§ 6-806. Investments - Underwriting - Limitations.

A.  A bank may purchase and sell equity and investment securities without recourse, solely on the order and for the account of a customer, and may not underwrite an issue of securities except as otherwise provided by the Banking Code or rules adopted thereunder.

B.  Except as otherwise provided by the Banking Code or rules adopted thereunder, a bank may not invest its funds in equity securities except as necessary to avoid or minimize a loss on a loan or investment previously made in good faith.

C.  A bank may purchase investment securities for its own account under limitations and restrictions prescribed by rules adopted under the Banking Code.  Except as otherwise provided by this section, the total amount of the investment securities of any one obligor or maker, held by the bank for its own account, may not exceed an amount equal to thirty percent (30%) of the bank's capital using data from the most recent quarterly report of condition of the bank or trust company.

D.  With the approval of the Commissioner, a bank may establish and capitalize one or more operating subsidiaries and financial subsidiaries, subject to rules promulgated by the Board.

E.  Notwithstanding subsection A, B or C of this section, a bank may, with prudent banking judgment, deal in, underwrite, or purchase for its own account, without limitation as to amount unless otherwise indicated in this subsection:

1.  Bonds and other legally created general obligations of a state, an agency or political subdivision of a state, the United States, or an agency or instrumentality of the United States;

2.  An investment security that this state, an agency or political subdivision of this state, the United States, or an agency or instrumentality of the United States has unconditionally agreed to purchase, insure, or guarantee;

3.  Investment securities (including limited obligation bonds, revenue bonds, and obligations that satisfy the requirements of Section 142(b)(1) of the Unites States Internal Revenue Code) issued by or on behalf of any state or political subdivision of a state, including any municipal corporate instrumentality of one or more states, or any public agency or authority of any state or political subdivision of a state, if the bank is well capitalized (as defined in 12 U.S.C., Section 1831o);

4.  Investment securities issued under the authority of the Federal Farm Loan Act;

5.  Investment securities insured by the Secretary of Housing and Urban Development under Title IX of the National Housing Act or investment securities insured by the Secretary of Housing and Urban Development pursuant to Section 207 of the National Housing Act, if the investment securities to be issued in payment of the insured obligations are guaranteed as to principal and interest by the United States;

6.  Securities that are offered and sold under 15 U.S.C., Section 77d(5);

7.  Mortgage-related securities, as defined by 15 U.S.C., Section 78c(a), except that notwithstanding Section 347 of the Riegle Community Development and Regulatory Improvement Act of 1994, a note or obligation that is secured by a first lien on one or more parcels of real estate on which is located one or more commercial structures shall be subject to the limitations of subsection C of this section;

8.  Investment securities issued or guaranteed by the Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, the Government National Mortgage Association, the Federal Agriculture Mortgage Association, or the Federal Farm Credit Banks Funding Corporation;

9.  Purchase and hold for its own account shares of stock of small business investment companies in an aggregate amount not exceeding five percent (5%) of the capital stock and surplus of the bank, and receive and retain the benefits of the stock ownership, including stock dividends;

10.  Purchase and hold for its own account shares of stock of a banker's bank set forth in Section 402.1 of this title, but in no event shall the total amount of the stock held by the bank exceed ten percent (10%) of the capital of the bank and in no event shall the purchase of the stock result in the bank acquiring more than five percent (5%) of any class of voting securities of the banker’s bank; and

11.  Stock of a Federal Home Loan Bank.

F.  Mutual Funds.

1.  A bank may invest for its own account in equity securities of an investment company registered under the Investment Company Act of 1940 and the Securities Act of 1933 if the portfolio of the investment company consists wholly of investments in which the bank could invest directly for its own account.

2.  If the portfolio of an investment company described by paragraph 1 of this subsection consists wholly of investments in which the bank could invest directly without limitation under subsection E of this section, the bank may invest in the investment company without limitation.

3.  If the portfolio of an investment company described by subsection C of this section contains an investment or obligation that is subject to the limits of Section 802 of this title, the bank may invest in the investment company not more than an amount equal to thirty percent (30%) of the bank's capital.

4.  A bank that invests in an investment company as provided by this section shall periodically determine that its pro rata share of any security in the portfolio of the investment company is not in excess of applicable investment and lending limits by reason of being combined with the bank's pro rata share of that security held by all other investment companies in which the bank has invested and with the bank's own direct investment and loan holdings.

G.  Other Limitations.  A bank may not purchase for its own account, in any amount, paving, sewer or other special improvement obligations that are payable from the proceeds of special assessments.

H.  Assets shall not be carried above cost.  With the exception of securities held by the bank for sale, no bank or trust company shall, except with the previous written consent of the Commissioner, enter or at any time carry on its books any of its assets at a valuation exceeding the actual cost to the bank or trust company.

Added by Laws 1965, c. 161, § 806.  Amended by Laws 1970, c. 321, § 11; Laws 1975, c. 109, § 15, emerg. eff. May 7, 1975; Laws 1980, c. 360, § 6, emerg. eff. June 27, 1980; Laws 1982, c. 60, § 4, operative Oct. 1, 1982; Laws 1985, c. 168, § 5, emerg. eff. June 18, 1985; Laws 1988, c. 166, § 8, emerg. eff. May 24, 1988; Laws 1991, c. 128, § 6, emerg. eff. April 29, 1991; Laws 1992, c. 295, § 4, eff. July 1, 1992; Laws 1995, c. 36, § 18, eff. July 1, 1995; Laws 1997, c. 111, § 73, eff. July 1, 1997; Laws 2002, c. 67, § 15, eff. Nov. 1, 2002.