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Federal R eserve Bank
OF DALLAS
W ILL IA M
H. WALLACE
FIRST V IC E PR E S ID E N T
AND CH IE F O PER A TIN G O FFIC ER
December 4, 1990
DALLAS. TEXAS 7 5 2 2 2
Circular 90-91
TO:
The Chief Executive Officer of each
member bank and others concerned in
the Eleventh Federal Reserve District
SUBJECT
Amendment to Regulation Y
(Bank Holding Companies and Change in Bank Control)
DETAILS
The Federal Reserve Board has announced approval of an amendment to
Regulation Y to reduce filing requirements under the Change in Bank Control
Act. The amendment is essentially the same as the proposal the Board issued
for public comment in July of this year.
The amendment will remove the current regulatory requirement that a
person who has already received regulatory clearance to acquire 10 percent or
more of the shares of a state member bank or bank holding company must file
additional notices under the Change in Bank Control Act for subsequent
acquisitions resulting in ownership of between 10 and 25 percent of the shares
of the bank or bank holding company.
ATTACHMENT
A copy of the Federal Reserve System Docket No. R-0700 is attached.
MORE INFORMATION
Questions concerning the Board’s action should be addressed to Gayle
Teague at (214) 744-7312. For additional copies of this circular, please
contact the Public Affairs Department at (214) 651-6289.
Sincerely yours,
For additional copies of any circular, please contact the Public Affairs Department at (214) 651-6289. Bankers and others are encouraged to use the following
toll-free number in contacting the Federal Reserve Bank of Dallas: (800) 333-4460.
This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)
FEDERAL RESERVE SYSTEM
12 CFR Part 225
[Regulation Y; Docket No. R-0700.]
Bank Holding Companies and Change in Bank Control
AGENCY:
Board of Governors of the Federal Reserve System.
ACTION:
Final rule.
SUMMARY:
The Board of Governors of the Federal Reserve System is
amending the portion of Regulation Y, 12 CFR Part 225,
implementing the Change in Bank Control Act (the "CIBC Act") to
remove the current regulatory requirement that a person that has
already received regulatory clearance to acquire 10 percent or
more of the voting shares of a state member bank or bank holding
company file additional notices under the CIBC Act for subsequent
acquisitions resulting in ownership of between 10 and 25 percent
of the shares of the bank or bank holding company.
This
amendment is intended to reduce the regulatory burden under the
CIBC Act without impairing the Board's ability to properly
evaluate acquisitions under the statutory factors set forth under
the CIBC Act.
EFFECTIVE DATE:
November 9, 1990.
FOR FURTHER INFORMATION CONTACT:
Scott G. Alvarez, Assistant
General Counsel (202/452-3583), Mark J. Tenhundfeld, Attorney
(202/452-3612), or Elizabeth Thede, Attorney (202/452-3274),
Legal Division; or Sidney M. Sussan, Assistant Director
(202/452-2638), or Beverly L. Evans, Supervisory Financial
Analyst, Division of Banking Supervision and Regulation
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(202/452-2573).
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For the hearing impaired only.
Telecommunications Service for the Deaf, Earnestine Hill or
Dorothea Thompson (202/452-3544).
SUPPLEMENTARY INFORMATION:
A.
Background.
Under the CIBC Act, 12 U.S.C.
§ 1817(j), persons acting directly or indirectly or through or in
concert with one or more other persons to acquire control of any
state member bank or bank holding company must provide the Board
with 60 days prior written notice describing the proposed
acquisition.
The transaction may proceed at the end of the 60-
day period unless the Board disapproves the transaction or
extends the notice period.
Alternatively, an acquisition may
proceed prior to the expiration of the 60-day review period if
the Board issues a written statement of its intent not to
disapprove the transaction.
Regulation Y identifies certain transactions that are
presumed to constitute the acquisition of control and require the
filing of prior notice with the Board.
In particular, section
225.41(b)(2) of Regulation Y establishes a regulatory presumption
requiring the filing of a notice under the CIBC Act if, after an
acquisition, any person or group of persons acting in concert
will own, control, or hold with power to vote 10 percent or more
of a class of voting securities of a bank or bank holding company
and if either:
(i) the institution has registered securities
under section 12 of the Securities Exchange Act of 1934 (5 U.S.C.
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§ 781), or (ii) no other person will own a greater percentage of
that class of voting securities immediately after the
transaction.
12 CFR § 225.41(b)(2).
Under this regulation, a person must make CIBC Act
filings for each acquisition of additional voting shares of the
bank or bank holding company until the person acquires 25 percent
or more of the shares of the bank or bank holding company.
The
Board's regulations provide that a shareholder that continuously
controls 25 percent or more of a class of voting securities and
that has received regulatory approval for that acquisition is
generally not required to file further notices under the CIBC Act
to acquire additional voting shares.
12 CFR § 225.42(a).
Many of the notices currently filed with the Board
under the CIBC Act involve situations where a shareholder that
has already been subject to the regulatory review process under
the CIBC Act seeks to acquire a small number of additional shares
with a minimal expenditure of funds.
In other instances, a
person that has already received regulatory clearance to own less
than 25 percent of the shares of a bank or bank holding company
may be required by the Board's current regulations to file a
notice in connection with a redemption by the bank or bank
holding company of shares of another shareholder, even though the
percentage ownership of the individual increases only minimally
and the individual expends no funds and acquires no additional
shares.
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On July 2, 1990 (55 FR 28,216 (July 10, 1990)), the
Board sought public comment on a proposal to amend Subpart E of
Regulation Y, which implements the CIBC Act, to eliminate the
filing requirement under the CIBC Act for most acquisitions of
shares of a state member bank or bank holding company where the
shareholder has already received regulatory clearance to control
10 percent or more of the voting shares of the bank or bank
holding company and, after the proposed acquisition, the
shareholder would control less than 25 percent of the voting
shares of the bank or bank holding company.
The Board received
40 comments from interested individuals and organizations
regarding this proposal.
The principal issues raised by the
comments are discussed below.
Comments in support of the proposed amendment.
All but
three of the commenters favored adoption of the Board's proposal.
Most of these comments concluded that the current regulation
requires filings that are unnecessary in connection with
de minimis acquisitions.
A number of commenters stated that the
proposed amendment would reduce the regulatory burden on banks
and bank holding companies without impairing the Board's ability
to evaluate persons that have acquired control of a state member
bank or bank holding company.
Comments in opposition to the proposed amendment.
Three commenters opposed the proposed amendment.
One of these
commenters stated that the acquisition of additional shares above
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10 percent could increase the ability of an individual to control
a bank or bank holding company and, therefore, the ability of
such an individual to disrupt the target institution.
Another
commenter suggested that the Board's review of a notice to
acquire 10 percent of the voting shares of an institution could
be less critical than would be its review of a notice to acquire
24 percent.
In this commenter's view, the holder of 24 percent
of an institution's voting shares would have greater ability and
incentive to control the institution, thereby making a closer
review of the financial resources and character of the
shareholder more important than if the shareholder intended to
acquire only 10 percent of the shares for investment purposes.
The remaining commenter opposed to the proposal argued that each
acquisition of voting shares should remain subject to regulatory
review in order to assure that there has been no adverse change
in circumstances since the time the person was permitted to
acquire 10 percent of the company's shares.
This commenter also
suggested that the proposed amendment will place small financial
institutions whose stock is not registered under the Securities
Exchange Act of 1934 at a disadvantage because these institutions
rely on the public notice provided under the CIBC Act to monitor
acquisitions of the company's shares in the 10 to 25 percent
range.
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Modifications to Address Comments
The Board has reviewed the public comments and, in
light of the entire record, has determined to amend its
regulation as proposed, with the modifications discussed below.
In the Board's experience, the requirement for additional filings
by a person that has already been subject to regulatory review
and seeks to control less than 25 percent of the voting shares of
the same bank or bank holding company imposes significant burdens
on the acquiring person without identifying significant
financial, managerial, competitive, or other problems.
Under this amendment, in considering proposals to
acquire between 10 and 25 percent of the voting shares of a bank
or bank holding company, the Board will review the financial,
managerial, competitive and other statutory factors under the
CIBC Act to determine whether any of these factors warrant a
requirement that the notificants file additional notices for
subsequent acquisitions under 25 percent of the shares of the
bank or bank holding company.
The Board also retains supervisory
authority over bank holding companies and state member banks that
the Board believes is adequate to address situations where a
change in circumstances would make additional acquisitions by a
current owner unsafe or unsound for the bank or bank holding
company.
Moreover, the Board continues to require the filing of
a notice under the CIBC Act when a person (or persons acting in
concert) intends to acquire 25 percent or more of the voting
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shares of a bank or bank holding company.
The amended regulation
is similar to the approach taken by the Comptroller of the
Currency and the Federal Deposit Insurance Corporation, both of
which permit a shareholder that has already received clearance
under the CIBC Act for an acquisition above 10 percent of the
voting shares of a bank to make additional acquisitions of voting
shares without further filings under the CIBC Act.
The Board has made several modifications to its
original proposal to address concerns raised by commenters.
First, the Board has clarified in the final rule that the
exception proposed in the amendment is available to persons whose
acquisition of shares has been reviewed in connection with a
transaction approved under section 3 of the Bank Holding Company
Act (12 U.S.C. § 1842) ("BHC Act") or section 18(c) of the
Federal Deposit Insurance Act (12 U.S.C. § 1828(c)) ("FDI Act").
This modification is consistent with the Board's current
regulations that provide an exception from the CIBC Act notice
requirements for transactions that are subject to review under
section 3 of the BHC Act or section 18(c) of the FDI Act.
In
this regard, in connection with its review of proposals under
section 3 of the BHC Act or under 18(c) of the FDI Act, the Board
currently applies the standards of the CIBC Act to persons that
will control 10 percent or more of the voting shares of the
acquiring bank or bank holding company, including conducting a
name check of the shareholder where appropriate.
Because this
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review is conducted as part of the review under the BHC Act or
the FDI Act, the Board believes that it is appropriate to permit
a person subject to this review the same exemption as is
available to persons whose initial acquisition is reviewed under
the CIBC Act.
A person that acquired between 10 and 25 percent
of the voting securities of a company in connection with an
application under section 3 of the BHC Act or section 18(c) of
the FDI Act still must file a notice under the CIBC Act if the
person seeks to acquire additional voting shares sufficient to
raise the person's aggregate shareholdings to 25 percent or more
of any class of securities of the bank or bank holding company,
or if the person is notified at the time the application is
approved by the Board or Reserve Bank that additional filings are
otherwise required.
Another commenter suggested that the proposed amendment
apply to additional acquisitions by a person that acquired
ownership of between 10 and 25 percent of a bank holding company
prior to the effective date of this amendment.
The Board intends
that this amendment will apply to all persons that have received
approval under the CIBC Act or, as explained above, through
section 3 of the BHC Act or section 18(c) of the FDI Act, to hold
between 10 and 25 percent of the voting shares of a bank or bank
holding company, regardless of when the approval was granted,
unless further acquisitions by these persons have been limited by
the Board or appropriate Reserve Bank.
The final regulation
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adopts this interpretation by not including a provision that the
amendment applies only to persons that have obtained regulatory
clearance after the effective date of this amendment.
Another commenter suggested that a person should be
allowed to acquire up to 100 percent of the shares of a bank or
bank holding company without filing any additional notice under
the CIBC Act where the person is the largest shareholder and has
received approval to acquire 10 percent or more of the bank or
bank holding company.
The Board continues to believe that it is
appropriate to require a single additional notice under the CIBC
Act by such a person (or persons acting in concert) prior to the
person's acquisition of 25 percent or more of the bank or bank
holding company.
At the time such an acquisition is proposed,
the Board will evaluate whether the acquiror has sufficient
financial and managerial resources to acquire up to 100 percent
of a class of voting securities of the bank or bank holding
company, and whether other relevant statutory factors are
consistent with a decision not to disapprove the acquisition of
all of the shares of the bank or bank holding company by the
acquiror.
Another commenter requested clarification as to how the
proposed amendment would treat additional acquisitions by persons
acting in concert.
Specifically, the commenter sought
clarification of whether persons that have filed a joint notice
under the CIBC Act to acquire less than 25 percent of the voting
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shares of a bank or bank holding company would be permitted by
the proposed amendment to make additional acquisitions without
further filings under the CIBC Act so long as the aggregate of
all such acquisitions by the persons acting in concert remained
below 25 percent.
The Board intends that persons filing a joint
notice will be covered by this amendment so long as the persons
collectively do not acquire 25 percent or more of the voting
shares of the bank or bank holding company.
The Board notes,
however, that any person that is a member of a group acting in
concert and has not received approval to acquire, in his or her
individual capacity, 10 percent or more of the voting shares of
the bank or bank holding company continues to be required to file
a notice under the CIBC Act prior to acquiring 10 percent or more
of the company's voting shares individually.
One of the commenters opposing the Board's proposed
amendment recommended that, as an alternative to the proposed
amendment, the Board should require a notice when a specific
increment of stock is acquired (for instance, five percent) or,
in the alternative, when a certain amount of time (for instance,
12 months) has expired since the date of last approval.
Similarly, another of the commenters opposing the Board's
proposed amendment recommended that the Board revise the proposed
amendment to authorize only a 5 percent increase in the ownership
of shares beyond what the Board has authorized a person to hold.
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The Board notes that, under its amendment, the Federal
Reserve System retains the authority to require filings under the
CIBC Act for additional acquisitions where the Board or Reserve
Bank believes that the financial and managerial resources or
other circumstances of a proposed acquiror indicate that
monitoring of additional acquisitions in a specific case is
appropriate.
In these cases, the Board or the Reserve Bank will
notify a bank, bank holding company, or acquiring shareholder at
the time the initial notice (or application under section 3 of
the BHC Act or section 18(c) of the FDI Act) is approved that
additional notices under the CIBC Act would be required for
subsequent acquisitions of shares resulting in the ownership or
control of between 10 and 25 percent of the voting securities of
the bank or bank
holding company.1
In light of this, and for
the reasons discussed above, the Board believes
that it is
unnecessary to require in all instances additional notices under
the CIBC Act for
acquisitions of between 10 and 25 percent of the
voting shares of
a bank or bank holding company by persons that
have received approval under the CIBC Act to acquire 10 percent
or more of the bank or bank holding company.
1 Failure to file additional notices after having been
informed that such notices are required will be treated as a
violation of the Board's regulation and, as such, may result in
the Board or the Reserve Bank initiating enforcement proceedings.
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Regulatory Flexibility Act Analysis
This amendment to the Board's Regulation Y will
decrease the burden on small companies by narrowing the
circumstances under which shareholders of small banks and bank
holding companies must file notices under the CIBC Act.
No
additional regulatory burden will be placed on such companies.
Moreover, the amendment will not impose any additional regulatory
burden on banks or bank holding companies of any size that are
targets of a proposed change in control.
Thus, the proposalis
not expected to have any adverse economic
impact on small
business entities within the meaning of the Regulatory
Flexibility Act (5 U.S.C. § 601 et seg.).
Paperwork Reduction Act Analysis
This amendment reduces the number of instances in which
notices must be filed with the Federal Reserve System under the
CIBC Act.
Accordingly, the regulation will lessen the paperwork
burden for individuals, small businesses,
and other "persons," as
defined in the Paperwork Reduction Act (44 U.S.C. §
3501
et seg.).
List of Subjects in 12 CFR Part 225
Administrative practice and procedure, Appraisals,
Banks, Banking, Capital adequacy, Federal Reserve System, Holding
companies, Reporting and recordkeeping requirements, Securities,
State member banks.
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For the reasons set out in this document, and pursuant
to the Board's authority under section 13 of the Change in Bank
Control Act (12 U.S.C. § 1817(j)(13)), the Board amends
12 CFR Part 225 as follows:
1.
The authority citation for Part 225 continues to read as
follows:
AUTHORITY:
12 U.S.C. 1817(j)(13), 1818, 1831i,
1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3907, 3909, 3310, and
3331-3351.
2.
In § 225.42, the heading to paragraph (a) is revised,
paragraph (a) is redesignated as paragraph (a)(1), and new
paragraph (a)(2) is added to read as follows:
§ 225.42
Transactions not requiring prior notice.
*
(a)(1)
*
*
*
Increase of previously authorized acquisitions above
25 percent.
(2)
*
*
*
*
Increase of previously authorized acquisitions between
10 percent and 25 percent.
Unless the Board or Reserve Bank otherwise provides by order, the
acquisition of additional shares of a class of voting securities
of a state member bank or bank holding company by any person (or
persons acting in concert) who has lawfully acquired and
maintained control of 10 percent or more of that class of voting
securities either after filing the notice required under section
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225.41(b)(2) of this subpart to acquire voting securities of the
bank or bank holding company or in connection with an application
approved under section 3 of the Bank Holding Company Act or
section 18(c) of the Federal Deposit Insurance Act, if the
aggregate amount of voting securities held following the
acquisition is less than 25 percent of any class of voting
securities of the institution.
*
*
*
*
*
By order of the Board of Governors of the Federal
Reserve System, November 9, 1990.
Secretary of the Board
@FedFRASER