Page images
PDF
EPUB

NOTE: Other regulations issued by the Department of the Treasury appear in Title 19,
Chapter I, Title 21, Chapter II, Title 26, Chapter I, Title 27, Chapter I, Title 31, Title 33,
Chapter I, Title 41, Chapters 10 and 11, Title 46, Chapter I.

SUPPLEMENTAL PUBLICATIONS: Digest of decisions relating to national banks, Comptroller of the
Currency. Irregular. Vol. 1—, 1864–1912. Vol. 2-, 1913-1926. Vol. 3-, 1927-1931. Vol.
4—, 1932–1934. Vol. 5—, 1933-1936. Federal laws affecting national banks as of January 1,
1950, compiled by Comptroller of the Currency.

[blocks in formation]
[blocks in formation]

AUTHORITY: The provisions of this Part 1 issued under R.S. 324 et seq., as amended, Paragraph Seventh of R.S. 5136 as amended; 12 U.S.C. 1 et seq., 24, unless otherwise noted. § 1.1

Authority.

This part is issued by the Comptroller of the Currency under the general authority of the national banking laws, 12 U.S.C. 1 et seq., and under specific authority contained in paragraph Seventh of 12 U.S.C. 24. The Comptroller of the Currency is charged by the national banking laws with the execution of all laws of the United States relating to the organization, operation, regulation and supervision of national banks and in particular with the execution of 12 U.S.C. 24 which sets forth the corporate powers of national banks. This part interprets and applies paragraph Seventh of 12 U.S.C. 24 to provide for its due execution and for the proper regulation and supervision of the operations of national banks. Paragraph Seventh of 12 U.S.C. 24 also specifically provides for the Comptroller of the Currency to prescribe by regulation (a) limitations and restrictions on the purchase of investment securities by a national bank for its own account and (b) further definition of the term "investment securities." [28 F.R. 9916, Sept. 12, 1963]

§ 1.2 Scope and application.

This part applies to the purchase, sale, dealing in, underwriting, and holding of investment securities by national banks, banks located in the District of Columbia, and by state banks which are members of the Federal Reserve System. It may also apply to a limited extent to others engaged in the banking business. The Comptroller of the Currency is charged by various provisions contained in Chapter 1 of Title 26 of the District of Columbia Code with the supervision of banks located in the District of Columbia. State banks which are members of the Federal Reserve System are, under 12 U.S.C. 335, subject to the same limitations and conditions with respect to the purchasing, selling, underwriting, and holding of investment securities and stock as are applicable in the case of national banks under paragraph Seventh of 12 U.S.C. 24. Dealers in securities are prohibited by 12 U.S.C. 378 from engaging in banking business. Section 378 specifically provides, however, that it does not prohibit national banks or state banks or trust companies (whether or not members of the Federal Reserve System) or other financial institutions or private bankers from dealing in, underwriting, purchasing and selling investment securities to the extent permitted to national banking associations by the provisions of 12 U.S.C. 24.

[28 F.R. 9916, Sept. 12, 1963]

§ 1.3

Definitions.

(a) The term "bank" includes national banks, banks located in the District of Columbia, and state banks which are members of the Federal Reserve System.

(b) The term "investment security" means a marketable obligation in the form of a bond, note or debenture which is commonly regarded as an investment security. It does not include investments which are predominantly speculative in nature.

(c) The term "public security" means an obligation described in 12 U.S.C. 24 as not subject to the limitations and restrictions contained therein "as to dealing in, underwriting and purchasing for its own account, investment securities". Public securities include:

(1) Obligations of the United States;

(2) General obligations of any State of the United States or of any political subdivision thereof;

(3) Other obligations listed in paragraph Seventh of 12 U.S.C. 24.

(d) The term "political subdivision of any State" includes a county, city, town or other municipal corporation, a public authority, and generally any publicly owned entity which is an instrumentality of the State or of a municipal corporation.

(e) The phrase "general obligation of any State or of any political subdivision thereof" means an obligation supported by the full faith and credit of the obligor. It includes an obligation payable from a special fund when the full faith and credit of a State or any political subdivision thereof is obligated for payments into the fund of amounts which will be sufficient to provide for all required payments in connection with the obligation. It implies an obligor possessing resources sufficient to justify faith and credit.

[28 F.R. 9916, Sept. 12, 1963]

§ 1.4

Limitations and restrictions on purchase and sale of a public security.

A bank may deal in, underwrite, purchase and sell for its own account a public security subject only to the exercise of prudent banking judgment. Prudence will require such determinations as are appropriate for the type of transaction involved. For the purpose of underwriting or investment, prudence will also require a consideration of the resources and obligations of the obligor and a determination that the obligor possesses resources sufficient to provide for all required payments in connection with the obligation.

[28 F.R. 9916, Sept. 12, 1963]

§ 1.5

Limitations and restrictions on purchase of an investment security. (a) Evidence of obligor's ability to perform. A bank may purchase an investment security for its own account when in its prudent banking judgment (which may be based in part upon estimates which it believes to be reliable), it determines that there is adequate evidence that the obligor will be able to perform all that it undertakes to perform

in connection with the security, including all debt service requirements, and that the security may be sold with reasonable promptness at a price which corresponds reasonably to its fair value.

(b) Judgment based predominantly upon reliable estimates. A bank may, subject to limitations set forth in § 1.6 (b), purchase an investment security for its own account although its judgment with respect to the obligor's ability to perform is based predominantly upon estimates which it believes to be reliable. Although the appraisal of the prospects of any obligor will usually be based in part upon estimates, it is the purpose of this paragraph to permit a bank to exercise a somewhat broader range of judgment with respect to a more restricted portion of its investment portfolio. It is expected that this authority may be exercised not only in the absence of a record of performance but also when there are prospects for improved performance. It is also expected that an investment security purchased pursuant to this paragraph may by the establishment of a satisfactory financial record become eligible for purchase under paragraph (a) of this section.

(c) Securities ruled eligible by the Comptroller of the Currency. A bank may consider as a factor in reaching its prudent banking judgment with respect to an investment security a ruling published by the Comptroller of the Currency on the eligibility of such security for purchase. Consideration must also be given, however, to the possibility that circumstances on which the ruling was based may have changed since the time of the ruling.

[28 F.R. 9916, Sept. 12, 1963]

§ 1.6

Limitations and restrictions holding investment securities.

(a) Obligations of any one obligor. A bank may not hold at any time investment securities of any one obligor in a total amount in excess of 10 percent of the bank's capital and surplus. For this purpose the amount of an investment security is to be determined on the basis of the par or face value of the security.

(b) Obligations purchased predominantly on the basis of reliable estimates. A bank may not hold at any time investment securities which would not be eligible for purchase pursuant to paragraph

on

[ocr errors]

(a) of § 1.5 in a total amount in excess of 5 percent of the bank's capital and surplus.

(c) Limitations prescribed in eligibility rulings. When a ruling published by the Comptroller of the Currency provides that an investment security is eligible for purchase subject to a specified limitation, a bank may not at any time thereafter purchase such security, if, after such purchase, the bank's holdings of such security would be in excess of the specified limitation.

(d) Public securities. Public securities are not subject to the limitations contained in this section.

[28 F.R. 9917, Sept. 12, 1963|

$ 1.7

Limitations and restrictions on purchase, sale and holding of specified obligations.

[blocks in formation]

own account as an investment security; or which it holds, or desires to deal in, underwrite, purchase, hold or sell as a public security. Such a request for a ruling should be supported by (a) information sufficient to enable the Comptroller to make the necessary determination and (b) the bank's appraisal of the information furnished.

[28 F.R. 9917, Sept. 12, 1963]

§ 1.10 Convertible securities.

When a bank purchases an investment security convertible into stock or with stock purchase warrants attached, entries must be made by the bank at the time of purchase to write down the cost of such security to an amount which represents the investment value of the security considered independently of the conversion feature or attached stock purchase warrants. Purchase of securities convertible into stock at the option of the issuer is prohibited.

| 28 F.R. 9917, Sept. 12, 1963]

§ 1.11 Amortization of premiums.

When an investment security is purchased at a price exceeding par or face value, the bank shall:

(a) Charge off the entire premium at the time of purchase; or

(b) Provide for a program to amortize the premium paid or that portion of premium remaining after the write-down required by $ 1.10 so that such premium or portion thereof shall be entirely extinguished at or before the maturity of the security.

[28 F.R. 9917, Sept. 12, 1963]

§ 1.12

Exceptions.

The restrictions and limitations of this part do not apply to securities acquired through foreclosure on collateral, or acquired in good faith by way of compromise of a doubtful claim or to avoid a loss in connection with a debt previously contracted.

[28 F.R. 9917, Sept. 12, 1963]

« PreviousContinue »