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Letter 11: Investment, Capital Notes & Debentures of Other Banks

This Office has received numerous inquiries regarding the authority of state chartered banks to invest in capital notes or debentures of other banks or bank holding companies.

It is the position of the Office of Commissioner of Banking that state banks should enjoy the widest latitude, consistent with safety, in satisfying the credit needs of the public. To attain that objective state chartered banks in Wisconsin are therefore authorized to invest in capital notes and/or debentures of other states or national banks located in the State of Wisconsin, and in such notes and/or debentures issued by banks or bank holding companies located in other states, provided such obligations of out-of-state issuers have been reviewed by a recognized rating service and received an "A" or better rating.

To the best of my knowledge only Fitch Investors Service is presently engaged in the rating of these obligations. Such ratings should be obtained prior to purchase of the obligations and should be kept in the bank's credit files. The purchase of bank or bank holding company notes or debentures of any obligor is governed by the legal loan limit as defined by Section 221.29(1)(a), Wisconsin Statutes.

This Office will continue to carefully scrutinize such investments and banks should be guided by prudent banking judgment in the purchase of these obligations. Undue concentration in bank or bank holding company debentures and/or notes should be avoided.

The interpretive rulings of this letter are intended to supersede the rulings issued by this Office on the subject matter in a letter dated June 21, 1971.

Bkg. Ltr. #11 September 29, 1972, Commissioner Mildenberg