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

67091

Vol. 60, No. 249

Thursday, December 28, 1995

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the

Currency

12 CFR Part 24

[Docket No. 95–35]

RIN 1557–AB46

Community Development Corporation

and Project Investments and Other

Public Welfare Investments

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

revise its regulation governing national

bank investments designed primarily to

promote the public welfare. The

revisions clarify banks’ authority under

this part; renumber and reorganize the

regulation; provide the OCC greater

flexibility for determining whether

investments primarily promote the

public welfare; and simplify the

regulation’s investment self-certification

and prior approval processes. The

proposed revisions reduce regulatory

burden and inconsistencies while

enhancing the ability of national banks

to make public welfare investments.

DATES: Comments must be received on

or before February 26, 1996.

ADDRESSES: Interested persons are

invited to submit comments to

Communications Division, Third Floor,

Office of the Comptroller of the

Currency, 250 E Street, S.W.,

Washington, D.C. 20219. Attention:

Docket No. 95–35. Comments will be

available for inspection and

photocopying at that address. In

addition, comments may be sent by

facsimile to (202) 874–5274, or by

electronic mail to

reg.comments@occ.treas.gov.

FOR FURTHER INFORMATION CONTACT:

Karen Bellesi, Program Coordinator,

Community Development Investments,

Community Development Division,

(202) 874–4930; or Michele Meyer,

Attorney, Community and Consumer

Law Division, (202) 874–5750.

SUPPLEMENTARY INFORMATION:

Background

As part of its Regulation Review

Program, the OCC is proposing revisions

to 12 CFR Part 24. In December of 1993,

the OCC adopted part 24 to implement

the recently-enacted 12 U.S.C.

24(Eleventh). Section 24(Eleventh)

authorizes national banks to make

investments ‘‘designed primarily to

promote the public welfare, including

the welfare of low- and moderateincome families and communities (such

as through the provision of housing,

services, or jobs),’’ subject to certain

percentage of capital limitations.

As currently written, part 24 reflects

the statute’s broad policy of promoting

the public welfare and places particular

emphasis on community development

investments. Part 24 permits national

banks to make investments in

community development corporations

(CDCs) and community development

projects (CD Projects), consistent with

safe and sound banking practices. Under

part 24, banks may self-certify certain

community development investments.

Investments that do not qualify for selfcertification are subject to one of two

prior approval processes. The first

requires that a bank file an investment

proposal, which the OCC usually

approves or disapproves within 30 days.

The second consists of a five-day review

period for investment proposals that the

OCC has previously approved for

another bank.

Part 24 was crafted carefully initially

to permit the agency and the industry to

gain experience with the new

investment authority provided by the

statute. The proposed revisions reflect

the OCC’s and the industry’s successful

experience with part 24. In the two

years since the OCC adopted part 24,

national banks and their community

partners have invested millions of

dollars in hundreds of CDCs and CD

Projects. Based on this success, and the

OCC’s desire to facilitate increased

community development lending and

investment, the OCC believes that it can

ease some restrictions and reduce the

regulatory burden associated with part

24.

The proposed revisions preserve part

24’s community development focus but

provide greater flexibility for

determining whether investments

promote the public welfare. To

encourage innovation in banks’ public

welfare investments, the proposal

modifies the current test for determining

whether an investment is designed

primarily to promote the public welfare

(public welfare test). In addition, the

proposal simplifies part 24’s selfcertification and prior approval

processes. The proposed revisions

simplify the rule and enhance its clarity

by using terms common to other

recently adopted or revised regulations,

such as the Federal Reserve Board’s

Community Development and Public

Welfare Investments Regulation, 12 CFR

Part 208.21, and the OCC’s Community

Reinvestment Act Regulation (CRA

Regulation), 12 CFR Part 25. In addition,

the proposal reorganizes part 24 and

renumbers its provisions. A derivation

table showing these changes appears at

the end of this preamble.

Description of the Proposal

The following discussion identifies

and explains the significant proposed

changes to the regulation. The OCC

requests comment on all aspects of the

proposed regulation, as well as specific

comment on the changes discussed in

this preamble.

Title

The proposal reflects the OCC’s view

that national banks can promote the

public welfare through a variety of

authorized investments, including CDCs

and CD Projects that develop affordable

housing, foster revitalization and

stabilization of low-and moderateincome areas, or provide equity or debt

financing for small businesses. Thus,

the OCC proposes to change the title of

part 24 from ‘‘Community Development

Corporation and Project Investments’’ to

‘‘Community Development Corporation

and Project Investments and other

Public Welfare Investments.’’

Authority, Purpose, and OMB Control

Number (§ 24.1)

The proposal amends the ‘‘purpose’’

paragraph to reflect that CDCs and CD

Projects that develop affordable

housing, foster revitalization and

stabilization of low-and moderateincome areas, or provide equity or debt

financing for small businesses are just

some of the types of investments that a

national bank can make under part 24.

The OCC continues to encourage
67092 Federal Register / Vol. 60, No. 249 / Thursday, December 28, 1995 / Proposed Rules

1 On October 26, 1995, the OCC published a

proposal to eliminate part 24’s reinvestment

requirement. 60 FR 54819. The public comment

period on that proposal ended on November 27,

1995. The final rule is published elsewhere in this

issue of the Federal Register.

national banks to make these types of

investments but also emphasizes that

many kinds of investments can promote

the public welfare.

Definitions (§ 24.2)

In keeping with the Regulation

Review Program’s goal of using

terminology consistently throughout the

OCC’s regulations, the OCC is proposing

definitions and terms common to other

OCC regulations. For example, the

definition of ‘‘low-income and

moderate-income’’ now refers to the

OCC’s CRA Regulation. The definition

of ‘‘capital and surplus’’ is the same as

the definition of ‘‘capital and surplus’’

in the OCC’s Lending Limit Regulation,

12 CFR Part 32. Twelve CFR 32.2

defines ‘‘capital and surplus’’ as a

bank’s Tier 1 and Tier 2 capital under

the OCC’s Minimum Capital Ratios in

Appendix A to 12 CFR Part 3, plus the

balance of a bank’s allowance for loan

and lease losses not included in the

bank’s Tier 2 capital, for purposes of the

calculation of risk-based capital under

12 CFR Part 3.

The OCC continues to recognize CDCs

and CD Projects as vehicles that national

banks may use to make investments

under this part. These terms are defined

at proposed § 24.2. The proposal,

however, omits the current regulation’s

definitions of community development

limited partnership and communitybased development corporation as

unnecessary further examples of such

vehicles. This change does not affect

national banks’ authority to invest in

community development limited

partnerships or community based

development corporations. Consistent

with the requirements of this part,

national banks may continue to invest

in these and other vehicles.

The proposal adds a definition of

‘‘eligible bank’’ that is the same as the

‘‘eligible bank’’ definition proposed by

the OCC for corporate applications in its

November 29, 1994 Notice of Proposed

Rulemaking concerning 12 CFR Part 5

(59 FR 61034). The proposal provides

that a bank may self-certify investments

for purposes of part 24 if it has a

composite rating of 1 or 2 under the

Uniform Financial Institutions Rating

System, has at least a satisfactory CRA

rating, is well capitalized, and is not

subject to any current OCC enforcement

actions. As explained in proposed

§ 24.5(a)(4), a national bank that is at

least adequately capitalized and that has

a composite rating of at least 3 with

improving trends may submit a letter to

the OCC’s Community Development

Division requesting permission to selfcertify investments. This is a change

from the current rule, which allows an

adequately capitalized, 1 or 2 rated bank

that is not subject to a current OCC

enforcement action to self-certify

investments. The OCC believes this

modification avoids the potential

confusion of two different ‘‘eligible

bank’’ definitions in different sections of

the OCC’s rules, and is appropriate in

light of the proposal’s significantly

expanded self-certification

opportunities for banks (See proposed

§ 24.6.)

In addition, the proposal changes the

definition of ‘‘significant risk to the

deposit insurance fund’’ to include risk

to all federal deposit insurance funds.

Finally, the proposal makes two

changes concerning the small business

definitions in current part 24. First, the

proposal removes the definition of

‘‘minority-owned small businesses’’

because these businesses are

encompassed by the regulation’s

provisions concerning all small

businesses. Second, the proposal

updates the citation to the Small

Business Administration regulations

referenced in the definition of ‘‘small

business’’ in the current regulation.

Public Welfare Investments (§ 24.3)

Part 24 currently delineates a public

welfare test that consists of four

requirements. Under current § 24.4, an

investment in a CDC or CD Project is

designed primarily to promote the

public welfare only if: (1) the

investment primarily benefits low- and

moderate-income persons and families

or small businesses; (2) the investment

addresses community development

needs not met by the private market in

one or more communities served by the

bank; (3) there is nonbank community

involvement in the CDC or CD Project;

and (4) the profits and distributions

from a CDC or CD Project are reinvested

in activities that primarily promote the

public welfare.1

Based on its experience since it

adopted part 24, the OCC believes that

the existing public welfare test should

be modified to reflect a more diverse

standard for whether an investment

promotes the public welfare. Therefore,

proposed § 24.3(a) retains the first

element of the public welfare test,

benefit to low- and moderate-income

individuals and small businesses, but

makes clear that this benefit can be

provided in a variety of ways. Section

24.3(a) sets forth a non-exhaustive list of

permissible investment activities that

provide the required benefit. The list

incorporates the definition of

‘‘community development’’ provided in

the CRA regulation, and reflects the

factors for determining whether an

institution qualifies as a Community

Development Financial Institution

under the Riegle Community

Development and Regulatory

Improvement Act and the OCC

Community Development Division’s

experience with recent innovative

investment proposals.

Proposed § 24.3(b) clarifies that,

under the second element of the current

public welfare test, a bank is not

required to demonstrate that it is

impossible to obtain private market

financing. A bank must demonstrate,

however, the reasons that it is difficult

to secure such financing for its proposed

investment. Proposed § 24.3(d) permits

a bank to make an investment that also

benefits an area outside those where the

bank provides its core banking services.

The bank must still demonstrate,

however, the extent to which its

investment benefits the communities

where it provides these services.

The proposal also modifies the

existing community participation

requirement of the public welfare test.

Current § 24.4(a)(3) requires a bank to

demonstrate nonbank community

involvement in a CDC or CD project by

indicating support from the affected

primary beneficiaries and

representatives of local government. In

the case of a CDC, a bank must

demonstrate such support by the

composition of the organization’s board

of directors.

The OCC believes that community

involvement is vital to the success of

banks’ part 24 investment programs.

Therefore, the proposal modifies the

community participation requirement to

allow banks and community groups to

determine how best to structure

community partnerships under part 24.

Proposed § 24.3(c) requires that a bank

demonstrate community support for or

participation in an investment proposal.

A bank could demonstrate such

community support or participation in a

variety of ways including non-bank

community representation on a CDC

board of directors, establishment of a

community advisory board for the

bank’s community development

activities, formation of a formal business

relationship with a community-based

organization, public sector or

community group financing, or letters of

support from community

representatives. The OCC requests

comment on the appropriate means of

demonstrating community support for

or participation in a bank’s part 24
Federal Register / Vol. 60, No. 249 / Thursday, December 28, 1995 / Proposed Rules 67093

2The proposal removes the current rule’s

provision for optional review as unnecessary. A

national bank may continue to request prior OCC

review and approval of any investment proposal,

including one that qualifies for self-certification.

investment and whether the final rule

should specify some or all of them.

The proposal removes as unnecessary

current § 24.4(e), which provides that a

bank must manage its CDC and CD

Project investments in a prudent

manner. National banks must, of course,

continue to manage their part 24

investments prudently.

Investment Limits (§ 24.4)

The current regulation contains

investment limit provisions at current

§ 24.4(b) and (d). For ease of reference,

the proposal groups the provisions

concerning part 24 investment limits

into a separately titled section. Proposed

§ 24.4(a) has been modified to clarify

that, as provided in 12 U.S.C.

24(Eleventh), a bank’s aggregate

outstanding investments under part 24

may not exceed 5 percent of its capital

and surplus unless the bank is at least

adequately capitalized and the OCC

determines, by written approval of a

proposed investment, that a higher

amount will pose no significant risk to

the deposit insurance fund.

Public Welfare Investment SelfCertification and Prior Approval

Procedures (§ 24.5)

Proposed § 24.5 simplifies, clarifies,

and reduces the burden associated with

the self-certification and prior approval

procedures set forth in current § 24.11.

Section 24.11 now provides three

processes for approval of authorized

investments. The first requires that a

bank file an investment proposal, which

the OCC usually approves or

disapproves within 30 days. The second

process consists of a five-day review

period by the OCC for investment

proposals that the OCC has previously

approved for another bank. The third is

a self-certification process for certain

investments, under which a bank files a

notice with the OCC within 10 days

after it makes an investment, and the

OCC sends a confirmation of receipt

within five days.

The proposal eliminates the second

approval process and streamlines the

third. Under proposed § 24.5(a) and

§ 24.6(a), a bank may self-certify an

investment previously approved by the

OCC for another bank. Although not

specified in the proposed rule, the OCC

will continue its practice of sending a

simple confirmation of receipt of a

bank’s self-certification notice within

five days. Under the proposal, however,

the OCC will not retroactively review a

self-certified investment proposal.

Instead, the OCC will review the selfcertification documents simply to

ensure that they meet the selfcertification requirements set forth in

proposed § 24.5(a).

The prior approval procedures for

investment proposals that do not qualify

for self-certification are set forth in

proposed § 24.5(b).2 In considering a

bank’s investment proposal, the OCC

will consider whether the investment

satisfies the requirements of § 24.3 and

whether it is consistent with the bank’s

safe and sound operation and the OCC’s

policies.

Although not specified in the

proposal, the OCC will continue its

practice of sending a simple

confirmation of receipt of an investment

proposal within five days. Unless

otherwise notified by the OCC, a bank

may make a proposed investment 30

calendar days after the date on which

the OCC receives the bank’s investment

proposal. The OCC may notify the bank

that it is extending the review period. If

so notified, the bank may make the

investment only with the OCC’s written

approval.

Current § 24.11(b) contains a limit on

the size of investments eligible for selfcertification by banks with more than

$250 million in assets. These banks

must seek prior OCC approval for

investments that exceed the lesser of 2

percent of their unimpaired capital and

surplus or $10 million. The OCC

proposes to remove this limitation in

light of the proposed new standards that

define the banks eligible to use the selfcertification process.

Investments Eligible for SelfCertification (§ 24.6)

Proposed § 24.6 replaces the current

§ 24.13, which limits self-certification to

investments using certain structures as

well as certain activities. These

structures include multi-bank CDCs;

CDCs established by state or local

government; community-based

organizations; and certain community

development limited partnerships. A

CDC subsidiary is not currently an

eligible structure for self-certification.

The OCC believes that a structurebased self-certification limitation is no

longer necessary. This limitation was

intended to allow the OCC to ensure

that particular investments did not

expose banks to safety and soundness

risks or unlimited liability. However, by

limiting self-certification to eligible

banks (as defined in proposed § 24.2(e)),

the OCC believes it can reasonably rely

on bank management to determine the

appropriate structures for part 24

investments.

In addition to eliminating the list of

eligible structures, proposed § 24.6(a)

expands the list of activities eligible for

self-certification to reflect the industry’s

increasing innovation in making part 24

investments and the OCC’s experience

with self-certification under part 24.

Part 24’s self-certification provisions

encourage public welfare investments

by banks by reducing the regulatory

steps associated with making the

investments. In order to maximize the

use of self-certification as an incentive

for banks to make investments that

primarily promote the public welfare,

and to encourage banks’ creativity in

making these investments, the OCC has

identified in proposed § 24.6(a) a clear

and expanded list of eligible activities.

This list includes, but is not limited to,

certain investments that benefit lowand moderate-income persons and small

businesses, investments that have been

determined by the OCC to be

permissible under part 24, and

investments previously approved by the

Federal Reserve Board under 12 CFR

208.21 for state member banks.

Notwithstanding the eligible activities

listed in § 24.6(a), proposed § 24.6(b)

provides that a bank may not self-certify

investments that involve properties

carried on the bank’s books as ‘‘other

real estate owned’’ (OREO properties) or

that fund projects outside the states or

metropolitan areas in which the bank’s

main office or branches are located. The

latter limitation is similar to the limit on

self-certification that appears in current

part 24 but is revised to reflect that

some national banks now have branches

in more than one state.

Examination, Records, and Remedial

Action (§ 24.7)

Proposed § 24.7 replaces current

§ 24.21 but makes no substantive

change.

Accounting for Public Welfare

Investments (Current § 24.4(c))

Current § 24.4(c) provides that a

bank’s investments in CDCs and CD

Projects generally may be recorded as

‘‘other assets at cost.’’ The rule also sets

forth circumstances under which a bank

would be required to consolidate its

investments on a line-by-line basis or

account for them under the equity

method of accounting. The proposal

eliminates this section as unnecessary,

because banks generally look to other

sources for their accounting

instructions. Banks should record their

investments, as appropriate, pursuant to

the instructions for Consolidated

Reports of Condition and Income
67094 Federal Register / Vol. 60, No. 249 / Thursday, December 28, 1995 / Proposed Rules

3 For example, a bank could make an affordable

housing loan under both 12 U.S.C. 24(Seventh) and

24(Eleventh). If the bank made such a loan under

the authority of 12 U.S.C. 24(Eleventh), the loan

would be subject to a capital limitation that is

stricter than the generally applicable lending limits.

published by the Federal Financial

Institutions Examination Council.

Policy Issue

Currently, the OCC does not generally

use 12 U.S.C. 24(Eleventh), as

implemented by part 24, as an

alternative basis for approving activities

that are otherwise permissible under

other provisions of the National Bank

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

position intended to prevent banks’

activities from being subjected

unnecessarily to part 24’s capital

limitation.3 This position, however,

does not reflect the OCC’s general

approach of allowing banks to decide

how best to structure their investments.

The OCC requests comment on

whether it should continue its policy of

not using part 24 as a basis for

approving activities otherwise

permissible under the National Bank

Act.

Derivation Table

This table directs readers to the

provision(s) of the current regulation, if

any, upon which the proposed

provision is based.

Revised provision Original provision Comments

§ 24.1 .............................................................................................................................................................. § 24.1 ......................... Modified.

§ 24.2(a) ......................................................................................................................................................... § 24.2(a) .................... Modified.

(b) ............................................................................................................................................................ § 24.2(m) ................... Substantial

change.

(c) ............................................................................................................................................................ § 24.2(b) .................... Modified.

(d) ............................................................................................................................................................ § 24.2(e) .................... Modified.

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

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

change.

(g) ............................................................................................................................................................ § 24.2(k) ..................... Modified.

(h) ............................................................................................................................................................ § 24.2(l) ..................... Modified.

§ 24.2(c) ..................... Removed.

§ 24.2(d) .................... Removed.

§ 24.2(f) ..................... Removed.

§ 24.2(i) ...................... Removed.

(i) ............................................................................................................................................................. § 24.2(a) .................... Modified.

§ 24.2(j) ...................... Removed.

§ 24.3 .............................................................................................................................................................. § 24.4(a). ................... Substantial

change.

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

§ 24.4(c) ..................... Removed.

§ 24.4(e) .................... Removed.

§ 24.5(a) ......................................................................................................................................................... § 24.11(a) .................. Substantial

change.

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

change.

§ 24.11(c) ................... Removed.

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

change.

(b) ............................................................................................................................................................ § 24.11(b) .................. Modified.

§ 24.13(a) .................. Removed.

§ 24.7 .............................................................................................................................................................. § 24.21 ....................... Modified.

Regulatory Flexibility Act

It is hereby certified that this notice

of proposed rulemaking, if adopted as a

final rule, will not have a significant

economic impact on a substantial

number of small entities. Accordingly, a

regulatory flexibility analysis is not

required. This notice of proposed

rulemaking, if adopted as a final rule,

will reduce the regulatory burden on

national banks, regardless of size, by

replacing part 24’s public welfare test

with a non-exhaustive list of

permissible public welfare investment

activities, streamlining the selfcertification and prior approval sections

of the rule, and eliminating unnecessary

provisions. While beneficial, these

changes will not have a material impact

on affected banks.

Executive Order 12866

The OCC has determined that this

proposal is not a significant regulatory

action under Executive Order 12866.

Unfunded Mandates

The OCC has determined that this

proposal will not result in expenditures

by state, local and tribal governments, or

by the private sector, of more than $100

million in any one year. Accordingly, a

budgetary impact statement is not

required under section 202 of the

Unfunded Mandates Reform Act of

1995.

Paperwork Reduction Act of 1995

The OCC invites comment on:

(1) Whether the proposed collection

of information contained in this notice

of proposed rulemaking is necessary for

the proper performance of its functions,

including whether the information has

practical utility;

(2) The accuracy of the OCC’s

estimate of the burden of the proposed

information collection;

(3) Ways to enhance the quality,

utility, and clarity of the information to

be collected; and

(4) Ways to minimize the burden of

the information collection on

respondents, including through the use

of automated collection techniques or

other forms of information technology.

Respondents are not required to

respond to this collection of information

unless it displays a currently valid OMB

control number.

The collection of information

requirements contained in this notice of

proposed rulemaking have been

submitted to the Office of Management
Federal Register / Vol. 60, No. 249 / Thursday, December 28, 1995 / Proposed Rules 67095

and Budget for review in accordance

with the Paperwork Reduction Act of

1995 (44 U.S.C. 3507(d)). Comments on

the collections of information should be

sent to the Office of Management and

Budget, Paperwork Reduction Project

(1557), Washington, DC 20503, with a

copy to the Legislation and Regulatory

Activities Division (1557), Office of the

Comptroller of the Currency, 250 E

Street, SW., Washington, DC 20219.

The collection of information

requirements in this proposed rule are

found in 12 CFR 24.5. This information

is required for the public welfare

investment self- certification and prior

approval procedures. The likely

respondents are national banks.

Estimated average annual burden

hours per respondent: 1.05 hours.

Estimated number of respondents:

400.

Estimated total annual reporting

burden: 418 hours.

Start-up costs to respondents: None.

List of Subjects in 12 CFR Part 24

Community development, Credit,

Investments, National banks, Reporting

and recordkeeping requirements.

Authority and Issuance

For the reasons set forth in the

preamble, the OCC proposes to revise

part 24, title 12, chapter I, of the Code

of Federal Regulations to read as

follows:

PART 24—COMMUNITY

DEVELOPMENT CORPORATIONS,

COMMUNITY DEVELOPMENT

PROJECTS, AND OTHER PUBLIC

WELFARE INVESTMENTS

Sec.

24.1 Authority, purpose, and OMB control

number.

24.2 Definitions.

24.3 Public welfare investments.

24.4 Investment limits.

24.5 Public welfare investment selfcertification and prior approval

procedures.

24.6 Activities eligible for self-certification.

24.7 Examination, records, and remedial

action.

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

§ 24.1 Authority, purpose, and OMB

control number.

(a) Authority. The Office of the

Comptroller of the Currency (OCC)

issues this part pursuant to its authority

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

481.

(b) Purpose. This part implements 12

U.S.C. 24(Eleventh), which authorizes

national banks to make investments

designed primarily to promote the

public welfare, including the welfare of

low- and moderate-income communities

or families, such as by providing

housing, services, or jobs. It is the OCC’s

policy to encourage national banks to

make investments described in § 24.3,

consistent with safety and soundness.

The OCC believes that national banks

can promote the public welfare through

a variety of investments, including those

in community development

corporations (CDCs) and community

development projects (CD Projects), that

develop affordable housing, foster

revitalization or stabilization of lowand moderate-income areas, or provide

equity or debt financing for small

businesses. This part provides:

(1) The standards that the OCC uses

to determine whether an investment is

designed primarily to promote the

public welfare; and

(2) The procedures that apply to these

investments.

(c) OMB Control Number. The

collection of information requirements

contained in this part were approved by

the Office of Management and Budget

under OMB control number 1557–0194.

§ 24.2 Definitions.

For purposes of this part, the

following definitions apply:

(a) Adequately capitalized has the

same meaning as adequately capitalized

in 12 CFR 6.4.

(b) Capital and surplus means:

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

under the OCC’s Minimum Capital

Ratios in Appendix A to 12 CFR Part 3;

plus

(2) The balance of a bank’s allowance

for loan and lease losses not included in

the bank’s Tier 2 capital, for purposes of

the calculation of risk-based capital

under 12 CFR part 3.

(c) Community development

corporation (CDC) means a corporation

established by one or more insured

financial institutions, or by insured

financial institutions and other

investors, to make one or more

investments that meet the requirements

of § 24.3.

(d) Community development Project

(CD Project) means a project to make an

investment that meets the requirements

of § 24.3.

(e) Eligible bank means a national

bank that:

(1) Is well capitalized;

(2) Has a composite rating of 1 or 2

under the Uniform Financial

Institutions Rating System (CAMEL);

(3) Has a Community Reinvestment

Act (CRA) rating of ‘‘Outstanding’’ or

‘‘Satisfactory’’; and

(4) Is not subject to a cease and desist

order, consent order, formal written

agreement, or Prompt Corrective Action

directive (see 12 CFR part 6, subpart B)

or, if subject to any such order,

agreement or directive, is informed in

writing by the OCC that the bank may

be treated as an ‘‘eligible bank’’ for

purposes of this part.

(f) Low-income and moderate-income

have the same meanings as low-income

and moderate- income in 12 CFR

25.12(n).

(g) Significant risk to the deposit

insurance fund means a substantial

probability that any federal deposit

insurance fund could suffer a loss.

(h) Small business means a business

that meets the qualifications for Small

Business Administration loan programs

in 13 CFR 121.802 (a)(1) through (3).

(i) Well capitalized has the same

meaning as well capitalized in 12 CFR

6.4.

§ 24.3 Public welfare investments.

A national bank may make an

investment under this part if:

(a) The investment primarily benefits

low- and moderate-income individuals

or small businesses by providing or

supporting one or more of the following

activities:

(1) Affordable housing, community

services, or permanent jobs for low- and

moderate-income individuals;

(2) Equity or special debt financing for

small businesses;

(3) Revitalization or stabilization of

low- or moderate-income areas or other

areas (including rural areas) targeted for

redevelopment by local, state, or federal

government; or

(4) Other activities, services, or

facilities conducive to the public

welfare;

(b) The bank sets forth the reasons

why it is difficult to secure private

market financing for the proposed

investment;

(c) The bank demonstrates non-bank

community support for or participation

in the investment; and

(d) The bank demonstrates the extent

to which the investment benefits

communities otherwise served by the

bank.

§ 24.4 Investment limits.

(a) Limit on aggregate outstanding

investments. A national bank’s aggregate

outstanding investments under this part

may not exceed 5 percent of its capital

and surplus, unless the bank is at least

adequately capitalized and the OCC

determines, by written approval of the

bank’s proposed investment(s), that a

higher amount will pose no significant

risk to the deposit insurance fund. In no

case may a bank’s aggregate outstanding

investments under this part exceed 10

percent of its capital and surplus.

(b) Limited liability. A national bank

may not make an investment under this
67096 Federal Register / Vol. 60, No. 249 / Thursday, December 28, 1995 / Proposed Rules

part that would expose the bank to

unlimited liability.

§ 24.5 Public welfare investment selfcertification and prior approval procedures.

(a) Self-certification of public welfare

investments. (1) Subject to § 24.4(a), an

eligible bank may make an investment

described in § 24.6(a) without prior

notification to, or approval by, the OCC

if the bank follows the self-certification

procedures prescribed in this section.

(2) To self-certify an investment, an

eligible bank shall submit, within 10

working days after an investment is

made, a letter of self-certification to the

Director, Community Development

Division, Office of the Comptroller of

the Currency, Washington, DC 20219.

(3) The bank’s letter of selfcertification must include:

(i) The name of the CDC, CD Project,

or other entity in which the bank has

invested;

(ii) The date the investment was

made;

(iii) The type of investment (equity or

debt), the investment activity listed in

§ 24.6(a) that the investment supports,

and a brief description of the particular

investment;

(iv) The bank’s total investment in the

CDC, CD Project or other entity, and the

bank’s aggregate outstanding

investments under this part, including

commitments and the investment being

self-certified;

(v) The percentage of the bank’s

capital and surplus represented by the

bank’s aggregate outstanding

investments under this part, including

commitments and the investment being

self-certified; and

(vi) A statement demonstrating

compliance with § 24.3 and § 24.4.

(4) A national bank that is not an

eligible bank but is at least adequately

capitalized, and has a composite rating

of at least 3 with improving trends

under the Uniform Financial

Institutions Rating System, may submit

a letter to the Community Development

Division requesting authority to selfcertify investments. The Community

Development Division considers these

requests on a case-by-case basis.

(b) Investments requiring prior

approval. (1) If a national bank or its

proposed investment does not meet the

requirements for self-certification set

forth in paragraph (a) of this section, the

bank shall submit a proposal for an

investment to the Director, Community

Development Division, Office of the

Comptroller of the Currency,

Washington, DC 20219.

(2) The bank’s investment proposal

must include:

(i) The name of the CDC, CD Project,

or other entity in which the bank

intends to invest;

(ii) The date on which the bank

intends to make the investment;

(iii) The type of investment (equity or

debt), the investment activity listed in

§ 24.3(a) that the investment supports,

and a description of the particular

investment;

(iv) The bank’s total investment in the

CDC, CD Project or other entity, and the

bank’s aggregate outstanding

investments under this part (including

commitments and the investment being

proposed);

(v) The percentage of the bank’s

capital and surplus represented by the

bank’s aggregate outstanding

investments under this part (including

commitments and the investment being

proposed); and

(vi) A statement demonstrating

compliance with § 24.3 and § 24.4.

(3) In reviewing a proposal, the OCC

considers the following factors and

other available information including:

(i) Whether the investment satisfies

the requirements of § 24.3;

(ii) Whether the investment is

consistent with the safe and sound

operation of the bank; and

(iii) Whether the investment is

consistent with the requirements of this

part and the OCC’s policies.

(4) Unless otherwise notified by the

OCC, and subject to § 24.4(a), the bank

may make the proposed investment after

30 calendar days from the date on

which the OCC receives the bank’s

investment proposal.

(5) The OCC, by notifying the bank,

may extend its period for reviewing the

investment proposal. If so notified, the

bank may make the investment only

with the OCC’s written approval.

(6) The OCC may impose one or more

conditions in connection with its

approval of an investment under this

part. All approvals are subject to the

condition that a national bank must

conduct the approved activity in a

manner consistent with any published

guidance issued by the OCC regarding

the activity.

§ 24.6 Activities eligible for selfcertification.

(a) Eligible activities. In accordance

with the process described in § 24.5(a),

a bank may self-certify the following

investments without prior notice to, or

approval by, the OCC:

(1) Investments in an entity that

finances, acquires, develops,

rehabilitates, manages, sells, or rents

housing primarily for low- and

moderate-income persons;

(2) Investments that stimulate

economic development, community

stabilization or revitalization, or

permanent job creation or retention for

low- and moderate-income persons by

financing small businesses (including

equity or debt financing and

investments in an entity that provides

loan guarantees);

(3) Investments that stimulate

economic development, community

stabilization or revitalization, or

permanent job-creation or retention for

low- and moderate-income persons by

providing credit counseling, job

training, community development

research, and similar technical

assistance services for small businesses,

non-profit community development

organizations, low- and moderateincome persons or areas, or other areas

(including rural areas) targeted for

redevelopment by state or local

government;

(4) Investments in an entity that

stimulates economic development,

community stabilization or

revitalization, or permanent job creation

or retention for low- and moderateincome persons by acquiring,

developing, rehabilitating, managing,

selling, or renting commercial or

industrial property that is located in a

low- and moderate- income area or other

area (including rural areas) targeted for

redevelopment by state or local

government, and which is occupied

primarily by small businesses;

(5) Investments as a limited partner in

a project with a general partner that is,

or is primarily owned and operated by,

a 26 U.S.C. 501(c)(3) or (4) non-profit

corporation and that qualifies for the

federal low-income housing tax credit;

(6) Investments in low- or moderateincome areas, or other areas (including

rural areas) targeted for redevelopment

by state or local government that create

long term employment opportunities,

the majority of which will be held by

low- and moderate-income persons;

(7) Investments in a national bank that

has been approved by the OCC as a

national bank with a community

development focus;

(8) Investments that have been

approved by the Federal Reserve Board

under 12 CFR 208.21 for state member

banks; and

(9) Investments that have been

previously determined by the OCC to be

permissible under this part.

(b) Ineligible activities.

Notwithstanding the provisions of this

section, a bank may not self-certify an

investment if:

(1) The investment involves

properties carried on the bank’s book as

‘‘other real estate owned’’;

(2) The investment funds projects in

a state or metropolitan area other than
Federal Register / Vol. 60, No. 249 / Thursday, December 28, 1995 / Proposed Rules 67097

the states or metropolitan areas in

which the bank maintains its main

office or branches; or

(3) The OCC determines, in published

guidance, that the investment is

inappropriate for self-certification.

§ 24.7 Examination, records, and remedial

action.

(a) Examination. National bank

investments under this part are subject

to the examination provisions of 12

U.S.C. 481.

(b) Records. Each national bank shall

maintain in its files information

adequate to demonstrate that it is in

compliance with the requirements of

this part.

(c) Remedial action. If the OCC finds

that an investment under this part is in

violation of law or regulation, is

inconsistent with the safe and sound

operation of the bank, or poses a

significant risk to a federal deposit

insurance fund, the national bank shall

take appropriate remedial action as

determined by the OCC.

Dated: December 14, 1995.

Eugene A. Ludwig,

Comptroller of the Currency.

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

BILLING CODE 4810–33–P

FEDERAL RESERVE SYSTEM

12 CFR Part 202

[Regulation B; Docket No. R–0910]

Equal Credit Opportunity

AGENCY: Board of Governors of the

Federal Reserve System.

ACTION: Proposed rule; official staff

interpretation.

SUMMARY: The Board is publishing for

comment proposed revisions to its

official staff commentary to Regulation

B (Equal Credit Opportunity). The

commentary applies and interprets the

requirements of Regulation B and

substitutes for individual staff

interpretations. The proposed revisions

to the commentary provide guidance on

issues that the Board has been asked to

clarify, including credit scoring and

spousal signature rules.

DATES: Comments must be received on

or before February 28, 1996.

ADDRESSES: Comments should refer to

Docket No. R–0910, and may be mailed

to William W. Wiles, Secretary, Board of

Governors of the Federal Reserve

System, 20th Street and Constitution

Avenue, N.W., Washington, D.C. 20551.

Comments also may be delivered to

Room B–2222 of the Eccles Building

between 8:45 a.m. and 5:15 p.m.

weekdays, or to the guard station in the

Eccles Building courtyard on 20th

Street, N.W. (between Constitution

Avenue and C Street) at any time.

Comments received will be available for

inspection in Room MP–500 of the

Martin Building between 9:00 a.m. and

5:00 p.m. weekdays, except as provided

in 12 CFR 261.8 of the Board’s rules

regarding the availability of information.

FOR FURTHER INFORMATION CONTACT: Jane

Jensen Gell, Sheilah A. Goodman, or

Natalie E. Taylor, Staff Attorneys,

Division of Consumer and Community

Affairs, Board of Governors of the

Federal Reserve System, at (202) 452–

3667 or 452–2412. For users of the

Telecommunications Device for the

Deaf, contact Dorothea Thompson at

(202) 452–3544.

SUPPLEMENTARY INFORMATION:

I. Background

The Equal Credit Opportunity Act

(ECOA), 15 U.S.C. 1691–1691f, makes it

unlawful for creditors to discriminate in

any aspect of a credit transaction on the

basis of race, color, religion, national

origin, sex, marital status, or age

(provided the applicant has the capacity

to contract), because all or part of an

applicant’s income derives from public

assistance, or because the applicant has

in good faith exercised any right under

the Consumer Credit Protection Act.

This statute is implemented by the

Board’s Regulation B (12 CFR Part 202).

The Board also has an official staff

commentary (12 CFR Part 202 (Supp. I))

that interprets the regulation. The

commentary provides general guidance

to creditors in applying Regulation B to

various credit transactions, and is

updated periodically to address

significant questions that arise.

II. Explanation of Proposed

Commentary

Section 202.2—Definitions

2(p) Empirically Derived and Other

Credit Scoring Systems

Comment 2(p)–2 would be revised to

provide guidance on revalidation

requirements for credit scoring systems.

Section 202.5—Rules Concerning

Taking of Applications

5(e) Written Applications

Comment 5(e)–3 would be revised to

cross-reference the proposed comments

to section 202.13(b), which address

applications submitted through an

electronic medium.

Section 202.6—Rules Concerning

Evaluation of Applications

6(b) Specific Rules Concerning Use of

Information

6(b)(2)

Comment 6(b)(2)–2 would be revised

to address the use of age in credit

scoring systems that use scorecards for

different age groups based on

characteristics that are predictive for

each group. Each scorecard considers

the correlation among the predictive

variables (representing characteristics

such as income, length of residence, and

credit history) for the age group. Each

predictive variable is assigned the

appropriate weight given the impact of

the other predictive variables in that age

group, so that comparable scores for

each group reflect the same level of risk.

Under the ECOA and Regulation B, if

a creditor considers age—whether by

directly assigning a value to age or by

some other means such as establishing

scorecards for different age groups—the

age of an elderly applicant must not be

assigned a negative value. The Board

believes that, to ensure that the

treatment accorded applicants age 62 or

older complies with the law, elderly

applicants who do not qualify for credit

under the factors assigned to the

scorecard for their age group must be

rescored under the factors assigned to

the scorecards for all other age groups

in the system. Comment 6(b)(2)–2

would be revised to incorporate this

concept.

Proposed comment 6(b)(2)–4

addresses the use of age in a reverse

mortgage transaction. A reverse

mortgage is a home-secured loan in

which the borrower receives payments

from the creditor, and the repayment of

these amounts does not become due

until the borrower dies, moves

permanently from the home, or transfers

title to the home. The proposed

comment clarifies that using age, as a

proxy for life expectancy, in a reverse

mortgage transaction to determine the

line of credit or monthly payment

amount that a borrower will receive

does not violate the regulation.

6(b)(6)

Comment 6(b)(6)–1 would be revised

to clarify that if a creditor considers

credit history, it must consider

information presented by the applicant

that is not included in the credit report,

if it is the type the creditor normally

considers on a credit report. The

comment also clarifies that when one

spouse is applying for individual credit,

the creditor must consider information

presented by the applicant that would