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Federal R eserve Bank
OF DALLAS
ROBERT
D. M c T E E R , J R .
p re s id e n t
AND CH IE F E X EC U TIV E O F F IC E R
I IdjT
DALLAS, TEXAS 7 5 2 2 2
C
Notice 92-45
TO:
The Chief Executive Officer of each
member bank and others concerned in
the Eleventh Federal Reserve District
SUBJECT
Final Amendments to Regulation Y
(Bank Holding Companies and Change in Bank Control)
DETAILS
The Federal Reserve Board has adopted final amendments to Regulation
Y (Bank Holding Companies and Change in Bank Control) to expand the leasing
activities that are generally permissible for bank holding companies to
include non-ful1-payout leasing.
The amendments raise the maximum estimated residual value of leased
personal property on which bank holding companies may rely for their compensa
tion in leasing transactions to up to 100 percent of the acquisition cost of
the leased property, subject to certain conditions, including volume limita
tions. These transactions remain subject to the prudential limitations
previously set forth in Regulation Y.
ATTACHMENT
A copy of the Board’s notice as it appears on pages 20958-62, Vol.
57, No. 96, of the Federal Register dated May 18, 1992, attached.
MORE INFORMATION
For more information, please contact Mike Johnson, Director,
Applications Processing, at (214) 744-7306. For additional copies of this
Bank’s notice, please contact the Public Affairs Department at (214) 651-6289.
Sincerely yours,
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.
This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)
20958_____ Federal Register / Vol. 57, No. 96 / Monday, May 18, 1992 / Rules and Regulations
FEDERAL RESERVE SYSTEM
12 CFR Part 225
[Regulation Y; Docket No. R-0694]
RIN 7100-AB12
Bank Holding Companies and Change
in Bank Control Leasing Personal
Property
hearing impaired only,
Telecommunication Device for the Deaf
(TDD), Dorothea Thompson (202/452—
3544).
SUPPLEMENTARY INFORMATION:
Background
Since 1971, bank holding companies
have been permitted to engage in leasing
personal or real property where the
lease is the functional equivalent of an
extension of credit (so-called "fullSUMMARY: The Board is amending
payout
leasing”). Under Regulation Y,
Regulation Y to expand the leasing
full-payout
leases must be on a
activities that are generally permissible
nonoperating basis and only upon the
for bank holding companies. The rule
allows bank holding companies to enter order of customers.1 In addition, at the
inception of the initial lease, the effect
into leasing transactions in which the
companies may rely for compensation of of the transaction must yield a return
that will compensate the bank holding
their full leasing costs, at the inception
of the initial lease, on estimated residua! company for its full leasing costs
(including the total cost of financing the
values for the leased property of up to
100 percent of the acquisition cost of the property) through rentals, estimated tax
property, subject to certain conditions
benefits, and the estimated residual
{so-called “higher residual value
value of the property at the expiration of
leasing'’). The Board has by order
the initial term of the lease. In
previously permitted bank holding
calculating this yield, the existing
companies to engage in higher residual
regulation limits reliance on estimated
value leasing. The final rule requires
residual values to a maximum of 20
that higher residual value leasing
percent of the acquisition cost of the
transactions conform to the current
property. In the case of a personal
leasing provision in Regulation Y except
property lease of no more than seven
with respect to the residual value
years in duration, bank holding
reliance limitation. The final rule
companies may rely on an additional
contains additional requirements
applicable only to the expanded leasing amount, up to 60 percent of the
property’s acquisition cost, if the
activity. These requirements include a
residual value is guaranteed by the
limit on the volume of such leasing
lessee or a third party.
transactions similar to the limitation
In 1987, section 108 of CEBA amended
placed on the leasing activities of
national banks under section 108 of the
the National Bank Act to authorize
Competitive Equality Banking Act
national banks specifically to lease
(CEBA), amending the National Bank
tangible personal property so long as the
Act.
leases are on a “net lease basis” and
The final rule also alters the existing
represent, in the aggregate, no more than
authority for a bank holding company to 10 percent of the bank’s assets.2 The
engage in full-payout leasing
legislative history indicates that this
transactions by permitting bank holding amendment was intended to permit the
companies to engage in these
Office of the Comptroller of the
transactions and rely for compensation
Currency (OCC) to relax or eliminate, in
of their full leasing costs, at the
a manner consistent with sound banking
inception of the initial lease, on
practices,
the residual value limitation
estimated residual values for the leased
in the OCC's existing regulations
property of up to 25 percent of the
authorizing personal property leasing
acquisition cost of the property.
activities by national banks.8 The
EFFECTIVE DATE: May 14, 1992,
legislative history of section 108 also
FOB FURTHER INFORMATION CONTACT:
indicates that the section is not intended
Scott G. Alvarez, Associate General
to allow national banks to engage in the
Counsel (202/452-3583), Thomas M.
Corsi, Senior Attorney (202/452-3275).
112 CFR 225.25(b)(5). The nonoperating condition
Donna R. Nordenberg, Attorney (202/
places the responsibilities for the leased property‘8
452-3281), Legal Division; Molly S.
care and maintenance upon the customer. In such
Wassom, Manager, Applications Issues
lease arrangements, the lessor may not provide or
pay for operational services such as repair and
(202/452-2305), or Theresa A. Claffey,
Supervisory Financial Analyst (202/452- insurance
* See 12 U.S.C. *4 (Tenth). The OCC has
2964). Division of Banking Supervision
interpreted the term “net lease basis” to mean that
and Regulation, Board of Governors of
the lease must be on a nonoperating basis.
the Federal Reserve System. For the
3 S. Rep. No. 19,100th Cong.. 1st Sess. 43 (1987).
Board of Governors of the
Federal Reserve System.
ACTION: Final rule.
AGENCY:
Federal Register / Vol. 57, No. 96 / Monday, May 18, 1992 / Rules and Regulations
daily or short-term equipment or
automobile rental business.4
Based on this statutory authorization,
a number of national banks currently
engage in leasing personal property with
reliance on residual values as high as
100 percent of the cost of the leased
property.5 A number of states also have
permitted state-chartered banks to
conduct leasing activities without limit
on the amount of residual value that
may be relied on by the lessor bank.®
The Board previously has determined
by order that the activity of higher
residual value leasing of tangible
personal property is closely related to
banking and a proper incident fo
banking for purposes of section 4(c)(8) of
the Bank Holding Company Act.7 In that
case, Security Pacific committed that it
would limit the volume of its higher
residua! value leasing transactions, and
that the higher residual value leases
would have a minimum term of one
year.8 Security Pacific also committed to
conform it3 higher residual value leasing
activities to the existing restrictions
imposed by the Board on full-payout
leasing. Since the Security Pacific
decision, several other bank holding
companies have received approval from
the Board to engage in the same leasing
activity subject to identical conditions.9
Rule Adopted by the Board
The Board has sought public comment
on a proposal to add higher residual
value leasing activities to its regulatory
iist of activities permissible for bank
holding companies. 55 FR 22348, June 1,
1990; 55 FR 23446, June 8,1990. This
amendment would permit bank holding
companies seeking to conduct this
activity to take advantage of the
4 H.R. Conf. Rep. No. 261,100th Cong 1st Sess.
143 (1987).
5 Prompted by the expanded authority of section
108, the OCC recently amended its regulation on
lease financing transactions of national banks. 53
FR 28314. June 20.1991 (to be codified at 12 CFR
part 23).
0 These states include California. Florida.
Maryland, Michigan, Illinois, and Indiana.
1 Security Pacific Corporation. 76 Federal Reserve
Bulletin 462 (1990) ("Security Pacific").
8 Security Pacific committed to limit the total
amount of its investment in leases with estimated
residual values in excess of 25 percent of the
acquisition cost of the leased property to no more
than 10 percent of the holding company’s total
consolidated assets. In addition, Security Pacific
committed to limit the total amount of its
investment in leases with estimated residual values
in excess of 70 percent of the acquisition cost of the
leased property to the lesser of: 0.5 percent of the
holding company's total consolidated assets or 10
percent of the holding company’s total consolidated
shareholders’ equity.
8 The Fuji Bank. Limited, 77 Federal Reserve
Bulletin 490 (1991); The Sanwa Bank, Limited. 77
Federal Reserve Bulletin 187 (1991), Dai-Ichi Kangyo
Bank, Limited, 76 Federal Reserve Bulletin 960
(1990).
streamlined procedures contained in
Regulation Y for obtaining review of
these proposals. Following review of the
comments received, the Board has
determined to adopt its amendment
substantially as proposed.
Several modifications, discussed
below, have been made to the proposal
to address matters raised by the
comments. The final rule adopted by the
Board adds the activity of conducting
higher residual value leasing of tangible
personal property to the regulatory list
of permissible nonbanking activities for
bank holding companies. This activity
will be permitted within certain
prudential limitations. In particular, the
rule provides that higher residual value
lease transactions will remain subject to
the current provisions of Regulation Y
applicable to full-payout leasing
activities {other than the residual value
limitations applicable to full-payout
leasing), including that: (1) Bank holding
companies may acquire property to be
leased only in connection with a specific
leasing transaction under consideration,
(2) bank holding companies must either
sell or release the leased property
within two years of the expiration of the
initial lease, and (3) the leases must be
on a non-operating basis.
The Board also has determined to
adopt certain restrictions that would
apply only to the expanded leasing
activities. First, the higher residual value
leases arranged by bank holding
companies must have a minimum lease
term of at iefest 90 days. Second,
consistent with the limit imposed by
CEBA on national banks, the total
volume of bank holding company
investments in higher residual value
leases must be limited to no more than
10 percent of the bank holding
company’s total consolidated assets.
Third, bank holding companies must
capitalize their leasing subsidiaries
commensurate with industry standards
and to an extent necessary to support
fully the expanded leasing activity.
Fourth, bank holding companies must
maintain records regarding their higher
residual value leasing activities that are
separate from their records for fullpayout leasing transactions. These
limitations are consistent with the
limitations adopted by the OCC for
higher residual value leasing activities
of national banks.
Public Comments
The Board received 22 public
comments regarding this proposal. All
except one of the commenters supported
the Board’s proposal allowing bank
holding companies to engage in higher
residual value leasing of tangible
20959
personal property. Several commenters
recommended certain modifications to
the restrictions proposed by the Board.
Authority for Activity
Commenters in favor of the proposal
supported the Board’s determination in
Security Pacific that the activity of
higher residual value leasing is closely
related to banking for purposes of
section 4(c)(8) of the Bank Holding
Company Act. Commenters stated that
the activity is permissible for national
banks under the National Bank Act and
is permissible for state banks under
various state laws. Commenters also
argued that higher residual value leasing
activities are functionally similar to
other leasing activities conducted by
banking organizations.10
Most of the commenters also argued
that these activities are a proper
incident to banking for purposes of
section 4(c)(8) of the Bank Holding
Company Act. In particular, commenters
maintained that the expanded leasing
authority is necessary in order for bank
holding companies to compete
effectively with other lessors and to
better serve the needs of their
customers.
Risk of Activity
The commenter opposing the proposal
contended that financial institutions
have shown a willingness to rely on
unrealistic and excessive residual value
forecasts and that it would be prudent to
retain existing limitations on residual
value reliance. This commenter argued
that a relaxation of residual value
limitations will increase the riskiness of
financial institutions’ leasing activities.
This comment suggested that leasing
activities that rely on limited residual
values are less risky than leasing
activities with a greater reliance on
residual values because of uncertainties
in predicting residual values. A study by
Board staff, however, suggests that
limitations on the ability of bank holding
companies to rely on residual value may
not reduce the riskiness of the leasing
activities of bank holding companies.11
The leasing activities of bank holding
company leasing subsidiaries appear to
be less profitable and have higher
charge-off and past due rates than
leases made by companies and bank3
that have greater flexibility to rely on
residual values. This might result from
the fact that, while bank holding
10 See National Courier Ass'n v. Board of
Governors, 516 F.2d 1229 (D.C. Cir. 1975).
11 See Residual Value Regulation and the
Performance of Bank Holding Company Leasing
Subsidiaries, Jim .Burke and Nellie Liang.
20960
Federal Register / Vol. 57, No. 96 / Monday, May 18, 1992 / Rules and Regulations
company leases currently are not
subject to significant risk from
miscalculation of residual values, leases
by bank holding companies are subject
to a greater degree of credit risk.
Permitting greater reliance on residual
values increases the possibility that
bank holding companies may
miscalculate residual values. However,
companies not associated with bank
holding companies appear to be able to
estimate residual values reasonably
successfully and there is no indication
that bank holding companies do not
have, or could not develop, the same
expertise. In addition, generally
accepted accounting principles require
that assumed residual values be
reviewed and adjusted annually. These
values and compliance with GAAP
would be subject to annual review by
the external auditors for the holding
company, and in bank holding company
examinations. A lease could be subject
to criticism or classification to the
extent that the holding company relies
on over-estimated residual values to
achieve full compensation for the costs
of the lease. Finally, the Board’s
proposal includes an aggregate limit on
the amount of higher residual value
leasing transactions that a bank holding
company may conduct.
comments, the Board has also amended
its final rule to permit bank holding
companies to hold originally conforming
leases acquired from other lessors
where the term remaining on the lease is
less than 90 days.12
Volume Limitation
The Board’s original proposal limited
the aggregate volume of a bank holding
company's higher residual value leasing
activity to a maximum of 10 percent of
the bank holding company’s
consolidated assets. This limitation is
analogous to the 10 percent of assets
limitation contained in CEBA and
adopted by the OCC for national banks.
Several commenters suggested that the
Board not impose any limit on the level
of this activity. Other commenters,
however, suggested that, in light of the
risks associated with this activity, the
Board consider imposing a lower
aggregate limit based on the capital
level of the bank holding company.
The Board believes that adopting an
asset-based limit analogous to the
statutory limit in CEBA and the limit
adopted by the OCC is an appropriate
way to limit the potential risks
associated with higher residual value
leasing until such time as holding
companies and the Board have gained
additional experience with the activity.
Minimum Lease Term Requirement
On the other hand, the Board has
Five public commenters argued that
determined not to adopt a lower limit at
the Board should not impose a
this time because establishing a lower
requirement that the initial lease term be
limit for bank holding companies, either
for a minimum of 90 days. The Board’s
in relation to assets or capital, could
current rule for full-payout leasing
encourage banks to conduct this activity
transactions does not contain a
directly in order to avoid a lower limit
minimum duration requirement.
on the holding company’s activity.13
However, the combination of the
existing limitations on residual value
12 Several commenters requested that the Board
and the requirement that the bank
not apply the 90-day minimum lease term
holding company project full
requirement to leases that are entered into at the
compensation for the transaction based
conclusion of the initial lease term and prior to the
disposition of the leased property by the bank
on the initial lease effectively eliminate
the possibility of very short-term leases. holding company or to leases that have been
terminated prior to maturity by the lessee. The
Short-term and daily leases became a
Board’s current rules regarding leasing transactions
possibility once the limitation on
require that a bank holding company either dispose
residual value is relaxed.
of leased property or re-lease the property in an
authorized leasing transaction within two years of
The legislative history of CEBA
the termination of the initial lease (subject to
indicates that Congress intended not to
possible extensions of this time by the Board). 12
permit national banks to engage in
CFR 225.25(b)(5) n.6. It has been the Board’s policy
short-term leasing transactions. For that to. permit bank holding companies to maximize the
reason, the OCC has restricted national value of this off-lease property during this
divestiture period, including by permitting short
banks from engaging in higher residual
term leases of the property, provided that the bank
value leasing transactions with a
holding company conforms with the requirement
duration of less than 90 days.
that the property either be liquidated or re-leased in
a conforming lease within the two-year period. The
Commenters have not suggested an
Board’s final rule has been amended to state this
alternative method for implementing a
expressly.
duration requirement other than to leave policy
13 The OCC applies the lending limits applicable
a determination regarding duration to
to national bank lending to leases arranged by
the discretion of each bank holding
national banks because these leases are viewed as
the functional equivalent of an extension of credit.
company. Accordingly, in this final rule
Bank holding companies are not subject to similar
the Board is adopting a minimum lease
limits on their lending activities and the Board has
term requirement similar to that adopted not imposed a similar limit on the full-payout
by the OCC. In response to several
leasing activities of bank holding companies.
Three commenters requested that the
Board clarify the proposed volume
limitation for higher residual value
leases as it applies to domestic banks
with foreign assets and to foreign banks.
In particular, these commenters
requested clarification that the volume
limitation is tied to a banking
organization's total worldwide assets.
The final rule clarifies that the aggregate
limit is based on total domestic and
foreign assets of the organization. This
clarification is consistent with the
Board's orders approving higher residual
value leasing activities for foreign
banking organizations, and with the
instructions on the periodic Reports of
Condition.
In calculating whether an organisation
has reached its aggregate limit, the
proposal also clarifies that all higher
residual value leasing transactions
conducted within domestic bank
subsidiaries of the bank holding
company as well as within certain
nonbank subsidiaries must be included
within the aggregate amount of higher
residual value leasing activities
conducted by the bank holding
company. This method of calculation
takes into account the possibility that
banks owned by a holding company
may engage in higher residual value
leasing transactions up to a percentage
of the bank’s assets, and avoids the
possibility of double counting the bank’s
assets in the holding company limit
without taking account of its leasing
transactions. This method of calculation
does not impose any limit on the amount
of higher residual value leasing
conducted directly by banks owned by a
bank holding company. It does,
however, have the effect of limiting the
amount of higher residual value leasing
transactions that a bank holding
company or its nonbank subsidiary may
conduct if these activities are
simultaneously conducted within a bank
affiliate. The final rule also clarifies that
traditional full-payout leasing
transactions, and leasing transactions
conducted by domestic and foreign bank
holding companies under other leasing
authority, including leasing activities
outside the United States, are not
subject to the aggregate limit.14
Accordingly, this proposal does not establish such
limits on individual leases made by bank holding
companies.
14 The volume limitation would not apply to
companies advised by leasing subsidiaries of bank
holding companies, nor would it apply to lease
brokerage transactions entered into by these leasing
subsidiaries.
Federal Register / Vol. 57, No. 96 / Monday, May 18, 1992 / Rules and Regulations
Capital Level of Leasing Affiliate
Two commenters objected to the
proposed requirement that a company
that conducts higher residual value
leasing activities be capitalized in
accordance with industry levels. These
commenters maintained that the only
relevant capital requirements in
connection with this activity should be
the capital standards for the subsidiary
banks or the bank holding company on a
consolidated basis.
The Board's capital adequacy
guidelines provide that all nonbanking
subsidiaries of a bank holding company
“should maintain levels of capital
consistent with levels that have been
established by industry norms or
standards" unless the Board establishes
a different standard.15 The industry
norms for equipment leasing appear to
be generally higher than the capital
levels for bank holding companies.16
The Board believes that it is appropriate
to expect holding company affiliates
engaged in higher residual value leasing
to maintain capital levels that reflect the
higher risk of this activity as reflected in
the market.
Finally, two commenters contended
that the Board should not require bank
holding companies that already have
authority to engage in full-payout
leasing to seek additional Board
approval to engage in higher residual
value leasing. On the other hand, one
commenter suggested that the Board
should require formal and separate
applications to conduct this activity
because of the added risk of this
activity.
Because higher residual value leasing
transactions involve more risk than
other leasing transactions, the Board
believes it is appropriate to require bank
holding companies to seek approval to
engage in these transactions in order to
assess properly each company’s ability
to assume this additional risk. Because
this activity is being added to the
Board’s regulatory list of permissible
activities, bank holding companies
seeking to conduct this activity would
be able to take advantage of the
streamlined notice procedures in the
regulation.
Comments Regarding Board's Current
Full-Payout Leasing Provisions
Five commenters recommended that
the Board conform its provisions
governing more traditional full-payout
leasing activities to the OCC’s residual
value limitation for full-payout leases.
13 12 CFR part 225 appendix B (1991).
,8 See American Association of Equipment
Lessors, The Annual Survev of Industry Activity
(1991).
The OCC permits reliance on up to 25
percent of the property’s acquisition cost
for traditional leasing transactions
rather than the 20 percent residual value
limit established under the Board's
current provision.17 The commenters
argued that modifying this provision to
match the OCC's rules will increase the
competitiveness of bank holding
company lessors and will avoid the
burden that results from imposing
different requirements on national
b a n k 9 and their nonbank affiliates.
In light of the benefits of reduced
burden, the increased competitiveness
from adopting a uniform rule for leasing
transactions, and the fact that the OCC
has not identified any significant
increased risk from permitting reliance
on this somewhat higher level of
residual values, the Board has adopted
this suggestion. This amendment applies
to full-payout leasing activities involving
personal property as well as full-payout
leasing of real estate, as otherwise
permitted under the Board’s Regulation
Y. Bank holding companies that are
currently authorized to conduct fullpayout leasing activities pursuant to
section 4(c)(8) of the Bank Holding
Company Act are not required to seek
additional Board approval to conduct
full-payout leasing transactions that rely
on residual values up to 25 percent of
the acquisition cost of the property,
provided that these activities are
conducted within the other limitations in
the Board’s Regulation Y and any other
conditions imposed on the individual
bank holding company by order.
Final Regulatory Flexibility Act
Analysis
Pursuant to section 605(b) of the
Regulatory Flexibility Act (Pub. L. 98354; 5 U.S.C. 601 et seq.), the Board of
Governors of the Federal Reserve
System certifies that the amendment
will not have a significant economic
impact on a substantia! number of small
entities that would be subject to the
regulation.
This amendment will add to the list of
permissible bank holding company
activities in the Board's Regulation Y, an
activity that has been previously
approved for bank holding companies
by Board order. This addition will have
the effect of reducing the burden on
bank holding companies, including small
bank holding companies, that wish to
conduct these activities by simplifying
and streamlining the regulatory review
process. The amendment does not
impose more burdensome requirements
17 Compare 12 CFR 225.25(b)(5) with 12 CFR part
23 (1891).
20961
on bank holding companies than are
currently applicable.
Effective Date
The provisions of 5 U.S.C. 553(d)
generally prescribing 30 days’ prior
notice of the effective date of a rule
have not been followed in connection
with the adoption of this amendment
because adoption of the rule reduces a
regulatory burden. Section 553(d) grants
a specific exemption from its deferred
effective date requirements in these
instances.
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.
For the reasons set forth in the
preamble, and pursuant to the Board's
authority under section 5(b) of the Bank
Holding Company Act of 1956, as
amended (12 U.S.C. 1844(b)), the Board
amends 12 CFR part 225 as follows:
PART 225—BANK HOLDING
COMPANIES AND CHANGE IN BANK
CONTROL
1. The authority citation for part 225
continues to read as follows:
Authority: 12 U.S.C. 1817(j)(13), 1818,1S31-.,
1843(c)(8). 1844(b), 1972(1), 3106, 3108, 3807,
3909, 3310. and 3331-3351.
2. In § 225.25, footnotes 7 through 14
are redesignated as 8 through 15,
respectively. Paragraphs (b)(5) heading
and introductory text, (b)(5)(i) through
(iii). (b)(5)(iv) introductory text, (b)(5)(iv)
(A) through (D), and (b)(5)(v) and (vi)
are redesignated as (b)(5)(i) heading and
introductory text, (b)(5)(i)(A) through
(C), (b)(5)(i)(D), (b)(5)(i)(D)(J) through
(4), and (b)(5) (E) and (F), respectively.
The heading for paragraph (b)(5) is
added. Newly designated paragraphs
(b)(5)(i) introductory text, (b)(5)(i)(D)
introductory text, (b)(5)(i)(D}(3), and
(b)(5)(i)(F) are revised, and paragraph
(b)(5)(ii) is added to read as follows:
§ 225.25 List of permissible nonbanklrtg
activities.
*
*
*
*
*
(b) * * *
(5) Leasing—(i) Leasing personal or
real property. Leasing personal or real
property or acting as agent, broker, or
adviser in leasing such property if—
(A) * * *
(B) * * *
(C) * * *
(D) At the inception of the initial lease
the effect of the transaction (and, with
20962
Federal Register / Vol. 57, No. 90 / Monday, May 18, 1992 / Rules and Regulations
paragraph (b)(5)(i){D)(3) of this section,
if—
(A) The activity otherwise meets the
requirements of paragraph (b)(5)(i) of
this section;
(B) The lessor in no case relies on an
estimated residual value of the property
in excess of 100 percent of the
*
*
*
*
•
acquisition cost of the property to the
(3) The estimated residual value of the lessor;
property at the expiration of the initial
(C)(i) The aggregate book value of all
term of the lease, which in no case shall
exceed 25 percent of the acquisition cost personal property described in
paragraph (b)(5)(ii)(C)(2) of this section
of the property to the lessor; and
«r
*
*
*
*
does not exceed 10 percent of the bank
holding company's consolidated
(F) At the expiration of the lease
domestic and foreign assets;
(including any renewals or extensions
[2) For purposes of calculating the
with the same lessee), all interest in the
limit provided in paragraph (b)(5)(ii)(C)
property shall be either liquidated or
released on a nonoperating basis as
subclause (7) of this section, the bank
soon as practicable but in no event later holding company shall include all
than two years from the expiration of
tangible personal property held for lease
the lease;6 however, in no case shall the in transactions in which the bank
lessor retain any interest in the property holding company or any of its nonbank
beyond 50 years after its acquisition of
subsidiaries acting under authority of
the property.
this paragraph, or any domestic
(ii) Certain higher residual value
subsidiary bank of such holding
leasing. Leasing tangible personal
company, relies on an estimated
property or acting as agent, broker, or
residual value in excess of 25 percent of
adviser in leasing such property, in
the acquisition cost of the property;
which the lessor relies on an estimated
(D) The inital term of the lease is at
residual value of the property in excess
of the 25 percent limitation described in least 90 days;7
(E) Each company that conducts
* The Board understands that some federal, stats, leasing transactions under paragraph
and local governmental entities may not enter iato a (b)(5)(ii) of this section maintains
lease for a period in excess of one year. Such an
capitalization fully adequate to meet its
impediment does not prohibit a company authorised
obligations and support its activities,
to conduct leasing activities under this paragraph
and commensurate with industry
from entering into a lease with such governmental
entities if the company reasonably anticipates that
standards for companies engaged in
the governmental entities will renew the lease
comparable leasing activities; and
annually until such time as the company is fully
compensated for its investment in the leased
(F) The bank holding company
property plus its costs of financing the property.
maintains separately identifiable
Further, a company authorized to conduct personal
property leasing activities under this paragraph may records of the leasing activities
conducted under paragraphs {b){5) (i)
also engage in so-called “bridge” lease financing of
personal property, but not real property, if the lease
and (ii) of this section, where it conducts
is short-term pending completion of long-term
leasing activities under the authority of
financing, by the same or another lender.
both paragraphs (b)(5) (i) and (ii) of this
8 The estimate by the lessor of the total cost of
financing the property over the term of the lease
section.
respect to governmental entities only,
reasonably anticipated future
transactions 4) will yield a return that
will compensate the lessor for not less
than the lessor's full investment in the
property plus the estimated total cost of
financing the property over the term of
the lease,* from—
should reflect, among other factors, the term of the
lease, the modes of financing available to the lessor,
the credit rating of the lessor and/or the lessee, if a
factor in the financing, and prevailing rates in the
money and capital markets.
6 In the event of a default on. or early termination
of. a lease agreement prior to the expiration of the
lease term, the lessor shall either re-lease the
property, subject to all the conditions of this
paragraph, or liquidate the property as soon as
practicable but in no event later than two years
from the date of default on the lease agreement (in
the event of a default) or termination of the lease (in
the event of termination), or such additional time as
the Board may permit under g 225.22(c)(1) of this
part, as if the property were DPC property. During
the period following default on, or expiration or
termination of a lease, the lessor may lease the
property on a short-term basis in a lease that doe*
not conform to the requirements of this paragraph
provided that the property is liquidated or re-leased
in a conforming lease prior to the expiration of this
period.
#
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%
*
#
*
Board of Governors of the Federal Reserve
System, May 8,1992.
Jennifer J. Johnson,
Associate Secretary of the Board.
[FR Doc. 92-11560 Filed 5-15-92: 8 45 am)
BILLING CODE *210-01-1)
TThis minimum lease term requirement is not
intended to prohibit a bank holding company from
acquiring personal property subject to an existing
lease with a remaining maturity of less than 90
days, provided that, at the inception of the lease,
such lease conformed with all of the requirements of
this paragraph.
@FedFRASER