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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