WASHINGTON - The Office of the Comptroller of the Currency is allowing national banks to invest in the stock market indirectly to hedge employee benefit costs.

In guidelines sent to bankers last week, the Comptroller's Office outlined the limited circumstances in which national banks may purchase corporate life insurance policies whose premiums are invested in the stock market. Previously, premiums on policies covering key bank executives could be invested only in money market assets, Treasury securities, and other bank-eligible investments.

By buying the stock policies, banks can hedge the costs of other employee benefits tied to the market, like stock options.

"A number of institutions were looking for something to hedge the cost and volatility of employee benefit obligations," said David D. Gibbons, deputy comptroller for credit risk, in an interview Monday. "If the market goes up, the benefits they have to pay out goes up.

"If insurance policy money is invested in an account with equities, the value of that policy is going to go up and down with the market," Mr. Gibbons said. "If the cost of benefits goes up, then the insurance you are using to offset the cost also goes up … and the cost to the institution remains stable."

However, "it has got to be a perfect hedge, Mr. Gibbons cautioned. "We don't want them to invest in equities unless it is for hedging protection. If it can't be a hedge, it is impermissible."


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