[Code of Federal Regulations]
[Title 12, Volume 3]
[Revised as of January 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 12CFR250.142]

[Page 665-666]
 
                       TITLE 12--BANKS AND BANKING
 
                   CHAPTER II--FEDERAL RESERVE SYSTEM
 
PART 250--MISCELLANEOUS INTERPRETATIONS--Table of Contents
 
Sec. 250.142  Meaning of ``obligor or maker'' in determining limitation on securities investments by member State banks.

    (a) From time to time the New York State Dormitory Authority offers 
issues of bonds with respect to each of which a different educational 
institution enters into an agreement to make rental payments to the 
Authority sufficient to cover interest and principal thereon when due. 
The Board of Governors of the Federal Reserve System has been asked 
whether a member State bank may invest up to 10 percent of its capital 
and surplus in each such issue.
    (b) Paragraph Seventh of section 5136 of the U.S. Revised Statutes 
(12 U.S.C. 24) provides that ``In no event shall the total amount of the 
investment securities of any one obligor or maker, held by [a national 
bank] for its own account, exceed at any time 10 per centum of its 
capital stock * * * and surplus fund''. That limitation is made 
applicable to member State banks by the 20th paragraph of section 9 of 
the Federal Reserve Act (12 U.S.C. 335).
    (c) The Board considers that, within the meaning of these provisions 
of law, obligor does not include any person that acts solely as a 
conduit for transmission of funds received from another source, 
irrespective of a promise by such person to pay principal or interest on 
the obligation. While an obligor does not cease to be such merely 
because a third person has agreed to pay the obligor amounts sufficient 
to cover principal and interest on the obligations when due, a person 
that promises to pay an obligation, but as a practical matter has no 
resources with which to assume payment of the obligation except the 
amounts received from such third person, is not an obligor within the 
meaning of section 5136.
    (d) Review of the New York Dormitory Authority Act (N.Y. Public 
Authorities Law sections 1675-1690), the Authority's interpretation 
thereof, and materials with respect to the Authority's ``Revenue Bonds, 
Mills College of Education Issue, Series A'' indicates that the 
Authority is not an obligor on those and similar bonds. Although the 
Authority promises to make all payments of principal and interest, a 
bank that invests in such bonds cannot be reasonably considered as doing 
so in reliance on the promise and responsibility of the Authority. 
Despite the Authority's obligation to make payments on the bonds, if the 
particular college fails to perform its agreement to make rental 
payments to the Authority sufficient to cover all payments of bond 
principal and interest when due, as a practical matter the sole source 
of funds for payments to the bondholder is the particular college. The 
Authority has general borrowing power but no resources from

[[Page 666]]

which to assure repayment of any borrowing except from the particular 
colleges, and rentals received from one college may not be used to 
service bonds issued for another.
    (e) Accordingly, the Board has concluded that each college for which 
the Authority issues obligations is the sole obligor thereon. A member 
State bank may therefore invest an amount up to 10 percent of its 
capital and surplus in the bonds of a particular college that are 
eligible investments under the Investment Securities Regulation of the 
Comptroller of the Currency (12 CFR Part 1), whether issued directly or 
indirectly through the Dormitory Authority.

(12 U.S.C. 24, 335)