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federal Reser ve Ba n k o f D allas DALLAS, TEX A S 75222 C i r c u l a r No. 77-31 F e b r u a r y 2i\, 1977 R E G U LA TIO N Y — BAN K HO LDING COMPANIES Notice of Proposed R u le m a k in g R e la tin g T o P resum ption O f C o ntin ued C o n tro l of T r a n s f e r r e d Assets and A c tiv itie s T O A L L M EM BER B A N K S , BAN K HOLDING C O M P A N IE S , A N D OTHERS CO NCERNED IN THE E L E V E N TH FE D E R A L RESERVE D IS T R IC T : T h e Board of G o v e rn o rs of th e F e d era l R e s e r v e System has proposed fo r p u b lic comment an am endm ent to its R egulation Y , "B a n k H old ing C o m p a n ie s ," c o n c e rn in g the control o f d iv e s te d assets and a c t iv i t i e s . P rin te d on th e r e v e r s e of this c ir c u l a r is the te x t of the B oard's p roposal as it a p p e a re d in the FE D E R A L R E G IS T E R . A n y v ie w s should be subm itted in w r i t i n g an d re c e iv e d b y the S e c r e t a r y , Board of G o v ern o rs of the F e d e ra l R e s e rv e S ystem , W a s h in g to n , D . C . 20551, not la te r than M arch 15, 1977. A ll m a teria l subm itted should in c lu d e the docket n u m b e r R -0 0 8 3 . S in c e r e ly y o u r s , R o b e rt H . Boykin F ir s t V ic e P re s id e n t This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) PROPOSED RULES FEDERAL RESERVE SYSTEM [ 12 CFR Part 225 ] [Beg. Y; D o c k e t No. R^0083] BANK HOLDING COMPANIES Notice of Proposed Rulemaking Relating to Presumption of Continued Control of Transferred Assets and Activities Section 2(g) (3) of th e B ank Holding Com pany A ct (12 U.S.C. 1 841(g)(3)), creates a presum ption th a t shares tra n s ferred by a b an k holding com pany to any tran sfe re e th a t is indebted to th e tr a n s feror, Or th a t h a s an. officer, director, or o th er m anagem en t interlock w ith th e tran sfe ro r, a re deem ed to be indirectly owned or controlled by th e tran sfero r, unless th e Board, a fte r opportunity for hearing, determ ines th a t th e tra n sfe ro r is n o t in fa c t capable of controlling th e transferee. Since th e en actm en t of sec tio n 2(g) (3) in 1966, th e B oard and its staff have given certain interp retatio n s of its scope t h a t . th e In sta n t proposed reg ulation is intended to codify, n iu s , th e proposed regulation reflects th e B oard’s previously stated view th a t a tra n sfe r of shares to an officer, director, or tru ste e of th e tra n sfe ro r (as d istin guished from a tra n sfe r to a n en tity hav ing a n officer, directo r or tru ste e in com m on w ith th e tran sfe ro r) gives rise to th e presum ption of continued control by th e tran sfe ro r.1 Sim ilarly, th e B oard h as tre a te d th e sta tu to ry presum ption as being applicable w here th e described re lationship involves a subsidiary of a tra n sfe ro r or tran sferee.1 In addition, o th e r questions have arisen in th e a p plication of section 2 (g )(3 )—for ex am ple, w hether th e presum ption applies in th e case of asset tran sfers, including in terests in partnerships. B oard staff has ta k en th e position th a t certain of such tran sfe rs a re covered, T h e proposed am endm ent to R egulation Y is intended to codify these earlier constructions of th e Act a n d to remove uncertainties. In adm inistering section 2 (g )(3 ), w hich th e B oard views as a useful m eans of assuring th e com pleteness of divesti tures, th e B oard h a s recognized th e pos sibility th a t tran sfe rs may occur th a t do n o t fall w ithin th e literal language of section 2 (g )(3 ), b u t th a t, nonetheless, m ay involve or p erm it continued control of th e tran sfe rred assets by th e tr a n s feror. In view of th e principal purpose of th e Act, to se p arate banking and commerce, th e B oard believes th a t such tran sfe rs should be subject to scrutiny by th e B oard to ensure th a t divestiture requirem ents have been com plied w ith before th e re is any in terru p tio n in the divesting com pany’s sta tu s w ith respect to th e divested property. T he proposed am endm ent to R egulation Y, which would be prom ulgated p u rsu an t to th e B oard’s au th o rity under section 5(b) of th e Act (12 U.S.C. 1844(b)), to issue such regulations and orders as m ay be necessary to adm inister an d carry out 1 See M oody F o u n d a tio n , 33 F B 866 (19 68); M e rc a n tile N a tio n a l C o rp o ra tio n , 40 F R 24771 (1975). * See. e.g., NCNB C orp., 39 F R 44513 (1974). 9679 (3) T h e presum ption arising u n d er th e purposes of th e A ct a n d to prevent evasions thereof, would extend th e cir p a ra g ra p h (d )(1 ) of th is section sh all cum stances u n d er w hich a presum ption continue in effect from as of th e d ate of continued control will arise, in th e of th e tran sfe r, w ith o u t an y order or d eterm in atio n by th e Board, u n til an d following principal respects: (a) I t would m ake clear th a t th e p re unless th e B oard issues a w ritte n d eter sum ption arises where a covered rela m ination, a fte r o p p o rtu n ity for hearing, tionship involves a p a re n t or subsidiary th a t th e tra n sfe ro r is n o t in fa c t capable of controlling eith er th e tran sfe re e or of th e tra n sfe ro r or transferee. (b) I t would m ake clear th a t th e p re th e tran sfe rred shares, assets or ac tiv i sum ption applies to tra n sfe r of assets ties. T he presum ption arising u n d er p a ra (which is intended to include in terests g rap h (d) (2) of th is section sh all con tin u e in effect from th e d ate of reg istra in p a rtn e rs h ip s ). (c) I t would cause th e presum ption tion u n til an d unless th e B oard issues to arise w here a covered relationship a w ritten d eterm in atio n th a t th e com has existed or is created w ithin a year p any is n o longer a b ank holding com pany. Any in terested person m ay a t arty of th e tran sfe r. (d) I t woud extend th e relationships tim e apply to th e B oard fo r such a giving rise to th e presum ption to include d eterm in atio n , and th e burden of proof interlocks involving p a rtn e rs and h o n shall be upon th e p arty requesting th e orary or advisory officials, an d situations determ ination. W here application h as w here th e tran sferee controls, is con been m ade for a d eterm in atio n u n d er trolled by, or is u nder common control p ara g ra p h (d) (2) of th is section th a t a w ith th e tran sfero r, or in w hich th e com pany is no longer a bank holding tra n sfe ro r or tran sferee holds m ore th a n com pany, th e application sh all be five Der cent of a class of securities of deemed to have been g ran ted unless th e the other. ap p lican t is inform ed otherw ise p rio r to (e) I t would presum e th a t an y com th e 90th day a fte r receipt of th e applica pany th a t h as registered as a b ank h old tion by th e S ecretary of th e Board. ing com pany continues to be such u n til (4) F or th e purposes of th is p ara g ra p h th e B oard determ ines th a t it no longer is an d section 2(g) (3) of th e A ct: a bank holding company. (i) T h e term " tra n sfe ro r” an d " tra n s F or th e foregoing reasons, an d p u rsu feree” shall include, b u t n o t be lim ited a n t to its au th o rity u n d er section 5(b) of to, an y subsidiary of a tra n sfe ro r o r th e B ank Holding Com pany Act (12 tran sfe re e an d any com pany of w hich U.S.C. 1844(b)), th e B oard proposes to a tran sfe ro r or tran sfe re e is a subsidiary; am end § 225.2 of its R egulation Y by, (ii) T h e term "m an ag em en t official” adding a new p a ra g ra p h (d ), to read as shall include an officer, director, tru ste e follows: an d p artn e r, as well as any person p e r § 2 2 5 .2 D e te rm in a tio n * R e g a r d in g C o n form ing functions norm ally associated w ith such position or holding such a posi trol. tion in a n advisory o r h o n o rary capacity; • • • • * (d) Presumption of C ontinued Con (iii) T h e term "h o ld er” shall include, trol of Transferred Shares, Assets or b u t n o t be lim ited to, any person who Activities.— (1) Shares, assets or activi owns (eith er beneficially or of reco rd ), ties tran sfe rred by any b ank holding controls or h a s power to vote a security; com pany (or by any com pany which, b u t and (iv) A person or com pany sh all be for such tran sfe r, would be a bank h old ing com pany) directly o r indirectly to deemed to "control” an o th e r person or any tran sferee having a covered relatio n com pany if, w ithout lim itation, one or ship w ith th e tran sfe ro r shall be p re snore of th e relationships described in sum ed to continue to be controlled by th e section 2(a) (2) (A) or (B) of. th e Act, tra n sfe ro r from th e d ate of th e tran sfer. or in th e presum ptions of control de F o r th e purposes of th is p arag rap h , a scribed in p arag rap h s (a) an d (b) of th is "covered relationship" sh all be deem ed to section, exists betw een them , o r if such exist betw een a tran sfe ro r an d tr a n s person or com pany exercises a-controlling feree if, a t any tim e d u rin g a period from influence over th e m anag em en t o r poli one year prior to th e tra n sfe r to one year cies of th e other. In terested persons are invited to sub a fte r th e tran sfe r: (1) T h e tran sferee was indebted to th e m it th e ir views or arg u m en ts w ith respect to th is proposal. Any such m ateria l tran sfe ro r; (ii) T he tran sferee was a m anagem ent should be subm itted in w riting to th e official or beneficiary of th e transferor, S ecretary, B oard of G overnors of th e or had a m anag em en t official or bene F ederal Reserve System , W ashington, ficiary in common w ith th e tran sfe ro r; D C. 20551, to be received n o t la te r th a n (iii) T he tran sferee was in control of, M arch 15, 1977. All m a terial subm itted controlled by or u n d er common control should include th e D ocket N um ber R 0083. Such m aterial will be m ade avail w ith th e tran sfe ro r; o r (iv) T he tran sferee o r tran sfe ro r was able fo r inspection an d copying upon re th e holder of m ore th a n five p ercen t of quest, except as provided in § 261.6(a) any class of voting securities of th e other. of th e B oard’s Rules R egarding Avail (2) A com pany th a t has registered w ith ability of Inform ation. the B oard as a bank holding company By order of th e B oard of Governors, shall be presum ed to continue to be a effective F ebruary 9, 1977. bank holding com pany, n o tw ith stan d in g T h e o d o r e E . A l l is o n , any change in its in terest in or rela tio n Secretary of th e Board. ship w ith an y bank, except as provided in [F R D oc.77-5045 F ile d 2 -1 6 -7 7 :8 :4 5 a m ] p arag rap h (d) (3) of this section. FEDERAL REGISTER, VOL. 42, NO. 33— THURSDAY, FEBRUARY 17, 1977