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l l★K

Federal Reserve Bank
of Dallas

February 4, 2000

DALLAS, TEXAS
75265-5906

Notice 2000-09
TO: The Chief Executive Officer of each
financial institution and others concerned
in the Eleventh Federal Reserve District

SUBJECT
Interim Rule and Request for
Public Comment on Regulation Y
(Bank Holding Companies and Change in Bank Control)
DETAILS
The Board of Governors of the Federal Reserve System has adopted on an interim
basis and requested public comment on a rule that establishes procedures for bank holding
companies and some foreign banks to elect to become financial holding companies.
The interim rule, effective March 11, 2000, includes amended definitions of terms in
existing Subpart A that are applicable to the new Subpart. The Board is promulgating this rule to
implement provisions of the recently enacted Gramm-Leach-Bliley Act that enables bank holding companies and foreign banks that meet applicable statutory requirements to become financial
holding companies and thereby engage in a broader range of financial and other activities than
are permissible for bank holding companies.
The Board must receive comments by March 27, 2000. Please address comments to
Jennifer J. Johnson, Secretary, Board of Governors of the Federal Reserve System, 20th Street
and Constitution Avenue, N.W., Washington, DC 20551. All comments should refer to Docket
No. R-1057.
ATTACHMENT
A copy of the Board’s notice as it appears on pages 3785–94, Vol. 65, No. 16 of the
Federal Register dated January 25, 2000, is attached.

For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal
Reserve Bank of Dallas: Dallas Office (800) 333-4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012;
Houston Branch Intrastate (800) 392-4162, Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810.

-2-

MORE INFORMATION
For more information, please contact Rob Jolley, Banking Supervision Department,
(214) 922-6071. For additional copies of this Bank’s notice, contact the Public Affairs Department at
(214) 922-5254 or access our web site at http://www.dallasfed.org/banking/notices/index.html.

Federal Register / Vol. 65, No. 16 / Tuesday, January 25, 2000 / Rules and Regulations

3785

FEDERAL RESERVE SYSTEM
12 CFR Part 225
[Regulation Y; Docket No. R–1057]

tt

Bank Holding Companies and Change
in Bank Control
AGENCY: Board of Governors of the
Federal Reserve System.
ACTION: Interim rule with request for
public comments.
SUMMARY: The Board of Governors of the
Federal Reserve System is adopting on
an interim basis effective March 11,
2000, and soliciting comment on a rule
that establishes procedures for bank
holding companies as well as foreign
banks that operate a branch, agency, or
commercial lending company in the
United States to elect to become
financial holding companies. The
interim rule includes amended
definitions of terms in existing Subpart
A that are applicable to the new
Subpart. The Board is promulgating this
rule to implement provisions of the
recently enacted Gramm-Leach-Bliley
Act that enable bank holding companies
and foreign banks that meet applicable
statutory requirements to become
financial holding companies and
thereby engage in a broader range of
financial and other activities than are
permissible for bank holding
companies.
The new Subpart sets forth the
procedures by which bank holding
companies and foreign banks may
submit to the Board an election to
become a financial holding company
and describes the period in which the
Board will act on financial holding
company elections. This Subpart also
enumerates the criteria that bank
holding companies and foreign banks
must meet in order to qualify as a
financial holding company. In addition,
the newly added sections set forth the
limitations that the Board will apply to
financial holding companies that fail to
maintain compliance with applicable
capital, management, and CRA criteria.

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Federal Register / Vol. 65, No. 16 / Tuesday, January 25, 2000 / Rules and Regulations

The Board has promulgated this
Subpart on an interim basis, effective on
March 11, 2000, in order to allow bank
holding companies and foreign banks
that meet applicable qualifications to
become financial holding companies as
soon as possible following the effective
date of the relevant provisions of the
Gramm-Leach-Bliley Act. The Board
will allow bank holding companies and
foreign banks to file elections in
anticipation of the effective date of the
Act and the interim rule and will review
elections as promptly as possible after
the effective date. The Board anticipates
that as soon as March 13, 2000, the
Board will begin notifying qualifying
companies that elections filed in
accordance with the interim rule are
effective. This will enable companies
that the Board determines qualify as
financial holding companies to take
advantage of the new powers granted by
the Gramm-Leach-Bliley Act as early as
March 13, 2000, which is the first
business day following the effective date
of the financial holding company
provisions of the Act.
The Board solicits comments on all
aspects of the interim rule and will
amend the rule as appropriate in
response to comments received.
DATES: This interim rule is effective on
March 11, 2000. Comments must be
received by March 27, 2000.
ADDRESSES: Comments should refer to
docket number R–1057 and should be
sent to Ms. Jennifer J. Johnson,
Secretary, Board of Governors of the
Federal Reserve System, 20th Street and
Constitution Avenue, N.W.,
Washington, D.C. 20551. Comments
addressed to Ms. Johnson also may be
delivered to the Board’s mail room
between the hours of 8:45 a.m. and 5:15
p.m. and, outside of those hours, to the
Board’s security control room. Both the
mail room and the security control room
are accessible from the Eccles Building
courtyard entrance, located on 20th
Street between Constitution Avenue and
C Street, N.W. Members of the public
may inspect comments in Room MP–
500 of the Martin Building between 9:00
a.m. and 5:00 on weekdays.
FOR FURTHER INFORMATION CONTACT:
Thomas M. Corsi, Managing Senior
Counsel (202/452–3275), Ann E.
Misback, Managing Senior Counsel
(202/452–3788), Christopher W. Clubb,
Counsel (202/452–3904), or Adrianne G.
Threatt, Attorney (202/452–3554), Legal
Division; Betsy Cross, Assistant Director
(202/452–2574) or Melissa W. Clark,
Manager, Global/International
Applications (202/452–2277), Division
of Banking Supervision and Regulation;
Board of Governors of the Federal

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Reserve System, 20th Street and
Constitution Avenue, N.W.,
Washington, D.C. 20551.
SUPPLEMENTARY INFORMATION:
Background
Title I of the Gramm-Leach-Bliley Act
(Pub. L. No. 106–102, 113 Stat. 1338
(1999)) repeals sections 20 and 32 of the
Glass-Steagall Act (12 U.S.C. §§ 377 and
78, respectively) and is intended to
facilitate affiliations among banks,
securities firms, insurance firms, and
other financial companies. To further
this goal, the Gramm-Leach-Bliley Act
amends section 4 of the Bank Holding
Company Act (12 U.S.C. § 1843) (‘‘BHC
Act’’) to authorize bank holding
companies and foreign banks that
qualify as ‘‘financial holding
companies’’ to engage in securities,
insurance and other activities that are
financial in nature or incidental to a
financial activity. The activities of bank
holding companies and foreign banks
that are not financial holding companies
would continue to be limited to
activities authorized currently under the
BHC Act, such as activities that the
Board previously has determined in
regulations and orders issued under
section 4(c)(8) of the BHC Act to be
closely related to banking and
permissible for bank holding
companies.
The Gramm-Leach-Bliley Act defines
a financial holding company as a bank
holding company that meets certain
eligibility requirements. In order for a
bank holding company to become a
financial holding company and be
eligible to engage in the new activities
authorized under the Gramm-LeachBliley Act, the Act requires that all
depository institutions controlled by the
bank holding company be well
capitalized and well managed. With
regard to a foreign bank that operates a
branch or agency or owns or controls a
commercial lending company in the
United States, the Act requires the
Board to apply comparable capital and
management standards that give due
regard to the principle of national
treatment and equality of competitive
opportunity.
To become a financial holding
company, the Gramm-Leach-Bliley Act
requires a bank holding company to
submit to the Board a declaration that
the company elects to be a financial
holding company and a certification
that all of the depository institutions
controlled by the company are well
capitalized and well managed. The Act
also provides that a bank holding
company’s election to become a
financial holding company will not be
effective if the Board finds that, as of the

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date the company submits its election to
the Board, not all of the insured
depository institutions controlled by the
company have achieved at least a
‘‘satisfactory’’ rating at the most recent
examination of the institution under the
Community Reinvestment Act (12
U.S.C. § 2903 et seq.) (‘‘CRA’’).
The Gramm-Leach-Bliley Act grants
the Board discretion to impose
limitations on the conduct or activities
of any financial holding company that
controls a depository institution that
does not remain both well capitalized
and well managed following the
company’s election to be a financial
holding company. The Act also requires
the Board to prohibit a financial holding
company from commencing additional
activities under new subsection 4(k) or
4(n) of the BHC Act, or from acquiring
control of companies engaged in such
activities, if any insured depository
institution controlled by the company
fails to maintain at least a satisfactory
CRA rating.
Interim Rule
In order to implement the provisions
of the Gramm-Leach-Bliley Act
governing the creation and conduct of
financial holding companies, the Board
is amending its Regulation Y by adding
a Subpart I that (a) defines the term
‘‘financial holding company’’ and
establishes procedures by which a bank
holding company may become a
financial holding company; (b)
enumerates the criteria a bank holding
company must meet in order for the
Board to determine that an election is
effective and describes the period
within which the Board will act on an
election; (c) sets forth the consequences
if any depository institution controlled
by a financial holding company fails to
remain well capitalized and well
managed, or if any insured depository
institution controlled by the financial
holding company fails to maintain at
least a satisfactory CRA rating; and (d)
specifically addresses procedures and
requirements applicable to foreign
banking organizations that seek to be
treated as financial holding companies.
The Board welcomes comment on all
parts of the interim rule.
Section 225.81 What is a Financial
Holding Company?
The Gramm-Leach-Bliley Act defines
a financial holding company as a bank
holding company that meets certain
specific requirements. In accordance
with the Act, section 225.81 provides
that, in order to qualify as a financial
holding company, all depository
institutions controlled by the company
at the time of the election must be and

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Federal Register / Vol. 65, No. 16 / Tuesday, January 25, 2000 / Rules and Regulations
remain well capitalized and well
managed, and the company must have
made an effective election to become a
financial holding company as described
in section 225.82. The definition of the
terms ‘‘well capitalized’’ and ‘‘well
managed’’ are described below and are
based on specific capital levels and
examination ratings.
Section 225.82 How Does a Company
Elect to Become a Financial Holding
Company?
Subsection (a) provides that a bank
holding company wishing to become a
financial holding company must file a
written declaration with the Board
stating that the bank holding company
elects to be a financial holding
company. The Board envisions that a
company’s election to become a
financial holding company could be a
short and simple document signed by an
official or representative with authority
to bind the company. Subsection (b) sets
forth the information required as part of
a declaration, which is limited to
information about the location and
capital position of each of the
depository institutions controlled by the
company, and a certification that each
such institution is both well capitalized
and well managed as of the date the
election is filed.
The Gramm-Leach-Bliley Act
provides that an election to be a
financial holding company is ineffective
if the Board finds, within a specified
period, that any insured depository
institution controlled by the bank
holding company (other than a recently
acquired institution) does not have at
least a satisfactory CRA performance
rating. Subsection (c) implements this
provision. The interim rule also
provides that an election is ineffective if
the Board finds during this period that
any depository institution controlled by
the bank holding company is not well
managed and well capitalized, as these
terms are objectively defined, as of the
date of the election.
The Board recognizes that there may
be instances in which a bank holding
company meets the statutory
requirements to be a financial holding
company but on a consolidated basis is
not well capitalized and well managed
or does not have adequate financial or
managerial resources to conduct
financial activities in a safe and sound
manner. Under these circumstances, the
Board may have significant supervisory
concerns about the ability of the
company to conduct additional
activities or make additional
acquisitions. Subsection (d) reserves the
general supervisory authority of the
Board to restrict or limit the

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commencement or conduct of activities
or acquisitions of a financial holding
company if the Board finds that the
financial holding company lacks the
financial or managerial strength to
engage in new activities, make new
acquisitions, or retain ownership of
companies engaged in financial
activities.
Subsection (e) describes
circumstances under which the GrammLeach-Bliley Act allows the Board to
exclude an insured depository
institution when reviewing whether a
bank holding company meets the
applicable CRA requirement for
financial holding companies. As
provided in the Act, the Board will not
consider institutions acquired by the
company within the 12-month period
preceding an election to be a financial
holding company for purposes of the
CRA criteria provided that (i) the bank
holding company has submitted a plan
to the appropriate Federal banking
agency for the institution to take actions
necessary to achieve at least a
‘‘satisfactory’’ rating at the next CRA
examination, and (ii) the appropriate
Federal banking agency has accepted
that plan.
Subsection (f) provides that, as a
general matter, an election by a bank
holding company to become a financial
holding company will be effective on
the 31st day after the election was
received by the appropriate Federal
Reserve Bank, unless the Board has
notified the bank holding company
prior to that date that its election is
ineffective because an institution
controlled by the company fails to meet
an applicable requirement. The interim
rule provides that the Board or the
appropriate Federal Reserve Bank may
affirmatively notify a bank holding
company that an election is effective at
any time during that 30-day period.
As noted above, the Board proposes to
adopt the proposed rule on an interim
basis, effective March 11, 2000 (which
is the effective date of the financial
holding company provisions of the
Gramm-Leach-Bliley Act). This will
allow bank holding companies and
foreign banks that meet the
qualifications to be financial holding
companies to take advantage of the new
authority granted by the Gramm-LeachBliley Act as soon as possible following
the effective date of the relevant
provisions of the Act.
The Board also proposes to allow
bank holding companies and foreign
banks to file elections to become
financial holding companies
immediately in anticipation of the
effective date of the Act and interim
rule. These elections will be considered

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3787

to be made as of March 11, 2000, and
must certify compliance with all
applicable capital and management
criteria as of March 11, 2000. While the
30-day period for ineligibility decisions
does not begin on any election until the
effective date of the Act, the Board will
endeavor on March 13, 2000, which is
the first business day following the
effective date of the financial holding
company provisions of the Act, to act on
elections filed prior to February 15,
2000. The Board will act on all other
elections as soon as practicable. Prior to
the date that its election to become a
financial holding company becomes
effective, a bank holding company may
not engage in the newly authorized
activities described in new sections 4(k),
4(n), and 4(o) of the BHC Act.
Companies that are not now bank
holding companies and seek to acquire
a depository institution must still apply
to the Board to become a bank holding
company under section 3 of the BHC
Act. A company may file a bank holding
company application and a declaration
to be a financial holding company at the
same time. In that case, it is expected
that the System would act to make the
financial holding company election
effective at the time the System acts on
the underlying bank holding company
application. Consequently, the company
could become a financial holding
company without filing a separate
election after the company becomes a
bank holding company.
Section 225.83 What Are the
Consequences of Ceasing to Meet
Applicable Capital and Management
Requirements?
This section implements the
provisions of the Gramm-Leach-Bliley
Act that apply when a depository
institution controlled by an existing
financial holding company ceases to be
both well capitalized and well managed.
Subsection (a) states that the Board will
notify a company in writing if the Board
finds that not all depository institutions
controlled by the company are well
capitalized and well managed. In
recognition of the fact that a company
may know that one of its subsidiary
depository institutions has ceased to be
well capitalized or well managed before
the Board will have access to such data,
subsection (b) requires companies to
notify the Board of the institutions
involved and the areas of
noncompliance promptly upon
becoming aware of that the institution
no longer meets applicable capital or
management criteria.
Subsection (c) provides that, within
45 days (plus any additional time that
the Board may grant) after receiving a

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Federal Register / Vol. 65, No. 16 / Tuesday, January 25, 2000 / Rules and Regulations

notice of noncompliance from the
Board, the company must execute an
agreement with the Board to comply
with applicable capital and management
requirements. An agreement required by
this subsection to correct a capital or
management deficiency must explain
the actions that the company will take
to correct each deficiency, provide a
schedule within which each action will
be taken, provide any other information
required by the Board, and be
acceptable to the Board.
Until a company has corrected the
conditions described in a notice
provided by the Board under subsection
(a), the Gramm-Leach-Bliley Act allows
the Board to impose any limitations on
the conduct or activities of the company
or any of its affiliates as the Board
deems to be appropriate and consistent
with the purposes of the BHC Act. In
particular, subsection (d) states that,
until the Board determines that all
deficiencies have been corrected, a
company may not engage in any
additional activity or acquire control or
shares of any company under section
4(k) of the BHC Act without prior
approval from the Board.
Subsection (e) provides that, if the
conditions giving rise to a notice of
noncompliance are not corrected within
180 days (or such longer period
permitted by the Board), the Board may
order the company to divest its
subsidiary depository institutions. A
company may comply with an order to
divest by instead ceasing to engage in
activities that are permissible only for
financial holding companies. The
Board’s ability to require divestitures
and impose limitations on financial
holding companies that fail to meet the
capital and management requirements is
in addition to, not in lieu of, the Board’s
ability to take supervisory actions and
enforce compliance with applicable
provisions of law under section 8 of the
BHC Act and section 8 of the Federal
Deposit Insurance Act (12 U.S.C. 1818).
Section 225.84 What Are the
Consequences of Ceasing to Maintain a
Satisfactory or Better Rating Under the
Community Reinvestment Act at All
Insured Depository Institution
Subsidiaries?
The Gramm-Leach-Bliley Act requires
the Board to prohibit a financial holding
company from commencing any
additional activity under sections 4(k)
or 4(n) of the BHC Act, or from
acquiring control of a company engaged
in activities under those sections, if any
insured depository institution
controlled by the company receives a
rating of less than ‘‘satisfactory’’ under
the CRA. Subsection (a) provides that a

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financial holding company is deemed to
have received notice that these
prohibitions are in effect at the time the
appropriate Federal banking agency for
any insured depository institution
controlled by the company or the Board
notifies the institution or company that
the institution has received a rating of
‘‘needs to improve’’ or ‘‘substantial
noncompliance’’ under the CRA. The
prohibitions will continue to apply until
such time as each insured depository
institution controlled by the company
has received at least a ‘‘satisfactory’’
rating at its most recent examinations
under the CRA.
This prohibition does not prevent a
financial holding company from making
additional investments as part of
merchant banking, investment banking,
or insurance company investment
activities pursuant to section 4(k)(4)(H)
or 4(k)(4)(I) of the BHC Act, provided
that the company was lawfully engaged
in the merchant banking, investment
banking, or insurance company
investment activity prior to the time that
one of its insured depository
institutions received less than a
‘‘satisfactory’’ rating under the CRA and
the Board has not prohibited or limited
these activities.
Under the Gramm-Leach-Bliley Act,
financial holding companies that do not
comply with the CRA requirement are
not prohibited from making acquisitions
or engaging in activities that meet the
more narrow ‘‘closely related to
banking’’ standard pursuant to 4(c)(8).
Financial holding companies that seek
to engage in activities or make
acquisitions pursuant to section 4(c)(8)
of the BHC Act must, however, comply
with the requirements of that section as
well as the notice and approval
requirements of section 4(j).
Section 225.90 What are the
Requirements for a Foreign Bank to be
Treated as a Financial Holding
Company?
A foreign bank that is a bank holding
company because it owns a subsidiary
bank in the United States must comply
with the same requirements as any other
bank holding company that elects to be
a financial holding company. Most
foreign banks, however, do not own
subsidiary banks in the United States;
instead, they operate through branches
that are part of the foreign bank itself. 1
If a foreign bank operates a U.S. branch,
the foreign bank (and any company that
1 A foreign bank that operates a branch, agency or
commercial lending company subsidiary in the
United States is subject to the BHC Act as if it were
a bank holding company. In this notice, the term
‘‘branch’’ is used to include all three forms of
operation.

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controls the foreign bank) is subject to
the BHC Act as if the foreign bank or
company were a bank holding company.
Such foreign banks may, like U.S. bank
holding companies, also elect to be
treated as financial holding companies
and thereby be able to engage in the new
financial activities.
Under the Gramm-Leach-Bliley Act, a
company qualifies to be a financial
holding company only if its insured
bank and thrift subsidiaries are well
capitalized and well managed. These
standards are not by their terms
applicable to the branches of a foreign
bank. Consequently, the Act provides
that ‘‘the Board shall apply comparable
capital and management standards to a
foreign bank that operates a branch
* * * in the United States giving due
regard to the principle of national
treatment and equality of competitive
opportunity.’’ The provision is
necessary because it would be
competitively harmful if a foreign bank
that conducts a banking business in the
United States in direct competition with
U.S. banks could be treated as a
financial holding company without
meeting standards comparable to those
applicable to U.S. banks. Without such
a provision, a foreign bank could make
securities and insurance acquisitions
without meeting standards comparable
to those applicable to U.S. banks,
simply because the foreign bank
conducts its U.S. banking business
through a branch rather than through a
subsidiary bank.
As described below, the Board is
proposing to adopt standards and
procedures that establish a flexible
approach to carry out the statutory
requirement for comparability of capital
and management standards while, at the
same time, assuring national treatment
and equality of competitive opportunity
for foreign banks operating in the
United States.
Section 225.90 of the new Subpart
sets forth the capital and management
standards that foreign banks that
maintain a branch, agency, or
commercial lending company in the
United States must meet in order to be
considered to be ‘‘well capitalized’’ and
‘‘well managed’’ for purposes of being
treated as financial holding companies.
Under section 225.90, in order for a
foreign bank or company to be treated
as a financial holding company, the
foreign bank must be well capitalized
and well managed in accordance with
standards comparable to those required
of U.S. banks as determined by the
Board, taking into account certain
financial factors that may affect the
analysis of capital and management.

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Federal Register / Vol. 65, No. 16 / Tuesday, January 25, 2000 / Rules and Regulations
Section 225.90 provides two methods
under which a foreign bank may be
considered well capitalized. The first
method is applicable to foreign banks
whose home country supervisors have
adopted risk-based capital standards
consistent with the Capital Accord of
the Basel Committee on Banking
Supervision (Basel Accord). Under this
method, the foreign bank’s total and
Tier 1 risk-based capital ratios, as
calculated under its home country
standard, must be at least 6 percent for
Tier 1 capital to total risk-based assets
and 10 percent for total capital to riskbased assets.
In addition, section 225.90 requires
that the foreign bank’s ratio of Tier 1
capital to total assets must be at least 3
percent. The Board solicits comment on
this requirement. The Board believes
that the imposition of a leverage ratio
requirement on a foreign bank
maintaining a branch, agency, or
commercial lending company in the
United States and that elects to be
treated as a financial holding company
is appropriate in order to ensure that the
capital standards applicable to foreign
banking organizations are comparable to
those for domestic depository
institutions. In addition, the Board
believes that imposing a 3 percent
leverage ratio requirement, rather than
the 5 percent required for domestic
depository institutions, is appropriate in
recognition of the fact that foreign banks
hold both banking and nonbanking
operations under the foreign bank.
Domestic bank holding companies,
which also hold banking and
nonbanking operations, are subject
under Regulation Y to a minimum
leverage ratio of 4 percent, or 3 percent
if they have implemented the market
risk amendment to the risk-based capital
guidelines or have a composite
supervisory rating of ‘‘1.’’ Most
internationally active foreign banks also
follow the market risk guidelines.
The Board recognizes that many
countries do not impose a leverage ratio
or similar requirements. U.S. banks are,
however, subject to a leverage ratio
requirement and in order to assure
comparability of capital standards, a
leverage ratio requirement for foreign
banks is being proposed.
The second method for a foreign
banking organization to be considered
well capitalized in section 225.90
applies to foreign banks whose home
country supervisors have not adopted
the Basel Accord standards and to any
other foreign banking organizations that
otherwise do not meet the standards set
out under the first method. Any such
institution may be considered ‘‘well
capitalized’’ only by obtaining from the

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Board a prior determination that its
capital is otherwise comparable to the
capital that would be required of a U.S.
bank.
In order to qualify as well managed
under section 225.90, each U.S. branch,
agency, and commercial lending
company of a foreign banking
organization must have received at least
a satisfactory composite rating at the
most recent assessment. In addition, the
home country supervisor of the foreign
bank must consider the overall
operations of the foreign bank to be
satisfactory.
In determining whether a foreign bank
is well capitalized and well managed,
the Board may take into account the
foreign bank’s composition of capital,
accounting standards, long-term debt
ratings, reliance on government support
to meet capital standards, the extent to
which the foreign bank is subject to
comprehensive consolidated
supervision, and other factors that may
affect the analysis of capital and
management. The Board will consult
with the home country supervisor for
the foreign bank as appropriate. The
information gathered under these factors
will assist the Board in determining
whether the foreign bank operates under
capital and managerial standards that
are comparable to those applied to U.S.
banks. The Board expects that most
foreign banks that elect to be treated as
financial holding companies will be
subject to comprehensive consolidated
supervision. An election by a foreign
bank that is not subject to
comprehensive consolidated
supervision will receive a more detailed
review.

Section 225.92 How Does an Election
by a Foreign Bank Become Effective?

Section 225.91 How May a Foreign
Bank Elect To be Treated as a Financial
Holding Company?
The procedures applicable to a foreign
bank, or company that owns or controls
the foreign bank, electing to become a
financial holding company are similar
to the procedures discussed above for
domestic bank holding companies. The
foreign bank or company must file a
written declaration with the appropriate
Reserve Bank that it elects to be treated
as a financial holding company. The
declaration must be accompanied by the
risk-based and leverage capital ratios of
the foreign bank as of the close of the
most recent quarter and as of the close
of the most recent audited reporting
period, a certification that the foreign
bank is well capitalized as of the date
the foreign bank or company files its
election, and a certification that the
foreign bank is well managed as of the
date the foreign bank or company files
its election.

This section parallels section 225.83,
with appropriate modifications. It sets
forth the procedures to be followed in
the event that a foreign bank that is
treated as a financial holding company
ceases to meet the applicable capital
and management requirements. It
provides for the execution of an
agreement designed to bring the foreign
bank back into compliance with the
requirements of the regulation and
permits the Board to impose certain
limitations on the U.S. activities of such
a foreign bank during any period of
noncompliance. Finally, the section sets
forth the consequences of a failure to
correct the noncompliance within a
period of 180 days. Such consequences
could include termination of the foreign
bank’s U.S. branches and agencies and
divestiture of its commercial lending
company subsidiaries or ceasing to
engage in the expanded activities
permitted for financial holding
companies.

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An election filed by a foreign bank or
company to become a financial holding
company under section 225.91 will not
become effective until the Board notifies
the foreign bank or company that the
foreign bank meets the standards set out
above. The Board will notify the foreign
bank or company of its finding within
30 days of the filing of the written
declaration, unless the Board
determines that it does not have
sufficient information on which to base
a determination. Before filing an
election to be treated as a financial
holding company, a foreign bank or
company may file with the Board a
request for review of its qualifications to
be treated as a financial holding
company. The Board will endeavor to
make a determination on such requests
within 30 days of receipt.
An election filed by a foreign bank or
company under this section will be
effective only if the Board finds that the
foreign bank is well capitalized and well
managed in accordance with capital and
management standards comparable to
those required of U.S. banks owned by
financial holding companies, and, in the
case of a foreign bank that operates a
branch in the United States that is
federally insured, the branch received a
rating of at least ‘‘satisfactory’’ under the
CRA at its most recent examination.
Section 225.93 What are the
Consequences of a Foreign Bank Failing
to Continue to Meet Applicable Capital
and Management Requirements?

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Section 225.94 What are the
Consequences of an Insured Branch
Failing to Maintain a Satisfactory or
Better Rating Under the Community
Reinvestment Act?
This section provides that the
provisions of section 225.84, with
appropriate modifications, apply to a
foreign bank that operates an insured
branch, and its parent, and that is
treated as a financial holding. For these
purposes, the insured branch is treated
as an ‘‘insured depository institution.’’
Subpart A General Provisions; Section
225.2—Definitions
The Board also is amending the
definitions of ‘‘well capitalized’’ and
‘‘well managed’’ at sections 225.2(r)(2)
and 225.2(s) to take account of the
broader applicability of these
definitions under the Gramm-LeachBliley Act. The definition of well
capitalized has been amended to apply
to all depository institutions, rather than
insured depository institutions. The rule
applies the same capital requirements to
depository institutions that are not
FDIC-insured for purposes of
determining whether the institution is
well capitalized as apply to insured
depository institutions.
The definition of well managed has,
in the case of depository institutions
that have not received an examination
rating, been amended in subparagraph
(1)(ii) to allow the Board to determine
that an institution is well managed after
consulting with the appropriate Federal
banking agency for the institution. In
addition, the rule provides that a
depository institution resulting from the
merger of two or more institutions that
are well managed would be considered
to be well managed unless the Board
determined otherwise after consulting
with the appropriate Federal banking
agency.
Regulatory Flexibility Act Analysis
In accordance with section 3(a) of the
Regulatory Flexibility Act (5 U.S.C.
603(a)), the Board must publish an
initial regulatory flexibility analysis
with this interim regulation. This rule
implements provisions of Title I of the
Gramm-Leach-Bliley Act that allow
entities that qualify as financial holding
companies to engage in a broad range of
securities, insurance, and other
financial activities by providing the
Board with a simple, postcommencement notice. The interim rule
will enable bank holding companies and
foreign banks that qualify as financial
holding companies to engage in an
expanded range of activities using a
streamlined notification procedure.

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The financial holding company
election procedure described in this rule
is voluntary, and the criteria set forth in
the rule for an effective election filing
are those required by the Gramm-LeachBliley Act. The Board has established a
simple, one-time procedure involving
minimum paperwork to fulfill the
statutory election requirement. In
addition, the new powers described in
the Act and implemented by this
regulation should enhance the overall
efficiency of bank holding companies
and the other financial companies that
seek to affiliate with them. The rule
applies to all companies that attempt to
qualify as financial holding companies,
regardless of their size, and allows small
organizations to take advantage of the
broad new powers conferred by the
Gramm-Leach-Bliley Act with minimal
additional burden. Finally, the Board
specifically seeks comment on the likely
burden this interim rule will impose on
entities that elect to become financial
holding companies.
Administrative Procedure Act
The Board will make this interim rule
effective on March 11, 2000 without
first reviewing public comments.
Pursuant to 5 U.S.C. § 553, the Board
finds that it is impracticable to review
public comments prior to the effective
date of the interim rule, and that there
is good cause to make the interim rule
effective on March 11, 2000, due to the
fact that the rule sets forth procedures
to implement statutory changes that will
become effective on March 11, 2000.
The Board is seeking public comment
on the interim rule and will amend the
rule as appropriate after reviewing the
comments.
Paperwork Reduction Act
In accordance with section 3506 of
the Paperwork Reduction Act of 1995
(44 U.S.C. Ch. 35; 5 CFR 1320 Appendix
A.1), the Board reviewed the proposed
rule under the authority delegated to the
Board by the Office of Management and
Budget in accordance with the
emergency review procedures of the
Paperwork Reduction Act of 1995.
The collection of information
requirements in this proposed
rulemaking are found in 12 CFR 225.82
(a) and (b). This information is required
to evidence compliance with the
requirements of Title I of the GrammLeach-Bliley Act (Pub. L. No. 106–103,
113 Stat. 1338 (1999)) which amends
section 4 of the Bank Holding Company
Act (12 U.S.C. 1843). The respondents
are current and future bank holding
companies and foreign banking
organizations.

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The notice cited in 12 CFR 225.82(b)
provides that a bank holding company
may elect to become a financial holding
company by filing a simple written
declaration with the Federal Reserve.
The declaration must include
information identifying the company’s
subsidiary depository institutions and
their capital ratios, and a certification
that each depository institution is well
capitalized and well managed (for
specific details, see 12 CFR 225.82(b)).
There will be no reporting form for this
information collection. The agency form
number for this declaration will be the
FR 4010. The Board estimates that
approximately half of all bank holding
companies will file this declaration
during the first year and that it will take
on average approximately 15 minutes to
complete this information. This would
result in estimated annual burden of 625
hours. Based on a rate of $20 per hour,
the annual cost to the public for this
information collection is estimated to be
$12,500.
The OMB control number for this
interim rule is 7100–0292. The Federal
Reserve may not conduct or sponsor,
and an organization is not required to
respond to this information collection
unless the Board has displayed a valid
OMB control number.
A bank holding company may request
confidentiality for the information
contained in these information
collections pursuant to section (b)(4)
and (b)(6) of the Freedom of Information
Act (5 U.S.C. 552(b)(4) and (b)(6)).
Comments are invited on: (a) whether
the proposed collection of information
is necessary for the proper performance
of the Federal Reserve’s functions;
including whether the information has
practical utility; (b) the accuracy of the
Federal Reserve’s estimate of the burden
of the proposed information collection,
including the cost of compliance; (c)
ways to enhance the quality, utility, and
clarity of the information to be
collected; and (d) ways to minimize the
burden of information collection on
respondents, including through the use
of automated collection techniques or
other forms of information technology.
Comments on the collection of
information should be sent to the Office
of Management and Budget, Paperwork
Reduction Project, Washington, DC
20503, with copies of such comments to
be sent to Mary M. West, Federal
Reserve Board Clearance Officer,
Division of Research and Statistics, Mail
Stop 97, Board of Governors of the
Federal Reserve System, Washington,
DC 20551.

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Federal Register / Vol. 65, No. 16 / Tuesday, January 25, 2000 / Rules and Regulations
List of Subjects in 12 CFR Part 225
Administrative practice and
procedure, Banks, Banking, Federal
Reserve System, Holding companies,
Reporting and recordkeeping
requirements, Securities.
For the reasons set out in the
preamble, the Board amends 12 CFR
part 225 as follows:
PART 225—BANK HOLDING
COMPANY AND CHANGE IN BANK
CONTROL (REGULATION Y)
1. The authority citation for part 225
continues to read as follows:
Authority: 12 U.S.C. 1817(j)(13), 1818,
1828(o), 1831(i), 1831p–1, 1843(c)(8),
1844(b), 1972(l), 3106, 3108, 3310, 3331–
3351, 3907, and 3909.

2. Section 225.2(r)(2) and (s) are
revised to read as follows:
§ 225.2

Definitions.

*

*
*
*
*
(r) * * *
(2) Insured and uninsured depository
institutions— (i) Insured depository
institution. In the case of an insured
depository institution, ‘‘well
capitalized’’ means that the institution
has and maintains at least the capital
levels required to be well capitalized
under the capital adequacy regulations
or guidelines applicable to the
institution that have been adopted by
the appropriate Federal banking agency
for the institution under section 38 of
the Federal Deposit Insurance Act (12
U.S.C. 1831o).
(ii) Uninsured depository institution.
In the case of a depository institution
the deposits of which are not insured by
the Federal Deposit Insurance
Corporation, ‘‘well capitalized’’ means
that the institution has and maintains at
least the capital levels required for an
insured depository institution to be well
capitalized.
*
*
*
*
*
(s) Well managed—(1) In general. A
company or depository institution is
well managed if:
(i) At its most recent inspection or
examination or subsequent review by
the appropriate Federal banking agency
for the company or institution, the
company or institution received:
(A) At least a satisfactory composite
rating; and
(B) At least a satisfactory rating for
management and for compliance, if such
a rating is given; or
(ii) In the case of a company or
depository institution that has not
received an examination rating, the
Board has determined, after a review of
managerial and other resources of the

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company or depository institution and
after consulting the appropriate Federal
banking agency for the institution, that
the company or institution is well
managed.
(2) Merged institutions. A depository
institution that results from the merger
of two or more depository institutions
that are well managed shall be
considered to be well managed unless
the Board determines otherwise after
consulting with the appropriate Federal
banking agency for each depository
institution involved in the merger.
(3) Foreign banking organizations.
Except as otherwise provided in this
part, a foreign banking organization
shall qualify under this paragraph(s) if
the combined operations of the foreign
banking organization in the United
States have received at least a
satisfactory composite rating at the most
recent annual assessment.
3. A new Subpart I is added after
Subpart H to read as follows:
Subpart I—Financial Holding
Companies
225.81 What is a financial holding
company?
225.82 How does a company elect to
become a financial holding company?
225.83 What are the consequences of failing
to continue to meet applicable capital
and management requirements?
225.84 What are the consequences of failing
to maintain a satisfactory or better rating
under the Community Reinvestment Act
at all insured depository institution
subsidiaries?
225.90 What are the requirements for a
foreign bank to be treated as a financial
holding company?
225.91 How may a foreign bank elect to be
treated as a financial holding company?
225.92 How does an election by a foreign
bank become effective?
225.93 What are the consequences of a
foreign bank failing to continue to meet
applicable capital and management
requirements?
225.94 What are the consequences of an
insured branch failing to maintain a
satisfactory or better rating under the
Community Reinvestment Act?

Subpart I—Financial Holding
Companies
§ 225.81 What is a financial holding
company?

(a) Definition. A financial holding
company is a bank holding company
that meets the requirements of this
section.
(b) Requirements to be a financial
holding company. In order to be a
financial holding company:
(1) All depository institutions
controlled by the bank holding company
must be and remain well capitalized;

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3791

(2) All depository institutions
controlled by the bank holding company
must be and remain well managed; and
(3) The bank holding company must
have made an effective election to
become a financial holding company.
(c) Requirements for foreign banks
that are or are owned by bank holding
companies—(1) Foreign banks with U.S.
branches or agencies. A foreign bank
that is a bank holding company and that
operates a branch or agency or owns or
controls a commercial lending company
in the United States must comply with
the requirements of this section,
§ 225.82 and §§ 225.90 through 225.93
in order to be a financial holding
company.
(2) Bank holding companies that own
foreign banks with U.S. branches or
agencies. A bank holding company that
owns a foreign bank that operates a
branch or agency or owns or controls a
commercial lending company in the
United States must comply with the
requirements of this section and
§ 225.82, and the foreign bank must
comply with §§ 225.90 through 225.93
in order for the company to be a
financial holding company.
§ 225.82 How does a company elect to
become a financial holding company?

(a) Filing requirement. A bank holding
company may elect to become a
financial holding company by filing a
written declaration with the appropriate
Federal Reserve Bank.
(b) Contents of declaration. The
declaration must:
(1) State that the bank holding
company elects to be a financial holding
company;
(2) Provide the name and head office
address of the company and of each
depository institution controlled by the
company;
(3) Certify that all depository
institutions controlled by the company
are well capitalized as of the date the
company files its election;
(4) Provide the capital ratios for all
relevant capital measures (as defined in
section 38 of the Federal Deposit
Insurance Act) as of the close of the
previous quarter for each depository
institution controlled by the company
on the date the company files its
election; and
(5) Certify that all depository
institutions controlled by the company
are well managed as of the date the
company files its election.
(c) Under what circumstances will the
Board find an election to be ineffective?
An election to become a financial
holding company shall not be effective
if, during the period provided in
paragraph (f) of this section, the Board

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Federal Register / Vol. 65, No. 16 / Tuesday, January 25, 2000 / Rules and Regulations

finds that as of the date the election is
received by the appropriate Federal
Reserve Bank:
(1) Any insured depository institution
controlled by the bank holding company
(except an institution excluded under
paragraph (e) of this section) has not
achieved at least a rating of ‘‘satisfactory
record of meeting community credit
needs’’ under the Community
Reinvestment Act at the institution’s
most recent examination; or
(2) Any depository institution
controlled by the bank holding company
is not both well capitalized and well
managed.
(d) May the Board impose supervisory
limits on financial holding companies?
The Board may, in the exercise of its
supervisory authority, restrict or limit
the commencement or conduct of
additional activities or acquisitions of a
financial holding company, or take
other appropriate action, if the Board
finds that the financial holding
company does not have the financial
resources, including capital resources,
or managerial resources to engage in
activities, make acquisitions, or retain
ownership of companies permitted for
financial holding companies.
(e) How is CRA performance of
recently acquired insured depository
institutions considered? An insured
depository institution will be excluded
for purposes of the review of CRA
ratings described in paragraph (c)(1) of
this section if:
(1) The bank holding company
acquired the insured depository
institution during the 12-month period
preceding the filing of an election under
paragraph (a) of this section;
(2) The bank holding company has
submitted an affirmative plan to the
appropriate Federal banking agency for
the institution to take actions necessary
for the institution to achieve at least a
rating of ‘‘satisfactory record of meeting
community credit needs’’ under the
Community Reinvestment Act at the
next examination of the institution; and
(3) The appropriate Federal banking
agency for the institution has accepted
that plan.
(f) When is an election effective? (1)
In general. An election described in
paragraph (a) of this section is effective
on the 31st day after the date that the
election was received by the appropriate
Federal Reserve Bank, unless the Board
notifies the bank holding company prior
to that time that the election is
ineffective.
(2) Earlier notification that an election
is effective. The Board or the
appropriate Federal Reserve Bank may
notify a bank holding company that its
election to become a financial holding

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company is effective prior to the 31st
day after the election was filed with the
appropriate Federal Reserve Bank. Such
a notification must be in writing.
§ 225.83 What are the consequences of
failing to continue to meet applicable
capital and management requirements?

(a) Notice by the Board. If the Board
finds that any depository institution
controlled by a financial holding
company ceases to be well capitalized
or well managed, the Board will notify
the company in writing that it is not in
compliance with the applicable
requirement(s) for a financial holding
company and identify the areas of
noncompliance.
(b) Notification by a financial holding
company required. Promptly upon
becoming aware that any depository
institution controlled by the financial
holding company has ceased to be well
capitalized or well managed, the
company must notify the Board and
identify the depository institution
involved and the area of
noncompliance.
(c) Execution of agreement acceptable
to the Board—(1) Agreement required;
time period. Within 45 days after
receiving a notice under paragraph (a) of
this section, the company must execute
an agreement acceptable to the Board to
comply with all applicable capital and
management requirements.
(2) Extension of time for executing
agreement. Upon request by a company,
the Board may extend the 45-day period
under paragraph (c)(1) of this section if
the Board determines that granting
additional time is appropriate under the
circumstances. A request by a company
for additional time must include an
explanation of why an extension is
necessary.
(3) Agreement requirements. An
agreement required by paragraph (c)(1)
of this section to correct a capital or
management deficiency must:
(i) Explain the specific actions that
the company will take to correct all
areas of noncompliance;
(ii) Provide a schedule within which
each action will be taken;
(iii) Provide any other information
that the Board may require; and
(iv) Be acceptable to the Board.
(d) Limitations during period of
noncompliance. Until the Board
determines that a company has
corrected the conditions described in a
notice under paragraph (a) of this
section:
(1) The Board may impose any
limitations or conditions on the conduct
or activities of the company or any of its
affiliates as the Board finds to be
appropriate and consistent with the

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purposes of the Bank Holding Company
Act; and
(2) The company and its affiliates may
not engage in any additional activity or
acquire control or shares of any
company under section 4(k) of the Bank
Holding Company Act without prior
approval from the Board.
(e) Consequences of failure to correct
conditions within 180 days—(1)
Divestiture of depository institutions. If
a company does not correct the
conditions described in a notice under
paragraph (a) of this section within 180
days of receipt of the notice or such
additional time as the Board may
permit, the Board may order the
company to divest ownership or control
of any depository institution owned or
controlled by the company. Such
divestiture must be done in accordance
with the terms and conditions
established by the Board.
(2) Alternative method of complying
with a divestiture order. A company
may comply with an order issued under
paragraph (e)(1) of this section by
ceasing to engage (both directly and
through any subsidiary that is not a
depository institution or a subsidiary of
a depository institution) in all activities
that are not permissible for a bank
holding company to conduct under
section 4(c)(8) of the Bank Holding
Company Act. The termination of
activities must be done within the time
period referred to in paragraph (e)(1) of
this section and subject to terms and
conditions acceptable to the Board.
(f) Consultation with other agencies.
In taking any action under this section,
the Board will consult with the relevant
Federal and state regulatory authorities.
§ 225.84 What are the consequences of
failing to maintain a satisfactory or better
rating under the Community Reinvestment
Act at all insured depository institution
subsidiaries?

(a) Limitations on activities—(1) In
general. Upon receiving a notice
regarding performance under the
Community Reinvestment Act in
accordance with paragraph (a)(2) of this
section, a financial holding company
may not:
(i) Commence any additional activity
under subsection 4(k) or 4(n) of the
Bank Holding Company Act; or
(ii) Directly or indirectly acquire
control of a company engaged in any
activity under subsections 4(k) or 4(n) of
the Bank Holding Company Act.
(2) Notification. A financial holding
company receives notice for purposes of
this paragraph at the time that the
appropriate Federal banking agency for
any insured depository institution
controlled by the company or the Board

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Federal Register / Vol. 65, No. 16 / Tuesday, January 25, 2000 / Rules and Regulations
provides notice to the institution or
company that the institution has
received a rating of ‘‘needs to improve
record of meeting community credit
needs’’ or ‘‘substantial noncompliance
in meeting community credit needs’’ in
the institution’s most recent
examination under the Community
Reinvestment Act.
(b) Exception for certain activities—
(1) Continuation of investment
activities. The prohibition in paragraph
(a) of this section does not prevent a
financial holding company from
continuing to make investments in the
ordinary course of conducting
investment activities under section
4(k)(4)(H) or insurance company
investment activities under section
4(k)(4)(I) of the Bank Holding Company
Act if:
(i) The financial holding company
lawfully was a financial holding
company and commenced the
investment activity under section
4(k)(4)(H) or the insurance company
investment activities under section
4(k)(4)(I) prior to the time that an
insured depository institution
controlled by the financial holding
company received a rating below
‘‘satisfactory record of meeting
community credit needs’’ under the
Community Reinvestment Act; and (ii)
The Board has not, in the exercise of its
supervisory authority, advised the
financial holding company that these
activities must be restricted.
(2) Activities that are closely related
to banking. The prohibition in
paragraph (a) of this section does not
prevent a financial holding company
from commencing any additional
activity or acquiring control of a
company engaged in any activity under
section 4(c) of the Bank Holding
Company Act, if the company complies
with the notice, approval, and other
requirements under that section and
section 4(j).
(c) Duration of prohibitions. The
prohibitions described in paragraph (a)
of this section shall continue in effect
until such time as each insured
depository institution controlled by the
financial holding company has achieved
at least a rating of ‘‘satisfactory record
of meeting community credit needs’’
under the Community Reinvestment Act
at the most recent examination of the
institution.
§ 225.90 What are the requirements for a
foreign bank to be treated as a financial
holding company?

(a) Foreign banks as financial holding
companies. A foreign bank that operates
a branch or agency or owns or controls
a commercial lending company in the

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United States, and any company that
owns or controls such a foreign bank,
will be treated as a financial holding
company if:
(1) The foreign bank is and remains
well capitalized and well managed; and
(2) The foreign bank, or the company
that owns the foreign bank, has made an
effective election to be treated as a
financial holding company under this
subpart.
(b) Standards for ‘‘well capitalized.’’
A foreign bank will be considered ‘‘well
capitalized’’ if either:
(1)(i) Its home country supervisor, as
defined in § 211.21 of the Board’s
Regulation K (12 CFR 211.21), has
adopted risk-based capital standards
consistent with the Capital Accord of
the Basel Committee on Banking
Supervision (Basel Accord);
(ii) The foreign bank maintains a Tier
1 capital to total risk-based assets ratio
of 6 percent and a total capital to total
risk-based assets ratio of 10 percent, as
calculated under its home country
standard;
(iii) The foreign bank maintains a Tier
1 capital to total assets leverage ratio of
at least 3 percent; and
(iv) The Board determines that the
foreign bank’s capital is comparable to
the capital required for a U.S. bank
owned by a financial holding company;
or
(2) The foreign bank has obtained a
determination from the Board under
§ 225.91(c) that the foreign bank’s
capital is otherwise comparable to the
capital that would be required of a U.S.
bank owned by a financial holding
company.
(c) Standards for ‘‘well managed.’’ A
foreign bank will be considered ‘‘well
managed’’ if:
(1) Each of the U.S. branches,
agencies, and commercial lending
subsidiaries of the foreign bank has
received at least a satisfactory composite
rating at its most recent assessment;
(2) The home country supervisor of
the foreign bank considers the overall
operations of the foreign bank to be
satisfactory or better; and
(3) The Board determines that the
management of the foreign bank meets
standards comparable to those required
of a U.S. bank owned by a financial
holding company.
§ 225.91 How may a foreign bank elect to
be treated as a financial holding company?

(a) Filing requirement. A foreign bank
that operates a branch or agency or
owns or controls a commercial lending
company in the United States, or a
company that owns or controls such a
foreign bank, may elect to be treated as
a financial holding company by filing a

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written declaration with the appropriate
Reserve Bank.
(b) Contents of declaration. The
declaration must:
(1) State that the foreign bank or the
company elects to be treated as a
financial holding company;
(2) Provide the risk-based and
leverage capital ratios of the foreign
bank as of the close of the most recent
quarter and as of the close of the most
recent audited reporting period;
(3) Certify that the foreign bank meets
the standards of well capitalized set out
in § 225.90(b)(1)(i),(ii) and (iii) or
§ 225.90(b)(2) as of the date the foreign
bank or company files its election; and
(4) Certify that the foreign bank is
well managed as defined in
§ 225.90(c)(1) and (2) as of the date the
foreign bank or company files its
election.
(c) Pre-clearance process. Before filing
an election to be treated as a financial
holding company, a foreign bank or
company may file a request for review
of its qualifications to be treated as a
financial holding company. The Board
will endeavor to make a determination
on such requests within 30 days of
receipt.
§ 225.92 How does an election by a foreign
bank become effective?

(a) In general. An election filed by a
foreign bank or company under § 225.91
will not be effective unless the Board
determines that—
(1) The foreign bank is well
capitalized and well managed; and
(2) In the case of a foreign bank that
operates a branch in the United States
that is insured by the Federal Deposit
Insurance Corporation, the branch has
received at its most recent examination
a rating of ‘‘satisfactory record of
meeting community credit needs’’ or
better under the Community
Reinvestment Act.
(b) Factors used in the Board’s
determination regarding comparability
of capital and management. In
determining whether a foreign bank is
well capitalized and well managed in
accordance with comparable capital and
management standards, the Board will
give due regard to national treatment
and equality of competitive opportunity.
In this regard, the Board may take into
account the foreign bank’s composition
of capital, accounting standards, longterm debt ratings, reliance on
government support to meet capital
requirements, the extent to which the
foreign bank is subject to
comprehensive consolidated
supervision, and other factors that may
affect analysis of capital and
management. The Board will consult

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Federal Register / Vol. 65, No. 16 / Tuesday, January 25, 2000 / Rules and Regulations

with the home country supervisor for
the foreign bank as appropriate.
(c) Timing. The Board will notify a
foreign bank or company of its
determination under this section within
30 days of the filing of the election
unless the Board determines that it does
not have sufficient information on
which to base a finding.
§ 225.93 What are the consequences of a
foreign bank failing to continue to meet
applicable capital and management
requirements?

(a) Notice by the Board. If a foreign
bank or company has made an effective
election to be treated as a financial
holding company under this subpart
and the Board finds that the foreign
bank ceases to be well capitalized or
well managed, the Board will notify the
foreign bank or company in writing that
it is not in compliance with the
applicable requirement(s) for a financial
holding company and identify the areas
of noncompliance.
(b) Notification by a financial holding
company required. Promptly upon
becoming aware that it has ceased to be
well capitalized or well managed, the
foreign bank, or any company that
controls such foreign bank, must notify
the Board and identify the area of
noncompliance.
(c) Execution of agreement acceptable
to the Board— (1) Agreement required;
time period. Within 45 days after
receiving a notice under paragraph (a) of
this section, the foreign bank or
company must execute an agreement
acceptable to the Board to comply with
all applicable capital and management
requirements.
(2) Extension of time for executing
agreement. Upon request by a company,
the Board may extend the 45-day period
under paragraph (c)(1) of this section if
the Board determines that granting
additional time is appropriate under the
circumstances. A request by a company
for additional time must include an
explanation of why an extension is
necessary.
(3) Agreement requirements. An
agreement required by paragraph (c)(1)
of this section to correct a capital or
management deficiency must:
(i) Explain the specific actions that
the foreign bank or company will take
to correct all areas of noncompliance;
(ii) Provide a schedule within which
each action will be taken;
(iii) Provide any other information
that the Board may require; and
(iv) Be acceptable to the Board.
(d) Limitations during period of
noncompliance. Until the Board
determines that a company has
corrected the conditions described in a

notice under paragraph (a) of this
section:
(1) The Board may impose any
limitations or conditions on the conduct
or the U.S. activities of the foreign bank
or company or any of its affiliates as the
Board finds to be appropriate and
consistent with the purposes of the
Bank Holding Company Act; and
(2) The company and its affiliates may
not engage in any new activity in the
United States or acquire control or
shares of any company under section
4(k) of the Bank Holding Company Act
without prior approval from the Board.
(e) Consequences of failure to correct
conditions within 180 days—(1)
Termination of offices and divestiture. If
a foreign bank or company does not
correct the conditions described in a
notice under paragraph (a) of this
section within 180 days of receipt of the
notice or such additional time as the
Board may permit, the Board may order
the foreign bank or company to
terminate the foreign bank’s U.S.
branches and agencies and divest any
commercial lending companies owned
or controlled by the foreign bank or
company. Such divestiture must be
done in accordance with the terms and
conditions established by the Board.
(2) Alternative method of complying
with a divestiture order. A foreign bank
or company may comply with an order
issued under paragraph (e)(1) of this
section by ceasing to engage (both
directly and through any subsidiary) in
all activities that are not permissible for
a foreign bank to conduct under sections
2(h) and 4(c) of the Bank Holding
Company Act. The termination of
activities must be done within the time
period referred to in paragraph (e)(1) of
this section and subject to terms and
conditions acceptable to the Board.
(f) Consultation with other agencies.
In taking any action under this section,
the Board will consult with the relevant
Federal and state regulatory authorities.
§ 225.94 What are the consequences of an
insured branch failing to maintain a
satisfactory or better rating under the
Community Reinvestment Act?

(a) Insured branch as an ‘‘insured
depository institution.’’ A U.S. branch of
a foreign bank that is insured by the
Federal Deposit Insurance Corporation
shall be treated as an ‘‘insured
depository institution’’ for purposes of
§ 225.84.
(b) Applicability. The provisions of
§ 225.84, with the modifications
contained in this section, shall apply to
a foreign bank that operates an insured
branch referred to in paragraph (a) of
this section, and any company that
owns or controls such a foreign bank,

that has made an effective election
under § 225.92 in the same manner and
to the same extent as they apply to a
financial holding company.
By order of the Board of Governors of the
Federal Reserve System, January 18, 2000.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 00–1646 Filed 1–24–00; 8:45 am]
BILLING CODE 6210–01–P

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