[Federal Register Volume 64, Number 111 (Thursday, June 10, 1999)]
[Proposed Rules]
[Pages 31160-31164]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-14754]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 24

[Docket No. 99-09]
RIN 1557-AB69


Community Development Corporations, Community Development 
Projects, and Other Public Welfare Investments

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

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Office of the Comptroller of the Currency (OCC) is 
proposing to amend part 24, the regulation governing national bank 
investments that are designed primarily to promote the public welfare. 
This proposal simplifies the prior notice and self-certification 
requirements that apply to national banks' public welfare investments; 
expands the types of investments that a national bank may self-certify 
by removing geographic restrictions; and permits eligible national 
banks with assets of less than $250 million to self-certify any public 
welfare investment. The OCC is also seeking comment on whether to 
modify the methods of demonstrating community support or participation 
currently prescribed by part 24, and whether the OCC could simplify or 
streamline the procedures and standards contained in part 24. The 
proposal encourages national banks to make public welfare investments 
by making it easier to comply with the applicable procedures.

DATES: Comments must be received on or before August 9, 1999.

ADDRESSES: Please direct comments to: Docket No. 99-09, Communications 
Division, Third Floor, Office of the Comptroller of the Currency, 250 E 
Street, SW, Washington, DC, 20219. Comments are available for 
inspection and photocopying at that address. In addition, comments may 
be sent by facsimile transmission to FAX number (202) 874-5274, or by 
electronic mail to [email protected].

FOR FURTHER INFORMATION CONTACT: David Lewis, Community Development 
Investments Manager, Community Development Division, (202) 874-4930; 
Michael S. Bylsma, Director, Community and Consumer Law Division, (202) 
874-5750; or Heidi M. Thomas, Senior Attorney, Legislative and 
Regulatory Activities Division, (202) 874-5090.

SUPPLEMENTARY INFORMATION:

Background

    The OCC is proposing to amend 12 CFR part 24, which contains the 
rules relating to national banks' investments in community development 
corporations (CDCs), community development (CD) projects, and other 
public welfare investments. 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 communities and families, subject to certain percentage 
of capital limitations. (The investments authorized pursuant to 12 
U.S.C. 24(Eleventh) are collectively referred to in this proposal as 
``public welfare investments''). The purpose of this proposal is to 
make burden-reducing changes that will make it easier for national 
banks to use the public welfare investment authority that the statute 
and regulation provide.
    The OCC originally adopted part 24 in 1993 and substantially 
revised the regulation, pursuant to its Regulation Review Program, in 
1996. See 58 FR 68464 (Dec. 27, 1993) (final regulation); 61 FR 49654 
(Sept. 23, 1996) (1996 amendments). The 1996 amendments encouraged 
national banks to make public welfare investments by eliminating 
unnecessarily burdensome provisions and streamlining the part 24 
procedures. Among other things, the 1996 amendments: modified the test 
for determining whether an investment primarily promotes the public 
welfare; streamlined the investment self-certification and prior 
approval

[[Page 31161]]

procedures; and expanded the list of activities eligible for self-
certification.
    The OCC is committed to continually reevaluating its rules to 
reduce unnecessary regulatory burden and simplify compliance, 
consistent with the safe and sound operation of national banks. This 
proposal addresses several issues regarding national bank compliance 
with part 24 that have arisen since 1996. Specifically, the proposal 
further simplifies the prior notice and self-certification requirements 
that apply to national banks' public welfare investments; further 
expands the types of investments a national bank may self-certify by 
removing geographic restrictions; and permits an eligible community 
bank to self-certify any public welfare investment. An eligible 
community bank is an eligible bank 1 with assets of less 
than $250 million.
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    \1\  Part 24 defines an ``eligible bank'' as a national bank 
that is well capitalized, has a composite rating of 1 or 2 under the 
Uniform Financial Institutions Rating System (the CAMELS rating), 
has a Community Reinvestment Act rating of ``Outstanding'' or 
``Satisfactory,'' and is not subject to a cease and desist order, 
consent order, formal written agreement, or Prompt Corrective Action 
directive. 12 CFR 24.2(e).
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Description of the Proposal

Community Benefit Information Requirement (Sec. 24.3(c))

    Current Sec. 24.6 lists certain public welfare investments that an 
eligible bank may make by submitting a self-certification letter to the 
OCC within 10 working days after it makes the investment. No prior 
notification or approval is required. For all other public welfare 
investments, a national bank must submit an investment proposal to the 
OCC for prior approval. Unless otherwise notified in writing by the 
OCC, the proposed investment is deemed approved 30 calendar days from 
the date on which the OCC receives the bank's investment proposal.
    Regardless of which procedure applies, Sec. 24.3(c) currently 
requires a national bank making a public welfare investment to 
demonstrate the extent to which the investment benefits communities 
otherwise served by the bank. (The requirement of Sec. 24.3(c) is 
referred to in this proposal as the community benefit information 
requirement.) Section 24.5 requires the bank to provide a statement in 
its self-certification letter or investment proposal certifying that it 
has complied with this requirement.
    The OCC is proposing to remove the community benefit information 
requirement, because this requirement is not mandated by statute and 
may constrict national banks from making otherwise qualifying and 
beneficial public welfare investments. Moreover, the OCC's experience 
in implementing 12 CFR part 24 suggests that national banks are seeking 
more public welfare investment opportunities across broader geographic 
markets than previously. Enhanced interstate operations and the 
increasing availability of Internet banking and other forms of remote 
banking limit the value of the community benefit information 
requirement for the OCC's evaluation of investment proposals.
    Although, as a matter of law, a bank's authority to make public 
welfare investments pursuant to 12 U.S.C. 24(Eleventh) and 12 CFR part 
24 is independent of its obligation to serve the credit needs of its 
entire community under the Community Reinvestment Act (CRA), the OCC 
recognizes that banks may want the OCC to consider a public welfare 
investment for CRA purposes. Retention of the community benefit 
information requirement is not necessary, however, to facilitate the 
identification of a public welfare investment that a bank believes 
should be considered for CRA purposes. Instead, the OCC proposes to 
amend Sec. 24.5 to provide that a national bank that wants the OCC to 
consider a specific public welfare investment during a CRA examination 
may include a simple statement to that effect in its public welfare 
investment proposal or self-certification letter.2
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    \2\ The OCC's approval of a public welfare investment made 
pursuant to 12 CFR part 24 does not affect how the investment is 
evaluated for CRA purposes, and an investment approved under part 24 
is not necessarily a qualified investment for purposes of CRA.
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Demonstration of Community Support (Sec. 24.3(d))

    Under section 24.3(d), a national bank may make investments 
pursuant to part 24 if it demonstrates that it has non-bank community 
support for, or participation in, the investment. Section 24.3(d) 
provides that a national bank may demonstrate this support or 
participation in a number of ways, including:
    (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.
    Prior to the 1996 amendments, part 24 required the affected primary 
beneficiaries and representatives of local or State government to have 
endorsed and demonstrated support for the investment. In the case of a 
CDC, a bank had to demonstrate support through non-bank community 
participation on the organization's board of directors. 12 CFR 
24.4(a)(3) (1993). The OCC modified the community support/participation 
requirement in the 1996 amendments to provide banks and community 
groups more flexibility in structuring community partnerships under 
part 24. The OCC added the nonexclusive list of examples of community 
support or participation to the final rule in response to comments on 
the 1996 proposal.
    The OCC has not changed Sec. 24.3(d) in this proposal, but invites 
comment on whether the approach adopted in the 1996 amendments is 
effective in encouraging community involvement in national banks' 
public welfare investments. For example, is the current non-bank 
community support or participation requirement appropriate? Are there 
other ways of demonstrating support or participations? In particular, 
commenters addressing these issues are invited to discuss whether:
    (1) The current community participation prong of the public welfare 
test has been sufficient in obtaining evidence of adequate community 
support and involvement in national banks' community development 
investments;
    (2) General letters of support from community groups or local 
officials, without other evidence of community support or 
participation, should be considered sufficient to satisfy this 
requirement;
    (3) Stricter requirements for community support or participation 
will have the effect of discouraging public welfare investments 
pursuant to part 24; and
    (4) Institutions should demonstrate community support for, or 
participation in, investments in national or regional

[[Page 31162]]

community development investment vehicles, and if so, what form this 
demonstration should take.

Self-Certification of Public Welfare Investments by an Eligible 
Community Bank (Sec. 24.5(a))

    An eligible national bank may make public welfare investments 
listed in Sec. 24.6 without prior OCC approval by submitting a self-
certification letter to the OCC that satisfies the requirements in the 
regulation. 12 CFR 24.5(a). Investments eligible for self-certification 
include certain investments relating to low- and moderate-income 
housing, small businesses located in low- and moderate-income areas, 
employment or job training for low- or moderate-income individuals, or 
technical assistance services for non-profit community development 
organizations; investments as a limited partner in certain low- income 
housing tax credit projects; investments in national banks with a 
community development focus; investments approved by the Federal 
Reserve Board under 12 CFR 208.21; and investments previously 
determined by the OCC to be permissible under part 24. 12 CFR 24.6. 
Other investments require application to, and approval by, the OCC.
    Because community banks operate with more limited resources than 
larger institutions, the tasks associated with the prior approval 
process for public welfare investments place a greater burden on them. 
In addition, the OCC recognizes that smaller community banks may serve 
as the only source of investments for some CDCs and CD projects located 
in small towns or rural areas and that the prior approval process may 
inhibit community banks from making these investments. The proposal 
therefore amends Sec. 24.5(a) to permit eligible community banks 
(national banks with less than $250 million in assets) to self-certify 
all public welfare investments, not only those investments listed in 
Sec. 24.6. This change will reduce the regulatory burden and costs 
associated with the part 24 prior approval process for eligible 
community banks in particular and may encourage more community banks to 
make public welfare investments in local CDCs and CD projects that 
might not be able to attract investments from other sources.
    This change is consistent with 12 U.S.C. 24 (Eleventh), which does 
not require a national bank to receive prior OCC approval before making 
a public welfare investment within the 5 percent of capital aggregate 
limit. Moreover, the change does not raise safety and soundness 
concerns because the application process is eliminated only for 
investments by eligible community banks. The eligibility standard in 
Sec. 24.2(e) ensures that only well-capitalized, well-run community 
banks can take advantage of this streamlined approach. In addition, 
these public welfare investments are subject to review during the 
examination process pursuant to Sec. 24.7. Finally, as set forth in 
Sec. 24.7, if the OCC finds that an investment violates law or 
regulation, is inconsistent with the safe and sound operation of the 
bank, or poses a significant risk to the deposit insurance fund, it may 
require the bank to take appropriate remedial action.

The Local Community Investment Requirement for Self-Certification 
(Sec. 24.6(b)(2))

    Currently, part 24 does not permit a national bank to self-certify 
an investment if, among other things, more than 25 percent of the 
investment is used to fund projects that are located in a State or 
metropolitan area other than the States or metropolitan areas in which 
the bank maintains its main office or has branches. 12 CFR 24.6(b)(2). 
If any portion of a bank's investment funds projects outside of its 
local areas, the bank must include in its self-certification letter a 
statement that no more than 25 percent of the investment funds these 
projects. 12 CFR 24.5(a)(3)(vii).
    The OCC proposes to remove this local community investment 
requirement in Sec. 24.6(b) so that a national bank can use the less 
burdensome self-certification process to make eligible public welfare 
investments in any area. This change removes a requirement that is not 
necessary to implement the statute because, as discussed in connection 
with the removal of the community benefit information requirement, 12 
U.S.C. 24 (Eleventh) does not require that a bank link its public 
welfare investments to the communities it serves. In addition, this 
change permits national banks to use the self-certification process for 
investments in national community development investment vehicles. 
Because these vehicles often provide funds for projects located 
throughout the United States, it has not always been possible for a 
bank to certify that not more than 25 percent of the bank's investment 
will support projects in States or metropolitan areas other than those 
in which the bank's main office or branches are located. Thus, this 
change should expand the opportunities for banks to fund worthwhile 
public welfare projects.
    As with the proposal to remove the community benefit information 
requirement, the OCC recognizes that, in some cases, the local 
community investment requirement for self-certification has served as a 
way for banks to identify investments that they believe may be eligible 
for CRA credit. For the same reasons as discussed in connection with 
that change, a bank that wants the investment to be considered for CRA 
purposes may include a statement to that effect in its self-
certification letter. This information will be provided to supervisory 
staff in connection with the bank's CRA examination. The OCC notes that 
this change affects only the eligibility of the investment for self-
certification. It does not modify either the part 24 standards for 
permissible public welfare investments or the CRA standards set forth 
in 12 CFR Part 25.

Comments

    The OCC requests comment on all aspects of this proposal, including 
the extent to which these proposed changes will encourage national 
banks to make public welfare investments. Commenters are also invited 
to suggest other revisions that would simplify the standards or 
streamline the procedures currently contained in part 24.
    In addition, the OCC seeks comment on the impact of this proposal 
on community banks. As discussed in connection with certain of the 
proposed changes, the OCC recognizes that community banks operate with 
more limited resources than larger institutions and may present a 
different risk profile. Thus, the OCC specifically requests comment on 
the impact of the proposal on community banks' current resources and 
available personnel with the requisite expertise, and whether the goals 
of the proposal could be achieved, for community banks, through an 
alternative approach.
    Finally, the OCC solicits comment on whether the proposal is 
written clearly and is easy to understand. On June 1, 1998, the 
President issued a Memorandum directing each agency in the Executive 
branch to write its rules in plain language. This directive applies to 
all new proposed and final rulemaking documents issued on or after 
January 1, 1999. The OCC invites comment on how to make this proposal 
clearer. For example, you may wish to discuss:
    (1) Whether we have organized the material to suit your needs;
    (2) Whether the requirements of the rule are clear; or

[[Page 31163]]

    (3) Whether there is something else we could do to make the rule 
easier to understand.

Regulatory Flexibility Act Analysis

    Pursuant to section 605(b) of the Regulatory Flexibility Act, the 
Comptroller of the Currency certifies that this proposal would not have 
a significant economic impact on a substantial number of small entities 
in accord with the spirit and purposes of the Regulatory Flexibility 
Act (5 U.S.C. 601 et seq.). Accordingly, a regulatory flexibility 
analysis is not required. The proposal would reduce regulatory burden 
on national banks by simplifying the prior approval process and 
simplifying and expanding the self-certification process for part 24 
investments. The economic impact of this proposal on national banks, 
regardless of size, is expected to be minimal.

Paperwork Reduction Act

    For purposes of compliance with the Paperwork Reduction Act of 
1995, 44 U.S.C. 3501 et seq., the OCC invites comment on:
    (1) Whether the proposed collections of information contained in 
this notice of proposed rulemaking are necessary for the proper 
performance of the OCC's 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;
    (4) Ways to minimize the burden of the information collection on 
respondents, including the use of automated collection techniques or 
other forms of information technology; and
    (5) Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information.
    Recordkeepers are not required to respond to this collection of 
information unless it displays a currently valid OMB control number.
    The collection of information requirements contained in this notice 
of proposed rulemaking have been submitted to the Office of Management 
and Budget for review in accordance with the Paperwork Reduction Act of 
1995 (44 U.S.C. 3507(d)). Comments on the collections of information 
should be sent to the Office of Management and Budget, Paperwork 
Reduction Project 1557-0194, Washington, D.C. 20503, with copies to 
Office of the Comptroller of the Currency, Communications Division, 250 
E Street, SW, Attention: Paperwork Reduction Project 1557-0194, 
Washington, D.C. 20219.
    The proposal is expected to reduce annual paperwork burden for 
recordkeepers because it eliminates certain application and self-
certification requirements. The collection of information requirements 
in this proposal 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 recordkeeper: 1.9. Start-
up costs: None.

Executive Order 12866 Determination

    The Comptroller of the Currency has determined that this proposal 
does not constitute a ``significant regulatory action'' for the 
purposes of Executive Order 12866.

Unfunded Mandates Reform Act of 1995 Determinations

    Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L. 
104-4 (Unfunded Mandates Act) requires that an agency prepare a 
budgetary impact statement before promulgating a rule that includes a 
Federal mandate that may result in expenditure by State, local, and 
tribal governments, in the aggregate, or by the private sector, of $100 
million or more in any one year. If a budgetary impact statement is 
required, Section 205 of the Unfunded Mandates Act also requires an 
agency to identify and consider a reasonable number of regulatory 
alternatives before promulgating a rule. As discussed in the preamble, 
this proposed rule is limited to the prior notice and self-
certification process for part 24 investments. The OCC therefore has 
determined that the proposal will not result in expenditures by State, 
local, or tribal governments or by the private sector of $100 million 
or more. Accordingly, the OCC has not prepared a budgetary impact 
statement or specifically addressed the regulatory alternatives 
considered.

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 
amend part 24 of chapter I of title 12 of the Code of Federal 
Regulations to read as follows:

PART 24--COMMUNITY DEVELOPMENT CORPORATIONS, COMMUNITY DEVELOPMENT 
PROJECTS, AND OTHER PUBLIC WELFARE INVESTMENTS

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

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

    2. In Sec. 24.2, paragraphs (f), (g), (h) and (i) are redesignated 
as paragraphs (g), (h), (i) and (j), and a new paragraph (f) is added 
to read as follows:


Sec. 24.2  Definitions.

* * * * *
    (f) Eligible community bank means an eligible bank that, as of 
December 31 of either of the prior two calendar years had total assets 
of less than $250 million.
* * * * *


Sec. 24.3  [Amended]

    3. In Sec. 24.3, paragraph (c) is removed, and paragraph (d) is 
redesignated as paragraph (c).
    4. In Sec. 24.5, paragraph (a)(1) and paragraph (a)(3)(iii) are 
revised, paragraph (a)(3)(v) is amended by adding the word ``and'' at 
the end of the paragraph, paragraph (a)(3)(vi) is amended by removing 
the term ``; and'' and adding a period in its place at the end of the 
sentence, paragraph (a)(3)(vii) is removed, paragraph (a)(4) is 
redesignated as paragraph (a)(5), a new paragraph (a)(4) is added, 
paragraph (b) is amended by redesignating paragraph (b)(3) through 
(b)(6) as paragraphs (b)(4) through (b)(7), and a new paragraph (b)(3) 
is added to read as follows:


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

    (a) * * *
    (1) Subject to Sec. 24.4(a), an eligible bank may make an 
investment described in Sec. 24.6(a) and an eligible community bank may 
make any investment that satisfies the requirements of Sec. 24.3 
without prior notification to, or approval by, the OCC if the bank 
follows the self-certification procedures in this section.
* * * * *
    (3) * * *
    (iii) The type of investment (equity or debt), the investment 
activity listed in Sec. 24.3(a) or Sec. 24.6(a), as applicable, that 
the investment supports, and a brief description of the particular 
investment;
* * * * *
    (4) If the bank wants the OCC to consider the investment during an 
examination under the CRA (12 U.S.C. 2901 et seq.) and to determine 
whether

[[Page 31164]]

it meets the criteria for a qualified investment set forth in 12 CFR 
part 25, the bank may include a brief statement to that effect in its 
letter of self-certification.
* * * * *
    (b) * * *
    (3) If the bank wants the OCC to consider the investment during an 
examination under the CRA and to determine whether it meets the 
criteria for a qualified investment set forth in 12 CFR part 25, the 
bank may include a brief statement to that effect in its investment 
proposal.
* * * * *


Sec. 24.6  [Amended]

    5. In Sec. 24.6, paragraph (b)(1) is amended by adding an ``or'' at 
the end, paragraph (b)(2) is removed, and paragraph (b)(3) is 
redesignated as paragraph (b)(2).

    Dated: May 27, 1999.
John D. Hawke, Jr.,
Comptroller of the Currency.
[FR Doc. 99-14754 Filed 6-9-99; 8:45 am]
BILLING CODE 4810-33-P