Governor Patrick has signed into law a bill that amends the Massachusetts legal investment list law, which requires the Commissioner of Banks to annually issue a list of equity and fixed instrument investments deemed permissible for state-chartered banks and certain other regulated entities. The amendment signed by the Governor on October 9, Chapter 343 of the Acts of 2014, preserves the authority of the Commissioner to issue the annual list of legal investments, but adds authority for Massachusetts banks to invest in certain types of debt and equity securities that are separate from, and in addition to the Commissioner’s legal investment list. Permissible investments under the amended law include certain municipal and corporate notes and bonds, and the common stock, notes and bonds of banks and bank holding companies under certain circumstances. The amended law provides authority for banks to invest in all bonds, notes or other interest-bearing obligations of the United States or Massachusetts, or in obligations that are unconditionally guaranteed by the United States or Massachusetts, and bonds, notes or other interest-bearing obligations issued or unconditionally guaranteed by other states that have not materially defaulted on an obligation within the past 20 years. It also provides direct authority for investments in guaranteed obligations of Fannie Mae, any obligations of a federal home loan bank, obligations of the Export-Import Bank of the United States, and mortgage backed securities guaranteed by Ginnie Mae or issued by Freddie Mac, among other debt securities. The amendments to the legal list law become effective on January 8, 2015.
Nutter Notes: The amendments to the legal list law add a due diligence requirement to the expanded investment authorities. Before a bank or other regulated entity relying on the legal list law may make a permissible investment, the law requires the institution to conduct an appropriate level of due diligence to determine whether an investment is both permissible and appropriate for the institution. The amended law provides that such due diligence may include both internal and external analyses. The amended law specifically provides that, for debt instruments, such an analysis may not rely solely on a credit rating agency and the institution must determine that the instrument has both a low risk of default by the obligor and that the full and timely repayment is expected over the expected life of the investment. Investments not specifically authorized by the amended legal list law are still eligible for inclusion on the Commissioner’s annual list. Banks and other regulated entities relying on the legal list law may petition the Commissioner to consider specific investments for addition to the Commissioner’s annual list, such as mutual funds investing solely in legal investments, provided that such investments meet any additional criteria required by the Commissioner under the law.