Community Development Corporation and Project Investments

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 24

[Docket No. 95-26]

RIN 1557-AB46

Community Development Corporation and Project Investments

AGENCY: Office of the Comptroller of the Currency, Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Office of the Comptroller of the Currency (OCC) is

proposing to amend its regulation regarding Community Development

Corporation and Project Investments. The proposal removes a provision

that requires banks to reinvest profits, dividends and other

distributions from community development investments in activities that

promote the public welfare and is intended to encourage public welfare

investments by national banks.

DATES: Comments must be received by November 27, 1995.

ADDRESSES: Comments should be directed to: Communications Division,

Office of the Comptroller of the Currency, 250 E Street, SW.,

Washington, DC 20219. Fax # 202-874-5274. Attention: Docket No. 95-26.

In addition, comments may be sent by electronic mail to

[email protected] Comments will be available for public

inspection and photocopying at the same location.

FOR FURTHER INFORMATION CONTACT: Matthew Roberts, Director, Community

and Consumer Law Division, 202/874-5750; Janice Booker, Director,

Community Development Division, 202/874-4940.

SUPPLEMENTARY INFORMATION:

Introduction

The OCC is currently reviewing 12 CFR part 24 as another component

of its Regulation Review Program. Part 24 permits public welfare

investments by national banks, subject to certain limitations. As part

of the review of 12 CFR part 24, the OCC is proposing to change one

provision immediately. Currently, part 24 requires a bank to reinvest

the profits, dividends and other distributions from its equity and debt

investments in a community development corporation (CDC) or community

development (CD) project in activities that primarily promote the

public welfare. This proposal would remove that requirement.

Background

National banks are authorized under 12 U.S.C. 24 (Eleventh) to make

investments that are designed primarily to promote the public welfare,

including the welfare of low- and moderate-income families and

communities (such as through the provision of housing, services, or

jobs) consistent with safe and sound banking practices.1 Pursuant

to this authority, the OCC issued part 24 on December 27, 1993, to

establish various requirements for permissible public welfare

investments. These requirements include a provision, codified at 12 CFR

24.4(a)(4), that prescribes how a bank may use certain proceeds from

its 12 U.S.C. 24(Eleventh) investments. This provision requires that

the profits, dividends, tax credits, and other distributions from

equity investments, or interest income from debt investments, received

by a bank from a CDC or CD project investment be devoted to activities

that primarily promote the public welfare. Further, in the case of an

investment in a for-profit CDC subsidiary, the profits, dividends and

other distributions must be reinvested in the CDC during its first

three years of operation.

\1\ The Eleventh paragraph was added to section 24 by the

Depository Institutions Disaster Relief Act of 1992, enacted on

October 23, 1992. Pub.L. 102-485, Section 6(a), 106 Stat. 2774

(1992).

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Section 24(Eleventh) does not require reinvestment of proceeds. The

OCC included this provision in part 24 based on its practice in

implementing 12 U.S.C. 24(Eighth), which was enacted prior to 12 U.S.C.

24(Eleventh). Under 12 U.S.C. 24(Eighth), as construed in former

Interpretive Ruling 7.7480, (12 CFR 7.7480), national banks were

authorized to contribute to community funds, or to charitable,

philanthropic, or benevolent instrumentalities conducive to the public

welfare.2 In 1971, the OCC revised Interpretive Ruling 7.7480 to

permit banks to make ``investments,'' as long as the investments were

predominantly civic, community or

[[Page 54820]]

public in nature. At that time, the OCC concluded that it may be

inconsistent with the underlying charitable purposes of 12 U.S.C.

24(Eighth) for a bank to retain profits on these investments.

Interpretive Ruling 7.7480 therefore required banks to reinvest

profits, dividends and other distributions in public purpose

activities.

\2\ 12 U.S.C. 24(Eighth). The interpretive ruling was replaced

by 12 CFR part 24 in 1993. 58 FR 68464 (December 27, 1993).

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Although part 24 was drafted under the authority of 12 U.S.C.

24(Eleventh), which provides direct authority for public welfare

``investments,'' it retained the reinvestment provision as one means of

furthering the public welfare nature of investments made pursuant to

this authority.

Discussion

The OCC proposes to remove the reinvestment provision, 12 CFR

24.4(a)(4). The statute does not restrict institutions from earning and

retaining profits on investments made pursuant to 12 U.S.C.

24(Eleventh), as long as such investments are designed primarily to

promote the public welfare. Reactions to the current rule indicate,

however, that in some instances the reinvestment provision discourages

banks from making such investments. For example, the requirement that

banks reinvest low-income housing tax credits in restricted activities

can diminish a bank's economic incentive for participating in that type

of low-income housing development. The OCC believes that removal of the

reinvestment provision will further the basic objective of 12 U.S.C.

24(Eleventh) by helping to encourage banks to make more investments.

The OCC also believes that the proposal is consistent with bank

safety and soundness. The proposal will enable banks to retain profits,

dividends and other distributions from CDC subsidiaries and CD projects

or to redeploy such proceeds to the CDC or other public welfare

investments based upon an overall assessment by a bank's management of

its financial needs and public welfare investment objectives. While the

proposal will encourage banks to make investments to promote the public

welfare, it will not constrain a bank's use of investment proceeds nor

hamper a bank's ability to ensure the sound operation of the bank as a

whole.

Commenters are invited to address with as much specificity as

possible:

(1) The extent to which removal of the provision will encourage

public welfare investments;

(2) whether there are safety and soundness reasons to retain or

remove the provision; and

(3) any other reasons why the current requirement should be

retained or eliminated.

Regulatory Flexibility Act

It is hereby certified that this notice of proposed rulemaking, if

adopted as a final rule, will not have a significant economic impact on

a substantial number of small entities. Accordingly, a regulatory

flexibility analysis is not required. This notice of proposed

rulemaking, if adopted as a final rule, will reduce somewhat the

regulatory burden on national banks, regardless of size, by removing a

requirement for making public welfare investments.

Executive Order 12866

The OCC has determined that this proposal is not a significant

regulatory action under Executive Order 12866.

Unfunded Mandates

The OCC has determined that this proposal will not result in

expenditures by State, local, and tribal governments, or by the private

sector, of more than $100 million in any one year. Accordingly, a

budgetary impact statement is not required under section 202 of the

Unfunded Mandates Reform Act of 1995.

List of Subjects in 12 CFR Part 24

Community development, Credit, Investments, National banks,

Reporting and recordkeeping requirements.

Authority and Issuance

For the reasons set forth in the preamble, part 24 of title 12,

chapter I, of the Code of Federal Regulations is proposed to be amended

as set forth below:

PART 24--COMMUNITY DEVELOPMENT CORPORATION AND PROJECT INVESTMENTS

1. The authority citation for part 24 continues to read as follows:

Authority: 12 U.S.C. 24(Eleventh), 93a, 161, 481, and 1818.

Sec. 24.4 [Amended]

2. Paragraph (a)(2) of Sec. 24.4 is amended by adding ``and'' at

the end of the paragraph.

3. Paragraph (a)(3) of Sec. 24.4 is amended by removing the ``;

and'' at the end of the paragraph and adding a period.

4. Paragraph (a)(4) of Sec. 24.4 is removed.

Dated: October 2, 1995.

Eugene A. Ludwig,

Comptroller of the Currency.

[FR Doc. 95-26556 Filed 10-25-95; 8:45 am]

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