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F ederal R eserve Bank OF DALLAS W IL L IA M H. WALLACE DALLAS, TEXAS 75222 FIRST V IC E PR ES ID ENT AND CH IEF O PER ATING O FFICER June 15, 1987 C irc u lar 87-40 TO: The Chief Executive O fficer of a l l member banks, bank holding companies, edge c o r p o ra tio n s , and others concerned in the Eleventh Federal Reserve D i s t r i c t SUBJECT Proposal t o charge assessments and fees f o r c e r t a i n supervisory activities DETAILS The Board of Governors of the Federal Reserve System has requested comment on a revised proposal to charge assessments and fees f o r c e r t a i n supervisory a c t i v i t i e s . Comments on the proposal should be addressed to Mr. William W Wiles, . S ecretary , Board of Governors of the Federal Reserve System, 20th S t r e e t and C o n stitu tio n Avenue, N.W., Washington, D.C. 20551. All correspondence should r e f e r to Docket No. R-0584, and must be received on or before Ju ly 6, 1987. ATTACHM ENTS The Board's press re l e a s e and the m aterial as published in the Federal Register are a ttach ed . 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) - 2 - MORE INFORMATION Questions p e r ta in in g to t h i s proposal should be d i r e c t e d to David W . Dixon of t h i s Bank's Legal Department a t (214) 651-6228 or to the following Supervision and Regulation Department personnel: A p p lic a tio n s : Gayle Teague (214) 651-6481 Bank Holding Company Supervision: Richard J . Burda (214) Supervision of Edge Corporations: Linda M Myers (214) 651-6670 . Sincerely yours 651-6472 F E D E R A ^ E S E R V E p re s s re le a ® ® For immediate r e le a se June 3, 1987 The Federal Reserve Board today requested comment on a revised proposal t o charge assessments and fees f o r c e r t a i n supervisory a c t i v i t i e s . The Board had previously requested comments on a s p e c i f i c schedule of assessments and fees fo r the supervision of Edge Act corporations and f o r processing various ap p lic a tio n s submitted t o the Federal Reserve System by banks, bank holding companies, and other companies and in d iv id u a ls. The Board i s now seeking comment on a revised proposal t h a t would charge an annual assessment for inspection and supervision of the parent company and nondepository s u b s i d i a r i e s of bank holding companies as well as a s i g n i f i c a n t l y reduced fee schedule fo r supervising Edge Act corporations and f o r processing a p p l i c a t i o n s . While the Board i s s t i l l considering whether to begin charging f o r c e r t a i n supervisory a c t i v i t i e s , the Board seeks comment on t h i s revised approach of recovering a smaller percentage of costs over a broader range of s e rv ic e s . Comments on th ese proposals should be received by th e Board July 6, 1987. The Board's n o tice i s a ttach ed . -0Attachment FEDERAL RESERVE SYSTEM 12 CFR Parts 211, 225 and 262 [Docket No. R-0584] ASSESSMENT OF FEES FOR SUPERVISION OF EDGE CORPORATIONS AND BANK HOLDING COMPANIES AND FOR PROCESSING APPLICATIONS AGENCY: Board of Governors of the Federal Reserve System ACTION: Proposed Rulemaking SUMMARY: On November 12, 1986, the Board of Governors of the Federal Reserve System, sought public comment on a proposal to assess fees for certain of its supervisory activities. Federal Register 48101 (November 19, 1986). 51 The Board advanced the proposal as a possible cost recovery measure to supplement prior Board actions to streamline operations and eliminate unnecessary functions. This proposal was designed to recover the total of identifiable costs incurred by the Federal Reserve in supervising Edge Act corporations and in processing applications submitted by banks, bank holding companies and others. After reviewing the comments submitted in response to its original proposal, the Board is seeking comment on a revised proposal. This proposal would levy charges for the supervision of bank holding companies (in particular the parent holding company and its nondepository subsidiaries) as well as for the supervision of - 2 - Edge Act corporations and for processing applications. Under this proposal fees and assessments would be set to recover about half of the costs incurred by the Federal Reserve in conducting these activities. The Board also requests comment on whether, if the Board does decide to charge for certain supervisory activities, this revised proposal to charge lower fees but to include bank holding company supervision is preferable to its original proposal. DATE: Comments must be received by July 6, 1987. ADDRESS: All comments, which should refer to Docket No. R-0584, should be mailed to William W. Wiles, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, N.W., Washington, D.C. 20551, or should be delivered to the Office of the Secretary, Room 2223, Eccles Building, 20th Street and Constitution Avenue, N.W., between the hours of 8:45 a.m. and 5:25 p.m. weekdays. Comments may be inspected in Room 1122, Eccles Building between 9:00 a.m. and 5:00 p.m. weekdays. FOR FURTHER INFORMATION CONTACT: Frederick M. Struble, Associate Director, (202) 452-3794, Don E. Kline, Associate Director, (202) 452-3421, Kevin M. Raymond, Supervisory Financial Analyst (202) 452-257 3, or James V. Houpt, Supervisory Financial Analyst (202) 452-3 358, Division of Banking Supervision and Regulation; or James E. Scott, Senior Counsel, (202) 452-3513, Legal Division, - 3 - or for users of Telecommunications Devices for the Deaf, Earnestine Hill or Dorothea Thompson (202) 452-3544, Board of Governors of the Federal Reserve System, Washington, D.C. 20551. SUPPLEMENTARY INFORMATION: Background. In November, 1986, the Board proposed for public comment a schedule of fees designed to recover the identifiable costs incurred by the Federal Reserve in supervising of Edge Act corporations (defined in Section 25(a) of the Federal Reserve Act, 12 U.S.C. 611 et seq.) and in ) processing applications filed by bank holding companies and state member banks and by companies or individuals seeking to acquire control of such banking organizations. The Board's proposal to begin to recover a portion of its costs was limited to these two specific areas of activity in order to avoid duplicating charges levied by other bank regulatory agencies. Since the Board supervises Edge Act corporations and processes applications submitted to the System, Federal Reserve assessments and fees for these activities would avoid a duplication of charges. Most of the comments submitted by the public were opposed to the proposal. Various arguments were offered in opposition, including the additional burden on banking organizations at a time when they are experiencing strong pressures on profit margins and the recommendation that general revenues of the Board be used since the System's regulatory activities are a necessary complement to its monetary policy responsibilities. - 4 - After reviewing the comments submitted by the public, the Board has revised its proposal to significantly lower the proposed fees for applications and supervision of Edge Act corporations. In conjunction with that revision, however, the Board is proposing a specific schedule of annual fees for inspection and supervision of bank holding companies. (The Board previously sought comment on the general concept of charging for such supervision.) The Board has reached a tentative conclusion that the Federal Reserve's supervision of bank holding companies, particularly the assets of parent companies and the nondepository subsidiaries of such companies, are also activities conducted solely by the Federal Reserve. Thus, it appears that a Federal Reserve charge for these activities would also be more in the nature of a charge for additional supervision rather than a duplication of charges imposed by other agencies. The Board , therefore, has decided to seek comment on a proposal to charge for the supervision of parent holding companies and their nondepository subsidiaries as well as for the supervision of Edge Act corporations and for processing various types of applications. The proposal would set assessments and fees to recover about half of the identifiable costs (based on 1986 estimates after certain downward adjustments) of each of these activities. Annual Assessments for the Inspection of Bank Holding Companies While the Federal Reserve's supervision of bank holding companies involves a review of examination reports and other data - 5 - relating to the condition of subsidiary depository institutions the System ordinarily does not directly examine such depository institutions as part of the process of inspecting bank holding companies. Moreover, subsidiary depository institutions pay assessments to federal or state agencies. Thus, to avoid double assessment, the Board has decided to structure its proposal to charge inspection fees in the form of an annual assessment to bank holding companies so that they do not reflect the estimated costs incurred by the System in reviewing these subsidiary depository institutions. In focusing on the nondepository activities of bank holding companies, the Board is proposing to use, as the basis for determining the annual assessment to be charged a holding company, assets of the parent that are not investments in or claims on any subsidiary, whether depository or nondepository, plus the assets of nondepository subsidiaries. The specific calculation to obtain the adjusted parent plus nondepository assets amount is as follows: add the total assets for the parent company and its consolidated nondepository subsidiaries, and then subtract parent company loans and advances to, and investments in, depository and nondepository subsidiaries. The Board is proposing a schedule of annual fees to be paid by all but the smallest bank holding companies for inspection and supervision both on premises and off premises. The Board believes that a standard fee schedule based on the size of a bank holding company's nondepository assets is preferable to an approach based upon recorded staff time. The standard fee - 6 - schedule is easier to administer, more predictable for budgetary and planning purposes of the entity being assessed, and less likely to result in disputes as to time spent and examiner productivity, disputes that might reduce the quality of the inspection process. The Board notes that it has proposed a similar approach for charging for its supervision of Edge corporations for the same reasons. Some commenters asserted, in discussing the proposal for Edge corporations, that a fee schedule that varies on the basis of asset size is inequitable for larger bank holding companies. But there is, in fact, a general correlation between time spent and costs incurred in an inspection and the size of the company inspected, and the proposal has been structured to reflect that correlation. Moreover, since the Board is proposing to collect revenues equal to only one half of the estimated costs of supervising bank holding companies (after first making adjustments for the costs involved in supervising depository subsidiaries), no organization will be charged a fee that exceeds the cost incurred in supervising its parent company and nondepository subsidiaries. Similarly, the Board is proposing that the annual fee for the inspection and supervision of bank holding companies include pre-inspection monitoring and post-inspection evaluation conducted off site. A significant part of the Federal Reserve's work in the supervision and inspection process consists of monitoring reports and other data provided by bank holding companies, evaluating performance trends, developing peer group standards for comparison, and generally in deciding when an - 7 - on-site inspection is needed. The Board is requesting comment, however, on whether an annual assessment should be paid only if an on-site inspection is performed. The estimated direct and overhead costs attributed to the overall supervision of bank holding companies by the System’s accounting system amounted to approximately $24 million in 1986. The Board has estimated that the costs incurred in supervising the depository subsidiaries of bank holding company was approximately $6 million. This amount, consequently, was deducted from the estimate of the total cost involved in supervising bank holding companies before developing the schedule of annual assessments presented in Table 1. A decision was also made not to levy a charge on banking organizations that have total nondepository assets of less than $50,000. Annual Assessments for Supervising Edge Act Corporations and for Processing Applications Table 2 presents the schedule of annual assessments for Edge Act corporations the Board is contemplating adopting as part of the proposal in which it would charge for the supervision of bank holding companies and Edge Act corporations and for processing various applications submitted to the Federal Reserve. The assessment schedules shown in the table are basically similar in form to those in the Board's November 1986 fee proposal. That is, separate schedules are specified for investment Edges and banking Edges and the structure of assessments for both groups of organizations increases with their size. These structural features were adopted in order that the relative size of - 8 - assessments charged different organizations would be consistent with the relative costs the System incurs in supervising them. The assessment schedules shown in Table 2 have been revised to reflect the estimated costs incurred in supervising Edge Act corporations in 1986 (rather than in 1985 as used in the previous proposal) and have been set to produce revenues equal to approximately half those costs. Tables 3 and 4 present alternative fee schedules for applications that the Board is contemplating using if it decides to adopt the proposal of charging for supervising bank holding companies and Edge Act corporations and for processing applications. The fee structures presented in the tables are also similar in basic form to the November proposal. Table 3 shows fees that would be charged for processing three different groupings of applications if the Board were to charge a flat fee for each type of application. Table 4 uses the same groupings of applications as in Table 3, but would vary the fee charged for processing applications in each group in accordance with the "pro forma" size of the applicant. The level of fees in both tables have been set to collect revenues equal to one half of the estimated costs (after certain deductions) incurred by the System in processing applications in 1986. The Board is proposing to adopt the more flexible Table 4 proposal. Neither table would contemplate charging for processing Federal Reserve membership applications or ATM applications, and fees for certain applications that must be submitted in conjunction with other applications would be set at a reduced level. TABLE 1 Schedule of Annual Assessment to be Charged Bank Holding Companies Nonbank Assets of Parent Holding Company Plus Assets of . Nonbank Subsidiaries ($ Millions) _______ Annual Assessment Excess This plus times Over Amount Factor ($ Millions) ($) .05 .0 0 0.000000 .0 .05 - .2 0 0.003000 .05 .2 - .5 450 0.000400 .2 .5 - 1.0 570 0.000300 .5 1.0 - 10.0 720 0.000200 1.0 10.0 - 25.0 2,520 0.000120 10.0 25.0 - 100.0 4,320 0.000090 25.0 100.0 - 500.0 11,070 0.000060 100.0 500.0 - 2,000.0 35,070 0.000020 500.0 2,000.0 - 5,000.0 65,070 0.000016 2,000.0 5,000.0 - 15,000.0 113,070 0.000011 5,000.0 223,070 0.000005 15,000.0 15,000 .0 and over For each bank holding company, the asset total for parent + nonbank subsidiary amount is to be computed by (a) adding total assets for the parent company and its consolidated nonbank subsidiaries, and (b) then subtracting parent company loans and advances to, and investments in, bank and nonbank subsidiaries. Table 2 Schedule of Annual Assessments for Edge and Agreement Corporations Annual Assessment Total Assets Plus Standby Letters of Credit ($ Millions) This Amount Plus Factor Times Excess Over ($ Millions) ($) Investment Corporations: 1/ 0-10 0 500 1,500 2,550 6,300 20.300 44.300 86.300 0.000100 0.000070 0.000050 0.000035 0.000016 0.000014 0.000009 5,000 0-10 1000 10-25 25-100 100-500 500-2,000 2,000-5,000 Over 5,000 3,000 4,800 11.550 35.550 65.550 113,550 000200 000120 10 000090 000060 100 10-25 25-100 100-500 500-2,000 2,000-5,000 Over 5,000 10 25 100 500 2,000 Banking Corporations: Plus 1/ 0 25 0.000020 500 0.000016 2,000 0.000011 5,000 .0000020 times the amount of commitments to purchase foreign currencies and U.S. dollar exchange. Consolidated with their subsidiaries. TABLE 3 Alternative Flat Fee Schedule for Processing Applications Submitted to the Federal Reserve System Type of Application Category A: Fee $4,100 Bank holding company formations, acquisition of banks, nonbanks (going concerns) and bank holding companies; bank holding company stock redemptions and changes in control; international investment applications. Category B: 2,000 Initial foreign branches, Edge Act and other international activities; domestic bank mergers; and changes in control for state member banks. Category C: Bank holding company nonbank acquisitions (de novo) and state member bank branches, bank service corporations, investments in bank premises and issuance of capital notes by state member banks; certain foreign branch and investment notifications. 1,000 TABLE 4 Proposed Fee Schedule for Processing Applications Submitted to the Federal Reserve System Fee Total Assets1 ($ Millions) 2 Category A 0 150 150 1,000 1,000 5,000 5,000 - 10,000 Over 10,000 This Amount ($) plus Factor Excess times Over ($ Millions 3,200 3,200 4,700 6,200 7,700 0 .000001764 .000000375 .000000300 1,200 1,200 1,700 2,200 2,700 0 .000000588 .000000125 .000000100 150 1,000 5,000 700 700 900 1,100 1,300 0 .000000235 .000000050 .000000040 150 1,000 5,000 - 150 1,000 5,000 Category B 0 150 150 - 1,000 1,000 - 5,000 5,000 - 10,000 Over 10,000 — Category C 0 150 150 - 1,000 1,000 - 5,000 5,000 - 10,000 Over 10,000 1Total assets are to be measured on a pro forma basis — applicant's total assets if its application is approved. 2 - that is, the For types of applications and notifications included in each category, see Table 3. _ 9 - Specific Issues for Comment. The Board requests comment on the following issues raised by the proposed rulemaking. 1. The Board has proposed a revised schedule of assessments for the supervision of Edge corporations (Table 2) as well as revised alternative schedules of fees for the processing of a variety of applications filed with the Board (Tables 3 and 4). The fees are substantially lower than originally proposed (see 51 Federal Register 48101 November 19, 1986)), in part, because the Board has expanded the scope of the proposed system of charges to include a significant additional Board function — inspection of bank holding companies — for which a schedule of proposed assessments is presented in Table 1. The Board seeks comment on whether, if it decides to charge for supervisory activities, it should adopt the schedule of fees contained in Tables 1, 2 and 4 to recover approximately half of the System's costs in conducting these activities, or whether it should charge fees at a much higher level, as proposed in November 1986, only for Edges corporation supervision and for processing a variety of applications (approximately two times the proposed fees in Tables 2 and 4). If assessments and fees are to be charged only for the narrower set of supervisory functions, they would be established to recover virtually all of the System's costs in conducting these activities. 2. Whether the proposed fee schedule for inspection of bank holding companies is reasonably structured as based on a sliding scale to be determined by nondepository asset size? 3. Whether in setting the annual fees for inspection and supervision of bank holding companies, the Board should assess such fees only if an on-site inspection is performed? Regulatory Flexibility Act. The Board is sensitive to the impact of the proposed rule on small entities. Consequently, the Board is considering the imposition of fees for supervision of Edge corporations for the inspection of bank holding companies and for applications on a sliding scale based upon the size of the regulated organization. It has proposed comparatively limited fee assessments for smaller organizations, and, indeed, proposes not to charge bank holding companies that have relatively minimal amounts of nondepository assets. Moreover, the proposed - 10 - schedules are designed to recover partially those costs associated with a particular supervisory activity. The Board believes the fees payable will be sufficiently small as to have no significant impact on the financial stability of a reasonably profitable institution. The proposed regulation imposes no additional information collection requirements. List of Subjects 12 CFR Part 211 Accounting for fees on international loans; Schedule of fees for examination; Allocated transfer risk reserve; Reporting and disclosure of international assets; Banks, banking; Federal Reserve System; Foreign banking; Reporting and recordkeeping requirements; Export trading companies. 12 CFR Part 225 Banks, banking; Federal Reserve System, Holding companies; Reporting and recordkeeping requirements; Schedule of fees for inspection. - 11 - 12 CFR Part 262 Administrative practice and procedure; Banks, banking; Federal Reserve System; Holding companies; Schedule of fees for applications. For the reasons set forth above, the Board proposes to amend 12 CFR Parts 211, 225 and 262 as follows: Part 211 - INTERNATIONAL BANKING OPERATIONS 1. The authority citation for Part 211 continues to read as follows: Authority: Federal Reserve Act (12 U.S.C. 211 et seq.); Bank Holding Company Act of 1956, as amended (12 U.S.C. 1841 et seq.); the International Banking Act of 1978 (Pub. L. 95-369; 92 Stat. 607; 12 U.S.Cl 3101 et seq.); the Bank Export Services Act (Title II, Pub. 97-2U0, 96 Stat. 1235); and the International Lending Supervision Act (Title IX, Pub. L. 98-181, 97 Stat. 1153). 2. Section 211.4 (a) is amended by adding an additional subparagraph (7) to read as follows: (7) Edge corporations shall be assessed an annual fee by the Board for supervision and inspection. The schedule of such fees is provided in section 263.3(d) of the Board's Rules of Procedure, 12 CFR 262.3(d). Part 225 BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL 3. The authority citation for part 225 is revised to read as follows: Authority: 12 U.S.C. 1817(j)(13), 1818, 1843(c)(8), 19844, 3106, 3108, 3907, 3909. - 12 - 4. Subsection 225.5 is amended by adding paragraph (d) to read as follows: (d) The Board shall assess fees for inspection of bank holding companies on the basis of the assets of the parent holding companies and all nondepository subsidiaries according to the following schedule. Schedule of Annual Assessment to be Charged Bank Holding Companies Nonbank Assets of Parent Holding Company Plus Assets of Nonbank Subsidiaries ($ Millions) Annual Assessment This Amount ($) plus Factor times Excess Over ($ Millions) .0 — .05 0 0.000000 .0 .05 - .2 0 0.003000 .05 .2 - .5 450 0.000400 .2 .5 - 1.0 570 0.000300 .5 1.0 - 10.0 720 0.000200 1.0 10.0 - 25.0 2,520 0.000120 10.0 25.0 - 100.0 4,320 0.000090 25.0 100.0 - 500.0 11,070 0.000060 100.0 500.0 - 2,000.0 35,070 0.000020 500.0 2,000.0 - 5,000.0 65,070 0.000016 2,000.0 5,000.0 - 15,000.0 113,070 0.000011 5,000.0 223,070 0.000005 15,000.0 15,000.0 and over For each bank holding company, the asset total for parent + nonbank subsidiary amount is to be computed by (a) adding total assets for the parent company and its consolidated nonbank subsidiaries, and (b) then subtracting parent company loans and advances to, and investments in, bank and nonbank subsidiaries. - 13 - 5. Subsection 225.24(a) is amended to read as follows: (a) Filing application. An application for the Board's prior approval under this subpart shall be filed with the appropriate Reserve Bank on the designated form and shall comply with section 262.3 of the Rules of Procedure (12 CFR 262.3), which requires the payment of an application fee and the publication by the applicant of newspaper notice of the application. 6. Subsection 225.43(a) is amended by adding the following sentence at the end of the present section: (a) . . . Each notice shall be accompanied by the appropriate fee as set forth in section 262.3 of the Board's Rules of Procedures (12 CFR 262.3). Part 262 - RULES OF PROCEDURE 7. The authority citation for Part 262 is revised to read as follows: Authority: Administrative Procedure Act (5 U.S.C. 552); Bank Holding Company Act (12 U.S.C. 1841 et seq.); International Banking Act of 1978 (12 U.S.C. 3101 et seq.); and the International Lending Supervision Act (12 U.S.C. 3901 et seq.) . 8. Paragraphs 262.3(d) through (1) are relettered as paragraphs 262.3(e) through (m). 9. A new paragraph 262.3(d) is added to section 262 to read as follows: (d)(1) The Board shall assess fees for the filing of all applications (except applications for membership in the - 14 - Federal Reserve System and for ATM applications) according to the following schedule. Proposed Fee Schedule for Processing Applications Submitted to the Federal Reserve System Fee Total Assets ($ Millions) This Amount ($) plus Factor Excess times Over ($ Millions) 2 Category A 0 150 150 - 1,000 1.000 - 5,000 5.000 - 10,000 Over 10,000 3.200 3.200 4.700 6.200 7.700 .000001764 .000000375 .000000300 150 1,000 5,000 1,200 1,200 1.700 2,200 2.700 .000000588 .000000125 .000000100 150 1,000 5,000 700 700 900 1,100 1,300 000000235 000000050 000000040 150 1,000 5,000 Category B 0 150 150 - 1,000 1.000 - 5,000 5.000 - 10,000 Over 10,000 Category C 0 150 150 - 1,000 1.000 - 5,000 5.000 - 10,000 Over 10,000 ^■Total assets are to be measured on a pro forma basis — applicant's total assets if its application is approved. that is, the 2For types of applications and notifications included in each category, see Table 3. - 15 - (d)(2) The Board shall assess fees for the supervision of Edge Act corporations according to the following schedule. Schedule of Annual Assessments for Edge and Agreement Corporations Annual Assessment Total Assets Plus Standby Letters of Credit ($ Millions) This Amount Plus Factor Times Excess Over ($ Millions) ($) Investment Corporations: 1/ 0-10 10-25 25-100 100-500 500-2,000 2, 000-5,000 Over 5,000 500 1,500 2 r550 6,300 20.300 44.300 86.300 0.000100 0.000070 0.000050 0.000035 0.000016 0.000014 0.000009 0 10 25 100 500 2,000 5,000 1000 3,000 4,800 11.550 35.550 65.550 113,550 0.000200 0.000120 0.000090 0.000060 0.000020 0.000016 0.000011 0 10 25 100 500 2,000 5,000 Banking Corporations: 0-10 10-25 25-100 100-500 500-2,000 2,000-5,000 Over 5,000 Plus: 1/ .0000020 times the amount of commitments to purchase foreign currencies and U.S. dollar exchange. Consolidated with their subsidiaries. - 16 - By order of the Board of Governors of the Federal Reserve System, June 2, 1987. (signed) William W. Wiles William W. Wiles Secretary of the Board