Investment Authority and Procedures for Financial Institutions Regulated by the Federal Reserve
Application and notice requirements by type of financial institution making the application
- State member banks: Regulation H, 12 C.F.R. 208.22
- Bank holding companies and financial holding companies: Regulation Y, 12 C.F.R. 225
The extent to which financial institutions may make community development investments varies according to the condition and type of institution, the amount and nature of the proposed investment, and other such factors. These factors also determine the application and notice requirements, if any, with which a financial institution must comply to make such an investment. Staff members at the Board and the Federal Reserve Banks are available to assist financial institutions with understanding the ways that these factors apply to an institution's particular circumstances. For further information, contact the Community Affairs Office of the Federal Reserve Bank nearest you.
State Member Banks
State member banks are authorized under 12 U.S.C. 338a to make public welfare and community development investments under certain conditions, including limits on the aggregate amount of such investments that a bank may make. The Board's Regulation H (Membership of State Banking Institutions in the Federal Reserve System), 12 C.F.R. 208 is the principal federal regulation that governs the powers and activities of state member banks. These activities are also subject to relevant state law.
- 12 U.S.C. 338a
- 12 C.F.R. 208
Regulation H, section 208.22 defines specific requirements for state member banks to make community development and public welfare investments, including the Board's prior approval and non-prior approval requirements applicable in various circumstances.
In some instances, a state member bank that is well capitalized and well managed may be eligible to make community development investments without prior approval of the Board, and may be eligible to use form FR H-6, Notice of Public Welfare Investments by State Member Banks to the Federal Reserve System, to report such investments.
- FR H-6: Notice of Public Welfare Investments by State Member Banks to the Federal Reserve System (38 KB PDF)
Bank holding companies and financial holding companies derive their legal authority to engage in nonbanking activities, including investing in community development and public welfare companies or projects, from section 4 of the Bank Holding Company Act, 12 U.S.C. 1843.
- Bank Holding Company Act, section 4, 12 U.S.C. 1843
Regulation Y (Bank Holding Companies and Change in Bank Control) 12 C.F.R. 225 is the principal federal regulation that governs the powers and activities of bank holding companies and financial holding companies. Sections 225.28(b)(12), Permissible Nonbanking Activities, and 225.127, Investment in Corporations or Projects Designed Primarily to Promote Community Welfare, specifically pertain to community development and public welfare investments by bank holding companies and financial holding companies.
However, different notification requirements and investment limitations apply to financial holding companies (section 225.87) and bank holding companies (sections 225.23 and 225.24) that engage in community development activities. In general, financial holding companies seeking to make community development investments must comply with the post-transaction notice requirements of section 225.87 of Regulation Y. These post-transaction notice requirements generally are applicable to all financial activities engaged in by financial holding companies. In some instances, bank holding companies that are not financial holding companies but that are well capitalized and well managed may be able to use the non-prior approval or expedited procedures of sections 225.22 or 225.23 of Regulation Y. In other instances, bank holding companies may be required to obtain the Board's prior approval pursuant to section 225.24 of Regulation Y before making community development investments.
There may be other supervisory matters that management of a financial institution should consider regarding these investments. Institutions interested in understanding the regulatory implications of investing in permissible community development investments should contact the Federal Reserve Bank in their District.
See section 225.23(c)(1)
See section 225.23(c)(2)
- Level of aggregate investments in community development investments
See section 225.127(f)
- Total consolidated capital stock and surplus
See section 225.127(h)
- Section 225.24