1.359 Mt. Diablo Hospital Authority. 1.360 Riverside Civic Center Authority, 1972 City Hall Revenue Bonds.

1.361 Public Medical Facilities Bonds Offered and Guaranteed by the Secretary of Health, Education and Welfare.

1.362 Greater Lewisville Water Supply Corporation Bonds.

1.363 Parking Authority of the City of Los Angeles, Refunding Bonds. 1.364 General Services Administration Public Buildings Trust.

1.365 Desert Hospital Authority. 1.366

General Services Administration Public Buildings Trust. 1.367 Riverside Civic Center Authority County Hall of Records Addition Revenue Bonds.

1.368 Santa Clara County Public Facilities Corporation, Lease Rental Bonds. 1.369 City of Woodland Public Improvements Corporation. 1.370 Los Angeles County Health Facilities Authority, Los Angeles County U.S.C., Medical Center Health Facilities Revenue Bonds.

1.375

Camarillo Library Authority.

1.376 Maine Municipal Bond Bank. 1.377

General Services Administration Fourth Public Buildings Trust. 1.378 Board of Regents, University of Iowa, Hospital Revenue Bonds.

1.379 City of Long Beach-Los Angeles County Civic Center Authority. 1.380 Alhambra Library Building Corporation (California).

1.381 Hospital Authority of Fulton County (Georgia).

1.382 New York State Housing Finance Agency, Urban Rental Project. 1.383 New York Job Development Authority.

1.384 New Haven, Connecticut, Parking Revenue Bonds.

1.385 Farmers Home Insured Note Trust. 1.386 Connecticut Housing Finance Authority, Housing Mortgage Finance Program Bonds.

1.390 1.391

New Jersey Health Care F Financing Authority. Water and Sewer Improvement Series 1974, Northwest I Water Supply Corporation. 1.392 Parking Authority of the City ( thorne (California).

1.393 Parking Authority of the City lerton (California).

1.394 Parking Authority of the City Beach (California).

1.395 Los Angeles County-City of C Civic Center Authority, Cit Facilities Revenue Bonds. 1.396 Virginia Housing Developmer thority.

1.397 New York State Medical Care ties Finance Agency, Bond pation Notes.

1.398 El Cajon-San Diego County Center Authority, City Hall nue Bonds.

1.399 New York State Medical Care ties Finance Agency Bonds. 1.400 City-Housing Authority Buildir thority (Napa, California). 1.401 Alabama Public School and C Authority.

A

1.402 City of Inglewood-Los County Civic Center Authorit 1.403 Industry Urban-Development A (California).

1.404 Municipal Assistance Corporatio the City of New York. 1.405 Parking Authority of the City of land (California).

1.406 Hospitals Authority of Philad (University of Pennsylvania). 1.407 Tredyffrin Township Guara Sewer Revenue Bonds. 1.408 Mt. Diablo Hospital Aut (California).

1.409 Washington Public Power S

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 FR. 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 Authority, and obligations issued by any State or political subdivision or any agency of a State or a political subdivision for housing, university or dormitory purposes.

(e) The term "Type II 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 con with the obligations.

[36 F.R. 6737, Apr. 8, 1971]

§ 1.5 Types II and III securitie chase standards.

(a) Evidence of obligor's ability form and of marketability. A ba purchase a security of Type II or its own account when in its p banking judgment (which may be in part upon estimates which it h to be reliable), it determines tha is adequate evidence that the will be able to perform all that it takes to perform in connection w security, including all debt serv quirements, and that the secu marketable, that is, that it may b with reasonable promptness at a which corresponds reasonably to i value.

(b) Judgment based predomi upon reliable estimates. A bank subject to limitations set for § 1.7(b), purchase a security of T or III for its own account althou judgment with respect to the ob ability to perform is based predomi upon estimates which it believes reliable. Although the appraisal prospects of any obligor will usua based in part upon estimates, it purpose of this paragraph to per bank to exercise a somewhat br range of judgment with respect to a restricted portion of its investment folio. It is expected that this auth may be exercised not only in the ab of a record of performance but also there are prospects for improved formance. It is also expected th security purchased pursuant to paragraph may, by the establishme a satisfactory financial record, be eligible for purchase under parag (a) of this section.

(c) Securities ruled eligible by Comptroller of the Currency. A bank consider as a factor in reaching its dent banking judgment with respe a security a ruling published by Comptroller of the Currency on the gibility of such security for purch Consideration must also be given, 1 ever, to the possibility that cir stances on which the ruling was b may have changed since the time of ruling.

[36 F.R. 6737, Apr. 8, 1971]

§ 1.6 Type II securities; authority to deal in and underwrite.

A bank may deal in and underwrite the obligations of the International Bank for Reconstruction and Development, the Inter-American Development Bank, the Asian Development Bank, and the Tennessee Valley Authority, or obligations issued by any State or political subdivision or any agency of a State or a political subdivision for housing, university, or dormitory purposes. [36 F.R. 6737, Apr. 8, 1971]

§ 1.7

Types II and III securities; limitations on holdings.

(a) Obligations of any one obligor. A bank may not hold at any time Types II and III securities of any one obligor in a total amount in excess of 10 percent of the bank's capital and surplus. For this purpose, the amount of a security is to be determined on the basis of the par or face value of the security. In the case of Type II securities, obligations for the purpose of this limitation include obligations held as a result of underwriting, dealing in, or purchasing for its own account including obligations as to which the bank is under commitment.

(b) Obligations purchased predominantly on the basis of reliable estimates. A bank may not hold at any time securities which would not be eligible for purchase pursuant to paragraph (a) of § 1.5 in a total amount in excess of 5 percent of the bank's capital and surplus.

(c) Limitations prescribed in eligibility rulings. When a ruling published by the Comptroller of the Currency provides that a security is eligible for purchase subject to a specified limitation, a bank may not at any time thereafter purchase such security, if, after such purchase, the bank's holdings of such security would be in excess of the specified limitation.

[36 F.R. 6737, Apr. 8, 1971]

§ 1.8 Prudent banking judgment; credit information required.

Every bank shall maintain in its files credit information adequate to demonstrate that it has exercised prudence in making the determinations and carrying out the transactions described in §§ 1.4 and 1.5.

[28 F.R. 9917, Sept. 12, 1963]

§ 1.9 Requests for rulings.

Any bank may request the Comptroller of the Currency to rule on the applica

tion of this part, or paragraph Seventh of 12 U.S.C. 24, to any security which it holds, or desires to purchase for its own account as an investment security; or which it holds, or desires to deal in, underwrite, purchase, hold, or sell as a security of Type I or II. Such a request for a ruling should be supported by (a) information sufficient to enable the Comptroller to make the necessary determination and (b) the bank's appraisal of the information furnished. [36 F.R. 6737, Apr. 8, 1971]

§ 1.10 Convertible securities.

When a bank purchases an investment security convertible into stock or with stock purchase warrants attached, entries must be made by the bank at the time of purchase to write down the cost of such security to an amount which represents the investment value of the security considered independently of the conversion feature or attached stock purchase warrants. Purchase of securities convertible into stock at the option of the issuer is prohibited. [28 F.R. 9917, Sept. 12, 1963]

§ 1.11 Amortization of premiums.

When an investment security is purchased at a price exceeding par or face value, the bank shall:

(a) Charge off the entire premium at the time of purchase; or

(b) Provide for a program to amortize the premium paid or that portion of premium remaining after the write-down required by § 1.10 so that such premium or portion thereof shall be entirely extinguished at or before the maturity of the security.

[28 F.R. 9917, Sept. 12, 1963]

in, underwrite, purchase, and sell for its own account, subject to a 10 percent limitation. These include obligations of the International Bank for Reconstruction and Development, the Inter-American Development Bank, the Asian Development Bank and the Tennessee Valley Authority, and obligations issued by any State or political subdivision or any agency of a State or a political subdivision for housing, university or dormitory purposes.

(e) The term "Type III security" means a security which a bank may purchase and sell for its own account, subject to a 10-percent limitation, but may neither deal in nor underwrite.

(f) The term "political subdivision of any State" includes a county, city, town, or other municipal corporation, a public authority, and generally any publicly owned entity which is an instrumentality of the State or of a municipal corporation.

(g) The phrase "general obligation of any State or any political subdivision thereof" means an obligation supported by the full faith and credit of an obligor possessing general powers of taxation, including property taxation. It includes an obligation payable from a special fund or by an obligor not possessing general powers of taxation when an obligor 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 connecti with the obligations.

[86 F.R. 6737, Apr. 8, 1971]

§ 1.5 Types II and III securities; p chase standards.

(a) Evidence of obligor's ability to pe form and of marketability. A bank ma purchase a security of Type II or III f its own account when in its prude banking judgment (which may be base in part upon estimates which it believ to be reliable), it determines that the is adequate evidence that the oblig will be able to perform all that it unde takes to perform in connection with th security, including all debt service r quirements, and that the security marketable, that is, that it may be sol with reasonable promptness at a pric which corresponds reasonably to its fa value.

(b) Judgment based predominanti upon reliable estimates. A bank ma subject to limitations set forth i § 1.7(b), purchase a security of Type 1 or III for its own account although it judgment with respect to the obligor ability to perform is based predominantl upon estimates which it believes to b reliable. Although the appraisal of th prospects of any obligor will usually b based in part upon estimates, it is th purpose of this paragraph to permit bank to exercise a somewhat broade range of judgment with respect to a mor restricted portion of its investment port folio. It is expected that this authority may be exercised not only in the absenc of a record of performance but also wher there are prospects for improved per formance. 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]