This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

66152

Vol. 60, No. 245

Thursday, December 21, 1995

1Sec. 105(c), Pub. L. 98–440, Title I, 98 Stat. 1691

(codified as amended at 12 U.S.C. 24 (Seventh)

(1984)).

2Pub. L. 103–325, 108 Stat. 2160 (1994).

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the

Currency

12 CFR Parts 1 and 7

[Docket No. 95–34]

RIN 1557–AB37

Investment Securities

AGENCY: Office of the Comptroller of the

Currency, Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: The Office of the Comptroller

of the Currency (OCC) is proposing to

clarify and update its rules that

prescribe the standards under which

national banks may purchase, sell, deal

in, and underwrite securities. This

proposal is part of the OCC’s Regulation

Review Program, a project designed to

review comprehensively, modernize

and simplify OCC regulations and

reduce unnecessary regulatory burdens.

The proposed revisions reorganize the

regulation by placing related subjects

together, clarify areas where the rules

are unclear and confusing, and update

various provisions to address market

developments and to incorporate

significant OCC interpretations, judicial

decisions and statutory amendments.

DATES: Comments must be received by

February 20, 1996.

ADDRESSES: Comments should be

directed to: Communications Division,

250 E Street, SW., Washington, DC

20219, Attention: Docket No. 95–34.

Comments will be available for public

inspection and photocopying at the

same location. In addition, comments

may be sent by facsimile transmission to

FAX number 202/874–5274 or by

electronic mail to

REG.COMMENTS@OCC.TREAS.GOV.

FOR FURTHER INFORMATION CONTACT: Kay

Bondehagen, Special Assistant to the

Deputy Chief Counsel (202) 874–5200;

Stuart Feldstein, Senior Attorney,

Legislative and Regulatory Activities

Division (202) 874–5090; Lee Walzer,

Senior Attorney, Securities and

Corporate Practices Division, (202) 874–

5210; Lisa Lintecum, Director, Fiduciary

Activities, (202) 874–5419.

SUPPLEMENTARY INFORMATION:

Background

OCC Regulation Review Program

The OCC is proposing to revise 12

CFR part 1 pursuant to its Regulation

Review Program. Pursuant to this

Program, the OCC is reviewing all its

rules. Rules that are not necessary to

protect against unacceptable risks, that

do not support equitable access to

banking services for all consumers or

that are not needed to accomplish other

statutory responsibilities of the OCC

will be revised or eliminated.

Where risks are meaningful and

regulation is appropriate, rules will be

examined to determine if they achieve

their purpose at the least possible cost.

The OCC also recognizes that one source

of regulatory cost is the failure of

regulations to provide clear guidance

because they are difficult to follow and

understand. Therefore, an important

component of the Regulation Review

Program is to revise regulations, where

appropriate, to improve clarity and

better communicate the standards that

the rules are intended to convey.

Investment Securities Limitations

Most of the limitations on the ability

of national banks to purchase, sell, deal

in, and underwrite securities trace to the

Banking Act of 1933, Section 16, Public

Law 73–66, 48 Stat. 184 (codified as

amended at 12 U.S.C. 24 (Seventh)

(1933)). More recently, the Secondary

Mortgage Market Enhancement Act of

1984 (SMMEA) 1 and the Riegle

Community Development and

Regulatory Improvement Act of 1994

(RCDRI Act) 2 removed quantitative

limits on national banks’ purchases of

certain types of mortgage- and small

business-related securities, subject to

any regulations prescribed by the OCC.

Although the OCC has revised part 1

a number of times since the early 1960s,

the current version still contains many

provisions dating from 1963. See 28 FR

9916 (1963). The OCC revised part 1 in

1971, adding the distinctions among

‘‘Type I security,’’ ‘‘Type II security’’

and ‘‘Type III security.’’ See 36 FR 6737

(1971). Guidelines were added to the

part in 1982. See 47 FR 5701 (1982). The

OCC revised part 1 again in 1989

principally to reflect amendments to 12

U.S.C. 24 (Seventh) by adding

obligations of the African Development

Bank and Inter-American Investment

Corporation to the description of Type

II securities. See 54 FR 1333 (1989). To

reduce regulatory burden, the OCC also

amended part 1 in 1993 to eliminate a

requirement that a national bank

maintain certain information for a

specified period of time to demonstrate

prudence in making determinations and

carrying out securities transactions. See

58 FR 27443 (1993). The OCC tended to

graft these changes onto the previous

regulatory framework, resulting in a

sometimes confusing combination of

definitions and restrictions.

The OCC did not amend part 1 to

reflect the statutory change resulting

from the enactment of SMMEA in 1984.

Nor have changes been made to the rule

to reflect significant judicial decisions

and interpretations of the OCC.

Proposal

This proposal modernizes the rules in

part 1 and furthers the goals of the

OCC’s Regulation Review Program. In

order to make part 1 more accessible

and comprehensive, the proposal

restructures many sections of the rule.

The proposal also updates the rule to

incorporate statutory changes to 12

U.S.C. 24 (Seventh), judicial decisions

and long-standing OCC interpretations.

The following discussion identifies and

explains the significant proposed

changes. The OCC requests comments

on all aspects of this proposal, and, in

addition, requests specific comments on

certain changes that are highlighted.

The OCC also welcomes any additional

comments relevant to this proposal. A

table summarizing the areas where

changes are proposed is set forth at the

end of this preamble.

Authority, purpose, and scope (section

1.1)

The proposal consolidates the current

‘‘Scope and application’’ section (§ 1.2)

with the ‘‘Authority’’ section (§ 1.1). The

sections are substantially condensed to

eliminate redundant and unnecessary

language.

The limitations set forth in part 1

apply to national banks, Federal

branches of foreign banks, District of
Federal Register / Vol. 60, No. 245 / Thursday, December 21, 1995 / Proposed Rules 66153

3State banks that are members of the Federal

Reserve System are subject to the same limitations

and conditions with respect to the purchasing,

selling, underwriting and holding of investment

securities and stock applicable to national banks

under 12 U.S.C. 24 (Seventh). 12 U.S.C. 335.

Columbia banks and state banks that are

members of the Federal Reserve

System.3 This section further clarifies

that foreign branches of national banks

may be authorized to conduct additional

international activities pursuant to 12

CFR part 211.

Definitions (section 1.2)

The proposal substantially revises the

definitions section to add several

definitions, updates others, and brings

the definitions that currently appear in

various places in the regulation into a

single section. The following definitions

have been added: ‘‘investment

company,’’ ‘‘Type IV security,’’ and

‘‘Type V security.’’ The definitions of

Type I, II, and III securities also have

been substantially revised so that these

types of securities are defined by their

characteristics, not by the statutory

limitations on the extent to which

national banks may deal in, underwrite,

purchase, or sell them. No substantive

change in the authority of a national

bank results from these revisions. In

addition, as indicated with various

individual definitions below, many

definitions are revised to clarify their

meaning and to incorporate the results

of statutory changes, judicial decisions,

and established OCC interpretations. Of

particular note are the following

proposed revisions:

Capital and surplus (section 1.2(a))

The proposal defines ‘‘capital and

surplus’’ as Tier 1 and Tier 2 capital

includable in risk-based capital under

the Minimum Capital Ratios in 12 CFR

part 3, plus the balance of a bank’s

allowance for loan and lease losses that

is not included in Tier 2 capital. This is

the same standard used in the OCC’s

recent revisions to its lending limit

regulation. See 60 FR 8526 (February 15,

1995). As stated in the Preamble to the

new lending limit rule, 60 FR 8528, the

OCC’s reasons for revising the definition

of ‘‘capital and surplus’’ are to reduce

the different definitions of capital

currently used for various regulatory

purposes and to use a well-recognized

standard that banks are already required

to calculate.

Investment grade (section 1.2(d))

‘‘Investment grade’’ means that a

security is rated in one of the top four

rating categories by each nationally

recognized statistical rating organization

that has rated the security. For example,

if two nationally recognized statistical

rating organizations rate the security in

one of their top four categories, the

security would qualify as ‘‘investment

grade’’ even if other nationally

recognized statistical rating

organizations had not rated the security.

However, if one of the two organizations

rating the security did not rate the

security in one of the top four

categories, the security would not

qualify as ‘‘investment grade.’’ Thus,

when a security is given different

ratings by different nationally

recognized rating organizations, the

lowest rating governs for purposes of

this definition.

Investment security (section 1.2(e))

To be an ‘‘investment security’’ under

the proposed definition, a security must

be an investment grade marketable debt

obligation or, if the security is not rated,

it must be the credit equivalent of an

investment grade marketable debt

obligation. These standards reflect

current OCC guidance and practice.

The OCC requests comments on

whether the regulation should describe

more specifically the characteristics of

securities that are the ‘‘credit equivalent

of investment grade’’ securities, and, if

so, what description would be

appropriate.

Commenters also are requested to

address whether other securities with

characteristics functionally equivalent

to a debt obligation might be classified

as an ‘‘investment security.’’

Marketable (section 1.2(f))

This proposed definition attempts to

rely on more objective standards than

the current definition of ‘‘marketable.’’

Currently, a marketable security is

defined in § 1.5(a) as one that ‘‘may be

sold with reasonable promptness at a

price which corresponds reasonably to

its fair value.’’ The proposed definition

places more emphasis on indicators of

a ready market for a security rather than

a prediction of whether the security can

be sold quickly at a particular price. As

proposed, marketable securities include:

(1) Securities registered under the

Securities Act of 1933 (the Securities

Act), 15 U.S.C. 77a et seq.; (2) certain

government securities and municipal

revenue bonds not required to be

registered under the Securities Act; and

(3) investment grade securities sold

pursuant to SEC Rule 144A, 17 CFR

230.144A.

SEC Rule 144A provides a ‘‘safe

harbor’’ exemption from the registration

requirements of the Securities Act for

resales of privately offered or

‘‘restricted’’ securities to qualified

institutional buyers. The rationale for

treating securities that qualify under

SEC Rule 144A as readily marketable is

that they may be sold without the need

to prepare and receive SEC clearance of

a registration statement used in

connection with the sale. There may be

a situation, however, based upon the

particular security, when the security is

not necessarily immediately sellable.

The OCC requests comments

regarding whether this definition of

‘‘marketable’’ is sufficiently inclusive,

particularly regarding other exemptions

under the Securities Act, such as the

statutory nonpublic offering exemption,

that enable a seller to sell a security

promptly at market or fair value, and

whether the definition is appropriately

inclusive of foreign sovereign debt.

The OCC also welcomes comments

regarding alternative definitions of

‘‘marketable’’ that would address the

OCC’s concerns about liquidity.

Commenters may suggest adopting a

more general standard, or retaining the

current standard whereby a security

sold with reasonable promptness for a

price that reasonably corresponds to its

fair value is marketable. Commenters

are asked to address how the OCC might

objectively measure such a standard.

Type I security (section 1.2(h))

As in the current rule, the proposal

defines a ‘‘Type I’’ security to mean

specified government securities. The

proposal also incorporates into the

definition the key elements of the

interpretation now found in § 1.110

regarding securities backed by the full

faith and credit of the U.S. Government.

The proposed definition is consistent

with 12 U.S.C. 24 (Seventh), which does

not require that government securities

be ‘‘marketable’’ or otherwise qualify as

‘‘investment securities.’’

Type II security (section 1.2(i))

The proposal redefines a ‘‘Type II’’

security to mean an investment security

that is issued by certain state,

international or multilateral

organizations, or that is otherwise listed

or described in the statute. The

definition differs from the current rule,

which describes a Type II security both

by the investment limits that apply to it,

and by examples of qualifying types of

issuers. The proposed definition also

includes the statutory requirement that

this type of security must qualify as an

‘‘investment security,’’ in addition to

being issued by a qualifying type of

issuer.

Type III security (section 1.2(j))

Part 1 currently defines a ‘‘Type III’’

security to mean a security that ‘‘a bank

may purchase and sell for its own
66154 Federal Register / Vol. 60, No. 245 / Thursday, December 21, 1995 / Proposed Rules

4 Interpretive Letter No. 362 (May 22, 1986),

reprinted in [1985–1987 Transfer Binder] Fed.

Banking L. Rep. (CCH) ¶ 85,532 (bonds

collateralized by mortgages); Interpretive Letter No.

388 (June 16, 1987), reprinted in [1988–1989

Transfer Binder] Fed. Banking L. Rep. (CCH)

¶ 85,612 (mortgage-backed pass-through

certificates); Interpretive Letter No. 416 (February

16, 1988), reprinted in [1988–1989 Transfer Binder]

Fed. Banking L. Rep. (CCH) ¶ 85,640 (securitized

automobile loans); Investment Securities Letter No.

29 (August 3, 1988), reprinted in [1988–1989

Transfer Binder] Fed. Banking L. Rep. (CCH)

¶ 85,899 (investment limits for asset-backed

securities consisting of GMAC receivables);

Interpretive Letter No. 514 (May 5, 1990), reprinted

in [1990–1991 Transfer Binder] Fed. Banking L.

Rep. (CCH) ¶ 83,218 (securitized mortgages);

Interpretive Letter No. 540 (December 12, 1990),

reprinted in [1990–1991 Transfer Binder] Fed.

Banking L. Rep. (CCH) ¶83,252 (securitized credit

card receivables); Security Pacific v. Clarke, 885

F.2d 1034 (2d Cir. 1989), cert. denied, 493 U.S.

1070 (1990) (national bank authority to securitize

assets).

account, subject to a 10 percent

limitation, but may neither deal in nor

underwrite.’’ § 1.3(e). Instead of defining

a Type III security in this manner, the

proposal redefines a Type III security as

an investment security that does not

qualify as a Type I, II, IV, or V security.

Examples of Type III securities include

corporate bonds and municipal revenue

bonds.

Commenters are asked to address

whether other examples of Type III

securities also should be specifically

referenced in the regulation. In

particular, commenters are asked to

address whether foreign securities that

are currently eligible for investment by

foreign branches of U.S. banks should

be included as Type III securities.

Type IV security (section 1.2(k))

The substance of a ‘‘Type IV’’ security

was established, although not named

‘‘Type IV,’’ by amendments made to 12

U.S.C. 24 (Seventh) in 1984 by SMMEA

and in 1994 by the RCDRI Act. The

proposed definition tracks the statutory

changes. SMMEA amended 12 U.S.C. 24

(Seventh) to permit national banks to

purchase without limitation certain

residential and commercial mortgagerelated securities offered and sold

pursuant to section 4(5) of the Securities

Act, 15 U.S.C. 77d(5), or residential

mortgage-related securities as defined in

section 3(a)(41) of the Securities

Exchange Act of 1934 (the Exchange

Act), 15 U.S.C. 78c(a)(41). As previously

noted, part 1 was never amended to

incorporate this 1984 statutory revision.

The RCDRI Act defined a new type of

small business-related security in

section 3(a)(53)(A) of the Exchange Act,

15 U.S.C. 78c(a)(53)(A), and added a

class of commercial mortgage-related

securities to section 3(a)(41) of the

Exchange Act, 15 U.S.C. 78c(a)(41).

The amendments to 12 U.S.C. 24

(Seventh) made by the RCDRI Act

removed limitations on purchases by

national banks of certain small businessrelated and commercial mortgagerelated securities. The amendments

provide the OCC authority to prescribe

regulations to ensure that acquisitions of

such securities are conducted in a

manner consistent with safe and sound

banking practices. The OCC has

concerns that undue concentration of

risk could arise if a bank invested in a

security backed by a small number of

loans or where one or a small number

of loans represented a large percentage

of the assets in the pool. This type of

concentration of risk is more likely to

arise with respect to commercial

mortgage- and small business-related

securities than with respect to

residential mortgage-related securities.

For this reason, the proposal requires a

Type IV security that is small businessor commercial mortgage-related be fully

secured by interests in a pool of

homogeneous loans of numerous

obligors. The definitions of a Type IV

small business-related security and a

commercial mortgage-related security

also require that the aggregate amount of

collateral from loans of any one obligor

not exceed 5 percent of the total amount

of collateral for the security when the

security is issued, in order to assure

diversification.

In some instances, such as the

prepayment of underlying loans, an

issuer or trustee may have the legal right

to substitute collateral. If the issuer or

trustee has the legal right to substitute

collateral, the diversification

requirement applies whenever the

issuer or trustee substitutes collateral

throughout the term of an issue, rather

than merely at issuance.

Where the issuer or trustee does not

have the legal right to substitute

collateral or elects not to exercise the

right, the diversification requirement

applies only at issuance. If the

diversification requirement applied

throughout the term of an issue without

ongoing substitution of collateral,

prepayment of loans in the pool would

reduce the number of loans that serve as

collateral for the security and, at some

point, the aggregate amount of collateral

from loans of one obligor could exceed

the proposed 5 percent limit and result

in a violation of the regulation. Such a

result would have the unintended

consequence of deterring potential

issuers from securitizing existing

collateral.

The OCC requests comments on

whether the term ‘‘homogeneous loans’’

should be specifically defined. The OCC

also welcomes comments on whether

the proposed requirement for certain

Type IV and all Type V securities, that

the aggregate amount of collateral from

loans of any one obligor may not exceed

5 percent of the total amount of

collateral for that security, or some other

standard, would be appropriate to

assure adequate diversification of the

collateral.

Type V security (Section 1.2(l))

The proposal adds a definition of

‘‘Type V security’’ in order to address

separately investment grade securities

that represent interests in assets a

national bank may invest in directly.

The definition reflects the OCC’s longstanding interpretations that in addition

to the investments specifically

described in 12 U.S.C. 24 (Seventh),

national banks may hold securitized

forms of assets in which they may invest

directly.4 In order to assure the high

quality of this type of asset-backed

security, however, the definition

requires that Type V securities be rated

investment grade. The practical effect of

the definition is that Type V securities

are recognized as high quality indirect

interests in assets in which a national

bank could invest directly.

A Type V security also must be fully

secured by interests in a pool of

homogeneous loans to numerous

obligors. The definition requires a pool

of loans homogeneous as to type of loan,

term of loan, or other distinguishing

characteristics, in order to facilitate

performance projections based on the

common features of loans in the pool.

As an added safeguard to assure

diversification of the collateral

supporting the security, the definition

requires that the aggregate amount of

collateral from loans of any one obligor

not exceed 5 percent of the total amount

of collateral for the security. Like the

similar requirement for Type IV

securities, this diversification

requirement applies throughout the

term of the issue only if the issuer

exercises a legal right to substitute

collateral.

Commenters are invited to address

whether these standards, which also

apply to certain Type IV securities, are

appropriate.

Limitations on dealing in, underwriting,

and purchasing and selling securities

(Section 1.3)

The proposal consolidates into one

section the provisions regarding

limitations on dealing in, underwriting,

purchasing, and selling different types

of securities. Proposed § 1.3

incorporates portions of current §§ 1.4,

‘‘Type I securities; standards for

authorized transactions;’’ 1.5(b),

‘‘Judgment based predominantly upon
Federal Register / Vol. 60, No. 245 / Thursday, December 21, 1995 / Proposed Rules 66155

5See Interpretive Letter No. 514 (May 5, 1990),

reprinted in [1990–1991 Transfer Binder] Fed.

Banking L. Rep. (CCH) ¶83,218; Interpretive Letter

No. 362 (May 22, 1986), reprinted in [1985–1987

Transfer Binder] Fed. Banking L. Rep. (CCH)

¶ 85,532.

6 See, e.g., Remarks by Alan Greenspan,

Chairman, Board of Governors of the Federal

Reserve System before the American Bankers

Association (October 8, 1994). See also Statement

by Donald G. Coonley, Chief National Bank

Examiner, OCC, Asset Securitization and Secondary

Markets: Hearings Before the Subcomm. on Policy,

Research, and Insurance of the Comm. on Banking,

Finance and Urban Affairs, 102d Cong., 1st Sess. 2–

4 (1991), reprinted in OCC Quarterly Journal

(December 1991); and Joint Statement by Richard

Spillenkothen, Director, Division of Banking

Supervision and Regulation, Board of Governors of

the Federal Reserve System, and Donald H. Wilson,

Financial Markets Officer, Federal Reserve Bank of

Chicago, Secondary Market for Commercial Real

Estate Loans: Hearings Before the Subcomm. on

Policy, Research, and Insurance of the Comm. on

Banking, Finance and Urban Affairs, 102d Cong., 2d

Sess. 16–19 (1992), reprinted in 78 Fed. Res. Bull.

492 (1992).

7 See, e.g., Interpretive Letter No. 585 (June 8,

1992), reprinted in [1992–1993 Transfer Binder]

Fed. Banking L. Rep. (CCH) ¶ 83,406 (securitized

motor vehicle retail installment sales contracts

purchased from automobile dealers); Interpretive

Letter No. 540 (December 12, 1990), reprinted in

[1990–1991 Transfer Binder] Fed. Banking L. Rep.

(CCH) ¶ 83,252 (securitized credit card receivables

originated by bank or purchased from others);

Interpretive Letter No. 514 (May 5, 1990), reprinted

in [1990–1991 Transfer Binder] Fed. Banking L.

Rep. (CCH) ¶ 83,218 (securitized mortgages);

Interpretive Letter No. 416 (February 16, 1988),

reprinted in [1988–1989 Transfer Binder] Fed.

Banking L. Rep. (CCH) ¶ 85,640 (securitized

automobile loans); Interpretive Letter No. 388 (June

16, 1987), reprinted in [1988–1989 Transfer Binder]

Fed. Banking L. Rep. (CCH) ¶ 85,612 (sale of

mortgage-backed pass-through certificates); No

Objection Letter No. 87–9 (December 16, 1987),

reprinted in [1988–1989 Transfer Binder] Fed.

Banking L. Rep. (CCH) ¶ 84,038(securitization of

commercial loans originated by the bank);

Interpretive Letter No. 362 (May 22, 1986),

reprinted in [1985–1987 Transfer Binder] Fed.

Banking L. Rep. (CCH) ¶ 85,532 (sales of bonds

collateralized by mortgages). Regarding sales of

participations in pools of loans, see Letter from

Billy C. Wood, Deputy Comptroller, Multinational

Banking (May 29, 1981), reprinted in [1981–82

Transfer Binder] Fed. Banking L. Rep. (CCH)

Continued

reliable estimates;’’ 1.6, ‘‘Type II

securities; authority to deal in and

underwrite;’’ and 1.7, ‘‘Types II and III

securities; limitations on holdings.’’

Current § 1.7(c), ‘‘Limitations prescribed

in eligibility rulings,’’ has been removed

as unnecessary. Current references to

‘‘prudent banking judgment’’ have been

changed to ‘‘safe and sound banking

practices.’’ The latter change is

consistent with the OCC’s

implementation of this requirement and

is not intended to change the applicable

standard. Most of the limitations on

Type I, II, III, and IV securities reflected

in this section are derived from 12

U.S.C. 24 (Seventh).

In the proposal, the limitations with

respect to Types II, III, and V securities

are expressed in terms of ‘‘the aggregate

par value of the obligations of any one

obligor,’’ which is essentially the

current approach. The OCC requests

comments on whether this is an

appropriate measure and, if not,

whether alternative measures would be

preferable.

Type II and III securities; other

investment securities limitations

(Section 1.3(d))

As in current § 1.7, the proposal

provides that a national bank may not

hold Type II and III securities of any one

obligor that have a combined aggregate

par value exceeding 10 percent of the

bank’s capital and surplus. However,

aggregation is not required with respect

to industrial development bonds.

Instead, the 10 percent limitation

applies separately to each security issue

of a single obligor when the proceeds of

that issuance are to be used to acquire

and lease real estate and related

facilities to economically and legally

separate industrial tenants, and the

issuance is payable solely from and

secured by a first lien on the revenues

to be derived from rentals paid by the

lessee under net noncancellable leases.

This provision incorporates the

substance of the interpretation that

currently appears at 12 CFR 7.7570. The

OCC proposes to remove § 7.7570 in

conjunction with this change.

Type IV securities (Section 1.3.(e))

The new section describing eligible

Type IV securities confirms the

authority granted to national banks by

SMMEA and the RCDRI Act to purchase

and sell certain mortgage- and small

business-related securities. The section

also reflects OCC interpretations

concerning the authority of a national

bank to deal in obligations that are fully

secured by Type I securities, in which

national banks may deal.5 These

interpretations reflect the OCC’s

consistent approach of looking to the

substance of an instrument, and not just

its form, to determine the activities a

bank may conduct in connection with

the instrument. In the case of Type IV

securities that are fully secured by Type

I securities, the ultimate source of

repayment is Type I securities. The

proposal does not limit the categories of

Type IV securities in which banks may

deal, provided that the securities are

collateralized by Type I securities. Thus,

a bank’s authority to deal in the

securities under this part would be

determined with reference to the

standards that apply to Type I

securities. (The ability of a bank to

securitize and sell its loans, including

loans that qualify as collateral for Type

IV securities, is addressed in § 1.3(g).)

Type V securities (Section 1.3(f))

The proposal establishes a

quantitative concentration limitation of

15 percent of a bank’s capital and

surplus for purchases and sales of Type

V securities of any one obligor (or

certain related obligors), rather than the

10 percent limit that the OCC currently

applies to asset-backed securities that

qualify as Type III securities. The OCC

believes this approach is appropriate

because: (1) The 15 percent standard is

the same level used for the basic lending

limit threshold; (2) the qualitative

standards for a Type V security have

been tightened, so that Type V securities

are a high quality type of asset-backed

security; and (3) under certain

circumstances set forth in § 1.4(c),

holdings of Type V securities of

different issuers will be aggregated for

purposes of calculating compliance with

the 15 percent limitation. Therefore, the

OCC believes an investment limitation

of 15 percent of a bank’s capital and

surplus should not present undue

investment or concentration risk.

The OCC solicits comments on

whether a higher investment limitation,

such as 25 percent of a bank’s capital

and surplus, would be sufficient to

prevent excessive concentration.

Asset securitization (Section 1.3(g))

This new section reflects the OCC’s

established position that national banks

may securitize and sell their loan assets.

The ability of banks to sell conventional

bank assets through the issuance and

sale of certificates evidencing interests

in pools of the assets provides flexibility

that can enhance banks’ safety and

soundness.6 Asset securitization

provides an important source of

liquidity by allowing banks to convert

relatively illiquid assets into

instruments with maturities and other

features that investors are readily

willing to purchase. Another important

benefit is the increased credit available,

due to the fact that a bank may make

more loans with a given level of capital

(when the assets are removed from the

bank’s balance sheet) and may diversify

its lending into new markets without

incurring undue risk. Also, a bank is

less dependent on deposits to fund its

loans, improving bank profitability,

with positive implications for reducing

bank failure rates and minimizing draws

on the deposit insurance funds. The

treatment described in the proposal

reflects the OCC’s long-standing

treatment of national banks’ asset sales

activities as affirmed by case law.7
66156 Federal Register / Vol. 60, No. 245 / Thursday, December 21, 1995 / Proposed Rules

¶ 85,275; Letter from Paul M. Homan, Senior

Deputy Comptroller for Bank Supervision (February

1, 1980), reprinted in [1981–82 Transfer Binder]

Fed. Banking L. Rep. (CCH) ¶ 85,213; Letter from

John M. Miller, Deputy Chief Counsel (July 31,

1979), reprinted in [1978–79 Transfer Binder] Fed.

Banking L. Rep. (CCH) ¶85,182; Letter from Paul M.

Homan, Senior Deputy Comptroller for Bank

Supervision (April 20, 1979), reprinted in [1978–79

Transfer Binder] Fed. Banking L. Rep. (CCH)

¶ 85,167; Letter from H. Joe Selby, Deputy

Comptroller for Operations (October 17, 1978),

reprinted in [1978–79 Transfer Binder] Fed.

Banking L. Rep. (CCH) ¶ 85,144; Letter from John

G. Heimann, Comptroller of the Currency (May 18,

1978), reprinted in [1978–79 Transfer Binder] Fed.

Banking L. Rep. (CCH) ¶85,116; Letter from Charles

B. Hall, Deputy Comptroller for Banking Operations

(February 14, 1978), reprinted in [1978–79 Transfer

Binder] Fed. Banking L. Rep. (CCH) ¶ 85,100; Letter

from Robert Bloom, Acting Comptroller of the

Currency (March 30, 1977), reprinted in [1973–78

Transfer Binder] Fed. Banking L. Rep. (CCH)

¶ 97,093. Regarding national bank authority to

securitize assets, see Security Pacific v. Clarke, 885

F.2d 1034 (2d Cir. 1989), cert. denied, 493 U.S.

1070 (1990).

8 The Federal Reserve Board has adopted a

similar interpretation relating to state member

banks’ investments in mutual funds that invest only

in eligible securities. See 12 CFR 208.124.

Investment company shares (Section

1.3(h))

The proposal permits a national bank

to purchase and sell for its own account

shares of a registered investment

company, subject to two requirements:

First, the investment company’s

portfolio must be comprised entirely of

assets in which the bank could invest

directly. Second, the amount of the

bank’s investment in shares of any one

investment company is subject to the

most stringent investment limitations

applicable to the underlying securities

and loans that comprise that investment

company’s portfolio. This provision

incorporates OCC interpretations

concerning the authority of a national

bank to hold instruments representing

indirect interests in assets that the bank

could invest in directly. See Banking

Circular 220 (November 21, 1986); An

Examiner’s Guide to Investment

Products and Practices at 23 (December

1992).8

The OCC seeks comments on whether the

definition of ‘‘investment company’’ should

be revised to include limited partnerships

with fewer than 100 investors, i.e., a

partnership that would not qualify as an

investment company within the meaning of

section 3(c)(1) of the Investment Company

Act of 1940, 15 U.S.C. 80a-3(c)(1), provided

that the partnerships’ portfolios consist

solely of Type I securities that the bank may

purchase and sell for its own account.

Securities held based on estimates of

obligor’s performance (Section 1.3(i))

Notwithstanding the general

definition of an investment security

(§ 1.2(e)), the proposal retains the

flexibility contained in the current rule,

for a bank to treat certain debt securities

as investment securities when the bank

concludes, on the basis of estimates that

the bank reasonably believes are

reliable, that the obligor will be able to

meet its obligations under that security.

The bank may not hold securities

classified as investment securities solely

in reliance on projections of an obligor’s

future performance that in the aggregate

exceed 5 percent of the bank’s capital

and surplus. The bank must also believe

that the security may be sold with

reasonable promptness at a price which

corresponds reasonably to its fair value.

This approach is modeled upon the

OCC’s current rule, which allows banks

an additional degree of flexibility to

determine the quality of debt

obligations, for a limited portion of the

bank’s investment portfolio. The OCC

notes that securities representing

interests in loans made for community

development purposes are one type of

security that could, depending upon

their characteristics, be eligible for

investment by national banks under this

standard.

The OCC requests comments as to

whether it should provide further

clarification of the standards applicable

to securities held based on estimates of

obligor’s performance and, if so, in what

respects clarification is needed.

Calculation of limits (Section1.4)

Proposed § 1.4 is new. Paragraphs (a)

and (b), relating to the calculation date

and authority to require more frequent

calculations, are modeled on provisions

contained in the OCC’s new lending

limit regulation. As explained in

connection with the lending limit rule,

the provision reduces regulatory burden

by allowing banks to rely on

information they already collect for

their Call Reports to calculate

compliance with their lending limits.

The same reasoning applies to

calculating limits of banks’ securities

holdings, and the proposal achieves a

consistent approach in those two areas.

Calculation of Type III and Type V

securities holdings (Section 1.4(c))

This proposed paragraph is a new

approach to investment securities

limitations designed to address

situations where a bank’s investments in

securities of different issuers present

similar sources of risk, and, therefore,

warrant aggregation. In calculating the

amount of its investment in Type III or

Type V securities, the proposal requires

a bank to combine obligations of issuers

that are related directly or indirectly

through common control and securities

that are credit-enhanced by the same

entity. These aggregation rules, which

result in a bank being treated as if it has

a greater investment in the securities of

one obligor than would otherwise be the

case, apply separately to Type III and

Type V securities held by a bank.

Current OCC policies already apply

comparable standards for aggregation of

Type III securities. As applied to Type

V securities, the aggregation rules

provide important safeguards in

connection with the 15 percent limit

provided for investments in Type V

securities. Thus, banks are given more

investment flexibility with Type V

securities, but the increased investment

authority is subject to explicit

safeguards to address risk

concentrations.

Comment is invited regarding other

bases upon which a bank should

combine its holdings when calculating

its investment in Type III or Type V

securities of any one obligor.

Specifically, the OCC seeks comments

as to whether a bank should combine

obligations that are predominately

collateralized by loans made by the

same originator or by originators that are

related directly or indirectly through

common control. In addition,

commenters are asked to address

whether and under what circumstances

an issuer or affiliate of the issuer would

provide a guarantee or other form of

credit enhancement for Type V

securities that could be a source of

credit exposure of the investing bank to

the issuer or its affiliate. Comment is

also invited on whether the 15 percent

investment limitation or a lower

limitation is appropriate under these

circumstances.

The OCC is not at this time proposing

to apply an aggregate limit to a bank’s

combined holdings of Type III and Type

V securities, but requests commenters to

address whether some form of an

aggregate limitation should apply to a

bank’s exposure to a single obligor,

regardless of the type of the obligation.

For example, under the proposal, a bank

could invest in Type V securities of any

one obligor in an amount not exceeding

15 percent of the bank’s capital and

surplus, and Type III securities of the

same obligor in an amount not

exceeding 10 percent of the bank’s

capital and surplus. In addition, under

the lending limit rules, the bank could

also make loans to the same obligor in

an amount up to 15 percent—or 25

percent depending upon the collateral—

of the bank’s capital and surplus. Of

course, the OCC retains the ability to

take action in connection with

concentrations inconsistent with safe

and sound banking practices.
Federal Register / Vol. 60, No. 245 / Thursday, December 21, 1995 / Proposed Rules 66157

9 See OCC Banking Circular 277, reprinted in 5

Fed. Banking L. Rep. (CCH) ¶ 58,717 (October 27,

1993).

Calculation of investment company

holdings (section 1.4(d))

In calculating the amount of its

investment in investment company

shares under this proposal, a bank must

use reasonable efforts to calculate and

combine its pro rata share of a particular

security in the portfolios of each

investment company with the bank’s

direct holdings of securities of that

issuer.

Safe and sound banking practices;

credit information required (Section 1.5)

The requirement of ‘‘prudent banking

judgment’’ in current § 1.8 is moved to

§ 1.5 and changed to require banks to

adhere to ‘‘safe and sound banking

practices,’’ in addition to any specific

requirements of part 1. The OCC will

continue its supervision of national

bank investment securities activities,

including those activities covered by the

changes to part 1, to ensure that these

investments are effected in a safe and

sound manner. In recognition of the

different types of risks that may affect

the quality of a security, the proposal

reflects the OCC position that safe and

sound banking practices entail

appropriate consideration of the market,

interest rate, liquidity, legal, and

operations and systems risks, as well as

credit risk, posed by certain types of

securities investments.9 These standards

are made clearly applicable to all types

of permissible securities activities and

holdings described in § 1.3. This change

also makes the language of part 1

consistent with the authority of a federal

banking agency to institute a cease-anddesist proceeding against an insured

depository institution that has engaged

or is about to engage in an ‘‘unsafe and

unsound practice.’’ 12 U.S.C. 1818(b).

The ‘‘unsafe and unsound practice’’

standard is well recognized by the

courts. See, e.g., Northwest National

Bank, Fayetteville, Arkansas v. U.S.

Department of the Treasury, Office of

the Comptroller of the Currency, 917

F.2d 1111 (8th Cir. 1990); Gulf Federal

Savings and Loan v. Federal Home Loan

Bank Board, 651 F.2d 259 (5th Cir..

1981), cert. denied, 458 U.S. 1121

(1982); Groos National Bank v.

Comptroller of the Currency, 573 F.2d

889 (5th Cir. 1978). The proposed

section also gives banks additional

flexibility in maintenance of records for

examination purposes.

Convertible securities (section 1.6)

Proposed § 1.6 revises current § 1.9 to

clarify the restrictions on investment in

certain convertible securities and how

banks must account for securities that

are convertible into stock or have stock

purchase warrants attached.

Securities held in satisfaction of debts

previously contracted; holding period;

disposal; accounting treatment; nonspeculative purpose (section 1.7)

Proposed § 1.7 contains new

information in paragraphs (b) ‘‘holding

period,’’ (c) ‘‘accounting treatment,’’ and

(d) ‘‘non-speculative purpose,’’ which

embody standards consistent with

OCC’s Other Real Estate Owned

regulation, see 58 FR 46529 (September

2, 1993), and the OCC’s related

interpretation, see Interpretive Letter

No. 604 (October 8, 1992). A national

bank holding securities in satisfaction of

debts previously contracted may do so

for a period of five years from the date

that ownership of the securities was

originally transferred to the bank, plus

an additional five years, if permitted by

the OCC.

Nonconforming investments (section

1.8)

This new section clarifies that a bank

does not violate an applicable

investment limitation when an

investment in securities that was legal

when made becomes nonconforming as

a result of any of certain enumerated

events, provided the bank exercises

reasonable efforts to bring the

investment into conformity with

applicable limitations. The events

included in the regulation are: A decline

in the bank’s capital; a merger of

obligors, issuers, or credit-enhancers;

issuers becoming related directly or

indirectly related through common

control; deterioration in the quality of a

security so that the security is no longer

an investment security; the substitution

of collateral by an issuer or trustee that

causes a Type IV or Type V security no

longer to conform to the diversification

requirements of §§ 1.2(k)(1) and (2) and

1.2(l); a change in the investment

securities limitations rules; or other

events identified by the OCC. This

approach to nonconforming holdings is

based upon the approach contained in

the OCC’s new lending limit regulation.

Commenters are specifically asked to

address whether: (1) The phrase

‘‘reasonable efforts’’ needs additional

clarification, and if so, how it might be

defined or should be documented for

the purposes of this section; (2) the OCC

should require a bank to make

‘‘reasonable efforts’’ to bring into

conformity an investment where the

quality of a security deteriorates so that

the security is no longer an investment

security; and (3) any other events

should be added to the list of

circumstances that may cause an

investment in securities to become

nonconforming.

Amortization of premiums (current

section 1.10)

Current § 1.10 is removed. The OCC

believes the section is no longer

necessary because generally accepted

accounting principles (GAAP)

appropriately govern the treatment of

premiums. GAAP requires that a bank

defer recognition of a premium paid for

an investment security and amortize the

premium over the period to maturity of

the security. In contrast, current § 1.10

permits a bank to charge off the entire

premium at the time of purchase or to

amortize the premium in any manner

the bank considers appropriate as long

as the premium is extinguished entirely

at or before the maturity of the security.

Interpretations

Indirect general obligations (section

1.100)

Proposed § 1.100 is derived from

current § 1.120, but clarifies and

shortens the text. Current paragraphs (f)

‘‘Tax anticipation notes,’’ and (g) ‘‘Bond

anticipation notes’’ of § 1.120 are

removed as unnecessary.

Eligibility of securities for purchase,

dealing in, and underwriting by national

banks; general guidelines (current

section 1.100)

The proposal removes current § 1.100,

which contains introductory and

explanatory comments that the OCC

believes are unnecessary in light of

other proposed changes to part 1.

Taxing powers of a State or a political

subdivision (section 1.110)

Section 1.110 is a shortened version

of current § 1.130, with portions

removed that are no longer necessary.

New text is added to provide standards

for determining when obligations that

are expressly or implicitly dependent

upon voter or legislative authorization

of appropriations are considered

supported by the full faith and credit of

a State or political subdivision.

Prerefunded or escrowed bonds and

obligations secured by Type I securities

(section 1.120)

Proposed § 1.120 is derived from

current § 1.120(e).

Type II securities; guidelines for

obligations issued for university and

housing purposes (section 1.130)

Proposed § 1.130 is a streamlined

version of current § 1.140, and also

clarifies the types of issuers whose
66158 Federal Register / Vol. 60, No. 245 / Thursday, December 21, 1995 / Proposed Rules

obligations qualify as Type II securities.

Current § 1.140(c)(1) and portions of

(c)(2) have been removed. See Proposed

§ 1.130(c).

The OCC welcomes comments on any

aspect of the proposed regulation,

particularly, those issues specifically

noted in this preamble.

DERIVATION TABLE

[Only Substantive Modifications, Additions and Changes are Indicated]

Revised provision Original provision Comments

§ 1.1 .................. §§ 1.1, 1.2 ................................................................................. Modified.

§ 1.2(a) ............. ............................................................................................... Added.

§ 1.2(b) ............. § 1.3(g) ...................................................................................... Modified.

§ 1.2(c) .............. ............................................................................................... Added.

§ 1.2(d) ............. ............................................................................................... Added.

§ 1.2(e) ............. § 1.3(b) ...................................................................................... Modified.

§ 1.2(f) .............. § 1.5(a) ...................................................................................... Significant change.

§ 1.2(g) ............. § 1.3(f) .......................................................................................

§ 1.2(h) ............. §§ 1.3(c), 1.110 ......................................................................... Modified.

§ 1.2(i) ............... 1.3(d) ......................................................................................... Modified.

§ 1.2(j) ............... § 1.3(e) ...................................................................................... Modified.

§ 1.2(k) .............. ............................................................................................... Added.

§ 1.2(l) ............... ............................................................................................... Added.

§ 1.3(a) ...................................................................................... Removed.

§ 1.3(a) ............. § 1.4 ........................................................................................... Modified.

§ 1.3(b) ............. §§ 1.3(d), 1.6, 1.7(a) ................................................................. Modified.

§ 1.3(c) .............. §§ 1.3(e), 1.7(a) ......................................................................... Modified.

§ 1.3(d) ............. § 1.7(a), 12 CFR 7.7570 ........................................................... Modified.

§ 1.3(e) ............. ............................................................................................... Added.

§ 1.3(f) .............. ............................................................................................... Added.

§ 1.3(g) ............. ............................................................................................... Added.

§ 1.3(h) ............. ............................................................................................... Added.

§ 1.3(i) ............... §§ 1.5(b), 1.7(b) ......................................................................... Modified.

§ 1.4 .................. ............................................................................................... Added.

§ 1.5 .................. § 1.8 ........................................................................................... Significant change.

§ 1.6 .................. § 1.9 ........................................................................................... Modified.

§ 1.7(a) ............. § 1.11 .........................................................................................

§ 1.7(b) ............. ............................................................................................... Added.

§ 1.7(c) ...................................................................................... Removed.

§ 1.7(d) ...................................................................................... Added.

§ 1.7(c) .............. ............................................................................................... Added.

§ 1.8 .................. ............................................................................................... Added.

§ 1.10 ......................................................................................... Removed.

§ 1.100 ....................................................................................... Removed.

§ 1.100(a) ......... § 1.120 .......................................................................................

§ 1.100(b)(1) ..... § 1.120(a) ..................................................................................

§ 1.100(b)(2) ..... § 1.120(b) ..................................................................................

§ 1.100(b)(3) ..... § 1.120(c) ..................................................................................

§ 1.100(b)(4) ..... § 1.120(d) ..................................................................................

§ 1.110 .............. § 1.130 ....................................................................................... Modified.

§ 1.120(f) ................................................................................... Removed.

§ 1.120(g) .................................................................................. Removed.

§ 1.120 .............. § 1.120(e) ..................................................................................

§ 1.130(a) ......... § 1.140(a) .................................................................................. Modified.

§ 1.130(b) ......... § 1.140(b) ..................................................................................

§ 1.130(c) .......... § 1.140(c) .................................................................................. Modified.

Regulatory Flexibility Act

It is hereby certified that this

regulation will not have a significant

economic impact on a substantial

number of small entities. Accordingly, a

regulatory flexibility analysis is not

required. This regulation will reduce the

regulatory burden on national banks,

regardless of size, by simplifying and

clarifying existing regulatory

requirements.

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 OCC

functions, including whether the

information has practical utility;

(2) The accuracy of the 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/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
Federal Register / Vol. 60, No. 245 / Thursday, December 21, 1995 / Proposed Rules 66159

the collections of information should be

sent to the Office of Management and

Budget, Paperwork Reduction Project

(1557), Washington, DC 20503, with

copies to the Legislative 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 1.6 and 1.7. This

information is required to evidence

compliance with statutory limitations

on the quantity and type of investments

by national banks. The likely

respondents/recordkeepers are national

banks.

Estimated average annual burden

hours per respondent/recordkeeper: 2

hours.

Estimated number of respondents

and/or recordkeepers: 3,000.

Estimated total annual reporting and

recordkeeping burden: 6,000 hours.

Start-up costs to respondents: None.

Records are to be maintained for life

of the investment.

Executive Order 12866

The OCC has determined that this

proposal is not a significant regulatory

action.

Unfunded Mandates Act of 1995

Section 202 of the Unfunded

Mandates Reform Act of 1995

(Unfunded Mandates Act) (signed into

law on March 22, 1995) requires that an

agency prepare a budgetary impact

statement before promulgating a rule

that includes a Federal mandate that

may result in the 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. Because the OCC

has determined that the proposed rule

will not result in expenditures by State,

local, and tribal governments or by the

private sector of $100 million or more

in any one year, the OCC has not

prepared a budgetary impact statement

or specifically addressed the regulatory

alternatives considered. Nevertheless, as

discussed in the preamble, the rule has

the effect of reducing burden and

increasing the discretion of national

banks regarding their sound investment

activities.

List of Subjects

12 CFR Part 1

Banks, banking, National banks,

Reporting and recordkeeping

requirements, Securities.

12 CFR Part 7

Credit, Insurance, Investments,

National banks, Reporting and

recordkeeping requirements, Securities,

Surety bonds.

Authority and Issuance

For the reasons set out in the

preamble, chapter I of title 12 of the

Code of Federal Regulations is proposed

to be amended as set forth below:

1. Part 1 is revised to read as follows:

PART 1—INVESTMENT SECURITIES

REGULATION

Sec.

1.1 Authority, purpose, and scope.

1.2 Definitions.

1.3 Limitations on dealing in, underwriting,

and purchase and sale of securities.

1.4 Calculation of limits.

1.5 Safe and sound banking practices; credit

information required.

1.6 Convertible securities.

1.7 Securities held in satisfaction of debts

previously contracted; holding period;

disposal; accounting treatment; nonspeculative purpose.

1.8 Nonconforming investments.

Interpretations

1.100 Indirect general obligations.

1.110 Taxing powers of a State or political

subdivision.

1.120 Prerefunded or escrowed bonds and

obligations secured by Type I securities.

1.130 Type II securities; guidelines for

obligations issued for university and

housing purposes.

Authority: 12 U.S.C. 1 et seq., 24

(Seventh), and 93a.

§ 1.1 Authority, purpose, and scope.

(a) Authority. This part is issued

pursuant to 12 U.S.C. 1 et seq., 12 U.S.C.

24 (Seventh), and 12 U.S.C. 93a.

(b) Purpose. This part prescribes

standards under which national banks

may purchase, sell, deal in, underwrite,

and hold securities, consistent with the

authority contained in 12 U.S.C. 24

(Seventh) and safe and sound banking

practices.

(c) Scope. The standards set forth in

this part apply to national banks,

District of Columbia banks, and federal

branches of foreign banks. Further,

pursuant to 12 U.S.C. 335, State banks

that are members of the Federal Reserve

System are subject to the same

limitations and conditions that apply to

national banks in connection with

purchasing, selling, dealing in, and

underwriting securities and stock. In

addition to activities authorized under

this part, foreign branches of national

banks also may be authorized to

conduct international activities

pursuant to part 211 of this title.

§ 1.2 Definitions.

(a) Capital and surplus means:

(1) A bank’s Tier 1 and Tier 2 capital

included in the bank’s risk-based capital

under the OCC’s Minimum Capital

Ratios in Appendix A to part 3 of this

chapter based upon the bank’s

Consolidated Report of Condition and

Income filed under 12 U.S.C. 1817(a)(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, based upon the

bank’s Consolidated Report of Condition

and Income filed under 12 U.S.C.

1817(a)(3).

(b) General obligation of a State or

political subdivision means:

(1) An obligation supported by the

full faith and credit of an obligor

possessing general powers of taxation,

including property taxation; or

(2) 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 provide funds to cover all

required payments on the obligation.

(c) Investment company means an

investment company, including a

mutual fund, registered under section 8

of the Investment Company Act of 1940,

15 U.S.C. 80a-8.

(d) Investment grade means a security

rated investment grade (in one of the top

four rating categories) by each

nationally recognized statistical rating

organization that has rated the security.

(e) Investment security means a

marketable debt obligation that is not

predominantly speculative in nature. A

security is not predominantly

speculative in nature if it is rated

investment grade. When a security is

not rated, the security must be the credit

equivalent of securities rated investment

grade.

(f) Marketable means that the security

is:

(1) Registered under the Securities

Act of 1933, 15 U.S.C. 77a et seq.;

(2) Exempt from registration under the

Securities Act of 1933, 15 U.S.C. 77c,

and authorized under 12 U.S.C. 24

(Seventh) as eligible for investment

without limitation by a national bank,

such as a security issued or guaranteed

by:
66160 Federal Register / Vol. 60, No. 245 / Thursday, December 21, 1995 / Proposed Rules

(i) The United States or a territory

thereof;

(ii) The District of Columbia;

(iii) A State of the United States;

(iv) A political subdivision of a State

or territory;

(v) A public instrumentality of one or

more States or territories; or

(vi) A person controlled or supervised

by and acting as an instrumentality of

the Government of the United States

pursuant to authority granted by the

Congress of the United States;

(3) A municipal revenue bond exempt

from registration under the Securities

Act of 1933, 15 U.S.C. 77c(a)(2); or

(4) Offered and sold pursuant to

Securities and Exchange Commission

Rule 144A, 17 CFR 230.144A, and rated

investment grade.

(g) Political subdivision means a

county, city, town, or other municipal

corporation, a public authority, and

generally any publicly-owned entity

that is an instrumentality of a State or

of a municipal corporation.

(h) Type I security means:

(1) Obligations of the United States;

(2) Obligations issued, insured, or

guaranteed by a department or an

agency of the United States

Government, if the obligation, insurance

or guarantee commits the full faith and

credit of the United States for the

repayment of the obligation;

(3) Obligations issued by a

department or agency of the United

States, or an agency or political

subdivision of a State of the United

States, that represent an interest in a

loan or a pool of loans made to third

parties, if the full faith and credit of the

United States has been validly pledged

for the full and timely payment of

interest on, and principal of, the loans

in the event of non-payment by the third

party obligor(s);

(4) General obligations of a State of

the United States or any political

subdivision;

(5) Obligations authorized under 12

U.S.C. 24 (Seventh) as permissible for a

national bank to deal in, underwrite,

purchase, and sell for the bank’s own

account; and

(6) Other securities the OCC deems

eligible as Type I securities in

accordance with 12 U.S.C. 24 (Seventh).

(i) Type II security means an

investment security that represents:

(1) Obligations issued by a State, or a

political subdivision or agency of a

State, for housing, university, or

dormitory purposes;

(2) Obligations of international and

multilateral development banks and

organizations listed in 12 U.S.C. 24

(Seventh);

(3) Other obligations listed in 12

U.S.C. 24 (Seventh) as permissible for a

bank to deal in, underwrite, purchase,

and sell for the bank’s own account,

subject to a limitation of 10 percent of

the bank’s capital and surplus; and

(4) Other securities the OCC deems

eligible as Type II securities in

accordance with 12 U.S.C. 24 (Seventh).

(j) Type III security means an

investment security that does not

qualify as a Type I, II, IV, or V security,

such as corporate bonds and municipal

revenue bonds.

(k) Type IV security means:

(1) A small business-related security

as defined in section 3(a)(53)(A) of the

Securities Exchange Act of 1934, 15

U.S.C. 78c(a)(53)(A), that is fully

secured by interests in a pool of

homogeneous loans to numerous

obligors. The aggregate amount of

collateral from loans of any one obligor

may not exceed 5 percent of the total

amount of collateral for the security;

(2) A commercial mortgage-related

security that is offered or sold pursuant

to section 4(5) of the Securities Act of

1933, 15 U.S.C. 77d(5), or a commercial

mortgage-related security as defined in

section 3(a)(41) of the Securities

Exchange Act of 1934, 15 U.S.C.

78c(a)(41), that represents ownership of

a promissory note or certificate of

interest or participation that is directly

secured by a first lien on one or more

parcels of real estate upon which one or

more commercial structures are located

and that is fully secured by interests in

a pool of homogeneous loans to

numerous obligors. The aggregate

amount of collateral from loans of any

one obligor may not exceed 5 percent of

the total amount of collateral for the

security.

(3) A residential mortgage-related

security that is offered and sold

pursuant to section 4(5) of the Securities

Act of 1933, 15 U.S.C. 77d(5), or a

residential mortgage-related security as

defined in section 3(a)(41) of the

Securities Exchange Act of 1934, 15

U.S.C. 78c(a)(41)), and that does not

otherwise qualify as a Type I security.

(l) Type V security means a security

that:

(1) Is rated investment grade;

(2) Is not a Type IV security; and

(3) Is fully secured by interests in a

pool of homogeneous loans (that a

national bank could invest in directly)

to numerous obligors. The aggregate

amount of collateral from loans of any

one obligor may not exceed 5 percent of

the total amount of collateral for the

security.

§ 1.3 Limitations on dealing in,

underwriting, and purchase and sale of

securities.

(a) Type I securities. A national bank

may deal in, underwrite, purchase, and

sell Type I securities for its own

account. The amount of Type I

securities that the bank may deal in,

underwrite, purchase, and sell is not

limited to a specified percentage of the

bank’s capital and surplus.

(b) Type II securities. A national bank

may deal in, underwrite, purchase, and

sell Type II securities for its own

account, provided the aggregate par

value of the obligations of any one

obligor held by the bank does not

exceed 10 percent of the bank’s capital

and surplus. This limitation applies to

obligations that the bank is legally

committed to purchase and sell in

addition to existing holdings.

(c) Type III securities. A national bank

may purchase and sell Type III

securities for its own account, provided

the aggregate par value of the

obligations of any one obligor held by

the bank does not exceed 10 percent of

the bank’s capital and surplus. This

limitation applies to obligations that the

bank is legally committed to purchase

and sell in addition to existing holdings.

(d) Type II and III securities; other

investment securities limitations. A

national bank may not hold Type II and

III securities of any one obligor with an

aggregate par value exceeding 10

percent of the bank’s capital and

surplus. However, if the proceeds of

each issue are to be used to acquire and

lease real estate and related facilities to

economically and legally separate

industrial tenants, and if each issue is

payable solely from and secured by a

first lien on the revenues to be derived

from rentals paid by the lessee under

net noncancellable leases, the bank may

apply the 10 percent investment

limitation separately to each security

issue of a single issuer of such

securities.

(e) Type IV securities. A national bank

may purchase and sell Type IV

securities for its own account. The

amount of the Type IV securities that a

bank may purchase and sell is not

limited to a specified percentage of the

bank’s capital and surplus. A national

bank also may deal in Type IV securities

that are fully secured by Type I

securities.

(f) Type V securities. A national bank

may purchase and sell Type V securities

for its own account provided the

aggregate par value of the obligations of

any one obligor does not exceed 15

percent of the bank’s capital and

surplus. This limitation includes

obligations the bank is legally

committed to purchase and sell in

addition to existing holdings.

(g) Asset securitization. A national

bank may securitize and sell its loan

assets as a part of its banking business.
Federal Register / Vol. 60, No. 245 / Thursday, December 21, 1995 / Proposed Rules 66161

The amount of securitized loans that a

bank may sell is not limited to a

specified percentage of the bank’s

capital and surplus.

(h) Investment company shares. A

national bank may purchase and sell for

its own account investment company

shares, provided that the portfolio of the

investment company consists wholly of

securities and loans that the national

bank may purchase and sell for its own

account under this part, subject to the

most stringent investment and/or

lending limitation that would apply to

the underlying securities or loans that

comprise such company’s portfolio.

(i) Securities held based on estimates

of obligor’s performance. (1)

Notwithstanding § 1.2(e) of this part, a

national bank may treat a debt security

as an investment security for purposes

of this part if the bank concludes, on the

basis of estimates that the bank

reasonably believes are reliable, that the

obligor will be able to satisfy its

obligations under that security, and the

bank believes that the security may be

sold with reasonable promptness at a

price which corresponds reasonably to

its fair value.

(2) The aggregate value of securities

treated as investment securities under

paragraph (i)(1) of this section may not

exceed 5 percent of the bank’s capital

and surplus.

§ 1.4 Calculation of limits.

(a) Calculation date. For purposes of

determining compliance with 12 U.S.C.

24 (Seventh) and this part, a bank’s

limitations shall be determined as of the

most recent of the following dates:

(1) The date on which the bank’s

Consolidated Report of Condition and

Income is properly signed and

submitted;

(2) The date on which the bank’s

Consolidated Report of Condition and

Income is required to be submitted; or

(3) When there is a change in the

bank’s capital category for purposes of

12 U.S.C. 1831o and 12 CFR 6.3.

(b) Authority of OCC to require more

frequent calculations. If the OCC

determines for safety and soundness

reasons that a bank should calculate its

investment limits more frequently than

required by paragraph (a) of this section,

the OCC may provide written notice to

the bank directing the bank to calculate

its investment limitations at a more

frequent interval. The bank shall

thereafter calculate its investment limits

at that interval until further notice.

(c) Calculation of Type III and Type

V securities holdings. In calculating the

amount of its investment in Type III or

Type V securities of any one obligor, a

bank shall combine:

(1) Obligations of issuers that are

related directly or indirectly through

common control; and

(2) Securities that are credit-enhanced

by the same entity.

(d) Calculation of investment

company holdings. In calculating the

amount of its investment in investment

company shares under this part, a bank

shall use reasonable efforts to calculate

and combine its pro rata share of a

particular security in the portfolios of

each investment company with the

bank’s direct holdings of securities of

that issuer.

§ 1.5 Safe and sound banking practices;

credit information required.

(a) A national bank shall adhere to

safe and sound banking practices and

the specific requirements of this part in

conducting the activities described in

§ 1.3. This includes appropriate

consideration of the market, interest

rate, credit, liquidity, legal, and

operations and systems risks presented

by a proposed activity. The bank’s

particular activities must be appropriate

for that bank.

(b) In conducting these activities, the

bank shall determine that there is

adequate evidence that an obligor

possesses resources sufficient to provide

for all required payments on its

obligations, or, in the case of securities

deemed to be investment securities on

the basis of reliable estimates of an

obligor’s performance, that the bank

reasonably believes that the obligor will

be able to satisfy the obligation.

(c) Each bank shall maintain records

available for examination purposes

adequate to demonstrate that it meets

the requirements of this section. The

bank may store the information in any

manner that can be readily retrieved and

reproduced in a readable form.

§ 1.6 Convertible securities.

(a) When a national bank purchases

an investment security convertible into

stock, or with a stock purchase warrant

attached, the bank shall write down the

carrying value of the security to an

amount that represents the value of the

security considered independently of

the conversion feature or attached stock

purchase warrant.

(b) A national bank may not purchase

securities convertible into stock at the

option of the issuer.

§ 1.7 Securities held in satisfaction of

debts previously contracted; holding

period; disposal; accounting treatment;

non-speculative purpose.

(a) Securities held in satisfaction of

debts previously contracted. The

restrictions and limitations of this part,

other than those set forth in paragraphs

(b),(c), and (d) of this section, do not

apply to securities acquired:

(1) Through foreclosure on collateral;

(2) In good faith by way of

compromise of a doubtful claim; or

(3) To avoid loss in connection with

a debt previously contracted.

(b) Holding period. A national bank

holding securities pursuant to paragraph

(a) of this section may do so for a period

not to exceed five years from the date

that ownership of the securities was

originally transferred to the bank. The

OCC may extend the holding period for

up to an additional five years.

(c) Accounting treatment. A bank

shall mark-to-market securities held

pursuant to paragraph (a) of this section.

(d) Non-speculative purpose. A bank

may not hold securities pursuant to

paragraph (a) of this section for

speculative purposes.

§ 1.8 Nonconforming investments.

(a) An investment in securities, which

conforms to this part when made, will

not be deemed a violation, but will be

treated as nonconforming if the

investment no longer conforms to this

part because;

(1) The bank’s capital declines;

(2) Issuers, obligors, or creditenhancers merge;

(3) Issuers become related directly or

indirectly through common control;

(4) The investment securities rules

change;

(5) The security no longer qualifies as

an investment security;

(6) The substitution of collateral by an

issuer or trustee causes a Type IV or

Type V security no longer to conform to

the diversification requirements of

§§ 1.2(k)(1) and (2) and 1.2(l)(3); or

(7) Other events identified by the OCC

occur;

(b) A bank shall exercise reasonable

efforts to bring an investment that is

nonconforming as a result of events

described in paragraph (a) of this

section into conformity with this part

unless to do so would be inconsistent

with safe and sound banking practices.

Interpretations

§ 1.100 Indirect general obligations.

(a) Obligation issued by an obligor not

possessing general powers of taxation.

Pursuant to § 1.2(c) of this part, an

obligation issued by an obligor not

possessing general powers of taxation

qualifies as a general obligation of a

State or political subdivision for the

purposes of 12 U.S.C. 24 (Seventh), if a

party possessing general powers of

taxation unconditionally promises to

make sufficient funds available for all

required payments in connection with

the obligation.
66162 Federal Register / Vol. 60, No. 245 / Thursday, December 21, 1995 / Proposed Rules

(b) Indirect commitment of full faith

and credit. The indirect commitment of

the full faith and credit of a State or

political subdivision (that possesses

general powers of taxation) in support of

an obligation may be demonstrated by

any of the following methods, alone or

in combination, when the State or

political subdivision pledges its full

faith and credit in support of the

obligation.

(1) Lease/rental agreement. The lease

agreement must be valid and binding on

the State or the political subdivision,

and the State or political subdivision

must unconditionally promise to pay

rentals that, together with any other

available funds, are sufficient for the

timely payment of interest on, and

principal of, the obligation. These lease/

rental agreements may, for instance,

provide support for obligations

financing the acquisition or operation of

public projects in the areas of education,

medical care, transportation, recreation,

public buildings, and facilities.

(2) Service/purchase agreement. The

agreement must be valid and binding on

the State or the political subdivision,

and the State or political subdivision

must unconditionally promise in the

agreement to make payments for

services or resources provided through

or by the issuer of the obligation. These

payments, together with any other

available funds, must be sufficient for

the timely payment of interest on, and

principal of, the obligation. An

agreement to purchase municipal sewer,

water, waste disposal, or electric

services may, for instance, provide

support for obligations financing the

construction or acquisition of facilities

supplying those services.

(3) Refillable debt service reserve

fund. The reserve fund must at least

equal the amount necessary to meet the

annual payment of interest on, and

principal of, the obligation as required

by the applicable law. The maintenance

of a refillable reserve fund may be

provided, for instance, by statutory

direction for an appropriation, or by

statutory automatic apportionment and

payment from the State funds of

amounts necessary to restore the fund to

the required level.

(4) Other grants or support. A

statutory provision or agreement must

unconditionally commit the State or the

political subdivision to provide funds

which, together with other available

funds, are sufficient for the timely

payment of interest on, and principal of,

the obligation. Those funds may, for

instance, be supplied in the form of

annual grants or may be advanced

whenever the other available revenues

are not sufficient for the payment of

principal and interest.

§ 1.110 Taxing powers of a State or

political subdivision.

(a) An obligation is considered

supported by the full faith and credit of

a State or political subdivision

possessing general powers of taxation

when the promise or other commitment

of the State or the political subdivision

will produce funds, which (together

with any other funds available for the

purpose) will be sufficient to provide for

all required payments on the obligation.

In order to evaluate whether a

commitment of a State or political

subdivision is likely to generate

sufficient funds, a bank shall consider

the impact of any possible limitations

regarding the State’s or political

subdivision’s taxing powers, as well as

the availability of funds in view of the

projected revenues and expenditures.

Quantitative restrictions on the general

powers of taxation of the State or

political subdivision do not necessarily

mean that an obligation is not supported

by the full faith and credit of the State

or political subdivision. In such case,

the bank shall determine the eligibility

of obligations by reviewing, on a caseby-case basis, whether tax revenues

available under the limited taxing

powers are sufficient for the full and

timely payment of interest on, and

principal of, the obligation. The bank

shall use current and reasonable

financial projections in calculating the

availability of the revenues. An

obligation expressly or implicitly

dependent upon voter or legislative

authorization of appropriations may be

considered supported by the full faith

and credit of a State or political

subdivision if the bank determines, on

the basis of past actions by the voters or

legislative body in similar situations

involving similar types of projects, that

it is reasonably probable that the obligor

will obtain all necessary appropriations.

(b) An obligation supported

exclusively by excise taxes or license

fees is not a general obligation for the

purposes of 12 U.S.C. 24 (Seventh).

Nevertheless, an obligation that is

primarily payable from a fund

consisting of excise taxes or other

pledged revenues qualifies as a ‘‘general

obligation,’’ if, in the event of a

deficiency of those revenues, the

obligation is also supported by the

general revenues of a State or a political

subdivision possessing general powers

of taxation.

§ 1.120 Prerefunded or escrowed bonds

and obligations secured by Type I

securities.

(a) An obligation qualifies as a Type

I security if it is secured by an escrow

fund consisting of obligations of the

United States or general obligations of a

State or a political subdivision, and the

escrowed obligations produce interest

earnings sufficient for the full and

timely payment of interest on, and

principal of, the obligation.

(b) If the interest earnings from the

escrowed Type I securities alone are not

sufficient to guarantee the full

repayment of an obligation, a promise of

a State or a political subdivision

possessing general powers of taxation to

maintain a reserve fund for the timely

payment of interest on, and principal of,

the obligation may further support a

guarantee of the full repayment of an

obligation.

(c) An obligation issued to refund an

indirect general obligation may be

supported in a number of ways that, in

combination, are sufficient at all times

to support the obligation with the full

faith and credit of the United States or

a State or a political subdivision

possessing general powers of taxation.

During the period following its

issuance, the proceeds of the refunding

obligation may be invested in U.S.

obligations or municipal general

obligations that will produce sufficient

interest income for payment of principal

and interest. Upon the retirement of the

outstanding indirect general obligation

bonds, the same indirect commitment,

such as a lease agreement or a reserve

fund, that supported the prior issue,

may support the refunding obligation.

§ 1.130 Type II securities; guidelines for

obligations issued for university and

housing purposes.

(a) Investment quality. An obligation

issued for housing, university, or

dormitory purposes is a Type II security

only if it:

(1) Qualifies as an investment

security, as defined in § 1.2(e); and

(2) Is issued for the appropriate

purpose and by a qualifying issuer.

(b) Obligation issued for university

purposes. (1) An obligation issued by a

State or political subdivision or agency

of a State or political subdivision for the

purpose of financing the construction or

improvement of facilities at or used by

a university or a degree-granting collegelevel institution, or financing loans for

studies at such institutions, qualifies as

a Type II security. Facilities financed in

this manner may include student

buildings, classrooms, university utility

buildings, cafeterias, stadiums, and

university parking lots.
Federal Register / Vol. 60, No. 245 / Thursday, December 21, 1995 / Proposed Rules 66163

1National banks have been authorized to exercise

fiduciary powers since 1913. In 1962, the

responsibility for the oversight of their fiduciary

activities was transferred from the Board of

Governors of the Federal Reserve System to the

OCC. See 12 U.S.C. 92a. Following the transfer of

oversight responsibilities, the OCC promulgated 12

CFR part 9 in 1962 (27 FR 9764), and revised it soon

thereafter in 1963 (28 FR 3309).

(2) An obligation that finances the

construction or improvement of

facilities used by a hospital may be

eligible as a Type II security, if the

hospital is a department or a division of

a university, or otherwise provides a

nexus with university purposes, such as

an affiliation agreement between the

university and the hospital, faculty

positions of the hospital staff, and

training of medical students, interns,

residents, and nurses (e.g., a ‘‘teaching

hospital’’).

(c) Obligation issued for housing

purposes. An obligation issued for

housing purposes may qualify as a Type

II security if the security otherwise

meets the criteria for a Type II security.

PART 7—INTERPRETIVE RULINGS

3. The authority citation for part 7

continues to read as follows:

Authority: 12 U.S.C. 1 et seq., 93a.

§ 7.7570 [Removed]

4. Section 7.7570 is removed.

Dated: December 14, 1995.

Eugene A. Ludwig,

Comptroller of the Currency.

[FR Doc. 95–30969 Filed 12–20–95; 8:45 am]

BILLING CODE 4810–33–P

12 CFR Parts 9 and 19

[Docket No. 95–32]

RIN 1557–AB12

Fiduciary Activities of National Banks;

Rules of Practice and Procedure

AGENCY: Office of the Comptroller of the

Currency, Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: The Office of the Comptroller

of the Currency (OCC) proposes to

revise its rules that govern the fiduciary

activities of national banks. The OCC

also proposes to relocate provisions

concerning disciplinary sanctions

imposed by clearing agencies to its rules

of practice and procedure. This proposal

is another component of the OCC’s

Regulation Review Program, which is

intended to update and streamline OCC

regulations and to reduce unnecessary

regulatory costs and other burdens.

DATES: Comments must be received by

February 20, 1996.

ADDRESSES: Comments should be

directed to: Communications Division,

Office of the Comptroller of the

Currency, 250 E Street, SW,

Washington, DC 20219, Attention:

Docket No. 95–32. Comments will be

available for public inspection and

photocopying at the same location. In

addition, comments may be sent by

facsimile transmission to FAX number

(202) 874–5274 or by electronic mail to

REG.COMMENTS@OCC.TREAS.GOV.

FOR FURTHER INFORMATION CONTACT:

Andrew T. Gutierrez, Attorney,

Legislative and Regulatory Activities

Division, (202) 874–5090; Donald N.

Lamson, Assistant Director, Securities

and Corporate Practices Division, (202)

874–5210; Lisa Lintecum, Director,

Fiduciary Activities, (202) 874–5419;

Dean Miller, Special Advisor, Fiduciary

Activities, (202) 874–4852; Aida M.

Plaza, Director for Compliance,

Multinational Banking, (202) 874–4610.

SUPPLEMENTARY INFORMATION:

Background

The OCC proposes to revise 12 CFR

part 9, which governs the fiduciary

activities of national banks, as a

component of its Regulation Review

Program. One goal of the Regulation

Review Program is to review all of the

OCC’s rules with a view toward

eliminating provisions that do not

contribute significantly to maintaining

the safety and soundness of national

banks or to accomplishing the OCC’s

other statutory responsibilities,

including the oversight of national

banks’ fiduciary activities. Another goal

of the Program is to improve clarity of

the OCC’s regulations.

This rulemaking is the OCC’s first

comprehensive revision of the rule since

1963.1 Much about national banks’

fiduciary business has changed since

that time, including the nature and

scope of the fiduciary services that

banks offer and the structures and

operational methods that banks use to

deliver those services. The OCC’s

particular goal in revising part 9 is to

accommodate those changes by lifting

unnecessary regulatory burden and

facilitating the continued development

of national banks’ fiduciary business

consistent with safe and sound banking

practices and national banks’ fiduciary

obligations. Three principal themes

have emerged from the OCC’s review of

part 9.

First, bank organizational structures,

particularly with respect to the

geographic structure of banking

organizations, have changed

significantly since Congress created the

basic framework for national banks’

fiduciary operations. These changes

strongly suggest that part 9 should be

adjusted so that its requirements are

more workable for both large, multistate

fiduciary banking organizations and

small banks that conduct fiduciary

activities primarily on a local basis.

Second, national banks’ fiduciary

activities, in many respects, are subject

to state law. In some cases, however, the

OCC has the flexibility either to

prescribe a uniform Federal standard or

to direct national banks to follow state

law.

Third, over the years, part 9 has been

applied to a wide variety of investment

advisory activities and related services,

not all of which involve the bank’s

exercise of investment discretion. In

some cases, banks engaged in these

activities are subject to different

standards than other types of entities

that conduct the same type of business,

raising the question of whether the OCC

should narrow the range of investment

advisory activities to which part 9

applies.

These three themes form the basis for

requests for comment on specific

provisions and issues described in

detail in the remainder of this preamble

discussion.

More generally, the proposal revises

part 9 in its entirety. The proposal

updates, clarifies, and streamlines part

9, incorporates significant interpretive

positions, and eliminates unnecessary

regulatory burden wherever possible to

promote more efficient operation and

supervision of national banks’ fiduciary

activities. The proposal adds headings

for ease of reference, but, for the most

part, retains the numbering system used

in the current regulation. Commenters

are invited to address all aspects of the

proposal, including recommending

further improvements to its

organization, structure, and content.

Section-by-Section Description of the

Proposal

Authority, Purpose, and Scope

(Proposed § 9.1)

The proposal adds a new provision

that explicitly sets forth the statutory

authority for, and the purpose and scope

of, part 9. In addition to standards found

in part 9, the OCC provides guidance

(including policies, procedures,

precedents, circulars, and bulletins)

regarding the fiduciary activities of

national banks in the ‘‘Comptroller’s

Handbook for Fiduciary Activities.’’ The

OCC currently is revising the guidance

contained in the ‘‘Comptroller’s

Handbook for Fiduciary Activities.’’ The

OCC anticipates that the revised

fiduciary guidance will consist of a