OCC Boosts Banks' Investment Cap on Asset-Backed Securities to 25%

By de Senerpont Domis, Olaf | American Banker, December 3, 1996 | Go to article overview

OCC Boosts Banks' Investment Cap on Asset-Backed Securities to 25%


de Senerpont Domis, Olaf, American Banker


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 rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

OCC Boosts Banks' Investment Cap on Asset-Backed Securities to 25%
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.