[Federal Register Volume 60, Number 249 (Thursday, December 28, 1995)]
[Proposed Rules]
[Pages 67091-67097]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-31021]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 60, No. 249 / Thursday, December 28, 1995 /
Proposed Rules
[[Page 67091]]
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 24
[Docket No. 95-35]
RIN 1557-AB46
Community Development Corporation and Project Investments and
Other Public Welfare Investments
AGENCY: Office of the Comptroller of the Currency, Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Office of the Comptroller of the Currency (OCC) is
proposing to revise its regulation governing national bank investments
designed primarily to promote the public welfare. The revisions clarify
banks' authority under this part; renumber and reorganize the
regulation; provide the OCC greater flexibility for determining whether
investments primarily promote the public welfare; and simplify the
regulation's investment self-certification and prior approval
processes. The proposed revisions reduce regulatory burden and
inconsistencies while enhancing the ability of national banks to make
public welfare investments.
DATES: Comments must be received on or before February 26, 1996.
ADDRESSES: Interested persons are invited to submit comments to
Communications Division, Third Floor, Office of the Comptroller of the
Currency, 250 E Street, S.W., Washington, D.C. 20219. Attention: Docket
No. 95-35. Comments will be available for inspection and photocopying
at that address. In addition, comments may be sent by facsimile to
(202) 874-5274, or by electronic mail to reg.comments@occ.treas.gov.
FOR FURTHER INFORMATION CONTACT: Karen Bellesi, Program Coordinator,
Community Development Investments, Community Development Division,
(202) 874-4930; or Michele Meyer, Attorney, Community and Consumer Law
Division, (202) 874-5750.
SUPPLEMENTARY INFORMATION:
Background
As part of its Regulation Review Program, the OCC is proposing
revisions to 12 CFR Part 24. In December of 1993, the OCC adopted part
24 to implement the recently-enacted 12 U.S.C. 24(Eleventh). Section
24(Eleventh) authorizes national banks 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),'' subject to certain
percentage of capital limitations.
As currently written, part 24 reflects the statute's broad policy
of promoting the public welfare and places particular emphasis on
community development investments. Part 24 permits national banks to
make investments in community development corporations (CDCs) and
community development projects (CD Projects), consistent with safe and
sound banking practices. Under part 24, banks may self-certify certain
community development investments. Investments that do not qualify for
self-certification are subject to one of two prior approval processes.
The first requires that a bank file an investment proposal, which the
OCC usually approves or disapproves within 30 days. The second consists
of a five-day review period for investment proposals that the OCC has
previously approved for another bank.
Part 24 was crafted carefully initially to permit the agency and
the industry to gain experience with the new investment authority
provided by the statute. The proposed revisions reflect the OCC's and
the industry's successful experience with part 24. In the two years
since the OCC adopted part 24, national banks and their community
partners have invested millions of dollars in hundreds of CDCs and CD
Projects. Based on this success, and the OCC's desire to facilitate
increased community development lending and investment, the OCC
believes that it can ease some restrictions and reduce the regulatory
burden associated with part 24.
The proposed revisions preserve part 24's community development
focus but provide greater flexibility for determining whether
investments promote the public welfare. To encourage innovation in
banks' public welfare investments, the proposal modifies the current
test for determining whether an investment is designed primarily to
promote the public welfare (public welfare test). In addition, the
proposal simplifies part 24's self-certification and prior approval
processes. The proposed revisions simplify the rule and enhance its
clarity by using terms common to other recently adopted or revised
regulations, such as the Federal Reserve Board's Community Development
and Public Welfare Investments Regulation, 12 CFR Part 208.21, and the
OCC's Community Reinvestment Act Regulation (CRA Regulation), 12 CFR
Part 25. In addition, the proposal reorganizes part 24 and renumbers
its provisions. A derivation table showing these changes appears at the
end of this preamble.
Description of the Proposal
The following discussion identifies and explains the significant
proposed changes to the regulation. The OCC requests comment on all
aspects of the proposed regulation, as well as specific comment on the
changes discussed in this preamble.
Title
The proposal reflects the OCC's view that national banks can
promote the public welfare through a variety of authorized investments,
including CDCs and CD Projects that develop affordable housing, foster
revitalization and stabilization of low-and moderate-income areas, or
provide equity or debt financing for small businesses. Thus, the OCC
proposes to change the title of part 24 from ``Community Development
Corporation and Project Investments'' to ``Community Development
Corporation and Project Investments and other Public Welfare
Investments.''
Authority, Purpose, and OMB Control Number (Sec. 24.1)
The proposal amends the ``purpose'' paragraph to reflect that CDCs
and CD Projects that develop affordable housing, foster revitalization
and stabilization of low-and moderate-income areas, or provide equity
or debt financing for small businesses are just some of the types of
investments that a national bank can make under part 24. The OCC
continues to encourage
[[Page 67092]]
national banks to make these types of investments but also emphasizes
that many kinds of investments can promote the public welfare.
Definitions (Sec. 24.2)
In keeping with the Regulation Review Program's goal of using
terminology consistently throughout the OCC's regulations, the OCC is
proposing definitions and terms common to other OCC regulations. For
example, the definition of ``low-income and moderate-income'' now
refers to the OCC's CRA Regulation. The definition of ``capital and
surplus'' is the same as the definition of ``capital and surplus'' in
the OCC's Lending Limit Regulation, 12 CFR Part 32. Twelve CFR 32.2
defines ``capital and surplus'' as a bank's Tier 1 and Tier 2 capital
under the OCC's Minimum Capital Ratios in Appendix A to 12 CFR Part 3,
plus the balance of a bank's allowance for loan and lease losses not
included in the bank's Tier 2 capital, for purposes of the calculation
of risk-based capital under 12 CFR Part 3.
The OCC continues to recognize CDCs and CD Projects as vehicles
that national banks may use to make investments under this part. These
terms are defined at proposed Sec. 24.2. The proposal, however, omits
the current regulation's definitions of community development limited
partnership and community-based development corporation as unnecessary
further examples of such vehicles. This change does not affect national
banks' authority to invest in community development limited
partnerships or community based development corporations. Consistent
with the requirements of this part, national banks may continue to
invest in these and other vehicles.
The proposal adds a definition of ``eligible bank'' that is the
same as the ``eligible bank'' definition proposed by the OCC for
corporate applications in its November 29, 1994 Notice of Proposed
Rulemaking concerning 12 CFR Part 5 (59 FR 61034). The proposal
provides that a bank may self-certify investments for purposes of part
24 if it has a composite rating of 1 or 2 under the Uniform Financial
Institutions Rating System, has at least a satisfactory CRA rating, is
well capitalized, and is not subject to any current OCC enforcement
actions. As explained in proposed Sec. 24.5(a)(4), a national bank that
is at least adequately capitalized and that has a composite rating of
at least 3 with improving trends may submit a letter to the OCC's
Community Development Division requesting permission to self-certify
investments. This is a change from the current rule, which allows an
adequately capitalized, 1 or 2 rated bank that is not subject to a
current OCC enforcement action to self-certify investments. The OCC
believes this modification avoids the potential confusion of two
different ``eligible bank'' definitions in different sections of the
OCC's rules, and is appropriate in light of the proposal's
significantly expanded self-certification opportunities for banks (See
proposed Sec. 24.6.)
In addition, the proposal changes the definition of ``significant
risk to the deposit insurance fund'' to include risk to all federal
deposit insurance funds.
Finally, the proposal makes two changes concerning the small
business definitions in current part 24. First, the proposal removes
the definition of ``minority-owned small businesses'' because these
businesses are encompassed by the regulation's provisions concerning
all small businesses. Second, the proposal updates the citation to the
Small Business Administration regulations referenced in the definition
of ``small business'' in the current regulation.
Public Welfare Investments (Sec. 24.3)
Part 24 currently delineates a public welfare test that consists of
four requirements. Under current Sec. 24.4, an investment in a CDC or
CD Project is designed primarily to promote the public welfare only if:
(1) the investment primarily benefits low- and moderate-income persons
and families or small businesses; (2) the investment addresses
community development needs not met by the private market in one or
more communities served by the bank; (3) there is nonbank community
involvement in the CDC or CD Project; and (4) the profits and
distributions from a CDC or CD Project are reinvested in activities
that primarily promote the public welfare.1
1 On October 26, 1995, the OCC published a proposal to
eliminate part 24's reinvestment requirement. 60 FR 54819. The
public comment period on that proposal ended on November 27, 1995.
The final rule is published elsewhere in this issue of the Federal
Register.
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Based on its experience since it adopted part 24, the OCC believes
that the existing public welfare test should be modified to reflect a
more diverse standard for whether an investment promotes the public
welfare. Therefore, proposed Sec. 24.3(a) retains the first element of
the public welfare test, benefit to low- and moderate-income
individuals and small businesses, but makes clear that this benefit can
be provided in a variety of ways. Section 24.3(a) sets forth a non-
exhaustive list of permissible investment activities that provide the
required benefit. The list incorporates the definition of ``community
development'' provided in the CRA regulation, and reflects the factors
for determining whether an institution qualifies as a Community
Development Financial Institution under the Riegle Community
Development and Regulatory Improvement Act and the OCC Community
Development Division's experience with recent innovative investment
proposals.
Proposed Sec. 24.3(b) clarifies that, under the second element of
the current public welfare test, a bank is not required to demonstrate
that it is impossible to obtain private market financing. A bank must
demonstrate, however, the reasons that it is difficult to secure such
financing for its proposed investment. Proposed Sec. 24.3(d) permits a
bank to make an investment that also benefits an area outside those
where the bank provides its core banking services. The bank must still
demonstrate, however, the extent to which its investment benefits the
communities where it provides these services.
The proposal also modifies the existing community participation
requirement of the public welfare test. Current Sec. 24.4(a)(3)
requires a bank to demonstrate nonbank community involvement in a CDC
or CD project by indicating support from the affected primary
beneficiaries and representatives of local government. In the case of a
CDC, a bank must demonstrate such support by the composition of the
organization's board of directors.
The OCC believes that community involvement is vital to the success
of banks' part 24 investment programs. Therefore, the proposal modifies
the community participation requirement to allow banks and community
groups to determine how best to structure community partnerships under
part 24. Proposed Sec. 24.3(c) requires that a bank demonstrate
community support for or participation in an investment proposal. A
bank could demonstrate such community support or participation in a
variety of ways including non-bank community representation on a CDC
board of directors, establishment of a community advisory board for the
bank's community development activities, formation of a formal business
relationship with a community-based organization, public sector or
community group financing, or letters of support from community
representatives. The OCC requests comment on the appropriate means of
demonstrating community support for or participation in a bank's part
24
[[Page 67093]]
investment and whether the final rule should specify some or all of
them.
The proposal removes as unnecessary current Sec. 24.4(e), which
provides that a bank must manage its CDC and CD Project investments in
a prudent manner. National banks must, of course, continue to manage
their part 24 investments prudently.
Investment Limits (Sec. 24.4)
The current regulation contains investment limit provisions at
current Sec. 24.4(b) and (d). For ease of reference, the proposal
groups the provisions concerning part 24 investment limits into a
separately titled section. Proposed Sec. 24.4(a) has been modified to
clarify that, as provided in 12 U.S.C. 24(Eleventh), a bank's aggregate
outstanding investments under part 24 may not exceed 5 percent of its
capital and surplus unless the bank is at least adequately capitalized
and the OCC determines, by written approval of a proposed investment,
that a higher amount will pose no significant risk to the deposit
insurance fund.
Public Welfare Investment Self-Certification and Prior Approval
Procedures (Sec. 24.5)
Proposed Sec. 24.5 simplifies, clarifies, and reduces the burden
associated with the self-certification and prior approval procedures
set forth in current Sec. 24.11. Section 24.11 now provides three
processes for approval of authorized investments. The first requires
that a bank file an investment proposal, which the OCC usually approves
or disapproves within 30 days. The second process consists of a five-
day review period by the OCC for investment proposals that the OCC has
previously approved for another bank. The third is a self-certification
process for certain investments, under which a bank files a notice with
the OCC within 10 days after it makes an investment, and the OCC sends
a confirmation of receipt within five days.
The proposal eliminates the second approval process and streamlines
the third. Under proposed Sec. 24.5(a) and Sec. 24.6(a), a bank may
self-certify an investment previously approved by the OCC for another
bank. Although not specified in the proposed rule, the OCC will
continue its practice of sending a simple confirmation of receipt of a
bank's self-certification notice within five days. Under the proposal,
however, the OCC will not retroactively review a self-certified
investment proposal. Instead, the OCC will review the self-
certification documents simply to ensure that they meet the self-
certification requirements set forth in proposed Sec. 24.5(a).
The prior approval procedures for investment proposals that do not
qualify for self-certification are set forth in proposed
Sec. 24.5(b).2 In considering a bank's investment proposal, the
OCC will consider whether the investment satisfies the requirements of
Sec. 24.3 and whether it is consistent with the bank's safe and sound
operation and the OCC's policies.
2 The proposal removes the current rule's provision for
optional review as unnecessary. A national bank may continue to
request prior OCC review and approval of any investment proposal,
including one that qualifies for self-certification.
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Although not specified in the proposal, the OCC will continue its
practice of sending a simple confirmation of receipt of an investment
proposal within five days. Unless otherwise notified by the OCC, a bank
may make a proposed investment 30 calendar days after the date on which
the OCC receives the bank's investment proposal. The OCC may notify the
bank that it is extending the review period. If so notified, the bank
may make the investment only with the OCC's written approval.
Current Sec. 24.11(b) contains a limit on the size of investments
eligible for self- certification by banks with more than $250 million
in assets. These banks must seek prior OCC approval for investments
that exceed the lesser of 2 percent of their unimpaired capital and
surplus or $10 million. The OCC proposes to remove this limitation in
light of the proposed new standards that define the banks eligible to
use the self-certification process.
Investments Eligible for Self-Certification (Sec. 24.6)
Proposed Sec. 24.6 replaces the current Sec. 24.13, which limits
self-certification to investments using certain structures as well as
certain activities. These structures include multi-bank CDCs; CDCs
established by state or local government; community-based
organizations; and certain community development limited partnerships.
A CDC subsidiary is not currently an eligible structure for self-
certification.
The OCC believes that a structure-based self-certification
limitation is no longer necessary. This limitation was intended to
allow the OCC to ensure that particular investments did not expose
banks to safety and soundness risks or unlimited liability. However, by
limiting self-certification to eligible banks (as defined in proposed
Sec. 24.2(e)), the OCC believes it can reasonably rely on bank
management to determine the appropriate structures for part 24
investments.
In addition to eliminating the list of eligible structures,
proposed Sec. 24.6(a) expands the list of activities eligible for self-
certification to reflect the industry's increasing innovation in making
part 24 investments and the OCC's experience with self-certification
under part 24. Part 24's self-certification provisions encourage public
welfare investments by banks by reducing the regulatory steps
associated with making the investments. In order to maximize the use of
self-certification as an incentive for banks to make investments that
primarily promote the public welfare, and to encourage banks'
creativity in making these investments, the OCC has identified in
proposed Sec. 24.6(a) a clear and expanded list of eligible activities.
This list includes, but is not limited to, certain investments that
benefit low- and moderate-income persons and small businesses,
investments that have been determined by the OCC to be permissible
under part 24, and investments previously approved by the Federal
Reserve Board under 12 CFR 208.21 for state member banks.
Notwithstanding the eligible activities listed in Sec. 24.6(a),
proposed Sec. 24.6(b) provides that a bank may not self-certify
investments that involve properties carried on the bank's books as
``other real estate owned'' (OREO properties) or that fund projects
outside the states or metropolitan areas in which the bank's main
office or branches are located. The latter limitation is similar to the
limit on self-certification that appears in current part 24 but is
revised to reflect that some national banks now have branches in more
than one state.
Examination, Records, and Remedial Action (Sec. 24.7)
Proposed Sec. 24.7 replaces current Sec. 24.21 but makes no
substantive change.
Accounting for Public Welfare Investments (Current Sec. 24.4(c))
Current Sec. 24.4(c) provides that a bank's investments in CDCs and
CD Projects generally may be recorded as ``other assets at cost.'' The
rule also sets forth circumstances under which a bank would be required
to consolidate its investments on a line-by-line basis or account for
them under the equity method of accounting. The proposal eliminates
this section as unnecessary, because banks generally look to other
sources for their accounting instructions. Banks should record their
investments, as appropriate, pursuant to the instructions for
Consolidated Reports of Condition and Income
[[Page 67094]]
published by the Federal Financial Institutions Examination Council.
Policy Issue
Currently, the OCC does not generally use 12 U.S.C. 24(Eleventh),
as implemented by part 24, as an alternative basis for approving
activities that are otherwise permissible under other provisions of the
National Bank Act, 12 U.S.C. 1, et seq. This is a policy position
intended to prevent banks' activities from being subjected
unnecessarily to part 24's capital limitation.3 This position,
however, does not reflect the OCC's general approach of allowing banks
to decide how best to structure their investments.
3 For example, a bank could make an affordable housing
loan under both 12 U.S.C. 24(Seventh) and 24(Eleventh). If the bank
made such a loan under the authority of 12 U.S.C. 24(Eleventh), the
loan would be subject to a capital limitation that is stricter than
the generally applicable lending limits.
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The OCC requests comment on whether it should continue its policy
of not using part 24 as a basis for approving activities otherwise
permissible under the National Bank Act.
Derivation Table
This table directs readers to the provision(s) of the current
regulation, if any, upon which the proposed provision is based.
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Revised provision Original provision Comments
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Sec. 24.1............................... Sec. 24.1............................. Modified.
Sec. 24.2(a)............................ Sec. 24.2(a).......................... Modified.
(b).................................. Sec. 24.2(m).......................... Substantial
change.
(c).................................. Sec. 24.2(b).......................... Modified.
(d).................................. Sec. 24.2(e).......................... Modified.
(e).................................. ....................................... Added.
(f).................................. Sec. 24.2(g), (h)..................... Substantial
change.
(g).................................. Sec. 24.2(k).......................... Modified.
(h).................................. Sec. 24.2(l).......................... Modified.
Sec. 24.2(c).......................... Removed.
Sec. 24.2(d).......................... Removed.
Sec. 24.2(f).......................... Removed.
Sec. 24.2(i).......................... Removed.
(i).................................. Sec. 24.2(a).......................... Modified.
Sec. 24.2(j).......................... Removed.
Sec. 24.3............................... Sec. 24.4(a).......................... Substantial
change.
Sec. 24.4............................... Sec. 24.4(b), (d)..................... Modified.
Sec. 24.4(c).......................... Removed.
Sec. 24.4(e).......................... Removed.
Sec. 24.5(a)............................ Sec. 24.11(a)......................... Substantial
change.
(b).................................. Sec. 24.11(b), (d), (e)............... Substantial
change.
Sec. 24.11(c)......................... Removed.
Sec. 24.6(a)............................ Sec. 24.13(b)......................... Substantial
change.
(b).................................. Sec. 24.11(b)......................... Modified.
Sec. 24.13(a)......................... Removed.
Sec. 24.7............................... Sec. 24.21............................ Modified.
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Regulatory Flexibility Act
It is hereby certified that this notice of proposed rulemaking, if
adopted as a final rule, will not have a significant economic impact on
a substantial number of small entities. Accordingly, a regulatory
flexibility analysis is not required. This notice of proposed
rulemaking, if adopted as a final rule, will reduce the regulatory
burden on national banks, regardless of size, by replacing part 24's
public welfare test with a non-exhaustive list of permissible public
welfare investment activities, streamlining the self-certification and
prior approval sections of the rule, and eliminating unnecessary
provisions. While beneficial, these changes will not have a material
impact on affected banks.
Executive Order 12866
The OCC has determined that this proposal is not a significant
regulatory action under Executive Order 12866.
Unfunded Mandates
The OCC has determined that this proposal 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.
Paperwork Reduction Act of 1995
The OCC invites comment on:
(1) Whether the proposed collection of information contained in
this notice of proposed rulemaking is necessary for the proper
performance of its functions, including whether the information has
practical utility;
(2) The accuracy of the OCC's estimate of the burden of the
proposed information collection;
(3) Ways to enhance the quality, utility, and clarity of the
information to be collected; and
(4) Ways to minimize the burden of the information collection on
respondents, including through the use of automated collection
techniques or other forms of information technology.
Respondents are not required to respond to this collection of
information unless it displays a currently valid OMB control number.
The collection of information requirements contained in this notice
of proposed rulemaking have been submitted to the Office of Management
[[Page 67095]]
and Budget for review in accordance with the Paperwork Reduction Act of
1995 (44 U.S.C. 3507(d)). Comments on the collections of information
should be sent to the Office of Management and Budget, Paperwork
Reduction Project (1557), Washington, DC 20503, with a copy to the
Legislation and Regulatory Activities Division (1557), Office of the
Comptroller of the Currency, 250 E Street, SW., Washington, DC 20219.
The collection of information requirements in this proposed rule
are found in 12 CFR 24.5. This information is required for the public
welfare investment self- certification and prior approval procedures.
The likely respondents are national banks.
Estimated average annual burden hours per respondent: 1.05 hours.
Estimated number of respondents: 400.
Estimated total annual reporting burden: 418 hours.
Start-up costs to respondents: None.
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, the OCC proposes to
revise part 24, title 12, chapter I, of the Code of Federal Regulations
to read as follows:
PART 24--COMMUNITY DEVELOPMENT CORPORATIONS, COMMUNITY DEVELOPMENT
PROJECTS, AND OTHER PUBLIC WELFARE INVESTMENTS
Sec.
24.1 Authority, purpose, and OMB control number.
24.2 Definitions.
24.3 Public welfare investments.
24.4 Investment limits.
24.5 Public welfare investment self-certification and prior
approval procedures.
24.6 Activities eligible for self-certification.
24.7 Examination, records, and remedial action.
Authority: 12 U.S.C. 24 (Eleventh) and 93a.
Sec. 24.1 Authority, purpose, and OMB control number.
(a) Authority. The Office of the Comptroller of the Currency (OCC)
issues this part pursuant to its authority under 12 U.S.C. 24(Eleventh)
93a, and 481.
(b) Purpose. This part implements 12 U.S.C. 24(Eleventh), which
authorizes national banks to make investments designed primarily to
promote the public welfare, including the welfare of low- and moderate-
income communities or families, such as by providing housing, services,
or jobs. It is the OCC's policy to encourage national banks to make
investments described in Sec. 24.3, consistent with safety and
soundness. The OCC believes that national banks can promote the public
welfare through a variety of investments, including those in community
development corporations (CDCs) and community development projects (CD
Projects), that develop affordable housing, foster revitalization or
stabilization of low- and moderate-income areas, or provide equity or
debt financing for small businesses. This part provides:
(1) The standards that the OCC uses to determine whether an
investment is designed primarily to promote the public welfare; and
(2) The procedures that apply to these investments.
(c) OMB Control Number. The collection of information requirements
contained in this part were approved by the Office of Management and
Budget under OMB control number 1557-0194.
Sec. 24.2 Definitions.
For purposes of this part, the following definitions apply:
(a) Adequately capitalized has the same meaning as adequately
capitalized in 12 CFR 6.4.
(b) Capital and surplus means:
(1) A bank's Tier 1 and Tier 2 capital under the OCC's Minimum
Capital Ratios in Appendix A to 12 CFR Part 3; plus
(2) The balance of a bank's allowance for loan and lease losses not
included in the bank's Tier 2 capital, for purposes of the calculation
of risk-based capital under 12 CFR part 3.
(c) Community development corporation (CDC) means a corporation
established by one or more insured financial institutions, or by
insured financial institutions and other investors, to make one or more
investments that meet the requirements of Sec. 24.3.
(d) Community development Project (CD Project) means a project to
make an investment that meets the requirements of Sec. 24.3.
(e) Eligible bank means a national bank that:
(1) Is well capitalized;
(2) Has a composite rating of 1 or 2 under the Uniform Financial
Institutions Rating System (CAMEL);
(3) Has a Community Reinvestment Act (CRA) rating of
``Outstanding'' or ``Satisfactory''; and
(4) Is not subject to a cease and desist order, consent order,
formal written agreement, or Prompt Corrective Action directive (see 12
CFR part 6, subpart B) or, if subject to any such order, agreement or
directive, is informed in writing by the OCC that the bank may be
treated as an ``eligible bank'' for purposes of this part.
(f) Low-income and moderate-income have the same meanings as low-
income and moderate- income in 12 CFR 25.12(n).
(g) Significant risk to the deposit insurance fund means a
substantial probability that any federal deposit insurance fund could
suffer a loss.
(h) Small business means a business that meets the qualifications
for Small Business Administration loan programs in 13 CFR 121.802
(a)(1) through (3).
(i) Well capitalized has the same meaning as well capitalized in 12
CFR 6.4.
Sec. 24.3 Public welfare investments.
A national bank may make an investment under this part if:
(a) The investment primarily benefits low- and moderate-income
individuals or small businesses by providing or supporting one or more
of the following activities:
(1) Affordable housing, community services, or permanent jobs for
low- and moderate-income individuals;
(2) Equity or special debt financing for small businesses;
(3) Revitalization or stabilization of low- or moderate-income
areas or other areas (including rural areas) targeted for redevelopment
by local, state, or federal government; or
(4) Other activities, services, or facilities conducive to the
public welfare;
(b) The bank sets forth the reasons why it is difficult to secure
private market financing for the proposed investment;
(c) The bank demonstrates non-bank community support for or
participation in the investment; and
(d) The bank demonstrates the extent to which the investment
benefits communities otherwise served by the bank.
Sec. 24.4 Investment limits.
(a) Limit on aggregate outstanding investments. A national bank's
aggregate outstanding investments under this part may not exceed 5
percent of its capital and surplus, unless the bank is at least
adequately capitalized and the OCC determines, by written approval of
the bank's proposed investment(s), that a higher amount will pose no
significant risk to the deposit insurance fund. In no case may a bank's
aggregate outstanding investments under this part exceed 10 percent of
its capital and surplus.
(b) Limited liability. A national bank may not make an investment
under this
[[Page 67096]]
part that would expose the bank to unlimited liability.
Sec. 24.5 Public welfare investment self-certification and prior
approval procedures.
(a) Self-certification of public welfare investments. (1) Subject
to Sec. 24.4(a), an eligible bank may make an investment described in
Sec. 24.6(a) without prior notification to, or approval by, the OCC if
the bank follows the self-certification procedures prescribed in this
section.
(2) To self-certify an investment, an eligible bank shall submit,
within 10 working days after an investment is made, a letter of self-
certification to the Director, Community Development Division, Office
of the Comptroller of the Currency, Washington, DC 20219.
(3) The bank's letter of self-certification must include:
(i) The name of the CDC, CD Project, or other entity in which the
bank has invested;
(ii) The date the investment was made;
(iii) The type of investment (equity or debt), the investment
activity listed in Sec. 24.6(a) that the investment supports, and a
brief description of the particular investment;
(iv) The bank's total investment in the CDC, CD Project or other
entity, and the bank's aggregate outstanding investments under this
part, including commitments and the investment being self-certified;
(v) The percentage of the bank's capital and surplus represented by
the bank's aggregate outstanding investments under this part, including
commitments and the investment being self-certified; and
(vi) A statement demonstrating compliance with Sec. 24.3 and
Sec. 24.4.
(4) A national bank that is not an eligible bank but is at least
adequately capitalized, and has a composite rating of at least 3 with
improving trends under the Uniform Financial Institutions Rating
System, may submit a letter to the Community Development Division
requesting authority to self-certify investments. The Community
Development Division considers these requests on a case-by-case basis.
(b) Investments requiring prior approval. (1) If a national bank or
its proposed investment does not meet the requirements for self-
certification set forth in paragraph (a) of this section, the bank
shall submit a proposal for an investment to the Director, Community
Development Division, Office of the Comptroller of the Currency,
Washington, DC 20219.
(2) The bank's investment proposal must include:
(i) The name of the CDC, CD Project, or other entity in which the
bank intends to invest;
(ii) The date on which the bank intends to make the investment;
(iii) The type of investment (equity or debt), the investment
activity listed in Sec. 24.3(a) that the investment supports, and a
description of the particular investment;
(iv) The bank's total investment in the CDC, CD Project or other
entity, and the bank's aggregate outstanding investments under this
part (including commitments and the investment being proposed);
(v) The percentage of the bank's capital and surplus represented by
the bank's aggregate outstanding investments under this part (including
commitments and the investment being proposed); and
(vi) A statement demonstrating compliance with Sec. 24.3 and
Sec. 24.4.
(3) In reviewing a proposal, the OCC considers the following
factors and other available information including:
(i) Whether the investment satisfies the requirements of Sec. 24.3;
(ii) Whether the investment is consistent with the safe and sound
operation of the bank; and
(iii) Whether the investment is consistent with the requirements of
this part and the OCC's policies.
(4) Unless otherwise notified by the OCC, and subject to
Sec. 24.4(a), the bank may make the proposed investment after 30
calendar days from the date on which the OCC receives the bank's
investment proposal.
(5) The OCC, by notifying the bank, may extend its period for
reviewing the investment proposal. If so notified, the bank may make
the investment only with the OCC's written approval.
(6) The OCC may impose one or more conditions in connection with
its approval of an investment under this part. All approvals are
subject to the condition that a national bank must conduct the approved
activity in a manner consistent with any published guidance issued by
the OCC regarding the activity.
Sec. 24.6 Activities eligible for self-certification.
(a) Eligible activities. In accordance with the process described
in Sec. 24.5(a), a bank may self-certify the following investments
without prior notice to, or approval by, the OCC:
(1) Investments in an entity that finances, acquires, develops,
rehabilitates, manages, sells, or rents housing primarily for low- and
moderate-income persons;
(2) Investments that stimulate economic development, community
stabilization or revitalization, or permanent job creation or retention
for low- and moderate-income persons by financing small businesses
(including equity or debt financing and investments in an entity that
provides loan guarantees);
(3) Investments that stimulate economic development, community
stabilization or revitalization, or permanent job-creation or retention
for low- and moderate-income persons by providing credit counseling,
job training, community development research, and similar technical
assistance services for small businesses, non-profit community
development organizations, low- and moderate-income persons or areas,
or other areas (including rural areas) targeted for redevelopment by
state or local government;
(4) Investments in an entity that stimulates economic development,
community stabilization or revitalization, or permanent job creation or
retention for low- and moderate- income persons by acquiring,
developing, rehabilitating, managing, selling, or renting commercial or
industrial property that is located in a low- and moderate- income area
or other area (including rural areas) targeted for redevelopment by
state or local government, and which is occupied primarily by small
businesses;
(5) Investments as a limited partner in a project with a general
partner that is, or is primarily owned and operated by, a 26 U.S.C.
501(c)(3) or (4) non-profit corporation and that qualifies for the
federal low-income housing tax credit;
(6) Investments in low- or moderate-income areas, or other areas
(including rural areas) targeted for redevelopment by state or local
government that create long term employment opportunities, the majority
of which will be held by low- and moderate-income persons;
(7) Investments in a national bank that has been approved by the
OCC as a national bank with a community development focus;
(8) Investments that have been approved by the Federal Reserve
Board under 12 CFR 208.21 for state member banks; and
(9) Investments that have been previously determined by the OCC to
be permissible under this part.
(b) Ineligible activities. Notwithstanding the provisions of this
section, a bank may not self-certify an investment if:
(1) The investment involves properties carried on the bank's book
as ``other real estate owned'';
(2) The investment funds projects in a state or metropolitan area
other than
[[Page 67097]]
the states or metropolitan areas in which the bank maintains its main
office or branches; or
(3) The OCC determines, in published guidance, that the investment
is inappropriate for self-certification.
Sec. 24.7 Examination, records, and remedial action.
(a) Examination. National bank investments under this part are
subject to the examination provisions of 12 U.S.C. 481.
(b) Records. Each national bank shall maintain in its files
information adequate to demonstrate that it is in compliance with the
requirements of this part.
(c) Remedial action. If the OCC finds that an investment under this
part is in violation of law or regulation, is inconsistent with the
safe and sound operation of the bank, or poses a significant risk to a
federal deposit insurance fund, the national bank shall take
appropriate remedial action as determined by the OCC.
Dated: December 14, 1995.
Eugene A. Ludwig,
Comptroller of the Currency.
[FR Doc. 95-31021 Filed 12-27-95; 8:45 am]
BILLING CODE 4810-33-P
