4000 - Advisory Opinions
12 U.S.C. § 1831a Does Not Prohibit State-Chartered Banks from Purchasing Nominal Amounts of Farmer Mac Common Stock as Necessary to Participate in Farmer Mac Program
July 30, 1993
Douglas H. Jones, Deputy General Counsel
I am writing to concur with your opinion that, consistent with safe and sound banking practices, Section 24 of the Federal Deposit Insurance Act (the "FDI Act"), 12 U.S.C. 1831a, does not prohibit state-chartered banks from investing in shares of the common stock of the Federal Agricultural Mortgage Corporation ("Farmer Mac") as an incident to these banks' participation in the secondary market for agricultural real estate loans.
As you mentioned in your letter to me, Section 303 of the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") added a new Section 24 to the FDI Act (12 U.S.C. 1831a). With certain exceptions, this new section limits the activities and equity investment of state-chartered banks insured by the FDIC to those activities and equity investments that are permissible for national banks. On November 9, 1992, the FDIC published its final regulations relating to equity investments covered by Section 24 of the FDI Act. 57 Fed. Reg. 53,213 (12 C.F.R. Part 362). These regulations define "equity investment" to include any "equity security," which, in turn, is defined to mean "any stock. . . ." 12 C.F.R. 362.2(f) and (g). Thus, according to these definitions, Farmer Mac voting common stock would qualify as an "equity security."
Your major concern, however, is whether Farmer Mac voting common stock is an "equity investment permissible for a national bank" as that term is defined in 12 C.F.R. § 362.2(h). That subsection states:
Investments expressly authorized by statute or recognized as permissible in regulations, official bulletins or circulars issued by the Office of the Comptroller of the Currency or in any order or interpretation issued in writing will be accepted as permissible for state banks.
According to your letter, such an "interpretation issued in writing" appeared when the Chief Counsel of the Office of the Comptroller of the Currency ("OCC") issued Interpretive Letter No. 427, which specifically permits national banks to purchase and hold Farmer Mac stock in nominal amounts necessary to participate in the Farmer Mac program, subject to safe and sound banking practices (copy enclosed). Dated May 9, 1988, this letter was issued as an interpretive letter in June of the same year. You state that this interpretation was "issued in writing" (in fact, that it was published in the June 1988 issue of Interpretations and Actions, an official publication of the OCC), and that it remains the current opinion of the OCC; that is, that it has not been modified or overruled by the OCC in any manner, nor found by a court of law to be incorrect.
Provided that these representations are correct, I would concur with your opinion that, consistent with safe and sound banking practices, Section 24 of the FDIC Act does not prohibit state-chartered banks from purchasing Farmer Mac stock in nominal amounts necessary to participate in the Farmer Mac program.