[Federal Register Volume 60, Number 249 (Thursday, December 28, 1995)]
[Rules and Regulations]
[Pages 67049-67050]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-31020]
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Rules and Regulations
Federal Register
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Federal Register / Vol. 60, No. 249 / Thursday, December 28, 1995 /
Rules and Regulations
[[Page 67049]]
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 24
[Docket No. 95-33]
RIN 1557-AB46
Community Development Corporation and Project Investments
AGENCY: Office of the Comptroller of the Currency, Treasury.
ACTION: Final rule.
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SUMMARY: The Office of the Comptroller of the Currency (OCC) is
amending its Community Development Corporation and Project Investments
regulation. This final rule removes a provision that requires a bank to
reinvest profits, dividends, and other distributions from community
development investments in activities that promote the public welfare.
The purpose of the final rule is to encourage public welfare
investments by national banks.
EFFECTIVE DATE: January 1, 1996.
FOR FURTHER INFORMATION CONTACT: Karen Bellesi, Program Coordinator,
Community Development Investments, Community Development Division, 202/
874-4930; Michele Meyer, Attorney, Community and Consumer Law Division,
202/874-5750; or Karen McSweeney, Attorney, Legislative and Regulatory
Activities Division, 202/874-5090, Office of the Comptroller of the
Currency, 250 E Street, SW., Washington, DC 20219.
SUPPLEMENTARY INFORMATION:
Introduction
The OCC is currently reviewing 12 CFR part 24 as a component of its
Regulation Review Program. As part of this review, on October 26, 1995
(60 FR 54819), the OCC published a notice of proposed rulemaking (NPRM)
to remove one provision from part 24. Another NPRM proposing more
comprehensive changes to other part 24 provisions is published
elsewhere in this issue of the Federal Register.
Part 24 permits public welfare investments by national banks,
subject to certain limitations. Currently, part 24 requires a bank to
reinvest the profits, dividends, and other distributions from its
equity and debt investments in a community development corporation
(CDC) or community development (CD) project in activities that
primarily promote the public welfare. This final rule removes the
reinvestment requirement from part 24.
Background
Under 12 U.S.C. 24 (Eleventh) (section 24 (Eleventh)), a national
bank is authorized to make investments designed primarily to promote
the public welfare, including the welfare of low- and moderate-income
families and communities (such as through the provision of housing,
services, or jobs) consistent with safe and sound banking
practices.1 The OCC issued part 24 on December 27, 1993 (58 FR
68464), to establish various requirements for these permissible public
welfare investments.
\1\ Paragraph Eleventh was added to 12 U.S.C. 24 by the
Depository Institutions Disaster Relief Act of 1992, enacted on
October 23, 1992. Pub. L. 102-485, Section 6(a), 106 Stat. 2774
(1992).
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The part 24 requirements include a provision, currently codified at
12 CFR 24.4(a)(4), that prescribes how a bank may use certain proceeds
from its section 24 (Eleventh) investments. This provision requires
that a national bank devote the profits, dividends, tax credits, and
other distributions from equity investments, or interest income from
debt investments received by a bank from a CDC or CD project
investment, to activities that primarily promote the public welfare as
determined by the OCC. Further, in the case of an investment in a for-
profit CDC subsidiary, a national bank must reinvest the profits,
dividends, and other distributions in the CDC during its first three
years of operation.
Section 24 (Eleventh) does not require reinvestment of public
welfare investment proceeds. The OCC included this provision in part 24
based on its practice in implementing 12 U.S.C. 24 (Eighth) (section 24
(Eighth)), which was enacted prior to section 24 (Eleventh). Section 24
(Eighth) generally allows a national bank to contribute to community
funds, or to charitable, philanthropic, or benevolent instrumentalities
conducive to the public welfare. Interpretive Ruling 7.7480, which
implemented section 24 (Eighth),2 permitted a bank to make
investments, as long as the investments were of a predominantly civic,
community, or public nature. At that time, the OCC concluded that it
could be inconsistent with the underlying charitable purpose of section
24 (Eighth) for a bank to retain profits on these investments.
Interpretive Ruling 7.7480 was, therefore, interpreted to require a
bank to reinvest profits, dividends, and other distributions in public
purpose activities.
\2\ Interpretive Ruling 7.7480, which was codified at 12 CFR
7.7480, was removed in 1993 when 12 CFR part 24 was promulgated.
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Although part 24 was drafted under the authority of section 24
(Eleventh), which provides direct authority for public welfare
investments, it included a reinvestment requirement as a means of
furthering the public welfare nature of investments made pursuant to
this authority.
Description of the Proposal and Comments Received
In its October 26, 1995, NPRM, the OCC proposed to remove the
current part 24 reinvestment requirement. The statute does not restrict
an institution from earning and retaining profits on investments made
pursuant to section 24 (Eleventh), as long as the investments are
designed primarily to promote the public welfare. In addition, reaction
to the current rule indicates that in some instances the reinvestment
provision has discouraged banks from making part 24 investments. For
example, the requirement that a bank reinvest low-income housing tax
credits in restricted activities has diminished the economic incentive
for a bank to participate in this type of low-income housing project.
The OCC received 13 comments on its proposed removal of the
reinvestment requirement. Twelve of the commenters supported the
proposal. The majority of these commenters either indicated that the
proposal would provide an incentive for a national bank to make part 24
investments or indicated that the proposal would eliminate a
disincentive
[[Page 67050]]
that currently results from the reinvestment provision.
Several commenters also predicted that the change would not have a
negative effect on national banks' safety and soundness. One commenter
suggested that the proposed rule might promote safety and soundness by
allowing bank management increased flexibility in its use of part 24
investment proceeds.
Several commenters indicated that the proposed change would
decrease the cost or burden associated with part 24 compliance. These
comments generally were made with regard to low-income housing tax
credits for which determining compliance with the reinvestment
provision may be cumbersome. One commenter noted that the reinvestment
requirement furthers the misperception that public welfare investments
are adverse to bank profitability.
One commenter opposed the proposal based on a concern that it might
result in fewer part 24 investments. This commenter suggested that the
OCC monitor the level of national bank public welfare investments on an
ongoing basis to assess whether the change made by this final rule
yields the anticipated results.
Discussion of the Final Rule
In this final rule, the OCC adopts the proposal and removes the
reinvestment requirement from part 24. The OCC believes that removal of
the reinvestment provision will further the basic objective of section
24 (Eleventh) by encouraging banks to make more investments. The OCC
also believes that the change made by this final rule is consistent
with bank safety and soundness. It will enable a bank to use profits,
dividends, and other distributions from its part 24 investments for any
purpose based upon an overall assessment by the bank's management of
its financial needs and public welfare investment objectives.
Removing the reinvestment requirement will encourage banks to make
investments that promote the public welfare. It will not, however,
constrain a bank's use of investment proceeds nor hamper its ability to
ensure the sound operation of the bank as a whole.
The OCC will continue to monitor public welfare investment levels
and trends, as it has since public welfare investments were
specifically authorized by part 24. Based on this monitoring, the OCC
periodically will evaluate the effectiveness of part 24, as amended.
Regulatory Flexibility Act
It is hereby certified that this final rule will not have a
significant economic impact on a substantial number of small entities.
Accordingly, a regulatory flexibility analysis is not required. The
final rule will reduce somewhat the regulatory burden on national
banks, regardless of size, by removing the requirement that a national
bank must reinvest the proceeds of its public welfare investments.
Executive Order 12866
The OCC has determined that this final rule is not a significant
regulatory action under Executive Order 12866.
Unfunded Mandates
The OCC has determined that this final rule will not result in
expenditures by state, local, and tribal governments, or by the private
sector, of more than $100 million in any one year. Accordingly, a
budgetary impact statement is not required under section 202 of the
Unfunded Mandates Reform Act of 1995.
Effective Date
This final rule will become effective on January 1, 1996. The final
rule will apply to profits from both existing and new public welfare
investments. Thus, public welfare investment profits, dividends, tax
credits, interest, and other distributions that a national bank earns
prior to January 1, 1996, but which the bank has not reinvested by
January 1, 1996, do not have to be reinvested. In addition, public
welfare profits, dividends, tax credits, interest, and other
distributions that a national bank earns after January 1, 1996, which
stem from a public welfare investment undertaken by the national bank
prior to January 1, 1996, will not have to be reinvested. Finally,
profits, dividends, tax credits, interest, and other distributions from
a public welfare investment undertaken after January 1, 1996, will not
be subject to the reinvestment requirement.
The Administrative Procedure Act (5 U.S.C. 553(d)(1)) (APA) states
that a substantive rule shall not be published less than 30 days before
its effective date unless the rule grants or recognizes an exemption or
relieves a restriction. Because the current regulation restricts the
manner in which a national bank can use its pubic welfare investment
returns and the final rule removes this restriction, this final rule
satisfies the terms of the APA's exception to the requirement for a
delayed effective date.
In addition, section 302 of the Riegle Community Development and
Regulatory Improvement Act of 1994 generally restricts the effective
date of Federal banking agency regulations that impose additional
reporting, disclosure, or other new requirements on insured depository
institutions. The OCC believes that section 302 is not applicable to
this final rule because the final rule does not impose any additional
reporting, disclosure, or other new requirements on national banks.
Instead, this final rule removes the current reinvestment requirement.
List of Subjects in 12 CFR Part 24
Community development, Credit, Investments, National banks,
Reporting and recordkeeping requirements.
Authority and Issuance
For the reasons set forth in the preamble, part 24 of title 12,
chapter I, of the Code of Federal Regulations is amended as set forth
below:
PART 24--COMMUNITY DEVELOPMENT CORPORATION AND PROJECT INVESTMENTS
1. The authority citation for part 24 continues to read as follows:
Authority: 12 U.S.C. 24 (Eleventh), 93a, 161, 481 and 1818.
Sec. 24.4 [Amended]
2. Paragraph (a)(2) of Sec. 24.4 is amended by adding at the end of
the paragraph ``and''.
3. Paragraph (a)(3) of Sec. 24.4 is amended by removing ``; and''
at the end of the paragraph and adding a period.
4. Paragraph (a)(4) of Sec. 24.4 is removed.
Dated: December 15, 1995.
Eugene A. Ludwig,
Comptroller of the Currency.
[FR Doc. 95-31020 Filed 12-27-95; 8:45 am]
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