FRH6_201412_omb

Supporting Statement for the Notifications Related to Community Development and
Public Welfare Investments of State Member Banks
(FR H-6; OMB No. 7100-0278)
Summary
The Board of Governors of the Federal Reserve System, 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 of State
Member Banks (FR H-6; OMB No. 7100-0278). Regulation H requires state member banks
planning to make community development or public welfare investments to comply with the
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; and
 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 182 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 Comptroller of the Currency, (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 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
1

http://www.federalreserve.gov/reportforms/forms/FR_H-620110930_f.pdf

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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 USC 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 in their district. 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.
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
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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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: the public welfare
investment notice, the request for prior approval, and 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 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.
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 days of making an investment that does not
require prior approval. For investments requiring prior approval, the Board must act on the
request within 60 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
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two years, it must file a request for extension. A bank may receive up to three one-year
extensions.
The Board follows the retention requirements for reports set forth by an agreement with the
National Archives and Records Administration on March 28, 2001. Accordingly, The Federal
Reserve Bank should retain reports for the current year plus five years.
Sensitive Questions
There are no questions of a sensitive nature, as defined by the Office of Management and
Budget (OMB) guidelines.
Consultation Outside the Agency
On September 24, 2014, the Federal Reserve published a notice in the Federal Register (79
FR 57101) requesting public comment for 60 days on the extension, without revision, of the FR
H-6 notification requirements. The comment period for this notice expired November 24, 2014.
The Federal Reserve did not receive any comments. On December 15, 2014, the Federal
Reserve published a final notice in the Federal Register (79 FR 74088).
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 C.F.R. § 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 & Conservation Ass’n v.
Morton, 498 F.2d 765 (D.C. Cir.1974). Such a determination would be made on a case-by-case
in response to a specific request for disclosure. If examination rations are included in a
submission, those will be considered confidential under exemption 8 of the FOIA, 5 U.S.C. §
552(b)(8).
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
182 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 2013.
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The reporting requirements for the FR H-6 represent less than 1 percent of total Federal Reserve
System annual reporting burden.
Estimated
number of
respondents3

Estimated
annual
frequency

Estimated
average hours
per response

FR H-6 Post Notification
16
1
2
Application (Prior Approval)
29
1
5
Extension of divestiture period
1
1
5
Total
46
The total annual cost to the public for these reports is estimated to be $12,331.4

Estimated
total annual
burden hours
32
145
5
182

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.

3

Of these respondents, none are small entities as defined by the Small Business Administration (i.e., entities with
less than $550 million in total assets) www.sba.gov/content/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 $61, 25% Lawyers at $63, and 25% Chief
Executives at $86). Hourly rate for each occupational group are the (rounded) mean hourly wages from the Bureau
of Labor and Statistics (BLS), Occupational Employment and Wages 2013,
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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