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Federal R eserve Bank
OF DALLAS
ROBERT

D. M C T E E R , J R .

PRESIDENT
AND c h i e f e x e c u t i v e

o ff ic e r

November 4, 1994

DALLAS, TEXAS
75265-5906

Notice 94-114

TO:

The Chief Executive Officer of each
member bank and others concerned in
the Eleventh Federal Reserve District

SUBJECT
Interim Rules and Request for
Public Comment on Application Procedures
Established by the Riegle Community Development
and Regulatory Improvement Act
DETAILS
The Board of Governors of the Federal Reserve System has issued interim
rules implementing changes to its application procedures established by the Riegle
Community Development and Regulatory Improvement Act of 1994 (CDR Act). The
Board is also requesting public comment on these rules.
The CDR Act makes certain revisions to the procedures that bank holding
companies must follow to gain approval of bank and nonbank acquisition proposals
under the Bank Holding Company Act. Specifically, the CDR Act
•

Establishes a prior notice procedure to replace the current application
process for all proposals by bank holding companies to engage in non­
banking activities,

•

Establishes a streamlined notice procedure for the formation of a new
bank holding company as part of a reorganization by the existing share­
holders of a bank,

•

Permits the Board, when it has obtained the consent of the Department
of Justice, to shorten from 30 days to 15 days the post-approval waiting
period during which the Department may file a court challenge to a bank
acquisition proposal on competitive grounds, and

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)

•

Eliminates the need for prior Board approval of certain Oakar transac­
tions whereby a bank acquires a thrift or thrift assets.

Because these amendments became effective upon enactment of the CDR
Act, the Board has adopted interim rules implementing these changes to the Board’s
application and notice procedures. In addition to seeking comment on these rules, the
Board is also seeking comment on any other ways in which its application and notice
procedures may be further streamlined to reduce the regulatory burden associated with
these procedures.
The Board must receive comments by December 5, 1994. Comments should
be addressed to William W. Wiles, Secretary, Board of Governors of the Federal
Reserve System, 20th Street and Constitution Avenue, N.W., Washington, D.C. 20551.
All comments should refer to Docket No. R-0852 and Docket No. R-0853.
ATTACHMENTS
Copies of the Board’s notices (Federal Reserve System Docket No. R-0852
and Docket No. R-0853) are attached.
MORE INFORMATION
For more information, please contact Michael Johnson at (214) 922-6081.
For additional copies of this Bank’s notice, please contact the Public Affairs Department
at (214) 922-5254.
Sincerely yours,

FEDERAL RESERVE SYSTEM
12 CFR Part 225
[Regulation Y; Docket No. R-0852]
Applications Under Regulation Y
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Interim rule with request for comments
SUMMARY: These rules are intended to implement the simplified notice
procedures recently established under section 346 of the Riegle Community
Development and Regulatory Improvement Act of 1994 for bank holding
companies proposing to engage de novo or through an acquisition in
nonbanking activities. Because Section 346 implements this procedure
immediately, the Board has proposed the following as an interim rule that will
take effect immediately and will apply to all notices filed subsequent to
enactment of Section 346. The Board also is seeking comments on the interim
rule, and will amend the rule as needed to address the comments received. The
Board is currently developing additional initiatives to reduce the regulatory
burden associated with its application and notice procedures, and the Board
invites comment on any suggestions in furtherance of these initiatives.
DATES: Comments must be received by December 5, 1994.
ADDRESSES: Comments should refer to Docket No. R-0852 and may be
mailed to William W. Wiles, Secretary, Board of Governors of the Federal
Reserve System, 20th Street and Constitution Avenue, NW, Washington, DC
20551. Comments also may be delivered to Room B-2222 of the Eccles
Building between 8:45 a.m. and 5:15 p.m. weekdays, or to the Board’s
Security Control Room inside the Eccles Building courtyard on 20th Street
(between Constitution Avenue and C Street, NW) anytime. Comments may be

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inspected in room MP-500 of the Martin Building between 9 a.m. and 5 p.m.
weekdays, except as provided in 12 CFR 261.8 of the Board’s rules regarding
availability of information.
FOR FURTHER INFORM ATION CONTACT: Scott G. Alvarez, Associate
General Counsel (202/452-3583), or Terence F. Browne, Senior Attorney
(202/452-3707), Legal Division; or Don E. Kline, Associate Director (202/4523421), Nicholas A. Kalambokidis, Supervisory Financial Analyst (202/4523830), or Larry R. Cunningham, Senior Financial Analyst (202/452-2701),
Division of Banking Supervision and Regulation of the Board of Governors of
the Federal Reserve System. For the hearing impaired only.
Telecommunications Device for the Deaf (TDD), Dorothea Thompson
(202/452-3544).
SUPPLEMENTARY INFORMATION: Section 4 of the Bank Holding
Company Act of 1956 (12 U .S.C. § 1843) (BHC Act) prohibits bank holding
companies from acquiring or retaining shares of any company that is not a bank
or engaging in any activity other than managing and controlling banks, except
under certain circumstances. The primary exception permits bank holding
companies to conduct activities and acquire companies engaged solely in
activities the Board has determined to be closely related to banking and a
proper incident thereto. See 12 U.S.C. § 1843(c)(8).
Section 346 of the Riegle Community Development and Regulatory
Improvement Act of 1994 (Pub. L. No. 103-325, § 346, 108 Stat. 2160, 2239
(1994)(" Section 346")) amends section 4 of the BHC Act to establish a new
notice procedure for obtaining Board approval under sections 4(a)(2) and 4(c)(8)

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of the BHC Act.1' Under Section 346, a proposal requiring Board approval
under section 4(a)(2) or 4(c)(8) may be consummated 60 days after providing
the Board with a complete written notice of the proposal, unless the notice
period is extended as provided in the statute. Section 346 also permits
proposals to be consummated at anytime during this notice period if approved
by the Board during this period.
The proposed interim rule would replace the current application
procedure of section 4(c)(8) of the BHC Act with the new notice procedure.-7
The rule would streamline the current procedure for obtaining Board approval
for nonbanking proposals in several respects. In particular, the proposed
revisions would:
• establish a simplified notice procedure for action on proposals to
engage de novo or through an acquisition in a listed activity (i.e., an
activity on the Regulation Y list of permissible nonbanking activities- )
within 30 days of receipt of the notice by the Reserve Bank;
• establish a notice procedure for action on proposals to engage de
novo or through an acquisition in an un-listed activity or a new
activity within 60 days of filing of a complete notice;

i/ Section 346 establishes a notice procedure for situations in which prior
Board approval is required under section 4(c)(8) or 4(a)(2) of the BHC Act, and
was not intended to impose any new approval requirements on transactions that
may otherwise be consummated under section 4 of the BHC Act without Board
approval.
All applications and notices to engage in nonbanking activities that were
filed with a Reserve Bank prior to September 23, 1994 will continue to be
processed under the existing rules.
-

3/ 12 CFR 225.25.

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• eliminate the current 28 day pre-acceptance period for notices
involving nonbanking proposals;
• reduce from 30 days to 15 days the public comment period for
proposals involving listed activities; and
• specify in the regulation the core information that bank holding
companies must provide for a nonbanking proposal.
These revisions to the current application procedures should result in an
overall reduction in the total period of time involved in reviewing nonbanking
proposals, and in a reduction in the paperwork burden associated with proposals
to engage in nonbanking activities. Comment is invited on all aspects of this
proposal.
Notice Procedure Under Interim Rule
To implement these statutory changes, the Board proposes to amend
Regulation Y to replace the application procedures for obtaining approval to
engage in nonbanking activities with a notice procedure. The interim rule
contemplates action by the Reserve Bank on nonbanking proposals involving
listed activities within 30 days after a notice containing all of the information
required in the rule has been received by the Reserve Bank, in cases that
qualify for Reserve Bank action, and within 60 days of that date in cases
involving any previously approved activity that are subject to Board action.
While the rule also indicates that the Board will seek to act on notices involving
new activities within 60 days of receipt of the notice by the Reserve Bank,
proposals that involve activities that have not been previously approved by the
Board often require substantial information and may continue to require a
greater processing period.

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The interim rule specifies the different types of information required for
proposals to engage de novo in listed activities, proposals to acquire a company
engaged in listed activities, and proposals to engage in activities not previously
approved by regulation ("unlisted activities").
Listed Activities
The proposed rule contemplates that proposals to engage de novo or to
acquire a company engaged in a listed activity will be approved within 30 days
of the original date of filing of the notice, even if additional information is
subsequently requested by the Reserve Bank or the Board. Upon receipt of a
notice to engage in or to acquire a company engaged in a listed activity (or an
activity previously approved by order), the Reserve Bank shall immediately
notify the Board, and the Board will publish notice of the proposal in the
Federal Register inviting public comment for a period of 15 days. Within 30
calendar days after receipt by the Reserve Bank of a notice filed under the
interim rule, the Reserve Bank must approve the notice, extend the notice
period for 15 calendar days, or refer the notice to the Board for decision
because a substantive comment on the proposal has been received or action on
the notice by the Reserve Bank is not appropriate. The Reserve Bank also
may, within 15 calendar days of receipt of the notice, return the notice if it is
informationally incomplete. Under the interim rule, the return of a notice by a
Reserve Bank under such circumstances is deemed action on the notice.
Unlisted Activities
As is the practice under the current rules, proposals to engage in
activities not previously approved by the Board by regulation or order will be
published by the Board in the Federal Register within 10 business days of
acceptance by the Reserve Bank, unless the Board determines to extend this 10-

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day period for an additional 30 days. Public notice of proposals to engage in
such new activities shall invite comment for a period of generally 30 days, or if
the Board determines that the notificant has not adequately demonstrated that
the proposed activity is so closely related to banking as to be a proper incident
thereto, the Board may return the notice and explain the reasons for its
determination.
The interim rule provides that the Board will attempt to act on all cases
referred for Board action within 60 days of the date the notice is received by
the Reserve Bank. As noted above, proposals that involve new activities that
have not been previously approved by the Board are likely to require a greater
processing period. In the event the Board does not act on the notice within 60
days of receipt by the Reserve Bank, the Board will notify the bank holding
company, and explain the reasons for needing additional time as well as provide
an anticipated date by which the Board expects to act on the notice.
Elimination of Pre-Acceptance Review Period
As noted above, the interim rule eliminates the pre-acceptance review
procedure currently contained in Regulation Y for proposals to engage in
nonbanking activities. This procedure established a defined period of up to 28
days during which an applicant and the Reserve Bank could identify and
address significant issues prior to the filing of a final application. This
procedure has been particularly beneficial to the processing of complex
proposals and applications to engage in activities not previously approved by the
Board by regulation or order, where information requests often must be tailored
to the specific proposal.
While the elimination of pre-acceptance procedures should shorten the
review process, the Board recognizes the utility of a pre-acceptance procedure

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and anticipates that there will be certain proposals that could benefit from some
form of pre-acceptance review. The Board invites comments as to whether
some form of pre-notice review procedure should be reinstated in the final
regulations.
Public Notice
Regulation Y currently provides that (with the exception of proposals
processed under the abbreviated procedure for small acquisitions) all proposals
to engage in previously approved nonbanking activities must be published in the
Federal Register and provide for a public comment period of not more than
30 days. Under the interim rule, the public comment period has been shortened
from 30 days to 15 days for proposals to engage in activities previously
approved by the Board by regulation or order. The interim rule also provides
that the Reserve Bank may not act on a notice before the fifth business day
following the close of the public comment period unless an emergency exists
requiring expedited or immediate action.
Section 346 authorizes the Board to prescribe shorter notice periods by
regulation for particular activities or transactions. The Board invites comment
on whether further shortening of the comment period is appropriate, particularly
for notices to engage in activities previously approved by the Board. In
particular, the Board requests comment on a proposal to reduce the public
comment period to 5 calendar days for proposals that involve listed activities
and/or activities that have been previously approved by Board order. This
would enable the Reserve Banks to act on proposals that raise no substantive
issues well within the 30-day target.

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Statutory Period
The interim rule incorporates the provisions of Section 346 that establish
the permissible length of the notice period. Under the interim rule, a notice is
deemed approved by operation of law 60 days after receipt of a complete
notice, unless extended as provided in Section 346. As provided in the statute,
the interim rule provides that a notice is deemed complete when it contains all
information required in the interim rule and all other information requested by
the Board or the Reserve Bank in connection with the notice. The Board may
extend the notice period for an additional 30 days upon notice to the bank
holding company. If the proposal involves an unlisted activity, the Board may
extend the notice period for a 90-day period in addition to the 30-day extension,
provided the Board notifies the bank holding company and explains the reasons
for this additional extension. Further extensions are only permissible in the
event the Board determines to conduct a hearing on the proposal, or the
notificant has consented to an extension or tolling of the notice period.
The interim rule adopts the provision in Section 346 that permits the
Board to request additional information about a proposal at any time during the
notice period. The rule also includes the provision of Section 346 that provides
that the Board may deny any notice if the notificant neglects, fails, or refuses to
furnish the Board all the information required by the Board.
Abbreviated Notice Procedure for Small Acquisitions
The interim rule retains the current abbreviated notice procedure
contained in Regulation Y for small acquisitions of assets or shares of
companies engaged in activities previously approved by the Board by

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regulation.-7 Currently, this abbreviated notice procedure may be used for
acquisitions where neither the book value of the assets to be acquired nor the
gross consideration to be paid for the securities or assets exceeds the greater of
(i) $15 million or (ii) 5 percent of the consolidated assets of the acquiring
company up to a maximum of $100 million. The interim rule retains this
abbreviated notice procedure for small acquisitions of companies engaged in
laundry list activities, and increases the size limitation for acquisitions that
qualify for this procedure from a maximum of $100 million to a maximum of
$300 million.
The primary benefit of the abbreviated notice procedure for small
acquisitions is the shortened approval process realized by opting to publish
public notice of the proposal in local newspapers in the communities affected by
the proposal. Since this provision of Regulation Y was adopted, notificants
have increasingly opted to publish notice of the proposed acquisition in the
Federal Register in order to conduct the nonbanking activity nationwide or
throughout a geographic area so large that public notice of the proposal by
means of local newspaper publication is unduly expensive or impracticable.
Moreover, the streamlined notice procedure established by the interim rule
would effectively shorten the notice period for all acquisitions involving listed
activities.

This procedure is only available to bank holding companies that meet the
Board’s Capital Adequacy Guidelines and are proposing to acquire a company
engaged in activities for which the bank holding company has previously
received System approval.

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In light of this, the Board invites comment as to whether the abbreviated
notice procedure for small acquisitions should be retained, eliminated, or
amended.
Simplified Notice Procedures
The Board believes that these proposals will substantially reduce the
burden associated with the approval requirement under section 4 of the BHC
Act without resulting in unsafe and unsound banking practices. Because the
provisions of Section 346 are implemented immediately, the Board is proposing
to adopt the following regulation as an interim rule in connection with
nonbanking activities conducted pursuant to section 4 of the BHC Act. The
Board invites comments on all aspects of this interim rule, and will amend this
rule as needed to reflect the comments received. The Board also invites
suggestions on other means of reducing the regulatory burden associated with
the System’s application and notices procedures.
Regulatory Flexibility Act Analysis
Pursuant to section 605(b) of the Regulatory Flexibility Act (5 U .S.C.
601 et seq.), the Board does not believe that these changes will have a
significant adverse economic impact on a substantial number of small entities.
This interim rule will reduce the regulatory burden on bank holding companies
imposed by the Board’s procedures, and the Board is inviting public comment
on additional ways to reduce regulatory burden.
Paperwork Reduction Act Analysis
No collections of information pursuant to section 3504(h) of the
Paperwork Reduction Act (44 U .S.C. 3501 et seq.) are contained in these
changes, and comment is invited on a proposal that would reduce the current

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information collection requirements imposed in connection with certain
applications.
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 forth in the preamble, the Board proposes to amend
12 CFR part 225 as follows:
PART 225 - BANK HOLDING COMPANIES 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, 1831i,

183 l p - 1, 1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3907, 3909, 3310, and
3331-3351.
2. Sections 225.23 and 225.24 are revised to read as follows:
§ 225.23 Procedures for notices to engage in nonbanking activities.
(a)

Notice required for nonbanking activities. A notice for the Board’s

prior approval under § 225.21(a) to engage in or acquire a company engaged in
a nonbanking activity shall be filed by a bank holding company (including a
company seeking to become a bank holding company) with the appropriate
Reserve Bank in accordance with this section and the Board’s Rules of
Procedure (12 CFR 262.3).
(1)

Engaging de novo in listed activities. A bank holding

company seeking to commence or to engage de novo, either directly or
through a subsidiary, in a nonbanking activity listed in § 225.25 shall file
a notice containing the following:

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(i) A description of the activities to be conducted;
(ii) The identity of the company that will conduct the
activity; and
(iii) If the notificant proposes to conduct the activity through
an existing subsidiary, a description of the existing activities of the
subsidiary.
(2)

Acquiring company engaged in listed activities. A bank

holding company seeking to acquire or control voting securities or assets
of a company engaged in a nonbanking activity listed in § 225.25 shall
file a notice containing the following:
(i) A description of the proposal, including a description of
each proposed activity, and the effect of the proposal on
competition among entities engaging in each proposed activity;
(ii) The identity of any entity involved in the proposal, and
if the notificant proposes to conduct the activity through an existing
subsidiary, a description of the existing activities of the subsidiary;
(iii) A statement of the public benefits that can reasonably be
expected to result from the proposal; and
(iv) A description of the terms and sources of funds for the
transaction; a copy of any pertinent purchase agreement(s); balance
sheet and income statements for the most recent fiscal quarter and
year-end for any company to be acquired; parent company only and
consolidated pro forma balance sheets for the notificant as of the
most recent fiscal quarter; and calculations of pro forma
consolidated risk-based capital ratios and leverage ratio for the
notificant as of the most recent fiscal quarter.

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(3)

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Engaging in or acquiring company to engage in unlisted

activities. A bank holding company seeking to commence or to engage
de novo, or to acquire or control voting securities or assets of a company
engaged in, any activity not listed in § 225.25 shall file a notice
containing the following:
(i) Evidence that the proposed activity is so closely related
to banking or managing or controlling banks as to be a proper
incident thereto;
(ii) A commitment to comply with all conditions and
limitations that have been established by the Board governing the
proposed activity; and
(iii) The information required in paragraph (2), as
appropriate.
(b) Notice provided to Board. The Reserve Bank shall immediately send
to the Board a copy of any notice received under paragraphs (a)(2) or (a)(3) of
this section.
(c) Notice to public - (1) Listed activities and activities approved by
order. A Reserve Bank that receives a notice involving an activity listed in
§ 225.25 or previously approved by the Board by order shall immediately send
notice of receipt of the proposal to the Board for publication in the Federal
Register. The Federal Register notice shall invite public comment on the
proposal for a period of 15 days.
(2)

New activities - (i) In general. In the case of a notice under

this section involving an activity that is not listed in § 225.25 and that has
not been previously approved by the Board by order, the Board shall send
notice of the proposal to the Federal Register for publication, unless the

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Board determines that the notificant has not demonstrated that the activity
is so closely related to banking or to managing or controlling banks as to
be a proper incident thereto. The Federal Register notice shall invite
public comment on the proposal for a reasonable period of time,
generally for 30 days.
(ii)

Time for publication. The Board shall send the notice

required under this paragraph to the Federal Register within 10
business days of acceptance by the Reserve Bank. The Board may
extend the 10-day period for an additional 30 calendar days upon
notice to the notificant. In the event notice of a proposal is not
published for comment, the Board shall inform the notificant of the
reasons for the decision.
(d) Action on notices - (1) Reserve Bank action. - (i) In general.
Within 30 calendar days after receipt by the Reserve Bank of
a notice filed pursuant to paragraphs (a)(1) or (a)(2) of this
section, the Reserve Bank shall:
(A) Approve the notice; or
(B) Refer the notice to the Board for decision because
substantive adverse comment has been received or because
action under delegated authority is not appropriate.
(ii)

Return of incomplete notice. Within 15 calendar days of

receipt, the Reserve Bank may return any notice as informationally
incomplete that does not contain all of the information required by
this subpart. The return of such a notice shall be deemed action on
the notice.

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(iii) Extension of period for action. The Reserve Bank may,
within the 30-day period provided in this paragraph for action on a
notice, extend such 30-day period for an additional 15 calendar
days.
(iv) Notice of action. The Reserve Bank shall promptly
notify the bank holding company of any action, referral or
extension under this paragraph.
(v) Close of public comment period. The Reserve Bank
shall not approve any notice under this paragraph prior to the fifth
business day after the close of the public comment period, unless
an emergency exists that requires expedited or immediate action.
(2) Board action - (i) Internal schedule. The Board seeks to act
on every notice referred to it for decision within 60 days of the
date that the notice is filed with the Reserve Bank. If the Board is
unable to act within this period, the Board will notify the notificant
and explain the reasons and the date by which the Board expects to
act.
(ii) Required time limit for Board action. The Board shall
act on any notice under this section that is referred to it for
decision within 60 calendar days after the submission of a complete
notice.
(iii) Extension of required period for action - (A) In
general. The Board may extend the 60-day period required for
Board action under paragraph (d)(2)(ii) of this section for an
additional 30 days upon notice to the notificant.

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(B) Unlisted activities. If a notice involves a
proposal to engage in an activity that is not listed in
§ 225.25, the Board may extend the period required
for Board action under paragraph (d)(2)(ii) of this
section for an additional 90 days. This 90-day
extension is in addition to the 30-day extension period
provided in paragraph (d)(2)(iii)(A) of this section.
The Board shall notify the notificant that the notice
period has been extended and explain the reasons for
the extension.
(3) Requests for additional information. The Board or the Reserve
Bank may at any time request any additional information that either
believes is needed for a decision on any notice under this subpart.
(4) Tolling of period. The Board or the Reserve Bank, as the case
may be, may at any time extend or toll the time period for action on a
notice for any period with the consent of the notificant.
(5) Approval through failure to act. A notice under this subpart
shall be deemed to be approved at the conclusion of the period that
begins on the date the complete notice is received by the Reserve Bank or
the Board and that ends 60 calendar days plus any applicable extension
and tolling period thereafter.
(6) Complete notice. A notice shall be deemed to be complete for
purposes of this subpart at such time as it contains all information
required by this subpart and all other information requested by the Board
or the Reserve Bank in connection with the particular notice.

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(e) Expedited procedure for small acquisitions - (1) Filing notice. As
an alternative to the notice procedure of paragraph (a)(2) of this section,
a bank holding company may satisfy the notice requirement of this
section in connection with the acquisition of voting securities or assets of
a company engaged in an activity listed in § 225.25 by:
(i) Providing the appropriate Reserve Bank with a
description of the transaction; and either
(ii) Submitting a copy of a newspaper notice in the form
prescribed by the Board; or
(iii) Requesting the Board to publish notice of the proposal
in the Federal Register as provided in paragraph (c)(1) of this
section.
(2) Contents of publication. A newspaper notice under this
subsection shall be published in a newspaper of general circulation in the
areas to be served as a result of the acquisition and shall provide an
opportunity for interested persons to comment on the notice for a period
of at least 10 calendar days.
(3) Criteria for use of expedited procedure. The procedure in this
paragraph is available only if:
(i)

Neither the book value of the assets to be acquired nor

the gross consideration to be paid for the securities or assets
exceeds the greater of:
(A) $15 million; or
(B) Five percent of the consolidated assets of the
acquiring company up to a maximum of $300 million;

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(ii) The bank holding company has previously received
Board approval to engage in the activity involved in the acquisition;
and
(iii) The bank holding company meets the Board’s Capital
Adequacy Guidelines (Appendix A of Subparts A through E of this
part).
(4)

Action on notice. Within 5 business days after the close of the

comment period specified in the Federal Register notice or within 15
calendar days after receipt by the Reserve Bank of the newspaper notice,
the Reserve Bank shall either approve the proposal or refer it to the
Board for decision if action under delegated authority is not appropriate.
The Board shall act in accordance with paragraph (d)(2) of this section on
a notice under this paragraph that is referred to it for decision. The
Reserve Bank, upon written notice to the notificant, may extend the time
period for approval under this paragraph for a reasonable period of time
not to exceed 30 days.
(f) Hearings - (1) Procedure to request hearing. Any request for a
hearing on a notice under this section shall comply with the provisions of
12 CFR 262.3(e).
(2) Determination to hold hearing. The Board may order a formal
or informal hearing or other proceeding on a notice as provided in
12 CFR 262.3(i)(2). The Board shall order a hearing only if there are
disputed issues of material fact that cannot be resolved in some other
manner.
(3) Extension of period for hearing. The Board may extend the
time for action on any notice for such time as is reasonably necessary to

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conduct a hearing and evaluate the hearing record. Such extension shall
not exceed 91 calendar days after the date of submission to the Board of
the complete record on the notice. The procedures for computation of
the 91-day rule as set forth in § 225.14(g) apply to notices under this
subpart that involve hearings.
(g) Notice to expand or alter nonbanking activities - (1) De novo
expansion. A notice under paragraph (a)(1) of this section is required to
open a new office or to form a subsidiary to engage in, or to relocate an
existing office engaged in, a nonbanking activity that the Board has
previously approved for the bank holding company under this regulation,
only if:
(i) The Board’s prior approval was limited geographically;
(ii) The activity is to be conducted in a country outside of
the United States and the bank holding company has not previously
received prior Board approval under this regulation to engage in the
activity in that country; or
(iii) The Board or appropriate Reserve Bank has notified the
company that a notice under paragraph (a)(1) of this section is
required.
(2)

Activities outside United States. With respect to activities to be

engaged in outside the United States that require approval under this
subpart, the procedures of this section apply only to activities to be
engaged in directly by a bank holding company that is not a qualifying
foreign banking organization or by a nonbank subsidiary of a bank holding
company approved under this subpart. Regulation K (12 CFR Part 211)
governs other international operations of bank holding companies.

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(3)

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Alteration of nonbanking activity. A notice under

paragraph (a)(1) of this section is required to alter a nonbanking activity in
any material respect from that considered by the Board in acting on the
application or notice to engage in the activity.
(h)

Emergency thrift institution acquisitions. In the case of a notice to

acquire a thrift institution, the Board may modify or dispense with the public
notice and hearing requirements of this section if the Board finds that an
emergency exists that requires the Board to act immediately and the primary
Federal regulator of the institution concurs.
§ 225.24 Factors considered in acting on nonbanking proposals.
(a) In general. In evaluating a notice under § 225.23, the Board shall
consider whether the performance by the notificant of the activities can
reasonably be expected to produce benefits to the public (such as greater
convenience, increased competition, and gains in efficiency) that outweigh
possible adverse effects (such as undue concentration of resources, decreased or
unfair competition, conflicts of interest, and unsound banking practices).
(b) Financial and managerial resources. Consideration of the factors in
paragraph (a) of this section includes an evaluation of the financial and
managerial resources of the notificant, including its subsidiaries, and any
company to be acquired, and the effect of the proposed transaction on those
resources.
(c) Competitive effect of de novo proposals. Unless the record
demonstrates otherwise, the commencement or expansion of a nonbanking
activity de novo is presumed to result in benefits to the public through increased
competition.

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(d) Denial for lack of information. The Board may deny any notice
submitted under this subpart if the notificant neglects, fails, or refuses to furnish
all information required by the Board.
By order of the Board of Governors of the Federal Reserve System,
effective October 26, 1994.
(signed) William W. Wiles

William W. Wiles,
Secretary of the Board.

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FEDERAL RESERVE SYSTEM
12 CFR Parts 225 and 262
[Regulation Y; Docket No. R-0853]
Applications Under Regulation Y
AGENCY: Board of Governors of the Federal Reserve System.
A C T IO N : Interim rule with request for comments.
SUM M A RY : These rules implement the streamlined notice procedure recently
enacted in Section 319 of the Riegle Community Development and Regulatory
Improvement Act of 1994 ("Riegle Act") for the formation of a new bank
holding company that results from a corporate reorganization of a bank by the
current shareholders of the bank. These rules also implement section 321 of the
Riegle Act, which amends the Bank Holding Company Act and the Bank Merger
Act to authorize the Board to shorten the post-approval waiting period for bank
acquisitions and mergers (during which time the United States Attorney General
may review the competitive effects of a proposal approved by the Board) from 30
to 15 days with the consent of the United States Attorney General. Because the
procedures prescribed by section 319 and section 321 are effective immediately,
the Board has proposed the following as an interim rule that will take effect
immediately. The Board is seeking comments on this interim rule, and will
amend the rule as needed to address the comments received. The Board also is
currently developing additional initiatives to reduce the regulatory burden
associated with its application and notice procedures, and invites comment on any
suggestions in furtherance of these initiatives.
DATES: Comments must be received by December 5, 1994.

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ADDRESSES: Comments should refer to Docket No. R-0853 and may be
mailed to William W. Wiles, Secretary, Board of Governors of the Federal
Reserve System, 20th Street and Constitution Avenue, NW, Washington, DC
20551. Comments also may be delivered to Room B-2222 of the Eccles Building
between 8:45 a.m. and 5:15 p.m. weekdays, or to the Board’s Security Control
Room inside the Eccles Building courtyard on 20th Street (between Constitution
Avenue and C Street, NW) anytime. Comments may be inspected in room MP500 of the Martin Building between 9 a.m. and 5 p.m. weekdays, except as
provided in 12 CFR 261.8 of the Board’s rules regarding availability of
information.
FOR FURTHER INFORMATION CONTACT: Scott G. Alvarez, Associate
General Counsel (202/452-3583), or Terence F. Browne, Senior Attorney
(202/452-3707), Legal Division; or Don E. Kline, Associate Director (202/4523421), Nicholas A. Kalambokidis, Supervisory Financial Analyst (202/452-3830),
or Larry R. Cunningham, Senior Financial Analyst (202/452-2701), Division of
Banking Supervision and Regulation of the Board of Governors of the Federal
Reserve System. For the hearing impaired only. Telecommunications Device for
the Deaf (TDD), Dorothea Thompson (202/452-3544).
SUPPLEMENTARY INFORMATION: Section 3(a) of the Bank Holding
Company Act of 1956 (12 U.S.C. § 1842(a)) ("BHC Act") requires Federal
Reserve Board approval prior to consummating certain transactions resulting in
the formation of a bank holding company, or in the acquisition by a bank holding
company of shares or control of a bank, subject to certain exceptions.
Section 319 of the Riegle Community Development and Regulatory
Improvement Act of 1994 (Pub. L. No. 103-325, § 319, 108 Stat. 2160, 2224
(1994)("Section 319")) amends section 3 of the BHC Act to establish a notice

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procedure for the formation of a new bank holding company resulting from a
corporate reorganization that involves substantially the same shareholders.-7 In
connection with Section 319, section 320 of the Riegle Act provides an
exemption from the registration requirements of the Securities Act of 1933 for
securities issued by a bank holding company pursuant to such a reorganization.
In addition, section 321 of the Riegle Act (Pub. L. No. 103-325, § 321,
108 Stat. 2160, 2226 (1994)("Section 321") permits the Board, with the consent
of the U.S. Attorney General, to shorten the post-approval waiting period for
bank acquisitions and mergers from 30 days to 15 days. The proposed interim
rule implement the provisions enacted in sections 319 and 321 of the Riegle Act.
Comment is invited on all aspects of these proposals.
Formation of a New Bank Holding Company Under Section 319
By its terms, the notice procedure added by Section 319-7 applies only if
certain conditions are met. Specifically, the formation of a new bank holding
company may be consummated 30 days after providing written notice to the
appropriate Federal Reserve Bank if: (1) the shareholders of the bank will

- Section 319 also amends section 5(d)(3) of the Federal Deposit Insurance
Act (12 U .S.C. § 1815(d)(3)) -- commonly referred to as the "Oakar
Amendment"-- to eliminate the requirement for prior Board approval of
transactions by banks owned by holding companies to merge with thrift
institutions. Under the Riegle Act, Oakar transactions continue to require the
prior approval of the appropriate Federal banking agency for the acquiring
institution, and all Oakar transactions must comply with section 3(d) of the
BHC Act, the "Douglas Amendment." No amendments to the Board’s
regulations are needed to implement these amendments to section 5(d)(3).
Any application to organize a bank holding company that was filed with
a Reserve Bank prior to September 23, 1994 will continue to be processed
under the existing rules.
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acquire, as a result of the reorganization, the shares of the newly formed bank
holding company in substantially the same proportional interest as they held in
the bank; (2) the bank holding company would meet, and its resulting subsidiary
bank would meet, certain financial and capital standards; (3) the bank holding
company would not, as a result of the reorganization, acquire other banking or
nonbanking interests; and (4) during the 30-day notice period, the Reserve Bank
or the Board does not object to the proposal.
Substantially the Same Shareholders
Under the interim rule, the requirement that shareholders of the bank
acquire "substantially the same share interest" in the newly formed bank holding
company would be met by proposals in which the shareholder or shareholders
who lawfully control at least 80 percent of the shares of the bank at the time the
notice is filed would acquire, immediately after the reorganization, at least 80
percent of the shares of the holding company in substantially the same
proportion.
By the terms of Section 319, allowance is made for changes in
shareholders’ interests resulting from the exercise of dissenting shareholders’
rights under State or Federal law. Accordingly, under the interim rule, a
shareholder of the bank will be considered to have substantially the same
proportional interest in the holding company (notwithstanding a change in the
percentage of shares controlled by the shareholder) if the shareholder interest
increases, on a pro rata basis, as a result of either the redemption by the bank or
bank holding company of shares from dissenting shareholders, or as a result of
the acquisition of shares of dissenting shareholders by the remaining
shareholders.

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However, this notice procedure would not be available in cases in which
any shareholder or group of shareholders acting in concert would, following the
reorganization, own or control 10 percent or more of any class of voting shares
of the bank holding company unless that shareholder or group of shareholders
was authorized, after review under the Change in Bank Control Act of 1978
(12 U .S.C. § 1817(j)) by the appropriate Federal banking agency for the bank, to
own or control 10 percent or more of any class of voting shares of the bank.
Similarly, this procedure is not available in cases in which the exercise of
dissenting shareholders’ rights would cause a company that is not a bank holding
company (other than the company in formation) to be required to register as a
bank holding company. This procedure also is not available for the formation of
a bank holding company organized in mutual form.
The Board seeks comment on other alternative formulations consistent with
the statutory mandate that the reorganization involve substantially the same
shareholders.
Financial Standards
Section 319 also establishes certain financial thresholds that must be
satisfied to qualify for the abbreviated notice procedure. In particular, the bank
to be reorganized must, at the time the notice is filed, be "adequately
capitalized," as this term is defined in section 38 of the Federal Deposit
Insurance Act. See 12 U .S.C. § 183lo. In addition, Section 319 requires that
the bank holding company resulting from the reorganization meet any "capital
and other financial standards" established by the Board.
In the interim rule, the Board has established three requirements designed
to identify reorganization proposals that do not raise financial or supervisory
concerns that would benefit from review and explanation through an application

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process rather than an abbreviated notice procedure. Under the interim rule, a
proposal to form a new one-bank holding company would qualify for the
abbreviated notice procedures established in Section 319 if: (1) the bank has
received at least a composite "satisfactory" rating at its most recent examination,
in the event that the bank has been subject to examination; (2) the amount of debt
that the bank holding company would assume at the time of the reorganization,
and the proposed means of retiring this debt, would not place undue burden on
the holding company or its subsidiary on a pro forma b a s i s a n d (3) at the time
of the reorganization, neither the bank nor any of its officers, directors or
shareholders is involved in any unresolved supervisory or enforcement matters
with any appropriate Federal banking agency.
Section 319 provides that this abbreviated notice procedure is only
available to a bank holding company that would not acquire any additional banks
or any nonbanking interests as part of the reorganization.
Contents of Notice
To begin the notice period under the interim rule, the notificant
organization must submit to the appropriate Reserve Bank a written notice that
includes: (1) certification that the requirements of Section 319 and the Board’s
implementing rule are met by the proposal; (2) a list of the shareholders of the
bank prior to the reorganization and of the holding company following the
reorganization, identifying the percentage of shares held by each shareholder in

For a banking organization with consolidated assets, on a pro forma
basis, of less than $150 million (other than a banking organization that would
control a de novo bank), this requirement would be satisfied if the proposal
would comply with the Board’s policy statement on small one-bank holding
company formations (12 CFR Part 225, Appendix C).
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the bank and proposed to be held in the new holding company; (3) a description
of the resulting management of the proposed bank holding company and its
subsidiary bank, including (i) biographical information regarding any officers,
directors or shareholders of the resulting bank holding company who were not
senior officers or directors of the bank prior to the reorganization, and (ii) a
detailed history of the involvement of any officer, director or shareholder of the
resulting bank holding company in any administrative or criminal proceeding; (4)
pro forma financial statements for the bank holding company, and a description
of the amount, source and terms of debt, if any, that the bank holding company
proposes to incur, and information regarding the sources and timing for debt
service and retirement; and (5) verification that notice of the proposal has been
published in a newspaper of general circulation in the community in which the
bank is located that provides an opportunity for interested persons to comment on
the notice for a period of at least 15 calendar days.
As indicated above, the interim rule requires that the applicant publish
notice of the proposed reorganization and invite public comment for a period of
at least 15 days. This request for public comment is consistent with the Board’s
practice of publishing notice of all bank holding company formations and bank
expansion proposals so that the public may comment in particular on the bank’s
record of serving the convenience and needs of the community under the
Community Reinvestment Act.
Objections to Notices
Within 7 calendar days of receipt of a notice containing all the information
required under this interim regulation, the appropriate Reserve Bank will provide
a written acknowledgement of receipt of the notice indicating that the transaction
may be consummated following the 30th calendar day after the date the notice

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was received by the Reserve Bank unless the Reserve Bank or the Board objects
to the proposal during that time. The Reserve Bank may provide written notice
of approval of the reorganization at an earlier time during the notice period.
If during the notice period the Board or the Reserve Bank objects to the
proposal, the bank holding company must file an application under section 3 of
the BHC Act.-7 In this case, the notificant will immediately be notified of the
reason for the objection, and of any additional information that may be needed to
complete an application.
Shortening of Post-Approval Waiting Period Under Section 321
Currently, section 11(b)(1) of the BHC Act (12 U .S.C. 1849(b)(1))
prohibits a bank holding company that has received approval for a transaction
under section 3 of the BHC Act (other than transactions involving a probable
bank failure or an emergency) from consummating the transaction prior to the
thirtieth day following Board approval of the proposal in order to provide the
United States Attorney General time to review the transaction for any adverse
effects on competition in banking or the concentration of banking resources. The
Bank M erger Act contains a similar provision applying post-approval waiting
period to bank merger proposals. See 12 U.S.C. § 1828(c)(6).
Because Section 319 creates an exception from the application and approval
process established by section 3 of the BHC Act, a notificant who has met the
criteria of Section 319 and the interim rule does not appear to be subject to the
post-approval waiting period established under section 11 of the BHC Act.

See 12 CFR 225.14. If the Reserve Bank or Board believes that issues
might readily be resolved within the notice period without having to issue a
formal objection, the Reserve Bank or Board may request additional
information during the notice period to supplement the notice.
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With regard to other acquisitions under section 3 of the BHC Act or under
the Bank M erger Act, section 321 of the Riegle Act ("Section 321") authorizes
the Board to shorten the post-approval waiting period in any case to a period of
not less than 15 days, provided the Board has received no adverse comment from
the Attorney General relating to competitive factors and the Attorney General
concurs with the Board’s decision to shorten the waiting period. Section 321
does not affect processing of applications involving probable bank failures or
emergencies. The interim rule incorporates these revisions to the Board’s
Regulation Y. The Board is currently discussing with the U.S. Department of
Justice the types of cases that may qualify for this
shortened post-approval waiting period, and invites public comment on the types
of cases where this would be appropriate.
As described above, the Board has adopted the following interim rule
which shall be effective immediately, and invites public comment on all aspects
of this interim rule. The Board also invites suggestions on other means of
reducing the regulatory burden associated with its application and notices
procedures.
Regulatory Flexibility Act Analysis
Pursuant to section 605(b) of the Regulatory Flexibility Act (5 U .S.C. 601
et seq.), the Board does not believe that these changes will have a significant
adverse economic impact on a substantial number of small entities. This interim
rule will reduce the regulatory burden imposed by the Board’s procedures on
small bank holding companies in formation, and the Board is inviting public
comment on additional ways to reduce regulatory burden.

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Paperwork Reduction Act Analysis
No collections of information pursuant to section 3504(h) of the Paperwork
Reduction Act (44 U.S.C. 3501 et secj.) are contained in these changes, and
comment is invited on a proposal that would reduce the current information
collection requirements imposed in connection with certain applications.
List of Subjects
12 CFR Part 225
Administrative practice and procedure, Banks, banking, Federal Reserve
System, Holding Companies, Reporting and Recordkeeping Requirements,
Securities.
12 CFR Part 262
Administrative practice and procedure, Banks, banking, Federal Reserve
System
For the reasons set forth in the preamble, the Board proposes to amend
12 CFR parts 225 and 262 as follows:
PART 225 - BANK HOLDING COMPANIES 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, 1831i, 1831p-l, 1843(c)(8), 1844(b),

1972(1), 3106, 3108, 3907, 3909, 3310, and 3331-3351.
2. In § 225.11, the introductory text is revised to read as follows:
§ 225.11 Transactions requiring Board approval.
The following transactions require an application for the Board’s prior
approval under section 3 of the Bank Holding Company Act except as exempted
under § 225.12 or as otherwise covered by § 225.15 of this part:
*

*

*

=
4
c

*

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3. In § 225.14, a new paragraph (i) is added to read as follows:
§ 225.14 Procedures for applications, notices, and hearings.

(i)

Waiting period. A transaction approved under this subpart, other than

a transaction approved under § 225.15, shall not be consummated until 30 days
after the date of approval of the application, except that a transaction may be
consummated:
(1) Immediately upon approval, in the event that the Board has
determined under paragraph (h) of this section that the application involves
a probable bank failure;
(2) On or after the fifth calendar day following the date of approval,
in the event that the Board has determined under paragraph (h) of this
section that an emergency exists requiring expeditious action; or,
(3) On or after the fifteenth calendar day following the date of
approval, in the event that the Board has not received any adverse
comments from the United States Attorney General relating to the
competitive factors and the Attorney General has consented to such shorter
waiting period.
4. A new § 225.15 is added under Subpart B to read as follows:
§ 225.15 Notice Procedure for One-Bank Holding Company Formations.
(a)

Transactions which qualify under this section. An acquisition by a

company of control of a bank may be consummated 30 days after providing
notice to the appropriate Reserve Bank in accordance with paragraph (b) of this
section, provided that all of the following conditions are met:
(1)

The shareholder or shareholders who control at least 80 percent

of the shares of the bank would control, immediately after the

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reorganization, at least 80 percent of the shares of the holding company in
substantially the same proportion, except for changes in shareholders’
interests resulting from the exercise of dissenting shareholders’ rights under
State or Federal law;2/
(2) No shareholder or group of shareholders acting in concert would,
following the reorganization, own or control 10 percent or more of any
class of voting shares of the bank holding company unless that shareholder
or group of shareholders was authorized, after review under the Change in
Bank Control Act of 1978 (12 U .S.C. § 1817(j)) by the appropriate
Federal banking agency for the bank, to own or control 10 percent or more
of any class of voting shares of the b a n k ;-7
(3) The bank is adequately capitalized (as defined in section 38 of
the Federal Deposit Insurance Act (12 U .S.C. § 183lo));
(4) The bank has received at least a composite "satisfactory" rating
at its most recent examination, in the event that the bank has been subject
to an examination;
(5) At the time of the reorganization, neither the bank nor any of its
officers, directors or shareholders is involved in any unresolved

A shareholder of a bank in reorganization will be considered to have the
same proportional interest in the holding company if the shareholder interest
increases, on a pro rata basis, as a result of either the redemption of shares
from dissenting shareholders by the bank or bank holding company or the
acquisition of shares of dissenting shareholders by the remaining shareholders.
-

This procedure is not available in cases in which the exercise of
dissenting shareholders’ rights would cause a company that is not a bank
holding company (other than the company in formation) to be required to
register as a bank holding company. This procedure also is not available for
the formation of a bank holding company organized in mutual form.

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supervisory or enforcement matters with any appropriate Federal banking
agency;
(6) The company demonstrates that any debt that it would incur at
the time of the reorganization, and the proposed means of retiring this
debt, would not place undue burden on the holding company or its
subsidiary on a pro forma b a sis;-7
(7) The holding company would not, as a result of the
reorganization, acquire control of any additional bank or engage in any
activities other than those of managing and controlling banks; and
(8) During this period, neither the appropriate Reserve Bank nor the
Board has objected to the proposal or required the filing of an application
under § 225.14 of this subpart.
(b) Contents of notice. A notice filed under this subsection must include:
(1) Certification by the notificant’s board of directors that the
requirements of 12 U .S.C. § 1842(a)(C) and this section are met by the
proposal;
(2) A list identifying the shareholders of the bank prior to the
reorganization and of the holding company following the reorganization,
and specifying the percentage of shares held by each shareholder in the
bank and proposed to be held in the new holding company;

For a banking organization with consolidated assets, on a pro forma
basis, of less than $150 million (other than a banking organization that would
control a de novo bank), this requirement would be satisfied if the proposal
would comply with the Board’s policy statement on small one-bank holding
company formations (12 CFR Part 225, Appendix C).
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(3) A description of the resulting management of the proposed bank
holding company and its subsidiary bank, including:
(i) Biographical information regarding any senior officers and
directors of the resulting bank holding company who were not senior
officers or directors of the bank prior to the reorganization; and,
(ii) A detailed history of the involvement of any officer,
director or shareholder of the resulting bank holding company in any
administrative or criminal proceeding;
(4) Pro forma financial statements for the holding company, and a
description of the amount, source and terms of debt, if any, that the bank
holding company proposes to incur, and information regarding the sources
and timing for debt service and retirement; and,
(5) Verification that notice of the proposal has been published in a
newspaper of general circulation in the community in which the bank is
located that provides an opportunity for interested persons to comment on
the notice for a period of at least 15 calendar days.
(c) Acknowledgement of notice. Within 7 calendar days following receipt
of a notice under this section, the Reserve Bank shall provide the notificant with
a written acknowledgement of receipt of the notice. This written
acknowledgment shall indicate that the transaction described in the notice may be
consummated on the 30th calendar day after the date of receipt of the notice if
the Reserve Bank or the Board has not objected to the proposal during that time.
(d) Application required upon objection. The Reserve Bank or the Board
may object to a proposal during the notice period by providing the bank holding
company with a written explanation of the reasons for the objection. In such

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case, the bank holding company may file an application for prior approval of the
proposal pursuant to section 225.14 of this subpart.
PART 262 ™ RULES OF PROCEDURE
1. The authority citation for part 262 continues to read as follows:
Authority: 5 U .S.C. 552, 12 U.S.C. 321, 1828(c), and 1842.
2. In § 262.3, paragraph (b)(l)(i)(D) is revised to read as follows:
§ 262.3 Applications

(b) * * *
(l)(i) * * *
(D) To become a bank holding company (except as provided in 12 CFR
225.15), and

By order of the Board of Governors of the Federal Reserve System,
effective October 26, 1994.
(signed) William W. Wiles

William W. Wiles,
Secretary of the Board.

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