BB 85-12
BANKING ISSUANCE

Comptroller of the Currency
Administrator of National Banks
Type:  Banking Bulletin
Subject:  Junk Bonds

TO:	Directors, Chief Executive Officers and Trust Officers of All
     National Banks, Deputy Comptrollers and All Examining Personnel

PURPOSE 

The purpose of this bulletin is to advise national banks concerning their
authority to purchase "Junk Bonds" for their own account or for the
account of others. Caution is also advised concerning the acceptance of
"Junk Bonds" as loan collateral.
 
SCOPE 

This bulletin addresses all national bank acquisitions of "Junk Bonds."
For purposes of this bulletin a "Junk Bond" is a speculative security with
limited marketability characteristics.
 
POLICY

National Banks are authorized by the seventh paragraph of 12 USC 24 and by
12 CFR 1 to acquire limited amounts of corporate debt securities which are
both marketable and commonly regarded as "investment securities", i.e.,
not predominantly speculative in nature. Corporate debt securities used to
finance corporate takeovers are generally considered to be predominantly
speculative with limited marketability. Accordingly, national bank
commitments to acquire such "Junk Bonds" will be viewed as violations of
12 USC 24 and 12 CFR 1.

Trust investments must conform to the requirements of local law, in the
case of personal trusts and estates, or to the requirements of the
Employee Retirement Income Security Act of 1974 (ERISA), in the case of
employee benefit trusts. "Local law" is almost exclusively the "prudent
man" rule, which discourages the purchase of securities for purposes of
speculation, while ERISA prescribes a somewhat similar rule of prudence.
As a general rule, we do not believe that "Junk Bonds" would qualify under
state law and in so far as ERISA differs from state law, the Department of
Labor should be consulted.

The generally speculative nature of "Junk Bonds" and their limited
marketability may also limit their value as collateral for loans.
Judgments as to the value of such collateral should be made on a
case-by-case basis.

ORIGINATING OFFICE 

Questions concerning this bulletin should be directed to the Investment
Securities Division, (202) 447-1901, Washington, D.C., 20219.






John F. Downey
Chief National Bank Examiner



2


Date:  May 31, 1985	Page 1 of 1

	

O

BB 85-12




BANKING ISSUANCES

Comptroller of the Currency
Administrator of National Banks
Type:
Banking Bulletin
Subject:
Junk Bonds


2


Date:  May 31, 1985	Page 2 of 1