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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 * * * * *