[Federal Register Volume 59, Number 236 (Friday, December 9, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-30159]


[[Page Unknown]]

[Federal Register: December 9, 1994]


-----------------------------------------------------------------------


FEDERAL RESERVE SYSTEM
12 CFR Part 225

[Regulation Y; Docket R-0860]

 

Bank Holding Companies and Changes in Bank Control

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Final rule; interpretation.

-----------------------------------------------------------------------

SUMMARY: The Board has revised its interpretation regarding the scope 
of community development activities permissible for bank holding 
companies to incorporate several decisions by the Board and to reflect 
statutory changes that have broadened the authority of national and 
state member banks to make certain community welfare investments.

EFFECTIVE DATE: January 9, 1995.

FOR FURTHER INFORMATION CONTACT: Scott G. Alvarez, Associate General 
Counsel (202/452-3583), or Deborah M. Awai, Senior Attorney (202/452-
3594), Legal Division; or Don E. Kline, Associate Director (202/452-
3421), or Larry R. Cunningham, Supervisory Financial Analyst (202/452-
2701), Division of Banking Supervision and Regulation of the Board of 
Governors of the Federal Reserve System. For the hearing impaired only, 
Telecommunications Device for the Deaf (TDD), Dorothea Thompson (202/
452-3544).

SUPPLEMENTARY INFORMATION: The Board has previously determined that the 
making of equity and debt investments in corporations or projects is 
designed ``primarily to promote community welfare'' as an activity that 
``is closely related to banking'' under section 4(c)(8) of the Bank 
Holding Company Act (12 U.S.C. 1843(c)(8)) (BHC Act). 12 CFR 
225.25(b)(6). The Board has also previously adopted an interpretation 
that provides guidance regarding the types of investments that are 
considered to be permissible for bank holding companies under this 
authority.
    Section 6(b) of the Depository Institutions Disaster Relief Act of 
1992 (12 U.S.C. 338a), enacted on October 23, 1992, amended section 9 
of the Federal Reserve Act to permit state member banks to invest in 
the stock of community development corporations that are designed 
primarily to promote the public welfare of low- and moderate-income 
communities and persons in the areas of housing, services and 
employment. On November 30, 1994, the Board adopted a final rule 
amending Regulation H, 12 CFR 208, that permits state member banks to 
make certain investments without specific Board approval.
    The Board believes that these revisions are consistent with the 
Board's interpretation of, and decisions regarding, the scope of 
community welfare activities permissible for bank holding companies. 
Accordingly, the Board has revised its interpretation of Regulation Y, 
12 CFR 225.127, to reflect that bank holding companies that have 
received approval under section 4(c)(8) of the BHC Act and 
Sec. 225.25(b)(6) of the Board's Regulation Y to engage in activities 
that promote community welfare may make similar investments permissible 
for state member banks. These community development corporation and 
project investments by bank holding companies would primarily benefit 
low- and moderate-income persons or small businesses, and address 
demonstrated community needs by providing housing, services, and jobs 
to low- and moderate-income communities. In particular, the revised 
interpretation provides that a bank holding company may, directly or 
through a subsidiary:

     Invest in and provide financing to a corporation or 
project or class of corporations or projects that the Board 
previously has determined is a public welfare project pursuant to 
paragraph 23 of section 9 of the Federal Reserve Act (12 U.S.C. 
338a);
     Invest in and provide financing to a corporation or 
project that the Office of the Comptroller of the Currency 
previously has determined, by order or regulation, is a public 
welfare investment pursuant to section 5136 of the Revised Statutes 
(12 U.S.C. 24 (Eleventh));
     Invest in and provide financing to a community 
development financial institution pursuant to section 103(5) of the 
Community Development Banking and Financial Institutions Act of 1994 
(12 U.S.C. 4702(5));
     Invest in, provide financing to, develop, rehabilitate, 
manage, sell, and rent residential property if a majority of the 
units will be occupied by low- and moderate-income persons, or if 
the property is a ``qualified low-income building'' as defined in 
section 42(c)(2) of the Internal Revenue Code (26 U.S.C. 42(c)(2));
     Invest in, provide financing to, develop, rehabilitate, 
manage, sell, and rent nonresidential real property or other assets 
located in a low- or moderate-income area and to be used primarily 
for low- and moderate-income persons;
     Invest in and provide financing to one or more small 
businesses located in a low- or moderate-income area to stimulate 
economic development;
     Invest in, provide financing to, develop, and otherwise 
assist job training and placement facilities or programs designed 
primarily for low- and moderate-income persons;
     Invest in and provide financing to an entity located in 
a low- or moderate-income area if that entity creates long-term 
employment opportunities, a majority of which (based on full time 
equivalent positions) will be held by low- and moderate-income 
persons; and
     Provide technical assistance, credit counseling, 
research, and program development assistance to low- and moderate-
income persons, small businesses, or nonprofit corporations to help 
achieve community development.

    Community development corporation and project investment proposals 
by a bank holding company that comply with these requirements and do 
not exceed five percent of the total consolidated capital stock and 
surplus of the bank holding company when aggregated with similar types 
of investments made by depository institutions controlled by the bank 
holding company, may be made without additional Board or Reserve Bank 
approval. For purposes of this interpretation, the term total 
consolidated capital stock and surplus of the bank holding company 
means total equity capital and the allowance for loan and lease losses. 
For bank holding companies that file the FR Y-9C (Consolidated 
Financial Statements for Bank Holding Companies), these items are 
readily ascertained from Schedule HC--Consolidated Balance Sheet (total 
equity capital (line 27h) and allowance for loan and lease losses (line 
4b)). For bank holding companies filing the FR Y-SP (Parent Company 
Only Financial Statements for Small Bank Holding Companies), an 
approximation of these items is ascertained from the Balance Sheet 
(total equity capital (line 16e) and allowance for loan and lease 
losses (line 3b)) and from the Report of Condition for Insured Banks 
(Schedule RC--Balance Sheet (line 4b)).
    The revised interpretation does not define the full scope of 
community welfare projects that may be permissible for bank holding 
companies, and is intended only to provide guidance regarding the types 
of projects that, in the Board's experience, have been proposed by bank 
holding companies. Accordingly, a bank holding company that proposes to 
invest in a community development corporation or project that is not 
discussed in the interpretation may, nonetheless, seek Board approval 
to invest in or conduct such project pursuant to Sec. 225.25(b)(6) of 
the Board's Regulation Y. Such a proposal must include a detailed 
description and an explanation of how the project would serve the 
community welfare.

Regulatory Flexibility Act Analysis

    Pursuant to section 605(b) of the Regulatory Flexibility Act (5 
U.S.C. 605(b)), the Board does not believe that these changes will have 
a significant adverse economic impact on a substantial number of small 
entities. The revised interpretation will reduce regulatory burdens 
imposed by the Board's procedures on small bank holding companies, and 
have no particular adverse effect on other entities.

Paperwork Reduction Act Analysis

    In accordance with section 3507 of the Paperwork Reduction Act (44 
U.S.C. 3507), the revised interpretation has been reviewed by the Board 
under the authority delegated to the Board by the Office of Management 
and Budget. The Board believes there is no impact on the paperwork 
burden for bank holding companies.

List of Subjects in 12 CFR Part 225

    Administrative practice and procedure, Banks, banking, Federal 
Reserve System, Holding companies, Reporting and recordkeeping 
requirements, Securities.

    For the reasons set forth in the preamble, the Board amends 12 CFR 
Part 225 as set forth below:

PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL 
(REGULATION Y)

    1. The authority citation for Part 225 continues to read as 
follows:

    Authority: 12 U.S.C. 1817(j)(13), 1818, 1831i, 1813p-1, 
1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331-3351, 3907, and 
3909.

    2. Section 225.127 is amended as follows:
    a. In the first sentence of paragraph (a), the reference 
``Sec. 225.4(b)'' is revised to read ``Sec. 225.23'';
    b. In the fifth sentence of paragraph (a), the word ``permissable'' 
is revised to read ``permissible'';
    c. In the last sentence of paragraph (d), the reference to 
``Sec. 225.4(b)(1)'' is revised to read ``Sec. 225.23'';
    d. In paragraphs (a), (b), (c), and (d), all references 
``Sec. 225.4(a)(7)'' are revised to read ``Sec. 225.25(b)(6)''; and
    (e) New paragraphs (f), (g), and (h) are added.
    The additions read as follows:


Sec. 225.127  Investment in corporations or projects designed primarily 
to promote community welfare.

* * * * *
    (f) Section 6 of the Depository Institutions Disaster Relief Act of 
1992 permits state member banks (12 U.S.C. 338a) and national banks (12 
U.S.C. 24 (Eleventh)) to invest in the stock of community development 
corporations that are designed primarily to promote the public welfare 
of low- and moderate-income communities and persons in the areas of 
housing, services and employment. The Board and the Office of the 
Comptroller of the Currency have adopted rules that permit state member 
banks and national banks to make certain investments without prior 
approval. The Board believes that these rules are consistent with the 
Board's interpretation of, and decisions regarding, the scope of 
community welfare activities permissible for bank holding companies. 
Accordingly, approval received by a bank holding company to conduct 
activities designed to promote the community welfare under section 
4(c)(8) of the Bank Holding Company Act (12 U.S.C. 1843(c)(8)) and 
Sec. 225.25(b)(6) of the Board's Regulation Y (12 CFR 225.25(b)(6)) 
includes approval to engage, either directly or through a subsidiary, 
in the following activities, up to five percent of the bank holding 
company's total consolidated capital stock and surplus, without 
additional Board or Reserve Bank approval:
    (1) Invest in and provide financing to a corporation or project or 
class of corporations or projects that the Board previously has 
determined is a public welfare project pursuant to paragraph 23 of 
section 9 of the Federal Reserve Act (12 U.S.C. 338a);
    (2) Invest in and provide financing to a corporation or project 
that the Office of the Comptroller of the Currency previously has 
determined, by order or regulation, is a public welfare investment 
pursuant to section 5136 of the Revised Statutes (12 U.S.C. 24 
(Eleventh));
    (3) Invest in and provide financing to a community development 
financial institution pursuant to section 103(5) of the Community 
Development Banking and Financial Institutions Act of 1994 (12 U.S.C. 
4702(5));
    (4) Invest in, provide financing to, develop, rehabilitate, manage, 
sell, and rent residential property if a majority of the units will be 
occupied by low- and moderate-income persons or if the property is a 
``qualified low-income building'' as defined in section 42(c)(2) of the 
Internal Revenue Code (26 U.S.C. 42(c)(2));
    (5) Invest in, provide financing to, develop, rehabilitate, manage, 
sell, and rent nonresidential real property or other assets located in 
a low- or moderate-income area provided the property is used primarily 
for low- and moderate-income persons;
    (6) Invest in and provide financing to one or more small businesses 
located in a low- or moderate-income area to stimulate economic 
development;
    (7) Invest in, provide financing to, develop, and otherwise assist 
job training or placement facilities or programs designed primarily for 
low- and moderate-income persons;
    (8) Invest in and provide financing to an entity located in a low- 
or moderate-income area if that entity creates long-term employment 
opportunities, a majority of which (based on full time equivalent 
positions) will be held by low- and moderate-income persons; and
    (9) Provide technical assistance, credit counseling, research, and 
program development assistance to low- and moderate-income persons, 
small businesses, or nonprofit corporations to help achieve community 
development.
    (g) For purposes of paragraph (f) of this section, low- and 
moderate-income persons or areas means individuals and communities 
whose incomes do not exceed 80 percent of the median income of the area 
involved, as determined by the U.S. Department of Housing and Urban 
Development. Small businesses are businesses that are smaller than the 
maximum size eligibility standards established by the Small Business 
Administration (SBA) for the Small Business Investment Company and 
Development Company Programs or the SBA section 7A loan program; and 
specifically include those businesses that are majority-owned by 
members of minority groups or by women.
    (h) For purposes of paragraph (f) of this section, five percent of 
the total consolidated capital stock and surplus of a bank holding 
company includes its total investment in projects described in 
paragraph (f) of this section, when aggregated with similar types of 
investments made by depository institutions controlled by the bank 
holding company. The term total consolidated capital stock and surplus 
of the bank holding company means total equity capital and the 
allowance for loan and lease losses. For bank holding companies that 
file the FR Y-9C (Consolidated Financial Statements for Bank Holding 
Companies), these items are readily ascertained from Schedule HC--
Consolidated Balance Sheet (total equity capital (line 27h) and 
allowance for loan and lease losses (line 4b)). For bank holding 
companies filing the FR Y-SP (Parent Company Only Financial Statements 
for Small Bank Holding Companies), an approximation of these items is 
ascertained from the Balance Sheet (total equity capital (line 16e)) 
and allowance for loan and lease losses (line 3b)) and from the Report 
of Condition for Insured Banks (Schedule RC--Balance Sheet (line 4b)).

    By order of the Board of Governors of the Federal Reserve 
System, December 2, 1994.
William W. Wiles,
Secretary of the Board.
[FR Doc. 94-30159 Filed 12-8-94; 8:45 am]
BILLING CODE 6210-01-P