The Office of the Comptroller of the Currency has made it substantially easier for national banks to invest in asset-backed securities.

A rule issued Monday allows national banks to invest 25% of their capital and surplus in highly rated securities backed by credit card, auto, and other loans. The current limit on these asset-backed securities is 10% of a bank's capital.

"This rule recognizes that purchasing and selling various types of securities backed by loans is an important liquidity tool for banks and enhances safety and soundness," OCC Chief Counsel Julie L. Williams said.

"They are good income producers, and buying a security is a more liquid, more marketable holding for a bank."

The rule comes amid explosive growth in asset-backed securities. Issuance of the instruments hit $130 billion in the first 10 months of this year, up from $119 billion for all of 1995, according to Chase Manhattan Corp.'s securities unit.

The Comptroller's Office originally proposed setting the investment limit at 15% of a bank's capital, but industry leaders argued for the higher 25% cap.

The agency also confirmed that there is no limit on national bank investments in residential and commercial mortgage-backed securities or securities backed by small-business loans.

In the new rule, which takes effect Dec. 31, the agency agreed to drop a plan to bar banks from investing in any pool where a single borrower holds more than 5% of the loans.

Banking trade groups, lawyers, and consultants had argued that the 5% limit was meaningless because the rating agencies already consider concentration risk when grading a particular security.

"This change will allow banks to buy investment grade securities and doesn't arbitrarily limit them in a way that has nothing to do with credit quality," said A. Bradley Ives, a banking lawyer with Kennedy, Covington, Lobdell & Hickman in Charlotte, N.C.

"The rating agencies are the market watchdog, not the banking agencies."

The OCC did retain a caveat: A pool must contain "numerous" borrowers. But the agency did not define what this means.

The new rule also eased the definition of "investment grade."

A security qualifies if it receives one of the top four ratings from at least two agencies. A single top-four rating will suffice if the investment has been rated by only one agency, the OCC said.

Industry leaders had blasted the original proposal, which would have required every rating agency to award one of its top-four ratings before a bank could invest. Banks had argued that this plan allowed a single rating agency to effectively keep banks out of the market for a particular security.

"This is clearly much better than what was originally proposed," said Sarah A. Miller, senior government relations counsel at the American Bankers Association. "We were concerned that if one agency gave an investment a bad grade, the minority would have been in control."

Finally, the OCC said national banks do not have to figure their capital every time they buy an asset-backed security. Instead, banks may rely on the capital calculation from their most recent Call Report.

This rule, proposed in December 1995, was prompted by the Riegle Community Development and Regulatory Improvement Act of 1994, which eased limits on national bank investments in loans secured by commercial real estate and small business.

Separately on Monday, the OCC also finalized its rules governing record keeping requirements for securities transactions.

The new rule, which also takes effect Dec. 31, requires national banks to give customers confirmation of a securities purchase at the time of the transaction, rather than within five days.

Over the past two and a half years, the Comptroller's Office has been updating and streamlining its rulebook. The agency has just two of its 28 rules left to rewrite.

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