New Markets Tax Credit and Public Welfare Investments

May 13, 2019

The Board of Governors of the Federal Reserve System ("Board") has issued CA 19-11 to inform financial institutions that it recently considered the requirements of the Department of the Treasury’s New Markets Tax Credit ("NMTC") Program2 and determined that a NMTC-eligible investment, directly or indirectly, as defined by Section 45D(c)(1) of the IRS Code, fits within the meaning of the Public Welfare Investment (PWI) provision (Section 9[23] of the Federal Reserve Act).

A state member bank (“SMB”) under Section 9 (23) of the Federal Reserve Act may make investments directly or indirectly, that are designed primarily to promote the public welfare. These investments include promoting the welfare of low- and moderate-income communities or families (such as by providing housing, services, or jobs), to the extent permissible under state law. Moreover, an SMB shall not make any such investment if the investment would expose the state member bank to unlimited liability. Accordingly, SMBs are authorized to make investments qualifying for the NMTC Program, as long as those investments comply with all other laws and regulations that SMBs must follow.

For SMBs, the Board’s Regulation H establishes guidance for public welfare investments. The Treasury Department’s Community Development Financial Institutions Fund certifies and awards NMTC allocations to qualified Community Development Entities (“CDEs”), the primary mission of which must be to serve or provide investment capital for low-income communities (“LICs”). Generally, entities that make an equity investment in a qualified CDE are eligible to receive NMTCs if the qualified CDE uses substantially all of the cash it receives to invest in businesses located in or serving LICs.

For questions or additional clarification on this CA Letter or for more information on the Community Reinvestment Act, contact


1 See this link. Consumer Affairs letters address significant policy and procedural matters related to the Federal Reserve System's consumer compliance supervisory responsibilities. The letters are sent to banking supervision staff at the Board and the Reserve Banks and, in some instances, to supervised banking organizations.

2 See this link. The NMTC Program attracts private capital into low-income communities by permitting individual and corporate investors to receive a tax credit against their federal income tax in exchange for making equity investments in specialized financial intermediaries called Community Development Entities (CDEs). CDEs are domestic corporations or partnerships that serve as an intermediary for the provision of loans, investments, or financial counseling in low-income communities.


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