[Federal Register Volume 61, Number 185 (Monday, September 23, 1996)]
[Rules and Regulations]
[Pages 49654-49662]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-23986]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 24

[Docket No. 96-21]
RIN 1557-AB46


Community Development Corporation and Project Investments and 
Other Public Welfare Investments

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

ACTION: Final rule.

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SUMMARY: As part of its Regulation Review Program, the Office of the 
Comptroller of the Currency (OCC) is revising its regulation governing 
national bank investments designed primarily to promote the public 
welfare. This final rule clarifies banks' authority; renumbers and 
reorganizes sections of the regulation; modifies the test for 
determining whether investments primarily promote the public welfare; 
and simplifies the regulation's investment self-certification and prior 
approval processes. This final rule reduces regulatory burden and 
inconsistencies while enhancing the ability of national banks to make 
community development and other public welfare investments.

EFFECTIVE DATE: October 23, 1996.

FOR FURTHER INFORMATION CONTACT: Karen Bellesi, Acting Deputy Director, 
Community Development Division, (202) 874-4940; or Michele Meyer, 
Senior Attorney, Community and Consumer Law Division, (202) 874-5750, 
Office of the Comptroller of the Currency, 250 E Street, SW, 
Washington, DC 20219.

SUPPLEMENTARY INFORMATION:

Background

    The OCC has reviewed 12 CFR part 24 as part of its Regulation 
Review Program (Program). Goals of the Program are 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, updating and modernizing the OCC's 
rules where appropriate, and clarifying the OCC's regulations to convey 
more effectively the standards the OCC seeks to apply. Consistent with 
these goals, this final rule reduces regulatory burden on national 
banks and clarifies the standards that the OCC applies to national 
banks' community development and public welfare investment programs.

The Proposal

    On December 28, 1995, the OCC published a notice of proposed 
rulemaking (NPRM) (60 FR 67091) to revise 12 CFR part 24. Part 24 
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 families and 
communities (such as through the provision of housing, services, or 
jobs),'' subject to certain percentage of capital limitations.
    As initially written, part 24 placed predominant emphasis on 
community development investments. Part 24 permitted 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 could self-certify 
certain community development investments. Investments that were not 
eligible for self-

[[Page 49655]]

certification were subject to one of two prior approval processes. The 
first required a bank to file an investment proposal, which the OCC 
usually approved or disapproved within 30 days. The second consisted of 
a five-day review period for investment proposals that the OCC had 
previously approved for another bank.
    In the NPRM, the OCC proposed replacing part 24's public welfare 
test with modified criteria for determining whether an investment 
promotes the public welfare, including a non-exhaustive list of 
permissible public welfare activities. The NPRM also proposed 
streamlining part 24's investment self-certification and prior approval 
provisions. In addition, the NPRM removed redundant or otherwise 
unnecessary provisions from the former rule and made several other 
changes intended to improve the rule's clarity. Finally, the NPRM asked 
for comment on whether the OCC should continue its policy of not using 
part 24 authority as a basis for approving an investment that is 
otherwise permissible under 12 U.S.C. 24(Seventh).

The Final Rule and Comments Received

    The OCC received seven comments. Most commenters supported the 
proposed changes. Comments were submitted by three national banks, one 
savings bank, two trade groups, and one national non-profit 
organization that provides support for local non-profit CDCs. As 
discussed later in this preamble, several commenters supported the 
proposal but suggested that the OCC make additional changes, and one 
commenter opposed the proposed changes to the former rule's public 
welfare test and self-certification provisions. The following 
discussion summarizes these comments and the amendments to part 24.

Title

    The NPRM proposed changing the title of part 24 from ``Community 
Development Corporation and Project Investments'' to ``Community 
Development Corporation and Project Investments and other Public 
Welfare Investments.'' This change reflects the OCC's view that 
national banks can promote the public welfare through a variety of 
authorized investments, as described in Sec. 24.3, in addition to CDCs 
and CD Projects. The OCC received no comments on this issue, and 
accordingly adopts the proposed title change.

Authority, Purpose, and OMB Control Number (Sec. 24.1)

    The NPRM proposed amending the ``purpose'' paragraph of the 
regulation to reflect that CDCs and CD Projects that develop affordable 
housing, foster revitalization and stabilization of low-and moderate-
income 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 preamble to the NPRM emphasized that the OCC 
continues to encourage national banks to make these types of 
investments but also stressed that banks may undertake other kinds of 
public welfare investments. The OCC received no comments specifically 
on this proposed section. However, as discussed later in this preamble, 
the OCC received comments on proposed Sec. 24.3 that resulted in 
modifications to that section to provide that banks' part 24 
investments benefit low- and moderate-income individuals, low- and 
moderate-income areas, or other areas targeted for redevelopment by 
local, state, tribal or Federal government. Consistent with the change 
to Sec. 24.3, the OCC adopts proposed Sec. 24.1 with a modification to 
the ``purpose'' paragraph to clarify that bank efforts to promote the 
public welfare through small business investment or area revitalization 
or stabilization must be targeted to low- and moderate-income areas or 
other redevelopment areas.

Definitions (Sec. 24.2)

    In keeping with the Regulation Review Program's goal of using 
terminology consistently throughout the OCC's regulations, the NPRM 
proposed the use of definitions and terms common to other OCC 
regulations. For example, the definition of ``low-income and moderate-
income'' in the NPRM referred to the OCC's CRA Regulation (12 CFR part 
25). One commenter supported the OCC's efforts to standardize various 
definitions in its regulations, but voiced the concern that the CRA 
definition of ``low-income and moderate-income'' was more restrictive 
than the definition in the former part 24.
    Under the former rule and the OCC's CRA regulation, low- and 
moderate-income individuals are individuals whose incomes are less than 
80 percent of the median income of the area in which they live. The 
former rule defined low- and moderate-income areas slightly differently 
from the OCC's CRA regulation, however. The former rule defined low- 
and moderate-income areas as areas where at least 51 percent of the 
residents are low- and moderate-income persons and families. The CRA 
regulation defines low- and moderate-income areas as areas where at 
least 50 percent of the families have incomes less than 80 percent of 
the area median family income. 12 CFR 25.12. Thus, the CRA regulation 
is slightly more expansive in its definition of low- and moderate-
income areas than the former rule. The OCC believes that the difference 
between the two definitions is insignificant and that adopting the CRA 
regulation definition of low-and moderate-income in this final rule 
will enhance its clarity and reduce the burden associated with having 
different definitions of the same terms in the OCC's regulations. 
Accordingly, the OCC adopts the proposed definition of ``low-income and 
moderate-income.''
    The NPRM also proposed using the same definition of ``capital and 
surplus'' as the OCC's Lending Limit Regulation, 12 CFR part 32, which 
refers to components of capital that national banks calculate for 
purposes of determining their risk-based capital under 12 CFR part 3. 
The OCC received no comments on this section and, accordingly, adopts 
the proposed definition of ``capital and surplus.''
    The NPRM omitted the former rule's definitions of community 
development limited partnership and community-based development 
corporation as unnecessary further examples of vehicles that national 
banks may use to make investments under this part. The OCC received no 
comments on this proposed removal, and accordingly adopts the proposed 
change. This change does not affect a national bank's authority to 
invest in a community development limited partnership or community 
based development corporation. Consistent with the requirements of this 
part, a national bank may continue to invest in these and other 
vehicles.
    The NPRM proposed adding 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 NPRM proposed 
allowing a bank to 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. One commenter suggested that the final rule limit self-
certification eligibility to only banks with outstanding CRA ratings. 
The OCC declines to make this change for two reasons. First, part 24

[[Page 49656]]

investments represent an important mechanism for banks to improve their 
CRA records. Second, limiting self-certification to banks with 
outstanding CRA ratings would result in far fewer banks benefiting from 
the streamlined self-certification processes proposed in the NPRM. The 
OCC accordingly adopts the proposed definition of ``eligible bank'' 
with only a technical clarification that the definition applies to the 
self-certification process.
    The NPRM also clarified that 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 self-certify investments. 
The OCC received no comments on this clarification. Accordingly, the 
final rule permits a national bank that is at least adequately 
capitalized and that has a composite rating of at least 3 with 
improving trends to submit a letter to the OCC's Community Development 
Division requesting permission to self-certify investments.
    In addition, in a change from the former rule, the NPRM proposed 
permitting a bank that is subject to a current OCC enforcement action 
to seek permission to self-certify investments. As explained in the 
preamble to the NPRM, the OCC believes this modification is appropriate 
in light of the final rule's expanded self-certification opportunities 
for banks (See Sec. 24.6.) Accordingly, the final rule adopts this 
change.
    In addition, the NPRM proposed changing the definition of 
``significant risk to the deposit insurance fund'' to include risk to 
all Federal deposit insurance funds. The OCC received no comments on 
this proposed section and, accordingly, adopts the proposed change.
    Finally, the NPRM proposed making two changes concerning the small 
business definitions in former part 24. First, the NPRM proposed 
removing the definition of ``minority-owned small businesses'' because 
these businesses are encompassed by the regulation's provisions 
concerning all small businesses. Second, the NPRM proposed updating the 
citation to the Small Business Administration regulations referenced in 
the definition of ``small businesses'' in the former regulation. The 
OCC received no comments on these proposed changes and, accordingly, 
adopts them with the clarification that the definition of ``small 
business'' includes minority-owned small business.

Public Welfare Investments (Sec. 24.3)

    Former part 24 delineated a public welfare test that consisted of 
four requirements. Under former Sec. 24.4, an investment in a CDC or CD 
Project was designed primarily to promote the public welfare only if: 
(1) the investment primarily benefited low- and moderate-income persons 
and families or small businesses; (2) the investment addressed 
community development needs not met by the private market in one or 
more communities served by the bank; (3) there was nonbank community 
involvement in the CDC or CD Project; and (4) the profits and 
distributions from a CDC or CD Project were reinvested in activities 
that primarily promote the public welfare.1
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     1 On December 28, 1995, the OCC published a final rule 
eliminating part 24's reinvestment requirement. 60 FR 67049.
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    Based on the OCC's experience since it adopted part 24, the NPRM 
proposed replacing the public welfare test with modified criteria for 
determining whether an investment primarily promotes the public 
welfare. That list retained the first element of the public welfare 
test, the requirement for a primary benefit to low- and moderate-income 
individuals or small businesses, but made clear that this benefit could 
be provided in a variety of ways. For example, Sec. 24.3(a) of the NPRM 
permitted banks to invest in affordable housing, community 
revitalization projects, small business financing or ``other 
activities, services, or facilities conducive to the public welfare.'
    The list of public welfare investment criteria also modified the 
private market financing and community involvement elements of the 
current public welfare test. Proposed Sec. 24.3(b) required a bank to 
demonstrate only that it was difficult, rather than impossible, to 
obtain private market financing. Section 24.3(c) of the proposal also 
required a bank to demonstrate community support for or participation 
in a proposed investment, but, unlike the former rule, it did not 
prescribe any particular method of demonstrating that support or 
participation.2
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    \2\ The former rule required 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 CD entity with a board of directors, a 
bank was required to demonstrate such support by the composition of 
the organization's board of directors.
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    In addition, Sec. 24.3(d) of the NPRM permitted a bank to make an 
investment that also benefitted an area outside those where the bank 
provides its core banking services. However, the bank would still have 
been required to demonstrate the extent to which its investment 
benefits the communities where it provides these services. These 
proposed revisions to the public welfare test reflected the OCC's 
willingness to consider a wider range of public welfare investments 
than under the former rule.
    All but one of the commenters voiced strong support for the 
proposed revisions to the public welfare test. The objecting commenter, 
a national non-profit organization that provides support for local non-
profit CDCs, strongly supported the former rule and expressed concern 
that the proposal undermines the intent of 12 U.S.C. 24(Eleventh), 
because the revised criteria would discourage banks from taking on 
difficult community development projects, such as those targeted to 
low- and moderate-income areas where private market financing is 
difficult to obtain. The OCC appreciates these concerns and has 
modified Sec. 24.3 to clarify that investments must benefit low- and 
moderate-income individuals, low- and moderate-income areas, or other 
areas targeted for redevelopment by local, state, tribal or Federal 
government. The OCC has also modified Sec. 24.3 to require that a bank 
demonstrate that it is not reasonably practicable to obtain other 
private market financing for a proposed investment. In addition, the 
OCC agrees with the commenter's opinion that the phrase ``conducive to 
the public welfare'' in proposed Sec. 24.3(a)(4) could be 
misinterpreted by some readers as a lowering of the statutory 
requirement that banks' investments must ``primarily promote the public 
welfare.'' Accordingly, the OCC has revised Sec. 24.3(a)(4) to clarify 
that all investments under this part must primarily promote the public 
welfare.
    Two commenters, although supportive of the proposed changes to the 
community participation requirement, requested that the final rule 
include a list of examples for demonstrating community support for, or 
participation in, a proposed investment. Based on these comments, the 
OCC has revised the community participation criterion to include the 
following examples:
     In the case of an investment in a CD entity with a board 
of directors, representation on the board of directors by non-bank 
community representatives with expertise relevant to the proposed 
investment;
     Establishment of an advisory board for the bank's 
community development activities that includes non-bank community 
representatives with expertise relevant to the proposed investment;

[[Page 49657]]

     Formation of a formal business relationship with a 
community-based organization in connection with the proposed 
investment;
     Contractual agreements with community partners to provide 
services in connection with the proposed investment;
     Joint ventures with local small businesses in the proposed 
investment; and
     Financing for the proposed investment from the public 
sector or community development organizations.
    The OCC emphasizes, however, that these examples are by no means 
exhaustive; banks and their community partners may determine other 
acceptable ways to demonstrate community support for, or participation 
in, investments under this part.
    To improve clarity, the final rule reverses the order of the 
sections concerning community participation and benefit to communities 
otherwise served by the bank. Thus, the community participation section 
is now set forth at Sec. 24.3(d) of the final rule, and the section 
concerning benefit to communities otherwise served by the bank is set 
forth at Sec. 24.3(c).
    Finally, the NPRM proposed removing as unnecessary former 
Sec. 24.4(e), which provided that a bank must manage its CDC and CD 
Project investments in a prudent manner. The OCC received no comments 
on the proposed removal and, accordingly, adopts the proposed change. 
This change streamlines the regulation and, of course, reflects no 
change in the applicable standard that national banks must manage their 
part 24 investments--as with all their investments--consistent with 
safe and sound banking practices.

Investment Limits (Sec. 24.4)

    The former rule contained investment limit provisions at 
Sec. 24.4(b) and (d). For ease of reference, the NPRM grouped the 
provisions concerning part 24 investment limits into a separately 
titled section. Section 24.4(a) of the NPRM clarified 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, up to 10 percent, will pose no significant risk to the deposit 
insurance fund.
    One commenter suggested that the final rule permit an adequately 
capitalized bank with assets up to $150 million to commit up to ten 
percent of its capital and surplus to part 24 investments. As explained 
earlier, however, the statute requires a bank to seek OCC approval of 
investments that exceed 5 percent of capital. Accordingly, the OCC 
adopts the statutory limitation proposed in the NPRM.

Public Welfare Investment Self-Certification and Prior Approval 
Procedures (Sec. 24.5)

    The NPRM proposed changes to the self-certification and prior 
approval procedures set forth in Sec. 24.11 of the former rule. Former 
Sec. 24.11 provided three processes for approval of authorized 
investments. The first required a bank to file an investment proposal, 
which the OCC usually approved or disapproved within 30 days. The 
second process consisted of a five-day review period by the OCC for 
investment proposals that the OCC had previously approved for another 
bank. The third was a self-certification process for certain 
investments, under which a bank filed a notice with the OCC within 10 
days after it makes an investment, and the OCC sent a confirmation of 
receipt within five days.
    The NPRM proposed eliminating the second approval process. Thus, 
under Sec. 24.5(a) and Sec. 24.6(a) of the NPRM, a bank would be 
permitted to self-certify an investment previously approved by the OCC 
for another bank. The preamble to the NPRM further provided that the 
OCC will continue its practice of sending a simple confirmation of 
receipt of a bank's self-certification notice within five days. The 
NPRM also made clear that the OCC will not retroactively review a self-
certified investment proposal, but simply will review the self-
certification documents to ensure that they meet the self-certification 
requirements set forth in Sec. 24.5(a). The OCC received no comments on 
the proposed elimination of the approval process for investments 
previously approved by the OCC for another bank and, accordingly, 
adopts this change.
    Section 24.5(b) of the NPRM sets forth the prior approval 
procedures for investment proposals that do not qualify for self-
certification.3 In considering a bank's investment proposal under 
the NPRM, the OCC will consider whether the investment satisfies the 
requirements of Sec. 24.3 and whether it is consistent with the bank's 
safe and sound operation and the OCC's policies. As explained in the 
NPRM's preamble, the OCC will continue its practice of sending a simple 
confirmation of receipt of an investment proposal within five days. 
Consistent with the former rule, the NPRM permitted a bank, unless 
notified otherwise by the OCC, to make a proposed investment 30 
calendar days after the date on which the OCC received the bank's 
investment proposal. The NPRM further provided that the OCC may notify 
the bank that it is extending the review period. If so notified, the 
bank could make the investment only with the OCC's written approval. 
One commenter suggested that the final rule require that, within 30 
days of the OCC's receipt of a bank's investment proposal, the OCC 
notify the bank of the proposal's status by facsimile or telephone. The 
OCC declines to include this level of detail in the final rule but will 
endeavor to notify banks of proposal status as quickly as possible. 
Accordingly, the OCC adopts the proposed procedures for prior approval 
of investment proposals.
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     3  The NPRM proposed removing the former rule's provision 
for optional review as unnecessary. The OCC received no comments on 
this proposed removal, and accordingly adopts the proposed change. A 
national bank may, however, continue to request prior OCC review and 
approval of any investment proposal, including one that qualifies 
for self-certification.
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    Former rule Sec. 24.11(b) contained a limit on the size of 
investments eligible for self-certification by banks with more than 
$250 million in assets. Those banks were required to seek prior OCC 
approval for investments that exceeded the lesser of 2 percent of their 
unimpaired capital and surplus or $10 million. The NPRM proposed 
removing this additional limitation in light of the proposed new 
standards that define the banks eligible to use the self-certification 
process (discussed earlier). The OCC received no comments on this 
proposed removal and, accordingly, the final rule adopts the proposed 
change.

Investments Eligible for Self-Certification (Sec. 24.6)

    Section 24.6 of the NPRM proposed replacing former rule Sec. 24.13, 
which limited self-certification to investments using certain 
structures as well as certain activities. These structures included 
multi-bank CDCs; CDCs established by state or local government; 
community-based organizations; and certain community development 
limited partnerships. A CDC subsidiary was not an eligible structure 
for self-certification.
    The OCC believes that a structure-based 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, 
particularly relating to then-novel structures, such as limited 
liability companies and CD

[[Page 49658]]

banks. However, since self-certification is limited to eligible banks 
(as defined in Sec. 24.2(e) of the final rule), the OCC believes it is 
reasonable to rely on bank management to determine the appropriate 
structures for part 24 investments. The OCC received no comments on the 
proposed elimination of the list of eligible structures and, 
accordingly, adopts the proposed change.
    In addition to eliminating the list of eligible structures, 
Sec. 24.6(a) of the NPRM proposed an expanded list of activities 
eligible for self-certification to reflect the industry's innovation in 
part 24 investing and the OCC's experience with self-certification 
under part 24. Part 24's self-certification provisions encourage 
community development and other 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 
identified in proposed Sec. 24.6(a) a clear and expanded list of 
eligible activities. In addition to the former rule's list of eligible 
activities, the NPRM's list included, but was not limited to, certain 
investments that benefit low- and moderate-income persons and small 
businesses, investments that previously have been determined by the OCC 
to be permissible under part 24, and investments previously approved by 
the Federal Reserve Board (FRB) under 12 CFR 208.21 for state member 
banks.
    One commenter suggested several changes to the proposed list of 
activities eligible for self-certification. The commenter recommended 
deleting from the list investments in an entity that acquires housing 
for low- and moderate-income persons. The OCC believes, however, that 
this activity, which was eligible for self-certification under the 
former rule, promotes the public welfare and that permitting self-
certification of such investments is therefore consistent with the 
statute and accordingly declines to remove it from the proposed list. 
The commenter also requested that the list clarify that a bank may 
self-certify investments as a limited partner, or as a partner in an 
entity that it itself 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. The OCC agrees with this 
suggestion and accordingly adopts the proposed clarification.
    In addition, the commenter suggested that the final rule bar from 
self-certification any bank that self-certifies an investment the OCC 
later determines was ineligible for self-certification. The OCC 
believes that this concern is addressed by the remedial action 
provisions of proposed Sec. 24.7(c). Finally, the commenter objected to 
the proposed inclusion of investments of a type approved by the FRB in 
the list of eligible activities. The OCC believes that national banks 
and the beneficiaries of their investments will benefit by the 
increased flexibility and reduced burden associated with this 
provision, but agrees that no investment can be self-certified, even if 
that type of investment has been approved by the FRB, unless it meets 
the criteria for public welfare investments set forth in Sec. 24.3. 
Accordingly, this provision has been modified in the final rule.
    As discussed earlier, the OCC has modified Sec. 24.3 to require 
that bank investments be targeted to low- and moderate-income 
individuals, low- and moderate-income areas, or other areas targeted 
for redevelopment. The OCC has decided, however, to modify the list of 
activities eligible for self-certification proposed in Sec. 24.6(a) of 
the NPRM to clarify that a bank may self-certify an investment only if 
it primarily benefits low- and moderate-income individuals or areas. 
National banks must therefore submit for prior approval by the OCC 
proposals for other types of investments. The distinction between what 
is a permissible investment under Sec. 24.3 and what is eligible for 
self-certification under Sec. 24.6 reflects the OCC's view that 
investments targeted to low- and moderate-income individuals or areas 
necessarily primarily promote the public welfare. Other types of 
investments may primarily promote the public welfare also, but the OCC 
believes that some prior review of such investments is an appropriate 
means to ensure that they satisfy the criteria set forth in Sec. 24.3. 
Accordingly, the OCC adopts the list of eligible activities proposed in 
Sec. 24.6(a) of the NPRM with two modifications. The first modification 
limits self-certification to investments that benefit low- and 
moderate-income individuals or areas; and the second modification 
reflects the commenter's suggestion concerning limited partnerships 
investments.4
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     4  In response to another commenter, the OCC clarifies that 
permissible investments in a rural community in which a bank has its 
main office or branch may be self-certified.
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    Notwithstanding the activities eligible for self-certification 
listed in Sec. 24.6(a), Sec. 24.6(b) of the NPRM provided 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 former part 
24 but was revised in the NPRM to reflect that some national banks now 
have branches in more than one state. One commenter suggested that the 
final rule permit self-certification of investments in portfolio 
projects, such as regional funds that invest in affordable housing 
projects located in several states, where no more than 25 percent of 
the affordable housing projects are located outside the states or 
metropolitan areas served by the bank. The OCC agrees that a bank 
should not be discouraged from investing in innovative projects that 
primarily benefit the communities it serves because a small portion of 
the investment benefits other areas. Accordingly, under the final rule, 
a bank may not self-certify an investment where more than 25 percent of 
the investment funds projects in a state or metropolitan area other 
than the states or metropolitan areas in which the bank maintains its 
main office or branches. If a portion of a bank's investment funds 
projects in areas outside of those in which the bank maintains its main 
office or branches, the bank must certify under Sec. 24.5(a)(3)(vii) 
that no more than 25 percent of the investment funds projects in a 
state or metropolitan area other than the states or metropolitan areas 
in which the bank maintains its main office or branches.

Examination, Records, and Remedial Action (Sec. 24.7)

    The NPRM proposed replacing former Sec. 24.21, which set forth the 
former rule's examination, records, and remedial action provisions, 
with proposed Sec. 24.7 without substantive change. The OCC received no 
comments on this proposed revision, and accordingly adopts the proposed 
change.

Accounting for Public Welfare Investments (Current Sec. 24.4(c))

    Section 24.4(c) of the former rule provided that a bank's 
investments in CDCs and CD Projects generally could be recorded as 
``other assets at cost.'' The former rule also set 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 NPRM proposed eliminating this section as

[[Page 49659]]

unnecessary, because banks generally look to other sources for their 
accounting instructions. The OCC received no comments on this proposed 
removal, and accordingly adopts the proposed change. Banks should 
record their investments, as appropriate, pursuant to the instructions 
for Consolidated Reports of Condition and Income published by the 
Federal Financial Institutions Examination Council.

Policy Issue Regarding Dual Sources of Authority

    In the past, the OCC has not used 12 U.S.C. 24(Eleventh), as 
implemented by part 24, to approve activities permissible under other 
provisions of the National Bank Act, 12 U.S.C. 1 et seq. This position 
was intended to prevent banks' activities from being subjected 
unnecessarily to part 24's limitation on the amount of capital a bank 
may commit to community development and public welfare investments. For 
example, a bank could make certain affordable housing loans under both 
12 U.S.C. 24(Seventh) and 24(Eleventh). If the bank made such a loan 
under the authority of 24(Eleventh), the loan would be subject to a 
capital limitation that is stricter than the generally applicable 
lending limits. Because the bank would have used unnecessarily some of 
its limited part 24 authority to make a loan that is also permissible 
under 24(Seventh), the bank would be left with less capital to commit 
to investments that are permissible only under part 24. Therefore, the 
OCC would usually conclude that 24(Seventh) provided the authority for 
the loan. This position, however, does not reflect the OCC's general 
approach of allowing banks to decide how best to structure their 
investments.
    The NPRM requested comment on whether the OCC should continue its 
policy of not using part 24 as a basis for approving activities 
otherwise permissible under the National Bank Act. One commenter opined 
that part 24 provides limited authority that should be restricted only 
to those activities motivated by concern for the public welfare, rather 
than regular business considerations. The OCC believes that part 24 
affords banks the opportunity to implement activities that supplement 
and enhance otherwise permissible activities but may, in some cases, 
provide authority that overlaps with other authority under the National 
Bank Act. The OCC has decided that, where a choice is available, a bank 
will be permitted to choose whether an investment activity will be 
undertaken pursuant to authority under 24(Seventh) or 24(Eleventh). 
When a bank seeks to rely on 24(Eleventh), however, the OCC will advise 
the bank that the proposed investment is permissible under both 
authorities to ensure that the bank is aware of the full range of its 
legal investment opportunities and of the effect of the applicable 
investment limitations.

Derivation Table

    This table directs readers to the provision(s) of the current 
regulation, if any, upon which the proposed provision is based.

----------------------------------------------------------------------------------------------------------------
         Revised section                          Original section                           Comments           
----------------------------------------------------------------------------------------------------------------
Sec.  24.1.......................  Sec.  24.1...................................  Modified.                     
Sec.  24.2(a)....................  Sec.  24.2(a)................................  Modified.                     
    (b)..........................  Sec.  24.2(m)................................  Substantial change.           
    (c)..........................  Sec.  24.2(b)................................  Modified.                     
    (d)..........................  Sec.  24.2(e)................................  Modified.                     
    (e)..........................  .............................................  Added.                        
    (f)..........................  Sec.  24.2 (g) ,(h)..........................  Substantial change.           
    (g)..........................  Sec.  24.2(k)................................  Modified.                     
    (h)..........................  Sec.  24.2(l)................................  Modified.                     
                                   Sec.  24.2(c)................................  Removed.                      
                                   Sec.  24.2(d)................................  Removed.                      
                                   Sec.  24.2(f)................................  Removed.                      
                                   Sec.  24.2(i)................................  Removed.                      
    (i)..........................  Sec.  24.2(a)................................  Modified.                     
                                   Sec.  24.2(j)................................  Removed.                      
Sec.  24.3.......................  Sec.  24.4(a)................................  Substantial change.           
Sec.  24.4.......................  Sec.  24.4 (b), (d)..........................  Modified.                     
                                   Sec.  24.4(c)................................  Removed.                      
                                   Sec.  24.4(e)................................  Removed.                      
Sec.  24.5(a)....................  Sec.  24.11(a)...............................  Substantial change.           
    (b)..........................  Sec.  24.11 (b), (d), (e)....................  Substantial change.           
                                   Sec.  24.11(c)...............................  Removed.                      
Sec.  24.6(a)....................  Sec.  24.13(b)...............................  Substantial change.           
    (b)..........................  Sec.  24.11(b)...............................  Modified.                     
                                   Sec.  24.13(a)...............................  Removed.                      
Sec.  24.7.......................  Sec.  24.21..................................  Modified.                     
----------------------------------------------------------------------------------------------------------------

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. This 
final rule will reduce the regulatory burden on national banks, 
regardless of size, by replacing part 24's public welfare test with 
modified criteria for determining whether an investment promotes the 
public welfare, streamlining the self-certification and prior approval 
sections of the rule, and eliminating unnecessary provisions. Although 
beneficial, these changes will not have a material impact on affected 
banks.

Executive Order 12866

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

[[Page 49660]]

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.

Paperwork Reduction Act of 1995

    The collection of information requirements in this final 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 amends title 12, 
chapter I, part 24, of the Code of Federal Regulations as set forth 
below.

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 self-certification 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), 93a, 481 and 1818.


Sec. 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 areas or individuals, such as by providing housing, services, or 
jobs. It is the OCC's policy to encourage national banks to make 
investments described in Sec. 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 low- and moderate-income areas or other areas targeted 
for redevelopment by local, state, tribal or Federal government, or 
provide equity or debt financing for small businesses that are located 
in such areas or that produce or retain permanent jobs for low- and 
moderate-income persons. 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.


Sec. 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 calculated under the OCC's 
risk-based capital standards set out in Appendix A to 12 CFR part 3 as 
reported in the bank's Consolidated Report of Condition and Income as 
filed under 12 U.S.C. 161; 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 Appendix A to 12 CFR part 3, as reported in 
the bank's Consolidated Report of Condition and Income as filed under 
12 U.S.C. 161.
    (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 Sec. 24.3.
    (d) Community development Project (CD Project) means a project to 
make an investment that meets the requirements of Sec. 24.3.
    (e) Eligible bank means, for purposes of Sec. 24.5, a national bank 
that:
    (1) Is well capitalized;
    (2) Has a composite rating of 1 or 2 under the Uniform Financial 
Institutions Rating System;
    (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, including a minority-owned 
small business, that meets the qualifications for Small Business 
Administration Development Company or Small Business Investment Company 
loan programs in 13 CFR 121.301.
    (i) Well capitalized has the same meaning as well capitalized in 12 
CFR 6.4.


Sec. 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, low- and moderate-income areas, or other areas targeted 
for redevelopment by local, state, tribal or Federal government 
(including Federal enterprise communities and Federal empowerment 
zones) 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 debt financing for small businesses;
    (3) Area revitalization or stabilization; or
    (4) Other activities, services, or facilities that primarily 
promote the public welfare;
    (b) The bank demonstrates that it is not reasonably practicable to 
obtain other private market financing for the proposed investment;
    (c) The bank demonstrates the extent to which the investment 
benefits communities otherwise served by the bank; and
    (d) The bank demonstrates non-bank community support for or 
participation

[[Page 49661]]

in the investment. Community support or participation may be 
demonstrated in a variety of ways, including but not limited to:
    (1) In the case of an investment in a CD entity with a board of 
directors, representation on the board of directors by non-bank 
community representatives with expertise relevant to the proposed 
investment;
    (2) Establishment of an advisory board for the bank's community 
development activities that includes non-bank community representatives 
with expertise relevant to the proposed investment;
    (3) Formation of a formal business relationship with a community-
based organization in connection with the proposed investment;
    (4) Contractual agreements with community partners to provide 
services in connection with the proposed investment;
    (5) Joint ventures with local small businesses in the proposed 
investment; and
    (6) Financing for the proposed investment from the public sector or 
community development organizations.


Sec. 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 part that would expose the bank to unlimited liability.


Sec. 24.5  Public welfare investment self-certification and prior 
approval procedures.

    (a) Self-certification of public welfare investments. (1) Subject 
to Sec. 24.4(a), an eligible bank may make an investment described in 
Sec. 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 it makes an investment, 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 self-certification 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 Sec. 24.6(a) that the investment supports, and a 
brief description of the particular investment;
    (iv) The amount of 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;
    (vi) A statement certifying compliance with the requirements of 
Sec. 24.3 and Sec. 24.4; and
    (vii) If a portion of the investment funds projects outside of the 
areas in which the bank maintains its main office or branches, a 
statement certifying that no more than 25 percent of the investment 
funds projects in a state or metropolitan area other than the states or 
metropolitan areas in which the bank maintains its main office or 
branches.
    (4) A national bank that is not an eligible bank but that 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 self-certify 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 Sec. 24.3(a) that the investment supports, and a 
description of the particular investment;
    (iv) The amount of 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 certifying compliance with the requirements of 
Sec. 24.3 and Sec. 24.4.
    (3) In reviewing a proposal, the OCC considers the following 
factors and other available information:
    (i) Whether the investment satisfies the requirements of Sec. 24.3 
and Sec. 24.4;
    (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 in writing by the OCC, and subject to 
Sec. 24.4(a), the proposed investment is deemed approved 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.


Sec. 24.6   Activities eligible for self-certification.

    (a) Eligible activities. In accordance with the process described 
in Sec. 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 individuals;
    (2) Investments that finance small businesses (including equity or 
debt financing and investments in an entity that provides loan 
guarantees) that are located in low- and moderate-income areas or that 
produce or retain permanent jobs, the majority of which are held by 
low- and moderate-income individuals;
    (3) Investments that provide credit counseling, job training, 
community

[[Page 49662]]

development research, and similar technical assistance services for 
non-profit community development organizations, low- and moderate-
income individuals or areas, or small businesses located in low- and 
moderate-income areas or that produce or retain permanent jobs, the 
majority of which are held by low- and moderate-income individuals;
    (4) Investments in an entity that acquires, develops, 
rehabilitates, manages, sells, or rents commercial or industrial 
property that is located in a low- and moderate-income area and 
occupied primarily by small businesses, or that is occupied primarily 
by small businesses that produce or retain permanent jobs, the majority 
of which are held by low- and moderate-income individuals;
    (5) Investments as a limited partner, or as a partner in an entity 
that is itself 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- and moderate-income areas that produce or 
retain permanent jobs, the majority of which are held by low- and 
moderate-income individuals;
    (7) Investments in a national bank that has been approved by the 
OCC as a national bank with a community development focus;
    (8) Investments of a type approved by the Federal Reserve Board 
under 12 CFR 208.21 for state member banks that are consistent with the 
requirements of Sec. 24.3; and
    (9) Investments of a type 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 books 
as ``other real estate owned'';
    (2) More than 25 percent of the investment funds projects in a 
state or metropolitan area other than 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.


Sec. 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: September 13, 1996.
Eugene A. Ludwig,
Comptroller of the Currency.
[FR Doc. 96-23986 Filed 9-20-96; 8:45 am]
BILLING CODE 4810-33-P