12 C.F.R. § 1.3

Limitations on dealing in, underwriting, and purchase and sale of securities

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(a) Type I securities. A national bank may deal in, underwrite, purchase, and sell Type I securities for its own account. The amount of Type I securities that the bank may deal in, underwrite, purchase, and sell is not limited to a specified percentage of the bank's capital and surplus.

(b) Type II securities. A national bank may deal in, underwrite, purchase, and sell Type II securities for its own account, provided the aggregate par value of Type II securities issued by any one obligor held by the bank does not exceed 10 percent of the bank's capital and surplus. In applying this limitation, a national bank shall take account of Type II securities that the bank is legally committed to purchase or to sell in addition to the bank's existing holdings.

(c) Type III securities. A national bank may purchase and sell Type III securities for its own account, provided the aggregate par value of Type III securities issued by any one obligor held by the bank does not exceed 10 percent of the bank's capital and surplus. In applying this limitation, a national bank shall take account of Type III securities that the bank is legally committed to purchase or to sell in addition to the bank's existing holdings.

(d) Type II and III securities; other investment securities limitations. A national bank may not hold Type II and III securities issued by any one obligor with an aggregate par value exceeding 10 percent of the bank's capital and surplus. However, if the proceeds of each issue are to be used to acquire and lease real estate and related facilities to economically and legally separate industrial tenants, and if each issue is payable solely from and secured by a first lien on the revenues to be derived from rentals paid by the lessee under net noncancellable leases, the bank may apply the 10 percent investment limitation separately to each issue of a single obligor.

(e) Type IV securities. A national bank may purchase and sell Type IV securities for its own account. The amount of the Type IV securities that a bank may purchase and sell is not limited to a specified percentage of the bank's capital and surplus.

(f) Type V securities. A national bank may purchase and sell Type V securities for its own account provided that the aggregate par value of Type V securities issued by any one issuer held by the bank does not exceed 25 percent of the bank's capital and surplus. In applying this limitation, a national bank shall take account of Type V securities that the bank is legally committed to purchase or to sell in addition to the bank's existing holdings.

(g) Securitization. A national bank may securitize and sell assets that it holds, as a part of its banking business. The amount of securitized loans and obligations that a bank may sell is not limited to a specified percentage of the bank's capital and surplus.

(h) Pooled investments—(1) General. A national bank may purchase and sell for its own account investment company shares provided that:

(i) The portfolio of the investment company consists exclusively of assets that the national bank may purchase and sell for its own account; and

(ii) The bank's holdings of investment company shares do not exceed the limitations in § 1.4(e).

(2) Other issuers. The OCC may determine that a national bank may invest in an entity that is exempt from registration as an investment company under section 3(c)(1) of the Investment Company Act of 1940, provided that the portfolio of the entity consists exclusively of assets that a national bank may purchase and sell for its own account.

(3) Investments made under this paragraph (h) must comply with § 1.5 of this part, conform with applicable published OCC precedent, and must be:

(i) Marketable and investment grade, or

(ii) Satisfy the requirements of § 1.3(i).

(i) Securities held based on estimates of obligor's performance. (1) Notwithstanding § 1.2(d) and (e), a national bank may treat a debt security as an investment security for purposes of this part if the security is marketable and the bank concludes, on the basis of estimates that the bank reasonably believes are reliable, that the obligor will be able to satisfy its obligations under that security.

(2) The aggregate par value of securities treated as investment securities under paragraph (i)(1) of this section may not exceed 5 percent of the bank's capital and surplus.

[61 FR 63982, Dec. 2, 1996, as amended at 64 FR 60098, Nov. 4, 1999; 73 FR 22235, Apr. 24, 2008; 77 FR 35257, June 13, 2012]

Notes of Decisions

Cited in 8 cases, 1966–1990 · leading case: Sylvester Marx v. Centran Corp., 747 F.2d 1536 (6th Cir. 1984).

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Sylvester Marx v. Centran Corp., 747 F.2d 1536 (6th Cir. 1984). “” See 12 C.F.R. § 1.3 (c). Obligations which may not be characterized as “obligations of the United States, or general obligations of a State or of a political subdivision thereof” are defined as Type II or Type III securities.”

Fed. Sec. L. Rep. P 95,494 Great W. Bank & Trust v. Sol Kotz, 532 F.2d 1252 (9th Cir. 1976). “” 12 C.F.R. § 1.3 (b) (1974). (Emphasis added.”

A. G. Becker Inc. v. Bd. of Governors of the Fed. Reserve Sys., 519 F. Supp. 602 (D.D.C. 1981). “” 12 C.F.R. § 1.3 (b). The Bank points to the legislative history of the McFadden Act of 1927 where Congressman McFadden clearly states that commercial paper was not considered an investment security.”

Baker, Watts & Co. v. Saxon, 261 F. Supp. 247 (D.D.C. 1966). “This cleavage resulted from the promulgation of a Regulation by the Comptroller of the Currency on September 12, 1963, reading as follows, 12 C.F.R. § 1.3 , par. (e): “(e) The phrase ‘general obligations of any State or of any political subdivision thereof’ means an obligation…”

The Port of New York Auth. v. Baker, Watts & Co., 392 F.2d 497 (D.C. Cir. 1968). “12, 1963), 12 C.F.R. § 1.3 (1967). A ruling specifically declaring Port Authority bonds eligible for bank underwriting was issued Nov.”

First Nat'l Bank of Gordon v. Dep't of the Treasury, Off. of the Comptroller of the Currency, 911 F.2d 57 (8th Cir. 1990). · cites it 3× “At the hearing before the administrative law judge, the Comptroller contended that this exception was not applicable on two grounds: (a) that the Tribe was not analogous to a state or political subdivision; and *61 (b) that, even if it were, it did not possess the necessary…”

The First Nat'l Bank Of Gordon v. Dep't Of The Treasury, 911 F.2d 57 (1st Cir. 1990). · cites it 2× “14 (a) A loan or extension of credit to a bank customer which is guaranteed or fully secured by a "general obligation" of any State or political subdivision thereof, within the meaning of 12 CFR 1.3(g), is not considered an obligation of the customer for purposes of 12 U.”

No. (Colo. Att'y Gen. 1980). “3(g) ( 12 C.F.R. 1.3 (g)) and para. 7.2145(a) and (f).”

— 12 C.F.R. § 1.3(g) — 2 cases

First Nat'l Bank of Gordon v. Dep't of the Treasury, Off. of the Comptroller of the Currency, 911 F.2d 57 (8th Cir. 1990). “At the hearing before the administrative law judge, the Comptroller contended that this exception was not applicable on two grounds: (a) that the Tribe was not analogous to a state or political subdivision; and *61 (b) that, even if it were, it did not possess the necessary…”

The First Nat'l Bank Of Gordon v. Dep't Of The Treasury, 911 F.2d 57 (1st Cir. 1990). “14 (a) A loan or extension of credit to a bank customer which is guaranteed or fully secured by a "general obligation" of any State or political subdivision thereof, within the meaning of 12 CFR 1.3(g), is not considered an obligation of the customer for purposes of 12 U.”

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