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F ederal reserve b a n k o f Dallas

DALLAS, TEXAS

75222

Circular No. 72-117
June l6 , 1972

INTERPRETATION OF REGULATION Y
(Community Welfare Project)

To All Banks, Bank Holding Companies and Others
Concerned in the Eleventh Federal Reserve District:
The Board of Governors of the Federal Reserve System
issued on May 31? 1972, an interpretation of Regulation Y out­
lining the types of investments bank holding companies make in
projects designed primarily to promote community welfare.
The interpretation is printed on the reverse of this
circular.

Yours very truly,
P. E. Coldwell,
President

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

BOARD OF GOVERNORS OF T H E FEDERAL RESERVE SYSTEM

BANK HOLDING COMPANIES
INTERPRETATION OF REGULATION Y
Section 225.123(e) is revoked and section
225.127 is added to read as follows:
SECTION 225.127 INVESTMENT IN CORPO­
RATIONS OR PROJECTS DESIGNED PRI­
MARILY TO PROMOTE COMMUNITY
WELFARE.
(a) Under § 225.4(a) (7) of Regulation Y, a
bank holding company may, in accordance with
the provisions of § 225.4(b), engage in “making
equity and debt investments in corporations or
projects designed primarily to promote community
welfare, such as the economic rehabilitation and
development of low-income areas.” The Board in­
cluded that activity among those the Board has
determined to be so closely related to banking or
managing or controlling banks as to be a proper
incident thereto, in order to permit bank holding
companies to fulfill their civic responsibilities. As
indicated hereinafter in this interpretation, the
Board intends § 225.4(a)(7) to enable bank hold­
ing companies to take an active role in the quest
for solutions to the nation’s social problems. Al­
though the interpretation primarily focuses on low
and moderate-income housing, it is not intended to
limit projects under § 225.4(a)(7) to that area.
Other investments primarily designed to promote
community welfare are considered permissible, but
have not been defined in order to provide bank
holding companies flexibility in approaching com­
munity problems. For example, bank holding com­
panies may utilize this flexibility to provide new
and creative approaches to the promotion of em­
ployment opportunities for low-income persons.
Bank holding companies possess a unique combi­
nation of financial and managerial resources mak­
ing them particularly suited for a meaningful and
substantial role in remedying our social ills. Section
225.4(a) (7) is intended to provide an opportunity
for them to assume such a role.
(b) Under the authority of secion 225.4(a) (7),
a bank holding company may invest in community
development corporations established pursuant to
Federal or State law. A bank holding company may
also participate in other civic projects, such as a
municipal parking facility sponsored by a local
civic organization as a means to promote greater
public use of the community’s facilities.
(c) Within the category of permissible invest­
ments under section 225.4(a)(7) are investments
in projects to construct or rehabilitate multi-family
low or moderate-income housing with respect to

which a mortgage is insured under sections
221(d)(3), 221(d)(4), or 236 of the National
Housing Act (12 U.S.C. 1701) and investments
in projects to construct or rehabilitate low or
moderate-income housing which is financed or as­
sisted by direct loan, tax abatement, or insurance
under provisions of State or local law, similar to the
aforementioned federal programs, provided that,
with respect to all such projects the owner is, by
statute, regulation, or regulatory authority, limited
as to the rate of return on his investment in the
project, as to rentals or occupancy charges for
units in the project, and in such other respects as
would be a “limited dividend corporation” (as
defined by the Secretary of Housing and Urban
Development).
(d) Investments in other projects that may be
considered to be designed primarily to promote
community welfare include but are not limited to
(1) projects for the construction or rehabilitation
of housing for the benefit of persons of low or
moderate-income, (2) projects for the construc­
tion or rehabilitation of ancillary local commercial
facilities necessary to provide goods or services
principally to persons residing in low or moderateincome housing, and (3) projects designed explic­
itly to create improved job opportunities for low
or moderate-income groups (for example, minority
equity investments, on a temporary basis, in small
or medium-sized locally-controlled businesses in
low-income urban or other economically depressed
areas). In the case of de novo projects, the copy of
the notice with respect to such other projects which
is to be furnished to Reserve Banks in accordance
with the provisions of section 225.4(b)(1) should
be accompanied by a memorandum which demon­
strates that such projects meet the objectives of
section 225.4(a)(7).
(e) Investments in corporations or projects
organized to build or rehabilitate high-income
housing, or commercial, office, or industrial facil­
ities that are not designed explicitly to create im­
proved job opportunities for low-income persons
shall be presumed not to be designed primarily to
promote community welfare, unless there is sub­
stantial evidence to the contrary, even though to
some extent the investment may benefit the com­
munity.
5/30/72

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Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102