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

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REGISTER issue of each week.

Rules and Regulations Federal Register

67049

Vol. 60, No. 249

Thursday, December 28, 1995

1Paragraph 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).

2 Interpretive Ruling 7.7480, which was codified

at 12 CFR 7.7480, was removed in 1993 when 12

CFR part 24 was promulgated.

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.1 The OCC issued part 24 on

December 27, 1993 (58 FR 68464), to

establish various requirements for these

permissible public welfare investments.

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),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.

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 lowincome 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
67050 Federal Register / Vol. 60, No. 249 / Thursday, December 28, 1995 / Rules and Regulations

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.

§ 24.4 [Amended]

2. Paragraph (a)(2) of § 24.4 is

amended by adding at the end of the

paragraph ‘‘and’’.

3. Paragraph (a)(3) of § 24.4 is

amended by removing ‘‘; and’’ at the

end of the paragraph and adding a

period.

4. Paragraph (a)(4) of § 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

FEDERAL RESERVE SYSTEM

12 CFR Part 211

[Regulation K; Docket No. R–0896]

International Operations of United

States Banking Organizations

AGENCY: Board of Governors of the

Federal Reserve System.

ACTION: Final rule.

SUMMARY: This final rule amends

Subpart A of Regulation K (International

Operations of U.S. Banking

Organizations) to provide expanded

general consent authority for

investments in foreign companies by