markets and derivatives, and are currently training bank information systems examiners on topics including Internet security. Efforts we undertake will build upon the OCC's extensive experience with training examiners in new and familiar areas. At times, we will work independently, and at other times we will work with other bank regulatory agencies. As is currently the case, we will rely on recognized experts with well-documented experience to lead the training. These experts will come from the private sector as well as from the staff of the banking agencies and other Governmental bodies. Moreover, we recognize that there can be a lag between the time we identify a training need and when we are able to develop an in-house training program. Sometimes, the most efficient way to train an examiner is to use external programs. To formalize the OCC's commitment to evolve and to keep our supervision current, we have made one of our primary objectives for 1997 to enhance OCC's workforce knowledge, skills, abilities, and resources. To meet our objective, we are determining what skills and knowledge areas are necessary to meet our supervisory needs at present and in the future, and will take action to ensure that we have them, either through training or hiring individuals with specific expertise. For example, earlier this year we contracted with a security expert to assist us with electronic money issues and supervising remote banking activities. This assessment will be an ongoing process. Q.8. Are there categories of activities that may be approved in which bank examiners currently have no expertise? A.8. We are confident that our examiners are well-prepared to evaluate a wide range of possible activities that are related to the business of banking. Our examiners use a general framework for assessing the risks posed by an activity to a financial institution. That framework is designed to apply to the risks presented by a broad range of financial activities. In our case-by-case review of new activities under Part 5, one of the considerations we take into account is our ability to evaluate adequately risks that are of sufficient magnitude to threaten the safety and soundness of the bank or harm consumers. That assessment is an integral part of our approval process in order to ensure the safety and soundness of national banks and to serve the public interest. If we determine that we do not have sufficient expertise on board, prior to an application's approval we would develop and implement a plan to acquire the needed expertise or to adopt the necessary supervision practices, as explained in the answer to the previous question. RESPONSE TO WRITTEN QUESTION OF SENATOR BRYAN FROM COMPTROLLER EUGENE LUDWIG Q.1. The consistent position of the Securities and Exchange Commission is and has been that, under the Federal securities laws, an operating subsidiary of a bank that engages in securities brokerage, underwriting, or dealing activities must register with the SEC as a broker-dealer, and is subject to the same Federal securities laws and rules as are applicable to broker-dealers that are not affiliated with banks. However, prior statements by the OCC have indicated that, while the OCC currently acquiesces and requires such operating subsidiaries to register as broker-dealers, the OCC may believe that such registration is technically not required under the Federal securities laws. What is your position on this issue? A.1. As the attached letter to Senator Bryan dated May 28, 1997, indicates, the OCC recognizes that only "banks," and not bank affiliates or bank subsidiaries, are covered by the "bank" exemptions from the definitions of "broker" and "dealer" under the Securities Exchange Act. Comptroller of the Currency Washington, DC 20219 May 28, 1997 The Honorable Richard H. Bryan Ranking Minority Member Subcommittee on Financial Institutions and Regulatory Relief United States Senate Washington, D.C. 20510 Dear Senator Bryan: During the recent Senate Banking Committee oversight hearing on the operations of the Office of the Comptroller of the Currency (OCC) you inquired whether bank operating subsidiaries engaged in securities brokerage are required to register with the Securities and Exchange Commission (SEC). In response to your question, I indicated I believed there was a requirement that operating subsidiaries must be registered with the SEC, but I stated that I would provide you with a definitive answer. Bank operating subsidiaries engaged in securities brokerage activities are subject to brokerdealer registration and regulation under the Federal securities laws to the same extent as any other non-bank entity. While the definitions of both "broker" and "dealer” in the Securities Exchange Act expressly exclude banks, bank affiliates, including subsidiaries, are not excluded. 15 U.S.C. §§ 78c(a)(4) and (5). Therefore, bank subsidiaries acting as brokers or dealers must register with the SEC, must become members of the National Association of Securities Dealers, Inc., and are subject to the same laws, regulations, and rules as any other broker-dealer.' 1 The OCC has routinely acknowledged the Exchange Act's registration requirements when authorizing brokerage activities involving bank operating subsidiaries. See eg, OCC Conditional Approval No. 139 (Mellon/Dreyfus Acquisition) (1994 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 83,557 (May 4, 1994); Decision of the OCC Establishing an Operating Subsidiary to be Known as Security Pacific Discount Brokerage Services, Inc. [1982 Transfer Binder] Fed. Banking L. Rep. (CCH) 199,284 (August 26, 1982). Thank you for this opportunity to include these views for the hearing record and the Committee's consideration. Sincerely. Eugene A. Ludwig О |