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FEDERAL RESERVE BANK OF NEW YORK Circular No. [ 10714 "1 June 16, 1994 R EG ULATIO N H — Amendment Authorizing Certain Investments by State Member Banks in Bank Premises — Proposed Amendment Authorizing Certain Investments by State Member Banks to Promote the Public Welfare To All State Member Banks, and Others Concerned, in the Second Federal Reserve District: T h e B o a r d o f G o v e r n o r s o f th e F e d e r a l R e s e r v e S y s te m h a s a m e n d e d its R e g u la tio n H , “ M e m b e r s h ip o f S ta te B a n k in g I n s titu tio n s in th e F e d e r a l R e s e r v e S y s t e m , ” in o r d e r to p e r m i t a S ta te m e m b e r b a n k th a t m e e ts c e r t a i n c o n d itio n s to in v e s t in its o w n p r e m is e s in a n a m o u n t n o t e x c e e d in g 5 0 p e r c e n t o f its T ie r 1 c a p ita l w ith o u t o b ta in in g s p e c if ic B o a r d a p p r o v a l. E n c l o s e d — f o r m e m b e r b a n k s in th is D i s t r i c t a n d o th e r s w h o m a in ta in s e ts o f th e B o a r d ’s r e g u la tio n s — is th e te x t o f th e a m e n d m e n t, w h ic h h a s b e e n r e p r in te d f r o m th e Federal Register o f June 3. In a d d itio n , th e B o a r d o f G o v e r n o r s h a s a ls o r e q u e s te d c o m m e n t o n a p r o p o s a l to a m e n d R e g u la tio n H in o r d e r to p e r m i t S ta te m e m b e r b a n k s to m a k e c e r t a i n in v e s tm e n ts d e s ig n e d p r i m a r i l y to p r o m o te th e p u b lic w e lf a r e w ith o u t h a v in g to o b ta in s p e c if ic B o a r d a p p r o v a l. T h e p r o p o s a l w o u ld a ls o p e r m i t c e r t a i n o t h e r p u b lic w e lfa re in v e s tm e n ts w ith B o a r d a p p r o v a l, a n d a d d r e s s e s th e p r o c e d u r a l a s p e c ts o f e i t h e r o f th o s e ty p e s o f in v e s tm e n ts . P r i n t e d o n th e f o llo w in g p a g e s is th e te x t o f th e p r o p o s a l , w h ic h h a s b e e n r e p r i n t e d f r o m th e Federal Register o f M a y 2 6 ; c o m m e n ts th e r e o n s h o u ld b e s u b m itte d b y J u ly 2 2 , a n d m a y b e s e n t to th e B o a r d o f G o v e r n o r s , a s s p e c if ie d in th e n o tic e , o r to o u r B a n k in g A p p lic a tio n s D e p a r tm e n t. Q u e s tio n s r e g a r d in g e i t h e r o f th e s e n o tic e s m a y a ls o b e d ir e c te d to th a t D e p a r t m e n t (T e l. N o. 2 1 2 -7 2 0 -5 8 6 1 ). W illiam J . M cD onough , President. /o H i ___________________________________________________________________ 27247 Proposed Rules Federal Register Vol. 59, No. 101 Thursday, May 26, 1994 FEDERAL RESERVE SYSTEM 12 CFR Part 208 [Regulation H; Docket No. R-0838] M em bership of State Banking Institutions in the Federal Reserve System AGENCY: B o a rd o f G o v e rn o rs o f th e F e d e ra l R e se rv e S y stem . ACTION: P ro p o s e d ru le . SUMMARY: T h e B o a rd is p ro p o s in g to a m e n d R e g u la tio n H to im p le m e n t s e c tio n 6(b) o f th e D e p o sito ry I n s titu tio n s D isa ste r R e lie f A c t o f 1992, w h ic h a u th o riz e s s ta te m e m b e r b a n k s to m a k e in v e s tm e n ts d e s ig n e d p rim a rily to p ro m o te th e p u b lic w e lfa re to th e e x te n t p e rm is s ib le u n d e r s ta te la w a n d su b je c t to re g u la tio n b y th e B o a rd . T h e p ro p o s e d a m e n d m e n t w o u ld p e rm it s ta te m e m b e r b a n k s to m a k e c e rta in p u b lic w e lfa re in v e s tm e n ts w ith o u t s p e c ific B o a rd a p p ro v a l a n d o th e r p u b lic w e lfa re in v e s tm e n ts w ith sp e c ific a p p ro v a l. T h e p ro p o s e d r u le a lso a d d r e s s e s th e p r o c e d u ra l a s p e c ts o f th e s e in v e s tm e n ts . DATES: C o m m e n ts m u s t b e s u b m itte d on o r b e fo re Ju ly 2 2 ,1 9 9 4 . ADDRESSES: C o m m e n ts, w h ic h s h o u ld re fe r to D o c k e t N o. R -0838, m a y b e m a ile d to th e B o a rd o f G o v e rn o rs o f th e F e d e ra l R e serv e S y stem , 2 0 th a n d C S tre e ts, N W ., W a sh in g to n , DC 205 5 1 , A tte n tio n : M r. W illia m W . W iles, S e c re ta ry ; o r m a y b e d e liv e re d to R oom B -2223 b e tw e e n 8:45 a.m . a n d 5:15 p .m . A ll c o m m e n ts re c e iv e d a t th e a b o v e a d d r e s s w ill b e m a d e a v a ila b le to th e p u b lic , a n d m a y b e in s p e c te d a t th e F re e d o m o f In fo rm a tio n O ffice, R o o m B1122 b e tw e e n 8:45 a.m . a n d 5:00 p .m . FOR FURTHER INFORMATION CONTACT: M a n le y W illia m s, A tto rn e y (2 0 2 /7 3 6 5565), L egal D iv isio n ; S a n d ra B r a u n s te in , P ro g ra m M a n a g e r for C o m m u n ity A ffairs, (2 0 2 /4 5 2 -3 3 7 8 ), D iv isio n o f C o n s u m e r a n d C o m m u n ity A ffairs; L arry C u n n in g h a m , S e n io r F in a n c ia l A n a ly s t (2 0 2 /4 5 2 -2 7 0 1 ), D iv isio n o f B a n k in g S u p e rv is io n a n d R e g u la tio n , B o a rd o f G o v e rn o rs o f th e F e d e ra l R e se rv e S y ste m . F o r th e h e a rin g im p a ir e d o n l y . T e le c o m m u n ic a tio n s D ev ic e fo r th e D ea f (TDD), D o ro th e a T h o m p s o n (2 0 2 /4 5 2 -3 5 4 4 ), B o a rd o f G o v e rn o rs o f th e F e d e ra l R e serv e S y ste m , W a s h in g to n , DC 205 5 1 . SUPPLEMENTARY INFORMATION: S e c tio n 6(b) o f th e D e p o sito ry In s titu tio n s D isa ste r R e lie f A c t o f 19 9 2 a d d e d p a ra g ra p h 23 to se c tio n 9 o f th e F e d e ra l R e serv e A c t, 12 U .S.C . 3 38a. S e c tio n 6(b) re m o v e s th e r e s tric tio n o n th e a b ility o f s ta te m e m b e r b a n k s to p u r c h a s e , s e ll, u n d e r w rite , a n d h o ld in v e s tm e n t s e c u ritie s p r o v id e d th a t th e in v e s tm e n t is d e s ig n e d p r im a rily to p ro m o te th e p u b lic w e lfa re a n d th a t th e in v e s tm e n t m e e ts c e r ta in o th e r c rite ria . S p e c ific a lly , th e in v e s tm e n t m u s t n o t v io la te s ta te la w o r e x p o s e th e b a n k to u n lim ite d lia b ility . T h e ag g re g ate o f th e b a n k ’s p u b lic w e lfa re in v e s tm e n ts m u s t n o t e x c e e d th e s u m o f fiv e p e rc e n t o f th e b a n k ’s c a p ita l sto c k a c tu a lly p a id in a n d u n im p a ir e d a n d fiv e p e rc e n t o f its u n im p a ir e d s u r p lu s fu n d . T h e B o a rd m a y w a iv e th is lim it b y o rd e r, o n a caseb y -c a se b a s is, h o w e v e r, a n d p e rm it a b a n k to m a k e in v e s tm e n ts in a n a m o u n t n o t e x c e e d in g th e su m o f te n p e r c e n t o f th e c a p ita l sto c k a c tu a lly p a id in a n d u n im p a ir e d a n d te n p e rc e n t o f th e u n im p a ir e d s u r p lu s fu n d o f th e b a n k . F in a lly , th e B o a rd m u s t lim it a b a n k ’s in v e s tm e n ts in a n y o n e p ro je c t. In th e p a s t, re q u e s ts b y s ta te m e m b e r b a n k s to m a k e p u b lic w e lfa re in v e s tm e n ts h a v e b e e n d e a lt w ith o n a c a se -b y -c a se b a sis. T o re fle c t se c tio n 6 (b )’s a m e n d m e n t o f th e F e d e ra l R e serv e A c t a n d to fa c ilita te p u b lic w e lfa re in v e s tm e n ts u n d e r th a t s e c tio n , th e B o a rd is p u b lis h in g fo r c o m m e n t a n a m e n d m e n t to R e g u la tio n H to b e in c o rp o r a te d in a n e w se c tio n e n title d C o m m u n ity D e v e lo p m e n t a n d P u b lic W e lfare In v e s tm e n ts . T h is a m e n d m e n t w o u ld p e rm it, in m a n y c a se s, p u b lic w e lfa re in v e s tm e n ts w ith o u t B o ard a p p ro v a l. Core Public Welfare Investments T h e p ro p o s e d r u le id e n tifie s c la sse s o f p u b lic w e lfa re in v e s tm e n ts th a t d o n o t r e q u ire B o a rd a p p ro v a l, le a v in g le ss c o m m o n in v e s tm e n ts a n d in v e s tm e n ts o f m o re th a n five p e r c e n t o f a b a n k ’s c a p ita l s u b je c t to c a se -b y -c a se re v ie w . T h e p ro p o s e d r u l e ’s c la s s ific a tio n se ek s to d is tin g u is h p u b lic w e lfa re in v e s tm e n ts from e n tre p re n e u r ia l in v e s tm e n ts - s e c tio n 6(b) m e re ly sta te s th a t p u b lic w e lfa re in v e s tm e n ts in c lu d e in v e s tm e n ts d e s ig n e d p rim a rily to p r o m o te t h e w e lfa re o f low - a n d m o d e ra te -in c o m e c o m m u n itie s o r fa m ilie s. U n d e r th e p ro p o s e d ru le , a s ta te m e m b e r b a n k m a y in v e st, w ith o u t B o a rd a p p r o v a l, o n ly in a c o rp o ra tio n , lim ite d p a r tn e r s h ip , o r o th e r e n tity e s ta b lis h e d s o le ly to en gage in th e fo llo w in g a c tiv itie s : lo w - a n d m o d e ra te in c o m e h o u s in g ; n o n re s id e n tia l rea le s ta te d e v e lo p m e n t in a low - o r m o d e ra te -in c o m e a re a if th a t re a l-e sta te is u s e d p r im a rily b y lo w - a n d m o d e ra te in c o m e p e rs o n s ; jo b tra in in g o r p la c e m e n t fo r lo w - a n d m o d e ra tein c o m e p e rs o n s ; s m a ll b u s in e s s d e v e lo p m e n t in a lo w - o r m o d e ra te in c o m e a re a ; te c h n ic a l a s sista n c e a n d c r e d it c o u n s e lin g to b e n e fit c o m m u n ity d e v e lo p m e n t; a n d jo b c re a tio n in a low o r m o d e ra te -in c o m e a re a for lo w - a n d m o d e ra te -in c o m e p e rso n s. T h e B o a rd is p a r tic u la rly in te r e s te d in c o m m e n ts o n w h e th e r th e te s t fo r lo w - a n d m o d e ra te in c o m e h o u s in g s h o u ld b e b a s e d o n w h e th e r a m a jo rity o f th e u n its a re o c c u p ie d b y lo w - a n d m o d e ra te -in c o m e p e r s o n s o r o n o th e r F e d e ra l p ro g ra m s s u c h a s th e lo w in c o m e h o u s in g c re d it in s e c tio n 42 o f th e In te rn a l R e v en u e C q d e. In d e f in in g lo w - a n d m o d e ra te -in c o m e p e r s o n s a n d lo w - o r m o d e ra te -in c o m e a re a , th e p r o p o s e d r u le u s e s d e fin itio n s th a t w ill p e r m it a sta te m e m b e r b a n k to lo o k to r e a d ily o b ta in a b le d ata. S p e c ific a lly , th e p ro p o s e d ru le u s e s th e D e p a rtm e n t o f H o u sin g a n d U rb a n D e v e lo p m e n t’s C h a p te r 69 C o m m u n ity D e v e lo p m e n t d e fin itio n o f low - a n d m o d e ra te -in c o m e p e rso n s. S im ila rly , lo w - o r m o d e ra te -in c o m e area is d e fin e d as a n a re a in w h ic h th e m e d ia n fam ily in c o m e is le s s th a n e ig h ty p e rc e n t o f th e m e d ia n fa m ily in c o m e o f th e M e tro p o lita n S ta tistic a l A rea, or, for n o n - m e tro p o lita n a re a s, th e state. F in a lly , th e p ro p o s e d ru le u s e s th e S m a ll B u s in e s s A d m in is tra tio n ’s d e f in itio n o f sm a ll b u sin e ss. Substantive Requirements T h e p r o p o s e d ru le c o n ta in s a n u m b e r o f s u b s ta n tiv e r e q u ire m e n ts b a s e d o n s e c tio n 6(b). S p e c ific a lly , th e in v e s tm e n t m u s t n o t v io la te sta te la w o r e x p o s e th e b a n k to u n lim ite d lia b ility . In a d d itio n , w ith o u t B o ard a p p ro v a l, a sta te m e m b e r b a n k ’s aggregate p u b lic w e lfa re in v e s tm e n ts m u s t n o t ex c ee d /O Y /i 27248 Federal Register / V o l. 5 9 , N o . 1 0 1 / T h u r s d a y , M a y 2 6 , 1994 / Proposed Rules th e su m o f 5 p e rc e n t o f th e b a n k ’s c a p ita l sto c k a c tu a lly p a id in a n d u n im p a ir e d a n d 5 p e r c e n t o f th e b a n k 's u n im p a ir e d s u r p lu s fu n d . TJie B o ard h a s p re v io u s ly d e te r m in e d th a t u n d iv id e d p ro fits m a y b e c o n s id e re d p a rt o f th e c a p ita l sto c k a n d s u r p lu s o f a sta te m e m b e r b a n k (12 CFR 250.152). A c c o rd in g ly , th e p ro p o s e d ru le lim its ag gregate p u b lic w e lfa re in v e s tm e n ts w ith o u t B o a rd a p p ro v a l to u p to five p e rc e n t o f th e c a p ita l sto c k a n d s u r p lu s o f th e s ta te m e m b e r b a n k . S e c tio n 6(b) a lso re q u ire s th a t th e B o ard lim it in v e s tm e n ts b y a sta te m e m b e r b a n k in a n y o n e p u b lic w e lfa re in v e s tm e n t. In v e s tm e n t o f u p to tw o p e rc e n t o f th e b a n k ’s c a p ita l a n d s u rp lu s w o u ld n o t th r e a te n th e sa fe ty o r s o u n d n e s s o f a w e ll-ru n a d e q u a te ly c a p ita liz e d b a n k . In a d d itio n , p re v io u s c o m m u n ity d e v e lo p m e n t in v e s tm e n ts b y sta te m e m b e r b a n k s h a v e n o t a p p ro a c h e d th is c e ilin g . A c c o rd in g ly , th e p ro p o s e d ru le lim its a sta te m e m b e r b a n k to in v e s tin g n o t m o re th a n tw o p e rc e n t o f its c a p ita l a n d s u r p lu s in a s in g le in v e s tm e n t w ith o u t B o ard a p p ro v a l. T h e p ro p o s e d ru le a lso e s ta b lis h e s c e rta in n o n -s ta tu to ry s u b s ta n tiv e r e q u ire m e n ts for sta te m e m b e r b a n k s se e k in g to m a k e p u b lic w e lfa re in v e s tm e n ts w ith o u t B o a rd a p p ro v a l. S p e c ific a lly , th e b a n k m u s t b e at le a st a d e q u a te ly c a p ita liz e d a n d ra te d a c o m p o s ite CA M EL “ 1 ” o r “ 2 ” , a n d th e b a n k m u s t n o t b e su b je c t to a n y w ritte n a g re e m e n t, c e ase a n d d e s is t o rd e r, c a p ita l d ire c tiv e , o r p ro m p t c o rre c tiv e a c tio n d ire c tiv e is s u e d b y th e B o a rd o r a F e d e ra l R eserv e B a n k a c tin g u n d e r d e le g a te d a u th o rity . T h e s e re q u ire m e n ts h e lp to e n s u re th a t th e in v e s tm e n t is c o n s is te n t w ith th e safe a n d s o u n d o p e ra tio n o f th e b an k . Procedural Requirements T h e p ro p o s e d r u le s e ts fo rth fo u r p ro c e d u ra l re q u ire m e n ts . F irst, to k ee p F e d e ra l R eserv e B a n k s a p p r is e d o f p u b lic w e lfa re in v e s tm e n ts , w ith in 30 d a y s a fte r m a k in g a p u b lic w e lfa re in v e s tm e n t, a sta te m e m b e r b a n k m u st a d v is e its R eserv e B a n k o f th e a m o u n t o f th e in v e s tm e n t a n d th e id e n tity o f th e c o rp o ra tio n , lim ite d p a r tn e rs h ip , o r o th e r e n tity in w h ic h th e in v e s tm e n t is m ad e. S e c o n d , a b a n k se e k in g to m a k e a n in v e s tm e n t th a t fa lls o u ts id e o f th e in v e s tm e n ts s p e c ifie d in th e p ro p o s e d ru le m u s t re c e iv e B o a rd a p p ro v a l. In n o e v e n t m a y aggregate in v e s tm e n ts e x c e e d te n p e rc e n t o f th e b a n k ’s c a p ita l sto c k a n d s u rp lu s . T h ird , if a p u b lic w e lfa re in v e s tm e n t e n te re d in to u n d e r th e p ro p o s e d ru le c e a s e s to m e et th e statu to ry ' r e q u ire m e n ts o r a n y re q u ire m e n ts e s ta b lis h e d by th e B oard in g ra n tin g a p p ro v a l, th e b a n k m u s t d iv e st its e lf o f th e in v e s tm e n t to th e e x te n t th a t th e in v e s tm e n t c e a s e s to m e e t th o s e r e q u ir e m e n ts .1 F in a lly , if a p re e x is tin g p u b lic w e lfa re in v e s tm e n t m e e ts th e r e q u ire m e n ts fo r in v e s tm e n ts w h ic h d o n o t n e e d B o a rd a p p ro v a l, o r if th e B o a rd a p p ro v e d th e in v e s tm e n t, th e b a n k n e e d o n ly n o tify its R e serv e B ank o f th e in v e s tm e n t w ith in six ty d a y s a fte r th e e ffe c tiv e d a te o f th e fin al ru le. F o r o th e r p re e x is tin g p u b lic w e lfa re in v e s tm e n ts , th e b a n k s h o u ld a p p ly to th e B o a rd fo r a p p r o v a l o f th e in v e s tm e n t w ith in o n e y e a r a fte r th e fin al r u le ’s e ffe c tiv e d a te . B a n k H o ld in g C o m p a n y I n v e s tm e n ts In th e e v e n t th a t th e B o a rd a d o p ts a fin al r u le p e rm ittin g s ta te m e m b e r b a n k s to m a k e th e p ro p o s e d p u b lic w e lfa re in v e s tm e n ts d is c u s s e d a b o v e , th e B o ard w ill c o n s id e r re v isin g its in te r p re ta tio n o f R e g u la tio n Y to p e r m it th e sa m e c la ss o f in v e s tm e n ts to b e m a d e b y b a n k h o ld in g c o m p a n ie s . If r e v is e d a c c o rd in g ly , a b a n k h o ld in g c o m p a n y c o u ld a p p ly to m a k e th o s e in v e s tm e n ts u n d e r th e e x is tin g e x p e d ite d n o tic e p ro c e d u re s. List of Subjects in 12 CFR Part 208 A cc o u n tin g , A gricultu re, Banks, banking, C o n fid en tia l b u sin ess in form ation . Currency, Federal R eserve S ystem , R eporting and recordkeeping requ irem en ts, S ecu rities. F o r th e re a s o n s set fo rth in th e p re a m b le , th e B o ard is p ro p o s in g to a m e n d 12 C FR p a rt 208 as follow s: PART 208—MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL RESERVE SYSTEM (REGULATION H) 1. T h e auth ority cita tio n for part 208 is rev ised to read as follow s: Authority: 12 U .S.C . 36, 248(a), 248(c). 3 21-338a. 3 7 1 d , 4 6 1 . 4 8 1 -4 8 6 . 6 0 1 . 6 1 1 . 1 814. 1823(j), 1 8 2 8 (o ), 1 8 310. 1 8 3 1 p -l, 3 1 0 5 , 3 3 1 0 . 3 3 3 1 -3 3 5 1 . an d 3 9 0 6-3909; 15 U.S.C. 1(b). 1(g), l(i). 78b. 78o-4(c)(5), 78q, 7 8 q -l. and 78w ; 31 U .S.C . 5318. 2. S e c tio n 208.21 is a d d e d to su b p a rt A to re a d a s fo llo w s: § 208.21 Com m unity developm ent and public w elfare investments. (a) D efinitions — (1) Low- or m oderateincom e area m e a n s: (1) O n e o r m o re c e n s u s tra c ts in a M e tro p o lita n S ta tis tic a l A rea w h e re th e To d e a l w ith p ro p o s e d p u b lic w elfa re m e d ia n fa m ily in c o m e a d ju s te d for in v e s tm e n ts b y sta te m e m b e r b a n k s fam ily siz e in e a c h c e n s u s tra c t is less d u rin g th e p e n d e n c y o f th e p ro p o s e d th a n e ig h ty p e rc e n t o f th e m e d ia n ru le , th e B o a rd h a s d e le g a te d to th e fam ily in c o m e a d ju s te d for fam ily size D irec to r o f th e D iv isio n o f B an k o f th e M e tro p o lita n S ta tis tic a l A rea; o r S u p e rv is io n a n d R e g u la tio n , in (ii) If n o t in a M e tro p o lita n S ta tistic a l c o n s u lta tio n w ith th e G e n e ra l C o u n se l A re a, o n e o r m o re c e n s u s tra c ts o r a n d th e D ire c to r o f th e D iv is io n o f b lo c k -n u m b e re d a re a s w h e re th e m e d ia n C o n s u m e r a n d C o m m u n ity A ffairs, th e fam ily in c o m e a d ju s te d for fa m ily siz e a u th o rity to a p p ro v e in v e s tm e n ts th a t in e a c h c e n s u s tra c t o r b lo c k -n u m b e re d m eet th e r e q u ire m e n ts o f th e p ro p o s e d area is le ss th a n e ig h ty p e rc e n t o f th e ru le. m e d ia n fa m ily in c o m e a d ju s te d for fam ily s iz e o f th e S tate. R e g u la to ry F le x ib ility A c t A n a ly s is (2) Low- a n d m oderate-incom e persons h a s th e sa m e m e a n in g as low P u rs u a n t to s e c tio n 60 5 (b ) o f th e a n d m o d e ra te -in c o m e p e rs o n s as R eg u la to ry F le x ib ility A c t (P u b . L. 96d e fin e d in 42 U .S.C . 5302a(20)(A ). 354. 5 U .S.C . 601 et seq.), th e B o a rd (3) S m all business m e a n s a b u s in e s s c e rtifie s th a t th e p ro p o s e d a m e n d m e n t th a t m e e ts th e siz e e lig ib ility s ta n d a rd s w ill n o t h a v e a sig n ific a n t e c o n o m ic o f 13 C F R 121.802(a)(2). im p a c t o n a s u b s ta n tia l n u m b e r o f sm a ll (b) In vestm ents that do not require e n titie s, a n d th a t a n y im p a c t o n th o se prior B oard approval. N o tw ith s ta n d in g e n titie s s h o u ld be p o sitiv e . T h e th e p r o v is io n s o f R.S. 51 3 6 , 12 U .S.C . 24 p ro p o s e d a m e n d m e n ts w ill re d u c e th e (S e v e n th ) m a d e a p p lic a b le to S tate re g u la to ry b u r d e n for m a n y s ta te m e m b e r b a n k s b y p a ra g ra p h 20 o f m e m b e r b a n k s b y p e rm ittin g th e m to se c tio n 9 o f th e F e d e ra l R e serv e A ct (12 m a k e c e rta in in v e s tm e n ts th a t h a d p re v io u sly re q u ire d B o a rd a p p ro v a l, a n d U .S.C. 335), a S ta te m e m b e r b a n k m ay m a k e a n in v e s tm e n t, w ith o u t p rio r w ill h a v e n o effect in o th e r ca se s. B o ard a p p ro v a l, if th e fo llo w in g c o n d itio n s a re m et: T his divestiture is governed by the same (1) T h e in v estm en t is in a corporation, requirements as divestitures o f interests acquired by lim ited partnersh ip , or other entity: a lending subsidiary o f a bank hold ing com pany or a bank holding com pany itself in satisfaction of a (i) W h e re th e B o a rd h a s d e te rm in e d debt previously contracted. th a t a n in v e s tm e n t in th a t e n tity is a Divestiture is not required if the investm ent p u b lic w e lfa re in v e s tm e n t u n d e r ceases to meet the non-statutory requirem ents p a ra g ra p h 23 o f se c tio n 9 o f th e F e d e ra l concerning capital, CAMEL ratings, and R eserv e A ct (12 U .S.C . 338a), o r a enforcem ent actions. 1 Federal Register / Vol. 59, No. 101 / Thursday, May 26, 1994 / Proposed Rules (b) o f th is se c tio n , th e bank sh a ll a d v ise com m u n ity d ev elo p m en t in v estm en t its F ederal R eserve B ank o f the under R egulation Y (12 CFR in v estm en t, in c lu d in g th e am oun t o f th e 225.25(b)(6)); or (ii) W here that en tity en gages s o le ly in in v estm en t an d th e id en tity o f th e en tity wiie or m ore o f th e fo llo w in g co m m u n ity in w h ic h th e in v e stm e n t is m ade. d ev elo p m en t activities: (d) Investments requiring Board (A) In vestin g in , d ev elo p in g , approval. W ith prior Board ap proval, a rehabilitating, m anagin g, se llin g , or State m em ber bank m ay m ake p u b lic renting resid en tia l property if a m ajority w elfare in v estm en ts u n d er paragraph 23 o f the u n its w ill b e o c c u p ie d b y lo w o f se ctio n 9 o f th e F ed eral R eserve A ct and m od erate-in co m e persons; (12 U.S.C . 338a), other than th o se (B) Investin g in , d ev elo p in g , sp e c ifie d in paragraph (b) o f th is rehabilitating, m anagin g, se llin g , or se ctio n . renting n o n resid en tia l real property or (e) Divestiture of investments. A bank other a ssets located in a lo w - or sh a ll d iv est its e lf o f an in v estm en t m ad e m oderate-in com e area and to b e u sed u nd er paragraph (b), (d) or (f) o f th is prim arily by lo w - and m o d erate-in com e se ctio n to th e ex te n t that th e in v estm en t persons; e x c e e d s th e sc o p e of, or cea ses to m eet, (C) In vestin g in on e or m ore sm a ll th e requ irem en ts o f paragraphs (b)(1) b u sin esses located in a low - or through (5), or paragraph (d) o f th is m oderate-in com e area to stim u late se ctio n . T h e d iv estitu re sh a ll b e m ad e in ec o n o m ic d evelo p m en t; th e m ann er sp e c ifie d in R egulation Y (D) In vesting in , d ev elo p in g , or (12 CFR 2 2 5 .1 4 0 ) for in terests acq u ired oth erw ise a ssistin g job training or by a le n d in g su b sid ia ry o f a bank placem ent fa cilities or program s that h o ld in g co m p a n y or th e bank h o ld in g w ill be u sed prim arily by lo w - and co m p a n y itse lf in sa tisfa ctio n o f a debt m oderate-incom e persons; p rev io u sly contracted. (E) In vestin g in an en tity lo ca ted in a (f) Preexisting investments. (1) For low - or m od erate-in co m e area if that on g o in g in v estm en ts m a d e prior to [the en tity creates long-term em p lo y m e n t fin al ru le’s effec tiv e date) that are o p p ortu n ities, a m ajority o f w h ic h co v ered b y paragraph (b) o f th is se ctio n , (based on fu ll tim e eq u iv a len t p o sitio n s) a State m em ber bank sh a ll n o tify its w ill be h eld b y lo w - and m oderateFederal R eserve Bank o f th e in v estm en t in com e persons; and n o t m ore than six ty d a y s after [the final (F) P rovidin g tec h n ica l a ssista n ce, r u le ’s effectiv e date). credit co u n selin g , research, and (2) For other o n g o in g in v estm en ts program d ev elo p m en t a ssista n ce to lo w - m ad e prior to [the fin a l r u le ’s effectiv e and m oderate-in com e p erson s, sm a ll date], a State m em ber bank sh a ll requ est b u sin esses, or n on p rofit corporations to Board approval n o t m ore than o n e year h elp ach iev e co m m u n ity d ev elo p m en t; after [the final r u le ’s e ffec tiv e date]. (2) T he in v estm en t is perm itted by By order of the Board of Governors of the State law: F ederal Reserve System, May 1 9 ,1 9 9 4 . (3) T he in v estm en t w ill not ex p o se William W. Wiles, i ho bank to lia b ility b ey o n d th e am oun t Secretary of the Board. o f the investm en t; [FR Doc. 9 4 -1 2 7 1 8 F ile d 5-25-94; 8;45 am] (4) T he in v estm en t d o es n ot ex c ee d the sum o f tw o p ercen t o f th e b ank ’s BILUNG CODE 6210-01-F capital stock an d su rp lu s as d efin ed under 12 CFR 250.162; (5) T he aggregate o f a ll su ch in vestm en ts o f th e bank d o e s n ot e x c e e d the sum o f five p ercen t o f its cap ital stock and su rp lu s as d efin e d u nd er 12 CFR 250.162; (6) T h e bank is w e ll ca p ita lized or ad eq uately ca p ita liz ed u n d er § 208.33(b)(1) an d (2); (7) T h e bank re ce iv e d a co m p o site CAMEL rating o f “ 1 ” or "2” u nd er th e U niform F in an cia l In stitu tion s Rating S ystem as o f its m o st recent exam in ation , and (8) T he bank is n o t subject to any w ritten agreem en t, ce a se and d esist order, cap ital d irectiv e, or prom pt corrective a ctio n d ire ctiv e issu e d b y th e Board or a F ederal R eserve Bank. (c) Notice. N ot m ore than 30 d ays after m aking an in v estm en t u n d er paragraph 27249 Board of Governors of the Federal Reserve System AMENDMENT TO REGULATION H Investing in Bank Premises /o V tf (Effective July 5, 1994) FEDERAL RESERVE SYSTEM 12C F R Part 208 [Regulation H; Docket No. R -0773] Membership of State Banking Institutions in the Federal Reserve System A G E N C Y : Board of Governors of the Federal Reserve System. A C T IO N : F inal rule. S U M M A R Y : T he Board is am en d in g R egulation H to a llo w a state m em ber bank that m eets certain co n d itio n s to in v est in its p rem ises in an am oun t up to 50 percent o f its Tier 1 cap ital w ith o u t ob tain in g sp e c ific approval. T he Board b e lie v e s that a general approval for a state m em ber bank to in v est an am ount n ot e x c ee d in g 50 p ercen t o f its T ier 1 cap ital is appropriate for a bank that m ee ts th ose co n d itio n s. T h is actio n w ill sign ifican tly red u ce th e n um ber o f ap p lica tio n s to in v est in bank p rem ises that are filed w ith th e Board an d w ill thereby reduce regulatory burden. E FF E C T IV E D A T E : July 5, 1994. FO R FU R TH E R IN F O R M A T IO N C O N T A C T : M an ley W illiam s, A ttorn ey (2 0 2 /7 3 6 5565), Legal D iv isio n ; R ichard Fabrizio, S en ior F in ancial A n a ly st ( 2 0 2 /4 5 2 3423); B everly E vans, S u p ervisory F in ancial A n alyst (2 0 2 /4 5 2 -2 5 7 3 ); John R u ssell, M anager (2 0 2 /4 5 2 -2 4 6 6 ), D iv isio n o f B anking S u p er v isio n and R egulation, Board o f G overnors o f the F ederal R eserve S ystem . For th e hearing im paired only, T e le co m m u n ica tio n s D ev ice for th e D eaf (TDD), D orothea T h om p son (2 0 2 /4 5 2 -3 5 4 4 ), Board o f G overnors o f th e F ederal R eserve S ystem , 20th and C Street NW ., W ashington, DC 2 05 5 1 . S U P P L E M E N T A R Y IN F O R M A T IO N : S ectio n 24A o f the Federal R eserve A ct, 12 U .S.C . 371d , requires a state m em ber bank to obtain the ap proval o f th e Board to in vest in th e bank’s p rem ises if th e aggregate le v e l o f direct and in d irect in vestm en t in its p rem ise s w ill e x c ee d the bank’s cap ital sto ck accoun t. S ectio n 24A ap p lies (1) To in v estm en ts in bank p rem ises and to in v estm en ts in th e stock, b on d s, debentures, or other su ch ob lig a tio n s o f any corporation h o ld in g th e p rem ises o f su ch bank, (2) To the making of loans to or upon the security of the stock of any such corporation; and a p p lica tio n in certain cases, and w ill (3) To the in d e b te d n e ss in curred by h ave n o effect in other cases. any corporation that is an affiliate o f th e List of Subjects in 12 CFR Part 208 bank. A cco u n tin g , A griculture, Banks, T he Board is a m en d in g R egulation H B anking, C on fid en tial b u sin ess to a llo w a state m em ber board that in form ation , Currency, Federal R eserve m eets certain c o n d itio n s to in v est in S y stem , R eporting and recordkeeping bank p rem ises in an am ou n t that e x c e e d s its cap ital sto ck accou n t but n ot requ irem en ts, S ecu rities. ex c ee d in g 50 p ercen t o f its Tier 1 cap ital PART 208—MEMBERSHIP OF STATE w ith o u t ob tain in g sp e c ific approval for BANKING INSTITUTIONS IN THE the in v estm en t. Prior to th is FEDERAL RESERVE SYSTEM am en dm en t, a state m em b er bank w a s (Regulation H) required to obtain Board ap proval for 1. T h e au thority citation for part 208 each in v estm en t in bank p rem ises if th e co n tin u e s to read as follow s: aggregate in v estm en t ex c e e d e d , or Authority: 12 U.S.C. 36, 248(a), 248(c), w o u ld e x c ee d , th e ca p ita l stock a ccou n t 3 2 1 -3 3 8 a , 3 7 l d , 4 6 1 , 4 8 1 - 4 8 6 , 6 0 1 , 6 1 1 , o f the state m em ber bank. 1 8 1 4 , 1823(j), 1828(o), 1 8 3 1 o , 1 8 3 1 p - l , 3 1 0 5 , T he Board b e lie v e s that in v estm en ts 3 3 1 0 , 3 3 3 1 -3 3 5 1 , an d 3 9 0 6 -3 9 0 9 ; 15 U.S.C. by a state m em ber bank in bank 1(b), 1(g), 1 (i), 78b, 7 8 o -4 (c )(5 ), 78q, 7 8 q - l , p rem ises in an am ou n t in e x c e ss o f its an d 78w ; 31 U.S.C. 5318. stock accou n t but n o t e x c e e d in g 50 p ercent o f th e b an k ’s T ier 1 capital 2. S ectio n 208.22 is ad ded to subpart gen erally do n ot p resen t any sig n ifica n t A read as follow s: risks to the bank if th e bank is w e ll § 208.22 Investm ent in bank premises. ca p ita lized , is rated CAMEL " 1” or “ 2 ” , (a) U n d er S ectio n 24A o f the Federal and is n ot subject to an y w ritten R eserve A ct, state m em ber bank agreem ent, cea se an d d esist order, in v estm en ts in bank p rem ises or in the capital d irective. T h e Board b e lie v e s stock , b on d s, deben tu res, or other su ch that a general ap p roval for a state o b lig a tio n s o f any corporation h o ld in g m em ber bank to in v e st an am ount not th e p rem ises o f the bank, and loan s on e x c ee d 50 percen t o f its Tier 1 capital th e secu rity o f th e stock o f su ch its appropriate for a bank that m eets corporation, do n ot require the approval th o se co n d itio n s. T h is action w ill o f th e Board if the aggregate o f all su ch sig n ifica n tly red u ce th e n um ber o f in v estm en ts and loan s, together w ith the a p p lica tio n s to in v e st in bank p rem ises in d e b ted n e ss incurred by any su ch that are file d w ith th e Board and w ill corporation that is an affiliate o f the thereby red u ce regulatory burden. T he bank (as d efin ed in se ctio n 2 o f the am en dm en t d o es n o t affect state Banking A ct o f 1933, as a m en ded, 12 m em ber b a n k s’ a b ility to in v est in bank U .S.C . 221a): p rem ises, w ith o u t co n d itio n s, up to the (1) D o es n ot e x c e e d th e cap ital stock am ount o f their cap ital stock accoun t. a cco u n t o f the bank; or Notice and Public Participation (2) D o es n ot e x c e e d 50 percent o f the b an k ’s T ier 1 cap ital and the bank: The p ro v isio n s o f 5 U.S.C. 553(b) (i) Is w e ll ca p ita lized as d efin ed in relating to n o tic e and p u b lic participation h a v e n ot b een fo llo w e d in § 208.33(b )(1) o f th is part; (ii) R eceiv ed a co m p o site CAMEL co n n ectio n w ith th e a d o p tio n o f th is rating o f “ 1 ” or “ 2 ” as o f its m ost recent am en d m en t b eca u se th e ch an ges relate ex a m in a tio n by the relevant Federal to ru les o f agen cy organ ization, procedure, or p ractice. Regulatory Flexibility Act Analysis Pursuant to sectio n 605(b) o f the R egulatory F lex ib ility A ct (5 U.S.C. 601 et seq.), the Board certifies that the p ro p o sed am en d m en t w ill not h ave a sig n ifica n t ec o n o m ic im pact on a su b stan tial num ber o f sm all en tities. The proposed amendment will reduce the regulatory burden for many small depository institutions by relieving them of the requirement to file an Reserve Bank or state regulatory authority; and (iii) Is not subject to any written agreement, cease and desist order, capital directive, or prompt corrective action directive issued by the Board or a Federal Reserve Bank. By order of the Board of Governors of the Federal Reserve System, May 25,1994. W i l l i a m W . W ile s , Secretary of the Board. (FR Doc. 94-13253 Filed 6-2-94; 8:45 am] B ILU N G CODE 621 0-0 1-M P R IN T E D IN N E W Y O R K , F R O M F E D E R A L R E G IS T E R . V O L . 5 9 , N O . 10 6 , pp. 2 8 7 6 1 -6 2 [Enc. Cir. No. 10714]
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