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§ 225.126 12 CFR Ch.

II (1–1–03 Edition)

bank holding company or a nonbank (g) Property management (see 1972

affiliate, but is not required by the Fed. Res. Bulletin 652).
bank’s primary regulator to make dis- [Reg. Y, 37 FR 20329, Sept. 29, 1972; 37 FR
closures comparable to the disclosures 21938, Oct. 17, 1972, as amended at 54 FR 37302,
required to be made by bank holding Sept. 8, 1989]
companies providing such services, the
bank holding company should require § 225.127 Investment in corporations
its subsidiary bank to make the disclo- or projects designed primarily to
promote community welfare.
sures required in this paragraph to be
made by a bank holding company that (a) Under § 225.25(b)(6) of Regulation
provides such advisory or brokerage Y, a bank holding company may, in ac-
services. cordance with the provisions of § 225.23,
(i) Acting in such capacities as reg- engage in ‘‘making equity and debt in-
istrar, transfer agent, or custodian for vestments in corporations or projects
an investment company is not a selling designed primarily to promote commu-
activity and is permitted under nity welfare, such as the economic re-
§ 225.4(a)(4) of Regulation Y. However, habilitation and development of low-
in view of potential conflicts of inter- income areas.’’ The Board included
ests, a bank holding company which that activity among those the Board
has determined to be so closely related
acts both as custodian and investment
to banking or managing or controlling
adviser for an investment company
banks as be a proper incident thereto,
should exercise care to maintain at a
in order to permit bank holding compa-
minimal level demand deposit accounts
nies to fulfill their civic responsibil-
of the investment company which are
ities. As indicated hereinafter in this
placed with a bank affiliate and should interpretation, the Board intends
not invest cash funds of the investment § 225.25(b)(6) to enable bank holding
company in time deposit accounts (in- companies to take an active role in the
cluding certificates of deposit) of any quest for solutions to the Nation’s so-
bank affiliate. cial problems. Although the interpreta-
[37 FR 1464, Jan. 29, 1972, as amended by Reg. tion primarily focuses on low- and
Y, 57 FR 30391, July 9, 1992; 61 FR 45875, Aug. moderate-income housing, it is not in-
30, 1996; Reg. Y, 62 FR 9343, Feb. 28, 1997] tended to limit projects under
§ 225.25(b)(6) to that area. Other invest-
§ 225.126 Activities not closely related ments primarily designed to promote
to banking. community welfare are considered per-
Pursuant to section 4(c)(8) of the missible, but have not been defined in
Bank Holding Company Act and order to provide bank holding compa-
§ 225.4(a) of Regulation Y, the Board of nies flexibility in approaching commu-
Governors has determined that the fol- nity problems. For example, bank hold-
lowing activities are not so closely re- ing companies may utilize this flexi-
lated to banking or managing or con- bility to provide new and creative ap-
trolling banks as to be a proper inci- proaches to the promotion of employ-
dent thereto: ment opportunities for low-income per-
(a) Insurance premium funding—that sons. Bank holding companies possess a
unique combination of financial and
is, the combined sale of mutual funds
managerial resources making them
and insurance.
particularly suited for a meaningful
(b) Underwriting life insurance that
and substantial role in remedying our
is not sold in connection with a credit social ills. Section 225.25(b)(6) is in-
transaction by a bank holding com- tended to provide an opportunity for
pany, or a subsidiary thereof. them to assume such a role.
(c) Real estate brokerage (see 1972 (b) Under the authority of
Fed. Res. Bulletin 428). § 225.25(b)(6), a bank holding company
(d) Land development (see 1972 Fed. may invest in community development
Res. Bulletin 429). corporations established pursuant to
(e) Real estate syndication. Federal or State law. A bank holding
(f) Management consulting (see 1972 company may also participate in other
Fed. Res. Bulletin 571). civic projects, such as a municipal


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Federal Reserve System § 225.127

parking facility sponsored by a local tate high-income housing, or commer-

civic organization as a means to pro- cial, office, or industrial facilities that
mote greater public use of the commu- are not designed explicitly to create
nity’s facilities. improved job opportunities for low-in-
(c) Within the category of permis- come persons shall be presumed not to
sible investments under § 225.25(b)(6) be designed primarily to promote com-
are investments in projects to con- munity welfare, unless there is sub-
struct or rehabilitate multifamily low- stantial evidence to the contrary, even
or moderate-income housing with re- though to some extent the investment
spect to which a mortgage is insured may benefit the community.
under section 221(d)(3), 221(d)(4), or 236 (f) Section 6 of the Depository Insti-
of the National Housing Act (12 U.S.C. tutions Disaster Relief Act of 1992 per-
1701) and investments in projects to mits state member banks (12 U.S.C.
construct or rehabilitate low- or mod- 338a) and national banks (12 U.S.C. 24
erate-income housing which is financed (Eleventh)) to invest in the stock of
or assisted by direct loan, tax abate- community development corporations
ment, or insurance under provisions of that are designed primarily to promote
State or local law, similar to the afore- the public welfare of low- and mod-
mentioned Federal programs, provided erate-income communities and persons
that, with respect to all such projects in the areas of housing, services and
the owner is, by statute, regulation, or employment. The Board and the Office
regulatory authority, limited as to the of the Comptroller of the Currency
rate of return on his investment in the
have adopted rules that permit state
project, as to rentals or occupancy
member banks and national banks to
charges for units in the project, and in
make certain investments without
such other respects as would be a
prior approval. The Board believes that
‘‘limited dividend corporation’’ (as de-
these rules are consistent with the
fined by the Secretary of Housing and
Board’s interpretation of, and decisions
Urban Development).
regarding, the scope of community wel-
(d) Investments in other projects
fare activities permissible for bank
that may be considered to be designed
holding companies. Accordingly, ap-
primarily to promote community wel-
proval received by a bank holding com-
fare include but are not limited to: (1)
Projects for the construction or reha- pany to conduct activities designed to
bilitation of housing for the benefit of promote the community welfare under
persons of low- or moderate-income, (2) section 4(c)(8) of the Bank Holding
projects for the construction or reha- Company Act (12 U.S.C. 1843(c)(8)) and
bilitation of ancillary local commer- § 225.25(b)(6) of the Board’s Regulation
cial facilities necessary to provide Y (12 CFR 225.25(b)(6)) includes ap-
goods or services principally to persons proval to engage, either directly or
residing in low- or moderate-income through a subsidiary, in the following
housing, and (3) projects designed ex- activities, up to five percent of the
plicitly to create improved job oppor- bank holding company’s total consoli-
tunities for low- or moderate-income dated capital stock and surplus, with-
groups (for example, minority equity out additional Board or Reserve Bank
investments, on a temporary basis, in approval:
small or medium-sized locally-con- (1) Invest in and provide financing to
trolled businesses in low-income urban a corporation or project or class of cor-
or other economically depressed areas). porations or projects that the Board
In the case of de novo projects, the previously has determined is a public
copy of the notice with respect to such welfare project pursuant to paragraph
other projects which is to be furnished 23 of section 9 of the Federal Reserve
to Reserve Banks in accordance with Act (12 U.S.C. 338a);
the provisions of § 225.23 should be ac- (2) Invest in and provide financing to
companied by a memorandum which a corporation or project that the Office
demonstrates that such projects meet of the Comptroller of the Currency pre-
the objectives of § 225.25(b)(6). viously has determined, by order or
(e) Investments in corporations or regulation, is a public welfare invest-
projects organized to build or rehabili- ment pursuant to section 5136 of the


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§ 225.129 12 CFR Ch. II (1–1–03 Edition)

Revised Statutes (12 U.S.C. 24 (Elev- ministration (SBA) for the Small Busi-
enth)); ness Investment Company and Develop-
(3) Invest in and provide financing to ment Company Programs or the SBA
a community development financial in- section 7A loan program; and specifi-
stitution pursuant to section 103(5) of cally include those businesses that are
the Community Development Banking majority-owned by members of minor-
and Financial Institutions Act of 1994 ity groups or by women.
(12 U.S.C. 4702(5)); (h) For purposes of paragraph (f) of
(4) Invest in, provide financing to, de- this section, five percent of the total
velop, rehabilitate, manage, sell, and consolidated capital stock and surplus
rent residential property if a majority of a bank holding company includes its
of the units will be occupied by low- total investment in projects described
and moderate-income persons or if the in paragraph (f) of this section, when
property is a ‘‘qualified low-income aggregated with similar types of in-
building’’ as defined in section 42(c)(2) vestments made by depository institu-
of the Internal Revenue Code (26 U.S.C. tions controlled by the bank holding
42(c)(2)); company. The term total consolidated
(5) Invest in, provide financing to, de- capital stock and surplus of the bank
velop, rehabilitate, manage, sell, and holding company means total equity
rent nonresidential real property or capital and the allowance for loan and
other assets located in a low- or mod- lease losses. For bank holding compa-
erate-income area provided the prop- nies that file the FR Y–9C (Consoli-
erty is used primarily for low- and dated Financial Statements for Bank
moderate-income persons; Holding Companies), these items are
(6) Invest in and provide financing to readily ascertained from Schedule
one or more small businesses located in HC—Consolidated Balance Sheet (total
a low- or moderate-income area to equity capital (line 27h) and allowance
stimulate economic development; for loan and lease losses (line 4b)). For
(7) Invest in, provide financing to, de- bank holding companies filing the FR
velop, and otherwise assist job training Y–SP (Parent Company Only Financial
or placement facilities or programs de- Statements for Small Bank Holding
signed primarily for low- and mod- Companies), an approximation of these
erate-income persons; items is ascertained from the Balance
(8) Invest in and provide financing to Sheet (total equity capital (line 16e))
an entity located in a low- or mod- and allowance for loan and lease losses
erate-income area if that entity cre- (line 3b)) and from the Report of Condi-
ates long-term employment opportuni- tion for Insured Banks (Schedule RC—
ties, a majority of which (based on full Balance Sheet (line 4b)).
time equivalent positions) will be held [37 FR 11316, June 7, 1972; 37 FR 13336, July 7,
by low- and moderate-income persons; 1972, as amended at Reg. Y, 59 FR 63713, Dec.
and 9, 1994]
(9) Provide technical assistance,
credit counseling, research, and pro- § 225.129 Activities closely related to
gram development assistance to low- banking.
and moderate-income persons, small Courier activities. The Board’s amend-
businesses, or nonprofit corporations ment of § 225.4(a), which adds courier
to help achieve community develop- services to the list of closely related
ment. activities is intended to permit holding
(g) For purposes of paragraph (f) of companies to transport time critical
this section, low- and moderate-income materials of limited intrinsic value of
persons or areas means individuals and the types utilized by banks and bank-
communities whose incomes do not ex- related firms in performing their busi-
ceed 80 percent of the median income ness activities. Such transportation ac-
of the area involved, as determined by tivities are of particular importance in
the U.S. Department of Housing and the check clearing process of the bank-
Urban Development. Small businesses ing system, but are also important to
are businesses that are smaller than the performance of other activities, in-
the maximum size eligibility standards cluding the processing of financially-
established by the Small Business Ad- related economic data. The authority


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