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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)

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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

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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]


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102