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FED E R A L R ESER VE BANK OF NEW YORK ["Circular No. 7 3 3 8~1 L February 7, 1974 J AMENDMENTS TO REGULATION H Flood Insurance T o A ll State M em ber Banks, and O thers Concerned, in the Second Federal R eserve D istrict: The following statement was issued today by the Board of Governors of the Federal Reserve System: T he B oard of G overnors of the Federal Reserve System today announced a regulatory amendment effective M arch 2, 1974, prohibiting state chartered m em ber banks from lending on im proved real estate, or a mobile home, in an identified flood hazard area unless the property is covered by appropriate flood insurance. T h e restriction applies also to such property in any com m unity in a designated flood hazard area not participating in the national flood insurance program by July 1, 1975. In both cases the lending restrictions being added to the B oa rd ’s Regulation H — dealing with unsafe, unsound or illegal banking practices— are required to implement the F lood Disaster Protection A ct of 1973 ( P .L . 9 3 -2 3 4 ). T he new legislation, signed into law by the President D ecem ber 31, 1973, increases the limits of coverage. T he A ct requires Federal agencies regulating financial institutions to direct institutions subject to their rules: “ . . . not to make, increase, extend, or renew (a fte r M arch 2, 1974) any loan secured by im proved real estate, or mobile home, located or to be located in an area identified by the Secretary ( o f H ousing and D evelopm ent) as an area having special flood hazards,” where Federal flood insurance is available, unless “ . . . the property is covered for the term of the loan by flood insurance in an amount at least equal to the outstanding principal balance or to the m axim um limit of coverage . . . under the A ct, w hichever is less.” A similar prohibition affects lending on property in com m unities located in designated flood hazard areas unless, by July 1, 1975, such com m unities are participating in the national flood insurance program . A n exception applies to State ow ned property covered under self-insurance satisfactory to the Secretary of H U D . T he Secretary is required to publish lists o f states falling within the exem ption. Other Federal regulatory agencies are publishing similar rules restricting lending under the new flood insurance legislation. Enclosed is a copy of the amendments, effective March 2, 1974, to Regulation H, “ Mem bership of State Banking Institutions in the Federal Reserve System.” Additional copies of the enclosure will be furnished upon request. A lfred H a y e s , President. Board of Governors of the Federal Reserve System MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL RESERVE SYSTEM A M E N D M E N T S TO R E G U LA TIO N H 1. E ffective M arch 2, 1974, R egulation H (1 2 C F R 208 ) will be amended by adding a new section, 208.8, Banking Practices, and re num bering the succeeding sections. T he Table of Contents of Part 208 will be changed to read as fo llo w s : SEC. (c) (d ) [R eserved.] [R eserved.] (e) Loans by State member banks in iden tified flood hazard areas. ( 1 ) Property securing loan must be insured against flood. N o State mem ber bank shall A s an incident to these amendments, sections 208.8, 208.9, 208.10, and 208.11 will be redes ignated sections 208.9, 208.10, 208.11, and 208.12 respectively. make, increase, extend or renew any loan se cured by im proved real estate or a mobile hom e located or to be located in an area that has been identified by the Secretary o f H ou sin g and U rban D evelopm ent as an area having special flood hazards and in which flood insurance has been made available under the National F lo o d Insurance A c t of 1968, unless the building or mobile home and any personal property secur ing such loan is covered fo r the term o f the loan by flood insurance in an amount at least equal to the outstanding principal balance of the loan or to the m axim um limit of coverage made available with respect to the particular type of property under the A ct, whichever is less. N o t withstanding the foregoin g provision, flood in surance shall not be required on any Stateow ned property that is covered under an ade quate policy o f self-insurance satisfactory to the Secretary of H ou sin g and U rban D ev elop ment who shall publish and periodically revise the list of states falling within the exem ption provided in this paragraph. 2. E ffective M arch 2, 1974, a new section, 208.8, will be added as fo llo w s : ( 2 ) Prohibition as to loans in nonparticipat ing communities. O n or after July 1, 1975, no S E C T I O N 208.8— B A N K I N G P R A C T I C E S ( a ) S cop e. N o State member bank shall en gage in practices which are unsafe or unsound or which result in a violation of law, rule, or regulation, or which violate any condition im posed by or agreements entered into with the Board. T his section outlines certain of the prac tices in which State member banks should not engage. ( b ) W aiver. A State member bank has the right to petition the Board to waive the con d i tions of section 208.8. A waiver may be granted upon a show ing of g ood cause. T he B oard in its discretion may choose to limit, am ong other items, the scope, duration, and timing of the waiver. State member bank shall make, increase, e x tend, or renew any loan secured by im proved real estate or a mobile home located or to be located in an area that has been identified by the Secretary of H ou sin g and U rban D evelop ment as an area Tiaving special flood hazards, unless the com m unity in which such area is situated is then participating in the national flood insurance program . 208.1 Definitions 208.2 Eligibility Requirem ents 208.3 208.4 Insurance of Deposits A pplication for M em bership 208.5 208.6 A pp roval o f A pplication P rivileges and Requirem ents of M em bership 208.7 Conditions of M em bership 208.8 208.9 Banking Practices Establishment or M aintenance of Branches 208.10 Publication of R eports o f M em ber Banks and their Affiliates 208.11 V oluntary W ithdraw al from Federal R eserve System 208.12 Board F orm s ( 3 ) Records of compliance. Each State m em ber bank shall maintain, in connection with all loans secured by im proved real estate or a mobile hom e, sufficient records to indicate the m ethod used by the bank to determine whether or not such loans fall within the provisions o f this section 2 0 8 .8 (e ). P R IN T E D IN N E W YO RK
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