June 17, 1970

Dear Mr. __________:

This is in reference to your letter of June 12, 1970, and will confirm our discussion of June 16, 1970.

As we explained during our meeting, the California Banking Law, unlike the National Bank Act, does not treat specifically the function of underwriting securities. Considering the general framework of the Banking Law and particularly the multitude of provisions that restrict investments of state banks, it can hardly be concluded that the Legislature intended that state banks be allowed to underwrite securities without limitation. For purposes of the Banking Law, therefore, we regard the underwriting of securities as necessarily including the purchasing of such securities for the account of the bank. Accordingly, it is our view that a state bank may underwrite only such securities which it may purchase for its own account and only to the extent that it may purchase such securities for its own account.

In your letter, you indicated that _______________ would bid on the State of California Bond Anticipation Notes, Water Notes Series N and Series P in an amount exceeding 10% of the bank’s capital and surplus. However, during our meeting on June 16, 1970, you informed us that the bank had reduced the amount of its bid to a sum less than 10% of its capital and surplus. We also understand that the amount of the bid, together with the amounts the bank has invested under the prudent investment clause of Financial Code §1335, is less than 2% of the bank’s deposits. Under these circumstances, there is no need to decide whether the Bond Anticipation Notes fall within the exemption from the investment limit provided under subdivision (c) of §1336, or whether the Bond Anticipation Notes qualify for investment by nondepartmental banks and savings banks under the provisions of Financial Code §1355.

If you have any further questions regarding this matter, please feel free to contact us.

Very truly yours,

Superintendent of Banks
By /s / James F. Carrig


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