[Federal Register Volume 68, Number 158 (Friday, August 15, 2003)]
[Rules and Regulations]
[Pages 48771-48783]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-20801]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 24

[Docket No. 03-20]
RIN 1557-AC09


Community and Economic Development Entities, Community 
Development Projects, and Other Public Welfare Investments

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

ACTION: Final rule.

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SUMMARY: The Office of the Comptroller of the Currency (OCC) is 
amending 12 CFR part 24, the regulation governing national bank 
investments that are designed primarily to promote the public welfare. 
This final rule updates the regulation to reflect the additional types 
of public welfare investment structures that have become more common in 
recent years and that are permissible under the governing statute. It 
also clarifies the statutory standard that applies to the activities of 
those entities; simplifies the standards for making public welfare 
investments; clarifies how a national bank calculates the value of its 
public welfare investments for purposes of complying with the rule's 
investment limits; simplifies the regulation's investment self-
certification and prior approval processes; and expands the list of 
examples of qualifying public welfare investments that satisfy the 
rule's requirements. The final rule also appends the form national 
banks may use to inform the OCC about an investment made under part 24. 
These changes are intended to encourage additional public welfare 
investments by national banks by simplifying the regulation and further 
reducing unnecessary burden associated with part 24 investments.

EFFECTIVE DATE: September 15, 2003.

FOR FURTHER INFORMATION CONTACT: Michele Meyer, Counsel, Legislative 
and Regulatory Activities Division, (202) 874-5090; Stephen Van Meter, 
Assistant Director, Community and Consumer Law Division, (202) 874-
5750; or Barry Wides, Director, or Karen Bellesi, Investments Manager, 
Community Development Division, (202) 874-4930.

SUPPLEMENTARY INFORMATION: 

The Proposal

    On January 10, 2003, the OCC published a notice of proposed 
rulemaking (NPRM) to amend 12 CFR part 24.\1\ 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 NPRM sought 
to eliminate unnecessary regulatory requirements associated with these 
investments and thus make it easier for national banks to use the 
public welfare investment authority that the statute and regulation 
provide, consistent with statutory requirements and safety and 
soundness considerations.
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    \1\ 68 FR 1394 (January 10, 2003).
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Description of Comments Received and Final Rule

    The NPRM comment period closed March 11, 2003, and we received 10 
comments. Commenters included banks, a banking trade association, 
community groups, and individuals. The majority of the commenters 
supported the proposed changes. A summary of the comments and a 
description of the final rule follows.

Definitions (Sec.  24.2)

    The NPRM proposed adding a new definition of ``community and 
economic development entity'' to replace the current definition of 
``community development corporation.'' A community development 
corporation was defined in the former regulation as a corporation 
established by one or more insured financial institutions (with or 
without other investors) ``to make one or more investments that meet 
the requirements of Sec.  24.3.'' \2\ The proposal defined a community 
and economic development entity (CDE) as an entity--such as a national 
bank community development subsidiary, community development financial 
institution, limited liability company, or limited partnership--that 
makes investments or conducts activities that primarily benefit low- 
and moderate-income individuals or areas or other areas targeted for 
redevelopment. In our view, this proposed definition better reflected 
the scope of the statute and its legislative history, neither of which 
restricts the entities in which a national bank may invest to a 
particular form of organization, provided the bank is not exposed to 
unlimited liability.
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    \2\ The prior rule set forth the criteria for a public welfare 
investment, including that the investment primarily benefits low- 
and moderate-income individuals or areas or other areas targeted for 
redevelopment, and that the bank demonstrates non-bank community 
support for the investment.
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    None of the commenters objected to the substance of this proposed 
definition. Several, however, pointed out that the abbreviation ``CDE'' 
could cause confusion because that term is used in the context of the 
New Markets Tax Credit to refer to an entity that may have similar 
activities but must meet additional qualifications. To avoid this

[[Page 48772]]

confusion, the final rule abbreviates the term ``community and economic 
development entity'' as ``CEDE.''
    In addition, the final rule modifies the definition of ``CEDE'' to 
reflect a change to Sec.  24.3. As explained below, the final rule 
modifies Sec.  24.3 to permit a national bank to make an investment 
that either primarily benefits low- and moderate-income individuals or 
areas or other areas targeted for redevelopment or would receive 
consideration as a ``qualified investment'' under the CRA regulations. 
The final rule accordingly defines a CEDE as an entity that makes 
investments or conducts activities that primarily benefit low- and 
moderate-income individuals, low- and moderate-income areas, or other 
areas targeted by a governmental entity for redevelopment or that would 
receive consideration as ``qualified investments'' under the CRA.
    Finally, because an investment in a small farm may receive CRA 
consideration under certain circumstances, the final rule modifies the 
definition of ``small business'' to include a reference to small farms. 
Thus, under the final rule, a ``small business'' is ``a business, 
including a small farm or minority-owned business, that meets the 
qualifications for Small Business Administration Development Company or 
Small Business Investment Company programs in 13 CFR 121.301.''

Public Welfare Investments (Sec.  24.3)

    Section 24 (Eleventh) authorizes national banks to make investments 
``designed primarily to promote the public welfare, including the 
welfare of low- and moderate-income communities or families (such as 
through the provision of housing, services, or jobs).'' Section 24.3 of 
the prior rule implemented this authority by providing that a national 
bank may make an investment under part 24 if two conditions were met. 
The first, set forth in the former rule at Sec.  24.3(a), was that the 
investment primarily benefit low- and moderate-income individuals, low- 
and moderate-income areas, or other areas targeted for redevelopment by 
providing or supporting one or more of four enumerated public welfare 
activities.\3\ The second condition, set forth in the former rule at 
Sec.  24.3(b), was that the bank demonstrate non-bank community support 
for, or participation in, the investment.\4\ The NPRM proposed 
simplifying the text of Sec.  24.3(a) and deleting Sec.  24.3(b).
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    \3\ Under the prior rule, these included affordable housing, 
equity or debt financing for small businesses, area revitalization 
or stabilization, and ``other activities, services, or facilities 
that primarily promote the public welfare.''
    \4\ Under the prior rule, a bank could demonstrate community 
support in a variety of ways, including: having non-bank community 
representatives as members of the board of directors of a CEDE or on 
a separate advisory board for the bank's community development 
activities; formation of formal business relationships between the 
bank and a community organization; contractual agreements with 
community partners to provide services in connection with the 
proposed investment; joint ventures with local small businesses; and 
financing for the proposed investment from the public sector or 
community development organizations or the receipt of Federal low-
income housing tax credits by the project in which the investment is 
made.
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    1. Simplifying former Sec.  24.3(a). Proposed Sec.  24.3 would have 
permitted a national bank to make a part 24 investment if the 
investment primarily benefited low- and moderate-income individuals or 
areas or government-targeted redevelopment areas. The proposal deleted 
the four enumerated public welfare activities set forth in former Sec.  
24.3(a)(1)-(4) because they were merely illustrative of the types of 
investments a national bank may make under this part. In fact, the last 
is a catch-all provision that would cover all part 24 investments not 
covered by the first three. As we explained in the preamble to the 
proposal, the list is unnecessary in light of Sec.  24.6, which sets 
forth examples of public welfare investments a national bank may make 
under part 24.
    Several commenters proposed further revisions to Sec.  24.3. These 
commenters suggested that we either eliminate the requirement that an 
investment primarily benefit low- and moderate-income individuals or 
areas, or change the regulation so that these individuals or areas need 
not be the only, or even the primary, beneficiaries of such 
investments. These commenters note that the ``primary benefit'' test is 
not required by statute and that many investment activities that do not 
meet this test nonetheless promote the public welfare. Several bank 
commenters also noted that some investments that would receive 
consideration under the CRA as ``qualified investments'' do not 
necessarily satisfy the requirements of part 24. This comment was made, 
in particular, with respect to small business investments that do not 
meet part 24's ``primary benefit'' test.
    We believe that the elimination of the ``primary benefit'' test in 
its entirety is inappropriate. First, the primary benefit test provides 
an objective criterion--the benefit to low- and moderate-income 
individuals or areas or targeted redevelopment areas--for determining 
whether an investment ``primarily promotes the public welfare'' under 
the statute. Eliminating this objective test would create significant 
uncertainty concerning what types of investments are permitted under 
part 24. Second, removal of the primary benefit test may dilute the 
public welfare purpose of the statute by weakening the incentive for 
national banks to identify investments that are sound and profitable 
but not widely perceived as such.\5\
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    \5\ For examples of the diverse and creative investments 
national banks have made under part 24, see ``National Bank 
Community Development Investments, 2001 Directory.''
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    However, we believe that many of the benefits of the commenters' 
suggestions can be achieved by including, as an alternative to 
investments that satisfy the primary benefit test, investments that 
would receive consideration as ``qualified investments'' under the CRA 
regulations. The CRA regulations provide their own set of objective 
criteria. Under the CRA regulations, a qualified investment must have 
as its primary purpose community development, which is defined to 
include affordable housing; community services targeted to low- or 
moderate-income individuals; activities that promote economic 
development by financing small businesses or farms; or activities that 
stabilize low or moderate-income geographies.\6\ The final rule 
incorporates these standards by modifying Sec.  24.3 to permit a bank 
to make a part 24 investment if the investment primarily benefits low- 
and moderate-income individuals or areas or government-targeted 
redevelopment areas or would receive consideration as a ``qualified 
investment'' under the CRA regulations.\7\ Examples of such investments 
are included in new Sec.  24.6.
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    \6\ 12 CFR 25.12(h) and (s).
    \7\ It is important to note that an investment that is permitted 
under part 24 will not always receive positive consideration under 
the CRA regulations. Under the CRA regulations, a national bank will 
receive consideration for qualified investments that benefit its 
assessment areas or a broader statewide or regional area that 
includes the bank's assessment areas. 12 CFR 25.23(a). For example, 
a retail national bank located only in California would be permitted 
under part 24 to invest in an entity that provides affordable 
housing for low- or moderate-income individuals in New York. The 
California bank would not receive positive consideration for this 
investment under the CRA regulations, however, because New York is 
outside its California assessment area and the broader statewide or 
regional area that includes its assessment area.
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    2. Eliminating former Sec.  24.3(b) (the community support 
requirement).
    The NPRM proposed deleting the community support requirement 
because it is not required by statute or the comparable rules that 
apply to other financial institutions that have Federal statutory 
investment authority similar to section 24 (Eleventh) \8\, and the 
OCC's

[[Page 48773]]

experience in implementing part 24 suggests that investments that 
otherwise meet the requirements of part 24 will receive the support of 
the communities benefitted.
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    \8\ The Federal Reserve Board's community development regulation 
(12 CFR 208.22) implements statutory authority (12 U.S.C. 338a) that 
is identical in all material respects to 24 (Eleventh) and does not 
require the demonstration of community support for an investment.
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    The OCC received several comments from banks in support of the 
proposed deletion of this requirement. These commenters echoed our 
statement in the preamble to the NPRM that most investments that 
otherwise meet the requirements of part 24 will receive the support of 
the communities benefited. In addition, the supporting commenters said 
that mandating community involvement may limit management's ability to 
realize its own business strategy.
    The OCC received no comments voicing opposition to the proposed 
deletion of the community support requirement either banks or community 
groups. The final rule therefore deletes the community support 
requirement.

Investment Limits (Sec.  24.4)

    Section 24.4 of the rule implements the investment limits imposed 
by 12 U.S.C. 24 (Eleventh). Under both the regulation and the statute, 
a national bank's aggregate public welfare investments may not exceed 5 
percent of its capital and surplus, unless the bank is at least 
adequately capitalized and the OCC determines that a higher amount will 
pose no significant risk to the deposit insurance fund. In no case, 
however, may a bank's aggregate outstanding part 24 investments exceed 
10 percent of its capital and surplus.\9\
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    \9\ As explained in Sec.  24.1(d), national banks that make 
loans or investments that are designed primarily to promote the 
public welfare and that are authorized under provisions other than 
section 24 (Eleventh) may do so without regard to the provisions--
including the capital limitations--of 24 (Eleventh) or part 24.
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    The OCC proposed amending Sec.  24.4 to clarify that a bank should 
follow generally accepted accounting principles (GAAP) when calculating 
the aggregate amount of its part 24 investments, unless otherwise 
directed or permitted in writing by the OCC for prudential or safety 
and soundness reasons. We received two comments on this proposal 
seeking a further explanation of this clarification.
    National banks prepare statements and reports required to be filed 
with the OCC using accounting standards that are consistent with GAAP. 
Under GAAP, the valuation method applied to an investment in an entity 
depends on the nature of the investment \10\ and the degree of the 
investor's control reflected by the percentage that the investment 
represents in the entity. Generally, investments over 50 percent are 
fully consolidated; investments between 20 and 50 percent are valued 
according to the equity method; and investments under 20 percent may be 
valued at cost, unless the asset becomes permanently impaired. There 
are certain circumstances, however, when the application of a 
particular GAAP valuation method to a part 24 investment may lead to 
unintended results.
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    \10\ For example, Statement of Financial Accounting Standards 
Board No. 115, Accounting for Certain Investments in Debt and Equity 
Securities, identifies the categories among which national banks 
must divide their securities holdings as held-to-maturity, trading, 
and available-for-sale, and provides a different accounting 
treatment for each category.
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    For example, if the equity method of GAAP is applied to a part 24 
investment, the value of a bank's part 24 investment carried on the 
bank's books would be originally recorded at cost but subsequently 
adjusted periodically to reflect the bank's proportionate share of the 
investment's earnings or losses, and decreased by any cash dividends or 
similar distributions from the investment. The use of the equity method 
would mean that the valuation of the bank's part 24 investment would 
fluctuate with the profits and losses of the investment. As the 
investment's profits increase under the equity method, the carrying 
value of the bank's investment would also increase. Consequently, even 
if the bank's investment was within the part 24 investment limits when 
made, this increase in the carrying value under the equity method could 
cause the investment to later exceed the investment limits.
    Conversely, if the part 24 investment incurred losses, the value of 
the bank's investment would decrease, which would permit the bank to 
make additional investments without exceeding the investment limit. 
Thus, although the equity method may better reflect the current value 
of the bank's investment, its application could limit the investment 
capacity of banks with the most profitable part 24 investment programs 
while, contrary to safety and soundness, increasing the investment 
capacity of banks that make unprofitable part 24 investments.
    In such circumstances, it may be appropriate for a bank to use a 
different method to calculate the aggregate amount of its part 24 
investments. For example, under the cost method, the actual cost of a 
bank's part 24 investment would be used in determining compliance with 
the statutory investment limit. No further adjustments would be 
required. As a result, as long as the part 24 investment was within the 
investment limits when made (and assuming there has been no change in 
the bank's capital and surplus), a bank's compliance with these limits 
would be unaffected by profits or losses on the investment.
    In order to provide flexibility where the application of a specific 
GAAP valuation method would be inappropriate, the final rule follows 
the proposal and amends Sec.  24.4 to provide that a bank should follow 
GAAP when calculating the aggregate amount of its part 24 investments, 
unless otherwise directed or permitted in writing by the OCC for 
prudential or safety and soundness reasons.

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

    An eligible national bank may make qualifying public welfare 
investments without prior notification to, or approval by, the OCC by 
submitting a self-certification letter to the OCC within 10 working 
days after it makes the investment. For all other investments under 
part 24, a national bank must submit an investment proposal application 
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 proposal application.\11\
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    \11\ See 12 CFR 24.5 and 24.6.
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    To emphasize that eligible national banks are not required to seek 
prior approval of eligible public welfare investments, the NRPM 
proposed changing the title of Sec.  24.5 to ``Public welfare 
investment after-the-fact notice and prior approval procedures,'' and 
changed references in the section from ``self-certification'' to 
``after-the-fact notice.'' The OCC further proposed to simplify the 
part 24 investment notification processes and make them more consistent 
with the notification processes established under 12 CFR part 5 for 
certain equity investments. Under those provisions of part 5, a 
national bank's written after-the-fact notice of certain equity 
investments must set forth simply ``a description, and the amount, of 
the bank's investment.''\12\
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    \12\ See 12 CFR 5.36(d)(2).
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    The NPRM proposed revising Sec.  24.5 to make it more consistent 
with the part 5 equity investment notification procedures and to remove 
unnecessary administrative impediments to national bank public welfare 
investments. Thus, the proposal provided that a national

[[Page 48774]]

bank may make an investment without prior notification to the OCC if 
the bank submits an after-the-fact notice to the OCC that includes: a 
description of the bank's investment; the amount of the investment; the 
percentage of the bank's capital and surplus represented by the current 
investment being self-certified and by the bank's aggregate outstanding 
part 24 investments, including the investment being self-certified; and 
a certification that the investment complies with the requirements of 
Sec. Sec.  24.3 and 24.4.
    The NPRM also proposed applying these modified requirements to the 
investment prior approval process described in Sec.  24.5(b). As a 
result, the after-the-fact notices and the investment proposals 
submitted in accordance with these modified requirements would be 
significantly less burdensome to prepare than are the materials 
submitted under the current rule while still providing the OCC with 
sufficient information to determine whether an investment is consistent 
with safe and sound practices.\13\
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    \13\ Neither the proposal nor the final rule changes the 
triggers for the prior approval process. Thus, a bank that is not an 
``eligible bank'' under our rules must seek prior approval of its 
investments. 12 CFR 24.5(b)(1). So must an eligible bank that seeks 
to exceed the five percent investment limit or to invest in other 
real estate owned or make some other investment determined by the 
OCC to be ineligible for the after-the-fact notice process. 12 CFR 
24.4 and 24.5(a)(5).
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    The OCC received no comments opposed to these streamlined 
procedures and several comments in favor of them. Several commenters 
suggested, however, that we further streamline the self-certification 
process. One commenter proposed eliminating the required inclusion in 
the self-certification letter of the percentage of the bank's capital 
and surplus represented by the current investment and by the bank's 
aggregate outstanding investments. This commenter noted that neither 
part 5 nor the FRB's rule requires this information. On the other hand, 
this information is necessary to enable the OCC to ascertain whether a 
bank is complying with the statutory investment limit, and requiring 
its inclusion poses minimal additional burden because the bank itself 
must calculate the percentage of its capital and surplus represented by 
the current investment and by its aggregate outstanding investments in 
order to determine whether it is in compliance with the rule's 
investment limits. The final rule thus retains this requirement.
    A bank commenter also suggested that we eliminate two other 
differences between the part 24 procedures and the procedures set forth 
in the FRB's rule. First, the bank suggested that the OCC change the 
requirement that a bank must notify the OCC within 10 days of making an 
investment to be consistent with the 30-day period permitted by the 
FRB. Second, the bank proposed that we eliminate the requirement that a 
bank must be well-capitalized in order to submit after-the-fact notices 
because the FRB only requires that a bank be adequately capitalized. We 
decline to adopt in part 24 the timing and capitalization requirements 
applied by the FRB in its community development investment regulation. 
The requirements in part 24 are consistent with requirements applied in 
connection with certain equity investments under part 5 and achieve the 
twin objectives of minimizing burden while providing adequate 
safeguards. The OCC believes that changing these requirements in the 
context of part 24 may have the unintended consequence of increasing 
burden on banks by imposing a new and different set of rules applicable 
to a subset of investments that national banks may make. For these 
reasons, we have retained the current requirements.
    The OCC has revised the sample form (OCC form CD-1) for investment 
notification and prior approval to reflect the streamlined requirements 
set forth in this final rule. This sample form is added to the final 
rule as Appendix 1, is available for downloading on the OCC's Web site 
at http://www.occ.treas.gov/cdd/pt24toppage.htm, and will be available 
through the OCC's Community Development Division.\14\
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    \14\ The Community Development Division may be contacted at 
(202) 874-4930.
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Examples of Qualifying Public Welfare Investments (Sec.  24.6)

    The NPRM proposed revising Sec.  24.6 to provide additional 
examples of the types of investments that meet the requirements of 
Sec.  24.3. For ease of reference, this list is organized by type of 
activity (such as affordable housing, economic development and job 
creation, and investments in community and economic development 
entities). As we explained in the preamble to the NPRM, this list is 
merely illustrative of the types of investments a bank may make under 
this part, and national banks are not limited to the listed investments 
in creating or expanding their public welfare investment programs. The 
expanded list of eligible investments would help to streamline the 
notice and application processes, however, by making clear the scope of 
investments that are eligible and reducing the need for staff to do 
case-by-case reviews of the permissibility of such investments.
    Two commenters suggested additions to this list of examples 
consistent with the view that we should eliminate or reduce the 
emphasis in Sec.  24.3 on whether an investment primarily benefits low- 
and moderate-income persons or areas. Because the final rule amends 
Sec.  24.3 to permit banks to make investments that would receive 
consideration as ``qualified investments'' under the CRA regulations, 
the final rule includes an additional example in Sec.  24.6 of such an 
investment.
    This example, set forth at Sec.  24.6(b)(2), is of an investment 
that finances small businesses or small farms that, although not 
located in low- and moderate-income areas, create a significant number 
of permanent jobs for low- or moderate-income individuals. As explained 
in the Interagency Questions and Answers Regarding Community 
Reinvestments,\15\ a national bank would receive positive CRA 
consideration for such an investment,\16\ but would not have been 
permitted to make it under former Sec.  24.3 because the small 
businesses or small farms are not located in a low- or moderate-income 
area or redevelopment area and a majority of the permanent jobs created 
are not for low- and moderate-income individuals.
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    \15\ 66 FR 36620 (July 12, 2001).
    \16\ Interagency Questions and Answers Regarding Community 
Reinvestments, Q & A ------ .12(h)(3)-1, 66 FR at 36625. A national 
bank would be permitted to make this investment under the Small 
Business Investment Act (SBIA), 15 U.S.C. 661 et seq. The SBIA 
authorizes the Small Business Administration to charter private 
Small Business Investment Companies (SBICs), and authorizes banks to 
invest in those SBICs. Under the final rule, a national bank could 
make a similar investment using, for example, a CEDE rather than an 
SBIC.
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Examination, Records, and Remedial Action (Sec.  24.7)

    As explained above, this rulemaking expands the investment 
opportunities available to national banks under part 24 by modifying 
Sec.  24.3 to permit a bank to make a part 24 investment if the 
investment primarily benefits low- and moderate-income individuals or 
areas or government-targeted redevelopment areas or would receive 
consideration as a ``qualified investment'' under the CRA regulations. 
With the expanded examples of qualifying investments, it becomes 
increasingly important that the bank be able to readily demonstrate 
that the investment meets the criteria for an eligible investment under 
part 24. Where a bank relies on an investment being a ``qualified 
investment'' under the CRA regulations in order to be

[[Page 48775]]

eligible under part 24, this means that the bank's records of its part 
24 investment must clearly support the investment as a ``qualified 
investment'' under the standards of the CRA regulations. The final rule 
therefore amends Sec.  24.7(b) to emphasize that a national bank 
``maintain in its files information adequate to demonstrate that its 
investments meet the standards set out in Sec.  24.3 and that the bank 
is otherwise in compliance with the requirements of this part.''

Conforming Amendments

    As we have explained, the proposal changes the definition of 
``community development corporation'' to ``community and economic 
development entity'' to better reflect the range of investment vehicles 
that may be used for making part 24 investments. The final rule revises 
the title of part 24 to reflect this change. Thus, the title of the 
final rule is ``Community and Economic Development Entities, Community 
Development Projects, and Other Public Welfare Investments.''
    The final rule also revises the authority statement of the rule 
(Sec.  24.1) to refer to ``community and economic development 
entities'' rather than ``community development corporations.''

Regulatory Flexibility Act Analysis

    Pursuant to section 605(b) of the Regulatory Flexibility Act, 5 
U.S.C. 605(b) (RFA), the regulatory flexibility analysis otherwise 
required under section 604 of the RFA is not required if the agency 
certifies that the rule will not have a significant economic impact on 
a substantial number of small entities and publishes its certification 
and a short, explanatory statement in the Federal Register along with 
its rule.
    Pursuant to section 605(b) of the RFA, the OCC hereby certifies 
that this rulemaking will not have a significant economic impact on a 
substantial number of small entities. The OCC has reviewed the impact 
this final rule will have on small national banks. For purposes of this 
Regulatory Flexibility Analysis and final rule, the OCC defines ``small 
national banks'' to be those banks with less than $150 million in total 
assets. Based on that review, the OCC certifies that the final rule 
will not have a significant economic impact on a substantial number of 
small entities. The final rule would reduce regulatory burden on all 
national banks by simplifying the requirements and procedures 
applicable to part 24 investments. The economic impact of this final 
rule on national banks, regardless of size, is not expected to be 
significant, though some national banks may benefit from a modest 
reduction in compliance costs. Accordingly, a regulatory flexibility 
analysis is not needed.

Executive Order 12866

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

Unfunded Mandates Reform Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L. 
104-4 (2 U.S.C. 1532) (Unfunded Mandates Act), requires that an agency 
prepare a budgetary impact statement before promulgating any rule 
likely to result in a federal mandate that may result in the 
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. The OCC has determined that the final rule will not result in 
expenditures by state, local, and tribal governments, or by the private 
sector, of $100 million or more in any one year. Accordingly, this 
rulemaking requires no further analysis under the Unfunded Mandates 
Act.

Paperwork Reduction Act

    In accordance with the requirements of the Paperwork Reduction Act 
of 1995, the OCC may not conduct or sponsor, and a respondent is not 
required to respond to, an information collection unless it displays a 
currently valid Office of Management and Budget (OMB) control number.
    The information collection requirements contained in the notice of 
proposed rulemaking (68 FR 1394, January 10, 2003) were submitted to 
OMB for review and approved by OMB under OMB Control Number 1557-0194.
    The OCC solicited comments for 60 days on the information 
collection requirements contained notice of proposed rulemaking. The 
OCC received no comments.
    The revisions of the information collections contained in the final 
rule are unchanged from the proposed rule and are expected to reduce 
annual paperwork burden for respondents because it eliminates certain 
application and notification requirements. The information collection 
requirements in this final rule are contained in Sec. Sec.  24.5(a) and 
24.5(b). Section 24.5(a) requires a national bank to submit an after-
the-fact notice of public welfare investments to the OCC. The time per 
response to complete an after-the-fact notice is estimated to be 1.5 
hours and the number of respondents is estimated to be 195 national 
banks. Section 24.5(b) requires a national bank to submit an investment 
proposal to the OCC if the bank does not meet the requirements for 
after-the-fact notification. The time per response to complete an 
investment proposal is estimated to be 1.5 hours and the number of 
respondents is estimated to be 22.
    Section 24.5(a)(4) contains an existing requirement for certain 
national banks to submit a letter requesting authority to submit after-
the-fact notices of their investments. The time per response is 
approximately 30 minutes and the number of respondents is estimated to 
be four.
    The likely respondents are national banks.
    Estimated number of respondents: 221 hours.
    Estimated number of responses: 221 responses.
    Estimated total burden hours: 327.5 hours.

List of Subjects in 12 CFR Part 24

    Community development, Credit, Investments, National banks, 
Reporting and recordkeeping requirements.

Authority and Issuance

0
For the reasons set forth in the preamble, the OCC amends part 24 of 
chapter I of title 12 of the Code of Federal Regulations as follows:
0
1. Revise the part heading of part 24 to read as follows:

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

0
2. The authority citation for part 24 continues to read as follows:

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


0
3. In part 24, revise all references to ``community development 
corporation'' and ``CDC'' to read ``community and economic development 
entity'' and ``CEDE,'' respectively.

0
4. In Sec.  24.2, revise paragraphs (c) and (h) to read as follows:


Sec.  24.2  Definitions.

* * * * *
    (c) Community and economic development entity (CEDE) means an 
entity that makes investments or conducts activities that primarily

[[Page 48776]]

benefit low- and moderate-income individuals, low- and moderate-income 
areas, or other areas targeted by a governmental entity for 
redevelopment, or would receive consideration as ``qualified 
investments'' under 12 CFR 25.23. The following is a non-exclusive list 
of examples of the types of entities that may be CEDEs:
    (1) National bank community development corporation subsidiaries;
    (2) Private or nonbank community development corporations;
    (3) CDFI Fund-certified Community Development Financial 
Institutions or Community Development Entities;
    (4) Limited liability companies or limited partnerships;
    (5) Community development loan funds or lending consortia;
    (6) Community development real estate investment trusts;
    (7) Business development companies;
    (8) Community development closed-end mutual funds;
    (9) Non-diversified closed-end investment companies; and
    (10) Community development venture or equity capital funds.
* * * * *
    (h) Small business means a business, including a small farm or 
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.

0
5. Revise Sec.  24.3 to read as follows:


Sec.  24.3  Public welfare investments.

    A national bank may make an investment under this part if the 
investment primarily benefits low- and moderate-income individuals, 
low- and moderate-income areas, or other areas targeted by a 
governmental entity for redevelopment, or the investment would receive 
consideration under 12 CFR 25.23 as a ``qualified investment.''

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6. In Sec.  24.4, revise paragraph (a) to read as follows:


Sec.  24.4  Investment limits.

    (a) Limits 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 pursuant to Sec.  24.5(b), 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. When calculating the 
aggregate amount of its aggregate outstanding investments under this 
part, a national bank should follow generally accepted accounting 
principles, unless otherwise directed or permitted in writing by the 
OCC for prudential or safety and soundness reasons.
* * * * *

0
7. In Sec.  24.5:
0
a. Revise the section heading;
0
b. Revise paragraph (a) and;
0
c. Revise paragraphs (b)(1) and (b)(2) to read as follows:


Sec.  24.5  Public welfare investment after-the-fact notice and prior 
approval procedures.

    (a) After-the-fact notice of public welfare investments. (1) 
Subject to Sec.  24.4(a), an eligible bank may make an investment 
authorized by 12 U.S.C. 24 (Eleventh) and this part without prior 
notification to, or approval by, the OCC if the bank follows the after-
the-fact notice procedures described in this section.
    (2) An eligible bank shall provide an after-the-fact notification 
of an investment, within 10 working days after it makes the investment, 
to the Director, Community Development Division, Office of the 
Comptroller of the Currency, Washington, DC 20219.
    (3) The bank's after-the-fact-notice must include:
    (i) A description of the bank's investment;
    (ii) The amount of the investment;
    (iii) The percentage of the bank's capital and surplus represented 
by the investment that is the subject of the notice and by the bank's 
aggregate outstanding public welfare investments and commitments, 
including the investment that is the subject of the notice; and
    (iv) A statement certifying that the investment complies with the 
requirements of Sec. Sec.  24.3 and 24.4.
    (4) A bank may satisfy the notice requirements of paragraph (3) of 
this section by completing form CD-1, attached as Appendix 1 to this 
part.
    (5) 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 submit after-the-fact notices of its 
investments. The Community Development Division considers these 
requests on a case-by-case basis.
    (6) Notwithstanding the provisions of this section, a bank may not 
submit an after-the-fact notice of an investment if:
    (i) The investment involves properties carried on the bank's books 
as ``other real estate owned''; or
    (ii) The OCC determines, in published guidance, that the investment 
is inappropriate for after-the-fact notice.
    (b) Investments requiring prior approval. (1) If a national bank 
does not meet the requirements for after-the-fact investment 
notification set forth in this part, the bank must submit an investment 
proposal to the Director, Community Development Division, Office of the 
Comptroller of the Currency, Washington, DC 20219. The bank may use 
form CD-1, attached to this part as Appendix 1, to satisfy this 
requirement.
    (2) The bank's investment proposal must include:
    (i) A description of the bank's investment;
    (ii) The amount of the investment;
    (iii) The percentage of the bank's capital and surplus represented 
by the proposed investment and by the bank's aggregate outstanding 
public welfare investments and commitments, including the proposed 
investment; and
    (iv) A statement certifying that the investment complies with the 
requirements of Sec. Sec.  24.3 and 24.4.
* * * * *

0
8. Revise Sec.  24.6 to read as follows:


Sec.  24.6  Examples of qualifying public welfare investments.

    Investments that primarily support the following types of 
activities are examples of investments that meet the requirements of 
Sec.  24.3:
    (a) Affordable housing activities, including:
    (1) Investments in an entity that finances, acquires, develops, 
rehabilitates, manages, sells, or rents housing primarily for low- and 
moderate-income individuals;
    (2) Investments in a project that develops or operates transitional 
housing for the homeless;
    (3) Investments in a project that develops or operates special 
needs housing for disabled or elderly low- and moderate-income 
individuals; and
    (4) Investments in a project that qualifies for the Federal low-
income housing tax credit;
    (b) Economic development and job creation investments, including:
    (1) 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 other 
targeted redevelopment areas or that produce or retain permanent jobs, 
the majority of which are held by low- and moderate-income individuals;
    (2) Investments that finance small businesses or small farms that, 
although

[[Page 48777]]

not located in low- and moderate-income areas or targeted redevelopment 
areas, create a significant number of permanent jobs for low- or 
moderate-income individuals;
    (3) 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 or targeted 
redevelopment 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; and
    (4) Investments in low- and moderate-income areas or targeted 
redevelopment areas that produce or retain permanent jobs, the majority 
of which are held by low- and moderate-income individuals;
    (c) Investments in CEDEs, including:
    (1) Investments in a national bank that has been approved by the 
OCC as a national bank with a community development focus;
    (2) Investments in a community development financial institution, 
as defined in 12 U.S.C. 4742(5);
    (3) Investments in a CEDE that is eligible to receive New Markets 
tax credits under 26 U.S.C. 45D; and
    (d) Other public welfare investments, including:
    (1) Investments that provide credit counseling, job training, 
community development research, and similar technical assistance 
services for non-profit community development organizations, low- and 
moderate-income individuals or areas or targeted redevelopment 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;
    (2) Investments of a type approved by the Federal Reserve Board 
under 12 CFR 208.22 for state member banks that are consistent with the 
requirements of Sec.  24.3; and
    (3) Investments of a type previously determined by the OCC to be 
permissible under this part.

0
9. In Sec.  24.7, revise paragraph (b) to read as follows:


Sec.  24.7  Examination, records, and remedial action.

    (a) * * *
    (b) Records. Each national bank shall maintain in its files 
information adequate to demonstrate that its investments meet the 
standards set out in Sec.  24.3 of this part, including, where 
applicable, the criteria of 12 C.F.R. 25.23, and that the bank is 
otherwise in compliance with the requirements of this part.
* * * * *

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10. Appendix 1 is added to read as follows:
BILLING CODE 4810-33-P

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    Dated: July 10, 2003.
John D. Hawke, Jr.,
Comptroller of the Currency.
[FR Doc. 03-20801 Filed 8-14-03; 8:45 am]
BILLING CODE 4810-33-C