FRH6_20171208_omb

Supporting Statement for the
Notifications Related to Community Development and Public Welfare Investments by
State Member Banks Pursuant to Section 208.22 of Regulation H
(FR H-6; OMB No. 7100-0278)
Summary
The Board of Governors of the Federal Reserve System (Board), under delegated
authority from the Office of Management and Budget (OMB), proposes to extend for three years,
without revision, the Notifications Related to Community Development and Public Welfare
Investments by State Member Banks Pursuant to Section 208.22 of Regulation H (FR H-6; OMB
No. 7100-0278). Regulation H - Membership of State Banking Institutions in the Federal
Reserve System requires state member banks planning to make community development or
public welfare investments to comply with the following Regulation H notification requirements:
 If the investment does not require prior Board approval per 12 CFR 208.22(b), a written
notice must be sent to the appropriate Federal Reserve Bank per 12 CFR 208.22(c).
 If the investment does require prior Board approval per 12 CFR 208.22(d), a request for
approval must be sent to the appropriate Federal Reserve Bank.
 If the Board orders divestiture, but the bank cannot divest within the established time
limit, a request or requests for extension of the divestiture period must be submitted to
the appropriate Federal Reserve Bank per 12 CFR 208.22(e).
A model form and checklist are available that banks may, at their option, use to notify the
Reserve Banks of public welfare investments that do not require Board approval.1 The checklist
is available to assist banks with determining whether they must submit a request for prior
approval. The current burden associated with the notifications is estimated to be 400 hours.
Background and Justification
On December 7, 1994, the Board added to Regulation H a new section entitled
Community Development and Public Welfare Investments to implement a provision of the
Depository Institutions Disaster Relief Act of 1992. The statutory provision authorizes state
member banks to make investments designed primarily to promote the public welfare to the
extent permissible under state law and subject to regulation by the Board. Regulation H permits
state member banks to make certain public welfare investments without prior approval and to
make other public welfare investments with specific Board approval.
A state member bank may make a public welfare investment without prior approval so
long as the aggregate of such investments does not exceed five percent of the capital stock and
surplus of the state member bank, and:
 the investment (a) previously has been determined to be a public welfare investment by
the Board or the Office of the Comptroller of the Currency (OCC), (b) is in a community
development financial institution (CDFI) as defined in the Community Development
Banking and Financial Institutions Act of 1994, or (c) is in an entity established solely to
1

See www.federalreserve.gov/apps/reportforms/reporthistory.aspx?sOoYJ+5BzDazVuQfI4CjHQ==.

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engage in one or more of the following activities: developing low- and moderate-income
residential housing, developing nonresidential real estate in a low- or moderate-income
area that is targeted towards low- and moderate-income persons, developing small
business opportunities in a low- or moderate-income area, job training or placement for
low- and moderate-income persons, creating employment opportunities in a low- or
moderate-income area for low- and moderate-income persons, and providing technical
assistance and credit counseling to benefit community development;2
the investment is permitted by state law;
the investment is in a corporation, limited partnership, or other entity;
the investment does not expose the state member bank to liability beyond the amount of
the investment;
the bank is at least adequately capitalized and rated a composite CAMELS 1 or 2 and at
least, 1 or 2 in its last consumer compliance examination; and
the state member bank is not subject to any written agreement, cease and desist order,
capital directive, prompt corrective action directive, or memorandum of understanding
issued by the Board or a Reserve Bank acting under delegated authority.

If these conditions are not met, a state member bank must receive Board approval before
making an investment. In no event may aggregate public welfare investments exceed 10 percent
of the state member bank’s capital stock and surplus (12 U.S.C. 338a).
If a public welfare investment ceases to meet the statutory requirements or certain
regulatory requirements, the state member bank must divest itself of the investment to the extent
that the investment ceases to meet those requirements. Divestiture is not required if the
investment ceases to meet the non-statutory requirements concerning capital, examination
ratings, and enforcement actions. This divestiture is governed by the same requirements as
divestitures of interests acquired by a lending subsidiary of a bank holding company or a bank
holding company itself in satisfaction of a debt previously contracted (12 CFR 225.140). The
Board will monitor the efforts of the company to effect an orderly divestiture and may order
divestiture if supervisory concerns warrant such action.
Regulation H requires state member banks engaging in permissible public welfare and
community development investments to provide notice of such investments to the Federal
Reserve Bank of which it is a member. The regulation specifies that the notice, which may be
submitted on bank letterhead or on the optional FR H-6 model form, provide the amount of the
investment and identity of the entity in which the investment was made. In addition to this
information, banks typically describe the mission and service area of the entity in which the
investment was made and how the investment meets the definition of public welfare and
community development. Even though this information is not required by Regulation H,
Reserve Bank staff contact the investing bank to obtain such information to evaluate the
permissibility of the investment, imposing additional burden for both Reserve Bank staff and
bank management.
2

Regulation H uses the U.S. Department of Housing and Urban Development’s Chapter 69 Community
Development definition of low- and moderate-income persons and the U.S. Small Business Administration’s
definition of a small business.

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Information about the identity and amount of public welfare investments that
Regulation H requires the Board to collect is useful to the Community Affairs function of the
Federal Reserve System. The mission of the Federal Reserve’s Community Affairs Office
(CAO) is to support the Federal Reserve System’s economic growth objectives by promoting
community development and fair and impartial access to credit. Toward this end, the CAO of
each Reserve Bank develops specific projects and services to meet its regional market’s needs
for information relating to community development activities.
Description of Information Collection
There are three types of notification requirements in 12 CFR 208.22: (1) the public
welfare investment notice, (2) the request for prior approval, and (3) the request for extension of
the divestiture period. When a public welfare investment is made without prior approval, the
state member bank must notify its Federal Reserve Bank within 30 calendar days of the
investment, including the amount of the investment and the identity of the entity in which the
investment is made.
In 2002, a model form and checklist were adopted that banks could use, at their option, to
report the information required by Regulation H for investments that do not require prior Board
approval. The optional checklist is used to help banks determine whether they must submit a
request for prior approval. When a public welfare investment requires prior Board approval, the
state member bank must submit a request for approval to the appropriate Federal Reserve Bank.
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The request should include, at a minimum:
the amount of the proposed investment;
a description of the entity in which the investment is to be made;
an explanation of how the investment meets the statutory definition of a public welfare
investment;
a description of the state member bank’s potential liability under the proposed
investment;
the amount of the state member bank’s aggregate outstanding public welfare investments;
the amount of the state member bank’s capital stock and surplus; and
the reason(s) why the investment is ineligible to be made without prior approval.

When a public welfare investment exceeds the scope of, or ceases to meet, the public
welfare investment requirements, a state member bank must divest itself of that investment
within two years. Within the divestiture period it is expected that the state member bank will
make a good faith effort to dispose of the investment at the earliest practicable date. The Board
may, upon written request, extend the two-year period for up to three additional one-year
periods.
Time Schedule for Information Collection
The three notifications (public welfare investment notice, request for approval, and
request for extension of a divestiture period) are event generated. A state member bank must file
a notice with the appropriate Reserve Bank within 30 calendar days of making an investment that

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does not require prior approval. For investments requiring prior approval, the Board must act on
the request within 60 calendar days of receipt or notify the requesting state member bank that a
longer period of time will be required. If a state member bank fails to accomplish a required
divestiture within two years, it must file a request for extension. A bank may receive up to three
one-year extensions.
Legal Status
The Board’s Legal Division has determined that the public welfare investment notice,
request for approval, and request for extension of the divestiture period are authorized by the
Federal Reserve Act (12 U.S.C. 338a) and by the Board’s Regulation H (12 CFR 208.22). The
obligation of state member banks to make public welfare investments under both the Reserve
Bank post-notice and the Board’s prior approval procedure is mandatory. The request for
extension of the divestiture period is required to obtain a benefit.
Individual respondent data generally are not regarded as confidential. However, a bank
that submits confidential proprietary information may request confidential treatment of that
information pursuant to section (b)(4) of the Freedom of Information Act (FOIA)
(5 U.S.C. 552(b)(4)), and the information will be accorded confidential treatment if the
institution can establish the potential for substantial competitive harm under the standards set
forth in National Park and Conservation Association v. Morton, 498 F.2d 765 (D.C. Cir.1974).
Such a determination would be made on a case-by-case basis in response to a specific request for
disclosure. If examination ratings are included in a submission, those will be considered
confidential under exemption 8 of the FOIA (5 U.S.C. § 552(b)(8)).
Consultation Outside the Agency
Given that most community development entities obtain funding from a variety of local
and regional financial institutions, Board staff consults with other agencies’ staff to discuss
applications relating to such investments, as appropriate. On August 11, 2017, the Board
published an initial notice in the Federal Register (82 FR 37589) requesting public comment for
60 days on the proposal to extend, without revision, the FR H-6. The comment period for this
notice expired on October 10, 2017. The Board did not receive any comments. On November 2,
2017, the Board published a final notice in the Federal Register (82 FR 50871) and the
information collection will be extended as proposed.
Estimate of Respondent Burden
The annual reporting burden imposed on all institutions for the public welfare investment
notice, the request for prior approval, and the request for extension of the divestiture period is
400 hours as shown in the table below. The estimated number of respondents listed in the table
below is based on the number of requests and notices received by the Federal Reserve in 2016.
These reporting requirements for the FR H-6 represent less than 1 percent of total Federal
Reserve System paperwork burden.

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Number of
respondents3

FR H-6
Investment notice
Application (Prior approval)
Extension of divestiture period

20
71
1

Annual
frequency

Estimated
average hours
per response

1
1
1

2
5
5

Total

Estimated
annual burden
hours
40
355
5
400

The total cost to the public for these reports is estimated to be $29,400.4
Sensitive Questions
This information collection contains no questions of a sensitive nature, as defined OMB
guidelines.
Estimate of Cost to the Federal Reserve System
The annual costs associated with providing the instructions for and processing the
investment notice, request for prior approval, and request for extension of the divestiture period
are minimal. The Federal Reserve does not incur any mailing or printing cost in administering
these requirements.

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Of these respondents, none are considered small entities as defined by the Small Business Administration (i.e.,
entities with less than $550 million in total assets) www.sba.gov/contracting/getting-started-contractor/make-sureyou-meet-sba-size-standards/table-small-business-size-standards.
4
Total cost to the public was estimated using the following formula: percent of staff time, multiplied by annual
burden hours, multiplied by hourly rates (50% Financial Managers at $67, 25% Lawyers at $67, and 25% Chief
Executives at $93). Hourly rate for each occupational group are the (rounded) mean hourly wages from the Bureau
of Labor and Statistics (BLS), Occupational Employment and Wages May 2016, published March 31, 2017,
www.bls.gov/news.release/ocwage.nr0.htm. Occupations are defined using the BLS Occupational Classification
System, www.bls.gov/soc/.

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