Community Development Corporations, Community Development Projects, and Other Public Welfare Investments

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 24

[Docket No. 99-09]

RIN 1557-AB69

Community Development Corporations, Community Development

Projects, and Other Public Welfare 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 part 24, the regulation governing national bank

investments that are designed primarily to promote the public welfare.

This proposal simplifies the prior notice and self-certification

requirements that apply to national banks' public welfare investments;

expands the types of investments that a national bank may self-certify

by removing geographic restrictions; and permits eligible national

banks with assets of less than $250 million to self-certify any public

welfare investment. The OCC is also seeking comment on whether to

modify the methods of demonstrating community support or participation

currently prescribed by part 24, and whether the OCC could simplify or

streamline the procedures and standards contained in part 24. The

proposal encourages national banks to make public welfare investments

by making it easier to comply with the applicable procedures.

DATES: Comments must be received on or before August 9, 1999.

ADDRESSES: Please direct comments to: Docket No. 99-09, Communications

Division, Third Floor, Office of the Comptroller of the Currency, 250 E

Street, SW, Washington, DC, 20219. Comments are available for

inspection and photocopying at that address. In addition, comments may

be sent by facsimile transmission to FAX number (202) 874-5274, or by

electronic mail to [email protected]

FOR FURTHER INFORMATION CONTACT: David Lewis, Community Development

Investments Manager, Community Development Division, (202) 874-4930;

Michael S. Bylsma, Director, Community and Consumer Law Division, (202)

874-5750; or Heidi M. Thomas, Senior Attorney, Legislative and

Regulatory Activities Division, (202) 874-5090.

SUPPLEMENTARY INFORMATION:

Background

The OCC is proposing to amend 12 CFR part 24, which contains the

rules relating to national banks' investments in community development

corporations (CDCs), community development (CD) projects, and other

public welfare investments. Part 24 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 and families, subject to certain percentage

of capital limitations. (The investments authorized pursuant to 12

U.S.C. 24(Eleventh) are collectively referred to in this proposal as

``public welfare investments''). The purpose of this proposal is to

make burden-reducing changes that will make it easier for national

banks to use the public welfare investment authority that the statute

and regulation provide.

The OCC originally adopted part 24 in 1993 and substantially

revised the regulation, pursuant to its Regulation Review Program, in

1996. See 58 FR 68464 (Dec. 27, 1993) (final regulation); 61 FR 49654

(Sept. 23, 1996) (1996 amendments). The 1996 amendments encouraged

national banks to make public welfare investments by eliminating

unnecessarily burdensome provisions and streamlining the part 24

procedures. Among other things, the 1996 amendments: modified the test

for determining whether an investment primarily promotes the public

welfare; streamlined the investment self-certification and prior

approval

[[Page 31161]]

procedures; and expanded the list of activities eligible for self-

certification.

The OCC is committed to continually reevaluating its rules to

reduce unnecessary regulatory burden and simplify compliance,

consistent with the safe and sound operation of national banks. This

proposal addresses several issues regarding national bank compliance

with part 24 that have arisen since 1996. Specifically, the proposal

further simplifies the prior notice and self-certification requirements

that apply to national banks' public welfare investments; further

expands the types of investments a national bank may self-certify by

removing geographic restrictions; and permits an eligible community

bank to self-certify any public welfare investment. An eligible

community bank is an eligible bank 1 with assets of less

than $250 million.

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\1\ Part 24 defines an ``eligible bank'' as a national bank

that is well capitalized, has a composite rating of 1 or 2 under the

Uniform Financial Institutions Rating System (the CAMELS rating),

has a Community Reinvestment Act rating of ``Outstanding'' or

``Satisfactory,'' and is not subject to a cease and desist order,

consent order, formal written agreement, or Prompt Corrective Action

directive. 12 CFR 24.2(e).

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Description of the Proposal

Community Benefit Information Requirement (Sec. 24.3(c))

Current Sec. 24.6 lists certain public welfare investments that an

eligible bank may make by submitting a self-certification letter to the

OCC within 10 working days after it makes the investment. No prior

notification or approval is required. For all other public welfare

investments, a national bank must submit an investment proposal to the

OCC for prior approval. Unless otherwise notified in writing by the

OCC, the proposed investment is deemed approved 30 calendar days from

the date on which the OCC receives the bank's investment proposal.

Regardless of which procedure applies, Sec. 24.3(c) currently

requires a national bank making a public welfare investment to

demonstrate the extent to which the investment benefits communities

otherwise served by the bank. (The requirement of Sec. 24.3(c) is

referred to in this proposal as the community benefit information

requirement.) Section 24.5 requires the bank to provide a statement in

its self-certification letter or investment proposal certifying that it

has complied with this requirement.

The OCC is proposing to remove the community benefit information

requirement, because this requirement is not mandated by statute and

may constrict national banks from making otherwise qualifying and

beneficial public welfare investments. Moreover, the OCC's experience

in implementing 12 CFR part 24 suggests that national banks are seeking

more public welfare investment opportunities across broader geographic

markets than previously. Enhanced interstate operations and the

increasing availability of Internet banking and other forms of remote

banking limit the value of the community benefit information

requirement for the OCC's evaluation of investment proposals.

Although, as a matter of law, a bank's authority to make public

welfare investments pursuant to 12 U.S.C. 24(Eleventh) and 12 CFR part

24 is independent of its obligation to serve the credit needs of its

entire community under the Community Reinvestment Act (CRA), the OCC

recognizes that banks may want the OCC to consider a public welfare

investment for CRA purposes. Retention of the community benefit

information requirement is not necessary, however, to facilitate the

identification of a public welfare investment that a bank believes

should be considered for CRA purposes. Instead, the OCC proposes to

amend Sec. 24.5 to provide that a national bank that wants the OCC to

consider a specific public welfare investment during a CRA examination

may include a simple statement to that effect in its public welfare

investment proposal or self-certification letter.2

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\2\ The OCC's approval of a public welfare investment made

pursuant to 12 CFR part 24 does not affect how the investment is

evaluated for CRA purposes, and an investment approved under part 24

is not necessarily a qualified investment for purposes of CRA.

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Demonstration of Community Support (Sec. 24.3(d))

Under section 24.3(d), a national bank may make investments

pursuant to part 24 if it demonstrates that it has non-bank community

support for, or participation in, the investment. Section 24.3(d)

provides that a national bank may demonstrate this support or

participation in a number of ways, including:

(1) In the case of an investment in a CD entity with a board of

directors, representation on the board of directors by non-bank

community representatives with expertise relevant to the proposed

investment;

(2) Establishment of an advisory board for the bank's community

development activities that includes non-bank community representatives

with expertise relevant to the proposed investment;

(3) Formation of a formal business relationship with a community-

based organization in connection with the proposed investment;

(4) Contractual agreements with community partners to provide

services in connection with the proposed investment;

(5) Joint ventures with local small businesses in the proposed

investment; and

(6) Financing for the proposed investment from the public sector or

community development organizations.

Prior to the 1996 amendments, part 24 required the affected primary

beneficiaries and representatives of local or State government to have

endorsed and demonstrated support for the investment. In the case of a

CDC, a bank had to demonstrate support through non-bank community

participation on the organization's board of directors. 12 CFR

24.4(a)(3) (1993). The OCC modified the community support/participation

requirement in the 1996 amendments to provide banks and community

groups more flexibility in structuring community partnerships under

part 24. The OCC added the nonexclusive list of examples of community

support or participation to the final rule in response to comments on

the 1996 proposal.

The OCC has not changed Sec. 24.3(d) in this proposal, but invites

comment on whether the approach adopted in the 1996 amendments is

effective in encouraging community involvement in national banks'

public welfare investments. For example, is the current non-bank

community support or participation requirement appropriate? Are there

other ways of demonstrating support or participations? In particular,

commenters addressing these issues are invited to discuss whether:

(1) The current community participation prong of the public welfare

test has been sufficient in obtaining evidence of adequate community

support and involvement in national banks' community development

investments;

(2) General letters of support from community groups or local

officials, without other evidence of community support or

participation, should be considered sufficient to satisfy this

requirement;

(3) Stricter requirements for community support or participation

will have the effect of discouraging public welfare investments

pursuant to part 24; and

(4) Institutions should demonstrate community support for, or

participation in, investments in national or regional

[[Page 31162]]

community development investment vehicles, and if so, what form this

demonstration should take.

Self-Certification of Public Welfare Investments by an Eligible

Community Bank (Sec. 24.5(a))

An eligible national bank may make public welfare investments

listed in Sec. 24.6 without prior OCC approval by submitting a self-

certification letter to the OCC that satisfies the requirements in the

regulation. 12 CFR 24.5(a). Investments eligible for self-certification

include certain investments relating to low- and moderate-income

housing, small businesses located in low- and moderate-income areas,

employment or job training for low- or moderate-income individuals, or

technical assistance services for non-profit community development

organizations; investments as a limited partner in certain low- income

housing tax credit projects; investments in national banks with a

community development focus; investments approved by the Federal

Reserve Board under 12 CFR 208.21; and investments previously

determined by the OCC to be permissible under part 24. 12 CFR 24.6.

Other investments require application to, and approval by, the OCC.

Because community banks operate with more limited resources than

larger institutions, the tasks associated with the prior approval

process for public welfare investments place a greater burden on them.

In addition, the OCC recognizes that smaller community banks may serve

as the only source of investments for some CDCs and CD projects located

in small towns or rural areas and that the prior approval process may

inhibit community banks from making these investments. The proposal

therefore amends Sec. 24.5(a) to permit eligible community banks

(national banks with less than $250 million in assets) to self-certify

all public welfare investments, not only those investments listed in

Sec. 24.6. This change will reduce the regulatory burden and costs

associated with the part 24 prior approval process for eligible

community banks in particular and may encourage more community banks to

make public welfare investments in local CDCs and CD projects that

might not be able to attract investments from other sources.

This change is consistent with 12 U.S.C. 24 (Eleventh), which does

not require a national bank to receive prior OCC approval before making

a public welfare investment within the 5 percent of capital aggregate

limit. Moreover, the change does not raise safety and soundness

concerns because the application process is eliminated only for

investments by eligible community banks. The eligibility standard in

Sec. 24.2(e) ensures that only well-capitalized, well-run community

banks can take advantage of this streamlined approach. In addition,

these public welfare investments are subject to review during the

examination process pursuant to Sec. 24.7. Finally, as set forth in

Sec. 24.7, if the OCC finds that an investment violates law or

regulation, is inconsistent with the safe and sound operation of the

bank, or poses a significant risk to the deposit insurance fund, it may

require the bank to take appropriate remedial action.

The Local Community Investment Requirement for Self-Certification

(Sec. 24.6(b)(2))

Currently, part 24 does not permit a national bank to self-certify

an investment if, among other things, more than 25 percent of the

investment is used to fund projects that are located in a State or

metropolitan area other than the States or metropolitan areas in which

the bank maintains its main office or has branches. 12 CFR 24.6(b)(2).

If any portion of a bank's investment funds projects outside of its

local areas, the bank must include in its self-certification letter a

statement that no more than 25 percent of the investment funds these

projects. 12 CFR 24.5(a)(3)(vii).

The OCC proposes to remove this local community investment

requirement in Sec. 24.6(b) so that a national bank can use the less

burdensome self-certification process to make eligible public welfare

investments in any area. This change removes a requirement that is not

necessary to implement the statute because, as discussed in connection

with the removal of the community benefit information requirement, 12

U.S.C. 24 (Eleventh) does not require that a bank link its public

welfare investments to the communities it serves. In addition, this

change permits national banks to use the self-certification process for

investments in national community development investment vehicles.

Because these vehicles often provide funds for projects located

throughout the United States, it has not always been possible for a

bank to certify that not more than 25 percent of the bank's investment

will support projects in States or metropolitan areas other than those

in which the bank's main office or branches are located. Thus, this

change should expand the opportunities for banks to fund worthwhile

public welfare projects.

As with the proposal to remove the community benefit information

requirement, the OCC recognizes that, in some cases, the local

community investment requirement for self-certification has served as a

way for banks to identify investments that they believe may be eligible

for CRA credit. For the same reasons as discussed in connection with

that change, a bank that wants the investment to be considered for CRA

purposes may include a statement to that effect in its self-

certification letter. This information will be provided to supervisory

staff in connection with the bank's CRA examination. The OCC notes that

this change affects only the eligibility of the investment for self-

certification. It does not modify either the part 24 standards for

permissible public welfare investments or the CRA standards set forth

in 12 CFR Part 25.

Comments

The OCC requests comment on all aspects of this proposal, including

the extent to which these proposed changes will encourage national

banks to make public welfare investments. Commenters are also invited

to suggest other revisions that would simplify the standards or

streamline the procedures currently contained in part 24.

In addition, the OCC seeks comment on the impact of this proposal

on community banks. As discussed in connection with certain of the

proposed changes, the OCC recognizes that community banks operate with

more limited resources than larger institutions and may present a

different risk profile. Thus, the OCC specifically requests comment on

the impact of the proposal on community banks' current resources and

available personnel with the requisite expertise, and whether the goals

of the proposal could be achieved, for community banks, through an

alternative approach.

Finally, the OCC solicits comment on whether the proposal is

written clearly and is easy to understand. On June 1, 1998, the

President issued a Memorandum directing each agency in the Executive

branch to write its rules in plain language. This directive applies to

all new proposed and final rulemaking documents issued on or after

January 1, 1999. The OCC invites comment on how to make this proposal

clearer. For example, you may wish to discuss:

(1) Whether we have organized the material to suit your needs;

(2) Whether the requirements of the rule are clear; or

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(3) Whether there is something else we could do to make the rule

easier to understand.

Regulatory Flexibility Act Analysis

Pursuant to section 605(b) of the Regulatory Flexibility Act, the

Comptroller of the Currency certifies that this proposal would not have

a significant economic impact on a substantial number of small entities

in accord with the spirit and purposes of the Regulatory Flexibility

Act (5 U.S.C. 601 et seq.). Accordingly, a regulatory flexibility

analysis is not required. The proposal would reduce regulatory burden

on national banks by simplifying the prior approval process and

simplifying and expanding the self-certification process for part 24

investments. The economic impact of this proposal on national banks,

regardless of size, is expected to be minimal.

Paperwork Reduction Act

For purposes of compliance with the Paperwork Reduction Act of

1995, 44 U.S.C. 3501 et seq., the OCC invites comment on:

(1) Whether the proposed collections of information contained in

this notice of proposed rulemaking are necessary for the proper

performance of the OCC's 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;

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

respondents, including the use of automated collection techniques or

other forms of information technology; and

(5) Estimates of capital or start-up costs and costs of operation,

maintenance, and purchase of services to provide information.

Recordkeepers 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

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 1557-0194, Washington, D.C. 20503, with copies to

Office of the Comptroller of the Currency, Communications Division, 250

E Street, SW, Attention: Paperwork Reduction Project 1557-0194,

Washington, D.C. 20219.

The proposal is expected to reduce annual paperwork burden for

recordkeepers because it eliminates certain application and self-

certification requirements. The collection of information requirements

in this proposal 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 recordkeeper: 1.9. Start-

up costs: None.

Executive Order 12866 Determination

The Comptroller of the Currency has determined that this proposal

does not constitute a ``significant regulatory action'' for the

purposes of Executive Order 12866.

Unfunded Mandates Reform Act of 1995 Determinations

Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L.

104-4 (Unfunded Mandates Act) requires that an agency prepare a

budgetary impact statement before promulgating a rule that includes a

Federal mandate that may result in expenditure by State, local, and

tribal governments, in the aggregate, or by the private sector, of $100

million or more in any one year. If a budgetary impact statement is

required, Section 205 of the Unfunded Mandates Act also requires an

agency to identify and consider a reasonable number of regulatory

alternatives before promulgating a rule. As discussed in the preamble,

this proposed rule is limited to the prior notice and self-

certification process for part 24 investments. The OCC therefore has

determined that the proposal will not result in expenditures by State,

local, or tribal governments or by the private sector of $100 million

or more. Accordingly, the OCC has not prepared a budgetary impact

statement or specifically addressed the regulatory alternatives

considered.

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

amend part 24 of chapter I of title 12 of the Code of Federal

Regulations to read as follows:

PART 24--COMMUNITY DEVELOPMENT CORPORATIONS, COMMUNITY DEVELOPMENT

PROJECTS, AND OTHER PUBLIC WELFARE INVESTMENTS

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

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

2. In Sec. 24.2, paragraphs (f), (g), (h) and (i) are redesignated

as paragraphs (g), (h), (i) and (j), and a new paragraph (f) is added

to read as follows:

Sec. 24.2 Definitions.

* * * * *

(f) Eligible community bank means an eligible bank that, as of

December 31 of either of the prior two calendar years had total assets

of less than $250 million.

* * * * *

Sec. 24.3 [Amended]

3. In Sec. 24.3, paragraph (c) is removed, and paragraph (d) is

redesignated as paragraph (c).

4. In Sec. 24.5, paragraph (a)(1) and paragraph (a)(3)(iii) are

revised, paragraph (a)(3)(v) is amended by adding the word ``and'' at

the end of the paragraph, paragraph (a)(3)(vi) is amended by removing

the term ``; and'' and adding a period in its place at the end of the

sentence, paragraph (a)(3)(vii) is removed, paragraph (a)(4) is

redesignated as paragraph (a)(5), a new paragraph (a)(4) is added,

paragraph (b) is amended by redesignating paragraph (b)(3) through

(b)(6) as paragraphs (b)(4) through (b)(7), and a new paragraph (b)(3)

is added to read as follows:

Sec. 24.5 Public welfare investment self-certification and prior

approval procedures.

(a) * * *

(1) Subject to Sec. 24.4(a), an eligible bank may make an

investment described in Sec. 24.6(a) and an eligible community bank may

make any investment that satisfies the requirements of Sec. 24.3

without prior notification to, or approval by, the OCC if the bank

follows the self-certification procedures in this section.

* * * * *

(3) * * *

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

activity listed in Sec. 24.3(a) or Sec. 24.6(a), as applicable, that

the investment supports, and a brief description of the particular

investment;

* * * * *

(4) If the bank wants the OCC to consider the investment during an

examination under the CRA (12 U.S.C. 2901 et seq.) and to determine

whether

[[Page 31164]]

it meets the criteria for a qualified investment set forth in 12 CFR

part 25, the bank may include a brief statement to that effect in its

letter of self-certification.

* * * * *

(b) * * *

(3) If the bank wants the OCC to consider the investment during an

examination under the CRA and to determine whether it meets the

criteria for a qualified investment set forth in 12 CFR part 25, the

bank may include a brief statement to that effect in its investment

proposal.

* * * * *

Sec. 24.6 [Amended]

5. In Sec. 24.6, paragraph (b)(1) is amended by adding an ``or'' at

the end, paragraph (b)(2) is removed, and paragraph (b)(3) is

redesignated as paragraph (b)(2).

Dated: May 27, 1999.

John D. Hawke, Jr.,

Comptroller of the Currency.

[FR Doc. 99-14754 Filed 6-9-99; 8:45 am]

BILLING CODE 4810-33-P