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F ederal

reserve

bank

DALLAS, TEXAS

of

Dallas

75222

Circular No. "jk^kk
October 2, 197^-

INTERPRETATION OF REGULATION Y
(The Acquisition of Assets of a Going Concern)

To All Banks, Bank Holding Companies, and Others
Concerned in the Eleventh Federal Reserve District:

The Board of Governors of the Federal Reserve System issued
on September 13, 197^» an interpretation of Regulation Y regarding
situations in which the acquisition of assets of a going concern by
a bank holding company or its Section U(c)(8 ) nonbank subsidiary
might require prior Board approval.
The interpretation is printed on the reverse of this
circular.
Yours very truly,
P. E. Coldwell,
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
IN TERPRETATIO N O F REGULATION Y

Section 225.132. Acquisition of assets. — From
time to time questions have arisen as to whether
and under what circumstances a bank holding
company engaged in nonbank activities, directly
or indirectly through a subsidiary, pursuant to
§ 4 (c )( 8 ) of the Bank Holding Company Act of
1956, as amended (12 U.S.C. 1 8 4 3 (c )(8 )), may
acquire the assets and hire employees of another
company, without first obtaining Board approval
pursuant to § 4 ( c )( 8 ) and the Board’s Regulation
Y (12 CFR 2 2 5 .4 (b )).
In determining whether Board approval is re­
quired in connection with the acquisition of assets,
it is necessary to determine (a) whether the acqui­
sition is made in the ordinary course of business1
or (b) whether it constitutes the acquisition, in
whole or in part, of a going concern.2
The following examples illustrate transactions
where prior Board approval will generally be
required:
1. The transaction involves the acquisition of
all or substantially all of the assets of a company,
or a subsidiary, division, department or office
thereof.
2. The transaction involves the acquisition of
less than “substantially all” of the assets of a

1 Section 2 2 5 . 4 ( c ) ( 3 ) o f th e B oard ’s R egu lation Y (1 2 C F R
2 2 5 . 4 ( c ) ( 3 ) ) generally prohibits a bank h olding com p an y or its
subsidiary engaged in activities pursuant to authority o f § 4 ( c ) ( 8 )
o f th e A ct from being a party to any merger “or acquisition o f
assets other than in the ordinary course o f b usin ess” w ithout
prior Board approval.
2 In accordance w ith the provisions o f § 4 ( c ) ( 8 ) o f th e A ct and
§ 2 2 5 .4 (b ) o f R egulation Y , the acq u isition o f a goin g concern
requires prior B oard approval.

company, or a subsidiary, division, department or
office thereof, the operations of which are being
terminated or substantially discontinued by the
seller, but such asset acquisition is significant in
relation to the size of the same line of nonbank
activity of the holding company (e.g., consumer
finance, mortgage banking, data processing). For
purposes of this interpretation, an acquisition
would generally be presumed to be significant if
the book value of the nonbank assets being
acquired exceeds 20 per cent of the book value
of the nonbank assets of the holding company
or nonbank subsidiary comprising the same line
of activity.
3. The transaction involves the acquisition of
assets for resale and the sale of such assets is not
a normal business activity of the acquiring holding
company.
4. The transaction involves the acquisition of
the assets of a company, or a subsidiary, division,
department or office thereof, and a major purpose
of the transaction is to hire some of the seller’s
principal employees who are expert, skilled and
experienced in the business of the company being
acquired.
In some cases it may be difficult, due to the wide
variety of circumstances involving possible acqui­
sition of assets, to determine whether such acqui­
sitions require prior Board approval. Bank hold­
ing companies are encouraged to contact their
local Reserve Bank for guidance where doubt
exists as to whether such an acquisition is in the
ordinary course of business or an acquisition, in
whole or in part, of a going concern.

9/13/74

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