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FED ER AL RESERVE BANK O F NEW YORK J"C ircular L No. 6950 ~[ Ju n e 5, 1972 J INTERPRETATION OF REGULATION Y Investments by Bank Holding Companies in Projects Designed To Promote Community Welfare To A ll Bank H olding Companies, and Others Concerned, in the Second Federal Reserve D istrict: F ollow ing is the te x t of a statem en t issued M ay 31 by the B oard of G overnors of the F ederal R eserve S y s te m : The Board of Governors of the Federal Reserve System today issued the attached interpretation outlining the types of investments bank holding companies may make in projects designed primarily to promote community welfare. This is one of the activities determined by the Board to be closely related to banking and therefore a permissible investment for bank holding companies. The interpretation indicates the Board’s intent to enable bank holding companies to take an active role in helping to promote community welfare. Within the category of permissible investments indicated by the Board are (1) low and moderate-income housing projects and (2) projects designed explicitly to create improved job opportunities for low or moderate-income groups. P rin te d below is the te x t of the in te rp re ta tio n ; additional copies will be fu rn ish ed upon request. A lfred H a y e s, President. [Reg. Y] 12 CFR PART 225— BANK HOLDING COMPANIES Nonbanking Activities of Bank Holding Companies Section 225.123(e) is revoked and section 225.127 is added to read as follows: § 225.127 Investment in Corporations or Projects De signed Prim arily 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 invest ments in corporations or projects designed primarily to promote community welfare, such as the economic re habilitation and development of low-income areas.” The Board included that activity among those the Board has determined to be so closely related to banking or manag ing 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 holding companies to take an active role in the quest for solutions to the nation’s social problems. Although 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 community problems. For example, bank holding companies may utilize this flexi (over) bility to provide new and creative approaches to the promotion of employment opportunities for low-income persons. Bank holding companies possess a unique com bination of financial and managerial resources making 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 section 225.4(a)(7), a bank holding company may invest in community develop ment 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 investments 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 2 2 1 (d )(3 ), 2 2 1 (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 assisted by direct loan, tax abatement, or insurance under pro visions of State or local law, similar to the aforemen tioned 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 corpora tion” (as defined by the Secretary of Housing and Urban Development). (d) Investments in other projects that may be consid ered 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) pro jects for the construction or rehabilitation of ancillary local commercial facilities necessary to provide goods or services principally to persons residing in low or moderate-income housing, and (3) projects designed explicitly to create improved job opportunities for low or mod erate-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 demonstrates that such projects meet the objec tives of section 225.4(a) (7). (e) Investments in corporations or projects organized to build or rehabilitate high-income housing, or commer cial, office, or industrial facilities that are not designed explicitly to create improved job opportunities for lowincome persons shall be presumed not to be designed primarily to promote community welfare, unless there is substantial evidence to the contrary, even though to some extent the investment may benefit the community. (In terp rets and applies 12 U.S.C. 1 8 4 3 (c )(8 ).)