Appendix II: Legal Analysis of OCC Equity Hedging Decision from purchasing stock for their own account, but the sentence recognizes that national banks may own stock if the activity is otherwise permitted by law. When the Congress enacted the fifth sentence in 1933, incidental ownership was permitted by the powers clause. Nothing in the 1933 amendments indicates that the Congress intended to limit the meaning of the powers clause. Moreover, interpreting section 24(Seventh) to permit stock ownership as an incidental power is consistent with a reasoned interpretation of the Banking Act of 1933 in its entirety. Appendix III: Comments From the In the draft report, the GAO agrees with the OCC's legal determination that the equity derivative transactions and managing the risks of those transactions are permissible banking activities authorized by Section 24(Seventh) of the National Bank Act. In addition, you concur with the OCC's conclusion that the stock related limitation contained in Section 24(Seventh) does not prohibit banks from owning equities to conduct the hedging activity. Finally, the GAO concurs with the OCC's conclusion that the stock related limitation does not prevent the banks in question from owning equities to hedge their equity derivative transactions as an incidental activity. You also recommend that the OCC establish a policy that articulates the criteria the OCC uses in deciding when and whether to publish its interpretive decisions. Further, you recommend that the OCC publish legal interpretations that pertain to Section 24(Seventh) of the National Bank Act. We appreciate the time and attention your office devoted to understanding and considering the complex transactions and legal issues involved in this matter. We appreciate your concurrence with our legal conclusion that national banks have the authority to own equities to hedge their equity derivative transactions pursuant to their incidental powers under the National Bank Act, and we accept your recommendation that the OCC establish a policy that articulates the criteria we use in deciding when to publish interpretive opinions. We also accept your recommendation that the OCC publish new legal interpretations pertaining to Section 24(Seventh) of the National Bank Act so that other federal bank regulators and financial institutions are informed of our (250017) interpretations. We are drafting an OCC Policy and Procedures Memorandum establishing a policy that is responsive to these recommendations. Thank you for the opportunity to review and comment on the draft report. We provided some technical comments to your evaluators separately. Sincerely, Wind. Hanke John D. Hawke, Jr. -2 Ordering Information To Report Fraud, The first copy of each GAO report is free. Additional copies of reports are Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. Orders by mail: U.S. General Accounting Office P.O. Box 37050 Washington, DC 20013 Orders by visiting: Room 1100 700 4th St., NW (corner of 4th and G Sts. NW) Washington, DC 20013 Orders by phone: (202) 512-6000 fax: (202) 512-6061 TDD (202) 512-2537 Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the daily list or any list from the past 30 days, please call (202) 5126000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists. Orders by Internet For information on how to access GAO reports on the Internet, send an e-mail Info@www.gao.gov or visit GAO's World Wide Web home page at: Waste, and Abuse in Federal Programs http://www.gao.gov Contact one: Web site: http://www.gao.gov/fraudnet/fraudnet.htm 1-800-424-5454 (automated answering system) |