[Federal Register Volume 61, Number 15 (Tuesday, January 23, 1996)]
[Rules and Regulations]
[Pages 1699-1703]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-745]



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DEPARTMENT OF THE TREASURY

Community Development Financial Institutions Fund

12 CFR Parts 1805 and 1806

RIN 1505-AA72


Community Development Financial Institutions Program; Bank 
Enterprise Award Program

AGENCY: Community Development Financial Institutions Fund, Department 
of the Treasury.

ACTION: Interim rule with request for comment; extension of comment 
period.

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SUMMARY: The Department of the Treasury is issuing revisions to the 
interim regulations for the Community Development Financial 
Institutions (CDFI) Program and the Bank Enterprise Award (BEA) Program 
published in the Federal Register on October 19, 1995. The CDFI Program 
and BEA Program were authorized by the Community Development Banking 
and Financial Institutions Act of 1994. The programs are designed to 
facilitate the flow of lending and investment capital into distressed 
communities and to individuals who have been unable to take full 
advantage of the financial services industry. This action also extends 
the comment period on the CDFI Program and BEA Program interim 
regulations published on October 19, 1995 to March 15, 1996.

DATES: This interim rule is effective January 23, 1996. Comments on 
this interim rule must be received on or before March 15, 1996. The 
comment period on the CDFI Program and BEA Program interim regulations 
published in the Federal Register on October 19, 1995 is extended from 
January 15, 1996 to March 15, 1996.

ADDRESSES: All questions or comments concerning this interim rule and 
the October 19, 1995, CDFI Program and BEA Program interim regulations 
should be addressed to the Director, Community Development Financial 
Institutions Fund, Department of the Treasury, 1500 Pennsylvania Ave., 
N.W., Room 5116, Washington DC 20220.

FOR FURTHER INFORMATION CONTACT: Kirsten S. Moy, Director, Community 
Development Financial Institutions Fund at (202) 622-8662. (This is not 
a toll free number.)

SUPPLEMENTARY INFORMATION:

I. General

Executive Order (E.O.) 12866

    It has been determined that this regulation is not a significant 
regulatory action as defined in E.O. 12866.

Regulatory Flexibility Act

    Because no notice of proposed rulemaking is required for this 
interim rule, the provisions of the Regulatory Flexibility Act (5 
U.S.C. 601 et seq.) do not apply. Moreover, the Department of the 
Treasury finds that any economic or other consequence of this interim 
rule are a direct result of the implementation of statutory provisions.

Administrative Procedure Act

    Pursuant to the provisions of 5 U.S.C. 553(a)(2), these regulations 
are exempt from the proposed rulemaking requirements of 5 U.S.C. 553(b) 
and are being issued as interim regulations without opportunity for 
notice and public comment prior to their effective date. Furthermore, 
the Department for good cause finds that notice and public comment 
prior to effect are impracticable and contrary to the public interest. 
This interim regulation is intended to amend the interim regulations 
for the CDFI Program and BEA Program that were published on October 19, 
1995. The purpose of the amendments is to clarify several provisions of 
the October 19 interim regulations prior to the application deadline 
(January 29, 1996) for both programs. The amendments will also give 
applicants greater flexibility in the type of information the Fund will 
accept as part of an application--thus, reducing paperwork burden.

Catalog of Federal Financial Assistance Numbers

    Community Development Financial Institutions Program--21.020; Bank 
Enterprise Award Program--21.021.

II. Background

    On October 19, 1995, the Fund published interim regulations in the 
Federal Register for the Community Development Financial Institutions 
Program (12 CFR part 1805) and the Bank Enterprise Award Program (12 
CFR part 1806). Subsequent to the publication of such interim 
regulations, the Fund has developed policies to clarify several 
provisions in the interim regulations. The technical revisions 
contained in this interim rule will provide greater flexibility in the 
types of information that may be submitted as part of an application 
and thereby reduce the paperwork and regulatory burden for applicants. 
The Fund is extending the comment period on the interim regulations 
published on October 19, 1995 and these amendments to such interim 
regulations to March 15, 1996.

III. Community Development Financial Institutions Program

    Under the CDFI Program (12 CFR part 1805), the Fund will provide 
financial and technical assistance to selected applicants to engage in 
certain community development activities. The following summarizes the 
revisions to the regulations.

Subpart A--General Provisions

    Section 1805.104(n) is revised to change the definition of the term 
``Comprehensive Business Plan'' such that it covers a period of not 
less than the next five years--rather than a period of not less than 
the next five fiscal years. The revision will provide greater 
flexibility to Applicants in the manner in which they can prepare 
projections.

Subpart B--Eligibility

    Section 1805.201 is revised to clarify that the Fund may revoke a 
CDFI certification for good cause.

Subpart F--Matching Funds Requirements

    Subpart F of the CDFI Program is revised to clarify two provisions 
concerning the use of certain funds for meeting the matching funds 
requirements. The revision to Sec. 1805.600 clarifies that private 
funds that have been used to satisfy a legal requirement for obtaining 
monies from other Federal programs shall not be used to meet the 
matching funds requirements of the CDFI Program. In 

[[Page 1700]]
addition, a new Sec. 1805.604 clarifies the types of monies the Fund 
will consider as retained earnings for the purpose of meeting the 
matching funds requirements. As part of the Conference Report to the 
Riegle Community Development and Regulatory Improvement Act of 1994 
(Report 103-652), Congress expressed its intent that retained earnings 
be considered as a source of matching funds. However, given the 
diversity of types of institutions that may apply for assistance, the 
Fund has sought to clarify the monies that will be considered retained 
earnings. This clarification is intended to take into consideration the 
capacity of different types of organizations to raise capital from 
private sources and focus on sources of income that are earned from an 
Applicant's operations. With respect to for-profit and non-profit 
(excluding Insured Credit Unions) organizations, the value of grants or 
other donated assets will not be considered retained earnings. Except 
as specified below, retained earnings that can be used for matching 
purposes are limited to those amounts that have been accumulated over 
the Applicant's most recent fiscal year or the annual average of 
amounts earned over the Applicant's three most recent fiscal years. The 
Fund will provide an additional option to Insured Credit Unions because 
such institutions face unique barriers in raising capital to enhance 
their net worth. As non-profit institutions, Insured Credit Unions 
cannot sell stock to raise equity capital. Furthermore, Insured Credit 
Unions have historically experienced greater difficulty in obtaining 
grants from philanthropic sources than other types of non-profit 
institutions. The Fund will permit Insured Credit Unions to use net 
capital that has been accumulated within the period described above or 
since the inception of the organization. In the latter case, the Fund 
will provide that--as part of an Applicant's performance goals--an 
Insured Credit Union shall increase its member and/or non-member shares 
by an amount that is at least equal to four times the amount of net 
capital that is committed as matching funds.

Subpart G--Applications for Assistance

    Revised Sec. 1805.701(d)(2)(iii) modifies the application 
requirements to provide greater flexibility in forms of historic and 
projected financial statements that the Fund will accept. In 
Sec. 1805.701(e)(3), Insured Credit Unions that seek to use retained 
earnings as matching funds are now permitted to substitute certain 
information submitted to the National Credit Union Administration in 
lieu of tax returns.

IV. Bank Enterprise Award Program

    Under the BEA Program (12 CFR part 1806), the Fund will provide 
awards to selected Applicants that successfully carry out certain 
community development activities. The following summarizes the 
amendments to the interim regulations.

Subpart A--General Provisions

Definitions
    The term ``Investment'' is added to Sec. 1806.103 to describe the 
activities covered by this revision. An ``Investment'' (other than an 
Equity Investment in a CDFI) shall be considered to be the purchase of 
stock, a limited partnership interest, or another ownership instrument, 
or a grant provided by an Applicant or its Subsidiary in a commercial 
real estate, single family housing, multi-family housing, business or 
agriculture project or activity.

Subpart B--Awards

Community Designation
    Section 1806.200 of these Bank Enterprise Award (BEA) Program 
interim regulations clarifies that if a Distressed Community is 
composed of census tracts, an Applicant may submit estimates of 
unemployment using the U.S. Bureau of Labor Statistics' ``Census 
Share'' calculation method. An Applicant interested in using the Census 
Share method should contact the Fund to obtain instructions for such 
calculations.
Application Requirements
    Section 1806.201 is revised to permit an Applicant to report 
investments (other than Equity Investments in a CDFI) in specific 
projects or activities as part of its Eligible Development Activities. 
Such investment activities should be reported on the application forms 
in the same category of Eligible Development Activity described in 
Sec. 1806.201(b)(4) that most closely describes the subject investment 
activity (e.g. an investment in a multi-family housing project should 
be reported under ``Multi-Family Loans.'').
    Section 1806.202 is modified to clarify the manner in which the 
Fund will assess the value of an Investment. An Investment will be 
valued at the original amount of the purchase of stock, limited 
partnership interest, or other ownership interest, or grant.
    In response to numerous questions raised by potential Applicants, 
the Fund seeks to clarify that Sec. 1806.201(b)(4)(viii) requires an 
Applicant to report the amount of funds that are deposited by Residents 
of a Distressed Community at offices located within the Distressed 
Community. However, the Fund has determined that this will create an 
undue burden for many Applicants. For this reason, these interim 
regulations give Applicants the option of not reporting information on 
its deposit liabilities. In such a case, an Applicant's deposit 
liabilities will not be considered (either positively or negatively) in 
calculating the service score as described in Sec. 1806.203(b)(1).
    Section 1806.202 is also modified to clarify the manner in which 
deposit liabilities will be measured. Deposit liabilities shall be 
measured by comparing the net change in the amount of applicable funds 
on deposit between the beginning and end of the Baseline Period and the 
beginning and end of the Assessment Period.
    Section 1806.204 is amended to clarify the manner in which an 
Applicant should present its application materials if it is merging 
with another institution during the Assessment Period. In summary, the 
Applicant (which should be the surviving institution) shall submit 
materials for it and the institution with which it is merging that 
describe the Baseline Period activities of each institution. The 
Applicant shall submit a combined projection of Assessment Period 
activities of the merged institutions.
    Section 1806.206(b)(4) is modified to recognize that some 
Applicants may be unable to make firm commitments to provide Equity 
Investments to specific CDFIs prior to the application deadline. In 
lieu of the requirements described in Sec. 1806.206(b)(4) (which 
indicate that an Applicant must identify the specific CDFI in which it 
will invest and the terms and conditions of such investment), the Fund 
will permit an Applicant to submit: (1) A projection of the total 
dollar amount of Equity Investments in CDFIs that it expects to make 
during the Assessment Period; (2) a list of potential investees; and 
(3) its criteria for making investments.

V. Extension of Comment Period

    The Fund hereby extends the deadline for the comment period on the 
interim regulations published on October 19, 1995 for the CDFI Program 
and BEA Program until March 15, 1996. The Fund strongly encourages all 
applicants and other interested parties to submit comments. 

[[Page 1701]]


List of Subjects

12 CFR Part 1805

    Banks, banking, Community development, Economic development, Grant 
programs--community development, Loan programs--community development, 
Small businesses.

12 CFR Part 1806

    Banks, banking, Community development, Economic development, Grant 
programs--community development, Loan programs--community development, 
Savings associations, Small businesses.

    For the reasons set forth in the preamble, Parts 1805 and 1806 of 
Chapter XVIII of Title 12 of the Code of Federal Regulations are 
amended as follows:

PART 1805--COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS PROGRAM

    1. The authority citation for Part 1805 continues to read as 
follows:

    Authority: 12 U.S.C. 4703, 4717; chapter X, Pub. L. 104-19, 109 
Stat. 237 (12 U.S.C. 4703 note).

    2. Section 1805.104(n) is revised to read as follows:


Sec. 1805.104  Definitions.

* * * * *
    (n) Comprehensive Business Plan means a document covering not less 
than the next five years which meets the requirements described under 
Sec. 1805.701(d);
* * * * *
    3. Section 1805.201 is amended by adding a new sentence at the end 
of the section to read as follows:


Sec. 1805.201  Certification as a Community Development Financial 
Institution.

    * * * The Fund, at its sole discretion, retains the right to revoke 
a certification for good cause.
    4. Section 1806.600 is amended by adding after the second sentence 
a new sentence to read as follows:


Sec. 1805.600  Matching funds--general.

    * * * Funds that have been used to satisfy a legal requirement for 
obtaining funds under another Federal grant or award program cannot be 
used to satisfy the matching requirements described in this section. * 
* *
    5. Section 1805.604 is added to subpart F to read as follows:


Sec. 1805.604  Retained earnings.

    (a) An Applicant that proposes to meet all or a portion of its 
matching funds requirements as set forth in this part by committing 
available earnings retained from its operations pursuant to 
Sec. 1805.601(c) shall be subject to the restrictions described in this 
section.
    (b)(1) In the case of a for-profit Applicant, retained earnings 
that can be used for matching funds purposes shall consist of:
    (i) The increase in retained earnings (excluding the after-tax 
value to an Applicant of any grants and other donated assets) that has 
occurred over the Applicant's most recent fiscal year (e.g., retained 
earnings at the end of fiscal year 1995 less retained earnings at the 
end of fiscal year 1994); or
    (ii) The annual average of such increases that have occurred over 
the Applicant's three most recent fiscal years.
    (2) Such retained earnings can be used to match a request for an 
equity investment. The terms and conditions of financial assistance 
will be determined by the Fund.
    (c)(1) In the case of a non-profit Applicant (other than an Insured 
Credit Union), retained earnings that can be used for matching funds 
purposes shall consist of:
    (i) The increase in an Applicant's fund balance (excluding the 
amount of any grants and value of other donated assets) that has 
occurred over the Applicant's most recent fiscal year; or
    (ii) The annual average increases in an Applicant's fund balance 
that has occurred over the Applicant's three most recent fiscal years.
    (2) Such retained earnings can be used to match a request for a 
capital grant. The terms and conditions of financial assistance will be 
determined by the Fund.
    (d)(1) In the case of an Insured Credit Union Applicant, retained 
earnings that can be used for matching funds purposes shall consist of:
    (i) The increase in net capital that has occurred over the 
Applicant's most recent fiscal year;
    (ii) The annual average of increases in net capital that has 
occurred over the Applicant's three most recent fiscal years; or
    (iii) The entire net capital that has been accumulated since the 
inception of the Applicant provided that the conditions described in 
paragraph (d)(4) of this section are satisfied.
    (2) For the purpose of paragraph (d)(4) of this section, net 
capital shall be comprised of ``Regular Reserves'', ``Other Reserves'' 
(excluding reserves specifically dedicated for losses), and ``Undivided 
Earnings'' as such terms are used in the National Credit Union 
Administration's accounting manual.
    (3) Such retained earnings can be used to match a request for a 
capital grant. The terms and conditions of financial assistance will be 
determined by the Fund.
    (4) If the option described in paragraph (d)(1)(iii) of this 
section is used:
    (i) An Applicant's performance goals described in Sec. 1805.901(a) 
shall provide that:
    (A) An Awardee increase its member and/or non-member shares by an 
amount that is at least equal to four times the amount of net capital 
that is committed as matching funds;
    (B) Such increase be achieved within one year of entering into an 
Assistance Agreement; and
    (C) Such increase be maintained for the period of time covered by 
the Comprehensive Business Plan;
    (ii) The Applicant's Comprehensive Business Plan shall discuss its 
strategy for raising the required shares and the activities associated 
with such increased shares;
    (iii) The level from which the increases in shares described in 
paragraph (d)(4)(i) of this section will be measured shall be the 
greater of the level of shares as of:
    (A) The end of the calendar year immediately preceding the 
applicable application deadline; or
    (B) The time that an Applicant is selected to receive assistance; 
and
    (iv) Financial assistance shall be disbursed by the Fund only as 
the amount of shares described in paragraph (d)(4)(i)(A) of this 
section is increased.
    (5) The Fund will allow an Applicant to utilize the option 
described in paragraph (d)(1)(iii) of this section for matching funds 
only if it determines, in its sole discretion, that the Applicant will 
have a high probability of success in increasing its shares to the 
specified amounts.
    (e) An Applicant may only use retained earnings to meet the 
matching funds requirements if it has liquidity (as determined by the 
Fund) in amounts that are equal to or greater than the amount of 
retained earnings that is proposed for use as matching funds. In 
assessing an Applicant's liquidity for the purposes of this paragraph 
(e), the Fund may exclude any amounts that it determines are not 
available to promote an Awardee's performance goals and the purposes of 
the CDFI Program.
    (f) Retained earnings accumulated after the end of the Applicants 
most recent fiscal year ending prior to the appropriate application 
deadline may not be used as matching funds.
    6. Section 1805.701 is amended by revising paragraph (d)(2)(iii) 
and the 

[[Page 1702]]
first sentence of paragraph (e)(3) introductory text to read as 
follows:


Sec. 1805.701  Application contents.

* * * * *
    (d) * * *
    (2) * * *
    (iii) Financial statements. (A) An Applicant shall submit:
    (1) Audited financial statements;
    (2) Financial statements that have been reviewed by a certified 
public accountant; or
    (3) Financial statements that have been reviewed by the Applicant's 
Appropriate Federal Banking Agency.
    (B) All financial statements must utilize accrual based accounting 
methods. All historic financial statements shall be reported on the 
basis of the Applicant's fiscal year.
* * * * *
    (e) * * *
    (3) If an Applicant intends to use retained earnings to meet the 
matching funds requirements, it shall provide the information described 
in paragraph (d)(2)(iii) of this section and a copy of its tax returns 
for the same period, or, in the case of an Insured Credit Union, a copy 
of its most recent Form 5300 that has been submitted to the National 
Credit Union Administration. * * *
* * * * *

PART 1806--BANK ENTERPRISE AWARD PROGRAM

    1. The authority citation for Part 1806 continues to read as 
follows:

    Authority: 12 U.S.C. 4703, 4717; chapter X, Pub. L. 104-19, 109 
Stat. 237 (12 U.S.C. 4703 note).

    2. Section 1806.103 is amended by adding a new paragraph (dd) to 
read as follows:


Sec. 1806.103  Definitions.

* * * * *
    (dd) Investment means, for the purpose of Sec. 1806.201(b)(4)(xiv), 
the purchase of stock, limited partnership interest, or other ownership 
instrument, or a grant in a commercial real estate, single family 
housing, multi-family housing, business or agriculture project or 
activity.
    3. Section 1806.200(b)(2)(ii) is revised to read as follows:


Sec. 1806.200  Community eligibility and designation.

* * * * *
    (b) * * *
    (2) * * *
    (ii) The unemployment rate is at least 1.5 times greater than the 
national average, as determined by the U.S. Bureau of Labor Statistics' 
most recent data (including estimates of census tract unemployment 
developed using the Bureau of Labor Statistics' Census Share 
calculation method).
* * * * *
    4. Section 1806.201 is amended by revising paragraph (b)(2), 
removing ``and'' at the end of paragraph (b)(4)(xii), removing the 
period at the end of paragraph (b)(4)(xiii)(B) and adding in its place 
``; and'', and adding a new paragraph (b)(4)(xiv) to read as follows:


Sec. 1806.201  Qualified activities.

* * * * *
    (b) * * *
    (2) Service. The Eligible Development Activities listed in 
paragraphs (b)(4)(i) through (vii) and (b)(4)(xiv) of this section must 
serve a Distressed Community. An activity is considered to serve a 
Distressed Community if it is:
    (i) Undertaken in the Distressed Community; or
    (ii) Provided to Low and Moderate Income Residents or enterprises 
integrally involved in the Distressed Community.
* * * * *
    (4) * * *
    (xiv) Investments (the same priority factor and reported in the 
category of Eligible Development Activity described in paragraphs 
(b)(4)(ii) through (vii) of this section that most accurately describes 
the type project or activity in which an Investment is made (e.g., an 
Investment in a multi-family housing project should be reported under 
Multi-family Loans)).
    5. Section 1806.202 is amended by revising paragraph (a), removing 
``and'' at the end of paragraph (d)(2), removing the period at the end 
of paragraph (d)(3) and adding ``; and'' in its place, and adding new 
paragraphs (b)(4) and (d) to read as follows:


Sec. 1806.202  Measuring activities.

    (a) General. Qualified Activities shall be measured by comparing 
the Qualified Activities carried out during the Baseline Period with 
the Qualified Activities projected to be carried out during the 
Assessment Period. Increases in the values of Qualified Activities 
between the Baseline and Assessment Periods will be used in determining 
award amounts. Applicants shall report their activities in all 
categories of Qualified Activities for the Baseline and Assessment 
Periods. At its option, an Applicant may select not to report its 
deposit liabilities as described in Sec. 1806.201(b)(4)(viii). In such 
a case, an Applicant's deposit liabilities will not be considered in 
calculating the service score pursuant to Sec. 1806.203(b)(1). The 
dates of the Baseline and Assessment Periods will be published in the 
NOFA for each funding round.
    (b) * * *
    (4) Investments at the original amount of the purchase of stock, 
limited partnership interest, other ownership interest, or grant.
* * * * *
    (d) Deposit liabilities. (1) Deposit liabilities shall be measured 
by comparing the net change in the amount of applicable funds (as 
described in Sec. 1806.201(b)(4)(viii)) on deposit at the Applicant 
institution during the periods described in paragraphs (d)(2) and 
(d)(3) of this section.
    (2) An Applicant shall measure the net change in deposit 
liabilities during the Baseline Period by comparing the amount of 
applicable funds on deposit at the close of business the day before the 
beginning of the Baseline Period and at the close of business on the 
last day of the Baseline Period.
    (3) An Applicant shall measure the net change in deposit 
liabilities during the Assessment Period by comparing the amount of 
applicable funds on deposit at the close of business the day before the 
beginning of the Assessment Period and at the close of business on the 
last day of the Assessment Period.
    7. Section 1806.206 is amended by revising paragraphs (b)(1) and 
(b)(4) to read as follows:


Sec. 1806.206  Applications for Bank Enterprise Awards.

* * * * *
    (b) * * *
    (1) A completed Bank Enterprise Award Rating and Calculation 
worksheet (If an Applicant intends to complete a merger with another 
institution during the Assessment Period, it shall submit a separate 
Baseline Period worksheet for each subject institution and one 
Assessment Period worksheet that represents the projected activities of 
the merged institutions. If such a merger is unexpectedly delayed 
beyond the end of the Assessment Period, the Fund reserves the right to 
withhold distribution of an award until the merger has been 
completed.);
* * * * *
    (4) If applicable:
    (i) A narrative description of each CDFI that the Applicant 
proposes to provide an Equity Investment in and the amount, terms, and 
conditions of the investment; or
    (ii)(A) A projection of the aggregate dollar amount of Equity 
Investments it proposes to make during the Assessment Period;
    (B) A list of potential investees; and 
    
[[Page 1703]]

    (C) A description of its investment criteria;
* * * * *
    Dated: January 17, 1996.
Kirsten S. Moy,
Director, Community Development Financial Institution Fund.
[FR Doc. 96-745 Filed 1-22-96; 8:45 am]
BILLING CODE 4810-70-P