[Federal Register Volume 64, Number 111 (Thursday, June 10, 1999)]
[Proposed Rules]
[Pages 31160-31164]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-14754]
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 24
[Docket No. 99-09]
RIN 1557-AB69
Community Development Corporations, Community Development
Projects, 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 amend part 24, the regulation governing national bank
investments that are designed primarily to promote the public welfare.
This proposal simplifies the prior notice and self-certification
requirements that apply to national banks' public welfare investments;
expands the types of investments that a national bank may self-certify
by removing geographic restrictions; and permits eligible national
banks with assets of less than $250 million to self-certify any public
welfare investment. The OCC is also seeking comment on whether to
modify the methods of demonstrating community support or participation
currently prescribed by part 24, and whether the OCC could simplify or
streamline the procedures and standards contained in part 24. The
proposal encourages national banks to make public welfare investments
by making it easier to comply with the applicable procedures.
DATES: Comments must be received on or before August 9, 1999.
ADDRESSES: Please direct comments to: Docket No. 99-09, Communications
Division, Third Floor, Office of the Comptroller of the Currency, 250 E
Street, SW, Washington, DC, 20219. Comments are available for
inspection and photocopying at that address. In addition, comments may
be sent by facsimile transmission to FAX number (202) 874-5274, or by
electronic mail to [email protected]
FOR FURTHER INFORMATION CONTACT: David Lewis, Community Development
Investments Manager, Community Development Division, (202) 874-4930;
Michael S. Bylsma, Director, Community and Consumer Law Division, (202)
874-5750; or Heidi M. Thomas, Senior Attorney, Legislative and
Regulatory Activities Division, (202) 874-5090.
SUPPLEMENTARY INFORMATION:
Background
The OCC is proposing to amend 12 CFR part 24, which contains the
rules relating to national banks' investments in community development
corporations (CDCs), community development (CD) projects, and other
public welfare investments. Part 24 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 and families, subject to certain percentage
of capital limitations. (The investments authorized pursuant to 12
U.S.C. 24(Eleventh) are collectively referred to in this proposal as
``public welfare investments''). The purpose of this proposal is to
make burden-reducing changes that will make it easier for national
banks to use the public welfare investment authority that the statute
and regulation provide.
The OCC originally adopted part 24 in 1993 and substantially
revised the regulation, pursuant to its Regulation Review Program, in
1996. See 58 FR 68464 (Dec. 27, 1993) (final regulation); 61 FR 49654
(Sept. 23, 1996) (1996 amendments). The 1996 amendments encouraged
national banks to make public welfare investments by eliminating
unnecessarily burdensome provisions and streamlining the part 24
procedures. Among other things, the 1996 amendments: modified the test
for determining whether an investment primarily promotes the public
welfare; streamlined the investment self-certification and prior
approval
[[Page 31161]]
procedures; and expanded the list of activities eligible for self-
certification.
The OCC is committed to continually reevaluating its rules to
reduce unnecessary regulatory burden and simplify compliance,
consistent with the safe and sound operation of national banks. This
proposal addresses several issues regarding national bank compliance
with part 24 that have arisen since 1996. Specifically, the proposal
further simplifies the prior notice and self-certification requirements
that apply to national banks' public welfare investments; further
expands the types of investments a national bank may self-certify by
removing geographic restrictions; and permits an eligible community
bank to self-certify any public welfare investment. An eligible
community bank is an eligible bank 1 with assets of less
than $250 million.
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\1\ Part 24 defines an ``eligible bank'' as a national bank
that is well capitalized, has a composite rating of 1 or 2 under the
Uniform Financial Institutions Rating System (the CAMELS rating),
has a Community Reinvestment Act rating of ``Outstanding'' or
``Satisfactory,'' and is not subject to a cease and desist order,
consent order, formal written agreement, or Prompt Corrective Action
directive. 12 CFR 24.2(e).
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Description of the Proposal
Community Benefit Information Requirement (Sec. 24.3(c))
Current Sec. 24.6 lists certain public welfare investments that an
eligible bank may make by submitting a self-certification letter to the
OCC within 10 working days after it makes the investment. No prior
notification or approval is required. For all other public welfare
investments, a national bank must submit an investment proposal to the
OCC for prior approval. Unless otherwise notified in writing by the
OCC, the proposed investment is deemed approved 30 calendar days from
the date on which the OCC receives the bank's investment proposal.
Regardless of which procedure applies, Sec. 24.3(c) currently
requires a national bank making a public welfare investment to
demonstrate the extent to which the investment benefits communities
otherwise served by the bank. (The requirement of Sec. 24.3(c) is
referred to in this proposal as the community benefit information
requirement.) Section 24.5 requires the bank to provide a statement in
its self-certification letter or investment proposal certifying that it
has complied with this requirement.
The OCC is proposing to remove the community benefit information
requirement, because this requirement is not mandated by statute and
may constrict national banks from making otherwise qualifying and
beneficial public welfare investments. Moreover, the OCC's experience
in implementing 12 CFR part 24 suggests that national banks are seeking
more public welfare investment opportunities across broader geographic
markets than previously. Enhanced interstate operations and the
increasing availability of Internet banking and other forms of remote
banking limit the value of the community benefit information
requirement for the OCC's evaluation of investment proposals.
Although, as a matter of law, a bank's authority to make public
welfare investments pursuant to 12 U.S.C. 24(Eleventh) and 12 CFR part
24 is independent of its obligation to serve the credit needs of its
entire community under the Community Reinvestment Act (CRA), the OCC
recognizes that banks may want the OCC to consider a public welfare
investment for CRA purposes. Retention of the community benefit
information requirement is not necessary, however, to facilitate the
identification of a public welfare investment that a bank believes
should be considered for CRA purposes. Instead, the OCC proposes to
amend Sec. 24.5 to provide that a national bank that wants the OCC to
consider a specific public welfare investment during a CRA examination
may include a simple statement to that effect in its public welfare
investment proposal or self-certification letter.2
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\2\ The OCC's approval of a public welfare investment made
pursuant to 12 CFR part 24 does not affect how the investment is
evaluated for CRA purposes, and an investment approved under part 24
is not necessarily a qualified investment for purposes of CRA.
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Demonstration of Community Support (Sec. 24.3(d))
Under section 24.3(d), a national bank may make investments
pursuant to part 24 if it demonstrates that it has non-bank community
support for, or participation in, the investment. Section 24.3(d)
provides that a national bank may demonstrate this support or
participation in a number of ways, including:
(1) In the case of an investment in a CD entity with a board of
directors, representation on the board of directors by non-bank
community representatives with expertise relevant to the proposed
investment;
(2) Establishment of an advisory board for the bank's community
development activities that includes non-bank community representatives
with expertise relevant to the proposed investment;
(3) Formation of a formal business relationship with a community-
based organization in connection with the proposed investment;
(4) Contractual agreements with community partners to provide
services in connection with the proposed investment;
(5) Joint ventures with local small businesses in the proposed
investment; and
(6) Financing for the proposed investment from the public sector or
community development organizations.
Prior to the 1996 amendments, part 24 required the affected primary
beneficiaries and representatives of local or State government to have
endorsed and demonstrated support for the investment. In the case of a
CDC, a bank had to demonstrate support through non-bank community
participation on the organization's board of directors. 12 CFR
24.4(a)(3) (1993). The OCC modified the community support/participation
requirement in the 1996 amendments to provide banks and community
groups more flexibility in structuring community partnerships under
part 24. The OCC added the nonexclusive list of examples of community
support or participation to the final rule in response to comments on
the 1996 proposal.
The OCC has not changed Sec. 24.3(d) in this proposal, but invites
comment on whether the approach adopted in the 1996 amendments is
effective in encouraging community involvement in national banks'
public welfare investments. For example, is the current non-bank
community support or participation requirement appropriate? Are there
other ways of demonstrating support or participations? In particular,
commenters addressing these issues are invited to discuss whether:
(1) The current community participation prong of the public welfare
test has been sufficient in obtaining evidence of adequate community
support and involvement in national banks' community development
investments;
(2) General letters of support from community groups or local
officials, without other evidence of community support or
participation, should be considered sufficient to satisfy this
requirement;
(3) Stricter requirements for community support or participation
will have the effect of discouraging public welfare investments
pursuant to part 24; and
(4) Institutions should demonstrate community support for, or
participation in, investments in national or regional
[[Page 31162]]
community development investment vehicles, and if so, what form this
demonstration should take.
Self-Certification of Public Welfare Investments by an Eligible
Community Bank (Sec. 24.5(a))
An eligible national bank may make public welfare investments
listed in Sec. 24.6 without prior OCC approval by submitting a self-
certification letter to the OCC that satisfies the requirements in the
regulation. 12 CFR 24.5(a). Investments eligible for self-certification
include certain investments relating to low- and moderate-income
housing, small businesses located in low- and moderate-income areas,
employment or job training for low- or moderate-income individuals, or
technical assistance services for non-profit community development
organizations; investments as a limited partner in certain low- income
housing tax credit projects; investments in national banks with a
community development focus; investments approved by the Federal
Reserve Board under 12 CFR 208.21; and investments previously
determined by the OCC to be permissible under part 24. 12 CFR 24.6.
Other investments require application to, and approval by, the OCC.
Because community banks operate with more limited resources than
larger institutions, the tasks associated with the prior approval
process for public welfare investments place a greater burden on them.
In addition, the OCC recognizes that smaller community banks may serve
as the only source of investments for some CDCs and CD projects located
in small towns or rural areas and that the prior approval process may
inhibit community banks from making these investments. The proposal
therefore amends Sec. 24.5(a) to permit eligible community banks
(national banks with less than $250 million in assets) to self-certify
all public welfare investments, not only those investments listed in
Sec. 24.6. This change will reduce the regulatory burden and costs
associated with the part 24 prior approval process for eligible
community banks in particular and may encourage more community banks to
make public welfare investments in local CDCs and CD projects that
might not be able to attract investments from other sources.
This change is consistent with 12 U.S.C. 24 (Eleventh), which does
not require a national bank to receive prior OCC approval before making
a public welfare investment within the 5 percent of capital aggregate
limit. Moreover, the change does not raise safety and soundness
concerns because the application process is eliminated only for
investments by eligible community banks. The eligibility standard in
Sec. 24.2(e) ensures that only well-capitalized, well-run community
banks can take advantage of this streamlined approach. In addition,
these public welfare investments are subject to review during the
examination process pursuant to Sec. 24.7. Finally, as set forth in
Sec. 24.7, if the OCC finds that an investment violates law or
regulation, is inconsistent with the safe and sound operation of the
bank, or poses a significant risk to the deposit insurance fund, it may
require the bank to take appropriate remedial action.
The Local Community Investment Requirement for Self-Certification
(Sec. 24.6(b)(2))
Currently, part 24 does not permit a national bank to self-certify
an investment if, among other things, more than 25 percent of the
investment is used to fund projects that are located in a State or
metropolitan area other than the States or metropolitan areas in which
the bank maintains its main office or has branches. 12 CFR 24.6(b)(2).
If any portion of a bank's investment funds projects outside of its
local areas, the bank must include in its self-certification letter a
statement that no more than 25 percent of the investment funds these
projects. 12 CFR 24.5(a)(3)(vii).
The OCC proposes to remove this local community investment
requirement in Sec. 24.6(b) so that a national bank can use the less
burdensome self-certification process to make eligible public welfare
investments in any area. This change removes a requirement that is not
necessary to implement the statute because, as discussed in connection
with the removal of the community benefit information requirement, 12
U.S.C. 24 (Eleventh) does not require that a bank link its public
welfare investments to the communities it serves. In addition, this
change permits national banks to use the self-certification process for
investments in national community development investment vehicles.
Because these vehicles often provide funds for projects located
throughout the United States, it has not always been possible for a
bank to certify that not more than 25 percent of the bank's investment
will support projects in States or metropolitan areas other than those
in which the bank's main office or branches are located. Thus, this
change should expand the opportunities for banks to fund worthwhile
public welfare projects.
As with the proposal to remove the community benefit information
requirement, the OCC recognizes that, in some cases, the local
community investment requirement for self-certification has served as a
way for banks to identify investments that they believe may be eligible
for CRA credit. For the same reasons as discussed in connection with
that change, a bank that wants the investment to be considered for CRA
purposes may include a statement to that effect in its self-
certification letter. This information will be provided to supervisory
staff in connection with the bank's CRA examination. The OCC notes that
this change affects only the eligibility of the investment for self-
certification. It does not modify either the part 24 standards for
permissible public welfare investments or the CRA standards set forth
in 12 CFR Part 25.
Comments
The OCC requests comment on all aspects of this proposal, including
the extent to which these proposed changes will encourage national
banks to make public welfare investments. Commenters are also invited
to suggest other revisions that would simplify the standards or
streamline the procedures currently contained in part 24.
In addition, the OCC seeks comment on the impact of this proposal
on community banks. As discussed in connection with certain of the
proposed changes, the OCC recognizes that community banks operate with
more limited resources than larger institutions and may present a
different risk profile. Thus, the OCC specifically requests comment on
the impact of the proposal on community banks' current resources and
available personnel with the requisite expertise, and whether the goals
of the proposal could be achieved, for community banks, through an
alternative approach.
Finally, the OCC solicits comment on whether the proposal is
written clearly and is easy to understand. On June 1, 1998, the
President issued a Memorandum directing each agency in the Executive
branch to write its rules in plain language. This directive applies to
all new proposed and final rulemaking documents issued on or after
January 1, 1999. The OCC invites comment on how to make this proposal
clearer. For example, you may wish to discuss:
(1) Whether we have organized the material to suit your needs;
(2) Whether the requirements of the rule are clear; or
[[Page 31163]]
(3) Whether there is something else we could do to make the rule
easier to understand.
Regulatory Flexibility Act Analysis
Pursuant to section 605(b) of the Regulatory Flexibility Act, the
Comptroller of the Currency certifies that this proposal would not have
a significant economic impact on a substantial number of small entities
in accord with the spirit and purposes of the Regulatory Flexibility
Act (5 U.S.C. 601 et seq.). Accordingly, a regulatory flexibility
analysis is not required. The proposal would reduce regulatory burden
on national banks by simplifying the prior approval process and
simplifying and expanding the self-certification process for part 24
investments. The economic impact of this proposal on national banks,
regardless of size, is expected to be minimal.
Paperwork Reduction Act
For purposes of compliance with the Paperwork Reduction Act of
1995, 44 U.S.C. 3501 et seq., the OCC invites comment on:
(1) Whether the proposed collections of information contained in
this notice of proposed rulemaking are necessary for the proper
performance of the OCC's 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;
(4) Ways to minimize the burden of the information collection on
respondents, including the use of automated collection techniques or
other forms of information technology; and
(5) Estimates of capital or start-up costs and costs of operation,
maintenance, and purchase of services to provide information.
Recordkeepers 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
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 1557-0194, Washington, D.C. 20503, with copies to
Office of the Comptroller of the Currency, Communications Division, 250
E Street, SW, Attention: Paperwork Reduction Project 1557-0194,
Washington, D.C. 20219.
The proposal is expected to reduce annual paperwork burden for
recordkeepers because it eliminates certain application and self-
certification requirements. The collection of information requirements
in this proposal 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 recordkeeper: 1.9. Start-
up costs: None.
Executive Order 12866 Determination
The Comptroller of the Currency has determined that this proposal
does not constitute a ``significant regulatory action'' for the
purposes of Executive Order 12866.
Unfunded Mandates Reform Act of 1995 Determinations
Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L.
104-4 (Unfunded Mandates Act) requires that an agency prepare a
budgetary impact statement before promulgating a rule that includes a
Federal mandate that may result in expenditure by State, local, and
tribal governments, in the aggregate, or by the private sector, of $100
million or more in any one year. If a budgetary impact statement is
required, Section 205 of the Unfunded Mandates Act also requires an
agency to identify and consider a reasonable number of regulatory
alternatives before promulgating a rule. As discussed in the preamble,
this proposed rule is limited to the prior notice and self-
certification process for part 24 investments. The OCC therefore has
determined that the proposal will not result in expenditures by State,
local, or tribal governments or by the private sector of $100 million
or more. Accordingly, the OCC has not prepared a budgetary impact
statement or specifically addressed the regulatory alternatives
considered.
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
amend part 24 of chapter I of title 12 of the Code of Federal
Regulations to read as follows:
PART 24--COMMUNITY DEVELOPMENT CORPORATIONS, COMMUNITY DEVELOPMENT
PROJECTS, AND OTHER PUBLIC WELFARE INVESTMENTS
1. The authority citation for part 24 continues to read as follows:
Authority: 12 U.S.C. 24 (Eleventh), 93a, 481 and 1818.
2. In Sec. 24.2, paragraphs (f), (g), (h) and (i) are redesignated
as paragraphs (g), (h), (i) and (j), and a new paragraph (f) is added
to read as follows:
Sec. 24.2 Definitions.
* * * * *
(f) Eligible community bank means an eligible bank that, as of
December 31 of either of the prior two calendar years had total assets
of less than $250 million.
* * * * *
Sec. 24.3 [Amended]
3. In Sec. 24.3, paragraph (c) is removed, and paragraph (d) is
redesignated as paragraph (c).
4. In Sec. 24.5, paragraph (a)(1) and paragraph (a)(3)(iii) are
revised, paragraph (a)(3)(v) is amended by adding the word ``and'' at
the end of the paragraph, paragraph (a)(3)(vi) is amended by removing
the term ``; and'' and adding a period in its place at the end of the
sentence, paragraph (a)(3)(vii) is removed, paragraph (a)(4) is
redesignated as paragraph (a)(5), a new paragraph (a)(4) is added,
paragraph (b) is amended by redesignating paragraph (b)(3) through
(b)(6) as paragraphs (b)(4) through (b)(7), and a new paragraph (b)(3)
is added to read as follows:
Sec. 24.5 Public welfare investment self-certification and prior
approval procedures.
(a) * * *
(1) Subject to Sec. 24.4(a), an eligible bank may make an
investment described in Sec. 24.6(a) and an eligible community bank may
make any investment that satisfies the requirements of Sec. 24.3
without prior notification to, or approval by, the OCC if the bank
follows the self-certification procedures in this section.
* * * * *
(3) * * *
(iii) The type of investment (equity or debt), the investment
activity listed in Sec. 24.3(a) or Sec. 24.6(a), as applicable, that
the investment supports, and a brief description of the particular
investment;
* * * * *
(4) If the bank wants the OCC to consider the investment during an
examination under the CRA (12 U.S.C. 2901 et seq.) and to determine
whether
[[Page 31164]]
it meets the criteria for a qualified investment set forth in 12 CFR
part 25, the bank may include a brief statement to that effect in its
letter of self-certification.
* * * * *
(b) * * *
(3) If the bank wants the OCC to consider the investment during an
examination under the CRA and to determine whether it meets the
criteria for a qualified investment set forth in 12 CFR part 25, the
bank may include a brief statement to that effect in its investment
proposal.
* * * * *
Sec. 24.6 [Amended]
5. In Sec. 24.6, paragraph (b)(1) is amended by adding an ``or'' at
the end, paragraph (b)(2) is removed, and paragraph (b)(3) is
redesignated as paragraph (b)(2).
Dated: May 27, 1999.
John D. Hawke, Jr.,
Comptroller of the Currency.
[FR Doc. 99-14754 Filed 6-9-99; 8:45 am]
BILLING CODE 4810-33-P
