Article 4. Investments of California Financial Code >> Division 1.1. >> Chapter 14. >> Article 4.
The total amount invested by a bank in the securities issued
by a person shall not exceed 15 percent of the sum of the
shareholders' equity, allowance for loan and lease losses, capital
notes and debentures of the bank, except:
(a) Obligations of the United States and those for which the faith
and credit of the United States are pledged for the payment of
principal and interest.
(b) Bonds, consolidated bonds, collateral trust debentures, or
other obligations issued by the Federal Financing Bank, the United
States Postal Service, federal land banks, or federal intermediate
credit banks established under the Federal Farm Loan Act; in
debentures and consolidated debentures issued by the Central Bank for
Cooperatives and banks for cooperatives established under the Farm
Credit Act of 1933; in consolidated notes, bonds, debentures, and
other obligations issued by federal land banks, federal intermediate
credit banks, and banks for cooperatives under the Farm Credit Act of
1971; in the bonds of any federal home loan bank established under
the Federal Home Loan Bank Act; and in stock, bonds, debentures,
participations, and other obligations of or issued by the Student
Loan Marketing Association, the Federal National Mortgage
Association, the Government National Mortgage Association, and the
Federal Home Loan Mortgage Corporation.
(c) Obligations of the State of California and those for which the
credit of the State of California is pledged for the payment of
principal and interest.
(d) Obligations of a local agency or district of the State of
California having the power, without limit as to rate or amount, to
levy taxes to pay the principal and interest of the bonds upon all
property within its boundaries subject to taxation by the local
agency or district.
(e) Capital stock of the Federal Reserve bank serving the district
in which the bank is located.
(f) Capital stock of a federal home loan bank in the manner
provided in the Federal Home Loan Bank Act.
(g) Capital stock of the Federal Deposit Insurance Corporation.
Section 1510 shall not apply to investments made pursuant to
this section. A bank may invest in shares of an investment company
(1) registered with the Securities and Exchange Commission pursuant
to the federal Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1
et seq.) and for which the shares are registered under the federal
Securities Act of 1933 (15 U.S.C. Sec. 77a et seq.), and (2) the
portfolio of which consists solely of the following:
(a) Debt obligations in which a bank is permitted to invest
without limitation pursuant to subdivision (a), (b), (c), or (d) of
Section 1510 and repurchase agreements fully collateralized by those
(b) Loans of federal funds and similar loans of unsecured day(s)
funds, maturing in six months or less to institutions insured by the
Federal Deposit Insurance Corporation Federal Funds. Loans under this
subdivision are limited to transactions described in subsection (a)
or (b) of Section 32.102 of Title 12 of the Code of Federal
Regulations involving investment companies in which the entire
beneficial interest is held exclusively by depository institutions,
as permitted by Section 204.123 of Title 12 of the Code of Federal
(c) Cash or its equivalent.
Notwithstanding Section 1510, a bank may purchase, acquire,
or hold the stock of any corporation pursuant to a plan of
reorganization approved by the commissioner by which all of the stock
of one or more banks organized under the laws of this state shall be
acquired and immediately reissued proportionately to the
stockholders of the acquiring bank.
If any commercial bank has made investments which it was
authorized to make at the time they were made it shall not be
required to dispose of such investments by reason of adoption of the
Banking Code, this code, or any amendments to this article.
A commercial bank may organize, sponsor, operate, control, or
render investment advice to, an investment company, or underwrite,
distribute, or sell securities of any investment company which has
qualified to sell its securities in this state pursuant to Part 2
(commencing with Section 25100) of Division 1 of Title 4 of the
Corporations Code, if the officers and employees of the bank who sell
these securities meet such standards with respect to training,
experience, and sales practices as established by the Secretary of
Business, Consumer Services, and Housing or the secretary's designee.
For the purpose of this section, "investment company" means an
investment company as defined in the Investment Company Act of 1940
(15 U.S.C., Sec. 80a-1 et seq.).
A bank or trust company may acquire stock in settlement or
reduction of a loan or in exchange for an investment previously made
in good faith where the acquisition of the stock is necessary in
order to minimize or avoid loss arising out of the loan or
investment. The limitation in Section 1510 shall not apply to the
stock acquired in accordance with this section. Whenever any stock
that is acquired in accordance with this section can be sold for an
amount sufficient to reimburse the bank or trust company for all loss
arising out of the loan for which the stock was security or arising
out of the original investment by the bank or trust company, the bank
or trust company shall sell the same or shall convert the stock to
an investment subject to Section 1510.