As you are undoubtedly aware, United States residents will be allowed to purchase, hold, sell or otherwise deal in gold beginning December 31, 1974. There is no specific language in the Banking Code of 1969 which authorizes state-chartered banks to purchase, hold, sell or otherwise deal in gold. However, it is the interpretation of the Attorney General that state-chartered banks have this authority under the incidental powers section (Sec. 151) of the Banking Code.

Sec. 151, in part, reads as follows:

"...Subject to the limitations and restrictions contained in this act or in its articles, a bank may engage in the business of banking and any business related or incidental thereto, and for such purposes without specific mention thereof in its articles, shall have all the powers conferred by this act...."

Operating officers of any bank deciding to deal in gold should work within the framework of a policy statement established by their Board of Directors. The policy adopted by the Board should affirm that the market risks involved in gold transactions have been thoroughly considered, and that the staff is qualified for directing gold transactions. The total amount of bank funds to be so used should also be approved. Please be advised that if you intend to deal in gold in any manner this Bureau should be notified in advance of such action. We should also be supplied with a copy of the Board of Directors policy statement on gold dealings and a copy of any information supplied the Federal Reserve or FDIC in accordance with the policy statements issued by those agencies.

It should be pointed out that gold coin and gold bullion cannot be used to meet the reserve requirements established by the Commissioner or by the Federal Reserve Board. It should also be noted that gold bullion and coins are a non-interest bearing asset which should be revalued frequently to reflect changes in the current market value.

I am requesting state-chartered banks as a voluntary measure, to refrain from buying gold for their own account pending promulgation of rules by this office. However, state-chartered banks may purchase and sell gold on a consignment basis or as an agent. Gold may also be accepted as collateral for a customer's loan. However, banks must keep in mind the difficulty of assaying the weight and pureness of gold being held as collateral.

Again, it is my hope that state-chartered banks become familiar with the pitfalls of gold trading before they actively participate in the market.

Signed:	Richard J. Francis, Commissioner
Dated:	December 23, 1974