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Federal reserve Ba n k DALLAS, TEXA S of Dallas 75222 Circular No. 80-157 August 14, 1980 INTERPRETATION OF REGULATION Y BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL Bank Holding Companies—Operations Subsidiaries TO ALL MEMBER BANKS, BANK HOLDING COMPANIES, AND OTHERS CONCERNED IN THE ELEVENTH FEDERAL RESERVE DISTRICT: The Board of Governors of the Federal Reserve System has issued an interpretation which allows bank holding companies to establish, without the Board's approval, an operations subsidiary to perform services for the bank holding company and its banking and nonbanking subsidiaries. This interpretation applies only to those services that the bank holding company could perform directly through a division or department. The new rule becam e e ffe c tiv e August 11, 1980. The Board's Order, as published in the Federal R egister, is printed on the following pages. Any questions concerning the interpretation should be directed to the Attorney's Section of our Holding Company Supervision Department, Ext. 6182. Additional copies of the document will be furnished upon request to the Bank and Public Information Department of this Bank, Ext. 6266. Sincerely yours, Robert H. Boykin First Vice President Banks and others are encouraged to use the following incoming W ATS numbers in contacting this Bank: 1-800-442-7140 (intrastate) and 1-800-527-9200 (interstate). For calls placed locally, please use 651 plus the extension referred to above. This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) FEDERALRESERVEpressrelease ••r^LRtsv. FEDERAL RESERVE SYSTEM 12 CFR Part 225 [Regulation Y, Docket No. R-0322] Bank Holding Companies; Operations Subsidiaries AGENCY: Board of Governors of the Federal Reserve System. ACTION: Final Interpretation. SUMMARY: This interpretation provides that a bank holding company may form a subsidiary to perform services for its subsidiaries that the bank holding company could perform directly through a division or depart ment. EFFECTIVE DATE: August 11, 1980. FOR FURTHER INFORMATION CONTACT: Bronwen Mason, Senior Attorney (202/452 3564), or Jennifer J. Johnson, Senior Attorney (202/452-3584), Legal Division, Board of Governors of the Federal Reserve System, Washington, D. C. 20551. SUPPLEMENTARY INFORMATION: 12 CFR Part 225 is amended by adding a new section 225.141 to read as follows: 225.141 Operations subsidiaries of a bank holding company. In orders approving the retention by a bank holding company of a 4(c)(8) subsidiary, the Board has stated that it would permit, without any specific regulatory approval, the formation of a whollyowned subsidiary of an approved 4(c)(8) company to engage in activities that such a company could itself engage in directly through a division or department. (Northwestern Financial Corporation, 65 Federal Reserve Bulletin 566 (1979).) Section 4(a)(2) of the Act provides generally that a bank holding company may engage directly in the business of managing and controlling banks and permissible nonbank activities, and in furnishing services directly to its subsidiaries. Even though section 4 of the Act generally prohibits the acquisition of shares of nonbanking organizations, the Board does not believe that such prohibition should apply to the formation by a holding company of a wholly-owned subsidiary to engage in activities that it could engage in directly. Accordingly, as a general matter, the Board will permit without any regulatory approval -2 - a bank holding company to form a wholly-owned subsidiary to perform servicing activities for subsidiaries that the holding company itself could perform directly or through a department or a division under section 4 ( a ) (2) of the Act. The Board believes that permitting this type of subsidiary is not inconsistent with the nonbanking prohibitions of section 4 of the Act, and is consistent with the authority in section 4(c)(1)(C) of the Act, which permits a bank holding company, without regulatory approval, to form a subsidiary to perform services for its banking subsidiaries. The Board notes, however, that a servicing sub sidiary established by a bank holding company in reliance on this inter pretation will be an affiliate of the subsidiary bank of the holding company for the purposes of the lending restrictions of section 23A of the Federal Reserve Act. (12 U.S.C. 371c) The Board has issued this interpretation pursuant to its statutory authority under sections 4(a)(2) and 5(b) of the Bank Holding Company Act, 12 U.S.C. §§ 1843(a)(2) and 1844(b). By order of the Board of Governors of the Federal Reserve System effective August 7, 1980. (Signed) Theodore E. Allison Theodore E. Allison Secretary of the Board [SEAL]