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| ## Comptroller of the Currency                                        |
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| > Administrator of National Banks                                     |
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Washington, DC 20219

**Interpretive Letter #1053**

**March 2006**

March 14, 2006 **12 USC 29**

**12 USC 24(7)**

Mr. Thomas M. Stevens, GRI, CRB, CRS

President

National Association of REALTORS®

500 New Jersey Avenue, N.W.

Washington, D.C. 20001-2020

Dear Mr. Stevens:

Comptroller Dugan has asked me to respond to your letter of January 27,
2006, in which you raise a number of legal issues about three
interpretive letters recently issued by the OCC; two dealing with the
authority of national banks to own different types of bank premises (the
"Bank Premises Letters"), and one dealing with an energy project
financing transaction (the "Project Financing Letter").

First, let me assure you that the Letters have absolutely nothing to do
with real estate brokerage by national banks. The only letter that even
mentions the topic does so in the context of making clear that any real
estate brokerage connected with the transactions will be engaged in
exclusively by third party brokers unrelated to the national bank.

The Letters deal only with limited situations where holding an interest
in real estate has long been recognized as permissible for national
banks. The Letters absolutely do not open the door for national banks to
engage in broad-based real estate development activities, nor do they
violate the separation of banking and commerce. By statute, national
banks have only limited authority to hold real estate. This limited
authority precludes them from engaging in activities that would breach
the separation between banking and commerce. But this authority does
enable national banks to take different types of direct and indirect
interests in real estate as part of their banking business.[^1] Over the
last 100 years, the courts and the OCC have interpreted this limited
authority to permit -- or prohibit -- particular types of activities,
based on particular facts.

The three Letters are entirely consistent with this body of precedent.
The Bank Premises Letters permitted two banks to develop property they
already owned, in ways that served each bank's banking operations. The
Project Financing Letter permitted a bank to structure a financing that
was the functional equivalent of a loan, and underwritten like a loan,
through an equity interest, in order for the bank to capture certain tax
benefits.

The limits contained in the Letters, based on the limits on national
banks' authority, preclude the extreme consequences that you suggest in
your letter. The OCC fully recognizes these limits and will apply them
consistently to all national banks. Ongoing adherence to these standards
will be subject to review during OCC's regular supervision of the
involved banks.

The remainder of this letter sets out in detail why your criticism of
the three Letters and of the precedent supporting them is unfounded.

**The Bank Premises Letters (Interpretive Letters Nos. 1044 and 1045)**

#### 

#### Well-established judicial precedent and OCC interpretations expressly recognize the authority of a national bank to hold and develop property used for the bank's own operations, offices, and lodging for employees and customers, and to lease or sell the portion of the property that the bank does not need to third-parties. This authority also is subject to substantial limits and constraints. The acquisition of real estate or establishment of bank facilities must be conducted in good faith in furtherance of a bank's banking operations, and not as general real estate development. The burden is on the bank to demonstrate a legitimate business reason based on accommodating its banking business operations for acquiring and/or developing the property for the projected use. The OCC looks to the percentage of use or occupancy of property in conjunction with the bank's business as a measure of good faith use of the property for banking purposes. Finally, the use must not be inconsistent with the purposes behind the limits of section 29. In particular, the investment must not be speculative or motivated by realizing a gain on appreciation of the real estate property value. We found the two bank premises proposals to be consistent with these standards. 

#### A. Bank Premises Letter No. 1045

#### 

#### Interpretive Letter No. 1045 addressed the establishment of a hotel facility, on property already owned by the bank, which would be adjacent to the bank's corporate headquarters. The bank represented that it intended to use more than 50 % of the occupied rooms to lodge out-of-area bank employees, members of the bank's board of directors, and selected vendors, shareholders, customers and others who were visitors on bank-related business. In these circumstances, we concluded that the facility would constitute permissible bank premises. 

#### 

#### Your letter asserts that this Letter is not supported by cited case authority with respect to the percentage of bank usage expressly authorized. Specifically, you assert that *Wingert*[^2] (upholding bank's authority to tear down bank building and construct new six story office building in which bank will occupy only first floor, or 16.7% of the structure)*,* and *Wirtz*[^3] (recognizing bank's authority to occupy 20.7% of office complex and lease remaining space as excess premises) are distinguishable. You attempt to distinguish *Wingert* on grounds that the case applies only when a bank has "long-owned" the real estate upon which construction will take place. You assert that *Wirtz* is not applicable here because *Wirtz* is a Fair Labor Standards Act (FLSA) case, and nothing in the ruling suggests that the court was "recognizing" the bank's authority to occupy space and lease the remaining space. You also suggest that while developing an office building would be bank premises, developing a building to lodge bank employees, officials, service providers and customers would not be. 

These assertions are incorrect, and I will address each, in turn. The
*Wingert* case does not hold that section 29 requires that development
of bank premises with excess space occur [only]{.underline} on property
long-held by the bank. And even if the holding in *Wingert* had been
premised upon the bank's previous long ownership of the real estate,
that criteria is satisfied in Interpretive Letter 1045.[^4] The bank has
owned the property for years and currently uses it for bank parking --
another permissible type of bank premises. In any event, *Wingert* does
not require that bank premises development occur only on long-owned
property. *Wingert* addressed the first complaint -- that the board of
directors exercised poor judgment in engaging in an unwise business
proposition -- by noting that the new building would be constructed on
long-held bank premises. However, when addressing the second complaint
-- that the construction violated section 29 -- the court did not
discuss the long-standing use of the premises, nor rely on the use of
the property being for offices, rather than another type of bank use.

The decision in *Wirtz* did center on the FLSA. However, the *Wirtz*
court specifically recognized the authority of a national bank to occupy
space in bank premises and lease the excess premises to third parties.
The court said:

> National banks are precluded by law from engaging in activities which
> are not related to their banking business. \[*citing* 12 U.S.C. 21,
> 24, 29\] A recognized incident to such business is the right of a bank
> to own its office building and to spread its expenses and operating
> costs by renting space to tenants. \[*citing* *Brown v. Schleier*\]

*Wirtz* at 644.

More significantly, your letter totally fails to address *Brown v.
Schleier*, 118 F. 981, 984 (8th Cir. 1902), *aff'd*, 194 U.S. 18 (1904),
the leading case on leasing excess bank premises, which clearly does not
require that premises only be developed on property long-held by the
bank. In the *Brown* case, a national bank acquired a leasehold interest
in real estate and shortly thereafter constructed a building with more
space than needed for its banking business. The court said:

> If the land which \[a national bank\] *purchases* *or leases* for the
> accommodation of its business is very valuable, it should be accorded
> the same rights that belong to other landowners of improving it in a
> way that will yield the largest income, lessen its own rent, and
> render that part of its funds which are invested in realty most
> productive.

*Brown* at 984. (Emphasis added)*.*

Finally, you suggest that OCC Interpretive Letter No. 1045 is
inconsistent with the OCC regulation on ownership of property for the
temporary lodging of employees because there has been no showing that
commercial lodging is not readily available in the relevant area. On
this point, I believe you may have simply misread the regulation and may
not be familiar with its background. The rule in question, 12 C.F.R.
7.1000(a)(2), provides that "\[f\]or purposes of 12 U.S.C. 29(First),
\[bank premises\] *includes* ... \[listed examples\] (Emphasis added).
When a regulation provides that activities permitted under a particular
statutory authority *include* particular activities, other activities
within the scope of the statutory authority that are not listed are not
prohibited; it just means that those other activities must be evaluated
on a case-by-case basis -- as was done here. Thus, your point, that
somehow the letter violated the Administrative Procedure Act, is
unfounded.

The OCC made clear in both the preamble to the proposed rule, 60 F.R.
11924, 11925 (Mar. 3, 1995), and the preamble to the final rule, 61 F.R.
4849, 4850 (Feb. 9, 1996), that the exemplary list in 7.1000(a)(2) is
non-exclusive. Interpretive Letter 1045 specifically reiterated the
point that the regulation is not intended to define the limits of bank
premises under 12 U.S.C. 29. Moreover, Interpretive Letter 1045 did not
base its finding of permissibility upon any of the examples in
7.1000(a)(2). The letter concluded that the proposal was permissible
bank premises under 12 U.S.C. 29, without regard to the examples in
7.1000(a)(2). In fact, the letter did describe significant business
reasons, *i.e.,* to facilitate both the accommodation of, and the
quality of the accommodations necessary for, visiting bank employees,
officials, service providers, and customers, to support the
establishment of the bank premises.

##### B. Bank Premises Letter No. 1044 

Your letter next takes up Interpretive Letter No. 1044. In this Letter,
the OCC concluded that it was a permissible bank premises use for the
bank to establish a mixed-use office, hotel and residences facility in
these circumstances: the property was already owned by the bank; the
proposal would expand the bank's current two-building corporate
headquarters complex to three buildings; and the bank represented that
it would use approximately 22% of the overall premises of the new
building that it would own. You assert that this Letter is inconsistent
with prior OCC decisions concerning the level of bank occupancy needed
to qualify as bank premises, and that a 1998 OCC approval, Conditional
Approval No. 298 (Dec. 15, 1998) ("CA 298"), established the proposition
that the OCC has regarded the minimum occupancy level to be much higher
than the 22% indicated in this Letter. Both assertions are incorrect.

The determination of whether premises qualify as permissible bank
premises involves several inter-related factors, including, but not
limited to, the level of bank use of the premises. Neither the OCC nor
the courts have established a single occupancy percentage test, and such
a one-dimensional standard would be ill-advised since it would ignore
the *bona fides* of the transaction in question. Instead, as described
above, the establishment of bank facilities must be conducted in good
faith in furtherance of the bank's banking business operations, and the
burden is on the bank to demonstrate a legitimate business reason based
on accommodating its banking business. Looking to the percentage of use
or occupancy by a bank is a factor in the analysis.

Your letter misconstrues CA 298 as imposing a minimum requirement. CA
298 analyzed the bank premises issue using the bank's potential minimum
occupancy level -- 25% -- and concluded that "\[t\]his level of
occupancy is sufficient for the office buildings still to be considered
bank premises." The phrases from CA 298 that you quote actually serve to
underscore that, in terms of bank premises analysis, 25% occupancy is
considered *substantial*, not minimal.

In CA 298, the bank initially would occupy 75% of the space in each
office building, but represented that its level of occupancy would
decrease over time to no less than 25% of each building. Footnote 3,
discussing the bank's initial level of usage (75%), states that "\[a\]t
all times, however, the bank will occupy a substantial portion of each
office building in the complex." On page 6, in discussing why the bank's
investment in an LLC that would construct and own the complex is
convenient and useful for the bank, CA 298 stated that the bank "is
expected to remain, at all times, a substantial tenant within the
complex." Given the bank's representation that at all times it would
occupy at least 25% of the space in each building, the "substantial
portion" and "substantial tenant" language must refer to 25% -- rather
than some much higher number, as your letter seems to suggest.

You also assert that another precedent, Interpretive Letter No. 1034
(involving 22% occupancy) cannot be relied upon because it was issued in
April 2005 and, therefore, is not long-standing precedent. Interpretive
Letter No. 1034 was cited as supportive of several of our conclusions in
Interpretive Letter No. 1044. However, nowhere in that letter did we
assert that Interpretive Letter No. 1034 was long-standing OCC
precedent. Whether Interpretive Letter No. 1034 is long-standing
precedent does not diminish its authority for supporting conclusions in
Interpretive Letter No. 1044. Moreover, Interpretive Letter No. 1034
cites to many of the same long-standing OCC and judicial precedent to
which Interpretive Letters No. 1044 and 1045 cite: CA 298, *Wingert*,
*Wirtz*, and *Brown*. To that extent, Interpretive Letter No. 1034 is
reflective of long-standing precedent and, therefore, of the OCC's
long-standing position.

Your letter further asserts that the development and sale of residential
condominiums cannot be equated with cases that permit the sale of excess
office space because, unlike office space, residential condominiums are
in no way related to the business of a national bank. This contention
misses the point that the permissibility of the sale of excess space in
section 29 does not depend upon the form, function, or nature of the
excess space. Rather, the nature of the development must be consistent
with the goal of obtaining needed bank accommodations in a reasonably
economical manner.

In Interpretive Letter No. 1044, the bank demonstrated that, in order to
establish required office space in an economically feasible manner, it
needed to sell a small number of residential condominiums. Indeed, the
bank demonstrated that revenue from the sale of 32 condominiums was only
one piece of an overall package of revenue and financing incentives
necessary for the establishment of the facility. The package also
included an important role played by the local and state governments in
providing various forms of financing assistance that also were vital to
the viability of the facility. Moreover, the bank did not propose to
sell an excessive number of units. Rather, the bank commissioned a study
to determine whether the market would bear such condominiums, and the
bank proposed to sell only the number of condominiums that the market
study concluded would sell promptly. This also was shown by the
requirements of the tenant that would lease the excess office (the
tenant likely would also purchase one or more condominiums for its use).
Taken together, these factors demonstrated that the development and sale
of residential condominiums was reasonably related to the development
and acquisition of needed bank office space. The fact that residential
condominiums are becoming a common addition to downtown office
construction further demonstrates this reasonableness.

Even if one were to include the square footage of the residential
condominiums in the calculations to determine the bank's percentage
analysis of the total building, the bank would be occupying
approximately 16.7%, a level of occupancy consistent with *Wingert*. In
such a case, however, it seems reasonable to conclude that a bank's
[sale]{.underline} of excess space in its bank premises building as
condominiums is at least as consistent, if not more consistent, with the
polices underlying section 29 than would be a bank's retention of the
entire building as office space with a lease-out of the excess. Such a
sale of excess space as condominiums would better enable the bank to
keep its capital flowing in commerce, would prevent speculation as to
future real estate values, and would mean that it was holding a smaller
amount of property "in mortmain."

Your suggestion that, allowing the sale of 32 units, under the
circumstances presented, opens the door for national banks to engage in
any type of commercial or residential real estate development ignores
the principles that confine national banks' authority to hold and
develop bank premises. As discussed above, judicial precedent and OCC
interpretations impose standards and limitations for bank premises
investments that will prevent general real estate development. Under
section 29, the establishment of bank facilities must be conducted in
good faith in furtherance of a bank's banking operations, and the burden
is on the bank to demonstrate a legitimate business reason based on
accommodating its banking business. Here, the bank demonstrated a
legitimate business need for the establishment of additional office
space and that its method of meeting that need was in good faith.

**The Project Financing Letter (Interpretive Letter No. 1048)**

In the Project Financing Letter, Interpretive Letter No. 1048, the OCC
concluded that is was permissible for a bank to provide financing to a
limited liability company that would operate a wind energy project; the
limited liability company would hold an interest in associated easements
or leaseholds. As presented by the bank, the financing would be
substantially identical to a recognized form of extension of credit; the
bank would underwrite the financing as it would underwrite a loan to a
comparable project; the bank would not become involved in management and
operation of the underlying business; and holding the interest in the
LLC, which, in turn held property, was essential to the availability of
tax credits to the bank and thereby integral to material terms of the
financing provided by the bank. Also, the financing was structured such
that the bank's holding was not speculative for this fundamental reason:
unlike a speculative investment, the bank could not realize a gain or
appreciation in real property value since it would not share in any
appreciation in the value of the LLC or its underlying assets. OCC's
approval expressly relied on the bank's commitment to sell its interest
in the LLC at book value at the end of ten years. Precedents recognize
that in limited circumstances, a bank may hold an interest in real
estate as an integral component of a financing arrangement. This
transaction was consistent with those limits.

Your letter argues that the Project Financing Letter is unsupported in
law or inconsistent with longstanding OCC precedents or requirements.
This is simply not correct. You first assert that the Project Financing
Letter is not supported by two precedents it relied upon (OCC Corporate
Decision 99-07 and Corporate Decision 98-17). You assert that in both
those decisions the banks involved made loans and the terms of the
transactions also included use of tax credits. While the transactions
did include loans, the point of citing those two decisions was that the
banks involved acquired equity-type direct and indirect interests in
property (a 99% interest in an LLC (Corporate Decision 99-07) and
working interests in gas leases (Corporate Decision 98-17)); these
interests enabled the banks to gain the benefit of tax credits; and
those tax credits were integral to the overall terms of the package of
financing being provided by the banks.

Moreover, both the OCC and the courts have held that permissible
loan-equivalent transactions can take different and non-traditional
forms in order to accommodate the demands of the market; the economic
substance of the transaction, rather than its form, guides the analysis
of whether the transaction is a permissible lending activity. The
leading case on this is *M & M Leasing Corp. v. Seattle First Nat'l
Bank*, 563 F.2d 1377 (9th Cir. 1977), *cert. denied*, 436 U.S. 956
(1978) (national banks may acquire, own, and lease automobiles and heavy
equipment; when the economic characteristics of a lease are
substantially similar to a loan, the lease is deemed to be an exercise
of the bank's lending powers).

Here, the alternative form of the transaction did not change the
fundamental substance of the bank's role as a provider of credit. Other
than the form of the interest the bank acquired as the vehicle to
provide financing, the transaction addressed in the Project Financing
Letter is substantially identical to a loan transaction. The bank
represented that its decision whether to enter into the transaction
would be based upon a full credit review of the borrower, that the
proposed transaction would be made pursuant to the bank's standard loan
underwriting criteria, and that the documents governing the transaction
would contain many of the same terms, conditions, and covenants
typically found in lending and lease financing transactions. Similar to
a financing transaction, the bank would be repaid in installments over
time. In fact, the form of structured financing for wind energy projects
is similar to a production payment loan transaction frequently used in
oil and gas lending.

The project financing is structured to permit the lending bank to take
advantage of available tax credits in order to reduce the cost of
financing to the borrower but still provide a reasonable return for the
bank. Notably, your letter does not question the precedent that most
resembles the transaction addressed in the Project Financing Letter,
where the OCC found a transaction similar in structure to be a
permissible loan notwithstanding its surface resemblance to an
investment. See Interpretive Letter (November 4, 1994) (available in
Lexis-Nexis) (bank provided financing to owners of natural gas leases by
acquiring interest in business trust that owned working interests in the
leases; acquisition of interest in trust that held leases necessary for
the bank to be eligible to receive federal tax credits).[^5]

Your letter next shifts to argue that the project financing arrangement
should not be characterized as a loan because it fails to comply with
several supposed requirements that OCC has imposed on lending
transactions. On these points, I think you may not recognize that the
terms and agreements of the project financing transaction approved in
Interpretive Letter No. 1048 provide assurances of repayment that are
functionally equivalent to those in a production payment loan.

A production payment loan transaction is a form of lending frequently
used in extending credit to the oil and gas industry. These production
payment lending transactions, also called "oil/gas reserve based loans"
and "oil/gas production loans," are recognized and permitted by the
federal banking agencies notwithstanding their special characteristics
and risk management issues.

Collection and principal recovery for production payment loans are
generally solely dependent on revenue produced by and collateral
consisting of oil and gas reserves. The cash flow generated from the
sale of oil and gas in the future is the basic premise of such reserve
based lending. The bank regulators recognize that the only asset many
small independent oil and gas operators have is the oil or gas in the
ground and that loans to such operators are based solely upon the
predicted cash-flow value of the oil and gas production. Therefore, in
such loans, production payments are usually assigned to the bank, as is
a collateral interest in the reserve property; the liquidation value of
the collateral is expected to be sufficient to pay off the loan. See OCC
Banking Circular 215, OCC Examining Circular 223, and FRB Commercial
Bank Examination Manual, 2150.1 - Energy Lending - Production Loans. See
also, OCC Interpretive Letter (November 4, 1994) (available in
Lexis-Nexis). The key point in production payment lending is not whether
the bank has imposed an express legal obligation to repay, but rather
whether the bank has obtained adequate contractual rights and performed
adequate reviews to determine that its loan is likely to be repaid.

Likewise, under the terms of the project financing transaction presented
by the bank in Interpretive Letter No. 1048, the bank would have
substantially the same assurance of repayment of its principal as it
would in an oil/gas production payment loan. However, in order to
qualify this transaction for the tax credits, the bank could not impose
a traditional form of obligation to repay principal in the agreement
with the LLC. Nevertheless, the transaction is on terms that would
assure that the funding bank would have a comparable degree of ability
to retrieve its principal as it would in a conventional production loan.

Most fundamentally, the Project Financing Letter requires that the bank
extend the funds based upon its analysis of the likelihood that the
funds would be repaid with a reasonable return. Thus, the decision on
whether to provide financing to the company would be based upon a full
credit review of the transaction made pursuant to the bank's standard
loan underwriting criteria. The agreement would entitle the bank to
payments from the LLC of 70% of the revenue from the sale of electricity
by the company (plus an equivalent percentage allocation of tax
credits), which is expected to result in periodic payments from a
long-term production purchase contract with

credit-worthy parties. Also, the agreement proposed would contain many
of the same terms, conditions, and covenants typically found in lending
and lease financing transactions including representations and
warranties, conditions precedent to the funding pertaining to the
mitigation of risks, covenants requiring the company and other investors
to provide the bank with customary financial information, and covenants
restricting the company from taking certain actions.

Moreover, with respect to foreclosure and collateral rights, the bank
would be in a similar situation under the project financing as an
oil/gas production payment loan. As proposed, the LLC agreement would
give the bank many of the rights a production payment lender would have,
including the ability to force the sale of the LLC's assets if the
project performs poorly or becomes distressed. The bank then would be
repaid to the extent of the proceeds from the sale of the assets. Thus,
the terms and agreements of the project financing transaction as
proposed by the bank provided assurances of repayment that are
functionally equivalent to those in a production loan transaction.

Your letter contends next that the lending transaction in the Project
Financing Letter is flawed because under the OCC regulation on loan
agreements providing for a share in profits or earnings, repayment
cannot be conditioned on the profit or income of the business
enterprise. This assertion reflects a misunderstanding of the
transaction and the regulation and confuses the obligation to repay with
the *recourse* available to the bank in the event that repayments are
not made as anticipated.

Under 12 C.F.R. 7.1006, a "national bank may take as consideration for a
loan a share in the profit, income, or earnings from a business
enterprise of a borrower. \... The borrower's obligation to repay
principal, however, may not be [conditioned upon]{.underline} the value
of the profit, income, or earnings of the business enterprise\...."
(Emphasis added.) In the proposed transaction, the LLC's obligation to
repay the financing provided by the bank would not be conditioned upon
the value of the profit, income, or earnings of the LLC.

While the source of the actual repayment of the financing will be
derived, in part, from the earnings of the wind energy project, the
obligation to repay is not conditioned upon the amount or nature of
those earnings.

As described above, under the proposal presented by the bank, the bank
would have a variety of *remedies* available if a project performs
poorly. These remedies are substantively identical to remedies that
would be available to a production payment lender. These remedies
clearly demonstrate an obligation on the part of the LLC to repay the
financing provided by the bank, and such obligation is not conditioned
upon the value of the profit, income, or earnings of the wind project
borrower. While the financing is nonrecourse as to the LLC, the funds
advanced are repayable by the LLC regardless of its profits or revenue.
As noted above, under the agreement as proposed, the bank would have the
ability to force the sale of the LLC's assets if the project performs
poorly or becomes distressed. The bank then would be repaid to the
extent of the proceeds from the sale of the assets. Thus, supported by
the above-described remedies, including the ability of the bank to
secure the liquidation of the LLC, the risk assumed by the bank in this
transaction would be the risk ordinarily assumed by lenders generally --
that of a borrower's default. Thus, the bank's provision of financing is
consistent with both 12 C.F.R. 7.1006 and prior precedent reflecting
that rule, including Interpretive Letter No. 244, which your letter
cites.

Finally, your letter also seems to contend that the Project Financing
Letter is inconsistent with OCC regulations that limit the nature and
circumstances under which national banks may extend credit secured by
liens on real estate. The basis for this assertion is unclear. Your
letter points to the definition of a "loan" in 12 C.F.R. Part 32, which
is the OCC's regulation limiting the amount of loans to one borrower.
Specifically, you say: "OCC regulations define a 'loan or extension of
credit' as 'a bank's direct or indirect advance of funds to or on behalf
of a borrower based on the obligation of borrower to repay the funds or
repayable from specific property pledged by or on behalf of borrower."
12 C.F.R. 32.2(k).

Here your letter seems to confuse the application of two different
rules. The definition in 12 C.F.R. 32.2(k) describes the types of
financing arrangements that are subject to the lending limits under 12
U.S.C. 84, which is implemented under 12 C.F.R. Part 32. The lending
limit is designed to prevent excessive loans to one person or to related
persons that are financially dependent, and to promote loan
diversification. 12 C.F.R. 32.1(b). The lending limit definition of a
"loan" does not purport to embody the substantive criteria for what
constitutes a permissible financial transaction under the National Bank
Act, and the OCC has a variety of supervisory tools to address
concentrations of credit equivalent exposures that are not with the
scope of the lending limit rule.[^6]

##### Conclusion

I sincerely hope the foregoing is helpful to your understanding of the
three Letters in question. To reiterate, the Letters have absolutely
nothing to do with real estate brokerage. The Letters deal only with
limited situations where holding an interest in real estate has long
been recognized as permissible for national banks. The Letters
absolutely do not open the door for national banks to engage in
broad-based real estate development activities, nor do they violate the
separation of

banking and commerce. If you have any questions, I would welcome the
opportunity to provide you with further information.

Sincerely,

signed

Julie L. Williams

First Senior Deputy Comptroller and Chief Counsel

[^1]: Another limited authority for national banks to make direct and
    indirect investments in interests in real estate is pursuant to
    their authority to make investments that promote the public welfare.
    Under 12 U.S.C. 24(Eleventh), national banks provide financing for
    low income housing, and gain low-income housing tax credits, through
    investments in limited partnerships and limited liability companies
    that hold and develop properties for housing.

[^2]: *Wingert v. First Nat'l Bank*, 175 F. 739 (4th Cir. 1909), *appeal
    dismissed*, 223 U.S. 670, 672 (1912).

[^3]: *Wirtz v. First Nat'l Bank & Trust Co.*, 365 F.2d 641, 644 (10th
    Cir. 1966).

[^4]: Interpretive Letter No. 1044 also involves property already held
    by the bank.

[^5]: Under 12 U.S.C. 24(Eleventh), national banks may provide financing
    for low-income housing development projects by acquiring an equity
    interest in limited partnerships and limited liability companies
    that hold and develop the properties. Ownership of the equity
    interests enables the banks to receive federal tax credits.

[^6]: Moreover, we have previously held that the lending limit *does*
    apply to a closely comparable transaction that we cite as precedent
    for the Project Financing Letter. See Interpretive Letter (November
    4, 1994) (available in Lexis-Nexis). The OCC also has a variety of
    other supervisory tools available to address concentrations of
    credit exposures. For example, 12 C.F.R. Part 30, Appendix A,
    section II.D.5, requires a national bank to establish and maintain
    prudent credit underwriting practices that "\[t\]ake adequate
    account of concentration of credit risk." In addition, the OCC may
    require higher minimum capital ratios for an individual bank in
    appropriate circumstances, including significant exposure due to the
    risks from concentrations in credit. 12 C.F.R. 3.10(d). See also
    Comptroller's Handbook, "Concentrations of Credit" (March 1990).