Library Authority (California). Glendora Library Authority (Callfornia). 1.247 Southeastern Pennsylvania Transportation Authority, Transportation Bonds (Delaware County Agreement). 1.248 Los Angeles County-San Dimas Civic Center Authority, San Dimas Library Building, Revenue Bonds. 1.249 Los Angeles County North Valley Building Corporation Leasehold Mortgage Bonds. 1.250 Los Angeles County Coroner's Building Corporation Leasehold Mortgage Bonds. 1.277 Parking Authority of the City of San Fernando. 1.278 San Bernardino County-Victorville Public Facilties Authority, Library Revenue Bonds. 1.279 San Bernardino County-Victorville Public Facilities Authority, City Hall Revenue Bonds. 1.280 Jackson County Sports Complex Authority (Missouri). 1.281 City of Inglewood-Los Angeles County Civic Center Authority. 1.282 State Board of Higher Education, North Dakota. 1.283 Visalia Public Building Authority (California). 1.284 New York State Urban Development Corporation. 1.285 City of Santa Fe Springs Public Improvements Corporation Leasehold Mortgage Bonds (California). 1.297 Asia Development Bank. 1.298 University of Alaska Heating Corp. 1.299 City of Inglewood-Los Angeles County Civic Center Authority. 1.300 Louisiana Stadium and Exposition District. 1.301 San Dimas-La Verne Recreational Facilities Authority. 1.302 Water and Sewer Improvement Bonds, Series 1971, Northwest Houston Water Supply Corp. 1.303 San Diego Planetarium Authority. 1.304 Santa Clara County Building Authority. 1.305 Los Angeles County Southeast General Hospital Authority Revenue Bonds, Additional Issue. 1.306 American Fletcher Corp. 1.307 Small Business Investment Company Debentures offered and guaranteed by the Small Business Administration. 1.308 West Chester Area Joint School Authority (Pennsylvania). 1.337 Fullerton Library Building Authority. 1.338 Santa Clara County Public Facilities Corporation Lease Rental Bonds. 1.339 New York State Housing Finance Agency Health Facilities Bonds. 1.340 Los Angeles County-Alhambra Courthouse Building Corporation Leasehold Mortgage Bonds. 1.341 Wayne County Stadium Authority Bonds. 1.342 Los Angeles County-Wayside Honor Rancho Building Corporation Leasehold Mortgage Bonds. 1.309 State of Florida Expressway Bonds. 1.310 Kent County, Michigan, Airport Improvement Bonds. 1.343 1.344 Leasehold 1.311 City of Roseville Community Hospital Addition Corporation Mortgage Bonds. 1.312 City of Walnut Creek Aquatic Facilities, Inc. 1.313 Placer County-Roseville Civic Center Improvement Authority. 1.314 Contra Costa County Juvenile Facilities Corporation Leasehold Mortgage Bonds. 1.315 Fox Chapel Area School Authority (Pennsylvania). 1.316 Contra Costa Authority. Education Center Battery Park City Authority Bonds. 1.345 Reedy Creek Improvement District Ad Valorem Tax Bonds. 1.346 Omaha-Douglas Public Building Commission Bonds. 1.347 New York City Housing Development Corporation general housing bonds. 1.348 California Department of Water Resources, Central Valley project revenue bonds. 1.349 Parking Authority of the City of Napa. 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 invest ment 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 "Type I security" means a security which a bank may deal in, underwrite, purchase and sell for its own account without limitation. These include obligations of the United States, general obligations of any State of the United States or any political subdivision thereof and other obligations listed in paragraph Seventh of 12 U.S.C. 24. (d) The term "Type II security" means a security which a bank may deal in, underwrite, purchase, and sell for its own account, subject to a 10 percent limitation. These include obligations of the International Bank for Reconstruction and Development, the Inter-American Development Bank, the Asian Development Bank and the Tennessee Valley Authority, and obligations issued by any State or political subdivision or any agency of a State or a political subdivision for housing, university or dormitory purposes. (e) The term "Type III security" means a security which a bank may purchase and sell for its own account, subject to a 10-percent limitation, but may neither deal in nor underwrite. (f) 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. (g) The phrase "general obligation of any State or any political subdivision thereof" means an obligation supported by the full faith and credit of an obligor possessing general powers of taxation, including property taxation. It includes an obligation payable from a special fund or by an obligor not possessing general powers of taxation when an obligor pos sessing general powers of taxation, including property taxation, has unconditionally promised to make payments into the fund or otherwise available for the payment of the obligation of amounts which (together with any other funds available for the purpose) will be sufficient to provide for all required payments in connection with the obligation. [36 F.R. 6737, Apr. 8, 1971] § 1.4 Type I securities; standards for authorized transactions. Type I securities are not subject to the limitations and restrictions contained in 12 U.S.C. 24 or in this Part other than §§ 1.3(c), 1.3(g), 1.4, 1.8, 1.9, and 1.11. Consequently, a bank may deal in, underwrite, purchase, and sell for its own account a security of Type I 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 obligations. [36 F.R. 6737, Apr. 8, 1971] $ 1.5 Types II and III securities; pur chase standards. (a) Evidence of obligor's ability to perform and of marketability. A bank may purchase a security of Type II or III 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 is marketable, that is, that it 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 § 1.7(b), purchase a security of Type II or III 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 9 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 a 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 a 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. [36 F.R. 6737, Apr. 8, 1971] § 1.6 Type II securities; authority to deal in and underwrite. A bank may deal in and underwrite the obligations of the International Bank for Reconstruction and Development, the Inter-American Development Bank, the Asian Development Bank, and the Tennessee Valley Authority, or obligations issued by any State or political subdivision or any agency of a State or a political subdivision for housing, university, or dormitory purposes. [36 F.R. 6737, Apr. 8, 1971] § 1.7 Types II and III securities; limitations on holdings. (a) Obligations of any one obligor. A bank may not hold at any time Types II and III 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 a security is to be determined on the basis of the par or face value of the security. In the case of Type II securities, obligations for the purpose of this limitation include obligations held as a result of underwriting, dealing in, or purchasing for its own account including obligations as to which the bank is under commitment. (b) Obligations purchased predominantly on the basis of reliable estimates, A bank may not hold at any time securities which would not be eligible for purchase pursuant to paragraph (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 a 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. [36 F.R. 6737, Apr. 8, 1971] § 1.8 Prudent banking judgment; credit information required. Every bank shall maintain in its files credit information adequate to demonstrate that it has exercised prudence in making the determinations and carrying out the transactions described in §§ 1.4 and 1.5. [28 F.R. 9917, Sept. 12, 1963] § 1.9 Requests for rulings. Any bank may request the Comptroller of the Currency to rule on the application of this part, or paragraph Seventh of 12 U.S.C. 24, to any security which it holds, or desires to purchase for its own account as an investment security; or which it holds, or desires to deal in, underwrite, purchase, hold, or sell as a security of Type I or II. 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. [36 F.R. 6737, Apr. 8, 1971] § 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] ELIGIBILITY OF SPECIFIC BOND ISSUES FOR PURCHASE BY NATIONAL BANKS § 1.105 Miscellaneous rulings. The Comptroller has ruled as follows on specific security issues: (a) [Reserved] (b) The $28,000,000 State Highway Department of the State of Delaware, 48% Delaware Turnpike Revenue Bonds, dated January 1, 1962, are ineligible for purchase by national banks. (c) The $74,000,000 State Roads Commission of the State of Maryland 4% % Northeastern Expressway Revenue Bonds, dated January 1, 1962, are ineligible for purchase by national banks. (d) The $25,000,000 Town of Cherokee, Alabama, 44% Industrial Development Revenue Bonds, dated March 1, 1961, are eligible for purchase by national banks, within the limitations of Paragraph Seventh of section 5136 of the Revised Statutes (12 U.S.C. 24). [27 F.R. 2506, Mar. 16, 1962, as amended at 27 F.R. 6539, July 11, 1962; 27 F.R. 12811, Dec. 28, 1962. Redesignated 28 F.R. 8280, Aug. 13, 1962] |