PART 23—LEASING Authority: 12 U.S.C. 1 et seq., Source: 61 FR 66560, Dec. 18, 1996, unless otherwise noted. Subpart A—General Provisions § 23.1 Authority, purpose, and scope. (a) Authority. (b) Purpose. (c) Scope. § 23.2 Definitions. (a) Affiliate (b) Capital and surplus (1) For qualifying community banking organizations that have elected to use the community bank leverage ratio framework, as set forth under the OCC's Capital Adequacy Standards at part 3 of this chapter: (i) A qualifying community banking organization's tier 1 capital, as used under § 3.12 of this chapter; plus. (ii) A qualifying community banking organization's allowance for loan and lease losses or adjusted allowances for credit losses, as applicable, as reported in the Consolidated Reports of Condition and Income (Call Report); or (2) For all other national banks: (i) A bank's tier 1 and tier 2 capital calculated under the OCC's risk-based capital standards set forth in part 3 of this chapter, as applicable, as reported in the Call Report; plus (ii) The balance of a bank's allowance for loan and lease losses or adjusted allowances for credit losses, as applicable, not included in the bank's Tier 2 capital, for purposes of the calculation of risk-based capital described in paragraph (b)(2)(i) of this section, as reported in the Call Report. (c) CEBA Lease (d) Conforming lease (1) A CEBA Lease that conforms with the requirements of subparts A and B of this part; or (2) A Section 24(Seventh) Lease that conforms with the requirements of subparts A and C of this part. (e) Full-payout lease (1) Rentals; (2) Estimated tax benefits; and (3) The estimated residual value of the property at the expiration of the lease term. (f) Net lease (1) Servicing, repair, or maintenance of the leased property during the lease term; (2) Parts or accessories for the leased property; (3) Loan of replacement or substitute property while the leased property is being serviced; (4) Payment of insurance for the lessee, except where the lessee has failed in its contractual obligation to purchase or maintain required insurance; or (5) Renewal of any license or registration for the property unless renewal by the bank is necessary to protect its interest as owner or financier of the property. (g) Off-lease property (h) Section 24(Seventh) Lease [61 FR 66560, Dec. 18, 1996, as amended at 79 FR 11312, Feb. 28, 2014; 84 FR 4240, Feb. 14, 2019; 84 FR 61794, Nov. 13, 2019; 84 FR 69297, Dec. 18, 2019] § 23.3 Lease requirements. (a) General requirements. (b) Exceptions Change in condition. (i) Take reasonable and appropriate action, including the actions specified in § 23.2(f), to salvage or protect the value of the leased property or its interests arising under the lease; and (ii) Acquire or perfect title to the leased property pursuant to any existing rights. (2) Provisions to protect the bank's interests. (3) Arranging for services by a third party. § 23.4 Investment in personal property. (a) General rule. (1) A conforming lease; (2) A legally binding written agreement that indemnifies the bank against loss in connection with its acquisition of the property; or (3) A legally binding written commitment to enter into a conforming lease. (b) Exception. (1) The acquisition of the property is consistent with the leasing business then conducted by the bank or is consistent with a business plan for expansion of the bank's existing leasing business or for entry into the leasing business; and (2) The bank's aggregate investment in property held pursuant to this paragraph (b) does not exceed 15 percent of the bank's capital and surplus. (c) Holding period. (d) Bridge or interim leases. § 23.5 Requirement for separate records. If a national bank enters into both CEBA Leases and Section 24(Seventh) Leases, the bank's records must distinguish the CEBA Leases from the Section 24(Seventh) Leases. § 23.6 Application of lending limits; restrictions on transactions with affiliates. All leases entered into pursuant to this part are subject to the lending limits prescribed by 12 U.S.C. 84, as implemented by 12 CFR part 32, or, if the lessee is an affiliate of the bank, to the restrictions on transactions with affiliates prescribed by 12 U.S.C. 371c and 371c-1 and Regulation W, 12 CFR part 223. The OCC may also determine that other limits or restrictions apply. The term affiliate means an affiliate as defined in 12 U.S.C. 371c or 371c-1, as implemented by Regulation W, 12 CFR part 223, as applicable. For the purpose of measuring compliance with the lending limits prescribed by 12 U.S.C. 84 as implemented by part 32, a national bank records the investment in a lease net of any nonrecourse debt the bank has incurred to finance the acquisition of the leased asset. [61 FR 66560, Dec. 18, 1996, as amended at 73 FR 22244, Apr. 24, 2008; 85 FR 42642, July 14, 2020] Subpart B—CEBA Leases § 23.10 General rule. Pursuant to 12 U.S.C. 24(Tenth) a national bank may invest in tangible personal property, including vehicles, manufactured homes, machinery, equipment, or furniture, for the purpose of, or in connection with leasing that property, if the aggregate book value of the property does not exceed 10 percent of the bank's consolidated assets and the related lease is a conforming lease. For the purpose of measuring compliance with the 10 percent limit prescribed by this section, a national bank records the investment in a lease entered into pursuant to this subpart net of any nonrecourse debt the bank has incurred to finance the acquisition of the leased asset. § 23.11 Lease term. A CEBA Lease must have an initial term of not less than 90 days. A national bank may acquire property subject to an existing lease with a remaining maturity of less than 90 days if, at its inception, the lease was a conforming lease. § 23.12 Transition rule. (a) General rule. (b) Renewal of non-conforming leases. (1) The bank entered into the CEBA Lease in good faith; (2) The expiring lease contains a binding agreement requiring that the bank renew the lease at the lessee's option, and the bank cannot reasonably avoid its commitment to do so; and (3) The bank determines in good faith, and demonstrates by appropriate documentation, that renewal of the lease is necessary to avoid financial loss and to recover its investment in, and its cost of financing, the leased property. Subpart C—Section 24(Seventh) Leases § 23.20 General rule. Pursuant to 12 U.S.C. 24(Seventh) a national bank may invest in tangible or intangible personal property, including vehicles, manufactured homes, machinery, equipment, furniture, patents, copyrights, and other intellectual property, for the purpose of, or in connection with leasing that property, if the related lease is a conforming lease representing a noncancelable obligation of the lessee (notwithstanding the possible early termination of that lease). § 23.21 Estimated residual value. (a) Recovery of investment and costs. (1) Must be reasonable in light of the nature of the leased property and all circumstances relevant to the transaction; and (2) Any unguaranteed amount must not exceed 25 percent of the original cost of the property to the bank or the percentage for a particular type of property specified in published OCC guidance. (b) Estimated residual value subject to guarantee. (c) Leases to government entities. [61 FR 66560, Dec. 18, 1996, as amended at 66 FR 34792, July 2, 2001] § 23.22 Transition rule. (a) Exclusion. (b) Renewal of non-conforming leases. (1) The bank entered into the Section 24(Seventh) Lease in good faith; (2) The expiring lease contains a binding agreement requiring that the bank renew the lease at the lessee's option, and the bank cannot reasonably avoid its commitment to do so; and (3) The bank determines in good faith, and demonstrates by appropriate documentation, that renewal of the lease is necessary to avoid financial loss and to recover its investment in, and its cost of financing, the leased property.