View PDF

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

F ed er a l Reser ve Ba n k o f Dallas

DALLAS, TEXAS

75222
C irc u la r No. 76-44
March 25, 1976

American Revolution Bicentennial

INTERPRETATION OF REGULATION Y
Escrow A rrang em ent Involving Bank Stock
Resulting in a Violation of the Bank Holding Company Act

TO A L L BANKS, BANK HOLDING COMPANIES,
AND OTHERS CONCERNED IN THE
ELEVENTH FEDERAL RESERVE D ISTR IC T:
The Board of G overnors of the Federal Reserve System has issued
an interpretation of Regulation Y — Bank Holding Companies— finding that the
m anner in which a company structured an escrow agreement involving bank
stock resulted in a violation of the Bank Holding Company A ct. T h e in te rp re ­
tation is p rin te d on the reverse of this page.
If you have any questions reg ard in g this in te rp re tatio n , please
contact R ichard H. Peeples of our Regulations D e p a rtm e n ta l (214) 651-6169.
Additional copies of the interpretation of Regulation Y w ill be f u r ­
nished upon request to the S ecretary's Office of this Bank.
S in ce re ly yo u rs ,
T . W. Plant
F irs t V ic e President

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

BANK HOLDING COMPANIES

INTERPRETATION OF REGULATION Y

S E C T IO N 225.134 — E SC R O W A R R A N G E ­
M E N T S IN V O L V IN G B A N K STO CK
R E S U L T IN G IN A V IO L A T IO N O F T H E
B A N K H O L D IN G C O M P A N Y A C T .
In connection w ith a recent application to be­
com e a b ank holding com pany, the B oard con­
sidered a situation in w hich shares of a b an k were
acquired and then placed in escrow by the appli­
cant p rio r to the B oard’s approval o f th e applica­
tion. T he facts indicated th at the applicant com ­
pany had incurred debt for the purpose of
acquiring b an k shares and im m ediately after the
purchase the shares w ere transferred to an u n ­
affiliated escrow agent w ith instructions to retain
possession o f th e shares pending Board action on
the com pany’s application to becom e a bank
holding com pany. T he escrow agreem ent provided
that, if the application w ere approved by the
Board, th e escrow agent was to retu rn the shares
to the applicant com pany; and, if the application
w ere denied, th e escrow agent was to deliver the
shares to the applicant com pany’s shareholders
upon their assum ption of debt originally incurred
by the applicant in the acquisition o f the bank
shares. In addition, the escrow agreem ent provided
that, while the shares w ere held in escrow, the ap­
plicant could not exercise voting o r any oth er
ownership rights with respect to those shares.

2-26-76

On the basis of the above facts, the B oard con­
cluded that the com pany h ad violated the prior
approval provisions o f section 3 of the B ank H o ld ­
ing C om pany A ct ( “A ct” ) at the tim e th a t it made
the initial acquisition of bank shares and that, fo r
purposes o f the A ct, the com pany continued to
control those shares in violation o f the A ct. In
view o f these findings, individuals and b an k hold­
ing com panies should n o t enter into escrow a r­
rangem ents of the type described herein, o r any
sim ilar arrangem ent, w ithout securing the p rior
approval of the Board, since such action could
constitute a violation of th e Act.
W hile the above represents the B oard’s conclu­
sion with respect to the particular escrow arran ge­
m ent involved in the proposal presented, the B oard
does not believe th at the use o f an escrow arrange­
m ent w ould always result in a violation o f the
Act. F o r example, it appears th a t a transaction
whereby ban k shares are placed in escrow pending
B oard action on an application w ould not involve
a violation of the A ct so long as title to such
shares rem ains with the seller during the pendency
of th e application; there are no other indicia th at
the applicant controls the shares held in escrow;
and, in the event of a B oard denial o f the applica­
tion, the escrow agreem ent provides th a t th e shares
would be returned to th e seller.

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