WASHINGTON - The Office of the Comptroller of the Currency is proposing to simplify the capital calculation that determines investment limitations for national banks.

As part of an effort to streamline and update its regulations, the OCC is proposing to revamp "Part 1" of its rulebook, which contains standards for investment securities for national banks.

Under the proposal, published in the Dec. 21 Federal Register, national banks would no longer be required to make a special capital calculation to determine their securities investment limitations. Instead, they would be able to rely on the standard capital adequacy calculation from the most recent quarterly data.

"This is very important, because when the OCC started to undertake their whole regulatory streamlining project, they realized that their rules required a number of different capital calculations," said James McLaughlin, director of agency relations for the American Bankers Association. "It can be very confusing for bankers, and this is an effort to reduce that confusion."

Like the other bank and thrift agencies, the Office of the Comptroller of the Currency is trying to reduce the number of different capital calculations that institutions must use to determine activity limits.

"Now (national banks) will be able to pick up the information out of what they already calculate and simply report that," said OCC chief counsel Julie L. Williams.

The OCC is also proposing to incorporate into Part 1 a number of interpretations and statutory changes made over the years. Two laws would be formally written into the OCC rulebook under the proposal.

The first, the Secondary Mortgage Market Enhancement Act of 1984, opened the door for national banks to invest in residential mortgage-backed securities. The other, the Riegle Community Development and Regulatory Improvement Act of 1994, eased the limits on national banks' investment in loans secured by commercial real estate and small-business loans.

The Comptroller's office is proposing to classify these three classes of securities as Type IV, to differentiate them from Types I, II, and III securities, which are categories of investments already included in the agency's rulebook.

The agency is also proposing to create a Type V category for highly rated asset-backed securities formed from an underlying pool of loans, such as automobile or credit card loans. The OCC interpreted these investments as permissible, since national banks already could invest in the underlying loans directly, Ms. Williams said.

For Type IV and Type V investments, loans to any one borrower could not make up more than 5% of the assets in the underlying pool of loans.

Comments must be received by the Comptroller's office by Feb. 20. Final action is expected "before the end of next year," Ms. Williams said.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.