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Federal R eserve Bank
OF DALLAS
W IL L IA M

H. W ALLACE

May 6, 1987
DALLAS, TEXAS 75222

FIRST V IC E PR ES ID EN T
AND C H IE F O PER ATING O FFIC ER

Circular 87-33

TO:

The Chief Executive Officer of all
member banks, bank holding companies
and others concerned in the
Eleventh Federal Reserve District
SUBJECT

Policy statement on the responsibility of bank holding companies to
act as sources of financial and managerial strength to their subsidiary banks
DETAILS
The Board of Governors of the Federal Reserve System has adopted a
policy statement on the responsibility of bank holding companies to act as
sources of financial and managerial strength to their subsidiary banks.
This statement reiterates in detail a general policy which has been
expressed on numerous occasions in accordance with authority that is provided
under the Bank Holding Company Act and the enforcement provisions of the
Federal Deposit Insurance Act.
The policy statement is effective immediately.
However, the Board of
Governors will accept comment, for review by the Board, through July 1, 1987.
Comments should be addressed to Mr. William W. Wiles, Secretary,
Board of Governors of the Federal Reserve System, Washington, D.C. 20551.
All correspondence should refer to Docket No. R-0602 and must be received by
July 1, 1987.
ATTACHMENTS
The material as published in the Federal Register is attached.
MORE INFORMATION
For further information, please contact Robert D. Hankins at (214)
651-6120.
Sincerely yours,

For additional copies of any circular please contact the Public Affairs Department at (214) 651-6289. Banks and others are
encouraged to use the following incoming WATS numbers in contacting this Bank (800) 442-7140 (intrastate) and (800)
527-9200 (interstate).

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

FEDERAL RESERVE SYSTEM
12 CFR Part 261
(Docket No. R-0602)

POLICY STATEMENT ON THE RESPONSIBILITY OF BANK
HOLDING COMPANIES TO ACT AS SOURCES OF
STRENGTH TO THEIR SUBSIDIARY BANKS

AGENCY:

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM.

ACTION:

POLICY STATEMENT

SUMMARY:

Pursuant

companies

under

Deposit

to its authority

the

Insurance

Supervision Act,

Bank
Act,

Holding
and

holding

their

companies
banks

to provide

should
by

Act,

bank
the

International

the Board of Governors

subsidiary

resources

regulate

Company

the

System issues a reaffirmation of
bank

to

its

act

as

standing

holding
Federal

Lending

of the Federal Reserve

long-standing policy
sources

ready

to

of strength
use

that
to

available

adequate capital funds to subsidiary banks

during periods of financial stress or adversity.
EFFECTIVE

DATE:

April

24,

1987.

Comments must be received by

July 1, 1987.
ADDRESS:
policy
include
the

Interested parties may submit comments concerning the

statement
reference

Secretary,

System,

20th

for

the

to

Docket No. R-0602 and should be mailed to

Board

and

of

Board's

Governors

Constitution

20551 or delivered to the guard

review.

of

Avenue,
station

the
N.W.,

Comments

Federal

should

Reserve

Washington,

D.C.

in the Eccles Building

- 2 Courtyard on 20th
and

C

Street,

Street N.W.)

N.W.

(between

Constitution

Comments may be inspected

in Room B-1122

between 8:45 a.m. and 5:15 p.m. weekdays, except
section

261.6(a)

Information.

(12 C.F.R.

Director,

Regulation,
Associate

(202)

(202)

Stephen C. Schemering, Deputy

452-2433?

or

Banking

Richard

Division of

452-2594?

or Dorothea Thompson

(202)

or for

452-3544,

situations

where

notwithstanding
bank

holding

policy
to

a

has been

In

order

to

and

impaired o n l y .
Earnestine Hill

Board of Governors of the
20551.
has

become

threatened

of

Deputy

Supervision

("TDD"),

Board

availability

company.

subsidiary

companies,

bank

the

that bank

The

and

Spillenkothen,

the hearing

Federal Reserve System, Washington D.C.
INFORMATION:

Supervision

Banking

Telecommunications Device for the Deaf

SUPPLEMENTAL

in

§261.6(a)).

Division of

Director,

Regulation,

as provided

of the Board's Rules Regarding Availability of

FOR FURTHER INFORMATION CONTACT:
Associate

Avenue

with

resources
assure

aware

to

that

of

failure
its

the

parent

Board's

holding companies serve as sources of strength

banks

the Board

is

fully

understood

by

bank

holding

believes it appropriate to issue a general

policy statement reaffirming and articulating

these principles,

and

failing

confirming

situations.
the

This

Supreme

First

that

court

Lincolnwood

the

long-standing
in

its

The Board

applies

policy

decision

C o r p . , 439

incorporated explicitly
S 2 2 5 .4(a )(1).

policy

U.S.

in
234

has

in

been

Board

bank

recognized

of Governors

(1978),

and

has

by
v.

been

in the Board's Regulation Y, 12 C.F.R.
invites

interested parties

to comment

- 3 on this policy

and

intends

to review the Policy

Statement

in

light of such comments.

POLICY STATEMENT ON THE RESPONSIBILITY OF
BANK HOLDING COMPANIES TO ACT AS
SOURCES OF STRENGTH TO THEIR SUBSIDIARY BANKS

A
the

Federal

holding
as

fundamental
Reserve's

companies

sources

subsidiary

and

of

long-standing

supervision

is that bank

financial

banks.

It

and

is

and

regulation

holding companies

managerial

the

principle underlying

policy

of

should

strength

of

the

bank

to

Board

their

that

serving as a source of strength to its subsidiary banks,
holding
to

company should

provide

during

adequate

periods

of

stand

capital

ready to use available
funds

financial

to

stress

its

or

and

maintain the financial flexibility and capital-raising
to

obtain

additional

resources

for

assisting

its

in
a bank

resources

subsidiary

adversity

serve

banks
should
capacity

subsidiary

banks in a manner consistent with the provisions of this policy
statement.
Since the enactment of the Bank Holding Company Act
1956,

the Board

has formally stated on numerous occasions that

a bank holding company should act
managerial
Court

strength

recognized

in

in

to

its

the

as a source of financial

subsidiary banks.

1978

First

As

Lincolnwood

and

the Supreme
decision,

- 4 Congress has expressly endorsed
that a holding

company must

the Board's

institutions."!./

pronouncements

over

the

decision,

principle

years
has

Regulation Y since 1983.

view

serve as a "source of strength to

subsidiary financial

this

long-standing

and

In addition

the

been

1978

Supreme

incorporated

In particular,

to frequent
Court

explicitly in

Section

225.4(a)(1)

of

Regulation Y provides that:
A bank holding company shall serve as a
source of financial and managerial strength to
its subsidiary banks and shall not conduct its
operations in an unsafe or unsound manner.
The
provided
based
bank
level

important

by a bank

upon

the

holding
that

institution

public

holding

fact

that,

that

can

in

in

acquiring

the

critical

institutions

reflects

part,

from

issue federally

the

support

a commercial

bank,

a

the

ownership

of

insured deposits

The existence of the

an
and has
federal

important governmental concerns regarding

fiduciary
as

in

certain benefits at the corporate

access to Federal Reserve credit.
"safety net"

interest

company to its subsidiary banks is

company derives
result,

policy

responsibilities

custodians

of

depositors'

of

depository

funds

and

their

strategic role within our economy as operators of the payments

2./ Board of Governors v. First Lincolnwood
234, 252 (1978), citing S. Rep. No. 95-323,
Sess. 11 (1977).

C o r p . , 439 U.S.
95th Cong., 1st

- 5 system and

impartial providers of credit.

advantages

flowing

bank holding

from

companies

the

ownership

Thus,

of

a

have an obligation

in seeking the

commercial

bank,

to serve as sources

of strength and support to their subsidiary banks.
An

important

determinant

of

a

strength is the adequacy of its capital
a buffer
in

for

times

considered

adequate

individual

banking

promotes

the

safety

expansion

element

insurance
For

fund

these

capital

limits

to

the

to be critical

organizations

of

and

to

banking
and growing

the exposure of

losses

reasons,

of

in the banking

of a strong

cushion also

provides

to absorb losses

reasonable

the

institutions.

organizations

financial

Capital

confidence

as an essential

deposit

base.

to maintain

A strong capital

federal

banking

helps

supports

organizations

the

strain,

funds,

and

economy.

banking

financial

of

depositors'
system,

individual

bank's

experienced by
Board

has

long

to the soundness of
the

safety

and

stability of the banking and financial system.
Accordingly,
holding

company

subsidiary
holding

bank

it

should

is

not

the

withhold

in a weakened

company

is

in

bank

under

or

a position

bank holding company's failure
subsidiary

Board's

these

policy

financial

failing

that
support

condition

to provide the

to assist

a

from a

when

the

support.

a troubled or

circumstances

bank

A

failing

would generally be

viewed as an unsafe and unsound banking practice or a violation
of

Regulation

prepared

to

Y
take

or

both.

Where

supervisory

necessary,

action

to

the

Board

require

such

is

- 6 assistance.
unusual
the

Finally,

and

the Board

recognizes

that

there

may

be

limited circumstances where flexible application of

principles

necessary,

set
the

and

forth
Board

in

this

may

policy

from

statement

time

to

time

might

be

identify

situations that may justify exceptions to the policy.
This
principles
noted,
in

statement

of

supervision

it builds

banking

Reserve

is

laws

both,

policies

to

bank,

action

will

particularly

issuance

as

and

long-standing

practices.

subsidiary

bank(s),

generally

such
a

be

A

already

a

of

resources

holding company on
failure

will

cease-and-desist

authorized

bank

holding

including

considered

a violation

if appropriate

to the bank

of

and

to provide appropriate assistance

Consequently,

as

its obligation to serve as a source

banking practice or

available

rather,

new

Federal

its

unsound

regulation;

regulations

of

failing

establish

and

to meet

or

to

reflected

co mp a n y ’s failure

unwillingness

and

meant

on public policy considerations as

supervisory

strength

not

under

a

banking

a

troubled

an unsafe

Regulation

and

Y,

or

are on hand or are
reasonable

generally

order

to

an

result

or

other

law

and

in

basis.
the

enforcement
as

deemed

appropriate under the circumstances.

(signed) Barbara Lowrey
Barbara R. Lowrey
Associate Secretary of the Board

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