By the Division of Banks

Permissibility Of A Massachusetts-Chartered Bank Investing In Securities Which Are Less Than Investment Grade

Under Mass. Gen. Laws chapter 167F, section 3(4), a state-chartered bank may invest up to four percent of its deposits in the preferred or common stock of any corporation organized under the laws of any state, or any association not controlled by the bank, the business of which is conducted or transacted by trustees under a written instrument or declaration of trust. Such stock need not qualify as a prudent investment as defined by section 3(4), paragraph 5. The Division is unaware of any Massachusetts laws which authorize a trust to issue preferred stock. However, it is the position of the Division that a state-chartered savings bank, co-operative bank or trust company may invest in trust preferred securities issued by a corporation not controlled by the bank, which are less than investment grade, subject to the limitation of four percent of the bank's deposits found in M.G.L. ch. 167F § 3(4). However, of equal concern to the Division is the safety and soundness of an institution considering such authority or investment. Such investments may be the subject of review and comment by examiners during the course of a regularly scheduled examination.