Regulatory Overview

Involvement of Regulated Depository Institutions

Financial institutions regulated by the Federal Reserve are authorized to make certain equity and debt investments in corporations or projects that are primarily designed to promote community welfare, such as the redevelopment of lower-income areas and services to support lower-income populations.

State member banks, bank holding companies, and financial holding companies are well suited to play a meaningful and substantial role in supporting community development activities because of their unique combination of financial and managerial resources. These institutions are a vital source of funding, and through direct investment in organizations and projects, they can help further community economic development in low- and moderate-income neighborhoods and increase opportunities for lower-income populations.

The regulations governing state member banks, bank holding companies, and financial holding companies permit creativity and flexibility in the ways financial institutions can identify opportunities that address a local community's social and economic challenges. However, community welfare projects generally address the housing, employment, service, and small business development needs of low- and moderate-income areas and populations.

Summary of the Notice and Approval Requirements for Financial Institutions Regulated by the Federal Reserve

In making community development investments, state member banks, bank holding companies, and financial holding companies must comply with applicable notice and approval requirements. In some instances, the investing financial institution must obtain the Board's approval before making such investments (referred to in the regulations as "prior approval"). In other instances, the institution does not need to seek prior regulatory approval, but must still give notice to the Board before or after making such an investment (referred to in the regulations as "investments not requiring prior Board approval"; "expedited processing"; or "post-transaction notice"). For general guidance on these notice and approval requirements, review the following regulations.

  • State member banks: 12 C.F.R. 208.22
  • Bank holding companies: 12 C.F.R. 225.22 through 225.26 and 225.127
  • Financial holding companies: 12 C.F.R. 225.81 and 225.87

Citations for Legal Authority and Regulatory Procedures

Links to the online text of the principal statutes and regulations pertinent to community development and public welfare investments by financial institutions are provided in the next section. Please note that this is not an exhaustive list. Depending on the type of investment or institution, other statutes and regulations may be relevant, as well as safety and soundness considerations or other factors.

State member banks

Bank holding companies and financial holding companies

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Last Update: May 12, 2014