Community Development Corporation and Project Investments and Other Public Welfare Investments

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

proposing to revise its regulation governing national bank investments

designed primarily to promote the public welfare. The revisions clarify

banks' authority under this part; renumber and reorganize the

regulation; provide the OCC greater flexibility for determining whether

investments primarily promote the public welfare; and simplify the

regulation's investment self-certification and prior approval

processes. The proposed revisions reduce regulatory burden and

inconsistencies while enhancing the ability of national banks to make

public welfare investments.

DATES: Comments must be received on or before February 26, 1996.

ADDRESSES: Interested persons are invited to submit comments to

Communications Division, Third Floor, Office of the Comptroller of the

Currency, 250 E Street, S.W., Washington, D.C. 20219. Attention: Docket

No. 95-35. Comments will be available for inspection and photocopying

at that address. In addition, comments may be sent by facsimile to

(202) 874-5274, or by electronic mail to [email protected].

FOR FURTHER INFORMATION CONTACT: Karen Bellesi, Program Coordinator,

Community Development Investments, Community Development Division,

(202) 874-4930; or Michele Meyer, Attorney, Community and Consumer Law

Division, (202) 874-5750.

SUPPLEMENTARY INFORMATION:

Background

As part of its Regulation Review Program, the OCC is proposing

revisions to 12 CFR Part 24. In December of 1993, the OCC adopted part

24 to implement the recently-enacted 12 U.S.C. 24(Eleventh). Section

24(Eleventh) authorizes national banks to make investments ``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),'' subject to certain

percentage of capital limitations.

As currently written, part 24 reflects the statute's broad policy

of promoting the public welfare and places particular emphasis on

community development investments. Part 24 permits national banks to

make investments in community development corporations (CDCs) and

community development projects (CD Projects), consistent with safe and

sound banking practices. Under part 24, banks may self-certify certain

community development investments. Investments that do not qualify for

self-certification are subject to one of two prior approval processes.

The first requires that a bank file an investment proposal, which the

OCC usually approves or disapproves within 30 days. The second consists

of a five-day review period for investment proposals that the OCC has

previously approved for another bank.

Part 24 was crafted carefully initially to permit the agency and

the industry to gain experience with the new investment authority

provided by the statute. The proposed revisions reflect the OCC's and

the industry's successful experience with part 24. In the two years

since the OCC adopted part 24, national banks and their community

partners have invested millions of dollars in hundreds of CDCs and CD

Projects. Based on this success, and the OCC's desire to facilitate

increased community development lending and investment, the OCC

believes that it can ease some restrictions and reduce the regulatory

burden associated with part 24.

The proposed revisions preserve part 24's community development

focus but provide greater flexibility for determining whether

investments promote the public welfare. To encourage innovation in

banks' public welfare investments, the proposal modifies the current

test for determining whether an investment is designed primarily to

promote the public welfare (public welfare test). In addition, the

proposal simplifies part 24's self-certification and prior approval

processes. The proposed revisions simplify the rule and enhance its

clarity by using terms common to other recently adopted or revised

regulations, such as the Federal Reserve Board's Community Development

and Public Welfare Investments Regulation, 12 CFR Part 208.21, and the

OCC's Community Reinvestment Act Regulation (CRA Regulation), 12 CFR

Part 25. In addition, the proposal reorganizes part 24 and renumbers

its provisions. A derivation table showing these changes appears at the

end of this preamble.

Description of the Proposal

The following discussion identifies and explains the significant

proposed changes to the regulation. The OCC requests comment on all

aspects of the proposed regulation, as well as specific comment on the

changes discussed in this preamble.

Title

The proposal reflects the OCC's view that national banks can

promote the public welfare through a variety of authorized investments,

including CDCs and CD Projects that develop affordable housing, foster

revitalization and stabilization of low-and moderate-income areas, or

provide equity or debt financing for small businesses. Thus, the OCC

proposes to change the title of part 24 from ``Community Development

Corporation and Project Investments'' to ``Community Development

Corporation and Project Investments and other Public Welfare

Investments.''

Authority, Purpose, and OMB Control Number (Sec. 24.1)

The proposal amends the ``purpose'' paragraph to reflect that CDCs

and CD Projects that develop affordable housing, foster revitalization

and stabilization of low-and moderate-income areas, or provide equity

or debt financing for small businesses are just some of the types of

investments that a national bank can make under part 24. The OCC

continues to encourage

[[Page 67092]]

national banks to make these types of investments but also emphasizes

that many kinds of investments can promote the public welfare.

Definitions (Sec. 24.2)

In keeping with the Regulation Review Program's goal of using

terminology consistently throughout the OCC's regulations, the OCC is

proposing definitions and terms common to other OCC regulations. For

example, the definition of ``low-income and moderate-income'' now

refers to the OCC's CRA Regulation. The definition of ``capital and

surplus'' is the same as the definition of ``capital and surplus'' in

the OCC's Lending Limit Regulation, 12 CFR Part 32. Twelve CFR 32.2

defines ``capital and surplus'' as a bank's Tier 1 and Tier 2 capital

under the OCC's Minimum Capital Ratios in Appendix A to 12 CFR Part 3,

plus the balance of a bank's allowance for loan and lease losses not

included in the bank's Tier 2 capital, for purposes of the calculation

of risk-based capital under 12 CFR Part 3.

The OCC continues to recognize CDCs and CD Projects as vehicles

that national banks may use to make investments under this part. These

terms are defined at proposed Sec. 24.2. The proposal, however, omits

the current regulation's definitions of community development limited

partnership and community-based development corporation as unnecessary

further examples of such vehicles. This change does not affect national

banks' authority to invest in community development limited

partnerships or community based development corporations. Consistent

with the requirements of this part, national banks may continue to

invest in these and other vehicles.

The proposal adds a definition of ``eligible bank'' that is the

same as the ``eligible bank'' definition proposed by the OCC for

corporate applications in its November 29, 1994 Notice of Proposed

Rulemaking concerning 12 CFR Part 5 (59 FR 61034). The proposal

provides that a bank may self-certify investments for purposes of part

24 if it has a composite rating of 1 or 2 under the Uniform Financial

Institutions Rating System, has at least a satisfactory CRA rating, is

well capitalized, and is not subject to any current OCC enforcement

actions. As explained in proposed Sec. 24.5(a)(4), a national bank that

is at least adequately capitalized and that has a composite rating of

at least 3 with improving trends may submit a letter to the OCC's

Community Development Division requesting permission to self-certify

investments. This is a change from the current rule, which allows an

adequately capitalized, 1 or 2 rated bank that is not subject to a

current OCC enforcement action to self-certify investments. The OCC

believes this modification avoids the potential confusion of two

different ``eligible bank'' definitions in different sections of the

OCC's rules, and is appropriate in light of the proposal's

significantly expanded self-certification opportunities for banks (See

proposed Sec. 24.6.)

In addition, the proposal changes the definition of ``significant

risk to the deposit insurance fund'' to include risk to all federal

deposit insurance funds.

Finally, the proposal makes two changes concerning the small

business definitions in current part 24. First, the proposal removes

the definition of ``minority-owned small businesses'' because these

businesses are encompassed by the regulation's provisions concerning

all small businesses. Second, the proposal updates the citation to the

Small Business Administration regulations referenced in the definition

of ``small business'' in the current regulation.

Public Welfare Investments (Sec. 24.3)

Part 24 currently delineates a public welfare test that consists of

four requirements. Under current Sec. 24.4, an investment in a CDC or

CD Project is designed primarily to promote the public welfare only if:

(1) the investment primarily benefits low- and moderate-income persons

and families or small businesses; (2) the investment addresses

community development needs not met by the private market in one or

more communities served by the bank; (3) there is nonbank community

involvement in the CDC or CD Project; and (4) the profits and

distributions from a CDC or CD Project are reinvested in activities

that primarily promote the public welfare.1

1 On October 26, 1995, the OCC published a proposal to

eliminate part 24's reinvestment requirement. 60 FR 54819. The

public comment period on that proposal ended on November 27, 1995.

The final rule is published elsewhere in this issue of the Federal

Register.

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Based on its experience since it adopted part 24, the OCC believes

that the existing public welfare test should be modified to reflect a

more diverse standard for whether an investment promotes the public

welfare. Therefore, proposed Sec. 24.3(a) retains the first element of

the public welfare test, benefit to low- and moderate-income

individuals and small businesses, but makes clear that this benefit can

be provided in a variety of ways. Section 24.3(a) sets forth a non-

exhaustive list of permissible investment activities that provide the

required benefit. The list incorporates the definition of ``community

development'' provided in the CRA regulation, and reflects the factors

for determining whether an institution qualifies as a Community

Development Financial Institution under the Riegle Community

Development and Regulatory Improvement Act and the OCC Community

Development Division's experience with recent innovative investment

proposals.

Proposed Sec. 24.3(b) clarifies that, under the second element of

the current public welfare test, a bank is not required to demonstrate

that it is impossible to obtain private market financing. A bank must

demonstrate, however, the reasons that it is difficult to secure such

financing for its proposed investment. Proposed Sec. 24.3(d) permits a

bank to make an investment that also benefits an area outside those

where the bank provides its core banking services. The bank must still

demonstrate, however, the extent to which its investment benefits the

communities where it provides these services.

The proposal also modifies the existing community participation

requirement of the public welfare test. Current Sec. 24.4(a)(3)

requires a bank to demonstrate nonbank community involvement in a CDC

or CD project by indicating support from the affected primary

beneficiaries and representatives of local government. In the case of a

CDC, a bank must demonstrate such support by the composition of the

organization's board of directors.

The OCC believes that community involvement is vital to the success

of banks' part 24 investment programs. Therefore, the proposal modifies

the community participation requirement to allow banks and community

groups to determine how best to structure community partnerships under

part 24. Proposed Sec. 24.3(c) requires that a bank demonstrate

community support for or participation in an investment proposal. A

bank could demonstrate such community support or participation in a

variety of ways including non-bank community representation on a CDC

board of directors, establishment of a community advisory board for the

bank's community development activities, formation of a formal business

relationship with a community-based organization, public sector or

community group financing, or letters of support from community

representatives. The OCC requests comment on the appropriate means of

demonstrating community support for or participation in a bank's part

24

[[Page 67093]]

investment and whether the final rule should specify some or all of

them.

The proposal removes as unnecessary current Sec. 24.4(e), which

provides that a bank must manage its CDC and CD Project investments in

a prudent manner. National banks must, of course, continue to manage

their part 24 investments prudently.

Investment Limits (Sec. 24.4)

The current regulation contains investment limit provisions at

current Sec. 24.4(b) and (d). For ease of reference, the proposal

groups the provisions concerning part 24 investment limits into a

separately titled section. Proposed Sec. 24.4(a) has been modified to

clarify that, as provided in 12 U.S.C. 24(Eleventh), a bank's aggregate

outstanding investments under part 24 may not exceed 5 percent of its

capital and surplus unless the bank is at least adequately capitalized

and the OCC determines, by written approval of a proposed investment,

that a higher amount will pose no significant risk to the deposit

insurance fund.

Public Welfare Investment Self-Certification and Prior Approval

Procedures (Sec. 24.5)

Proposed Sec. 24.5 simplifies, clarifies, and reduces the burden

associated with the self-certification and prior approval procedures

set forth in current Sec. 24.11. Section 24.11 now provides three

processes for approval of authorized investments. The first requires

that a bank file an investment proposal, which the OCC usually approves

or disapproves within 30 days. The second process consists of a five-

day review period by the OCC for investment proposals that the OCC has

previously approved for another bank. The third is a self-certification

process for certain investments, under which a bank files a notice with

the OCC within 10 days after it makes an investment, and the OCC sends

a confirmation of receipt within five days.

The proposal eliminates the second approval process and streamlines

the third. Under proposed Sec. 24.5(a) and Sec. 24.6(a), a bank may

self-certify an investment previously approved by the OCC for another

bank. Although not specified in the proposed rule, the OCC will

continue its practice of sending a simple confirmation of receipt of a

bank's self-certification notice within five days. Under the proposal,

however, the OCC will not retroactively review a self-certified

investment proposal. Instead, the OCC will review the self-

certification documents simply to ensure that they meet the self-

certification requirements set forth in proposed Sec. 24.5(a).

The prior approval procedures for investment proposals that do not

qualify for self-certification are set forth in proposed

Sec. 24.5(b).2 In considering a bank's investment proposal, the

OCC will consider whether the investment satisfies the requirements of

Sec. 24.3 and whether it is consistent with the bank's safe and sound

operation and the OCC's policies.

2 The proposal removes the current rule's provision for

optional review as unnecessary. A national bank may continue to

request prior OCC review and approval of any investment proposal,

including one that qualifies for self-certification.

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Although not specified in the proposal, the OCC will continue its

practice of sending a simple confirmation of receipt of an investment

proposal within five days. Unless otherwise notified by the OCC, a bank

may make a proposed investment 30 calendar days after the date on which

the OCC receives the bank's investment proposal. The OCC may notify the

bank that it is extending the review period. If so notified, the bank

may make the investment only with the OCC's written approval.

Current Sec. 24.11(b) contains a limit on the size of investments

eligible for self- certification by banks with more than $250 million

in assets. These banks must seek prior OCC approval for investments

that exceed the lesser of 2 percent of their unimpaired capital and

surplus or $10 million. The OCC proposes to remove this limitation in

light of the proposed new standards that define the banks eligible to

use the self-certification process.

Investments Eligible for Self-Certification (Sec. 24.6)

Proposed Sec. 24.6 replaces the current Sec. 24.13, which limits

self-certification to investments using certain structures as well as

certain activities. These structures include multi-bank CDCs; CDCs

established by state or local government; community-based

organizations; and certain community development limited partnerships.

A CDC subsidiary is not currently an eligible structure for self-

certification.

The OCC believes that a structure-based self-certification

limitation is no longer necessary. This limitation was intended to

allow the OCC to ensure that particular investments did not expose

banks to safety and soundness risks or unlimited liability. However, by

limiting self-certification to eligible banks (as defined in proposed

Sec. 24.2(e)), the OCC believes it can reasonably rely on bank

management to determine the appropriate structures for part 24

investments.

In addition to eliminating the list of eligible structures,

proposed Sec. 24.6(a) expands the list of activities eligible for self-

certification to reflect the industry's increasing innovation in making

part 24 investments and the OCC's experience with self-certification

under part 24. Part 24's self-certification provisions encourage public

welfare investments by banks by reducing the regulatory steps

associated with making the investments. In order to maximize the use of

self-certification as an incentive for banks to make investments that

primarily promote the public welfare, and to encourage banks'

creativity in making these investments, the OCC has identified in

proposed Sec. 24.6(a) a clear and expanded list of eligible activities.

This list includes, but is not limited to, certain investments that

benefit low- and moderate-income persons and small businesses,

investments that have been determined by the OCC to be permissible

under part 24, and investments previously approved by the Federal

Reserve Board under 12 CFR 208.21 for state member banks.

Notwithstanding the eligible activities listed in Sec. 24.6(a),

proposed Sec. 24.6(b) provides that a bank may not self-certify

investments that involve properties carried on the bank's books as

``other real estate owned'' (OREO properties) or that fund projects

outside the states or metropolitan areas in which the bank's main

office or branches are located. The latter limitation is similar to the

limit on self-certification that appears in current part 24 but is

revised to reflect that some national banks now have branches in more

than one state.

Examination, Records, and Remedial Action (Sec. 24.7)

Proposed Sec. 24.7 replaces current Sec. 24.21 but makes no

substantive change.

Accounting for Public Welfare Investments (Current Sec. 24.4(c))

Current Sec. 24.4(c) provides that a bank's investments in CDCs and

CD Projects generally may be recorded as ``other assets at cost.'' The

rule also sets forth circumstances under which a bank would be required

to consolidate its investments on a line-by-line basis or account for

them under the equity method of accounting. The proposal eliminates

this section as unnecessary, because banks generally look to other

sources for their accounting instructions. Banks should record their

investments, as appropriate, pursuant to the instructions for

Consolidated Reports of Condition and Income

[[Page 67094]]

published by the Federal Financial Institutions Examination Council.

Policy Issue

Currently, the OCC does not generally use 12 U.S.C. 24(Eleventh),

as implemented by part 24, as an alternative basis for approving

activities that are otherwise permissible under other provisions of the

National Bank Act, 12 U.S.C. 1, et seq. This is a policy position

intended to prevent banks' activities from being subjected

unnecessarily to part 24's capital limitation.3 This position,

however, does not reflect the OCC's general approach of allowing banks

to decide how best to structure their investments.

3 For example, a bank could make an affordable housing

loan under both 12 U.S.C. 24(Seventh) and 24(Eleventh). If the bank

made such a loan under the authority of 12 U.S.C. 24(Eleventh), the

loan would be subject to a capital limitation that is stricter than

the generally applicable lending limits.

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The OCC requests comment on whether it should continue its policy

of not using part 24 as a basis for approving activities otherwise

permissible under the National Bank Act.

Derivation Table

This table directs readers to the provision(s) of the current

regulation, if any, upon which the proposed provision is based.

----------------------------------------------------------------------------------------------------------------

Revised provision Original provision Comments

----------------------------------------------------------------------------------------------------------------

Sec. 24.1............................... Sec. 24.1............................. Modified.

Sec. 24.2(a)............................ Sec. 24.2(a).......................... Modified.

(b).................................. Sec. 24.2(m).......................... Substantial

change.

(c).................................. Sec. 24.2(b).......................... Modified.

(d).................................. Sec. 24.2(e).......................... Modified.

(e).................................. ....................................... Added.

(f).................................. Sec. 24.2(g), (h)..................... Substantial

change.

(g).................................. Sec. 24.2(k).......................... Modified.

(h).................................. Sec. 24.2(l).......................... Modified.

Sec. 24.2(c).......................... Removed.

Sec. 24.2(d).......................... Removed.

Sec. 24.2(f).......................... Removed.

Sec. 24.2(i).......................... Removed.

(i).................................. Sec. 24.2(a).......................... Modified.

Sec. 24.2(j).......................... Removed.

Sec. 24.3............................... Sec. 24.4(a).......................... Substantial

change.

Sec. 24.4............................... Sec. 24.4(b), (d)..................... Modified.

Sec. 24.4(c).......................... Removed.

Sec. 24.4(e).......................... Removed.

Sec. 24.5(a)............................ Sec. 24.11(a)......................... Substantial

change.

(b).................................. Sec. 24.11(b), (d), (e)............... Substantial

change.

Sec. 24.11(c)......................... Removed.

Sec. 24.6(a)............................ Sec. 24.13(b)......................... Substantial

change.

(b).................................. Sec. 24.11(b)......................... Modified.

Sec. 24.13(a)......................... Removed.

Sec. 24.7............................... Sec. 24.21............................ Modified.

----------------------------------------------------------------------------------------------------------------

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 the regulatory

burden on national banks, regardless of size, by replacing part 24's

public welfare test with a non-exhaustive list of permissible public

welfare investment activities, streamlining the self-certification and

prior approval sections of the rule, and eliminating unnecessary

provisions. While beneficial, these changes will not have a material

impact on affected banks.

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.

Paperwork Reduction Act of 1995

The OCC invites comment on:

(1) Whether the proposed collection of information contained in

this notice of proposed rulemaking is necessary for the proper

performance of its functions, including whether the information has

practical utility;

(2) The accuracy of the OCC's estimate of the burden of the

proposed information collection;

(3) Ways to enhance the quality, utility, and clarity of the

information to be collected; and

(4) Ways to minimize the burden of the information collection on

respondents, including through the use of automated collection

techniques or other forms of information technology.

Respondents are not required to respond to this collection of

information unless it displays a currently valid OMB control number.

The collection of information requirements contained in this notice

of proposed rulemaking have been submitted to the Office of Management

[[Page 67095]]

and Budget for review in accordance with the Paperwork Reduction Act of

1995 (44 U.S.C. 3507(d)). Comments on the collections of information

should be sent to the Office of Management and Budget, Paperwork

Reduction Project (1557), Washington, DC 20503, with a copy to the

Legislation and Regulatory Activities Division (1557), Office of the

Comptroller of the Currency, 250 E Street, SW., Washington, DC 20219.

The collection of information requirements in this proposed rule

are found in 12 CFR 24.5. This information is required for the public

welfare investment self- certification and prior approval procedures.

The likely respondents are national banks.

Estimated average annual burden hours per respondent: 1.05 hours.

Estimated number of respondents: 400.

Estimated total annual reporting burden: 418 hours.

Start-up costs to respondents: None.

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, the OCC proposes to

revise part 24, title 12, chapter I, of the Code of Federal Regulations

to read as follows:

PART 24--COMMUNITY DEVELOPMENT CORPORATIONS, COMMUNITY DEVELOPMENT

PROJECTS, AND OTHER PUBLIC WELFARE INVESTMENTS

Sec.

24.1 Authority, purpose, and OMB control number.

24.2 Definitions.

24.3 Public welfare investments.

24.4 Investment limits.

24.5 Public welfare investment self-certification and prior

approval procedures.

24.6 Activities eligible for self-certification.

24.7 Examination, records, and remedial action.

Authority: 12 U.S.C. 24 (Eleventh) and 93a.

Sec. 24.1 Authority, purpose, and OMB control number.

(a) Authority. The Office of the Comptroller of the Currency (OCC)

issues this part pursuant to its authority under 12 U.S.C. 24(Eleventh)

93a, and 481.

(b) Purpose. This part implements 12 U.S.C. 24(Eleventh), which

authorizes national banks to make investments designed primarily to

promote the public welfare, including the welfare of low- and moderate-

income communities or families, such as by providing housing, services,

or jobs. It is the OCC's policy to encourage national banks to make

investments described in Sec. 24.3, consistent with safety and

soundness. The OCC believes that national banks can promote the public

welfare through a variety of investments, including those in community

development corporations (CDCs) and community development projects (CD

Projects), that develop affordable housing, foster revitalization or

stabilization of low- and moderate-income areas, or provide equity or

debt financing for small businesses. This part provides:

(1) The standards that the OCC uses to determine whether an

investment is designed primarily to promote the public welfare; and

(2) The procedures that apply to these investments.

(c) OMB Control Number. The collection of information requirements

contained in this part were approved by the Office of Management and

Budget under OMB control number 1557-0194.

Sec. 24.2 Definitions.

For purposes of this part, the following definitions apply:

(a) Adequately capitalized has the same meaning as adequately

capitalized in 12 CFR 6.4.

(b) Capital and surplus means:

(1) A bank's Tier 1 and Tier 2 capital under the OCC's Minimum

Capital Ratios in Appendix A to 12 CFR Part 3; plus

(2) The balance of a bank's allowance for loan and lease losses not

included in the bank's Tier 2 capital, for purposes of the calculation

of risk-based capital under 12 CFR part 3.

(c) Community development corporation (CDC) means a corporation

established by one or more insured financial institutions, or by

insured financial institutions and other investors, to make one or more

investments that meet the requirements of Sec. 24.3.

(d) Community development Project (CD Project) means a project to

make an investment that meets the requirements of Sec. 24.3.

(e) Eligible bank means a national bank that:

(1) Is well capitalized;

(2) Has a composite rating of 1 or 2 under the Uniform Financial

Institutions Rating System (CAMEL);

(3) Has a Community Reinvestment Act (CRA) rating of

``Outstanding'' or ``Satisfactory''; and

(4) Is not subject to a cease and desist order, consent order,

formal written agreement, or Prompt Corrective Action directive (see 12

CFR part 6, subpart B) or, if subject to any such order, agreement or

directive, is informed in writing by the OCC that the bank may be

treated as an ``eligible bank'' for purposes of this part.

(f) Low-income and moderate-income have the same meanings as low-

income and moderate- income in 12 CFR 25.12(n).

(g) Significant risk to the deposit insurance fund means a

substantial probability that any federal deposit insurance fund could

suffer a loss.

(h) Small business means a business that meets the qualifications

for Small Business Administration loan programs in 13 CFR 121.802

(a)(1) through (3).

(i) Well capitalized has the same meaning as well capitalized in 12

CFR 6.4.

Sec. 24.3 Public welfare investments.

A national bank may make an investment under this part if:

(a) The investment primarily benefits low- and moderate-income

individuals or small businesses by providing or supporting one or more

of the following activities:

(1) Affordable housing, community services, or permanent jobs for

low- and moderate-income individuals;

(2) Equity or special debt financing for small businesses;

(3) Revitalization or stabilization of low- or moderate-income

areas or other areas (including rural areas) targeted for redevelopment

by local, state, or federal government; or

(4) Other activities, services, or facilities conducive to the

public welfare;

(b) The bank sets forth the reasons why it is difficult to secure

private market financing for the proposed investment;

(c) The bank demonstrates non-bank community support for or

participation in the investment; and

(d) The bank demonstrates the extent to which the investment

benefits communities otherwise served by the bank.

Sec. 24.4 Investment limits.

(a) Limit on aggregate outstanding investments. A national bank's

aggregate outstanding investments under this part may not exceed 5

percent of its capital and surplus, unless the bank is at least

adequately capitalized and the OCC determines, by written approval of

the bank's proposed investment(s), that a higher amount will pose no

significant risk to the deposit insurance fund. In no case may a bank's

aggregate outstanding investments under this part exceed 10 percent of

its capital and surplus.

(b) Limited liability. A national bank may not make an investment

under this

[[Page 67096]]

part that would expose the bank to unlimited liability.

Sec. 24.5 Public welfare investment self-certification and prior

approval procedures.

(a) Self-certification of public welfare investments. (1) Subject

to Sec. 24.4(a), an eligible bank may make an investment described in

Sec. 24.6(a) without prior notification to, or approval by, the OCC if

the bank follows the self-certification procedures prescribed in this

section.

(2) To self-certify an investment, an eligible bank shall submit,

within 10 working days after an investment is made, a letter of self-

certification to the Director, Community Development Division, Office

of the Comptroller of the Currency, Washington, DC 20219.

(3) The bank's letter of self-certification must include:

(i) The name of the CDC, CD Project, or other entity in which the

bank has invested;

(ii) The date the investment was made;

(iii) The type of investment (equity or debt), the investment

activity listed in Sec. 24.6(a) that the investment supports, and a

brief description of the particular investment;

(iv) The bank's total investment in the CDC, CD Project or other

entity, and the bank's aggregate outstanding investments under this

part, including commitments and the investment being self-certified;

(v) The percentage of the bank's capital and surplus represented by

the bank's aggregate outstanding investments under this part, including

commitments and the investment being self-certified; and

(vi) A statement demonstrating compliance with Sec. 24.3 and

Sec. 24.4.

(4) A national bank that is not an eligible bank but is at least

adequately capitalized, and has a composite rating of at least 3 with

improving trends under the Uniform Financial Institutions Rating

System, may submit a letter to the Community Development Division

requesting authority to self-certify investments. The Community

Development Division considers these requests on a case-by-case basis.

(b) Investments requiring prior approval. (1) If a national bank or

its proposed investment does not meet the requirements for self-

certification set forth in paragraph (a) of this section, the bank

shall submit a proposal for an investment to the Director, Community

Development Division, Office of the Comptroller of the Currency,

Washington, DC 20219.

(2) The bank's investment proposal must include:

(i) The name of the CDC, CD Project, or other entity in which the

bank intends to invest;

(ii) The date on which the bank intends to make the investment;

(iii) The type of investment (equity or debt), the investment

activity listed in Sec. 24.3(a) that the investment supports, and a

description of the particular investment;

(iv) The bank's total investment in the CDC, CD Project or other

entity, and the bank's aggregate outstanding investments under this

part (including commitments and the investment being proposed);

(v) The percentage of the bank's capital and surplus represented by

the bank's aggregate outstanding investments under this part (including

commitments and the investment being proposed); and

(vi) A statement demonstrating compliance with Sec. 24.3 and

Sec. 24.4.

(3) In reviewing a proposal, the OCC considers the following

factors and other available information including:

(i) Whether the investment satisfies the requirements of Sec. 24.3;

(ii) Whether the investment is consistent with the safe and sound

operation of the bank; and

(iii) Whether the investment is consistent with the requirements of

this part and the OCC's policies.

(4) Unless otherwise notified by the OCC, and subject to

Sec. 24.4(a), the bank may make the proposed investment after 30

calendar days from the date on which the OCC receives the bank's

investment proposal.

(5) The OCC, by notifying the bank, may extend its period for

reviewing the investment proposal. If so notified, the bank may make

the investment only with the OCC's written approval.

(6) The OCC may impose one or more conditions in connection with

its approval of an investment under this part. All approvals are

subject to the condition that a national bank must conduct the approved

activity in a manner consistent with any published guidance issued by

the OCC regarding the activity.

Sec. 24.6 Activities eligible for self-certification.

(a) Eligible activities. In accordance with the process described

in Sec. 24.5(a), a bank may self-certify the following investments

without prior notice to, or approval by, the OCC:

(1) Investments in an entity that finances, acquires, develops,

rehabilitates, manages, sells, or rents housing primarily for low- and

moderate-income persons;

(2) Investments that stimulate economic development, community

stabilization or revitalization, or permanent job creation or retention

for low- and moderate-income persons by financing small businesses

(including equity or debt financing and investments in an entity that

provides loan guarantees);

(3) Investments that stimulate economic development, community

stabilization or revitalization, or permanent job-creation or retention

for low- and moderate-income persons by providing credit counseling,

job training, community development research, and similar technical

assistance services for small businesses, non-profit community

development organizations, low- and moderate-income persons or areas,

or other areas (including rural areas) targeted for redevelopment by

state or local government;

(4) Investments in an entity that stimulates economic development,

community stabilization or revitalization, or permanent job creation or

retention for low- and moderate- income persons by acquiring,

developing, rehabilitating, managing, selling, or renting commercial or

industrial property that is located in a low- and moderate- income area

or other area (including rural areas) targeted for redevelopment by

state or local government, and which is occupied primarily by small

businesses;

(5) Investments as a limited partner in a project with a general

partner that is, or is primarily owned and operated by, a 26 U.S.C.

501(c)(3) or (4) non-profit corporation and that qualifies for the

federal low-income housing tax credit;

(6) Investments in low- or moderate-income areas, or other areas

(including rural areas) targeted for redevelopment by state or local

government that create long term employment opportunities, the majority

of which will be held by low- and moderate-income persons;

(7) Investments in a national bank that has been approved by the

OCC as a national bank with a community development focus;

(8) Investments that have been approved by the Federal Reserve

Board under 12 CFR 208.21 for state member banks; and

(9) Investments that have been previously determined by the OCC to

be permissible under this part.

(b) Ineligible activities. Notwithstanding the provisions of this

section, a bank may not self-certify an investment if:

(1) The investment involves properties carried on the bank's book

as ``other real estate owned'';

(2) The investment funds projects in a state or metropolitan area

other than

[[Page 67097]]

the states or metropolitan areas in which the bank maintains its main

office or branches; or

(3) The OCC determines, in published guidance, that the investment

is inappropriate for self-certification.

Sec. 24.7 Examination, records, and remedial action.

(a) Examination. National bank investments under this part are

subject to the examination provisions of 12 U.S.C. 481.

(b) Records. Each national bank shall maintain in its files

information adequate to demonstrate that it is in compliance with the

requirements of this part.

(c) Remedial action. If the OCC finds that an investment under this

part is in violation of law or regulation, is inconsistent with the

safe and sound operation of the bank, or poses a significant risk to a

federal deposit insurance fund, the national bank shall take

appropriate remedial action as determined by the OCC.

Dated: December 14, 1995.

Eugene A. Ludwig,

Comptroller of the Currency.

[FR Doc. 95-31021 Filed 12-27-95; 8:45 am]

BILLING CODE 4810-33-P