingot form. 24 See, e.g., Merchants’ Nat’l Bank v. State Nat’l Banking In addition, banks’ risk management Bank, 77 U.S. 604, 648 (1871) (holding that national Interpretive Letter 693 concluded that banks could certify checks because the activity had 21 Events subsequent to Interpretive Letter 693 ‘‘grown out of the business needs of the country.’’). national banks could buy and sell have confirmed copper’s status as a base metal. In 25 Currently, national banks’ dealing and copper (including industrial copper) as 2000, the LME introduced a future on a base metal investments in industrial or commercial metal are a part of or incidental to the business of index containing copper, aluminum, lead, nickel, limited, suggesting that the business needs of the banking. The OCC has reviewed the tin, and zinc. Then, in 2006, it introduced ‘‘mini’’ United States economy are not meaningfully futures for copper, aluminum, and zinc. Similarly, affected by national banks’ dealing in industrial or many firms have launched exchange-traded funds commercial metal. Nor is there evidence that the 18 See, e.g., Bloomberg, ‘‘Gold, Silver, and (ETFs) that invest solely in gold, silver, palladium, amount of revenue from industrial or commercial Industrial Metals Prices,’’ http:// platinum, or some combination thereof, indicating metal dealing and investing meaningfully improve www.bloomberg.com/markets/commodities/futures/ a widespread belief that these metals are a store of national banks’ financial strength. In any case, the metals. value. However, there is no copper ETF. Finally, the prospect for additional revenue alone is not 19 See, e.g., London Bullion Market Association, OCC understands that national banks that trade sufficient to deem an activity to be part of the The Good Delivery Rules for Gold and Silver Bars copper treat it as a base metal and trade it alongside business of banking. See VALIC, 513 U.S. at 258 6 (Mar. 2015) (minimum fineness for gold is 99.5 aluminum and zinc rather than gold and silver. n.2. See also No-objection Letter 88–8 (May 26, percent and for silver is 99.9 percent); London 22 See generally U.S. Senate Permanent 1988), 1988 WL 284872 (concluding that it is Platinum & Palladium Market, ‘‘The London/Zurich Subcommittee on Investigations, Wall Street Bank impermissible for a national bank to make Good Delivery List,’’ http://www.lppm.com/good- Involvement with Physical Commodities 364 (2014) substantial profits from the sale of merchandise). delivery/ (minimum fineness for platinum and (identifying banks, trading firms, analysts, and 26 See Colorado Nat’l Bank v. Bedford, 310 U.S. palladium is 99.95 percent). exchanges that treat copper as a base metal for 41, 49–50 (1940). 20 ISO 4217 (Aug. 1, 2015), available at http:// trading and risk management purposes). 27 Interpretive Letter 1071 (Sept. 6, 2006), 26 OCC www.currency-iso.org/dam/downloads/lists/list_ 23 See M&M Leasing Corp. v. Seattle First Nat’l Q.J. 46, 2007 WL 5122909 (citing Arnold Tours, Inc. one.xls. Bank, 563 F.2d 1377 (9th Cir. 1977). v. Camp, 472 F.2d 427, 431–32 (1st Cir. 1972)).

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loss or waste. Therefore, the OCC agreements that are the functional and that do not present commodity price concludes national banks may not deal economic equivalent of secured loans. risk for a bank and do not indicate or invest in industrial or commercial As described below, a standard reverse market speculation are appropriately metal under their incidental powers. repurchase agreement for metal used to viewed to not indicate dealing or provide financing to a bank customer investing in metal. The OCC also seeks C. Transactions in Industrial or ordinarily does not indicate dealing or comment on whether there are forms of Commercial Metal That May Be investing in the metal. However, the reverse purchase agreements or related Permissible OCC notes that the facts and activities that warrant a determination National banks do have incidental circumstances of a particular transaction that the activity is dealing or investing authority to buy and sell industrial or may warrant a different conclusion. For in metal. If so, should the OCC include commercial metal in limited cases. example, to the extent a reverse such agreements in the final rule’s Buying or selling industrial or repurchase agreement or related activity dealing or investing prohibition? commercial metal could be incidental to is structured in a way that causes a bank The proposal does not prohibit lending activities. For example, a to incur commodity price risk or national banks from buying and selling mining company could post a copper indicates market speculation, the OCC metal through transitory title transfers cathode as collateral for a loan. Pursuant may view the transaction to be dealing entered into as part of a customer-driven to the national bank’s authority to or investing in the metal. financial intermediation business.33 acquire property in satisfaction of debt In a reverse repurchase agreement, a Metal owned through a transitory title previously contracted, the bank could bank extends credit by simultaneously transfer typically does not entail seize and then sell the copper to buying collateral from a client and physical possession of a commodity; the mitigate loan losses if the borrower agreeing to sell the collateral back to the ownership occurs solely to facilitate the defaulted.28 National banks also have client at a future date. The difference underlying transaction and lasts only for incidental authority to buy and sell between the sale and purchase price is a moment in time. For these reasons, the nominal amounts of industrial or effectively the interest the client pays OCC does not consider transitory title commercial metal to hedge customer- for the extension of credit. If the reverse transfers to be dealing or investing in driven commodity derivatives.29 The repurchase agreement counterparty industrial or commercial metal for proposed rule would not prohibit these defaults, the bank can mitigate its losses purposes of this proposal. Interpretive purchases and sales because they are by selling the collateral without first Letter 1073 34 provides that national not dealing or investing.30 foreclosing on it. Financing customer banks may hedge metal derivative The OCC views national banks’ inventory is a traditional bank activity; transactions on a portfolio basis with lending authority 31 as including buying using reverse repurchase agreements over-the-counter derivative transactions and selling industrial or commercial rather than loans to provide the that settle in cash or transitory title metal under reverse repurchase financing is merely a different way of transfer. Interpretive Letter 1073 also providing financing.32 Financing provides that a national bank may 28 Cf. Cooper v. Hill, 94 F. 582 (8th Cir. 1899) customer inventory using reverse engage in transitory title transfers in (foreclosure of a mine); First Nat’l Bank of Parker v. Peavy Elevator Co., 10 S.D. 167, 170 (1897) repurchase agreements in itself does not metals for the accommodation of (foreclosure of grain seed and subsequent sale). indicate dealing or investing in the customers. The OCC concluded in 29 Interpretive Letter 684 (Aug. 4, 1995), 1995 WL metal. However, pledging, selling, or Interpretive Letter 1073 that transitory 550219; OCC Bulletin 2015–35, Quantitative Limits rehypothecating metal acquired under title transfers involving metals do not on Physical Commodity Transactions (Aug. 4, 2015) reverse repurchase agreements suggests entail the physical possession of (explaining that ‘‘nominal’’ means 5 percent of the 35 bank’s short positions in a particular commodity). dealing or investing activity. So, too, commodities. The OCC’s analysis in 30 Cf. First Nat’l Bank v. Nat’l Exch. Bank, 92 U.S. does assuming commodity price risk. this letter noted that transitory title 122, 128 (1875) (‘‘In the honest exercise of the For example, an agreement in which the transfers do not involve the customary power to compromise a doubtful debt owing to a counterparty sells a metal at a certain activities relating to, or risks attendant bank, it can hardly be doubted that stocks may be accepted in payment and satisfaction, with a view price to the bank and then repurchases to, commodity ownership, such as to their subsequent sale or conversion into money the metal at a price that depends on the storage costs, insurance, and so as to make good or reduce an anticipated loss. metal’s then-current market price environmental protection. The OCC Such a transaction would not amount to a dealing indicates dealing or investing activity: continues to believe that transitory title in stocks. It was, in effect, so decided in Fleckner v. Bank U.S., 8 Wheat. 351 [22 U.S. 338 (1823)], The bank is assuming the metal’s price transfers do not constitute physical where it was held that a prohibition against trading risk. On the other hand, setting the possession of commodities and and dealing was nothing more than a prohibition repurchase price at the sale price plus therefore does not consider transitory against engaging in the ordinary business of buying a spread based on the time value of and selling for profit, and did not include purchases 33 For purposes of this proposal, the OCC resulting from ordinary banking transactions.’’). money is equivalent to a secured loan. The OCC invites comment on the considers a transitory title transfer to be back-to- Similarly, national banks may buy and sell back contracts providing for the receipt and industrial or commercial metal as part of their treatment of reverse repurchase immediate transfer of title to the metal. This means leasing business. 12 U.S.C. 24 (Seventh); 12 U.S.C. agreements under the proposed rule. In that a bank holds title to the metal for no more than 24 (Tenth); 12 CFR 23.4. A car, for example, particular, the OCC seeks comment on a legal instant. See Interpretive Letter 962 (Apr. 21, contains metal in a commercial form, but buying a 2003), 2003 WL 21283155 (‘‘[T]ransitory title car to lease it is not dealing or investing in whether reverse repurchase agreements transfers preclude actual delivery by passing title commercial metal. Rather, a lease, like a reverse down the chain from the initial seller to the repurchase transaction, is a secured loan in a 32 Under the National Bank Act, credit exposures ultimate buyer in a series of instantaneous back-to- different form. National banks may also buy and from repurchase and reverse repurchase agreements back transactions. Each party in the chain has title sell industrial or commercial metals to install pipes are loans and extensions of credit subject to a for an instant but does not take actual physical and electrical wiring in their physical premises. 12 national bank’s lending limits. 12 U.S.C. 84(b)(1)(C). delivery (other than the ultimate buyer which, in U.S.C. 29 (First); 12 CFR 7.1000. This activity is See also Letter from Charles F. Byrd, Assistant no case, will be the Bank.’’)). clearly not dealing or investing in industrial or Director, Legal Advisory Services Division, [1978– 34 26 OCC Q.J. 46, 2007 WL 5122911 (Oct. 19, commercial metal. 1979 Transfer Binder] Fed. Banking L. Rep. (CCH) 2006). 31 See 12 U.S.C. 24 (Seventh) (stating that ¶ 85,020 (Aug. 30, 1977) (repurchase and reverse 35 See also OCC Bulletin 2015–3 (Aug. 4, 2015) discounting and negotiating promissory notes, repurchase agreements are extensions of credit (noting that a physical commodity that a bank drafts, bills of exchange, and other evidences of subject to 12 U.S.C. 82 (repealed by Garn–St. acquired and then immediately sold by transitory debt and loaning money on personal security are Germain Depository Institutions Act of 1982, Pub. title transfer would not be included in the bank’s part of the business of banking). L. 97–320, 402)). physical inventory of that commodity).

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title transfers to be dealing or investing IV. Regulatory Analysis rule includes a federal mandate that may result in the expenditure by state, in industrial or commercial metal for Paperwork Reduction Act purposes of this proposal.36 local, and Tribal governments, in the Under the Paperwork Reduction Act, aggregate, or by the private sector, of Notwithstanding the above, the OCC 44 U.S.C. 3501–3520, the OCC may not may consider alternative approaches for $100 million or more in any one year conduct or sponsor, and a person is not (adjusted annually for inflation). transitory title transfers in the final rule required to respond to, an information if it determines that these transactions Although the proposed rule would collection unless the information apply to all OCC-supervised present risks similar to holding physical collection displays a valid Office of metal. The OCC invites comment on institutions, very few of these Management and Budget (OMB) control institutions are currently involved in whether it should continue to view number. This notice of proposed activities involving dealing or investing transitory title transfers as transactions rulemaking does not introduce any new in copper or other metals in a physical that do not entail physical possession of collections of information, therefore, it form primarily suited to commercial or a commodity. In particular, the OCC does not require a submission to OMB. industrial use. seeks comment on whether transitory While the proposed rule may prevent title transfers involving metals present Regulatory Flexibility Act OCC-supervised institutions from risks that warrant treating such The Regulatory Flexibility Act, 5 realizing potential gains from prohibited transactions as physical holdings. If so, U.S.C. 601 et seq. (RFA), requires an agency, in connection with a proposed investments in physical metals, the then the prohibition on dealing and proposed rule also may protect them investing in industrial or commercial rule, to prepare an Initial Regulatory Flexibility Analysis describing the from realizing potential losses from metal would apply to metals bought or investments in physical metals. The sold by transitory title transfer.37 impact of the proposed rule on small entities (defined by the Small Business OCC is not able to estimate these III. Request for Comment Administration (SBA) for purposes of potential gains or losses because they the RFA to include banking entities will depend on future fluctuations in The OCC invites comment on all with total assets of $550 million or less) the prices of the various physical aspects of this proposal, including the or to certify that the proposed rule metals. However, the OCC does expect questions in part II.C of this would not have a significant economic OCC-supervised institutions to be able Supplementary Information. impact on a substantial number of small to achieve comparable returns in In addition, the OCC requests entities. alternative non-prohibited investment comment on the appropriate treatment As of December 31, 2015, the OCC opportunities. Thus, the OCC estimates of existing holdings of industrial or supervised 1,032 small entities.38 that the opportunity cost of the commercial metal. In other contexts, the Although the rule applies to all OCC- proposed rule will be near zero. OCC provides five years to divest supervised small entities, and thus The proposed rule may impose one- nonconforming assets, with the affects a substantial number of small time costs on affected institutions with possibility of a five-year extension. Are entities, no small entities supervised by respect to the disposal of current there reasons a similar approach would the OCC currently buy or sell metal in physical metal inventory that a bank not work here? Are there compelling a physical form primarily suited to may not deal in or invest in under the reasons to grandfather existing holdings commercial or industrial use for the rule. This cost will depend to some extent on the amount of physical metal indefinitely? purpose of dealing or investing in that metal. Thus, the rule will not have a inventory that affected institutions must dispose of. However, a gradual sell-off 36 In contrast to transitory title transfers, the OCC substantial impact on any OCC- considers a commodity held by warehouse receipt supervised small entities. should not affect market prices and the for more than a legal instant to entail physical Therefore, the OCC certifies that the affected institutions would receive fair possession of the commodity. See OCC Bulletin proposed rule would not have a value for their metals. Under these 2015–3 (‘‘[A] bank that satisfies certain conditions significant economic impact on a circumstances, the OCC estimates that may engage in physical commodity transactions (for example, by buying or selling title to a commodity substantial number of OCC-supervised the disposal costs will also be minimal. via a warehouse receipt or bill of lading) to manage small entities. Finally, by establishing that buying the risks of commodity derivatives.’’)); Interpretive and selling physical metal in Unfunded Mandates Reform Act of 1995 Letter 684 (August 4, 1995), 1995 WL 550219 commercial or industrial form is (recognizing physical possession of a commodity by Determination warehouse receipt). The OCC notes that the generally not part of the business of customary activities relating to, or risks attendant The OCC analyzed the proposed rule banking, the rule implies that customers to, commodity ownership by warehouse receipt are under the factors set forth in the of OCC-supervised institutions will distinguishable from those involving transitory title Unfunded Mandates Reform Act of 1995 have to identify another reliable source transfer. For example, Interpretive Letter 684 (2 U.S.C. 1532). Under this analysis, the provides that the OCC expects a bank engaged in of supply of physical metals and that physical commodity hedging, either through OCC considered whether the proposed OCC-supervised institutions will be less warehouse receipt or ‘‘pass-through’’ delivery, to able to compete with non-bank metals adopt and maintain ‘‘safeguards designed to manage 38 The OCC calculated the number of small dealers. Given how technology has the risks associated with storing, transporting, and entities using the SBA’s size thresholds for disposing of commodities of which the bank has commercial banks and savings institutions, and made the physical metals markets more taken delivery, including policies and procedures trust companies, which are $550 million and $38.5 accessible, the OCC expects bank designed to ensure that the bank has adequate million, respectively. Consistent with the General customers will face minimal costs levels of insurance (including insurance for Principles of Affiliation, 13 CFR 121.103(a), the associated with identifying another environmental liabilities) which, after deductions, OCC counted the assets of affiliated financial are commensurate with the risks assumed.’’ institutions when determining whether to classify supplier of physical metals. The OCC 37 The OCC notes that even if it determines that a national bank or federal savings association as a also expects that losing the ability to a transitory title transfer entails physical possession small entity. The OCC used December 31, 2015, to compete with non-bank metal dealers of a commodity, national banks engaged in a determine size because a ‘‘financial institution’s will not significantly detract from the customer-driven financial intermediation business assets are determined by averaging the assets could still enter into such transactions under the reported on its four quarterly financial statements strength of OCC-supervised institutions, proposal, provided the transaction is a hedge and for the preceding year.’’ See footnote 8 of the SBA’s especially given that the proposed rule is nominal. Table of Size Standards. would recognize several business-of-

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banking exceptions to the prohibition physical metal to hedge a derivative for DATES: We must receive comments on on buying and selling physical metal. which that metal is the reference asset this proposed AD by October 31, 2016. For the reasons described above, the so long as the amount of the physical ADDRESSES: You may send comments, OCC has determined that the proposed metal used for hedging purposes is using the procedures found in 14 CFR rule would not result in expenditures by nominal. 11.43 and 11.45, by any of the following state, local, and Tribal governments, or ■ 3. Add § 7.1023 to subpart A to read methods: by the private sector, of $100 million or as follows: • Federal eRulemaking Portal: Go to more. Accordingly, the OCC has not § 7.1023 Federal savings associations, http://www.regulations.gov. Follow the prepared a written statement to prohibition on industrial or commercial instructions for submitting comments. accompany the proposed rule. metal dealing or investing. • Fax: 202–493–2251. • List of subjects in 12 CFR Part 7 (a) In this section, industrial or Mail: U.S. Department of Transportation, Docket Operations, M– Banks, banking, Computer commercial metal means metal (including an alloy) in a physical form 30, West Building Ground Floor, Room technology, Credit, Federal savings W12–140, 1200 New Jersey Avenue SE., associations, Insurance, Investments, primarily suited to industrial or commercial use, for example, copper Washington, DC 20590. Metals, National banks, Reporting and • Hand Delivery: Deliver to Mail recordkeeping requirements, Securities, cathodes. (b) Federal savings associations may address above between 9 a.m. and 5 Surety bonds. not deal or invest in industrial or p.m., Monday through Friday, except For the reasons set forth in the commercial metal. Federal savings Federal holidays. preamble, OCC proposes to amend 12 associations may not buy or sell For service information identified in CFR part 7 as follows: industrial or commercial metal if the this NPRM, contact Boeing Commercial Airplanes, Attention: Data & Services PART 7—BANK ACTIVITIES AND purchase or sale is impermissible for a national bank. Management, P.O. Box 3707, MC 2H–65, OPERATIONS Dated: September 7, 2016 Seattle, WA 98124–2207; telephone 206–544–5000, extension 1; fax 206– ■ 1. The authority citation for part 7 is Thomas J. Curry, 766–5680; Internet https:// amended to read as follows: Comptroller of the Currency. www.myboeingfleet.com. You may view Authority: 12 U.S.C. 1 et seq., 25b, 71, 71a, [FR Doc. 2016–22017 Filed 9–14–16; 8:45 am] this referenced service information at 92, 92a, 93, 93a, 371, 371a, 481, 484, 1463, BILLING CODE 4810–33–P 1464, 1818, and 5412(b)(2)(B). the FAA, Transport Airplane Directorate, 1601 Lind Avenue SW., ■ 2. Add § 7.1022 to subpart A to read Renton, WA. For information on the as follows: DEPARTMENT OF TRANSPORTATION availability of this material at the FAA, call 425–227–1221. It is also available § 7.1022 National bank authority to buy Federal Aviation Administration and sell exchange, coin, and bullion. on the internet at http:// www.regulations.gov by searching for (a) In this section, industrial or 14 CFR Part 39 commercial metal means metal and locating Docket No. FAA–2016– (including an alloy) in a physical form [Docket No. FAA–2016–9075; Directorate 9075. Identifier 2016–NM–082–AD] primarily suited to industrial or Examining the AD Docket commercial use, for example, copper RIN 2120–AA64 You may examine the AD docket on cathodes. (b) Scope of authorization. Section 24 Airworthiness Directives; The Boeing the Internet at http:// (Seventh) of the National Bank Act Company Airplanes www.regulations.gov by searching for authorizes national banks to buy and and locating Docket No. FAA–2016– AGENCY: Federal Aviation 9075; or in person at the Docket sell exchange, coin, and bullion. Administration (FAA), DOT. Industrial or commercial metal is not Management Facility between 9 a.m. ACTION: Notice of proposed rulemaking and 5 p.m., Monday through Friday, exchange, coin, and bullion within the (NPRM). meaning of this authorization. except Federal holidays. The AD docket contains this proposed AD, the (c) Buying and selling metal as part of SUMMARY: We propose to adopt a new or incidental to the business of banking. airworthiness directive (AD) for certain regulatory evaluation, any comments Section 24 (Seventh) authorizes national The Boeing Company Model 787–8 and received, and other information. The banks to engage in activities that are 787–9 airplanes. This proposed AD was street address for the Docket Office part of, or incidental to, the business of prompted by a report indicating that a (phone: 800–647–5527) is in the banking. Buying and selling industrial portion of the sealant above the engine ADDRESSES section. Comments will be or commercial metal for the purpose of pylon between the wing skin and the available in the AD docket shortly after dealing or investing in that metal is not vapor barrier may have been omitted. receipt. part of or incidental to the business of This proposed AD would require an FOR FURTHER INFORMATION CONTACT: banking pursuant to section 24 inspection for missing sealant in the Sherry Vevea, Aerospace Engineer, (Seventh). seam on the outside and inside of the Propulsion Branch, ANM–140S, FAA, (d) Other authorities not affected. engine struts, and corrective actions if Seattle Aircraft Certification Office This section shall not be construed to necessary. We are proposing this AD to (ACO), 1601 Lind Avenue SW., Renton, preclude a national bank from acquiring detect and correct missing sealant above WA 98057–3356; phone: 425–917–6514; or selling metal in connection with its the engine pylon between the wing skin fax: 425–917–6590; email: incidental authority to foreclose on loan and the vapor barrier, which can create [email protected]. collateral, compromise doubtful claims, an unintended leak path for fuel, SUPPLEMENTARY INFORMATION: or avoid loss in connection with a debt potentially draining onto the aft fairing previously contracted. This section also heat shield above the engine and onto Comments Invited shall not be construed to preclude a hot engine parts or brakes, which could We invite you to send any written national bank from buying and selling lead to a major ground fire. relevant data, views, or arguments about

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