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NOTE: Other regulations issued by the Department of the Treasury appear in Title 19,
Chapter I, Title 26, Chapter I, Title 27, Chapter I, Title 31, Title 41, Chapter 10.

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. Voi.
4, 1932–1934. Vol. 5, 1933–1936. Federal laws affecting national banks as of January 1,
1950, compiled by Comptroller of the Currency.

PART INVESTMENT SECURITIES

REGULATION Sec. 1.1 Authority. 1.2 Scope and application. 1.3 Definitions. 1.4 Limitations and restrictions on pur

chase and sale of a public security. 1.5 Limitations and restrictions on pur

chase of an investment security. 1.6 Limitations and restrictions on bold

ing investment securities. 1.7 Limitations and restrictions on pur

chase, sale and holding of specified

obligations. 1.8 Prudent banking judgment; credit in

formation required. 1.9 Requests for rulings. 1.10 Convertible securities. 1.11

Amortization of premiums. 1.12 Exceptions. ELIGIBILITY OF SPECIFIC BOND ISSUES FOR

PURCHASE BY NATIONAL BANKS 1.105 Miscellaneous rulings. 1.106 Texas Turnpike Authority. 1.109 Commonwealth of Kentucky, Depart

ment of Parks. 1.110 City of Kansas City, Missouri. 1.111 Georgia State Authorities. 1.112 New Jersey Highway Authority. 1.113 The Music Center Lease Company, Los

Angeles, California. 1.114 Federal National Mortgage Associa

tion. 1.115 Dormitory authority of the State of

New York. 1.116 Massachusetts Turnpike Authority. 1.117 City of London, Kentucky. 1.118 Inter-American Development Bank. 1.119 Savings Banks Trust Company, New

York, New York, 1.121 City or Opelika, Alabama. 1.122 Public Building Commission of Chi

cago. 1.123 Alaska State Development Corpora

tion. 1.124 Virginia Public School Authority. 1.125 General State Authority of the Com

monwealth of Pennsylvania. 1.126 Wanapum Hydroelectric Refunding

Revenue Bonds. 1.127 Washington State Public School Plant

Facility Bonds and Public Building

Bonds. 1.128 Commonwealth of Pennsylvania Tax

Anticipation Notes. 1.129 State Highway and Bridge Authority

of the Commonwealth of Pennsyl

vania Bonds. 1.130 California Bond Anticipation Notes. 1.131 District of Columbia Redevelopment

Land Agency Urban Renewal Bonds. 1.132 General State Authority of the Com

monwealth of Pennsylvania Serial

Bonds, 19th Series. 1.133 State of Israel Bonds. 1.134 Jacksonville Expressway Revenue

Bonds.

Sec. 1.135 Bond anticipation notes issued by the

New York State Housing Finance

Agency. 1.136 State Public School Building Author

ity of the Commonwealth of Penn

sylvania Series N Bonds. 1.137 Delaware River and Bay Authority

Revenue Bonds. 1.138 Sabine River Authority, State of Lou

isiana, General Obligation Bonds,

Series 1964. 1.139 State of Israel Bonds, third develop

ment issue. 1.140 Richmond-Petersburg Turnpike

Bonds. 1.141 School Refunding Bonds, Broward

County, Florida. 1.142 City of Atlanta and Fulton County

Recreation Authority (Georgia)

Revenue Bonds, Series 1964. 1.143 Revised ruling on the Music Center

Lease Company, Los Angeles,

Callfornia. 1.144 Fresno City-County Community and

Convention Center Authority Rev

enus Bonds. 1.145 Columbia Storage Power Exchange

Revenue Bonds. 1.146 School Building Revenue Bonds Series

of 1964, of the Corry Area Schools, Authority, Erle and Warren Coun.

ties, Pennsylvania. 1.147 Merced River Development Revenue

Bonds. 1.148 Oklahoma City Airport Trustees

Bonds. 1.149 Bonds of the Woods Hole, Martha's

Vineyard, and Nantucket Steamship

Authority. 1.150 Dormitory Bonds of 1962 of the Wis

consin University Building Corpo

ration. 1.151 Wisconsin State Agencies Building

Corporation. 1.152 Chicago Transit Authority Equipment

Trust Certificates. 1.153 Hospital authority of Cobb County,

Georgia. 1.164 New York State Housing Finance

Agency. 1.155 Federal National Mortgage Association

Participation Certificates. 1.156 Water Revenue Bonds of the City of

Wheeling, Missouri. 1.157 Elkhart High School Building Corpo

ration. 1.158 Mobile County, Alabama, Board of

School Commissioners Capital Out

lay School Warrants. 1.159 Bonds of the Dormitory Authority of

the State of New York. 1.160 Export-Import Bank Portfolio Fund

Participation Certificate. 1.161 City of Anaheim (California) StaSec. 1.163 State of Kansas Board of Regents

dium, Inc. Lease-Rental Bonds. 1.162 Massachusetts Port Authority Reve

nue Refunding and Improvement Bonds.

Revenue Bonds. 1.164 Federal National Mortgage Association

Participation Certificates. 1.165 Illinois Building Authority Bonds. 1.166 New York State Housing Finance

Agency General Housing Loan

Bonds. 1.167 The Port of New York Authority, Con

solidated Bonds. 1.168 Commodity Credit Corporation cer

tificates of interest in pools of price

support loans. 1.169 San Diego Stadium Authority Bonds. 1.170 City of Santa Monica Parking Au

thority Bonds. 1.171 State of Israel Bonds, Development

Investment Issue. 1.172 Federal National Mortgage Associa

tion Participation Certificates. 1.173 Alaska State Housing Authority Reve

nue Bonds. 1.174 Louisiana Capital Construction and

Improvement Commission Public

Improvement Bonds. 1.175 Florida State Board of Education

Higher Education Bonds. 1.176 Export-Import Bank Portfolio Fund

Participation Certificates. 1.177 State of Ohio Highway Improvement

Bonds. 1.178 Memphis TVA Lease Rental Revenue

Bonds. 1.179 General State Authority of the Com

monwealth of Pennsylvania; State Highway and Bridge Authority of

the Commonwealth of Pennsylvania. 1.180 Orange County Juvenile Hall Lease

Corporation Leasehold Mortgage

Bonds. 1.181 New York State Housing Finance

Agency. 1.182 Orange County-Westminster Civic

Center Authority City Building Fa

cilities Revenue Bonds. 1.183 Indiana School Building Corporations. 1.184 Tennessee State School Bond Author

ity Higher Educational Facilities

Bonds. 1.185 Salamanca Hospital District Authority

(New York) Hospital Construction

Bonds. 1.186 Desert Hospital Authority Revenue

Bonds. 1.187 Santa Clara County Building Author

ity 1967 Revenue Bonds, Series A. 1.188 Alaska State Housing Authority State

Lease Revenue Bonds. 1.189 Los Angeles County-West Covina Civic

Center Authority, West Covina Administrative and Police Buildings

Revenue Bonds. 1.190 Redevelopment Agency of the City of

Vallejo Marina Vista Project Area

Parking Lease Revenue Bonds. 1.191 Thomaston-Upson County Office

Building Revenue Bonds. 1.192 San Carlos Civic Center Authority

Lease Revenue Bonds.

Sec. 1.193 Los Angeles County-West Covina Civic

Center Authority, Citrus District

Courthouse Revenue Bonds. 1.194 City of Downey Community Hospital

Authority. 1.195 Cudahy Civic Center Authority Rev

enue Bonds. 1.196 Campbell County Utilities and Service

Authority. 1.197 Urban Redevelopment Authority of

Pittsburgh, Residential Land Re

serve Fund Bonds. 1.198 Visalia Area Hospital Authority Rev

enue Bonds (California). 1.199 Upland Civic Center Building Au

thority Revenue Bonds (California). 1.200 Parking Authority of the City of Up

land (California) Parking Revenue

Bonds. 1.201 Bergen County Sewer Authority (New

Jersey). 1.202 Carlsbad Building Authority Revenue

Bonds (California). 1.203 Water and Sewer Improvement Bonds,

Series 1967, of the Northwest Hous

ton Water Supply Corp. 1.204 Wisconsin University Building Corpo

ration and the Wisconsin State

Agencies Building Corporation. 1.205 Los Angeles Convention and Exhibi

tion Center Authority. 1.206 Louisiana State Bond and Building

Commission. 1.207 Duval County Hospital Authority, Fla. 1.208 Parking Authority, Beverly Hills, Calif. 1.209 Port Authority of Allegheny County,

Pa. 1.210 Export-Import Bank promissory notes. 1.211 County of Palm Beach, Fla., Court

house and Jail Certificates of In

debtedness. 1.212 Los Angeles County Southeast Gen

eral Hospital Authority. 1.213 Los Angeles County-San Dimas Civic

Center Authority. 1.214 Virginia Public School Authority. 1.215 San Diego City-County Camp Author

ity. 1.216 Hillsborough County Aviation Au

thority, Florida (Post Office Facil

ity). 1.217 Fountain Valley Improvement Au

thority Revenue Bonds. 1.218 San Bernardino Public Safety Au

thority Revenue Bonds. 1.219 Merced County-Atwater Civic Center

Authority, City Building Facilities

1968, Revenue Bonds. 1.220 Santa Barbara County Public Safety

Authority Revenue Bonds. 1.221 Redevelopment Agency of the City of

Vallejo Library Lease Revenue

Bonds. 1.222 Los Angeles County-Lawndale Build

ing Authority. 1.223 Southeastern Pennsylvania Trans

portation Authority, Rental Revenue Bonds (Philadelphia lease).

Sec. 1.224 Export-Import Bank debentures. 1.225 Merced County-Los Banos Public

Safety Authority. 1.226 Seal Beach Administration Building

Authority. SECURITIES ELIGIBLE FOR UNDERWRITING AND

UNLIMITED HOLDING 1.227 Orange County-La Palma Civic Center

Authority (California). 1.228 Parking Authority, Huntington Beach,

Calif. 1.229 Montclair Fire Authority. 1.230 Los Angeles Convention and Exhibi

tion Center Authority. 1.231 Kansas State Board of Regents, Sta

dium Addition Revenue Bonds,

Wichita State University. 1.232 San Bernardino Public Safety Au

thority. 1.233 Alaska State Housing Authority State

Lease Revenue Bonds. 1.234 San Jose Civic Improvement Au

thority. 1.235 Northwest Bergen County Sewer

Authority. 1.236 Los Angeles County-La Mirada Public

Facilities Authority. 1.237 Lake Texarkana Water Supply Cor

poration. 1.238 Riverside General Hospital Authority. 1.239 Parking Authority, Carlsbad, Calif. 1.240 Parking Authority, Oakdale, Calif. 1.241 Ventura County Airport Authority

(California). 1.242 Riverside County Law Library (Call

fornia). 1.243 Commonwealth of Pennsylvania Tax

Anticipation Notes (General Fund). 1.244 Orange County-Westminster Civic

Center Authority Courthouse Reve

nue Bonds (California). 1.245 City of Long Beach-Los Angeles

County Civic Center Authority. 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)

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 invest

§ 1.3

ments 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

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

purchase of an investment security. (a) Evidence of obligor's ability to perform. A bank may purchase an in

vestment 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.

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