PART 1—INVESTMENT SECURITIES Authority: 12 U.S.C. 1 et seq., Source: 61 FR 63982, Dec. 2, 1996, unless otherwise noted. § 1.1 Authority, purpose, scope, and reservation of authority. (a) Authority. et seq., (b) Purpose (c) Scope. (d) Reservation of authority. [61 FR 63982, Dec. 2, 1996, as amended at 73 FR 22235, Apr. 24, 2008] § 1.2 Definitions. (a) Capital and surplus (1) For qualifying community banking organizations that have elected to use the community bank leverage ratio framework, as set forth under the OCC's Capital Adequacy Standards at part 3 of this chapter: (i) A qualifying community banking organization's tier 1 capital, as used under § 3.12 of this chapter; plus (ii) A qualifying community banking organization's allowance for loan and lease losses or adjusted allowances for credit losses, as applicable, as reported in the bank's Consolidated Report of Condition and Income (Call Report); or (2) For all other banks: (i) A bank's tier 1 and tier 2 capital calculated under the OCC's risk-based capital standards set forth in part 3 of this chapter, as applicable (or comparable capital guidelines of the appropriate Federal banking agency), as reported in the bank's Call Report; plus (ii) The balance of a bank's allowance for loan and lease losses or adjusted allowances for credit losses, as applicable, not included in the bank's tier 2 capital, for purposes of the calculation of risk-based capital described in paragraph (a)(2)(i) of this section, as reported in the bank's Call Report. (b) General obligation of a State or political subdivision (1) An obligation supported by the full faith and credit of an obligor possessing general powers of taxation, including property taxation; or (2) An obligation payable from a special fund or by an obligor not possessing general powers of taxation, when an obligor possessing general powers of taxation, including property taxation, has unconditionally promised to make payments into the fund or otherwise provide funds to cover all required payments on the obligation. (c) Investment company (d) Investment grade (e) Investment security (f) Marketable (1) Is registered under the Securities Act of 1933, 15 U.S.C. 77a et seq.; (2) Is a municipal revenue bond exempt from registration under the Securities Act of 1933, 15 U.S.C. 77c(a)(2); (3) Is offered and sold pursuant to Securities and Exchange Commission Rule 144A, 17 CFR 230.144A, and investment grade; or (4) Can be sold with reasonable promptness at a price that corresponds reasonably to its fair value. (g) Municipal bonds (h) [Reserved] (i) Political subdivision (j) Type I security (1) Obligations of the United States; (2) Obligations issued, insured, or guaranteed by a department or an agency of the United States Government, if the obligation, insurance, or guarantee commits the full faith and credit of the United States for the repayment of the obligation; (3) Obligations issued by a department or agency of the United States, or an agency or political subdivision of a State of the United States, that represent an interest in a loan or a pool of loans made to third parties, if the full faith and credit of the United States has been validly pledged for the full and timely payment of interest on, and principal of, the loans in the event of non-payment by the third party obligor(s); (4) General obligations of a State of the United States or any political subdivision thereof; and municipal bonds if the national bank is well capitalized as defined in 12 CFR 6.4; (5) Obligations authorized under 12 U.S.C. 24 (Seventh) as permissible for a national bank to deal in, underwrite, purchase, and sell for the bank's own account, including qualified Canadian government obligations; and (6) Other securities the OCC determines to be eligible as Type I securities under 12 U.S.C. 24 (Seventh). (k) Type II security (1) Obligations issued by a State, or a political subdivision or agency of a State, for housing, university, or dormitory purposes that would not satisfy the definition of Type I securities pursuant to paragraph (j) of § 1.2; (2) Obligations of international and multilateral development banks and organizations listed in 12 U.S.C. 24 (Seventh); (3) Other obligations listed in 12 U.S.C. 24 (Seventh) as permissible for a bank to deal in, underwrite, purchase, and sell for the bank's own account, subject to a limitation per obligor of 10 percent of the bank's capital and surplus; and (4) Other securities the OCC determines to be eligible as Type II securities under 12 U.S.C. 24 (Seventh). (l) Type III security (m) Type IV security (1) A small business-related security as defined in section 3(a)(53)(A) of the Securities Exchange Act of 1934, 15 U.S.C. 78c(a)(53)(A), that is fully secured by interests in a pool of loans to numerous obligors. (2) A commercial mortgage-related security that is offered or sold pursuant to section 4(5) of the Securities Act of 1933, 15 U.S.C. 77d(5), that is investment grade, or a commercial mortgage-related security as described in section 3(a)(41) of the Securities Exchange Act of 1934, 15 U.S.C. 78c(a)(41), that represents ownership of a promissory note or certificate of interest or participation that is directly secured by a first lien on one or more parcels of real estate upon which one or more commercial structures are located and that is fully secured by interests in a pool of loans to numerous obligors. (3) A residential mortgage-related security that is offered and sold pursuant to section 4(5) of the Securities Act of 1933, 15 U.S.C. 77d(5), that is investment grade, or a residential mortgage-related security as described in section 3(a)(41) of the Securities Exchange Act of 1934, 15 U.S.C. 78c(a)(41)) that does not otherwise qualify as a Type I security. (n) Type V security (1) Investment grade; (2) Marketable; (3) Not a Type IV security; and (4) Fully secured by interests in a pool of loans to numerous obligors and in which a national bank could invest directly. [61 FR 63982, Dec. 2, 1996, as amended at 66 FR 34791, July 2, 2001; 77 FR 35257, June 13, 2012; 79 FR 11309, Feb. 28, 2014; 84 FR 4237, Feb. 14, 2019; 84 FR 61792, Nov. 13, 2019; 84 FR 69297, Dec. 18, 2019] § 1.3 Limitations on dealing in, underwriting, and purchase and sale of securities. (a) Type I securities. (b) Type II securities. (c) Type III securities. (d) Type II and III securities; other investment securities limitations. (e) Type IV securities. (f) Type V securities. (g) Securitization. (h) Pooled investments General. (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. (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. (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] § 1.4 Calculation of limits. (a) Calculation date. (1) The last day of the preceding calendar quarter; or (2) The date on which there is a change in the bank's capital category for purposes of 12 U.S.C. 1831o and 12 CFR 6.3. (b) Effective date. (i) The date on which the bank's Consolidated Report of Condition and Income (Call Report) is submitted; or (ii) The date on which the bank's Consolidated Report of Condition and Income is required to be submitted. (2) A bank's investment limit calculated in accordance with paragraph (a)(2) of this section will be effective on the date that the limit is to be calculated. (c) Authority of OCC to require more frequent calculations. (d) Calculation of Type III and Type V securities holdings General. (i) Obligations issued by obligors that are related directly or indirectly through common control; and (ii) Securities that are credit enhanced by the same entity. (2) Aggregation by type. (e) Limit on investment company holdings General. (2) Alternate limit for diversified investment companies. (i) The investment company's holdings of the securities of any one issuer do not exceed 5 percent of its total portfolio; and (ii) The bank's total holdings of the investment company's shares do not exceed the most stringent investment limitation that would apply to any of the securities in the company's portfolio if those securities were purchased directly by the bank. § 1.5 Safe and sound banking practices; credit information required. (a) A national bank shall adhere to safe and sound banking practices and the specific requirements of this part in conducting the activities described in § 1.3. The bank shall consider, as appropriate, the interest rate, credit, liquidity, price, foreign exchange, transaction, compliance, and strategic risks presented by a proposed activity, and the particular activities undertaken by the bank must be appropriate for that bank. (b) In conducting these activities, the bank shall determine that there is adequate evidence that an obligor possesses resources sufficient to provide for all required payments on its obligations, or, in the case of securities deemed to be investment securities on the basis of reliable estimates of an obligor's performance, that the bank reasonably believes that the obligor will be able to satisfy the obligation. (c) Each bank shall maintain records available for examination purposes adequate to demonstrate that it meets the requirements of this part. The bank may store the information in any manner that can be readily retrieved and reproduced in a readable form. [61 FR 63982, Dec. 2, 1996, as amended at 91 FR 18292, Apr. 10, 2026] § 1.6 Convertible securities. A national bank may not purchase securities convertible into stock at the option of the issuer. § 1.7 Securities held in satisfaction of debts previously contracted; holding period; disposal; accounting treatment; non-speculative purpose. (a) Securities held in satisfaction of debts previously contracted. (1) Through foreclosure on collateral; (2) In good faith by way of compromise of a doubtful claim; or (3) To avoid loss in connection with a debt previously contracted. (b) Holding period. (c) Accounting treatment. (d) Non-speculative purpose. § 1.8 Nonconforming investments. (a) A national bank's investment in securities that no longer conform to this part but conformed when made will not be deemed in violation but instead will be treated as nonconforming if the reason why the investment no longer conforms to this part is because: (1) The bank's capital declines; (2) Issuers, obligors, or credit-enhancers merge; (3) Issuers become related directly or indirectly through common control; (4) The investment securities rules change; (5) The security no longer qualifies as an investment security; or (6) Other events identified by the OCC occur. (b) A bank shall exercise reasonable efforts to bring an investment that is nonconforming as a result of events described in paragraph (a) of this section into conformity with this part unless to do so would be inconsistent with safe and sound banking practices. Interpretations § 1.100 Indirect general obligations. (a) Obligation issued by an obligor not possessing general powers of taxation. (b) Indirect commitment of full faith and credit. (1) Lease/rental agreement. (2) Service/purchase agreement. (3) Refillable debt service reserve fund. (4) Other grants or support. § 1.110 Taxing powers of a State or political subdivision. (a) An obligation is considered supported by the full faith and credit of a State or political subdivision possessing general powers of taxation when the promise or other commitment of the State or the political subdivision will produce funds, which (together with any other funds available for the purpose) will be sufficient to provide for all required payments on the obligation. In order to evaluate whether a commitment of a State or political subdivision is likely to generate sufficient funds, a bank shall consider the impact of any possible limitations regarding the State's or political subdivision's taxing powers, as well as the availability of funds in view of the projected revenues and expenditures. Quantitative restrictions on the general powers of taxation of the State or political subdivision do not necessarily mean that an obligation is not supported by the full faith and credit of the State or political subdivision. In such case, the bank shall determine the eligibility of obligations by reviewing, on a case-by-case basis, whether tax revenues available under the limited taxing powers are sufficient for the full and timely payment of interest on, and principal of, the obligation. The bank shall use current and reasonable financial projections in calculating the availability of the revenues. An obligation expressly or implicitly dependent upon voter or legislative authorization of appropriations may be considered supported by the full faith and credit of a State or political subdivision if the bank determines, on the basis of past actions by the voters or legislative body in similar situations involving similar types of projects, that it is reasonably probable that the obligor will obtain all necessary appropriations. (b) An obligation supported exclusively by excise taxes or license fees is not a general obligation for the purposes of 12 U.S.C. 24 (Seventh). Nevertheless, an obligation that is primarily payable from a fund consisting of excise taxes or other pledged revenues qualifies as a “general obligation,” if, in the event of a deficiency of those revenues, the obligation is also supported by the general revenues of a State or a political subdivision possessing general powers of taxation. § 1.120 Prerefunded or escrowed bonds and obligations secured by Type I securities. (a) An obligation qualifies as a Type I security if it is secured by an escrow fund consisting of obligations of the United States or general obligations of a State or a political subdivision, and the escrowed obligations produce interest earnings sufficient for the full and timely payment of interest on, and principal of, the obligation. (b) If the interest earnings from the escrowed Type I securities alone are not sufficient to guarantee the full repayment of an obligation, a promise of a State or a political subdivision possessing general powers of taxation to maintain a reserve fund for the timely payment of interest on, and principal of, the obligation may further support a guarantee of the full repayment of an obligation. (c) An obligation issued to refund an indirect general obligation may be supported in a number of ways that, in combination, are sufficient at all times to support the obligation with the full faith and credit of the United States or a State or a political subdivision possessing general powers of taxation. During the period following its issuance, the proceeds of the refunding obligation may be invested in U.S. obligations or municipal general obligations that will produce sufficient interest income for payment of principal and interest. Upon the retirement of the outstanding indirect general obligation bonds, the same indirect commitment, such as a lease agreement or a reserve fund, that supported the prior issue, may support the refunding obligation. § 1.130 Type II securities; guidelines for obligations issued for university and housing purposes. (a) Investment quality. (1) Qualifies as an investment security, as defined in § 1.2(e); and (2) Is issued for the appropriate purpose and by a qualifying issuer. (b) Obligation issued for university purposes. (2) An obligation that finances the construction or improvement of facilities used by a hospital may be eligible as a Type II security, if the hospital is a department or a division of a university, or otherwise provides a nexus with university purposes, such as an affiliation agreement between the university and the hospital, faculty positions of the hospital staff, and training of medical students, interns, residents, and nurses ( e.g., (c) Obligation issued for housing purposes.