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ROBERT AND D. M c T E E R , J R . P R E S ID E N T C H IE F E X E C U T IV E O F F IC E R July 31, 1995 DALLAS, TEXAS 75265-5906 Notice 95-72 TO: The C hief Executive Officer of each financial institution in the Eleventh F ederal Reserve D istrict SUBJECT Amendments to Regulation H DETAILS The Board of G overnors of the F ed eral Reserve System has published am endm ents to R egulation H (M em ber ship of State Banking Institutions in the F ederal R eserve System). The am endm ents, which are effective N ovem ber 1994 and January 1995, are in slip-sheet form and should be inserted in your R egulations binder. ENCLOSURES T he new slip sheet and a revised index for your regulations binder are enclosed. F o r additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal Reserve Bank of Dallas: Dallas Office (BOO) 333-4460; E l Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012; Houston Branch Intrastate (800) 392-4162, Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810. This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) M ORE INFORMATION F or m ore inform ation regarding R egulation H, please contact Z ane Rogers at (214) 922-6086. F or additional copies of this B ank’s notice or the slip sheet, please contact the Public Affairs D ep artm en t at (214) 922-5254. Sincerely yours, B oard o f G o v ern o rs o f the Federal R eserv e System A m endm ents to R egulation H M em bership of State Banking Institutions in the Federal Reserve System May 1995* 1. E ffe c tiv e N o v e m b e r 10, 1994, se c tio n 208 .1 0 is revised to read as fo llo w s: SECTION 208.10— Waiver of Reports o f Affiliates P ursuant to section 21 o f the Federal R e serve Act (12 U SC 486), the B oard o f G overnors o f the Federal R eserve System w aives the requirem ent for the subm ission o f reports o f affiliates o f state bank m em bers o f the Federal Reserve System , u n less such reports are specifically requested by the B oard o f G overnors. The B oard of G overnors o f the Federal R eserve System m ay req u ire the su b m issio n o f reports w hich are necessary to disclose fully rela tions betw een m em ber banks and their af filiates and the effect th ere o f upon the a f fairs o f m em ber banks. the F ederal D eposit In su ran ce C o rp o ra tio n . T h is se c tio n re q u ir e s a ll s ta te chartered banks that are m em bers o f the Federal R eserve System and all other c o v ered institutions (1) to m ake year-end call reports or R eports o f A ssets and L ia b ili ties o f U .S. B ranches and A gencies o f Foreign B anks or. in the case o f state m em ber banks, other alternative financial in fo rm a tio n , a v ailab le to sh a re h o ld e rs, custom ers, and the general public upon request; and (2) to ad v ise sh areh o ld ers and the public o f the availability o f this inform ation. 3. E ffective O ctober 8, 1993, a new section 208.20 is added as fo llo w s: SECTION 208.20— Repons of Crimes and Suspected Crimes 2. E ffe c tiv e N o v e m b e r 10, 1994. se c tio n 208.17(a) is revised to read as fo llo w s : SECTION 208.17— Disclosure of Financial Information by State Member Banks (a) P urpose a n d scope. T he purpose of this section is to facilitate the dissem in a tion o f publicly available inform ation re g a rding the financial c o n d itio n o f state m em ber banks, state-licensed agencies .of foreign banks, and state-licensed branches o f foreign banks that are not insured by * A com plete R egulation H. as am ended effective Janu ary 9. 1995, consists of— • the regulation pam phlet dated M arch 1993 (see inside cover) and • this slip sheet. Items 1. 2, and 4 are new. Items 3 and 5 w ere included in the Septem ber 1994 slip sheet. (a ) P u rp o se . T h is s e c tio n a p p lie s to know n or suspected crim es involving state m em ber banks. T his section ensures that law enforcem ent agencies are notified by m eans o f crim inal referral report*, w hen unexplained losses or know n or suspected crim inal acts are d iscovered. B ased on these reports, the federal governm ent will take appropriate m easures and will m ain tain an interagency d atabase that is d e rived from these reports. (b) Institution-affiliated parry. Institutionaffiliated p a rty m eans any institution-affil iated party as that term is defined in se c tions 3(u) and 8 (b )(3 ) and (4) o f the FDLA (12 U SC 1813(u) and 1818(b)(3) and (4)). (c) R ep o rts required. A sta te m e m b e r bank shall file a crim inal referral report 1 R egulation H using a standardized form (F o rm ).14 in accordance w ith instructions for the Form , in ever)' situation w here— (1) the state m em ber bank suspects one o f its d ire c to rs , o ffice rs, e m p lo y e e s, a g e n ts, o r o th e r in s titu tio n -a ffilia te d parties o f having com m itted or aided in the com m ission o f a crim e; (2) there is an actual or potential loss to the state m em ber bank (before re im bursem ent o r recovery) o f m ore than S I,000 w here the state m em b e r bank has a substantial basis for identifying a possible suspect o r group o f suspects and the suspect(s) is not a director, o f ficer, em ployer, agent, o r institution-affiliated party o f the state m em ber bank; (3) there is an actual or potential loss to the state m em ber bank (before reim b ursem ent or reco v ery ) o f S5,000 or m ore and w here the state m em b er bank has no substantial basis for identifying a possible suspect or group o f suspects; or (4) the state m em ber bank suspects that it is being used as a conduit for crim i nal activity, such as m oney laundering o r s tru c tu rin g tra n s a c tio n s to ev ad e th e B a n k S e c r e c y A c t re p o r tin g requirem ents. (d) Time f o r reporting. (1) A state m em ber bank shall file the report required by paragraph (c) o f this section no later than 30 calendar days after the date o f detection o f the loss or the know n or suspected crim inal v iola tion or activity. If no suspect has been identified w ithin 30 calendar days after the date o f the detection o f the loss or the k n o w n , a tte m p te d , o r su sp e c te d crim inal violation o r activity, reporting m ay be delayed an additional 30 c alen dar days o r until a suspect has been identified; but in no case shall reporting o f k n o w n o r s u s p e c te d c r im e s be delayed m ore than 60 c alen d a r days af ter the date o f the detection o f the loss or the know n, attem pted, o r suspected 14 C opies o f the Form (FR 2230) are available from the Federal Reserve Banks. The Form m ay be prepared using a com puter shell that is distributed by the Board. crim inal violation or activity. W hen a report requirem ent is triggered by the identification o f a suspect or group o f su sp e c ts, the re p o rtin g p e rio d c o m m ences w ith the identification o f each suspect or group o f suspects. (2) W hen a state m em ber bank detects a pattern o f crim es com m itted by an identifiable individual, the state m em ber bank shall file a report no later than 30 c a le n d a r d a y s a f te r th e a g g re g a te d am ount o f the crim es exceeds $1,000. (3) In situ atio n s in v o lv in g v io la tio n s requiring im m ediate attention or w here a reportable violation is ongoing, the state m em ber bank shall im m ediately notify by telephone the appropriate law enforcem ent agency and the appropriate Federal Reserve Bank in addition to fil ing a tim ely w ritten report. (e) R eporting to state a n d local a u th o ri ties. State m em ber banks are encouraged to file copies o f the Form w ith state and local authorities w here appropriate. (f) E xceptions. A state m em ber bank need not file the Form — (1) for those robberies and burglaries that are reported to local law e n fo rce m ent authorities: and (2) for lost, m issing, counterfeit, or sto len securities if a report is filed p u rsu ant to the reporting requirem ents o f 17 CFR 2 4 0 .1 7 I f - 1. (g) R etention o f records. A state m em ber bank shall m aintain copies o f any Form that it filed and the originals o f all related docum ents for a period o f 10 years from the date o f the report. (h) N otification to board o f directors. The m anagem ent o f a state m em ber bank shall prom ptly notify its board o f directors o f any report filed pursuant to this section. (i) Penalty. Failure to file a report in ac c o rd an c e w ith the in stru c tio n s on the F orm and this regulation m ay subject the state m em ber bank, its directors, officers, em ployees, agents, or other institution-affiliated parties to supervisory action. R egulation H 4. E ffective Ja n u a ry 9, 1995, a new section 208.21 is a d d e d to read as fo llo w s: SECTION 208.21— Community D evelopm ent and Public-Welfare Investments (a) D efinitions. (1 ) L o w - o r m o d e r a te -in c o m e area m eans— (i) one or m ore census tracts in a m e tro p o lita n sta tistic a l a rea w here the m edian fam ily incom e adjusted for fam ily size in each census tract is less than 80 percent o f the m edian fam ily in co m e ad ju sted fo r fam ily size o f the m etro p o litan statistical area; or (ii) if not in a m etropolitan statistical area, one o r m ore census tracts or block-num bered areas w here the m e dian fam ily incom e adjusted fo r fam ily size in each census tract or blocknum bered area is less than 80 per cent o f the m edian fam ily incom e adjusted for fam ily size o f the state. (2) Low - a n d m oderate-incom e persons has the sam e m ea n in g as low - and m oderate-incom e persons as defined in 42 U SC 5302(a)(20)(A ). (3) S m a ll b u sin e ss m eans a business that m eets the size-eligibility standards o f 13 C FR 121.802(a)(2). (b) Investm ents that do not require prior B oard approval. N otw ithstanding the pro visions o f section 5136 o f the R evised Statutes (12 U SC 24 (Seventh)) m ade a p plicable to state m em ber banks by para graph 20 o f section 9 o f the Federal R e serve A ct (12 U SC 335), a state m em ber bank m ay m ake an investm ent, w ithout p rio r B oard a p p ro v al, if the fo llo w in g conditions are met: (1) The investm ent is in a corporation, lim ited partnership, or other entity — (i) w here the B oard has determ ined that an investm ent in that entity or class o f entities is a public-w elfare in v estm e n t u n d e r p a ra g ra p h 23 o f section 9 o f the Federal R eserve Act (12 U SC 338a). or a com m unity d e velopm ent investm ent under R egula tion Y (12 C FR 225.25(b)(6)); (ii) w here the C o m p tro lle r o f the C urrency has determ ined, by order or regulation, that an investm ent in that ■entity by a national bank is a publicw e lfa re in v e s tm e n t u n d e r se c tio n 5 1 3 6 o f the R ev ised S ta tu te s (12 U S C 24 (E leventh)): (iii) w here that entity is a com m u nity developm ent financial institution as defined in section 103(5) o f the C o m m u n ity D e v e lo p m e n t B an k in g and F in a n c ia l In s titu tio n s A ct o f 1994 (12 U SC 4702(5)); or (iv) w here that entity, directly or in directly. engages solely in or m akes loans solely for the purposes o f one or m ore o f the follow ing com m unity developm ent activities: (A ) investing in, developing, re h a b ilita tin g , m an a g in g , se llin g , o r ren tin g re sid en tial p ro p e rty if a m ajority o f the units will be o c cu pied by low - and m oderate-incom e p erso n s o r if the p ro p e rty is a “ qualified lo w -in co m e b u ild in g ” as defined in section 42(c)(2) o f the In tern a l R e v en u e C ode (26 U SC 42(c)(2)); (B ) investing in. developing, re h a b ilita tin g , m an a g in g , se llin g , or renting nonresidential real property or other assets located in a low- or m oderate-incom e area and targeted tow ards low- and m oderate-incom e persons; (C ) investing in one o r m ore sm all b u sin esses located in a low - or m oderate-incom e area to stim ulate econom ic developm ent; (D ) in v estin g in, d e v elo p in g , or otherw ise assisting jo b training or p lacem en t fa cilitie s o r p ro g ram s that will be targeted tow ards lowand m oderate-incom e persons; (E) investing in an entity located in a low- o r m oderate-incom e area if that entity creates long-term e m ploym ent opportunities, a m ajority o f w h ic h (b a se d on fu ll tim e equivalent positions) will be held R e g u la ti o n H by low - and m oderate-incom e p e r sons; and (F) providing technical assistance, c re d it c o u n se lin g , re se a rc h , and program developm ent assistance to lo w - a n d m o d e ra te -in c o m e p e r sons, sm all businesses, or nonprofit corporations to help achieve c o m m unity developm ent; (2) the in v estm e n t is p e rm itte d by state law: (3) the inv estm en t w ill not expose the state m em ber bank to liability b e yond the am ount o f the investm ent; (4) the investm ent does not exceed the sum o f 2 percent o f the state m em ber b a n k ’s capital stock and su r p lu s a s d e fin e d u n d e r 12 C F R 250.162; (5) the aggregate o f all such invest m ents o f the state m em ber bank does not exceed the sum o f 5 percent o f its capital stock and surplus as d e fined under 12 C FR 250.162; (6) the state m em ber bank is w ell c apitalized or adequately capitalized under section 208.33(b)(1) and (2); (7) the state m em ber bank received a c om pc ite C A M E L rating o f I or 2 under the U niform F inancial In stitu tions R ating System as o f its m ost recen t e x am in atio n and an ov erall rating o f at least “ satisfactory ” as of its m ost recent consum er com pliance exam ination; and (8) the state m em b e r bank is not su b je c t to any w ritte n a g re e m e n t, cease-and-desist order, capita! d irec tive. p ro m p t-c o rrec tiv e -ac tio n d irec tive, or m em orandum o f un d erstan d ing issued by the B oard or a Federal R eserve Bank. (c) Notice. N ot m ore than 30 days after m aking an investm ent under paragraph (b) o f this section, the state m em b e r bank shall advise its Federal R eserve B ank of the investm ent, including the am ount of the investm ent and the identity o f the e n tity in w hich the investm ent is m ade. (d) Investm ents requiring B o a rd approval. (1) W ith prior B oard approval, a state 4 m em ber bank m ay m ake public-w elfare investm ents under paragraph 23 o f sec tion 9 o f the Federal R eserve Act (12 USC 338a), o ther than those specified in paragraph (b) o f this section. (2) ^Requests for approval u n d e r this p aragraph should include, at a m in i m um , the am ount o f the proposed in vestm ent, a description o f the entity in w hich the investm ent is to be m ade, an explanation o f w hy the investm ent is a public-w elfare investm ent un d er p a ra graph 23 o f section 9 o f the Federal R eserve A ct (12 U SC 338a), a d e sc rip tion o f the state m em ber b a n k ’s po ten tial liability under the proposed invest m ent, the am ount o f the state m em ber b a n k 's a g g re g a te o u tstan d in g p u b lic w elfare investm ents under paragraph 23 o f section 9 o f the Federal R eserve Act, and the am ount o f the state m em ber b an k ’s capital stock and surplus as d e fined in 12 CFR 250.162. (3) The B oard will act on a request under this paragraph within 60 calendar days a fte r re ce ip t o f a re q u est that m eets the req u irem en ts o f parag rap h (d)(2) o f this section, unless the B oard notifies the re q u estin g state m em b er bank that a longer tim e period will be required. (e) D iv estitu re o f investm en ts. A state m em ber bank shall divest itself o f an in vestm ent m ade under paragraph (b), (d). or (f) o f this section to the extent that the in v e s tm e n t e x c e e d s th e sc o p e o f. o r c e a s e s to m e e t, the r e q u ire m e n ts o f paragraphs (b)(1) through (b)(5). or para graph (d) o f this section. The divestiture shall be m ade in the m anner specified in 12 C FR 225.140, R egulation Y, for inter ests acquired by a lending subsidiary o f a bank holding com pany or the bank h old ing com pany its e lf in satisfaction o f a debt previously contracted. (f) Preexisting investm ents. (1 ) F o r o n g o in g in v e s tm e n ts m ad e prior to the final ru le ’s effective date that are covered by paragraph (b) o f this section, a state m em ber bank shall notify its Federal R eserve B ank o f the R e g u la ti o n H investm ent not m ore than 60 days after the final ru le 's effective date. (2) F o r o th e r o n g o in g in v e s tm e n ts m ade p rio r to the final ru le 's effective date, a state m em ber bank shall request B oard approval not m ore than one year after the final ru le 's effective date. 5. E ffe ctiv e J u ly 5, 1994. a n ew sectio n 208.22 is a d d e d to read a s fo llo w s: SECTION 208.22— Investment in Bank Premises (a) U nder section 24A o f the F ederal R e serve A ct, state m em ber bank investm ents in bank p rem ises or in the stock, bonds, debentures, or o ther such obligations o f any corporation holding the prem ises of the bank, and loans on the security o f the stock o f such corporation, do not require the approv al o f the B oard if the aggregate o f all such in v estm en ts and loans, to gether w ith the indebtedness incurred by any such corporation that is an affiliate o f the bank (a^ defined in section 2 o f the B anking A a o f 1933, as am ended, 12 USC 221a)— ( l f d o e s not exceed the capital stock am ount o f the bank; or (2) does not exceed 50 percent o f the b a n k 's tier 1 capital and the bank— (i) is well capitalized as defined in section 208.33(b)(1) o f this part; (ii) re ce iv e d a c o m p o site C A M E L rating o f 1 or 2 as o f its m ost recent exam ination by the relevant Federal R eserve Bank or state regulatory au thority; and (iii) is not sub ject to any w ritten a g re e m e n t, c e a se -a n d -d e sist o rd e r, capital directive, or prom pt correctiv e -ac tio n d irec tiv e issu ed by the B oard or a Federal Reserve Bank.
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