[Federal Register Volume 60, Number 249 (Thursday, December 28, 1995)]
[Rules and Regulations]
[Pages 67049-67050]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-31020]



========================================================================
Rules and Regulations
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains regulatory documents 
having general applicability and legal effect, most of which are keyed 
to and codified in the Code of Federal Regulations, which is published 
under 50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by the Superintendent of Documents. 
Prices of new books are listed in the first FEDERAL REGISTER issue of each 
week.

========================================================================


Federal Register / Vol. 60, No. 249 / Thursday, December 28, 1995 / 
Rules and Regulations

[[Page 67049]]


DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 24

[Docket No. 95-33]
RIN 1557-AB46


Community Development Corporation and Project Investments

AGENCY: Office of the Comptroller of the Currency, Treasury.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Office of the Comptroller of the Currency (OCC) is 
amending its Community Development Corporation and Project Investments 
regulation. This final rule removes a provision that requires a bank to 
reinvest profits, dividends, and other distributions from community 
development investments in activities that promote the public welfare. 
The purpose of the final rule is to encourage public welfare 
investments by national banks.

EFFECTIVE DATE: January 1, 1996.

FOR FURTHER INFORMATION CONTACT: Karen Bellesi, Program Coordinator, 
Community Development Investments, Community Development Division, 202/
874-4930; Michele Meyer, Attorney, Community and Consumer Law Division, 
202/874-5750; or Karen McSweeney, Attorney, Legislative and Regulatory 
Activities Division, 202/874-5090, Office of the Comptroller of the 
Currency, 250 E Street, SW., Washington, DC 20219.

SUPPLEMENTARY INFORMATION:

Introduction

    The OCC is currently reviewing 12 CFR part 24 as a component of its 
Regulation Review Program. As part of this review, on October 26, 1995 
(60 FR 54819), the OCC published a notice of proposed rulemaking (NPRM) 
to remove one provision from part 24. Another NPRM proposing more 
comprehensive changes to other part 24 provisions is published 
elsewhere in this issue of the Federal Register.
    Part 24 permits public welfare investments by national banks, 
subject to certain limitations. Currently, part 24 requires a bank to 
reinvest the profits, dividends, and other distributions from its 
equity and debt investments in a community development corporation 
(CDC) or community development (CD) project in activities that 
primarily promote the public welfare. This final rule removes the 
reinvestment requirement from part 24.

Background

    Under 12 U.S.C. 24 (Eleventh) (section 24 (Eleventh)), a national 
bank is authorized to make investments designed primarily to promote 
the public welfare, including the welfare of low- and moderate-income 
families and communities (such as through the provision of housing, 
services, or jobs) consistent with safe and sound banking 
practices.<SUP>1 The OCC issued part 24 on December 27, 1993 (58 FR 
68464), to establish various requirements for these permissible public 
welfare investments.

    \1\ Paragraph Eleventh was added to 12 U.S.C. 24 by the 
Depository Institutions Disaster Relief Act of 1992, enacted on 
October 23, 1992. Pub. L. 102-485, Section 6(a), 106 Stat. 2774 
(1992).
---------------------------------------------------------------------------

    The part 24 requirements include a provision, currently codified at 
12 CFR 24.4(a)(4), that prescribes how a bank may use certain proceeds 
from its section 24 (Eleventh) investments. This provision requires 
that a national bank devote the profits, dividends, tax credits, and 
other distributions from equity investments, or interest income from 
debt investments received by a bank from a CDC or CD project 
investment, to activities that primarily promote the public welfare as 
determined by the OCC. Further, in the case of an investment in a for-
profit CDC subsidiary, a national bank must reinvest the profits, 
dividends, and other distributions in the CDC during its first three 
years of operation.
    Section 24 (Eleventh) does not require reinvestment of public 
welfare investment proceeds. The OCC included this provision in part 24 
based on its practice in implementing 12 U.S.C. 24 (Eighth) (section 24 
(Eighth)), which was enacted prior to section 24 (Eleventh). Section 24 
(Eighth) generally allows a national bank to contribute to community 
funds, or to charitable, philanthropic, or benevolent instrumentalities 
conducive to the public welfare. Interpretive Ruling 7.7480, which 
implemented section 24 (Eighth),<SUP>2 permitted a bank to make 
investments, as long as the investments were of a predominantly civic, 
community, or public nature. At that time, the OCC concluded that it 
could be inconsistent with the underlying charitable purpose of section 
24 (Eighth) for a bank to retain profits on these investments. 
Interpretive Ruling 7.7480 was, therefore, interpreted to require a 
bank to reinvest profits, dividends, and other distributions in public 
purpose activities.

    \2\ Interpretive Ruling 7.7480, which was codified at 12 CFR 
7.7480, was removed in 1993 when 12 CFR part 24 was promulgated.
---------------------------------------------------------------------------

    Although part 24 was drafted under the authority of section 24 
(Eleventh), which provides direct authority for public welfare 
investments, it included a reinvestment requirement as a means of 
furthering the public welfare nature of investments made pursuant to 
this authority.

Description of the Proposal and Comments Received

    In its October 26, 1995, NPRM, the OCC proposed to remove the 
current part 24 reinvestment requirement. The statute does not restrict 
an institution from earning and retaining profits on investments made 
pursuant to section 24 (Eleventh), as long as the investments are 
designed primarily to promote the public welfare. In addition, reaction 
to the current rule indicates that in some instances the reinvestment 
provision has discouraged banks from making part 24 investments. For 
example, the requirement that a bank reinvest low-income housing tax 
credits in restricted activities has diminished the economic incentive 
for a bank to participate in this type of low-income housing project.
    The OCC received 13 comments on its proposed removal of the 
reinvestment requirement. Twelve of the commenters supported the 
proposal. The majority of these commenters either indicated that the 
proposal would provide an incentive for a national bank to make part 24 
investments or indicated that the proposal would eliminate a 
disincentive 

[[Page 67050]]
that currently results from the reinvestment provision.
    Several commenters also predicted that the change would not have a 
negative effect on national banks' safety and soundness. One commenter 
suggested that the proposed rule might promote safety and soundness by 
allowing bank management increased flexibility in its use of part 24 
investment proceeds.
    Several commenters indicated that the proposed change would 
decrease the cost or burden associated with part 24 compliance. These 
comments generally were made with regard to low-income housing tax 
credits for which determining compliance with the reinvestment 
provision may be cumbersome. One commenter noted that the reinvestment 
requirement furthers the misperception that public welfare investments 
are adverse to bank profitability.
    One commenter opposed the proposal based on a concern that it might 
result in fewer part 24 investments. This commenter suggested that the 
OCC monitor the level of national bank public welfare investments on an 
ongoing basis to assess whether the change made by this final rule 
yields the anticipated results.

Discussion of the Final Rule

    In this final rule, the OCC adopts the proposal and removes the 
reinvestment requirement from part 24. The OCC believes that removal of 
the reinvestment provision will further the basic objective of section 
24 (Eleventh) by encouraging banks to make more investments. The OCC 
also believes that the change made by this final rule is consistent 
with bank safety and soundness. It will enable a bank to use profits, 
dividends, and other distributions from its part 24 investments for any 
purpose based upon an overall assessment by the bank's management of 
its financial needs and public welfare investment objectives.
    Removing the reinvestment requirement will encourage banks to make 
investments that promote the public welfare. It will not, however, 
constrain a bank's use of investment proceeds nor hamper its ability to 
ensure the sound operation of the bank as a whole.
    The OCC will continue to monitor public welfare investment levels 
and trends, as it has since public welfare investments were 
specifically authorized by part 24. Based on this monitoring, the OCC 
periodically will evaluate the effectiveness of part 24, as amended.

Regulatory Flexibility Act

    It is hereby certified that this final rule will not have a 
significant economic impact on a substantial number of small entities. 
Accordingly, a regulatory flexibility analysis is not required. The 
final rule will reduce somewhat the regulatory burden on national 
banks, regardless of size, by removing the requirement that a national 
bank must reinvest the proceeds of its public welfare investments.

Executive Order 12866

    The OCC has determined that this final rule is not a significant 
regulatory action under Executive Order 12866.

Unfunded Mandates

    The OCC has determined that this final rule 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.

Effective Date

    This final rule will become effective on January 1, 1996. The final 
rule will apply to profits from both existing and new public welfare 
investments. Thus, public welfare investment profits, dividends, tax 
credits, interest, and other distributions that a national bank earns 
prior to January 1, 1996, but which the bank has not reinvested by 
January 1, 1996, do not have to be reinvested. In addition, public 
welfare profits, dividends, tax credits, interest, and other 
distributions that a national bank earns after January 1, 1996, which 
stem from a public welfare investment undertaken by the national bank 
prior to January 1, 1996, will not have to be reinvested. Finally, 
profits, dividends, tax credits, interest, and other distributions from 
a public welfare investment undertaken after January 1, 1996, will not 
be subject to the reinvestment requirement.
    The Administrative Procedure Act (5 U.S.C. 553(d)(1)) (APA) states 
that a substantive rule shall not be published less than 30 days before 
its effective date unless the rule grants or recognizes an exemption or 
relieves a restriction. Because the current regulation restricts the 
manner in which a national bank can use its pubic welfare investment 
returns and the final rule removes this restriction, this final rule 
satisfies the terms of the APA's exception to the requirement for a 
delayed effective date.
    In addition, section 302 of the Riegle Community Development and 
Regulatory Improvement Act of 1994 generally restricts the effective 
date of Federal banking agency regulations that impose additional 
reporting, disclosure, or other new requirements on insured depository 
institutions. The OCC believes that section 302 is not applicable to 
this final rule because the final rule does not impose any additional 
reporting, disclosure, or other new requirements on national banks. 
Instead, this final rule removes the current reinvestment requirement.

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, part 24 of title 12, 
chapter I, of the Code of Federal Regulations is amended as set forth 
below:

PART 24--COMMUNITY DEVELOPMENT CORPORATION AND PROJECT INVESTMENTS

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

    Authority: 12 U.S.C. 24 (Eleventh), 93a, 161, 481 and 1818.


Sec. 24.4  [Amended]

    2. Paragraph (a)(2) of Sec. 24.4 is amended by adding at the end of 
the paragraph ``and''.
    3. Paragraph (a)(3) of Sec. 24.4 is amended by removing ``; and'' 
at the end of the paragraph and adding a period.
    4. Paragraph (a)(4) of Sec. 24.4 is removed.

    Dated: December 15, 1995.
Eugene A. Ludwig,
Comptroller of the Currency.
[FR Doc. 95-31020 Filed 12-27-95; 8:45 am]
BILLING CODE 4810-33-P