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Sec. 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,
Calll. 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. 1.289 Parking Authority, Carlsbad, Calif. 1.240 Parking Authority, Oakdale, Calli. 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. 1.246 Farmers Home Administration farm
loan notes sold in blocks. 1.247 Southeastern Pennsylvania Transpor
tation Authority, Transportation Bonds (Delaware County Agree
ment). 1.248 Los Angeles County-San Dimas Civic
Center Authority, San Dimas Li
brary Building, Revenue Bonds. 1.249 Los Angeles County North Valley
Building Corporation Leasehold
Mortgage Bonds. 1.250 Los Angeles County Coroner's Build
ing Corporation Leasehold Mortgage
Bonds. 1.251 Commonwealth of Pennsylvania Tax
Anticipation Notes (General Fund
Motor License Fund). 1.252 Los Angeles County-La Mirada Pub
lic Facilities Authority. 1.253 County of Wayne (Michigan) Motor
Vehicle Highway Fund Bonds.
Sec. 1.254 Los Angeles County-Whittier Court
house Corporation Leasehold Mort
gage Bonds. 1.255 Redevelopment Agency of the City of
Corona (California) Library Lease
Revenue Bonds. 1.256 State Board of Directors for Junior
Colleges of Arizona, Maricopa
Revenue Bonds. 1.257 County of Wayne, State of Michigan,
Airport Revenue Bonds. 1.258 Mountain View Shoreline Regional
Park Community (California). 1.259 Santa Maria Alrport Authority (Cal
ifornia). 1.260 Water and Sewer Improvement Bonds,
Series 1970, of the Northwest Hous
ton Water Supply Corp. 1.261 Los Angeles County-Pico Rivera Public
Facilities Authority. 1.262 Los Angeles County-Norwalk Sheriff's
Station Authority. 1.263 San Bernardino Public Safety Author
ity. 1.264 Parking Authority of the City of
Redondo Beach. 1.265 San Bernardino Civic Center Author
ity. 1.266 Michigan Sate Housing Development
Authority. 1.267 Los Angeles County Metro East Social
Services Corporation. 1.268 Los Angeles County South Central So
cial Services Corporation, 1.269 Parking Authority of the County of
Los Angeles. 1.270 Parking Authority of the City of Los
Angeles. 1.271 Los Angeles County-Puddingstone
Regional Park Authority. 1.272 Upper Darby Township School Au
thority (Pennsylvania). 1.273 Alaska State Housing Authority, State
Lease Revenue Bonds. 1.274 Orange County Civic Center Authority
(California), 1.275 Marin County-Corte Madera Public
Library Authority (California). 1.276 Glendora Library Authority (Call
fornia). 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 Sporto Complex Au
thority (Missouri). 1.281 City of Inglewood-Los Angeles County
Civic Center Authority. 1.282 State Board of Higher Education,
Sec. 1.283 Visalla Public Building Authority
(California). 1.284 New York State Urban Development
Corporation. 1.285 City of Santa Fe Springs Public Im
provements Corporation Leasehold
Mortgage Bonds (California). 1.286 Vermont Municipal Bond Bank. 1.287 Memphis and Shelby County Indus
trial Development Board, Tennessee (Internal Revenue Service Regional
Center). 1.288 Washington Hospital Authority (Cali
fornia). 1.289 Los Angeles County-Torrance Civic
Center Authority. 1.290 City of Atlanta and Fulton County
Recreation Authority (Georgia). 1.291 Penn Central Transportation Co.
Trustees' certificates. 1.292 Parking Authority of the County of
Los Angeles. 1.293 Los Angeles County-Frank G. Bonelli
Regional Park and Recreation Area
Authority. 1.294 East Los Angeles County Facilities
Authority. 1.295 Stadium Authority of the City of
Pittsburgh. 1.296 Special Assessment Bonds, Muskego,
Wis. 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 Author
ity. 1.305 Los Angeles County Southeast Gen
eral 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 Administra
tion. 1.308 West Chester Area Joint School Au
thority (Pennsylvania). 1.309 State of Florida Expressway Bonds. 1.310 Kent County, Michigan, Airport Im
provement Bonds. 1.311 City of Roseville Community Hospital
Addition Corporation Leasehold
Mortgage Bonds. 1.312 City of Walnut Creek Aquatic Facill
ties, Inc. 1.313 Placer County-Roseville Civic Center
Sec. 1.314 Contra Costa County Juvenile Facili
ties Corporation Leasehold Mort
gage Bonds. 1.315 Fox Chapel Area School Authority
(Pennsylvania). 1.316 Contra Costa Education Center
Authority. 1.317 Sacramento Community Center
Authority. 1.318 California Notes. 1.319 Connecticut Mortgage Authority. 1.320 Alaska State Housing Authority State
Lease Revenue Bonds. 1.321 Baton Rouge, Louisiana Public Im
provement Bonds. 1.322 Federal National Mortgage Associa
tion. 1.323 Los Angeles County-Montebello Pub
lic Recreation Area Authority
Bonds. 1.324 Orange County Department of Edu
cation Building Corporation Lease
hold Mortgage Bonds. 1.325 Gulf Coast Waste Disposal Author
ity-City of Houston Sewer System
Contract Revenue Bonds. 1.326 Inglewood Fire Training Facility
Authority. 1.327 Inglewood-Los Angeles County Civic
Center Authority. 1.328 New Jersey Mortgage Finance Agency. 1.329 State of New York Mortgage Agency. 1.330 Parking Authority of the City of San
Buenaventura. 1.331 Orange County Civic Center Author
ity 1971 State Building Revenue
Bonds. 1.332 Los Angeles County-Covina 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) $ 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 Au ority, 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 possessing 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' 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 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; limita
tions 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. 136 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 ex
tinguished 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 & 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:
(b) The $28,000,000 State Highway Department of the State of Delaware, 448 % 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 418 % Northeastern Expressway Revenue Bonds, dated January 1, 1962, are ineligible for purchase by national banks.
(d) The $25,000,000 Town of Cherokee, Alabama, 434% 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) $ 1.106 Texas Turnpike Authority.
(a) Request. The Comptroller of the Currency has been requested to reconsider the rulings of June 8, 1955 and March 12, 1962 that the $58,500,000 Texas Turnpike Authority, Dallas-Fort Worth Turnpike Revenue Bonds, Series 1955, dated April 1, 1955, were ineligible for investment by national banks under Paragraph Seventh of 12 U.S.C. 24.
(b) Opinion. (1) The Texas Turnpike Authority was created by an Act of the 1953 State Legislature to construct turnpike facilities within the State, and specifically to build and operate a toll highway between the cities of Dallas and Fort Worth. The instant issue, payable