
[Code of Federal Regulations]
[Title 12, Volume 1]
[Revised as of January 1, 2002]
From the U.S. Government Printing Office via GPO Access
[CITE: 12CFR6]

[Page 113-118]
 
                       TITLE 12--BANKS AND BANKING
 
   CHAPTER I--COMPTROLLER OF THE CURRENCY, DEPARTMENT OF THE TREASURY
 
PART 6--PROMPT CORRECTIVE ACTION--Table of Contents
 
Subpart A--Capital Categories

Sec. 6.1  Authority, purpose, scope, and other supervisory authority.

    (a) Authority. This part is issued by the Office of the Comptroller 
of the Currency (OCC) pursuant to section 38 (section 38) of the Federal 
Deposit Insurance Act (FDI Act) as added by section 131 of the Federal 
Deposit Insurance Corporation Improvement Act of 1991 (Pub. L. 102-242, 
105 Stat. 2236 (1991)) (12 U.S.C. 1831o).
    (b) Purpose. Section 38 of the FDI Act establishes a framework of 
supervisory actions for insured depository institutions that are not 
adequately capitalized. The principal purpose of this subpart is to 
define, for insured national banks, the capital measures and capital 
levels, and for insured federal branches, comparable asset-based 
measures and levels, that are used for determining the supervisory 
actions authorized under section 38 of the FDI Act. This part 6 also 
establishes procedures for submission and review of capital restoration 
plans and for issuance and review of directives and orders pursuant to 
section 38.
    (c) Scope. This subpart implements the provisions of section 38 of 
the FDI Act as they apply to insured national banks and insured federal 
branches. Certain of these provisions also apply to officers, directors 
and employees of these insured institutions. Other provisions apply to 
any company that controls an insured national bank or insured federal 
branch and to the affiliates of an insured national bank or insured 
federal branch.
    (d) Other supervisory authority. Neither section 38 nor this part in 
any way limits the authority of the OCC under any other provision of law 
to take supervisory actions to address unsafe or unsound practices, 
deficient capital levels, violations of law, unsafe or unsound 
conditions, or other practices. Action under section 38 of the FDI Act 
and this part may be taken independently of, in conjunction with, or in 
addition to any other enforcement action available to the OCC, including 
issuance of cease and desist orders, capital directives, approval or 
denial of applications or notices, assessment of civil money penalties, 
or any other actions authorized by law.
    (e) Disclosure of capital categories. The assignment of an insured 
national bank or insured federal branch under this subpart within a 
particular capital category is for purposes of implementing and applying 
the provisions of section 38. Unless permitted by the OCC or otherwise 
required by law, no bank may state in any advertisement or promotional 
material its capital category under this subpart or that the OCC or any 
other federal banking agency has assigned the bank to a particular 
capital category.

Sec. 6.2  Definitions.

    For purposes of section 38 and this part, the definitions related to 
capital in part 3 of this chapter shall apply. In addition, except as 
modified in this section or unless the context otherwise requires, the 
terms used in this subpart have the same meanings as set forth in 
section 38 and section 3 of the FDI Act.
    (a) Bank means all insured national banks and all insured federal 
branches, except where otherwise provided in this subpart.
    (b)(1) Control has the same meaning assigned to it in section 2 of 
the Bank Holding Company Act (12 U.S.C. 1841), and the term controlled 
shall be construed consistently with the term control.
    (2) Exclusion for fiduciary ownership. No insured depository 
institution or company controls another insured depository institution 
or company by virtue of its ownership or control of shares in a 
fiduciary capacity. Shares shall not be deemed to have been acquired in 
a fiduciary capacity if the acquiring insured depository institution or 
company has sole discretionary authority to exercise voting rights with 
respect thereto.
    (3) Exclusion for debts previously contracted. No insured depository 
institution or company controls another insured depository institution 
or company by virtue of its ownership or control of shares acquired in 
securing or collecting a debt previously contracted

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in good faith, until two years after the date of acquisition. The two-
year period may be extended at the discretion of the appropriate federal 
banking agency for up to three one-year periods.
    (c) Controlling person means any person having control of an insured 
depository institution and any company controlled by that person.
    (d) Leverage ratio means the ratio of Tier 1 capital to adjusted 
total assets, as calculated in accordance with the OCC's Minimum Capital 
Ratios in part 3 of this chapter.
    (e) Management fee means any payment of money or provision of any 
other thing of value to a company or individual for the provision of 
management services or advice to the bank or related overhead expenses, 
including payments related to supervisory, executive, managerial, or 
policymaking functions, other than compensation to an individual in the 
individual's capacity as an officer or employee of the bank.
    (f) Risk-weighted assets means total risk weighted assets, as 
calculated in accordance with the OCC's Minimum Capital Ratios in part 3 
of this chapter.
    (g) Tangible equity means the amount of Tier 1 capital elements in 
the OCC's Risk-Based Capital Guidelines (appendix A to part 3 of this 
chapter) plus the amount of outstanding cumulative perpetual preferred 
stock (including related surplus) minus all intangible assets except 
mortgage servicing assets to the extent permitted in Tier 1 capital 
under section 2(c)(2) in appendix A to part 3 of this chapter.
    (h) Tier 1 capital means the amount of Tier 1 capital as defined in 
the OCC's Minimum Capital Ratios in part 3 of this chapter.
    (i) Tier 1 risk-based capital ratio means the ratio of Tier 1 
capital to risk weighted assets, as calculated in accordance with the 
OCC's Minimum Capital Ratios in part 3 of this chapter.
    (j) Total assets means quarterly average total assets as reported in 
a bank's Consolidated Reports of Condition and Income (Call Report), 
minus intangible assets as provided in the definition of tangible 
equity. The OCC reserves the right to require a bank to compute and 
maintain its capital ratios on the basis of actual, rather than average, 
total assets when computing tangible equity.
    (k) Total risk-based capital ratio means the ratio of qualifying 
total capital to risk-weighted assets, as calculated in accordance with 
the OCC's Minimum Capital Ratios in part 3 of this chapter.

[57 FR 44891, Sept. 29, 1992, as amended at 60 FR 39229, Aug. 1, 1995; 
63 FR 42674, Aug. 10, 1998]

Sec. 6.3  Notice of capital category.

    (a) Effective date of determination of capital category. A bank 
shall be deemed to be within a given capital category for purposes of 
section 38 of the FDI Act and this part as of the date the bank is 
notified of, or is deemed to have notice of, its capital category 
pursuant to paragraph (b) of this section.
    (b) Notice of capital category. A bank shall be deemed to have been 
notified of its capital levels and its capital category as of the most 
recent date:
    (1) A Consolidated Report of Condition and Income (Call Report) is 
required to be filed with the OCC;
    (2) A final report of examination is delivered to the bank; or
    (3) Written notice is provided by the OCC to the bank of its capital 
category for purposes of section 38 of the FDI Act and this part or that 
the bank's capital category has changed as provided in paragraph (c) of 
this section or Sec. 6.1 of this subpart and subpart M of part 19 of 
this chapter.
    (c) Adjustments to reported capital levels and capital category--(1) 
Notice of adjustment by bank. A bank shall provide the OCC with written 
notice that an adjustment to the bank's capital category may have 
occurred no later than 15 calendar days following the date that any 
material event has occurred that would cause the bank to be placed in a 
lower capital category from the category assigned to the bank for 
purposes of section 38 and this part on the basis of the bank's most 
recent Call Report or report of examination.
    (2) Determination to change capital category. After receiving notice 
pursuant to paragraph (c)(1) of this section, the OCC shall determine 
whether to change the capital category of the bank and shall notify the 
bank of the OCC's determination.

[[Page 115]]

Sec. 6.4  Capital measures and capital category definitions.

    (a) Capital measures. For purposes of section 38 and this part, the 
relevant capital measures shall be:
    (1) The total risk-based capital ratio;
    (2) The Tier 1 risk-based capital ratio;
    (3) The leverage ratio.
    (b) Capital categories. For purposes of the provisions of section 38 
and this part, a bank shall be deemed to be:
    (1) Well capitalized if the bank:
    (i) Has a total risk-based capital ratio of 10.0 percent or greater; 
and
    (ii) Has a Tier 1 risk-based capital ratio of 6.0 percent or 
greater; and
    (iii) Has a leverage ratio of 5.0 percent or greater; and
    (iv) Is not subject to any written agreement, order or capital 
directive, or prompt corrective action directive issued by the OCC 
pursuant to section 8 of the FDI Act, the International Lending 
Supervision Act of 1983 (12 U.S.C. 3907), or section 38 of the FDI Act, 
or any regulation thereunder, to meet and maintain a specific capital 
level for any capital measure.
    (2) Adequately capitalized if the bank:
    (i) Has a total risk-based capital ratio of 8.0 percent or greater; 
and
    (ii) Has a Tier 1 risk-based capital ratio of 4.0 percent or 
greater; and
    (iii) Has:
    (A) A leverage ratio of 4.0 percent or greater; or
    (B) A leverage ratio of 3.0 percent or greater if the bank is rated 
1 in the most recent examination of the bank; and
    (iv) Does not meet the definition of a well capitalized bank.
    (3) Undercapitalized if the bank:
    (i) Has a total risk-based capital ratio that is less than 8.0 
percent; or
    (ii) Has a Tier 1 risk-based capital ratio that is less than 4.0 
percent; or
    (iii) (A) Except as provided in paragraph (b)(3)(iii) (B) of this 
section, has a leverage ratio that is less than 4.0 percent; or
    (B) If the bank is rated 1 in the most recent examination of the 
bank, has a leverage ratio that is less than 3.0 percent.
    (4) Significantly undercapitalized if the bank has:
    (i) A total risk-based capital ratio that is less than 6.0 percent; 
or
    (ii) A Tier 1 risk-based capital ratio that is less than 3.0 
percent; or
    (iii) A leverage ratio that is less than 3.0 percent.
    (5) Critically undercapitalized if the bank has a ratio of tangible 
equity to total assets that is equal to or less than 2.0 percent.
    (c) Capital categories for insured federal branches. For purposes of 
the provisions of section 38 of the FDI Act and this part, an insured 
federal branch shall be deemed to be:
    (1) Well capitalized if the insured federal branch:
    (i) Maintains the pledge of assets required under 12 CFR 346.19; and
    (ii) Maintains the eligible assets prescribed under 12 CFR 346.20 at 
108 percent or more of the preceding quarter's average book value of the 
insured branch's third-party liabilities; and
    (iii) Has not received written notification from:
    (A) The OCC to increase its capital equivalency deposit pursuant to 
Sec. 28.6(a) of this chapter, or to comply with asset maintenance 
requirements pursuant to Sec. 28.9 of this chapter; or
    (B) The FDIC to pledge additional assets pursuant to 12 CFR 346.19 
or to maintain a higher ratio of eligible assets pursuant to 12 CFR 
346.20.
    (2) Adequately Capitalized if the insured federal branch:
    (i) Maintains the pledge of assets prescribed under 12 CFR 346.19; 
and
    (ii) Maintains the eligible assets prescribed under 12 CFR 346.20 at 
106 percent or more of the preceding quarter's average book value of the 
insured branch's third-party liabilities; and
    (iii) Does not meet the definition of a well capitalized insured 
federal branch.
    (3) Undercapitalized if the insured federal branch:
    (i) Fails to maintain the pledge of assets required under 12 CFR 
346.19; or
    (ii) Fails to maintain the eligible assets prescribed under 12 CFR 
346.20 at 106 percent or more of the preceding quarter's average book 
value of the insured branch's third-party liabilities.
    (4) Significantly undercapitalized if it fails to maintain the 
eligible assets prescribed under 12 CFR 346.20 at 104

[[Page 116]]

percent or more of the preceding quarter's average book value of the 
insured federal branch's third-party liabilities.
    (5) Critically undercapitalized if it fails to maintain the eligible 
assets prescribed under 12 CFR 346.20 at 102 percent or more of the 
preceding quarter's average book value of the insured federal branch's 
third-party liabilities.
    (d) Reclassification based on supervisory criteria other than 
capital. The OCC may reclassify a well capitalized bank as adequately 
capitalized and may require an adequately capitalized or an 
undercapitalized bank to comply with certain mandatory or discretionary 
supervisory actions as if the bank were in the next lower capital 
category (except that the OCC may not reclassify a significantly 
undercapitalized bank as critically undercapitalized) (each of these 
actions are hereinafter referred to generally as reclassifications) in 
the following circumstances:
    (1) Unsafe or unsound condition. The OCC has determined, after 
notice and opportunity for hearing pursuant to subpart M of part 19 of 
this chapter, that the bank is in unsafe or unsound condition; or
    (2) Unsafe or unsound practice. The OCC has determined, after notice 
and opportunity for hearing pursuant to subpart M of part 19 of this 
chapter, that in the most recent examination of the bank, the bank 
received, and has not corrected a less-than-satisfactory rating for any 
of the categories of asset quality, management, earnings, or liquidity.

Sec. 6.5  Capital restoration plans.

    (a) Schedule for filing plan--(1) In general. A bank shall file a 
written capital restoration plan with the OCC within 45 days of the date 
that the bank receives notice or is deemed to have notice that the bank 
is undercapitalized, significantly undercapitalized, or critically 
undercapitalized, unless the OCC notifies the bank in writing that the 
plan is to be filed within a different period. An adequately capitalized 
bank that has been required pursuant to Sec. 6.4 and subpart M of part 
19 of this chapter to comply with supervisory actions as if the bank 
were undercapitalized is not required to submit a capital restoration 
plan solely by virtue of the reclassification.
    (2) Additional capital restoration plans. Notwithstanding paragraph 
(a)(1) of this section, a bank that has already submitted and is 
operating under a capital restoration plan approved under section 38 and 
this subpart is not required to submit an additional capital restoration 
plan based on a revised calculation of its capital measures or a 
reclassification of the institution under Sec. 6.4 and subpart M of part 
19 of this chapter unless the OCC notifies the bank that it must submit 
a new or revised capital plan. A bank that is notified that it must 
submit a new or revised capital restoration plan shall file the plan in 
writing with the OCC within 45 days of receiving such notice, unless the 
OCC notifies the bank in writing that the plan must be filed within a 
different period.
    (b) Contents of plan. All financial data submitted in connection 
with a capital restoration plan shall be prepared in accordance with the 
instructions provided on the Call Report, unless the OCC instructs 
otherwise. The capital restoration plan shall include all of the 
information required to be filed under section 38(e)(2) of the FDI Act. 
A bank that is required to submit a capital restoration plan as the 
result of a reclassification of the bank, pursuant to Sec. 6.4 and 
subpart M of part 19 of this chapter, shall include a description of the 
steps the bank will take to correct the unsafe or unsound condition or 
practice. No plan shall be accepted unless it includes any performance 
guarantee described in section 38(e)(2)(C) of that Act by each company 
that controls the bank.
    (c) Review of capital restoration plans. Within 60 days after 
receiving a capital restoration plan under this subpart, the OCC shall 
provide written notice to the bank of whether the plan has been 
approved. The OCC may extend the time within which notice regarding 
approval of a plan shall be provided.
    (d) Disapproval of capital restoration plan. If a capital 
restoration plan is not approved by the OCC, the bank shall submit a 
revised capital restoration plan within the time specified by the OCC. 
Upon receiving notice that its capital restoration plan has not been

[[Page 117]]

approved, any undercapitalized bank (as defined in Sec. 6.4) shall be 
subject to all of the provisions of section 38 and this part applicable 
to significantly undercapitalized institutions. These provisions shall 
be applicable until such time as a new or revised capital restoration 
plan submitted by the bank has been approved by the OCC.
    (e) Failure to submit a capital restoration plan. A bank that is 
undercapitalized (as defined in Sec. 6.4) and that fails to submit a 
written capital restoration plan within the period provided in this 
section shall, upon the expiration of that period, be subject to all of 
the provisions of section 38 and this part applicable to significantly 
undercapitalized banks.
    (f) Failure to implement a capital restoration plan. Any 
undercapitalized bank that fails, in any material respect, to implement 
a capital restoration plan shall be subject to all of the provisions of 
section 38 and this part applicable to significantly undercapitalized 
banks.
    (g) Amendment of capital restoration plan. A bank that has submitted 
an approved capital restoration plan may, after prior written notice to 
and approval by the OCC, amend the plan to reflect a change in 
circumstance. Until such time as a proposed amendment has been approved, 
the bank shall implement the capital restoration plan as approved prior 
to the proposed amendment.
    (h) Notice to FDIC. Within 45 days of the effective date of OCC 
approval of a capital restoration plan, or any amendment to a capital 
restoration plan, the OCC shall provide a copy of the plan or amendment 
to the Federal Deposit Insurance Corporation.
    (i) Performance guarantee by companies that control a bank--(1) 
Limitation on liability--(i) Amount limitation. The aggregate liability 
under the guarantee provided under section 38 and this subpart for all 
companies that control a specific bank that is required to submit a 
capital restoration plan under this subpart shall be limited to the 
lesser of:
    (A) An amount equal to 5.0 percent of the bank's total assets at the 
time the bank was notified or deemed to have notice that the bank was 
undercapitalized; or
    (B) The amount necessary to restore the relevant capital measures of 
the bank to the levels required for the bank to be classified as 
adequately capitalized, as those capital measures and levels are defined 
at the time that the bank initially fails to comply with a capital 
restoration plan under this subpart.
    (ii) Limit on duration. The guarantee and limit of liability under 
section 38 and this subpart shall expire after the OCC notifies the bank 
that it has remained adequately capitalized for each of four consecutive 
calendar quarters. The expiration or fulfillment by a company of a 
guarantee of a capital restoration plan shall not limit the liability of 
the company under any guarantee required or provided in connection with 
any capital restoration plan filed by the same bank after expiration of 
the first guarantee.
    (iii) Collection on guarantee. Each company that controls a given 
bank shall be jointly and severally liable for the guarantee for such 
bank as required under section 38 and this subpart, and the OCC may 
require payment of the full amount of that guarantee from any or all of 
the companies issuing the guarantee.
    (2) Failure to provide guarantee. In the event that a bank that is 
controlled by any company submits a capital restoration plan that does 
not contain the guarantee required under section 38(e)(2) of the FDI 
Act, the bank shall, upon submission of the plan, be subject to the 
provisions of section 38 and this part that are applicable to banks that 
have not submitted an acceptable capital restoration plan.
    (3) Failure to perform guarantee. Failure by any company that 
controls a bank to perform fully its guarantee of any capital plan shall 
constitute a material failure to implement the plan for purposes of 
section 38(f) of the FDI Act. Upon such failure, the bank shall be 
subject to the provisions of section 38 and this part that are 
applicable to banks that have failed in a material respect to implement 
a capital restoration plan.

[[Page 118]]

    (j) Enforcement of capital restoration plan. The failure of a bank 
to implement, in any material respect, a capital restoration plan 
required under section 38 and this section shall subject the bank to the 
assessment of civil money penalties pursuant to section 8(i)(2)(A) of 
the FDI Act.

Sec. 6.6  Mandatory and discretionary supervisory actions under section 
          38.

    (a) Mandatory supervisory actions--(1) Provisions applicable to all 
banks. All banks are subject to the restrictions contained in section 
38(d) of the FDI Act on payment of capital distributions and management 
fees.
    (2) Provisions applicable to undercapitalized, significantly 
undercapitalized, and critically undercapitalized banks. Immediately 
upon receiving notice or being deemed to have notice, as provided in 
Sec. 6.3, that the bank is undercapitalized, significantly 
undercapitalized, or critically undercapitalized, the bank shall become 
subject to the provisions of section 38 of the FDI Act--
    (i) Restricting payment of capital distributions and management fees 
(section 38(d));
    (ii) Requiring that the OCC monitor the condition of the bank 
(section 38(e)(1));
    (iii) Requiring submission of a capital restoration plan within the 
schedule established in this subpart (section 38(e)(2));
    (iv) Restricting the growth of the bank's assets (section 38(e)(3)); 
and
    (v) Requiring prior approval of certain expansion proposals (section 
38(e)(4)).
    (3) Additional provisions applicable to significantly 
undercapitalized, and critically undercapitalized banks. In addition to 
the provisions of section 38 of the FDI Act described in paragraph 
(a)(2) of this section, immediately upon receiving notice or being 
deemed to have notice, as provided in this subpart, that the bank is 
significantly undercapitalized, or critically undercapitalized or that 
the bank is subject to the provisions applicable to institutions that 
are significantly undercapitalized because it has failed to submit or 
implement, in any material respect, an acceptable capital restoration 
plan, the bank shall become subject to the provisions of section 38 of 
the FDI Act that restrict compensation paid to senior executive officers 
of the institution (section 38(f)(4)).
    (4) Additional provisions applicable to critically undercapitalized 
banks. In addition to the provisions of section 38 of the FDI Act 
described in paragraphs (a) (2) and (3) of this section, immediately 
upon receiving notice or being deemed to have notice, as provided in 
Sec. 6.3, that the bank is critically undercapitalized, the bank shall 
become subject to the provisions of section 38 of the FDI Act--
    (i) Restricting the activities of the bank (section 38(h)(1)); and
    (ii) Restricting payments on subordinated debt of the bank (section 
38(h)(2)).
    (b) Discretionary supervisory actions. In taking any action under 
section 38 that is within the OCC's discretion to take in connection 
with a bank that is deemed to be undercapitalized, significantly 
undercapitalized, or critically undercapitalized, or has been 
reclassified as undercapitalized or significantly undercapitalized; an 
officer or director of such bank; or a company that controls such bank, 
the OCC shall follow the procedures for issuing directives under subpart 
B of this part and subpart N of part 19 of this chapter, unless 
otherwise provided in section 38 or this part.
