AN ACT RELATIVE TO THE LIST OF LEGAL INVESTMENTS PREPARED BY THE COMMISSIONER OF BANKS
Be it enacted by the Senate and House of Representatives in General Court assembled, and by the authority of the same as follows:
SECTION 1. Section 54 of chapter 44 of the General Laws, as appearing in the 2012 Official Edition, is hereby amended by striking out the first sentence and inserting in place thereof the following sentence:- Trust funds, including cemetery perpetual care funds, unless otherwise provided or directed by the donor of the funds, shall be deposited in: a trust company, co-operative bank or savings bank, if the trust company or bank is organized or exists under the laws of the commonwealth or any other state or may transact business in the commonwealth and has its main office or a branch office in the commonwealth; a national bank, federal savings bank or federal savings and loan association, if the bank or association may transact business and has its main office or a branch office in the commonwealth; provided, however, that a state-chartered or federally-chartered bank shall be insured by the Federal Deposit Insurance Corporation or its successor or invested by cities and towns in participation units in a combined investment fund under section 38A of chapter 29 or in bonds or notes which are legal investments for savings banks.
SECTION 2. Said chapter 44 is hereby further amended by striking out section 55A, as so appearing, and inserting in place thereof the following section:-
Section 55A. A city, town, district or regional school district officer receiving public money and lawfully and in good faith and in the exercise of due care depositing the public money in a trust company, co-operative bank or savings bank, if the trust company or bank is organized or exists under the laws of the commonwealth or any other state or may transact business in the commonwealth and has its main office or a branch office in the commonwealth, a national bank, federal savings bank or federal savings and loan association, if the bank or association may transact business and has its main office or branch office in the commonwealth or in participation units in a combined investment fund under section 38A of chapter 29 or, in the city of Boston, in accordance with section 55 in a national bank or trust company in the city of New York; provided, however, that a state-chartered or federally-chartered bank shall be insured by the Federal Deposit Insurance Corporation or its successor, shall not be personally liable to the city, town, district or regional school district for any loss of public money by reason of the closing or liquidation of any depository institution described in this section.
SECTION 3. Chapter 167 of the General Laws is hereby amended by striking out sections 15A and 15B, as so appearing, and inserting in place thereof the following 11 sections:—
Section 15A. (a) As used in this section and in sections 15B to 15K, inclusive, “legal list” or “legal investments” shall mean the list of securities approved for investment by the commissioner.
(b) On or before July 1 of each year, the commissioner shall prepare a list of all stocks, bonds, notes and other interest-bearing obligations which are then legal investments under said sections 15B to 15K, inclusive; provided, however, that all privately placed or held issues may in the discretion of the commissioner be omitted. An entity issuing such an instrument shall identify itself directly to the commissioner as being eligible to be included on the list under sections 15E to 15K, inclusive; provided, however, that the commissioner shall have the discretion to add any entity and instrument to the list. The list shall include the name of any investment fund approved by the commissioner which invests only in such stocks, bonds, notes and other interest bearing obligations. The shares of any such investment fund so approved shall be legal investments pursuant to this section to the same extent as any such stocks, bonds, notes and other interest bearing obligations. The list shall at all times be public. In the preparation of any such list which the commissioner shall prepare or furnish, the commissioner may employ expert assistance as the commissioner believes proper or may rely upon information contained in publications which the commissioner believes authoritative in reference to such matters and the commissioner shall not be held responsible or liable for the omission from the list of the name of any state or political subdivision or authority of the state or of any corporation or association the stocks, bonds, notes or other interest bearing obligations which so conform or any investment fund which conforms to this chapter or for the omission of any investment funds, stocks, bonds, notes or other interest bearing obligations which so conform. The commissioner shall not be held responsible or liable for inclusion in the list of any such names or of nonconforming investment funds, stocks, bonds, notes or other interest-bearing obligations.
(c) Officers and members of a board of a bank or credit union may rely upon the legal list as representing an accurate listing of investment funds, stocks, bonds, notes and other interest bearing obligations eligible for investment by the bank or credit union and no officer or member shall be personally liable for any loss incurred by the bank or credit union arising from the purchase in good faith of any shares in an investment fund or security appearing on the list at the time of the purchase.
(d) Subsequent to the annual preparation of the list, the commissioner may add the name of any investment fund which meets the requirements of this section.
(e) Before making an investment under this section, an entity shall conduct an appropriate level of due diligence to determine if an investment is both permissible and appropriate. This may include both internal and external analysis. For debt instruments, the analysis shall not rely solely on 1 or more credit rating agencies and the entity shall determine that the instrument has both a low risk of default by the obligor and the full and timely repayment is expected over the expected life of the investment.
Section 15B. (a) The legal list prepared pursuant to section 15A may include securities that are approved for investment in accordance with this section.
(b) The securities eligible for approval for investment under this section may include: (i) interest-bearing obligations of any state, county, city, town or district or any subdivision or instrumentality thereof and any authority established under the laws of the United States or any state, county, town or district, including obligations of any of the foregoing payable from specified revenues; (ii) interest-bearing obligations of any corporation organized under the laws of the United States or any state and of any association, the business of which is conducted or transacted by trustees under a written instrument or declaration of trust, having its principal place of business in the commonwealth; and (iii) preferred and common stock of any corporation described in clause (ii). Obligations eligible pursuant to clauses (i) and (ii) shall have an initial offering of at least $50,000,000 and be rated at least a single A.
(c) Upon application by 3 credit unions which have been chartered pursuant to chapter 171, which have submitted in the form and under the conditions as the commissioner may require, requesting authority to invest their deposits and the income derived from their deposits in any of the interest-bearing obligations or stocks referred to in subsection (b), the credit unions may request that the commissioner, in the form and under the conditions as the commissioner may require, authorize, notwithstanding any general or special law to the contrary, the investment in the interest bearing obligations or stock.
(d) If the commissioner grants the authority, the commissioner shall immediately add the name of the investment to the legal list. At any time after adding the name of the investment to the legal list, the commissioner may on the commissioner’s own initiative revoke that authority.
(e) If the commissioner authorized investment in an issue of bonds in accordance with this section and, if after the authorization but before the authorization is revoked the issuer shall issue bonds, the proceeds of which shall be used solely to refund the issue previously authorized for investment or another issue of equal or shorter maturity and of equal or prior security and, if the new bonds shall be of equal security with the previously authorized issue and of equal or shorter maturity, the commissioner may authorize investment in the refunding bonds and after the authorization may revoke the authority on the commissioner’s own initiative. If the commissioner authorized investment in an issue of bonds in accordance with this section and, if after the authorization but before the authorization is revoked, the issuer shall issue bonds of which at least 90 per cent of the proceeds shall be used to refund the issue previously authorized for investment or another issue of equal or prior security, the security for the new bonds is not less than that for the previously authorized issue and the commissioner may authorize investment in the new bonds and after the authorization may revoke the authority on the commissioner’s own initiative.
(f) In determining that any investments authorized under this section shall be included in the legal list or deleted from the list, the commissioner may employ such expert assistance as the commissioner believes proper or may rely upon information contained in publications which the commissioner believes authoritative.
(g) Not more than 10 per cent of the assets of the entity shall be invested in investments authorized under this section.
Section 15C. An entity that may invest pursuant to section 15A or the legal list may invest in bonds, notes or other interest-bearing obligations of the following classes:
(i) direct obligations of the United States or in obligations that are unconditionally guaranteed as to the payment of principal and interest by the United States;
(ii) legally issued, assumed or unconditionally guaranteed bonds, notes or other interest-bearing obligations of the commonwealth, including legally issued bonds, notes or other indebtedness of an entity established as a public instrumentality by general or special law;
(iii) legally issued, assumed or unconditionally guaranteed bonds, notes or other interest-bearing obligations of any state other than the commonwealth which has, not within the 20 years prior to making the investment, defaulted for a period of more than 120 days in the payment of any part of either principal or interest of any legally issued or assumed obligation; provided, however, that the full faith and credit of the state shall be pledged for the payment of the principal and interest of the obligations;
(iv) bonds, notes or other obligations issued or guaranteed as to both principal and interest by the Dominion of Canada or any of its provinces; provided, however, that (A) the bonds, notes or obligations shall be payable in United States funds either unconditionally or at the option of the holder of the bonds, notes or other obligations; and (B) at the date of investment the Dominion of Canada or the applicable province shall not have been in default in the payment of interest or principal of any of its obligations for a period in excess of 31 days at any time within the 20 years preceding such date of investment. Not more than 5 per cent of the assets of an entity authorized to invest pursuant to section 15A or the legal list may be invested in obligations authorized under this paragraph;
(v) bonds, notes or obligations issued, assumed or guaranteed by the International Bank for Reconstruction and Development, the Inter-American Development Bank or the Asian Development Bank containing an unconditional promise to pay or an unconditional guarantee of the payment of the interest on the bonds, notes or obligations regularly and the principal of the bonds, notes or obligations by a specified date in United States currency; provided, however, that not more than 3 per cent of the assets of an entity authorized to invest pursuant to section 15A or the legal list shall be invested in the bonds, notes or obligations; and provided further, that the commissioner may at any time on the commissioner’s own initiative suspend the authorization granted by this clause for periods as the commissioner may determine;
(vi) obligations of or instruments issued by and fully guaranteed as to principal and interest by the Federal National Mortgage Association established under the federal National Housing Act, 12 U.S.C. 1715 et seq.;
(vii) debentures, bonds or other obligations issued by any federal home loan bank or consolidated federal home loan bank debentures or bonds issued by the federal home loan bank board under the Federal Home Loan Bank Act, 12 U.S.C. 1421 et seq.;
(viii) debentures issued by the Central Bank for Cooperatives or consolidated debentures issued by the Central Bank for Cooperatives and the 12 Regional Banks for Cooperatives under the federal Farm Credit Act of 1933, 12 U.S.C. 1131 et seq.;
(ix) collateral trust debentures or other similar obligations issued by any federal intermediate credit bank or consolidated debentures or other similar obligations issued by the federal intermediate credit banks under the Federal Farm Loan Act, 12 U.S.C. 742 et seq.;
(x) farm loan bonds issued by any federal land bank under said Federal Farm Loan Act;
(xi) promissory notes representing domestic farm labor housing loans authorized under federal law when the notes are fully guaranteed as to principal and interest by the Farmers Home Administration of the United States Department of Agriculture;
(xii) bonds, notes or obligations issued, assumed or guaranteed by the Export-Import Bank of the United States;
(xiii) obligations of any person, including any form of mortgage-backed security, as to which the payment of principal and interest according to the terms of the obligations shall be guaranteed by the Government National Mortgage Association under said federal National Housing Act;
(xiv) certificates issued by the Federal Home Loan Mortgage Corporation representing interests in mortgage loans made, acquired or participated in by the Federal Home Loan Mortgage Corporation; and
(xv) system-wide obligations issued under the Farm Credit Act of 1971, 12 U.S.C. 2001 et seq., by institutions included in the federal farm credit system.
Section 15D. An entity authorized to invest pursuant to section 15A or the legal list may invest in bond, notes or other interest-bearing obligations of the following classes:
(i) legally issued or assumed bonds, notes or other interest-bearing obligations of a county, city, town or legally established district of the commonwealth; and
(ii) legally issued or assumed bonds, notes or other interest-bearing obligations of a county, city, town or legally established district outside of the commonwealth; provided, however, that this clause shall not authorize investments in obligations of any city or town outside of the commonwealth which have been in default for more than 120 days in the payment of any part of principal and interest of all bonds, notes or other interest-bearing obligations legal for investment under this section.
The full faith and credit of the county, city, town or district shall be pledged for the full payment of principal and interest of all bonds, notes or other interest bearing obligations legal for investment under this section.
Section 15E. (a) An entity that may invest pursuant to section 15A or the legal list may invest in bonds, notes or other interest-bearing obligations of railroad corporations subject to the conditions, limitations and requirements of this section.
(b) With respect to bonds, the obligations shall be those of a railroad incorporated in the United States or any state doing business principally within the United States and shall contain an unconditional promise to pay the interest on the bonds regularly and to pay the principal at a specified date. This promise may be modified, if at all, only by a vote of holders of at least 75 per cent in amount of the bonds.
Not more than 20 per cent of the assets of the entity shall be invested in the railroad obligations.
(c) Investments in railroad equipment obligations shall be those of, or guaranteed by, a railroad incorporated in the United States or any state and which is doing business principally within the United States.
Section 15F. (a) As used in sections 15F and 15G, “bond” shall include a note or debenture.
(b) An entity that may invest pursuant to section 15A or the legal list may invest in the bonds of any company which at the time of the investment is incorporated under the laws of the United States or any state and may engage and is engaging in the business of furnishing telephone service in the United States, subject to the following: (i) the bonds shall be part of an original issue of not less than $25,000,000 in principal amount when the company is not incorporated in the commonwealth; and (ii) not more than 20 per cent of the assets of the entity shall be invested in the bonds of telephone companies.
Section 15G. (a) An entity that may invest pursuant to section 15A or the legal list may invest in bonds, notes or other interest-bearing obligations of a gas, electric light or water company incorporated or doing business in the commonwealth and subject to the control and supervision of the commonwealth.
(b) An entity that may invest pursuant to section 15A or the legal list may invest in the bonds of any company which at the time of the investment is incorporated under the laws of the United States or any state and transacting the business of supplying electrical energy or artificial gas or natural gas purchased from another company and supplied in substitution for or in mixture with artificial gas for light, heat, power and other purposes or transacting any or all of the business. The bonds shall be part of an original issue of not less than $25,000,000 in principal amount.
(c) Not more than 25 per cent of the assets of the entity shall be invested in obligations under this section and no more than 4 per cent shall be invested in the obligations of any 1 company.
Section 15H. An entity that may invest pursuant to section 15A or the legal list may invest in the common stock of banking corporations and bank holding companies subject to the following conditions, limitations and requirements:
(i) in the common stock of a bank in stock form incorporated under the laws of and doing business within the commonwealth; provided, however, that there shall be no preferred stock outstanding; or, in the common stock of a federally chartered bank in stock form doing business within the commonwealth; provided, however, that there shall be no preferred stock outstanding; provided further, that state-chartered or federally-chartered bank shall be well capitalized under bank regulatory criteria;
(ii) in the common stock of a state-chartered bank or federally chartered bank doing business anywhere within the United States, which is a member of the federal reserve system and is well capitalized under bank regulatory criteria;
(iii) in the common stock of a bank holding company as defined in chapter 167A; provided, however, that the stock shall be received pursuant to an offer made by the bank holding company to exchange shares of its common stock for shares of a bank in stock form incorporated under the laws of the commonwealth or for shares of a federally-chartered bank doing business in the commonwealth; or provided, however, that the stock shall be received pursuant to a plan for the merger or consolidation of the bank with or into or the transfer, sale or exchange of property or of assets of the bank or with a bank in stock form incorporated under the laws of the commonwealth or a federally-chartered bank doing business in the commonwealth the stock of the bank, as the case may be, shall be at the time owned by the bank holding company;
(iv) in the common stock of a bank holding company as defined in said chapter 167A acquired otherwise than as set forth in the first paragraph or in the common stock of a bank holding company as defined in the federal Bank Holding Company Act of 1956, 12 U.S.C. 1841 et seq.; provided, however, that the holding company shall own 80 per cent or more of the voting stock of the qualifying bank; provided further, that if at any time after an investment in the common stock of the bank holding company, no bank of the holding company shall meet the requirements of clauses (iii) or (iv), the holding company's stock shall be disposed of within the reasonable time as the commissioner shall determine; and
(v) in the common stock of a company as defined in chapter 167A or in said federal Bank Holding Company Act of 1956; provided, however, that the banking institution or bank shall be the kind referred to in clauses (iii) or (iv) and the stock of the banking institution or bank represents at least 50 per cent of the company's assets at book value at the end of its fiscal year immediately preceding the date of investment or at the date of investment in the case of a newly formed company.
Section 15I. Subject to applicable banking laws, an entity that may invest pursuant to section 15A or the legal list may purchase the whole or any part of the stock of a savings bank, co-operative bank, federal savings and loan association or federal savings bank; provided, however, that the bank or association shall be well capitalized under bank regulatory criteria.
Section 15J. An entity that may invest pursuant to section 15A or the legal list may invest in the capital stock of any insurance company that may conduct a fire and casualty insurance business; provided, however, that no insurance stock shall be purchased if the cost of the insurance stock added to the cost of insurance stocks and bank stocks already owned shall exceed 66 2/3 per cent of the total of the assets of the entity.
Section 15K. An entity that may invest pursuant to section 15A or the legal list may invest in securities of any of the following classes: debentures, convertible debentures, notes or other evidences of indebtedness of: (i) a banking corporation in the common stock of which the corporation may invest pursuant to paragraph 1 of section 15H; provided, however, that the entity that may invest pursuant to said section 15A or the legal list shall be well capitalized under regulatory criteria; or (ii) a banking corporation in the common stock of which the corporation may invest pursuant to paragraph 2 of said section 15H shall be well capitalized under regulatory criteria.
SECTION 4. Chapter 171 of the General Laws is hereby amended by inserting after section 67A the following section:-
Section 67B. Upon a 2/3 vote of its board of directors, a credit union which has strong management, is well-capitalized and has at least a satisfactory rating at the most recent community reinvestment examination conducted by the commissioner pursuant to section 14 of chapter 167 may apply to the commissioner to invest in shares of stock registered on a national securities exchange as provided in the Securities Exchange Act of 1934, 15 U.S.C. 78a, or for which quotations are available through the Financial Industry Regulatory Authority, Inc. or any comparable service designated by the commissioner; provided, however, that the investment shall be made in the exercise of the judgment and care consistent with the prudent person rule as provided in this section. In making the application to the commissioner for prudent person authority, the credit union shall also have adequate policies and procedures governing the performance of the activity by the credit union and its employees to minimize any credit, market, liquidity, operational, legal and reputational risks to the credit union. A credit union shall submit other information the commissioner may consider necessary to properly evaluate an application. The commissioner may consider any other information available to the division of banks in determining whether to approve or reject an application. Approval granted by the commissioner shall be subject to conditions and limitations as the commissioner may impose.
A credit union may apply to invest up to 20 per cent of its assets under this section. The percentage of assets authorized shall be determined by the commissioner. The commissioner may increase, modify, curtail, rescind or otherwise limit a credit union’s authority to make the investments.
Before making any investment under this section, a credit union shall conduct an appropriate level of due diligence to determine if an investment shall be both permissible and appropriate and may include both internal and external analysis. For debt instruments, the analysis shall not rely solely on 1 or more credit rating agencies and the credit union shall determine that the instrument has both a low risk of default by the obligor and that the full and timely repayment shall be expected over the expected life of the investment.
A credit union shall take into consideration the following:
(i) when considering the purposes, terms and other circumstances of the credit union, including those set forth in this section, whether the investment would meet the prudent person rule where the credit union shall exercise reasonable care, skill and caution in making its investments and management decisions;
(ii) whether the investment or management decision shall be consistent with an overall investment strategy reasonably suited to the credit union;
(iii) consideration of circumstances relevant to the credit union in investing and managing its assets, including: general economic conditions; the possible effect of inflation or deflation; the role that each investment or course of action plays within the overall credit union investment philosophy; the expected total return from income and the appreciation of capital; other resources of the credit union; needs for liquidity, regularity of income and preservation or appreciation of capital; and an asset’s special relationship or special value, if any, to the purposes of the credit union;
(iv) whether facts relevant to the investment and management of its assets may be reasonably verified;
(v) whether the investment or management decision shall reasonably diversify the investments of the credit union to bring the credit union’s portfolio into compliance with the purposes, terms and the other circumstances of the credit union and the requirements of this section; and
(vi) the costs of any decision in investing and managing credit union assets and whether the costs shall be appropriate and reasonable in relation to its assets.
The investments pursuant to this section shall not exceed 20 per cent of the credit union’s assets.
The investments shall be subject to annual review by the board of directors of the credit union and shall be subject to periodic review by the division of banks during the course of examinations pursuant to section 2 of chapter 167.
Approved, October 9, 2014.