or at a price subject to determination under the terms of the agreement.

(h) As to repurchase agreements accompanying sales of securities,

(1) It is permissible for the bank selling securities to another to agree that the bank shall have an option or right to repurchase the securities from the buyer at a price stated or at a price subject to determination under the terms of the agreement, but in no case in excess of the market value at the time of repurchase.

(2) It is not permissible for the bank selling securities to another to agree that the purchaser shall have the right or the option to require the bank to repurchase said securities at a price stated or at a price subject to determination under the terms of the agreement, notwithstanding the fact that the bank may also, under such agreement, have the right or option to repurchase the securities from the buyer at a price stated or at a price subject to determination under the terms of the agreement.

In view of the fact that some banks may have bought or sold securities under a form of agreement which is prohibited by this part, the bank should either terminate or modify same so as to conform to this part, where such action may lawfully be taken. Existing agreements of the prohibited type must not be renewed.

§ 1.3 Exception to limitation and restrictions. 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 avert an apprehended loss in connection with a debt previously contracted, or to real estate securities acquired pursuant to section 24 of the Federal Reserve Act, as amended (38 Stat. 273; 12 U. S. C. 371).

Sec.

2.3

Statutory requirements to be complied with by national bank desiring to act as broker or agent in making or procuring loans on real estate.

2.4 Regulations for national bank acting as broker or agent in making or procuring loans on real estate.

2.5 Application forms to be executed by applicants when national bank acts as broker for the placing of loans. AUTHORITY: §§ 2.1 to 2.5 issued under 39 Stat. 753; 12 U. S. C. 92.

SOURCE: §§ 2.1 to 2.5 contained in Regulations, Dec. 1, 1916.

§ 2.1 Statutory requirements to be complied with by national bank desiring to act as insurance agent. (a) The bank must be located in a place the population of which does not exceed 5,000 as shown by the last preceding decennial

census.

(b) The insurance company for which the bank acts as agent must have been authorized by the authorities of the State in which the bank is located to do business in that State.

(c) The activities of the bank as such agent must be restricted to the solicitor and selling of insurance and the collection of premiums on policies issued by the insurance company.

(d) The bank may receive for services so rendered such lawful fees or commissions as may be agreed upon between the bank and the insurance company for which it may act as agent.

(e) The bank is prohibited from assuming or guaranteeing the payment of any premium on insurance policies issued, through its agency, by its principal.

(f) The bank is prohibited from guaranteeing the truth of any statement made by an assured in filing his application for insurance.

(g) The powers conferred are to be exercised under such regulations as may be prescribed by the Comptroller of the Currency.

§ 2.2 Regulations for national banks which may undertake to act as agents for insurance companies. (a) Each contract of agency must be formally accepted by the board of directors of the agent bank by a resolution spread upon the minutes in the following form:

Be it resolved that the contract of agency entered into on 19____ between the Insurance Company and the National Bank

Page 27

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by president (or vice president) and cashier, a copy of which is on file in this bank, is hereby ratified and approved.

(b) A certified copy of such resolution, attested by the president or vice president and by the cashier and by a majority of the directors of the bank, must be forwarded to this office on forms to be furnished by this office.

(c) There should be on file in the bank, available for inspection by the Examiner, the following documents:

(1) An authoritative statement showing the population of the town according to the last preceding decennial census.

(2) A proper certificate from the authorities of the State in which the bank is located showing as to each insurance company for which the bank is acting as agent that such company has received authority from the said State to transact business in that State.

(3) A proper certificate or other writing of each insurance company for which the bank acts, authorizing the bank to act as its agent, setting forth that the bank does not guarantee the payment of any premium on insurance policies issued through its agency by its principal, and stating that the bank is not to be held responsible for the truth of any statement made by an assured in filing his application for insurance.

(4) Copies of all reports made by the agent bank to each insurance company which it represents.

(d) The bank will be required to keep a record as to each company for which it acts as agent, showing: For fire insurance: The amount of each policy, the rate and premium, date of commencement, term, and date of expiration, as well as a description of property insured, with name of assured and to whom loss is payable. As to life insurance: Amount and date of policy, with premium, and a statement as to under what form the insurance is written, giving also name of assured and beneficiary. As to any and all other forms of insurance: The fullest possible particulars as to amounts, dates, rates, premiums, and what is insured by the policy, and of collection of all premiums collected for account of the company, refunds made, the proportion of premium credited to the profits of the bank under its agreement with the company, the proportion due the company, the amounts and dates of all remittances

made to the insurance company on account of premiums collected, and the balance, if any, due from the bank to the insurance company.

(e) The bank will be required to carry on its general ledger an account which will, at all times, show the amount due to insurance companies for which it is åcting as agent, on account of premiums collected but not remitted, and this liability must be shown in reports of condition and in the published statements of the bank under the heading "other liabilities-on account of insurance premiums collected and not remitted," unless specifically provided for in the report.

(f) The bank should also keep such records as may be required by each insurance company in the manner and under the forms prescribed by the various companies; all of which should be available for inspection by the Examiner on request.

(g) The agent bank must not assume any responsibility or liability for either the adjustment, settlement, or payment of losses under any policy issued by or through its agency.

(h) The records of all profits derived from the insurance agency should be carried in a separate account on the books of the bank, and the records should be so kept as to enable the Examiner readily to trace to the source all items of profit derived in this connection. § 2.3 Statutory requirements to be complied with by national bank desiring to act as broker or agent in making or procuring loans on real estate. (a) The bank must be located in a place the population of which does not exceed 5,000 as shown by the last preceding decennial

census.

(b) The real estate by which the loans negotiated are secured must be located within 100 miles of the place in which the negotiating bank is located.

(c) The bank may receive for such services a reasonable fee or commission.

(d) The bank shall in no case guarantee either the principal or interest of any such loans.

(e) The powers conferred are to be exercised under such regulations as may be prescribed by the Comptroller of the Currency.

§ 2.4 Regulations for national bank acting as broker or agent in making or

(a) A procuring loans on real estate. bank intending to avail itself of this provision of the law must adopt by its board of directors a resolution in the following form:

Be it resolved, That the officers of the
National Bank of

are hereby authorized and empowered on behalf of this bank, as broker or agent, to accept from customers of this bank deposits of funds to be invested for account of said customers, in loans secured by real estate, and to procure, as broker or agent, for customers of this bank loans which shall be secured by real estate, under the provisions of the act approved September 7, 1916: Provided, That the investment of such funds as stated, and all such procuring of loans or lending of funds for clients shall be undertaken only under written instructions from the customer for whom this bank, through its officers, may act as broker or agent, such written instructions in each case to be first Such delivered to an officer of this bank. instructions shall, in all cases, state clearly that the bank in acting as broker or agent in no way guarantees payment of either the principal or interest of any loan so negotiated.

(b) A certified copy of such resolution, attested by the president or vice president and cashier and by a majority of the directors of the bank, must be forwarded to this office, on forms to be furnished by this office.

(c) No bank shall charge more than one commission or brokerage on the making of any loan; that is to say, if it shall charge a brokerage or commission to the party borrowing the money, it shall not charge a brokerage or commission to the party to whom money is so loaned, and vice versa.

(d) Each bank acting under this provision of law will be required to keep a record showing as to each loan negotiated by the bank:

(1) The name and address of the principal for whom the bank is acting, (2) Date of written instructions from the principal,

(3) Name and address of maker of note,

(4) Date of note,

(5) Date of maturity of note,

(6) Brief description of property securing note, showing location and distance from place in which bank is located,

(7) Character of improvements, etc.,

(8) Name and address of party to whom note was transferred or delivered by the bank,

(9) Date of such transfer or delivery, (10) Amount of principal of note, (11) Rate of interest or discount, (12) Rate of commission or brokerage charged by bank for acting as broker or agent, and

(13) Amount of such commission or brokerage, and whether said commission was paid by borrower of the money or by the party for whom it was loaned.

(e) A book should be kept showing the date on which each mortgage or deed of trust negotiated by the bank has been admitted to record, the court in which the same is recorded, and the recordation fees paid in each case.

(f) The records of all profits derived from acting as broker or agent in negotiating loans on real estate should be carried in a separate account on the books of the bank, and the records should be so kept as to enable the Examiner readily to trace to the source all items of profit derived in this connection.

(g) Deposits of money received by the bank as broker or agent to be invested in loans secured by real estate as prescribed by law, must be treated as trust funds and kept separate and apart from the other assets of the bank. Such funds must in no case be permitted to pass from the possession of the bank until the loan for which they are to be paid out is formally accepted by or in behalf of the party for whose account negotiated.

(h) No bank shall advance or use its own funds in connection with real estate loans negotiated as broker or agent.

(i) No loans secured by real estate, which the bank has negotiated as broker or agent, should become a part of the assets of the bank even temporarily, unless such loans conform to the provisions of section 24 of the Federal Reserve Act (38 Stat. 273; 12 U. S. C. 371) amended.

as

(j) There should be available in the bank for inspection by the National Bank Examiner:

(1) An authoritative statement showing the population of the town according to the last preceding decennial cen

sus.

(2) All records pertaining to the negotiation of real estate loans as broker or agent.

§ 2.5 Application forms to be executed by applicants when national bank acts as broker for the placing of loans. (a) These applications should show:

(1) Location of property.

(2) Acreage.

(3) Assessed valuation.

(4) Estimated present value.

(5) Brief descriptions of buildings thereon and estimated value of them.

(6) Whether buildings are insured, and, if so, for what amounts and in what companies.

(7) Whether property is already encumbered, and, if so, for what amount.

(8) If property is farm property applicant should state whether or not the dwelling is provided with sanitary arrangements approved by the local board of health, and, if not, what sanitary arrangements there are.

(b) At the foot of this application should be printed below the signature of the applicant a statement to the effect that "The statements in the foregoing application have been submitted to this bank by the applicant for the loan, but this bank does not undertake to guarantee the correctness of any of the statements made by the applicant."

(c) If any applicant for a loan makes statements in his application which any officers of the bank before whom the application may come may have reason to think are not correct, the attention of the applicant should be called to the possible discrepancy.

Part 3-National Bank Loans Secured or Covered by Governmental Guaranties

§3.1 Definition of terms. (a) The requirement of exception 10 (R. S. 5200; 12 U. S. C. 84) that a guaranty or a commitment or agreement to take over or to purchase (hereinafter referred to collectively as "agreement") must be "unconditional" means that the protection afforded to the bank thereby, against loss resulting from factors beyond its control, must not be substantially less than it would be in the absence of all provisions of the agreement which might be regarded as conditions. This

protection is not materially diminished or impaired by procedural requirements (relating, for example, to the giving of notice to the guarantor or other parties), requirements of good faith on the part of the bank, and others of the sort mentioned hereinafter; and therefore the presence of such provisions or conditions would not prevent an agreement from being unconditional for the purposes of this statute.

(b) On the other hand, an agreement is not unconditional within the meaning of exception 10 if liability thereunder (1) is contingent upon the happening of an event or condition precedent not within the control of the bank, or (2) is subject to defeasance by a contingency or condition subsequent not within the control of the bank. In other words, an agreement is not unconditional if the obligation of the guarantor to perform its agreement would not come into being until, or might be terminated or diminished by, the occurrence or nonoccurrence of a contingency beyond the control of the bank. Thus, a commitment to take over a loan only in the event of default is not unconditional, since liability thereunder is contingent upon the happening of an event not within the control of the bank. Furthermore, the condition mentioned, like most others of this type, also would violate the requirement of exception 10 that the bank must be in a position, at any time during the life of the loan, to demand performance of the agreement and to receive payment in cash, in full, within sixty days.

(c) The following are examples of provisions the inclusion of which would not prevent an agreement from being unconditional within the meaning of the statute:

(1) Demand for performance of guarantor's agreement to be made by bank not later than a specified time after maturity of the loan.

(2) Loan instrument and collateral thereto to be held by bank on behalf of guarantor, and to be delivered, assigned or endorsed to guarantor or its agent upon demand.

(3) Guarantor or its agent to be notified by bank of releases, sales, or substitutions of collateral, extensions and renewals of the obligation, occurrence of defaults, or assignment of bank's interest in the loan, or of other matters affecting the status of the loan.

(4) Obligation and collateral to be made available for inspection by guarantor or its agent at any time, and all information in possession of bank regarding borrower and loan to be made available to guarantor or its agent upon demand.

(5) Consent of guarantor to be obtained by bank before accelerating the maturity of the obligation, agreeing to material alteration or renewal or extension of obligation, agreeing to releases, sales or substitutions of collateral, suing borrower, or foreclosing upon collateral.

(6) Good faith toward guarantor to be exercised by bank in handling of all aspects of the loan.

(7) Genuineness of borrower's signature to be warranted by bank.

(8) Fees to be paid by bank to guarantor as compensation for the guaranty.

(9) Guarantor to have option to purchase obligation from bank at any time on payment in cash of the unpaid principal and accrued interest and other charges.

(10) Guarantor's share of payments of principal and interest to be received by bank and paid by it to guarantor.

The foregoing list is by no means exhaustive, but merely exemplifies the numerous sorts of provisions frequently included in guaranties and take-over agreements, which do not diminish the substantial protection afforded by the agreement.

(d) The foregoing definition, issued this 18th day of June, 1942, may be modified, expanded, restricted, superseded or rescinded at any time.

(R. S. 5200, as amended; 12 U. S. C. 84) [7 F. R. 4603]

Sec.

4.13

4.14

4.15

4.16

Supervision of liquidation of insolvent financial institutions.

Conservatorships.

Remedial actions.

Issue and redemption of Federal Reserve notes.

AUTHORITY: §§ 4.1 to 4.16 issued under R. S. 324, as amended; 12 U. S. C. 1.

SOURCE: § 4.1 to 4.16 appear at 11 F. R. 177A-14, redesignated at 13 F. R. 6235.

§ 4.1 Chartering national banks. (a) Copies of Form 1955, entitled "Application to Organize a National Bank", are furnished upon request. In substance, this form is a letter addressed to the Comptroller of the Currency by a minimum of five prospective shareholders, being natural persons and of lawful age, who intend with others to organize a national bank. The application states the proposed name of the bank, its location, and the intended capital, surplus and undivided profits, and furnishes certain other information regarding the banking connections of the applicants.

(b) Upon receipt of an application properly executed, the applicants are informed that their application is being considered, and the appropriate District Chief National Bank Examiner is instructed to make an investigation. Among other matters to be considered are the adequacy of the proposed capital structure of the new bank, its future earnings prospects, the general character of its management, the convenience and needs of the community to be served by the bank, and whether or not the proposed corporate powers would be consistent with the applicable statutory provisions. Generally, the Federal Deposit Insurance Corporation, and the Federal Reserve bank for the district in which the proposed bank would be located, are consulted, and their recommendations obtained.

(c) Upon receipt of the report of investigation and other data, the Organization Division analyzes and briefs the information, and appends its recommendation to the brief, which (with its accompanying data) is routed through the Assistant Chief National Bank Examiner who handles the district in which the proposed bank would be located, the Chief National Bank Examiner, and the three Deputies, all of whom append their recommendations and comments. It is then submitted to the Comptroller of the Currency for final decision.