The Office of the Comptroller of the Currency (OCC) has released a proposed rule for establishing a framework for placing uninsured national banks into receivership.
“While the OCC has not appointed a receiver for an uninsured national bank in many years [not since the Great Depression], clarifying the framework, process, and authority promotes the orderly resolution of such institutions if required and contributes to the broader stability of the federal banking system,” the agency said in a statement.
The proposed rule would apply to all uninsured national banks regulated by the OCC. While the National Bank Act and Federal Deposit Insurance Act specify the Federal Deposit Insurance Corporation as receiver for insured banks and savings associations, the law grants the Comptroller broad authority to choose a receiver for uninsured national banks. The proposal would not apply to federal savings associations, all of which are already insured.
The proposed rule describes: the appointment of a receiver and required federal notice; the process for submitting claims against the receivership; the order of priorities for payment of administrative expenses and claims; the powers and duties of the receiver; the payment of dividends on claims; he sources of funds for payments and claims; and the status of fiduciary and custodial assets and accounts.
As of May 2016, the OCC supervises 52 uninsured banks and may charter national banks whose operations are limited to those of a trust company and related activities (national trust bank). All but a handful of the national trust banks do not engage in the business of receiving deposits and instead hold trust funds, which are off- balance sheet assets that are not considered to be deposits and are not insured by the FDIC.
National trust banks, the proposed rule notes, typically have few assets on the balance sheet, usually composed of cash on deposit with an insured depository institution, investment securities, premises and equipment, and intangible assets. These banks exercise fiduciary and custody powers, do not make loans, do not rely on deposit funding, and consequently have simple liquidity management programs.
The business model of national trust banks is to generate income in the form of fees by offering fiduciary and custodial services, Some focus on institutional asset management, providing trust and custodial services for investment portfolios of pension plans, foundations and endowments, and other entities, often with an investment management component. They often offer private wealth management and individual retirement savings services.
Other national trust banks serve primarily as a fiduciary and custodian to facilitate the establishment of Individual Retirement Accounts by customers of an affiliated mutual fund complex or broker-dealer firm.
The OCC also charters Federal savings associations. Unlike national trust banks, all Federal savings associations are required to be insured.