Investment In Securities - Investment Operations - Financial - CA

Section § 7250

This law allows associations to invest in a variety of secure and prudent financial instruments. It outlines that associations can invest without limitations in U.S. government-backed securities, federal home loan bank stocks, international home loan bank securities, and several federally guaranteed securities, such as those issued by mortgage and loan associations.

Additionally, associations can invest a small portion of their assets, up to 5%, in other securities considered prudent. They are also allowed to invest in Canadian government securities, certain international development bank obligations, insured financial institution deposits, commercial paper, corporate debt, shares in certain investment companies, and specific bankers' acceptances. The law provides flexibility by also allowing investments in securities authorized by further rules or regulations.

Notwithstanding any other provision of law, an association may invest in the following securities without limit, and in addition may invest not in excess of 5 percent of its assets in other securities that are deemed prudent by the association:

(a) Bonds or other interest bearing notes and 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, or obligations that are fully guaranteed as to principal and interest by, the United States, any state, or any state’s political subdivisions, including its agencies, corporations and instrumentalities.

(b) Stock, bonds or obligations of any federal home loan bank.

(c) Stock or obligations of any international home loan bank or similar agency incorporated by authority of an act of Congress.

(d) Stock, obligations, participations, or other instruments of or issued by, or fully guaranteed as to principal and interest by, the Federal National Mortgage Association, the Student Loan Marketing Association, Government National Mortgage Association, Federal Home Loan Mortgage Corporation, or any other agency of the United States and an association may issue and sell securities that are guaranteed under paragraph (g) of Section 306 of the National Housing Act (12 U.S.C. Sec. 1701 et seq.).

(e) Bonds, other evidences of indebtedness or obligations of, or guaranteed as to principal and interest by, the Dominion of Canada or any of its provinces, provided that the principal and interest of the obligations are payable in United States funds.

(f) Obligations issued or guaranteed by the International Bank for Reconstruction and Development, by the Inter-American Development Bank, or by the Asian Development Bank.

(g) Demand, time or savings deposits, shares or accounts, or other obligations of any financial institution the accounts of which are insured by a federal agency.

(h) Commercial paper and corporate debt securities. Investments under this subdivision in the paper or securities of any one obligor or maker shall not exceed the greater of (1) the amount a national bank having identical total capital and surplus could so invest in the paper or securities of any one obligor or maker, or (2) the amount a commercial bank, as defined in Section 105, having an identical shareholders’ equity could so invest in the paper or securities of any one obligor or maker.

(i) Shares or certificates in any open-end management investment company that is registered with the Securities and Exchange Commission under the Investment Company Act of 1940 and the portfolio of which is restricted by the management company’s investment policy, changeable only if authorized by shareholder vote, primarily to investments authorized under this section.

(j) Bankers’ acceptances of the kind, character, and maturity eligible for rediscount with a Federal Reserve bank, and such other bonds and securities as authorized by Article 2.5 (commencing with Section 7260) or as the commissioner may authorize by rules and regulations.

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Section § 7250.5

This law states that savings associations can't buy or keep corporate debt securities unless at least one nationally recognized rating service has rated them as one of the four highest categories.

No savings association may directly or indirectly acquire or retain any corporate debt security unless the corporate debt security is rated in one of the four highest rating categories by at least one nationally recognized rating service.

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Section § 7251

If an association has investments that were initially approved by the commissioner, they don't have to sell them or set up a backup fund if the commissioner later changes his mind about the investment approval.

An association holding investments which have been approved by the commissioner shall not be required to dispose of them or to establish a reserve account if later the commissioner rescinds approval of the investments.

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Section § 7252

This law allows savings associations to invest in service corporations, but only under the rules set by the commissioner. The total of these investments cannot exceed 10% of the association's total assets.

The service corporations that these associations invest in can only do activities related to what savings associations typically do, with commissioner approval. Additionally, savings associations can invest in these service corporations even if those corporations hold investments in other entities not based in California or have stock available for others to buy.

(a) Notwithstanding any other provisions of this chapter, an association may, subject to regulations of the commissioner, invest in the capital stock, obligations, or other securities of service corporations.

(b) The total of all investments under this section shall not exceed 10 percent of the total assets of the savings association.

(c) A service corporation in which a savings association may invest shall only engage in those activities reasonably related to the activities of savings associations as the commissioner may approve.

(d) An association may make an investment under this section notwithstanding that the service corporation in which investment is authorized has invested in any other corporation (1) that is not incorporated in this state, or (2) that has stock available for purchase by persons other than associations.

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