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FE D E R AL RESER VE BANK OF DALLAS
DALLAS, TE X A S
75222
Circular No. 83-74
June 10, 1983
REGULATION Y
BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL
(Proposed Revision)
TO ALL MEMBER BANKS,
BANK HOLDING COMPANIES
AND OTHERS CONCERNED IN THE
ELEVENTH FEDERAL RESERVE DISTRICT:
The Board of Governors of the Federal Reserve System has issued for
public com m ent a com plete revision of its Regulation Y, Bank Holding Companies
and Change in Bank Control. In addition to simplifying the regulation and adding
several new permissible nonbanking activities, the proposed revision would reduce
the number of required applications for nonbanking activities, simplify the
procedures for filing such applications, and expedite the processing of all
applications.
A copy of the Board's press release and notice as published in the
Federal R egister are attached. Any views or com m ents concerning the proposal
should be subm itted in writing and received by the Secretary, Board of Governors
of the Federal Reserve System, Washington, D.C., 20551, no la te r than July 18,
1983. All m aterials subm itted should re fe r to Docket No. R-0470.
Questions regarding the contents of this circular should be directed to
David W. Dixon of the Holding Company Supervision D epartm ent, Extension 6182.
Additional copies of this circular will be furnished upon request to the
Public Affairs D epartm ent, Extension 6289.
Sincerely yours,
William H. Wallace
First Vice President
Banks and others are encouraged to use the follow ing incom ing WATS numbers in co n ta ctin g this Bank:
1-800-442-7140 (intrastate) and 1-800-527-9200 (interstate). For calls placed locally, please use 651 plus the
extension referred to above.
This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)
FEDERAL RESERVE press release
a
l i i
'• W
* « • • • *
For immediate release
? -'
May 19, 1983
The Federal Reserve Board today proposed for public comment a
complete overhaul and updating of the Board's Regulation Y— concerning bank
holding companies and change in bank control.
The Board requested comment by July 18, 1983.
The revision of Regulation Y is designed to reduce regulatory burden
by reducing the number of required applications for nonbanking activities,
simplifying procedures for filing such applications, and expediting the processing
of all applications.
In addition, the proposed revision of Regulation Y would reorganize,
simplify and clarify the regulation, add several activities to those generally
permissible for bank holding companies, incorporate Board rulings including its
recently restated definition of "bank" for purposes of bank holding company
regulation, and make a number of technical changes.
The proposed revision is
part of the Board's regulatory improvement program under which all Federal
Reserve regulations are being reviewed, simplified and modernized to reduce
the burden of regulation and make Board regulations more easily understood.
The Bank Holding
Company Act requires prior Board approval for a bank
holding company to acquire
shares of
a bank, and regulates the nonbanking
activities of bank holding
companies
and of foreign banking organizations
that control U.S. banks or
have U.S.
offices.
The Change in Bank ControlAct
requires persons and certain companies to give notice to the Board prior to
acquiring shares representing control of a bank holding company or state member
bank.
The major changes proposed in the revision to ease regulatory burden
and to clarify and simplify the regulation include:
— modification or elimination of the current requirement that a bank
holding company file an application for each de novo office for a nonbanking
activity;
— expedited procedures (reduced to 15 days) for small acquistions
involving permissible nonbanking activities;
— elimination of applications for small acquisitions involving the
assets of a consumer finance or mortgage banking office;
— elimination of certain applications involving acquisitions of bank
shares in a fiduciary capacity;
— expedited publication of notice of proposed new nonbanking activities;
— imposition of deadlines in the regulation to expedite processing
of applications;
— incorporation of significant Board interpretations including
definitions of terms; and
— clarification of those types of transactions that do and those that
do not require prior Board approval under the Act.
The proposed elimination or modification for approval of nonbank offices
would reduce by about 75 percent the number of applications for nobank acquisitions
that must be filed with the Board.
The Board's proposals are estimated to reduce the processing time for
bank holding company applications as follows:
-3 -
Es timated Reduction i n P r o c e s s i n g Time
Number o f
Applications
in 1982
Tot al
Processing
Days
in 1982
4 ( c ) ( 8 ) De Novos
662
31,776
Del egated A p p l i c a t i o n s
1932
86, 5 13
161
2755
Board-Action
All Cases
Estimated
Applications
With t h i s
Proposal
16fii/
Tot al
E s ti m a t e d
Processing
Days
Reduction in
Processing
Days_____
P e r ce nt
Reduct i onZ J
5, 478
26,300
83%
1932
57,803
28,710
33 %
15,375
161
10,546
4, 829
31 %
133,664
2755
73,827
59,839
45
%
1 ./
I t i s e s t i m a t e d t h a t 25 p e r c e n t of t h e de novo n o t i c e s t h a t a r e p r e s e n t l y f i l e d w i l l r e s u l t
in a p p l i c a t i o n s t h a t w i l l be p r o ces s e d in 30 d a y s .
2 J
The r e d u c t io n assumes t h a t t h e System w i l l a t t a i n t h e same p r o f i c i e n c y i n meeti ng i t s p r o
posed p r o c e s s i n g g o al s t h a t i t ach ie v e d i n 1982 w i t h i t s c u r r e n t p r o c e s s i n g g o a l s .
For applications processed under delegated authority, the proposed
regulation requires the Reserve Bank to act on an application within 30 days of
acceptance.
In 1982, 93 percent of all applications to the Board were approved
under delegated authority.
Thus, it is expected that the overwhelming majority
of applications would be acted upon within 30 days under the proposed revision.
For applications processed for Board action, the proposed regulation requires the
Board to act on an application within 60 days of acceptance by the Reserve Bank.
In addition to expedited processing schedules, application forms are
being revised to eliminate items and information available to the Board.
-4 from other sources.
It is estimated that these measures will reduce the number
of pages required in application forms by 40 to 60 percent.
The revision of Regulation Y proposes to add to the list of permissible
nonbanking activities several activities that the Board previously determined by
order to be closely related to banking in particular cases, including commercial
real estate equity financing, underwriting and dealing in government obligations,
futures commission merchant, foreign exchange advisory and transaction services,
and issuing money orders.
In addition, the Board is seeking suggestions from
commenters for additional activities that should be added to the list of
nonbanking activities that are permissible for bank holding company entry.
Nonbanking activities already on the list of activities permissible
for bank holding companies remain unchanged.
The proposed revised Regulation Y would incorporate the Board's
interpretation in a recent bank holding company case— that demand deposits
include NOW and other transaction accounts and the Board's interpretation in
2
.
another case— that commercial loans include the purchase of commercial paper,
certificates of deposit and other money market instruments.
The proposed regulation also replaces the notice requirement for
stock redemptions by a bank holding company with a general prohibition against
redemptions unless the bank holding company meets the Board's capital guidelines
or the redemption is minimal.
—
First Bancorporation, 68 Federal Reserve Bulletin 253 (1982).
—
Letter, dated December 10, 1982, 1 Federal Reserve Regulatory Service, 4-363.2.
-5 The Board's notice detailing its proposed revision of Regulation Y
may be obtained from the Federal Reserve Banks.
Comment is invited on the proposed regulatory changes as well as
on other aspects of the proposed revisions of Regulation Y.
The Board is also
interested in receiving suggestions for any further simplification of
Regulation Y and any further suggestions for easing regulatory burden.
-0 -
23520
Federal Register / Vol. 48, No. 102 / W ednesday, May 25, 1983 / Proposed Rules
FEDERAL RESERVE SYSTEM
12 CFR Part 225
[Docket No. R-0470]
Bank Holding Companies and Change
in Bank Control; Proposed Revision of
Regulation Y
a g e n c y : Board of Governors of the
Federal Reserve System.
a c t i o n : Notice of proposed rulemaking.
s u m m a r y : A s part of its program to
improve and simplify its regulations, the
Board is proposing a revision of
Regulation Y, its regulation
implementing the Bank Holding
Company Act of 1956, as amended (12
U.S.C. 1841 etseq .) and the Change in
Bank Control Act of 1978 (12 U.S.C.
1817(j)). The Bank Holding Company Act
requires prior Board approval for a
company to become a bank holding
company or for a bank holding company
to acquire more than five percent of the
shares of a bank or a bank holding
company. The Act also regulates the
nonbanking activities of bank holding
companies and of foreign banking
organizations that control U.S. banks or
have U.S. offices. The Change in Bank
Control Act requires generally that
persons and certain companies give
notice to the Board prior to acquiring
shares representing control of a bank
holding company or state member bank.
The proposed revision will reduce the
number of required applications for
nonbanking activities, simplify the
procedures for filing such applications,
and expedite the processing of all
applications. With respect to required
applications or notices, the regulation
clarifies and describes the transactions
that are covered and those that are
exempt, and the factors considered by
the Board in acting on the application or
notice. In addition, the Board is adopting
a new internal procedure for the
processing of applications that will
result in a shorter period, 30 to 60 days
instead of 90 days, for the processing of
most bank and nonbank applications.
The internal changes are being made
independently of the proposed revision
of Regulation Y and will be adopted as
soon as they can be implemented.
d a t e : All comments should be received
by the Board by July 18,1983.
a d d r e s s : All comments, which should
refer to Docket No. R-0470, should be
mailed to the Secretary, Board of
Governors of the Federal Reserve
System, Washington, D.C. 20551, or
delivered to Room B-2223 20th and
Constitution Avenue, NW„ Washington,
D.C., between 8:45 a.m. and 5:15 p.m.
weekdays. Comments may be inspected
in Room B-1122 between 8:45 a.m. and
5:15 p.m. weekdays.
FOR FURTHER INFORMATION CONTACT:
J. Virgil Mattingly, Associate General
Counsel, Legal Division (202/452-3430);
Bronwen Mason Chaiffetz, Senior
Counsel, Legal Division (202/452-3564);
Carl V. Howard, Senior Counsel, Legal
Division (202/452-3786); David Kulig,
Senior Counsel, Regulatory
Improvement Project (202/452-2347);
Lily T. Pilgrim, Attorney, Regulatory
Improvement Project (202/452-2421);
Don E. Kline, Associate Director,
Division of Banking Supervision and
Regulation (202/452-3421); or Sidney M.
Sussan, Assistant Director, Division of
Banking Supervision and Regulation
(202/452-2638).
SUPPLEMENTARY INFORMATION: The
Bank Holding Company Act of 1956, as
amended ("BHC Act”), governs the
acquisition of control of banks by
companies and regulates the
nonbanking activities of bank holding
companies or covered foreign banking
organizations. It was enacted to prevent
the undue concentration of banking
resources and to separate banking and
commerce. Section 5(b) of the BHC Act
(12 U.S.C. 1844(b)) authorizes the Board
to adopt regulations to effectuate the
purposes of the BHC Act and to prevent
evasion of its provisions. The Change in
Bank Control Act of 1978 ("Bank Control
Act”) imposes a 60-day prior notice
requirement on persons seeking to
acquire control of a bank holding
company or an insured state-chartered
bank that is a member of the Federal
Reserve System (“state member bank”).
I. BACKGROUND AND SUMMARY
In January 1979, the Board established
a Regulatory Improvement Project and
adopted procedures to improve the
quality of its regulations. The Board’s
program calls for a thorough, periodic
review of each of its existing regulations
(Statement of Policy Regarding
Expanded Rulemaking Procedures, 44
FR 3957 (1979)). The proposed revision
of Regulation Y was conducted under
this program and pursuant to the
Financial Regulation Simplification Act
of 1980 (12 U.S.C. 3521). In accordance
with the Board’s policy statement and
the Simplification Act, the review
focused on easing regulatory burden and
clarifying and simplifying the regulation
consistent with the terms and purposes
of the BHC Act. In an effort to improve
overall understanding of the regulation,
the proposal specifies those transactions
that do and thosethat do not require
prior Board approval under the Act.
The Board carefully reviewed the
procedures for handling applications,
particularly those for nonbanking
activities. As reflected in the revised
regulation, the Board proposes reducing
the number of required applications for
nonbanking activities and simplifying
the procedures for filing such
applications. Over the past several
years, the Board has consistently
achieved its goal to complete the
processing of 90 percent of all
applications it receives within 90 days
of acceptance of the applications. In
addition, the Board had delegated to the
Reserve Banks authority to act on more
than 90 percent of BHC Act applications,
a procedure which has shortened the
time for decision on most applications to
45 days. In connection with its review of
procedures for handling BHC Act
applications, the Board is considering a
new internal processing schedule.
The new schedule, which is embodied
in the proposed revision, reduces the
time for processing most bank and
nonbank applications from 45 days to 30
days for applications acted on under
delegated authority, and from 90 to 60
days for applications acted on by the
Board. A 10-day deadline is also
established for Reserve Banks to review
applications submitted for processing to
determine if they are complete. Based on
past experience, it is anticipated that 90
percent or more of all applications will
be acted upon under delegated
authority, and thus be decided within 30
days.
The Board has also reviewed its
application forms to simplify them by
eliminating duplicative information and
information already available to the
Board. The Board estimates that these
measures will reduce by between 40 to
60 percent the number of pages required
in the current application forms.
The Board requests comments on all
aspects of its proposed revision of
Regulation Y, including definitions of
terms. The Board will consider any
additional areas for simplification and
deregulation of Regulation Y that are
suggested by commenters.
The Board, however, is not proposing
for reexamination whether activities
already on the list of permissible
nonbanking activities in Regulation Y
are closely related to banking. Those
activities have been subject to
rulemaking and extensive debate over
the years. The Board does, however,
propose to add to the list of permissible
activities several activities that the
Board has previously determined by
order to be closely related to banking. In
addition, commenters are invited to
suggest other activities that should be
considered for addition to the list of
permissible nonbanking activities.
The changes proposed to ease
regulatory burden and to clarify and
simplify the regulation include:
Federal Register / Vol. 48, No. 102 / W ednesday, May 25, 1983 / Proposed Rules
(1) Elimination or modification of the
requirement that a bank holding
company obtain the Board’s prior
approval to open a new office to engage
in a nonbanking activity in a state
where the bank holding company has
previously obtained the Board's
approval-to engage in the particular
nonbanking activity (§ 225.25(a)(2));
(2) Expedited procedures (lasting 15
days) for relatively small acquisitions
involving permissible nonbanking
activities (§ 225.25(e));
(3) Expedited publication of notices of
proposed new nonbanking activities
(§ 225.25(c)(2));
(4) Elimination of applications for
small acquisitions involving the assets
of a consumer finance or mortgage
banking office (§ 225.22(c)(8));
(5) Elimination of certain applications
involving acquisitions of bank shares in
a fiduciary capacity (§ 225.12(a));
(6) Incorporation into the regulation of
deadlines for processing of applications
and expediting of the application
process (§§ 225.14 and 225.25);
(7) Incorporation of significant Board
interpretations and statements of policy
concerning regulatory and supervisory
matters; and
(8) Specification of those types of
transactions that do and those that do
not require prior Board approval under
the Act.
The proposed modification of the
current requirement of Regulation Y for
the approval of each new office of a
nonbank subsidiary would reduce by
about 75 percent the number of current
nonbank applications filed with the
Board under section 4(c)(8) of the BHC
Act.
Another area that has been revised
involves the purchase or redemption by
a bank holding company of its own
securities (§ 225.4(b)). The Board
proposes to substitute for the current
notice provision standards governing
redemptions based upon the Board’s
capital adequacy guidelines.
With respect to the format of the
proposed revision, the Board has
incorporated all the important statutory
provisions as they have been interpreted
by the Board. Moreover, the material
has been reorganized into self-contained
subparts and stated as simply as
possible. These structural changes
should improve understanding of the
regulation, facilitate compliance, and
promote suggestions for further
substantive improvements.
The Board t:ertifies that none of the
proposed changes will have a significant
economic impact on a substantial
number of small entities within the
meaning of the Regulatory Flexibility
Act (5 U.S.C 601).
The commentary that follows includes
several Board rulings that are not
included in the body of the proposed
revision of the regulation. In taking final
action on the revision, the Board expects
to preserve these rulings in a convenient
format as a permanent source of
guidance to the regulation.
II. SUBPART A—GENERAL
PROVISIONS
Section 225.1—A uthority. Purpose, and
Scope
This section of the proposed
regulation identifies the Board's
statutory authority for issuing the
regulation, states the primary purposes
of the regulation, and describes the
scope of each of the five subparts.
Subpart A contains definitions,
administrative provisions, and a section
on corporate practices of bank holding
companies; Subpart B sets forth the
requirements for the acquisition of bank
and bank holding company securities
and assets; Subpart C describes the
limitations and requirements regarding
nonbanking activities and acquisitions;
Subpart D contains the rules for control
and divestiture proceedings; and
Subpart E sets forth the provisions
implementing the Bank Control Act. The
four operational subparts are
comprehensive in that each subpart
identifies the transactions that are
covered and those that are exempt, and
each subpart sets forth the applicable
procedures regarding applications,
notices, and hearings.
Current regulation: 12 CFR 225.1(a).
Section 225.2—D efinitions
This section contains the definitions
of terms used in the proposed regulation,
and differs from the current regulation,
which merely incorporates by reference
the statutory definitions. Some of the
definitions in the proposed revision
mirror those in the BHC Act; others
incorporate various Board
interpretations.
Statutory reference: 12 U.S.C. 1841.
Current regulation: 12 CFR 225.1(b).
Section 225.2(a)
“ ank”
B
“Bank” is defined as any institution
that accepts demand deposits and
engages in the business of making
commercial loans. This definition
reflects the statutory definition in
section 2(c) of the BHC Act and
incorporates Board interpretations of the
terms “demand deposits” and
"commercial lending” for the purpose of
determining whether an institution is a
bank. The statutory exclusions from the
definition of bank are also set forth in
the regulation.
23521
1 . Dem and deposits. “Demand
deposits" are defined to include any
deposit with transactional capability
that is paid on demand as a matter of
practice, and include accounts
accessible by check, draft, or negotiable
order of withdrawal (NOW). (First
Bancorporation (Beehive Financial
Corporation), 68 Federal Reserve
Bulletin 253 (1982).)
2. Commercial loans. The definition
proposed reflects the Board’s position
that all loans are “commercial" loans
except those made to individuals for
personal, household, family, or
charitable purposes. In order to prevent
evasion of the BHC Act, the definition
proposes to identify a variety of
instruments that may serve as
substitutes for commercial loans. (Cf.,
Board Ruling of December 10,1982,1
Federal Reserve Regulatory Service
(“F.R.R.S.") 4-363.2.)
Statutory reference: 12 U.S.C. 1841(c).
Section 225.2(b)
com pany"
“
Bank holding
The definition of “bank holding
company” reflects the statutory
definition. The six exemptions from the
definition contained in section 2(a)(5) of
the BHC Act are also included and have
been consolidated into four exemptions.
The proposed revision also incorporates
the provisions of section 8 of the
International Banking Act of 1978 (12
U.S.C. 3106), which applies certain
certain provisions of the BHC Act to
foreign banks (and their parent
companies) operating branches,
agencies and commercial lending
companies in the United States.
Statutory reference: 12 U.S.C. 1841(a);
12 U.S.C. 3106.
Section 225.2(c)
“Company"
The definition of “company” in the
proposed regulation includes the
statutory definition and the exclusions
contained in section 2(b) of the BHC
Act.
In accordance with a long-standing
Board interpretation, the term
"company” generally does not include
buy-sell agreements, or voting trusts of
25 years or less duration, so long as the
agreement or trust pertains solely to the
securities of one bank and the parties
involved in the agreement or trust do not
engage jointly in any other banking or
nonbanking activities. (Board Ruling of
May 4,1972,1 F.R.R.S. 4-185.5.)
The Board has also taken the position
that individuals and/or companies
acting together must be joined under a
formal agreement or structure in order to
be. an “association." (Board Ruling of
September 13,1977,1 F.R.R.S. 4-420,
23522
Federal Register / Vol. 48, No. 102 / W ednesday, May 25,1983 / Proposed Rules
a ff’ sub. nom., Central Bank v. Board o f
d
Governors, No. 77-1937 (D.C. Cir. (Feb.
1,1979).)
Statutory reference: 12 U.S.C. 1841(b).
Section 225.2(d)
com pany
“Control" o f a bank or
The proposed definition of “control”
of a bank or company incorporates the
statutory definition from section 2 of the
BHC Act, i.e., control based on share
ownership, election of directors or
trustees, or controlling influence
determinations by the Board. With
respect to controlling influence
determinations, the proposed regulation
conforms the provisions of sections
2(a)(2)(C) and 2(d)(3) of the BHC Act by
establishing that the Board may find
control and a parent-subsidiary
relationship where the Board determines
that a company has the power to
exercise a controlling influence over
another company.
For purposes of § 225.2(d)(1) of the
proposed regulation, “acting through one
or more other persons” includes an
arrangement under which a person acts
as an agent or is indemnified by the
company in purchasing or holding voting
securities on behalf of the company.
(Board letter, dated June 23,1982, to
Security Corp., Duncan, Oklahoma.) The
Board has also taken the position that
the ability to control the ultimate
disposition of voting securities and to
secure the economic benefits from the
disposition indicates control of the
securities. (Board Ruling of March 18,
1982,1 F.R.R.S. 4-461.)
The definition of control in the
proposed regulation incorporates the
conclusive presumption of control now
contained in § 225.2(a) of the current
regulation, which relates to the transfer
of 25 percent or more of the shares of a
company being conditioned in any
manner upon the transfer of 25 percent
or more of the shares of another
company. For example, if the voting
shares of two companies are “stapled
together” so that the transfer of one
would automatically result in the
transfer of the other, the presumption
would apply. For purposes of this
provision, the holders of securities of
both companies constitute a company
for the purposes of the BHC Act.
As provided in section 2(g) of the BHC
Act, the proposed definition of control
specifies that a company is deemed to
control securities held by its
subsidiaries, or held in a fiduciary
capacity for its benefit or the benefit of
shareholders or employees of the
company or its subsidiaries. The Board
has also interpreted this provision to
include assets held in these capacities.
For example, this provision would
attribute control of securities or assets
to a company if a profit sharing or
pension plan for the benefit of the
company's employees holds the
securities.
Apart from the proposed regulation,
the Board in its policy statement of July
8,1982, outlined situations where
nonvoting equity investments by a bank
holding company in another company or
a bank might give the bank holding
company control of the other company
or bank. (Statement of Policy on
Nonvoting Equity.Investments by Bank
Holding Companies, 68 Federal Reserve
Bulletin 413 (1982).)
Statutory reference: 12 U.S.C. 1841
(а)(2), (d); 12 U.S.C. 1041(g) (1), (2).
Section 225.2(e)
official"
“ anagement
M
The definition of management official
is an abbreviated form for referring to a
person who is an officer, director,
partner, or trustee of a company or an
employee of the company with policy
making functions. Directors include
honorary and advisory directors. This
definition, which codifies a Board
interpretation of section 2(g)(3) of the
BHC Act, is relevant in control and
divestiture proceedings under Subpart D
of the proposed regulation. (12 CFR
225.139.)
Statutory reference: 12 U.S.C.
1841(a)(2)(C) and 1841(g)(3).
Current regulation: 12 CFR 225.2(b) (1)
and (2).
Section 225.2(f) "Outstanding shares"
This definition clarifies that the term
“outstanding shares” refers only to
shares that are issued and that have
voting rights. For example, under this
provision, outstanding shares would not
include treasury shares held by a
company where the company is
precluded by law from voting its own
shares that are held in its treasury.
Statutory reference: 12 U.S.C. 1843(c)
(б),
(7).
Section 225.2(g)
“
Person "
The definition of “person” reflects the
definition of person contained in the
Bank Control Act.
Statutory reference: 12 U.S.C. 1817(j)
(8), (A).
Section 225.2(i) "Subsidiary”
The definition of “subsidiary” reflects
the statutory definition in section 2(d) of
the BHC Act, and refers to indirect as
well as direct subsidiaries. For example,
company C is a subsidiary of B which, in
turn, is a subsidiary of A. Under the
definition, C is deemed to be a
subsidiary of A.
Statutory reference: 12 U.S.C. 1841(d).
Section 225.2(j) “Voting securities "
This definition clarifies the meaning of
the term “voting shares” used in
sections 2, 3 and 4 of the BHC Act. In the
proposed regulation “voting securities”
are defined to mean shared of common
and preferred stock, partnership
interests, and other similar interests, if
the holders are entitled (under statute,
charter, or in any manner) to vote for or
select directors, trustees, or partners, or
to vote on significant matters.
Under this definition, the acquisition
by a bank holding company of
“nonvoting stock” of another company
would be limited to securities that do
not normally carry the right to elect or
appoint any directors, or to vote on
significant matters. For example, the
right to vote on or to veto payment of
dividends, mergers, acquisitions by, or
dissolution of the company would be
regarded as the right to vote on
significant corporate matters. In
addition, the contingent right of the
holders of a security to elect or appoint
a director to the board of a company
under specified conditions, such as
failure to pay a dividend, would cause
the security to be regarded as a voting
security at the time the right to vote
arises.
Even though securities may be voting
securities for the purposes of this
provision, it does not follow that they
will be treated as equity for purposes of
financial analysis. Whether voting
securities are treated as debt or equity
will depend upon their particular
characteristics, e.g., their term, right to
dividends, and priority in creditor
claims.
Statutory reference: 12 U.S.C.
1841(a)(2)(A)(3); 12 U.S.C. 1842(a); 12
U.S.C. 1843 (a)(1) and (c) (6), (7).
Section 225.3—Administration
Section 225.2(h) “
Principle shareholder”
Section 225.3(a) Delegation o f
authority
This definition reflects the current
usage found in § 225.2(b) of Regulation Y
concerning the rebuttable presumptions
of control. It is relevant to
determinations of control under Subpart
D of the proposed regulation.
Current regulation: 12 CFR 225.2(b)(2).
This provision indicates that certain
actions of the Board may be taken by
individuals or Reserve Banks delegated
to act for the Board. For example,
officials of the Board staff and
individual Reserve Banks are authorized
to act on applications, notices, and
Federal Register / Vol. 48, No. 102 / W ednesday, May 25, 1983 / Proposed Rules
requests under certain conditions as
well as to take certain administrative
actions in the processing of applications
or notices under this regulation. The
functions delegated to particular
Reserve Banks and Board officials, as
well as the conditions under which the
delegation of authority may be
exercised, are detailed in the Board’s
Rules Regarding Delegation of Authority
(12 CFR Part 265). Any person aggrieved
by a decision under delegated authority
may appeal the decision to the Board. In
addition, the Rules provide that an
action taken by a Reserve Bank under
delegated authority may be reviewed by
the Board, if within 10 days after the
action, a member of the Board requests
such review (12 CFR 265.3).
Section 225.3(b) Appropriate Federal
Reserve Bank
This section specifies the Reserve
Bank with which individuals and
companies are to file reports,
applications, and notices under the
regulation.
Current regulation: 12 CFR 225.1(c)
Section 225.4—Corporate Practices
Section 225.4(a) Bank holding
com pany policy and operations
This section codifies the policy of the
Board that a bank holding company
should serve as a source of strength for
its bank subsidiaries, and conduct its
bank and nonbank operations in
accordance with sound banking policy
and practice. Under this provision, bank
holding companies should observe the
statements of policy issued by the Board
from time to time concerning
supervisory and other matters. The
provision is derived from section 3(c) of
the BHC Act, which requires the Board
to consider the financial and managerial
resources and future prospects of the
company and banks concerned; from
section 5(b) of the BHC Act, which
authorizes the Board to issue
regulations; and from the Board's
authority under the Financial
Institutions Supervisory Act to issue
cease and desist orders to prevent
unsafe or unsound banking practices (12
U.S.C. 1818(b)(1) and (3)).
This provision also describes the
provision in section 5(e) of the BHC Act
that the Board may order divestiture of a
nonbank activity or subsidiary if it
determines that the activity or
subsidiary constitutes a serious risk to
the financial safety, soundness or
stability of a bank holding company
bank and is inconsistent with sound
banking principles or the purposes of the
BHC Act.
Statutory reference: 12 U.S.C. 1842(c),
1844(b), 1844(e), 1818(b).
Section 225.4(b) Purchase or
redemption by a bank holding company
o f its own securities
As reflected in the preceding
provision of the proposed regulation, a
bank holding company should serve as a
source of strength to its bank
subsidiaries. Each application for a bank
holding company formation or bank
acquisition that has been approved by
the Board has been approved on this
basis, and the bank holding company
has a continuing obligation to serve as a
source of strength to its subsidiary
banks.
The current regulation requires 45
days notice to the Board for a
redemption of its securities if the
redemption exceeds 10 percent of the
net worth of the bank holding company.
This provision was adopted in 1976
before the Board issued its Policy
Statement on Capital Adequacy (1
F.R.R.S. 3-1506), which reflects the
Board's judgment as to the minimum
adequate capital levels for banks and
bank holding companies or various
sizes. To update the regulation, the
Board proposes to amend the provisions
of Regulation Y regarding redemptions
to prohibit a bank holding company
from purchasing or redeeming its equity
securities, unless, after giving effect to
the redemption or acquisition, the bank
holding company complies with the
minimum standards in the Board's
Policy Statement on Capital Adequacy.
The references to capital contained in
the proposed regulation should be
calculated in accordance with the
definitions of capital in the Board’s
policy statement.
The proposed regulation would also
permit a redemption where the
guidelines are not met only if the
redemption is de m inim is or with the
Board's prior approval. Approval would
only be granted in unusual
circumstances, since the Board does not
believe that it is appropriate for a bank
holding company that does not meet the
Board’s capital adequacy guidlines to
make redemptions of securities that
detract from the bank holding
company’s ability to serve as a source of
strength to its subsidiary banks.
As with the capital adequacy
standards, the standards for permissible
acquisitions of equity securities are
keyed to the size of the organization,
and the result of the proposed
redemption of securities on capital
ratios. Since the Board has not
published capital guidelines for large
multi-national banking organizations,
those organizations would be required,
23523
for the purpose of the redemption
provision, to meet the standards
applicable to organizations with assets
of $1 billion or more. Use of these
standards does not indicate that the
Board has determined that these
standards should be applied to large
multinational banking organizations for
other capital adequacy purposes.
With respect to the smallest
organizations (under $150 million), the
capital ratios, after giving effect to the
proposed redemption of securities, are
those of either each of the subsidiary
bank(s), or the consolidated
organization. This difference recognizes
that most smaller organizations exist
primarily for financing the acquisition of
the subsidiary bank and are highly
leveraged. The use of consolidated
ratios by these organizations in most
instances would not allow them to make
redemptions of equity securities. In
order to compensate for the use of the
more liberal bank-only capital ratios for
smaller organizations, the proposed
regulation imposes an additional test for
permissible redemptions that, giving
effect to the proposed redemption, the
debt-to-equity ratio of the parent is not
more than 30 percent. This additional
test will limit the ability of highlyleveraged organizations to redeem
securities where the redemptions may
adversely affect their financial strength.
Statutory reference: 12 U.S.C. 1844(b),
1818(b)(3).
Current regulation: 12 CFR 225.6.
Section 225.4(c) D eposit insurance
This provision reflects the statutory
requirement in section 3(e) of the BHC
Act that a bank must obtain Federal
Deposit Insurance before it becomes a
bank holding company or a subsidiary
of a bank holding company.
Statutory reference: 12 U.S.C. 1842(e).
Section 225.4(d)
“Tie-in " arrangements
This provision, which is contained in
the current regulation, imposes on bank
holding companies and rionbanking
subsidiaries conducting activities
pursuant to section 4(c)(8) of the BHC
Act the prohibition against “tie-in”
arrangements contained in section
106(b) of the BHC Act Amendments of
1970. For example, a nonbank subsidiary
that is engaged in lending may not fix or
vary the interest rate on its loans on the
condition that the borrower obtain
additional credit, property, or services
from the parent holding company or
from another subsidiary of the bank
holding company. On the other hand,
consistent with this regulation, a
nonbank lending subsidiary may vary
the interest rate on its loan to a
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Federal Register / Vol. 48, No. 102 / W ednesday, May 25, 1983 / Proposed Rules
customer based on the volume of
borrowing by the customer from the
subsidiary.
Statutory reference: 12 U.S.C. 1972(1).
Current regulation: 12 CFR 225.4(c)(1).
Section 225.4(e) Acting as transfer
agent, m unicipal securities dealer, or
clearing agent
This provision replaces the detailed
provisions in the current regulation
concerning securities activities of a
bank holding company or a nonbanking
subsidiary that is a "bank” as defined in
section 3(a)(6) of the Securities
Exchange Act of 1943 (15 U.S.C.
78c(a)(6)). Under the Board’s Regulation
H (12 CTO 208.8(f)— a member bank
(j)),
acting as a transfer agent, municipal
securities dealer, or clearing agent, or as
a participant in a clearing agency, must
comply with requirements that are
identical to those now contained in
Regulation Y. In order to avoid this
duplication, the proposed regulation
refers to the relevant provisions of
Regulation H, and provides that a bank
holding company or covered nonbanking
subsidiary must comply with the
requirements of Regulation H as if it
were a state member bank. If the bank
holding company is itself a bank, it
would be subject instead to the
regulations of its primary banking
supervisor. Subsidiaries of bank holding
companies that are national banks,
insured state nonmember banks, or
nonbanking subsidiaries not subject to
this paragraph are subject to
comparable rules of the Comptroller of
the Currency, the Federal Deposit
Insurance Corporation, and the
Securities and Exchange Commission,
respectively.
Current regulation: 12 CFR 225.5 (c)(f).
Section 225.5—Registration, Reports,
and Inspections
A bank holding company should
consult with the appropriate Reserve
Bank as to the manner, form, and
content of the information it must
furnish to comply with this section. At
the time of approval of an application to
become a bank holding company, the
company is advised by letter of the
information that must be filed to satisfy
the registration requirement. Thereafter,
the company is furnished the
appropriate forms for filing annual and
other required reports.
Bank holding companies and their
subsidiaries are subject to examination
and inspection by the appropriate
Reserve Bank pursuant to instructions
from the Board.
Statutory reference: 12 U.S.C. 1844.
Current regulation: 12 CFR 225.5 (a),
(b).
Section 225.6—Penalties for Violations
This section has been added to the
proposed regulation to refer the reader
to those provisions of the BHC Act, the
Bank Control Act, and the Financial
Institutions Supervisory Act, that
subject individuals and companies to
civil and criminal penalties and other
administrative sanctions for violations.
Statutory reference: The statutory
references are set forth in the proposed
regulation.
III. SUBPART B—ACQUISITION OF
BANK SECURITIES OR ASSETS
Section 225.11—Transactions Requiring
Board Approval
This section of the proposed
regulation, which is based on section
3(a) of the BHC Act, sets out the
following transactions for which prior
Board approval is required: (a)
formation of a bank holding company;
(b) acquisition of a subsidiary bank; (c)
acquisition by a bank holding company
of control of more that 5 percent of the
voting securities of a bank or a bank
holding company; (d) acquisition of
bank assets; (e) merger or consolidation
of bank holding companies; and (f) any
other qcquisition that the Board
determines in a particular case requires
prior approval under the BHC Act.
Generally, the acquisition by a bank
or bank holding company of its own
voting securities or those of its parent
bank holding company would not
require the Board’s approval under this
section of the proposed regulation. Such
an acquisition may, however, be
prohibited under § 225.4(b) of Subpart A
because it reduces the capital below the
minimum standards for capital
adequacy established by the Board.
Statutory reference: 12 U.S.C. 1842(a).
Section 225.11(c) Acquisition o f control
o f bank securities or bank holding
com pany securities
Under this section, a bank holding
company must apply for the Board’s
prior approval to acquire voting
securities of a bank or bank holding
company if, after the acquisition, it
would hold more than 5 percent of any
class of voting securities of the bank or
bank holding company. This section
differs from the literal terms of section
3(a)(3) of the BHC Act, which refers only
to acquisition of voting shares of a bank.
However, the Board has determined that
section 3 also applies to the acquisition
by a bank holding company of shares of
another bank holding company. (State
Street Boston Corporation, 67 Federal
Reserve Bulletin 362 (1981).)
Questions have arisen with respect to
the need for an application under
section 3(a) of the BHC Act in the case
of a stock dividend or split, and the need
for an application by a shareholder
whose interest in a bank or company
increases through a redemption by a
bank or company of its own securities.
Under paragraph (c) of this section of
the proposed regulation, the receipt of
securities from a stock dividend or split
is not considered an acquisition
requiring the Board’s prior approval as
long as the dividend or split does not
alter the holding company’s proportional
share of any class of voting securities.
This reflects the position contained in
an existing Board interpretation. (12
CFR 223.103.)
A redemption of securities by a bank
or bank holding company that increases
the proportional interest of a holder of
such securities usually will be regarded
as an “acquisition” of bank securities by
the holder and will require the holder to
file an application for prior Board
approval, even though the holder
receives no additional shares. For
example, an application would be
required under paragraph (a) of this
section if the redemption results in the
holder becoming a bank holding
company because its proportional
interest has increased to 25 percent or
more of any class of voting securities of
a bank or bank holding company.
Section 225.11(d) A cquisition o f bank
assets
Under section 3(a)(4) of the BHC Act
and under this provision, the acquisition
by a bank holding company or a
nonbank subsidiary of all or
substantially all of the assets of a bank
requires the Board’s prior approval. This
requirement does not apply where the
acquisition of bank assets is made by a
subsidiary bank of a bank holding
company. For the treatment of mergers
involving subsidiary banks of a bank
holding company, see § 225.12(d) of the
proposed regulation and the
commentary to that section below.
Section 225.11(e) M erger o f bank
holding companies
Under section 3(a)(5) of the BHC Act
and under this provision, a merger or
consolidation of two or more bank
holding companies requires prior Board
approval. An exception to this
requirement is a consolidation or merger
in connection with a corporate
reorganization. For example, in a tiered
corporate structure where a bank
holding company has a subsidiary that
Federal Register / Vol. 48, No. 102 / W ednesday, May 25, 1983 / Proposed Rules
is also a bank holding company, the
subsidiary may be merged into the
parent without filing an application.
However, the addition of a new bank
holding company to a tiered bank
holding company system normally
would require prior approval under
§ 225.11 of the proposed regulation.
Section 225.11(f) Other acquisitions
Under this provision, the Board may
determine that certain other acquisitions
of securities of an institution require the
Board's prior approval under section 3
of the BHC Act. The Board would not
make a determination that a particular
acquisition requires its approval before
giving the acquiring company notice.
The Board may exercise its authority
under this provision whether or not a
notice or application with respect to the
proposed acquisition has been filed
under any other provision of law. This
provision is proposed pursuant to the
Board’s authority under section 5(b) of
the BHC Act of the BHC Act adopt
regulations to carry out the purposes of
the Act and to prevent evasions, and it
codifies 12 U.S.C. 1817(j)(16), which
provides that a transaction subject to
the Board’s approval under section 3 of
the BHC Act is not subject to the Bank
Control Act.
Section 225.12—Transactions Not
Requiring Board Approval
This section specifies transactions for
which prior Board approval is not
required under section 3(a) of the BHC
Act.
Statutory reference: 12 U.S.C. 1842(a).
225.122(a) Acquisition o f securities in
fiduciary capacity
This paragraph provides that Board
approval is not required for the
acquisition by a company (including a
bank) of voting securities of a bank or
bank holding company in good faith in a
fiduciary capacity, unless (1) the
company has sole discretionary
authority to vote the securities and will
retain that authority for more than two
years, or (2) the acquisition is for the
benefit of the company, its shareholders,
employees, or subsidiaries. The second
clause is based upon the statutory
presumption in sections 2(g) (1) and (2)
of the BHC Act.
Within 90 days of receiving voting
securities of a bank or bank holding
company in a fiduciary capacity with
sole discretionary voting authority, a
bank holding company is required under
section 3(a) of the BHC Act to file an
application to retain the shares. The
current regulation provides that such an
application (in the form of a letter) is
automatically approved within 45 days
if it is accompanied by an unconditional
undertaking to dispose of the shares or
the voting authority within two years.
Since the BHC Act gives the applicant a
2 year grace period .to retain the shares
even if the application is denied, the
Board believes'this application
procedure is of little value. Therefore,
under the proposed regulation, no
application is required unless the
company proposes to retain the shares
with sole discretionary voting authority
beyond the two-year grace period. If an
application is required under this
provision, the application should be
filed in time for Board action before the
two-year grace period expires.
While the exception contained in
section 3 of the BHC Act for the
acquisition of bank or bank holding
company securities in a fiduciary
capacity is limited to such acquisitions
made by a bank, the proposed
regulation extends the exception for
fiduciary acquisition of bank and bank
holding company securities to those
made by a nonbank company. This
liberalization is being proposed in
recognition of the fact that there are
nonbank companies, including nonbank
subsidiaries of bank holding companies,
that are engaged in fiduciary activities
and would receive securities in a
fuduciary capacity.
The fiduciary exemption in the BHC
Act does not exempt the acquisition of
bank or bank holding company shares
by a bank as fiduciary for a trust that is
a “company” as defined in § 225.2(c) of
Subpart A. Thus, an application must be
filed by such a trust if it proposes to
make an acquisition of bank or bank
holding company securities covered
under § 225.11 of the proposed
regulation. In this situation, however, an
application would not also be required
from the fiduciary or its parent, if the
fiduciary meets the requirements for the
exemption described in § 225.12(a) of
the proposed regulation.
The BHC Act also does not exempt a
transaction where the fiduciary receives
shares from a selling company that is
deemed to continue to control the shares
after the divestiture under section 2(g)(3)
of the BHC Act. This statutory provision
is implemented in Subpart D of the
proposed regulation.
Statutory reference: 12 U.S.C.
1842(a)(A)(i).
Current regulation: 12 CFR 225.3(c).
Section 225(b) Acquistion o f securities
in satisfaction o f debts previously
contracted
This provision exempts from the prior
approval requirement the acquisition by
a company (including a bank) of voting
securities of a bank or bank holding
23525
company in the regular course of
securing or collecting a debt previously
contracted in good faith, so long as the
company divests the securities within
two years of acquisition. Under section
3(a) of the BHC Act, the Board may
grant up to three one-year extensions of
the two-year divestiture period.
For example, a bank subsidiary of a
bank holding company that has made a
loan collateralized by more than 5
percent of the voting securities of a bank
may acquire those securities without the
Board’s approval in the event of a
default by the borrower. The bank and
its holding company would be required
to file an application under this subpart
for Board approval to retain those
shares beyond the permissible time
period.
While the statutory exception is
limited to acquisitions made by banks,
the proposed regulation extends the
exception to any company that acquires
bank securities in good faith in
satisfaction of a debt previously
contracted. This liberalization is being
proposed in recognition of the fact that
there are nonbank companies, including
nonbank subsidiaries of bank holding
companies, that make bank stock loans.
Statutory reference: 12 U.S.C.
1842(a)(A)(ii).
Section 225.12(c) A cquisition o f
securities by bank holding company
with m ajority control
A bank holding company that lawfully
controls a majority of the outstanding
voting securities of a bank or bank
holding company may acquire, without
the Board’s approval, any number of
additional voting securities of the bank
or bank holding company.
Statutory reference: 12 U.S.C.
1842(a)(B).
Section 225.12(d) Transactions subject
to Bank M erger A ct
It has been the Board’s practice not to
require an application under section 3(a)
of the BHC Act for a merger,
consolidation, or purchase of assets
transaction involving a nonsubsidiary
bank and an operating subsidiary bank
of a bank holding company, or two or
more subsidiary banks of a bank holding
company if the transaction is subject to
the approval of a federal supervisory
agency under the Bank Merger Act (12
U.S.C. 1828) and the resulting bank is a
subsidiary of the bank holding company.
However, an application under the BHC
Act would be required for a merger or
consolidation involving the acquisition
of shares of a nonsubsidiary bank, if the
acquisition of shares and the merger or
23526
Federal Register / Vol. 48, No. 102 / W ednesday, May 25, 1983 / Proposed Rules
consolidation do nol occur
simultaneously.
Section 3(a)(4) of the BHC Act
provides that prior Board approval is
not required for the acquisition of bank
assets by a bank subsidiary of a bank
holding company. Based upon its
practice in administering the statute, the
Board has treated merger and
consolidation transactions in the same
manner as asset acquisitions so long as
they were subject to approval under the
Bank Merger Act, which contains
standards that are identical to those in
section 3 of the BHC Act.
The proposed regulation does not
provide an exemption from prior
approval where a merger is between a
nonsubsidiary bank and a nonoperating
(“phantom”) bank formed by a bank
holding company for the purpose of
acquiring all the outstanding shares of
the nonsubsidiary bank. This type of
transaction is more appropriately
viewed as a bank acquisition subject to
the provisions of sections 3(a)(1), 3(a)(2),
or (3)(a)(3) of the BHC Act and § 225.11
of the proposed regulation.
Statutory reference: 12 U.S.C.
1842(a)(4).
Section 225.12(e) Holding securities in
escrow
This provision incorporates a Board
interpretation that an application for
prior approval is not required for the
acquisition of securities of a bank or
bank holding company in escrow, where
the title to the securities and the voting
rights remain with the seller and the
seller has not received payment for the
securities.
Current regulations: 12 CFR 225.134.
Section 225.13—Factors Considered in
Deciding Applications Under Subpart B
Section 225.13(a) Prohibited
an ticom petitive transactions
Paragraph (a) of this section
incorporates the statutory prohibition in
section 3(c) of the BHC Act that the
Board may not approve a transaction
that results in a monopoly. Similarly, the
BHC Act bars the Board from approving
a transaction that would result in a
violation of the antitrust laws (section 2
of the Sherman Act and section 7 of the
Clayton Act), unless the Board finds that
the anticompetitive effects are clearly
outweighed by convenience and needs
considerations. For example, in the case
of a failing bank, the Board may find
that the continuation of the bank as a
viable institution providing financial
services to the community clearly
outweights the anticompetitive effects
resulting from its acquisition by the
particular bank holding company.
Statutory reference: 12 U.S.C. 1842(c)
(1) and (2).
Section 225.13(b) Other factors
considered
This paragraph, which is based on
section 3(c) of the BHC Act, outlines the
factors considered by the Board in
acting on all applications for
acquisitions of banks and bank holding
companies under this subpart. The
factors include financial and managerial
resources and the convenience and
needs of the communities to be served.
The Board assesses these factors with
respect to the applicant, the bank to be
acquired, and all banks affiliated with
the applicant by common management
or shareholders. In assessing the impact
of a transaction on community
convenience and needs, the Board
considers the effects of the proposal on
existing and potential competition and
on the concentration of banking
resources.
In significant cases, the Board’s order
reflects the Board’s consideration of
these factors in the particular case. The
more significant orders, including all
denials, are reprinted in full in the
“Legal Developments” section of the
Federal Reserve Bulletin, typically in
the following month's issue.
In addition to its orders, the Board
from time to time issues general policy
and information statements concerning
bank holding company operations. (See.
e.g., Capital A dequacy Guidelines,
December 17,1981,1 F.R.R.S. 3-1506;
Policy Statem ent fo r A ssessing
Financial Factors in the Formation o f
Sm all One-Bank Holding Companies
pursuant to the B ank Holding Company
Act, March 28, 1980,1 F.R.R.S. 4-855;
Community R einvestm ent A ct
Information Statem ent, Jan. 3,1980, 3
F.R.R.S. 6-1309; Policy Statem ent
Regarding Notice o f Applications;
Tim eliness o f Comments; and
Guidelines fo r Public M eetings. 12 CFR
262.25; see also proposed Policy
Statem ent fo r A ssessing Competitive
Factors Under the Bank M erger A ct and
the Bank Holding Company Act, 47 FR
9017 (Docket No. R-0386, March 3,1982).
For other policy statements and
directives, see M iscellaneous
Supervisory M aterial, 1 F.R.R.S., 4-800,
et seq.)
Statutory reference: 12 U.S.C. 1842(c).
Section 225.13(c) Interstate
transactions
Paragraph (c) reflects the statutory
prohibition in section (d) of the BHC Act
(“Douglas Amendment”), which
provides generally that the Board may
not approve an application that will
result in a bank holding company
acquiring an interest in banks in two or
more states. The provision makes clear
that the prohibition applies to
applications for the information of a
multi-state bank holding company, as
well as a bank or bank holding company
acquisition by an existing bank holding
company. It would not, however, apply
to the formation of a bank holding
company to acquire an existing
interstate bank holding company.
Paragraph (C)(2) contains the two
exceptions in section 3(d) of the BHC
Act to the BHC Act’s general prohibition
against multi-state bank holding
companies. The first exception is for an
acquisition by an out-of-state bank
holding company where the statute laws
of the state in which the bank to be
acquired is located specifically allow
such an acquisition. The second
exception is for the acquisition of a
failing bank by an out-of-state bank
holding company, and it is included to
reflect the amendment to section 3(d) of
the BHC Act by section 118 of the GamSt Germain Depository Institutions Act
of 1982 (“Garn-St Germain") (Pub. L, 97
320, 96 Stat. 1477).
Statutory reference: 12 U.S.C. 1842(d).
Section 225.14—Procedures for
Applications, Notices, and Hearings
Section 225.14(a)-(d) Applications,
notices, and action on applications
The proposed regulation sets forth the
procedures for applications, notices, and
bearings with respect to applications for
the Board’s prior approval of
acquisitions of bank securities and
assets.' In accordance with § 262.3 of
the Board’s Rules of Procedure, an
applicant seeking Board
approval under this subpart is
required to file an application,
on a form prescribed by the Board, with
the appropriate Reserve Bank. An
applicant is also required to arrange for
notices in a newspaper of general
circulation inviting comment on the
application for 30 days in accordance
with the requirements of the Board’s
Rules of Procedure (12 CFR 262.3(b)).
In an effort to expedite the processing
of applications, the proposed regulation
establishes time constraints for
accepting an application for processing
or notifying the applicant that the
application is incomplete and seeking
additional information. Upon recept of
an application for processing, the
Reserve Bank is required to give notice
to and request the comments of the
1 For a narrative description of the processing of
applications, see the pamphlet Processing Bank
Holding Company and Merger Applications,
Federal Reserve System Information Series.
Federal Register / Vol. 48, No. 102 / W ednesday, May 25, 1983 / Proposed Rules
primary banking supervisor of the bank
to be acquired. Notice of the application
will also be sent to the Federal Register
at that time for publication. The
Federal Register notice will provide a
comment period of no more than 30
days. The publication of the Federal
Register notice upon receipt by the
Reserve Bank of an application rather
than awaiting formal acceptance of the
application will reduce the processing
time for many applications.
The proposed regulation provides that
the application will be approved within
30 days after acceptance by the Reserve
Bank, unless the applicant is notified
that it has been referred to the Board for
decision because the application does
not meet the Board’s criteria for
delegated action. During 1982, 93 percent
of all applications submitted to the
System were approved under delegated
authority. Thus, under the proposed
regulation it is expected that the vast
majority of applications will be acted
upon within 30 days of their acceptance
by the Reserve Bank. The Reserve Bank
is authorized to extend this 30 day
period for 15 days when the additional
time is needed to resolve a protest or
other substantive matter.
In the case of applications referred to
the Board, the proposed regulation
provides that the Board must act on an
application within 60 days of its
acceptance by the Reserve Bank. This
period may be extended for additional
time if the Board advises the applicant
of the duration of the extension and the
reasons for it. In no event may the Board
extent the period for action beyond the
91-day period provided in paragraph (f)
of this section discussed below. As
discussed earlier, the Board has
established an internal processing
schedule of 60 days for cases to be acted
upon by the Board and expects that the
great majority of such cases will be
acted upon with the 60 day period.
The proposed regulation omits a
provision in the current regulation that
provides for the automatic approval of
certain one-bank holding company
formations at the end of a 45-day period.
In practice, the Federal Reserve System
issues orders in the case of every
application submitted under section 3 of
the BHC Act, and thus the automatic
approval procedure has not generally
been followed. The omission of this
provision should not have any impact on
the processing time for routine one-bank
holding company formations, however,
since, as described above, the majority
of such applications will be approved
within 30 days of acceptance by the
appropriate Reserve Bank, pursuant to
delegated authority.
Statutory reference: 12 U.S.C. 1842(b).
Current regulation: 12 CFR 225.3.
Section 225.14(e) Hearings
The proposed regulation reflects the
requirements in section 3(b) of the BHC
Act that the Board shall order a hearing
if it receives a timely written
recommendation of disapproval of the
application from the primary banking
supervisor.
In administering the BHC Act, the
Board has in particular instances found
hearings or other proceedings useful in
developing a complete record in
connection with the processing of an
application. Accordingly, under the
proposed regulation, the Board has the
discretion to order any proceeding that
it deems appropriate to facilitate action
on an application.
Statutory reference: 12 U.S.C. 1842(b).
Current regulation: 12 CFR 225.3(d).
Section 225.14(f) Approval through
failure to act
In judicial decisions involving the 91day provision in sections 3(a) and 4(c)(8)
of the BHC Act, courts have indicated
that adoption by the Board of a
regulation regarding the calculation of
the 91-day period would be desirable.
Accordingly, the proposed regulation
incorporates judicial constructions of
the 91-day rule in the BHC Act, and
provides that an application shall be
deemed approved if the Board fails to
act within 91 days after the date that the
record on the application is complete. In
conformance with established rules for
computation of time periods, such as the
Federal Rules of Civil Procedure, the
first complete day of the 91-day period
is the day following completion of the
record. Under this method of
computation, the date the record is
completed is day zero and the Board
must act within 91 days thereafter. The
proposed regulation also specifies that
Board action includes issuance of an
order stating that the Board has
approved or denied the application,
reflecting the votes of the Board
members, and indicating that a
statement of the reasons for the action
will follow.
The proposed provision specifies that
the record on an application will not be
considered complete before: (1) the date
the Board receives an application
accepted for processing by a Reserve
Bank; (2) the last day of the formal
comment period specified in any notice
required under the regulation; (3) the
date of the receipt of the last relevant,
noncumulative information needed for
the Board’s decision on the application
from a source outside the Federal
Reserve System; or (4) the completion of
any hearing required on the application.
23527
Information from a source outside the
Federal Reserve System includes any
information submitted by the applicant
in response to a request by the Board
during the proceeding as well as
information from a government agency
or potential competitor. In addition, if
the Board has requested information
that the Board believes is necessary for
its decision, the record is not complete
until the Board receives that
information. Similarly, if the Board is
awaiting the results of an examination
of any bank involved in the application,
the record would not be complete until
the Board receives the examination
report. (See Tri-State Bancorporation,
Inc. v. Board o f Governors, 524 F. 2d 562
(7 th Cir. 1975); North Lawndale
Economic D evelopm ent Corp. v. Board
o f Governors, 553 F. 2d 23 (7th Cir. 1977);
Central W isconsin Bankshares, Inc. v.
Board o f Governors, 583 F. 2d 294 (7th
Cir. 1978); Republic o f Texas Corp. v.
Board o f Governors, 649 F. 2d 1026 (5th
Cir. 1981).)
An applicant or other interested
person may contact Board staff for
informal advice on the calculation of the
91-day period for a particular
application. In response to such
requests, Board staff will inform the
applicant of the last date provided in
any notice for comment on the
application and the last date that any
relevant information concerning the
application has been received from
outside the Federal Reserve System, it
should be understood that dates
provided by the staff in response to
informal requests are subject to change
if additional information is subsequently
submitted to the Board.
Statuory reference: 12 U.S.C. 1842(b).
Section 225.14(g) Exceptions to
notice and hearing requirements
This provision, which is derived from
section 3(b) of the BHC Act, authorizes
the Board to modify or dispense with the
notice and hearing requirements in the
case of a probable bank failure or other
emergency situation. The procedures
authorized under this provision
normally will be utilized in close
consultation with the appropriate
financial regulatory agencies-. Generally,
an emergency situation is one that isless serious than a probable bank
failure, and the Board has considerable
discretion to determine that an
emergency exists under particular
circumstances.
Statutory reference: 12 U.S.C. 1843(b).
Section 225.14(h)
W aiting period
Under section 11(b) of the BHC Act,
transactions for which an application
has been approved under section 3 of
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Federal Register / Vol. 48, No. 102 / W ednesday, May 25,1983 / Proposed Rules
the Act, either as a result of Board
approval or the 91-day rule, may not be
consummated until the thirtieth day
after approval of the application.
Emergency and failing bank acquisitions
are generally exempt from the 30-day
waiting period. The purpose of the
waiting period is to afford the United
States Department of Justice an
opportunity to review the proposal and
determine whether it conforms to the
antitrust laws. If the Department does
not challenge the merger during this
period, the merger is thereafter immune
from challenge under section 7 of the
Clayton Act.
The Board requests comment on the
feasibility of an amendment to
Regulation Y that will allow this waiting
period to be reduced with the
concurrence of the Department of Justice
where the proposal does not present any
anticompetitive effects. For example,
one-bank holding company formations
generally do not present anticompetitive
effects and are not the type of proposals
for which the 30-day waiting period was
designed.
Statutory reference: 12 U.S.C. 1849(b).
IV. SUBPART C—NONBANKING
ACTIVITIES AND ACQUISITIONS OF
BANK HOLDING COMPANIES
Section 4 of the BHC Act embodies
one of the primary purposes of the BHC
Act, the separation of banking and
commerce, by limiting the nonbanking
activities in which a bank holding
company and its subsidiaries may
engage and by prohibiting the
acquisition of shares in nonbanking
entities unless such acquisitions are
specifically permitted under one of the
exemptions to the section. This subpart
of the proposed regulation implements
section 4 and applies to any bank
holding company as defined in Subpart
A (including certain foreign banking
organizations).
The subpart sets forth the limitations
on nonbanking activities and describes
the major exemptions from the
nonbanking prohibitions contained in
the BHC Act. The statutory exemption in
section 4(a)(2) of the BHC Act relating to
retention of real estate holdings
acquired prior to 1970, and the limited
exemption in section 4(c)(10) for a bank
that is a bank holding company have not
been included in the regulation because
of their limited applicability. Also, the
provisions of section 4(c)(12) of the BHC
Act, which pertain to the expansion of
nonbanking activities that were required
to be divested by 1980, are not included.
The statutory exemptions in sections
4(c) (9) and (13) of the BHC Act are
implemented in various provisions of
Regulation K ("International Banking
Operations," 12 CFR Part 211). Section
4(c)(9) concerns shares held or activities
conducted by a company organized
under the laws of a foreign country.
Section 4(c)(13) relates to the exemption
for shares or activities of a company
that does no business in the United
States except as an incident to its
international activities.
Section 4(c)(14) of the BHC Act, which
was added in 1982 by the Bank Export
Services Act (Title II of Pub. L. 97-290),
involves an exemption for acquisition by
a bank holding company of an
investment in an export trading
company. The Board’s proposed
amendment to Regulation K
implementing this exemption was issued
for comment on January 14,1983 (48 FR
3775, Docket No. R-0445).
Section 225.21—Permissible Nonbanking
Activities and Acquisitions; Exempt
Bank Holding Companies
Section 225.21(a) Permissible
nonbanking activities and acquisitions
This paragraph reflects the prohibition
of section 4(a) of the BHC Act that a
bank holding company and its
subsidiaries may not engage in any
activity other than those of banking or
managing or controlling banks or
activities otherwise deemed permissible
under the BHC Act, and may not acquire
voting securities of a company engaged
in impermissible activities.
Since the statutory definition of
company in section 2(b) of the BHC Act
includes the term "partnership,” the
prohibition against engaging in a
nonbanking activity also applies to a
bank holding company or subsidiary
becoming a partner in a partnership (or
acquiring voting securities in a
partnership) that is engaged in
nonbanking activities. (See Central
Colorado Co. & C.C.B., Inc., 66 Federal
Reserve Bulletin 655 (1980).) Similarly,
the prohibition applies to acquiring an
interest in a joint venture (either in
corporate or partnership form), where
the joint venture is engaged in a
nonbanking activity.
Under § 225.4(c)(3) of the current
regulation and a current Board
interpretation, the prohibition against
nonbanking acquisitions also includes
acquisitions of assets of a going concern
(12 CFR 225.132). Specifically, under
these provisions, assets acquired other
than in the ordinary course of business
or that constitute the acquisition in
whole or in part of a going concern,
including a subsidiary, division,
department or office, are subject to the
prohibitions and prior approval
requirements of section 4 of the BHC
Act. (As discussed below, the Board is
providing exemptions in § § 225.22(c) (7)
and (8) from prior approval
requirements for assets acquired in the
ordinary course o.f business and for
certain assets acquired by consumer
finance and residential mortgage
banking companies.)
Statutory reference: 12 U.S.C. 1843(a)
( 1 ). ( 2 ).
Current regulation: 12 CFR 225.4(c)(3).
Section 225.21(b) Exem pt bank holding
companies
This paragraph specifies the types of
companies that are exempt from the
prohibitions against nonbanking
activities of section 4 of the BHC Act
and the proposed regulation. Included
among them are certain labor,
agricultural, and horticultural
organizations; family-owned companies;
and companies granted hardship
exemptions by the Board under section
4(d) of the BHC Act.
Statutory reference: 12 U.S.C. 1843(c)
(i) and (ii), and (d).
Section 225.22—Exem pt Nonbanking
A ctivities and Acquisitions
This section sets out the exemptions
from the nonbanking prohibitions
contained in section 4(a) of the BHC
Act. The exemptions are derived, for the
most part, from those set forth in section
4(c) of the BHC Act, as well as
interpretations that have been issued by
the Board. A bank holding company
may engage in an activity or acquire
shares of a nonbanking company
without prior Board approval, if the
activity or acquisition falls within one of
the following exemptions.
Statutory reference: 12 U.S.C. 1843(c).
Section 225.22(a) Servicing activities.
Under sections 4(a)(2) and 4(c)(1) of
the BHC Act, a bank holding company
may provide services for its banking and
nonbanking subsidiaries either directly
or indirectly through a subsidiary. This
section of the proposed regulation
clarifies the scope of the servicing
activities that may be performed for a
bank holding company and its
subsidiaries. Generally, a bank holding
company may provide only services
related to the internal operations of the
bank holding company or its
subsidiaries. Examples of the activities
are set forth in the proposed regulation.
The servicing exemption is not intended,
however, to be used by a bank holding
company as a guise for providing
nonbank services to outside parties or
otherwise engaging in nonbanking
activities. Thus, as a general matter, a
bank holding company or its
subsidiaries may not rely on the
Federal Register / Vol. 48, No. 102 / W ednesday, May 25, 1983 / Proposed Rules
servicing exemption to act as principal
or agent in soliciting business or
providing services to parties other than
the bank holding company or its
subsidiaries. This provision differs from
several Board interpretations issued
before the 1970 amendments to the Act.
These interpretations will be modified
or deleted if this provision is adopted.
(See e.g. 12 CFR 225.104, 225.109, 225.118,
and 225.122.)
Statutory reference: 12 U.S.C. 1843
(a)(2) and (c)(1).
Section 225.22(b) Safe deposit business
As reflected in section 4(c)(1)(B) of the
BHC Act, the proposed regulation
allows a bank holding company to
engage in or to acquire shares of a
company that conducts a safe deposit
business.
Statutory reference: 12 U.S.C.
1843(c)(1)(B).
Section 225.22(c) Nonbanking
acquisitions not requiring prior Board
approval
1. DPC (debts previously contracted)
acquisitions. Section 4(c)(2) of the BHC
Act provides that a Lank holding
company or subsidiary may acquire
nonbank shares in satisfaction of a debt
previously contracted and hold such
shares for a two-year period, with the
possibility of three additional one-year
extensions being granted by the Board.
This provision codifies the exemption
and expands it to include interests in
real or personal property. Under a
current Board interpretation, the Board
may approve an additional five-year
period for a total of ten years for the
divestiture of real estate acquired DPC
(12 C.F.R. 225,140).
Statutory reference: 12 U.S.C.
1843(c)(2).
2. Securities or assets required to be
divested b y subsidiary. Section 4(c)(3)
of the BHC Act permits certain
acquisitions to be made by a bank
holding company from its subsidiaries.
The regulation allows for a temporary
holding for up to two years of
nonbanking shares that a subsidiary of
the holding company has been required
to divest by a federal or state examining
authority.
Statutory reference: 12 U.S.C.
1843(c)(3).
3. Fiduciary investm ents. Bank
holding companies and their
subsidiaries are permitted under section
4(c)(4) of the BHC Act to acquire and
hold nonbanking securities and
activities in a fiduciary capacity so long
as they are not held for the benefit of the
bank holding company, its subsidiaries,
or its employees. Under the BHC Act,
this provision does not permit a bank
holding company subsidiary to acquire
nonbank securities and activities as
fiduciary for a trust that is a “company”
(as defined in section 2(b) of the BHC
Act). The legislative history of this
provision suggests this limitation is
intended to apply only where the trust is
also a bank holding company. Thus, if
the trust itself is not a bank holding
company, the exemption is available to
the bank holding company subsidiary
that acts as fiduciary. (Of course, if the
trust is a bank holding company,, it is
subject to the same limitations of this
subpart with respect to its nonbank
securities and activities that apply to
any other bank holding company.)
While the exception for the
acquisition of nonbank shares and
assets in a fiduciary capacity contained
in section 4(c)(4) of the BHC Act is
limited to such acquisitions made by a
subsidiary bank, the proposed
regulation extends the exception for
fiduciary acquisition of nonbank shares
and assets to those made by a nonbank
company. This interpretation is being
proposed in recognition of the fact that
there are nonbank companies, including
nonbank subsidiaries of bank holding
companies, that hold securities and
assets in a fiduciary capacity.
Statutory reference: 12 U.S.C.
1843(c)(4).
4. Securities eligible fo r investm ent by
a national bank. This exemption derives
from section 4(c)(5) of the BHC Act and
permits a bank holding company to
acquire directly or through a nonbank
subsidiary securities of the kinds and
amounts that are explicitly eligible by
federal statute for investment by a
national bank. Such investments, the
authorization for which is contained in
12 U.S.C. 24, Par. Seventh, include
securities issued by Federal Home Loan
Banks, the Federal National Mortgage
Association, and the Government
National Mortgage Association, and
stock issued by a safe-deposit company
or agricultural credit corporation. (See
discussion below of § 225.22(d)
concerning investments that may be
made by subsidiary banks of a bank
holding company.)
The limitation to “explicitly eligible”
investments was adopted by the Board
in 1971 to prevent section 4(c)(5) of the
BHC Act from being used to circumvent
the requirements of section 4(c)(8). For
example, a bank holding company may
not acquire a consumer finance
company without prior Board approval
on the ground that a national bank is
permitted by agency rule to own such a
company. For the same reason, the
Board believes that section 4(c)(5)
should not be interpreted to exempt
investments in bank service
23529
corporations under the Bank Service
Corporation Act amendments in section
709 of the Garn-St Germain Act since
these amendments, while greatly
expanding the permissible services of
such corporations, evidence an intent to
limit the activities to those permissible
under section 4(c)(8) of the BHC Act.
The proposed regulation specifically
excludes investments in bank service
corporations.
Statutory reference: 12 U.S.C.
1843(c)(5), 24.
Current regulation: 12 CFR 225.4(e).
5. Securities totalling 5 percent or less
o f a company. This provision, which is
derived from section 4(c)(6) of the BHC
Act, permits passive investments by a
bank holding company or subsidiary so
long as the investment in a company or
property does not amount to more than
five percent of any class of voting
securities of the company or more than a
five percent interest in the property. The
regulation codifies the Board's position,
as reflected in a published
interpretation, that section 4(c)(6) may
only be used for passive investments
and is not authority for a bank holding
company to engage in entrepreneurial
activity through the company or
property in which the investment is
made (1 2 CFR 225.137).
Statutory reference: 12 U.S.C.
1843(c)(6).
6. Securities o f investm ent company.
Under section 4(c)(7) of the BHC Act, a
bank holding company may invest in an
investment company that limits its
activities to investing in securities that
do not amount to more than Five percent
of any class of voting securities of any
company.
Statutory reference: 12 U.S.C.
1843(c)(7).
7. A ssets acquired in the ordinary
course o f business. Prior approval of the
Board is not required for the acquisition
of certain assets in the ordinary course
of business, subject to the Board’s
interpretation of “ordinary course of
business” in 12 CFR 225.132.
Acquisitions exempt under this
provision may not represent all or
substantially all the assets of a
subsidiary, division, department, or
office or the employees of the selling
company. This proposal, together with
the next paragraph, represents a
modification of the proposal that was
issued several years ago (Docket No. R 0005) and supersedes that rulemaking
proceeding.
8. A sset acquisitions b y consumer
finance v r mortgage company. This
provision establishes an exemption from
section 4 of the BHC Act for a consumer
finance or mortgage company to acquire
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Federal Register / Vol. 48, No. 102 / W ednesday, May 25,1983 / Proposed Rules
assets of an office(s) engaged in making
consumer loans, provided the
acquisition amounts to no more than 10
percent of the assets of the acquiring
consumer finance of mortgage company
or $10 million, whichever is less. For
purposes of this exemption, a consumer
loan is any loan the proceeds of which
are used for personal, family or
household purposes.
The Board is proposing this exemption
to promote competitive equity between
holding company affiliates and
independent companies in the consumer
finance and mortgage banking
industries. These independent
companies buy and sell offices
frequently and generally need not await
regulatory approval. The Board believes
that the BHC Act should not be
interpreted to limit unduly the normal
business operations of a nonbank
affiliate of a bank holding company, as
long as the exemption is not used to
eliminate a competitor.
The proposed regulation indicates that
the Board may withdraw the authority
to make acquisitions under this
exemption by notifying the bank holding
company. It is contemplated that the
Board would withdraw this authority
only in unusual circumstances, for
example, where the financial condition
of the bank holding company or its
subsidiaries does not warrant futher
expansion.
Section 225.22(d) Acquisition o f
securities b y subsidiary banks
This provision restates § 225.4(e) of
the current Regulation Y concerning
acquisitions by subsidiary banks of a
bank holding company. Under the
present and proposed language, a
national bank or its subsidiary may
acquire or retain shares in accordance
with the rules and regulations of the
Comptroller of the Currency.
In addition, for purposes of federal
law, a state-chartered bank or its
subsidiary may:
(i) acquire or retain shares if such
shares, are of the kinds and amounts
explicitly eligible by federal statute for
investment by a national bank; and
(ii) acquire or retain all of the shares
(except directors’ qualifying shares) of a
company that engages solely in
activities in which the parent bank may
engage, at locations at which the bank
may engage in the activity, and subject
to the same limitations as if the bank
were engaging in the activity directly.
Statutory reference: 12 U.S.C.
1843(c)(5).
Section 225.22(e) A ctivities and
securities o f new bank holding
companies
This provision incorporates section
4(a)(2) of the BHC Act, which permits a
company becoming a bank holding
company a period of two years to bring
its nonbanking activities and
investments into conformity with
section 4. The two-year period may be
extended by the Board for three
additional one-year periods.
A bank holding company may not
further extend the divestiture period by
forming a new bank holding company
and transferring its bank and
nonconforming activities to the new
company to evade the requirements of
the Act. Thus, consistent with section
2(a)(6) of the BHC Act, a successor to a
bank holding company, as defined in
section 2(e) of the BHC Act, would have
to conform to any divestiture period to
which the predecessor bank holding
company was subject,
Statutory reference: 12 U.S.C. 1841
(a)(6) and (e); 1843(a)(2).
Section 225.22(f) G randfathered
activities and securities
This provision incorporates the
exemptions contained in sections
4(a)((2) and 4(c)(ll) of the BHC Act,
which provide certain grandfather
privileges to a “company covered in
1970" (i.e., a company that became a
bank holding company as a result of the
1970 Amendments to the BHC Act and
would have been a bank holding
company on June 30,1968 if those
amendments had been in effect then).
Generally, such a company may
continue to hold those interests and to
engage in those activities that it held or
engaged in on June 30,1968, and may
expand such activities, including by the
formation of a new company to engage
in such activities. Subsidiaries or
activities acquired after June 30,1968,
pursuant to a binding written contract
entered into prior to June 30,1968, are
similarly grandfathered. As provided in
section 4(a)(2) of the BHC Act, the Board
may find, after notice to the bank
holding company, that divestiture of
grandfathered activities is necessary to
ensure safe and sound operations or to
avoid certain anticompetitive effects.
Statutory reference: 12 U.S.C. 1843
(a)(2) and (c)fll).
Section 225.22(g) Securities or
activities exem pt under Regulation K
This provision exempts securities
acquired or activities engaged in by a
bank holding company under the
authority of the Board's Regulation K,
“International Banking Operations” (12
CFR Part 211).
Statutory reference: 12 U.S.C. 1843(c)
(9) and (13); 12 U.S.C. 3106.
Section 225.23— Nonbanking Activities
Requiring Board Approval
The principal authority for bank
holding companies to engage in
nonbanking activities is set forth in
section 4(c)(8) of the BHC Act, which
was revised and expanded by the 1970
Amendments to the Act. That section
provides generally that a bank holding
company may seek Board approval to
engage in, or acquire shares of a
company engaged in, activities that the
Board has determined, after notice and
opportunity for hearing, “to be so
closely related to banking or managing
or controlling banks as to be a proper
incident thereto." The statute provides
that the Board may make this
determination by order or by regulation.
In the exercise of its rulemaking
authority, the Board has to date
determined that 14 activities are
“closely related to banking."
Except for insurance agency activities
descussed below, the proposed
regulation incorporates the description
of the activities contained in the current
regulation, with only minor,
nonsubstantive changes intended to
restate the description in simpler
language. Some descriptions of activities
have not been simplified where they
were the result of extensive regulatory
proceedings and were upheld in their
present form following judicial review.
The revised list has been reduced to 13
activities by combining the making and
servicing of loans. No comment is
requested on the question of the
appropriateness of the Board’s
determination that the listed activities
are closely related to banking since such
comment was reeived and considered in
earlier proceedings.
In addition, the Board is proposing to
add to the list five nonbanking activities
that the Board has previously
determined by order to be closely
related to banking and therefore
permissible for particular bank holding
companies. The Board invites comment
on whether they should be added to the
list or modified in any respect,- so that
they would be permissible for bank
holding companies generally. These
activities are: issuing money orders with
a face value of $1,000 or less; arranging
commercial real estate equity financing;
underwriting and dealing in certain
federal, state, and municipal securities;
acting as a futures commission merchant
for certain financial assets; and offering
certain foreign exchange services and
Federal Register / Vol. 48, No. 102 / W ednesday, May 25, 1983 / Proposed Rules
advice. In a separate proceeding, the
Board has also proposed to amend the
regulation to include providing certain
securities brokerage services that were
approved by order (48 FR 7746, Docket
No. R-0455, Feb. 22,1983). As indicated
above, the Board also invites regulatory
proposals for additional nonbanking
activities.
For ease of reference, the descriptions
of permissible data processing activities
and courier activities include providing
such services for the internal operations
of the bank holding company and its
subsidiaries Such activities, if engaged
in solely for the internal operations of
the bank holding company, would be
permissible on the basis of section
4(a)(2) or 4(c)(1)(C) of the BHC Act. The
Board will consider deleting these
provisions, which are also contained in
the current regulation, if commenters
consider their retention in the regulation
misleading.
Set forth below in summary form is a
list of the 13 current activities and the 5
additional proposed activities, together
with citations to the current regula tion
and the Federal Reserve Bulletin
containing the regulatory action of the
Board, and judicial decisions relating to
the Board's determinations. For the five
proposed activities, a citation is given to
the case where the activity was
approved for a particular bank holding
company.
(1) M aking and servicing loans. 12
CFR 225.4(a) (1) and (3); 57 Federal
Reserve Bulletin 512 (1971).
(2) Industrial banking. 12 CFR
225.4(a)(2); 57 Federal Reserve Bulletin
512, 513 (1971).
(3) Trust com pany functions. 12 CFR
225.4(a)(4); 57 Federal Reserve Bulletin
512, 513 (1971); 60 Federal Reserve
Bulletin 446 and 504 (1974). An
organization under this paragraph would
usually be chartered by state or federal
authorities to engage in trust activities
and would be subject to regulation and
examination by its chartering authority.
The trust activities intended to be
permitted under this section are
traditional activities carried on by trust
conpanies generally.
(4) Investm ent or financial advice. 12
CFR 225.4(a)(5); 57 Federal Reserve
Bulletin 512, 513 (1971); 58 Federal
R esen'e Bulletin 149 and 571 (1972);
Board o f Governors v. Investm ent
Company institute, 450 U.S. 46 (1981).
As reflected in a footnote to the
current regulation, investment advising
is to be contrasted with “management
consulting” which the Board views as
including, but not limited to, the
provision of analysis or advice as to a
firm’s (i) purchasing operations, such as
inventory control, sources of supply, and
cost minimization subject to constraints;
(ii) production operations, such as
quality control, work measurement,
product methods, scheduling shifts, time
and motion studies, and safety
standards; (iii) marketing operations,
such as market testing, advertising
programs, market development,
packaging, and brand development; (iv)
planning operations, such as demand
and cost projections, plant location,
program planning, corporate
acquisitions and mergers, and
determination of long-term and short
term goals; (v) personnel operations,
such as recruitment, training, incentive
programs, employee compensation, and
management-personnel relations; (vi)
internal operations, such as taxes,
corporate organization, budgeting
systems, budget control, data processing
systems evaluation, and efficiency
evaluation; or (vii) research operations,
such as product development, basic
research, and product design and
innovation. The Board has determined
that general management consulting—as
opposed to management consulting to
depository institutions— is not an
activity that is so closely related to
banking or managing or controlling
banks as to be a proper incident thereto.
(5) Leasing. 12 CFR 225.4(a)(6) (i) and
(ii); 57 Federal Reserve Bulletin 512, 513
(1971); 60 Federal Reserve Bulletin 284,
285-86 (1974); 62 Federal Reserve
Bulletin 944 (1976). The proposed
regulation combines the provisions of
the current regulation concerning
personal and real property leasing, since
those provisions are nearly identical.
(6) Community development. 12 CFR
225.4(a)(7); 12 CFR 225.127; 57 Federal
R eserve Bulletin 512, 513 (1971). While
this provision is not intended to allow
for projects designed essentially for
commercial gain, the Board believes
bank holding companies should have
flexibility in making investments or
6haritable contributions that result in or
are designed for community
improvement, and the receipt of modest
profits would not be inconsistent with
the nature of this activity.
(7) Data processing. 12 CFR
225.4(a)(8); 57 Federal Reserve Bulletin
512, 513 (1971); 68 Federal Reserve
Bulletin 552 (1982).
(8) Insurance sales. 12 CFR 225.4(a)(9);
57 Federal R eserve Bulletin 674, 674-75
(1971); 65 Federal Reserve Bulletin 924
(1979); 67 Federal Reserve Bulletin 629
(1981). In its interpretation concerning
this activity, the Board describes types
of insurance that are regarded as
directly related to an extension of credit.
(12 CFR 225.128.) Several of these
activities have been limited or
prohibited by the amendments to
23531
section 4(c)(8) of the BHC Act made by
Title VI of Garn-St Germain. The Board
is reviewing the issues raised by the
amendment in Garn-St Germain and will
amend Regulation Y to reflect the
resolution of these issues. In the interim,
the Board will consider applications
from companies to engage in insurance
activities that the company believes are
permissible under the provisions of
Garn-St Germain.
(9) Insurance underwriting. 12 CFR
225.4(a)(10); 59 Federal Reserve Bulletin
19, 20 (1973). As stated in the current
and proposed regulation, to assure that
engaging in the underwriting of credit
life and credit accident and health
insurance can reasonably be expected
to be in the public interest, the Board
will only approve applications in which
an applicant demonstrates that approval
will benefit the consumer or result in
other public benefits. Normally such a
showing would be made by a projected
reduction in rates or increase in policy
benefits due to bank holding company
performance of this service. As reflected
in a current interpretation, the Board
also expects that once an application
has been approved on this basis, a bank
holding company will provide these
benefits on a continuing basis by
adjusting its rates and services in
relation to adjustments in the prima
facie rates provided by state law (12
CFR 225.135).
(10) Courier services. 12 CFR
225.4(a)(ll); 59 Federal Reserve Bulletin
892 (1973); N ational Courier A s s ’ v.
n
Board o f Governors, 516 F.2d 1229 (D.C.
Cir. 1975). The Board’s interpretation at
12 CFR 225.129 provides additional
conditions on bank holding company
performance of this activity. All
applications for this activity must be
acted on by the Board rather than the
Reserve Banks, until the Board gains
experience with these applications.
(11) M anagem ent consulting fo r
depository institutions. 12 CFR
225.4(a)(12); 60 Federal Reserve Bulletin
223 and 446 (1974); 68 Federal Reserve
Bulletin 237, 237-38 (1982). The Board’s
interpretation at 12 CFR 225.131
specifically describes permissible
management consulting activities and
provides an exemption from the
prohibition against holding shares of a
client bank where the shares are
acquired in satisfaction of a debt
previously contracted or held in a
fiduciary capacity without sole voting
authority.
(12) M oney orders, savings bonds, and
travelers checks. 12 CFR 225.4a(13); 65
Federal Reserve Bulletin 249, 250 (1979);
67 Federal Reserve Bulletin 912 (1981).
The proposed revision regarding this
23532
Federal Register / Vol. 48, No. 102 / W ednesday, May 25, 1983 / Proposed Rules
activity includes the issuance of money
orders having a face value of $1,000 or
less. That additional activity was
approved by the Board by order for a
particular bank holding company (63
Federal Reserve Bulletin 416 (1977)).
(13) Real estate appraising. 12 CFR
225.4(a)(14); 66 Federal Reserve Bulletin
975 (1980).
(14) Commercial real estate equity
financing. 68 Federal Reserve Bulletin
647 (1982).
(15) Underwriting and dealing in
governm ent obligations. 64 Federal
R eserve Bulletin 222, 223 (1978); 65
Federal Reserve Bulletin 363 (1979); 68
Federal Reserve Bulletin 249 (1982)
(16) Foreign-exchange advisory and
transactional services. 69 Federal
Reserve Bulletin 221 (1983).
(17) Futures commission merchant. 63
Federal Reserve Bulletin 951 (1977); 68
Federal Reserve Bulletin 514 (1982).
Under the proposal, a bank holding
company may engage in FCM activities
pursuant to this provision on major
domestic exchanges and such foreign
commodities or financial futures
exchanges as the Board has considered
in previous applications. The Board will
consider applications to engage in FCM
activities on other foreign exchanges on
a case-by-case basis. If this proposal is
approved, all applications to undertake
this activity would be acted on by the
Board, not the Reserve Banks, until the
Board gains more experience in this
area.
Statutory reference: 12 U.S.C.
1843(c)(8).
Section 225.24—Factors Considered in
Deciding Applications Under Subpart C
Section 225.24(a) Criteria fo r activities
previously determ ined to be closely
related to banking
This provision incorporates tha
statutory test in section 4(c)(8) of the
BHC Act, which requires the Board to
weigh the public benefits that are likely
to be derived by a particular bank
holding company engaging in a specific
nonbanking activity against the possible
adverse effects in order to determine
whether the proposal should be
approved. The enumeration of benefits
and adverse effects in the regulation, as
in the statute, is meant to be illustrative
and not exhaustive and, therefore, the
Board is not precluded from considering
other factors in deciding an application.
Section 4(c)(8) of the BHC Act allows
the Board to differentiate between
activities commenced de novo and those
commenced through the acquisition of a
going concern. Accordingly, the
proposed regulation reflects the general
finding of the Board that performance of
an activity by a bank holding company
on a de novo basis is likely to yield
public benefits.
Statutory reference: 12 U.S.C.
1843(c)(8).
Section 225.24(b) Criteria fo r other
nonbanking activities
Section 4(c)(8) of the BHC Act
provides a two-step test for determining
the permissibility of nonbanking
activities for bank holding companies.
First, the Board must determine that the
activity is closely related to banking.
Second, having made that finding, the
Board must determine whether the
activity is “a proper incident” to
banking by weighing the benefits of a
particular bank holding company
engaging in a specific nonbanking
activity against the possible adverse
effects. [Board o f Governors v.
Investm ent Company Institute, 450 U.S.
46 (1981); N ational Courier A ss'n. v.
Board o f Governors, 516 F.2d 1229 (D.C.
Cir. 1975).)
Under the provisions of the BHC Act,
the Board has broad discretion in
determining whether an activity is
closely related to banking. In making
this determination, the Board has found
the following guidelines established by
the court to be useful:
(1) banks generally have provided the
proposed services;
(2) banks generally provide services
that are operationally or functionally so
similar to the proposed service as to
equip them particularly well to provide
the proposed service; and
(3) banks generally provide services
that are so integrally related to the
proposed service as to require their
provision in a specialized form.
[National Courier A ss'n. v. Board o f
Governors, F.2d 1229 (D.C. Cir. 1975).)
In addition, the Board consider other
factors in deciding what activities are
closely related to banking. [Alabama
A ssociation o f Insurance Agents v.
Board o f Governors, 533 F.2d 224, 241
(5th Cir. 1976), cert, denied, 435 U.S. 904
(1978); Board o f Governors v.
Investm ent Company Institute, 450 U.S.
46, 55 (1981).)
Statutory reference: 12 U.S.C.
1843(c)(8).
Section 225.24(c) Financial and
m anagerial criteria
In addition to the factors specified in
§ 225.24(a) of the regulation, derived
from section 4(c)(8) of the BHC Act, the
Board's evaluation of an application to
engage in any nonbanking activity
includes a review of the financial and
managerial resources of the bank
holding company, its subsidiaries and
the company to be acquired, and the
effect of the transaction on their
resources. For example, a proposal that
may detract from the financial condition
of the applicant bank holding company
would be weighed as an adverse factor
in the Board’s overall evaluation of the
application.
Statutory reference: 12 U.S.C.
1843(c)(8).
Section 225.25— Procedures for
Applications, Notices, and Hearings
The proposed regulation sets out the
procedures for filing applications for
Board approval to engage in nonbanking
activities. As discussed below, where a
bank holding company has received
Board approval to engage in an activity
in a particular state, subsequent
expansion of that activity by opening
additional offices or expanding its
business in that state (other than by
acquiring companies) will generally not
require additional applications. Ln
addition, expedited procedures for
certain small acquisitions of going
concerns engaged in permissible
nonbanking activities are being
proposed in order to reduce the
regulatory burden on bank holding
companies.
Statutory reference: 12 U.S.C.
1843(c)(8); 1844(b).
Current regulation: 12 CFR 225.4(b).
225.25(a)(1) Filing application
An application for board approval to
engage in an activity that the Board has
determined to be closely related to
banking must be filed with the
appropriate Reserve Bank.2 In filing an
application, the bank holding company
should specify the activities in which it
proposes to engage. For example, a bank
holding company seeking to engage in
mortgage lending activities should so
specify, rather than referring to the
general category of making, acquiring, or
servicing loans under § 25.23(b)(1).
As indicated in § 225.23(a)(2), the
Board will entertain applications to
engage in other nonbanking activities
that a bank holding company believes to
be closely related to banking as to be a
proper incident thereto. Any bank
holding company may also request the
Board to consider an activity previously
rejected as impermissible, if the bank
holding company can demonstrate that
circumstances have changed since the
Board’s determination. In either case,
2 In most cases, an application to engage in a
permissible nonbanking activity will be acted upon
by a Reserve Bank pursuant to delegated authority
from the Board. The Board has decided, however,
that applications involving courier activities or joint
ventures should be acted upon by the Board, rather
than the Reserve Bank.
Federal Register / Vol. 48, No. 102 / W ednesday, May 25, 1983 / Proposed Rules
the bank holding company must file its
application in accordance with this
section, provide reasons for its belief
that the activity is closely related to
banking or to managing or controlling
banks within the meaning of section
4(c)(8) of the BHC Act, and describe the
public benefits likely to result from the
bank holding company engaging in the
activity.
Statutory r e fe r e n c e d U.S.C.
1843(c)(8).
Section 225.25(a)(2) Geographic scope
o f nonbanking activities
Under the current regulation, an
application is required to open each new
office or to expand the service area of a
previously approved nonbanking
activity. The requirement for individual
office approvals was imposed by the
Board in 1971 in implementing the new
nonbanking authority given bank
holding companies under the 1970
Amendments to the BHC Act. However,
the Board does not believe that the BHC
Act requires an application for such de
novo expansion. Section 4 of the BHC
Act requires only that the Board’s prior
approval be obtained by a bank holding
company to engage in a nonbank
activity or to acquire shares of a
company engaged in nonbank activities.
Based on its experience in
administering this provision, the Board
has found that, where the bank holding
company and its subsidiaries are in
satisfactory financial condition, the
establishment of de novo offices has had
insignificant adverse effects,
particularly on competition and the
concentration of resources. Hence, such
applications have been uniformily
approved. In light of this experience and
in order to reduce the burden on bank
holding companies, the Board believes it
is appropriate to modify significantly the
present application procedures by
eliminating the requirement for
individual applications for de novo
expansion in a previously approved
activity. The Board notes that section
4(c)(8) of the BHC Act provides that, in
acting on applications under that
section, the Board may distinguish
between activities established de novo
and the acquisition of a going concern.
Under the procedures proposed in this
provision, a bank holding company will
specify in its initial application for
approval the state or states in which the
bank holding company intends to
engage in a nonbanking activity or to
acquire a going concern engaged in a
nonbanking activity. If the application is
approved, the bank holding company
may open new offices or form new
subsidiaries to engage in the activity in
any state(s) specified in the application
without any additional Board approval.
This authority is limited to engaging in
the particular activity specified by the
bank holding company in its application
to enter a state. For example, a bank
holding company that applied to engage
in consumer finance in a particular state
may not open offices or expand into
mortgage banking without Board
approval even though consumer finance
and mortgage banking are both within
the authority of lending in § 225.23(b)(1).
De novo expansion will continue to be
monitored by the Board in connection
with its ongoing supervision and
regulation of the bank holding company.
The regulation also authorizes the Board
to require an application for permission
to open a new office. This authority is
expected to be exercised rarely,
however, principally where the
company is experiencing financial
difficulty.
The bank holding company must
engage in the activity or acquire the
company engaged in the activity in each
state(s) specified in the application
within a period of two years from the
Board’s approval! For any state
specified in the application where it fails
to engage in the activity within two
years, the holding company’s authority
to expand in that state would lapse and
a new 4(c)(8) application to engage in
the activity in that state must be filed in
accordance with the procedures of this
subpart. In administering this provision
the Board will regard a bank holding
company as having engaged in an
activity in a particular state if, for
example, it acquires a going concern,
opens offices, or solicits customers in
the state.
With respect to companies that have
received approval in the past to engage
in an activity in a particular state at
specific offices or on some other limited
basis under the Board’s current
Regulation Y, and wish to expand de
novo within the state under the Board’s
proposed regulation, the Board proposes
to permit the filing of a letter request for
approval instead of the application
normally required. (The letter should
contain the date the company received
approval to engage in the activity in a
state and the extent of its authority.)
Notice of these requests would be
published in the Federal Register, and
the requests would be acted upon after
the close of the comment period. Such a
procedure is being proposed as a matter
of fairness to potential competitors who
may not have commented on the
company’s earlier application due to the
limited scope of the earlier proposal. (In
such a case, of course, the company's
earlier limited authorization to engage iri
23533
the activity would not be subject to
challenge.)
If, however, the holding company has
received the Board’s approval to engage
in a given activity throughout a state, no
further approval would be required to
open additional offices within that state,
nor would the holding company be
required to file the type of letter referred
to in the previous paragraph. To avoid
any misunderstandings in this situation,
the company should confer with its
Reserve Bank about its existing
authority before expanding on the basis
of this section of the regulation.
As a further effort to reduce the
regulatory burden, the Board is
considering whether to eliminate the
requirement for state-by-state approval
for de novo expansion of permissible
nonbanking activities. Under this
alternative approach, a bank holding
company would be permitted, without
further application to the Board, to open
new offices anywhere in the country
that are engaged in nonbanking
activities for which the bank holding
company has previously received Board
approval. Comments are specifically
invited on this alternative, and the
Board may adopt it as part of its final
action on this proposed revision of
Regulation Y.
Statutory reference: 12 U.S.C.
1843(c)(8); 1844(b).
Current regulation: 12 CFR 225.4
(b)(1), (c)(2).
Section 225.25(b)-(d) Applications and
notices
These provisions are similar to the
procedures for applications for bank
acquisitions in § 225.14(a)-(d) of Subpart
B of the proposed regulation discussed
above. They establish time limits for
accepting nonbanking applications for
processing, require prompt publication
of notice in the Federal Register inviting
public comment on such applications,
and provide for a prompt decision on
applications, generally within 30 days of
acceptance of an application regarding
an activity on the Regulation Y list of
permissible activities.
Under current practice, no time period
is specified for publishing notice of a
proposal to engage in a new nonbanking
activity not on the list of those already
found permissible by the Board. The
decision whether to publish notice of the
proposal for comment is currently made
by the Board at a formal Board meeting.
As a result, processing of such proposals
has at times been delayed. In order to
expedite the processing of these
proposals, under the proposed
regulation the Board will send notice of
a proposed new activity to the Federal
23534
Federal Register / Vol. 48, No. 102 / W ednesday, May 25,1983 / Proposed Rules
Register within 10 business days after
receipt of the application from the
Reserve Bank, unless there is no legal
basis for publication of the activity. The
notice will invite comment generally for
a period of 30 days.
This 10-day period for sending notice
to the Federal Register would not apply
to a proposal involving a nonbanking
activity that the Board has previously
determined not to be closely related to
banking. A decision whether to publish
such a notice would be made only after
the Board determines whether
circumstances have changed to warrant
reconsideration of the activity.
The Board requests comment on
whether this proposal to publish
routinely notice of proposed new
nonbank activities will impose undue
burdens on the public in commenting on
an activity about which the Board has
made no preliminary judgment. In this
connection, the Board will consider as
an alternative a provision that would
authorize the extension of this 10-day
period for publication for an additional
30 days in order to allow for full Board
consideration of whether to publish
notice of a proposed new activity. In the
event the Board decides not to publish
the proposal, the Board will notify the
applicant of the reasons for the decision.
The proposed revision omits a
provision in the current regulation that
provides for automatic approval, at the
end of a 45-day period, of applications
to engage de novo in activities on the list
of those permissible for bank holding
companies. In practice, the Federal
Reserve System issues letters of
approval for every application to engage
in permissible de novo nonbanking
activities under section 4 of the BHC
Act, and thus, the automatic approval
procedure has not generally been
followed. The omission of this provision
should not have any adverse impact on
applicants, however, since the Board
proposes to reduce substantially the
number of required applications for de
novo activities by exempting from
application requirements expansion in a
state where nonbank operations have
been approved for a bank holding
company. Moreover, the remaining
applications for de novo entry into a
state will ordinarily be approved within
30 days of acceptance by the Reserve
Bank.
Statutory reference: 12 U.S.C.
1843(c)(8).
Current regulation: 12 CFR 225.4(a).
Section 225.25(e) Sim plified
procedures fo r sm all acquisitions
In response to requests that the Board
reinstitute the simplified procedures in
12 CFR 225.4(b)(3) (which were
suspended in 1971) and to establish
expedited consideration for small
acquisitions that raise no significant
issues, the Board is proposing in this
section to adopt a simplified notice
procedure for small acquisitions
involving permissible nonbanking
activities described in § 225.23. Under
the proposal, a bank holding company
may apply to acquire certain voting
securities or assets of a company
engaged in activities permissible under
§ 225.23 by filing with the Reserve Bank
a brief description of the proposed
transaction and a notice of the proposed
acquisition that appeared in a
newspaper of general circulation in the
area(s) to be served as a result of the
acquisition.
The description of the proposed
transaction should include information
responsible to items 1, 4 (a, c, d), 5 and 6
of Exhibit B and item 3 of Exhibit C in
the Board’s F.R. Y-4 application form.
The newspaper notice must provide not
less than 10 days for public comment.
This procedure applies only to an
acquisition where the book value of the
assets acquired or the gross
consideration paid for the securities or
assets is $10 million or less and the bank
holding company has previously
received approval to engage in the
activity in the relevant state. Within five
business days after the close of the
comment period the Reserve Bank will
notify the bank holding company that
the proposed acquisition has been
approved pursuant to delegated
authority or that the application has
been referred to the Board if action is
not appropriate under delegated
authority.
The new notice procedure being
proposed represents a significant
reduction in the time and expense
associated with making small
acquisitions involving permissible
activiies. It eliminates the need for a
regular application and reduces the time
a bank holding company must wait
before making an acquisition, i.e., from a
maximum of 90 days to usually 15 days
after the date the newspaper notice is
published. It should also be noted that
the proposed notice procedure may be
used for acquisitions involving any of
the nonbanking activities in § 225.23 that
the Board has determined to be closely
related to banking, whereas the
suspended simplified procedures were
generally only available for the
acquisition of small finance companies
and certain insurance agency activities.
The Board’s experience in
administering the BHC Act suggests that
the type of acquisitions that would be
permitted under the new notice
procedure would not result in adverse
effects and would be in the public
interest. In those instances where an
acquisition might result in adverse
effects, or where substantive adverse
comments raising a material issue are
filed in response to the newspaper
notice, the Reserve Bank may extend the
period for approval of refer the
application to the Board for
consideration.
Statutory reference: 12 U.S.C.
1843(c)(8); 1844(b).
Current regulations: 12 CFR
225.4(b)(3).
Section 225.25(f) Hearing
Section 4(c)(8) of the BHC Act
requires the Board to provide notice and
opportunity for hearing in connection
with an application by a bank holding
company to engage in an activity that is
or may be closely related to banking.
Various courts have held that the Board
is required to hold a hearing only where
material issues of fact are in dispute
(Independent Ins. A gents o f America,
Inc. v. Board o f Governors, 646 F.2d 868
(4th Cir. 1981); Independent Inc. Agents
o f America, Inc. v. Board o f Governors,
658 F.2d 571 (8th Cir. 1981)).
Statutory reference; 12 U.S.C.
1843(c)(8).
Section 225.25(g) Approval through
failure to act
Under section 4(c) of the BHC Act, an
application under section 4(c)(8) of the
BHC Act that the Board fails to act on
within 91 calendar days of submission
of the complete record to the Board is
deemed approved. This statutory
provision is identical to that provided in
section 3 of the BHC Act with respect to
bank acquisitions, and the regulatory
provision in this subpart incorporates
by reference that proposed in § 225.14(f)
of Subpart B for banking acquisitions.
Statutory reference: 12 U.S.C. 1843(c).
Section 225. (h) Emergency thrift
institution acquisitions
This provision implements the Board’s
authority under section 118 of Garn-St
Germain to dispense with the notice and
hearing requirements of section 4(c)(8)
of the BHC Act if the Board finds that an
emergency exists involving a thrift
institution.
Statutory reference: 12 U.S.C.
1843(c)(8).
Federal Register / Vol. 48, No. 102 / W ednesday, May 25, 1983 / Proposed Rules
V. SUBPART D—CONTROL AND
DIVESTITURE PROCEEDINGS
Section 225.31—Control Proceedings
Section 225.31(a) Preliminary
determ ination o f control
Under sections 2(a)(2)(C) and 2(d)(3)
of the BHC Act, the Board may
determine, after notice and opportunity
for hearing, that a company exercises or
has the power to exercise a controlling
influence over the management and
policies of a bank or other company,
even though the company may not
otherwise have control under § 225.2(d)
of Subpart A of the proposed regulation.
Section 225.2 (b) and (c) of the current
regulation describe circumstances and
procedures under which control
determinations may be made. While
these provisions have been reorganized
and simplified in the proposed
regulation, the basic approach of the
current provisions has not been altered.
Where facts and circumstances are
present or information is received to
indicate that a company exercises a
controlling influence over the
management or policies of a bank or
another company, the Reserve Bank will
review the relationship to determine if it
would be appropriate for the Board to
issue a preliminary determination of
control.
While it is anticipated that most
situations involving possible control
relationships will be handled informally,
where discussion does not resolve the
issue, the Board may institute a formal
proceeding by issuing a preliminary
determination of control under the
procedures described in this section. In
those situations where a preliminary
determination of control is issued, the
company will be given notice of the
facts and the circumstances upon which
the determination is based and provided
an opportunity to contest the
presumption.
Statutory reference: 12 U.S.C. 1841
(a)(2)(C) and (d)(3).
Current regulation: 12 CFR 225.2(c).
Section 225.31(b) Response to
prelim inary determ ination o f control
Upon receipt of the notice, the
company would have 30 days to
respond. The company may agree to the
determination and submit for the
Board's approval a specific plan for
prompt termination of the control
relationship, or alternatively, file an
application for Board approval to retain
the control relationship under Subpart B
of the regulation in the case of a bank or
a bank holding company, or Subpart C
in the case of a nonbanking concern. If
the company contests the ruling, it is
required to submit its response to the
preliminary determination of control
along with any request for a hearing.
Statutory reference: 12 U.S.C. 1841
(a)(2)(C) and (d)(3) and 1844(b).
Current regulation: 12 CFR 225.2(c).
Section 225.31(c) Hearing and fin a l
determ ination
If there are material issues of fact in
dispute, or if it is otherwise appropriate,
the Board may order a hearing or other
proceeding for the purpose of taking
testimony and receiving evidence on the
issue of whether a company exercises or
has the power to exercise a controlling
influence over a bank or other company.
There is no statutory requirement that
the Board hold a hearing with respect to
a determination that a company controls
voting securities of a bank or company.
The Board may, however, order a
hearing if appropriate in such a
situation. After reviewing the evidence
on the preliminary determination of
control, including any record of a
hearing, the Board will issue an order
directing the company to take
appropriate action.
Statutory reference: 12 U.S.C. 1841
(a)(2)(C) and (d)(3).
Current regulation: 12 CFR 225.2(c).
Section 225.31(d) Rebuttable
presum ptions o f control
In 1971, the Board adopted five
rebuttable presumptions of control for
use in control proceedings. Two of these
presumptions relate to control of voting
securities; three relate to the existence
of a controlling influence over the
management or policies of a bank or
other company. Where voting securities
are deemed to be controlled by a
company under this provision, they
would be aggregated with any securities
of the other company held by the
company in other capacities (see
§ 225.2(d)(2) of the proposed regulation)
to determine whether divestiture or an
application is required. The proposed
regulation simplifies the language of
these presumptions without altering
their substance. As discussed above, the
conclusive presumption of control
contained in § 225.2(a) of the current
regulation relating to “stapled shares”
arrangements is incorporated into the
definition of “control” in the proposed
regulation. It is contemplated that most
situations involving these presumptions
of control (or any other situation where
the facts suggest control) will be
resolved through informal discussion
with the Reserve Bank.
Statutory reference: 12 U.S.C. 1841
(a)(2)(C) and (d)(3).
Current regulation: 12 CFR 225.2(b).
23535
Section 225.32—Divestiture Proceedings
Section 225.32(a) Ineffective
divestitures
Divestitures are at times required by
the Board under the BHC Act and
include divestitutes of DPC assets,
liquidating assets, and impermissible
nonbanking interests and activities.
Section 2(g)(3) of the BHC Act provides
generally that a company divesting
shares to any other company that is
indebted to the transferring company or
has one or more management officials in
common with the transferring company
is deemed to continue to own or control
the divested shares unless the Board
determines, after opportunity for
hearing, that the transferring company is
not capable of controlling the company
or individual that receives the divested
shares. The provisions of this section of
the proposed regulation set forth the
basic requirements of the statute, the
procedures for requesting a
determination of noncontrol, and a
description of the standards applied in
reviewing the effectiveness of
divestitures. There are no significant
changes from current procedures.
In a previous interpretation, the Board
(1) exempted certain routine business or
personal credit from the definition of
indebtedness, (2) provided that
references to transferor and transferee
in the statute included parents and
subsidiaries of each, and (3) indicated
that the presumption of continued
control extends to property as well as
shares (12 CFR 225.139). This
interpretation is codified in the proposed
regulation, and may be rescinded if the
proposed provisions are adopted by the
Board.
Statutory reference: 12 U.S.C.
1841(g)(3).
Section 225.32 (b) and (c) Request fo r
divestiture determination; hearing
Any company that is deemed to
control an acquiring person as a result
of the presumptions set forth in this
regulation may request a determination
that the divestiture is effective
notwithstanding the presumption. The
company should submit a letter to the
Board describing the transaction and
setting forth the reasons why the
company believes it does not control the
acquiring person. Any request for a
hearing should also be included in the
letter. Under the proposal, if the Board
finds there are material facts in dispute,
the Board may order a hearing or other
proceeding.
Statutory reference: 12 U.S.C.
1841(g)(3).
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Federal Register / Vol. 48, No. 102 / W ednesday, May 25, 1983 / Proposed Rules
Section 225.32(d) Standards fo r making
divestiture determination
The proposed regulation sets out the
factors that are generally considered in
determining whether or not the divesting
company controls the acquiring person.
The first factor concerns the nature and
extent of the indebtedness, and whether,
as a result of the indebtedness, the
divesting company would be capable of
controlling the acquiring person. The
second factor considered involves an
assessment of the role of any
interlocking officials in both the
divesting company and the acquiring
person. For example, if the interlocking
official is an outside director who has no
other relationship with the companies
involved, it is more likely that a
favorable determination would be
issued.
Statutory reference: 12 U.S.C.
1841(g)(3); 1844(b).
Section 225.32(e) Final determination
After reviewing a company's request
for a determination under this section,
the Board will issue an order, which
may be in the form of a letter, setting
forth its determination as to the
effectiveness of the divestiture.
Statutory reference: 12 U.S.C.
1841(g)(3); 1844(b).
Section 225.32(f) Review o f Other
D ivestitures
This provision allows the Board to
review a divestiture when a
presumption of control under the statute
or this regulation is not present. While it
is not anticipated that this provision will
be used frequently, the Board is,
consistent with its authority to prevent
evasions of the BHC Act, preserving its
right to examine all divestitures.
Statutory reference: 12 U.S.C. 1844(b).
VI. SUBPART E—CHANGE IN BANK
CONTROL
Section 225.41—Control Transactions
Requiring Prior Notice
This section, which effectuates the
Change in Bank Control Act (12 U.S.C.
1817(j)), is based for the most part on the
existing provisions of section 225.7 of
Regulation Y. (See also Policy Statem ent
on Change in Bank Control A ct o f 1978,
1 F.R.R.S. 4-801.) The proposed section
specifies those transactions involving
the acquisition of voting securities of a
state member bank or bank holding
company for which 60 days’ written
notice must be given to the Board.
Unless exempt under the Change in
Bank Control Act or this subpart, any
person or persons acting in concert must
file prior notice with the Board if, after a
proposed transaction, the acquiring
person(s) will control or hold the power
to vote 25 percent or more of any class
of voting securities of a state member
bank or bank holding company. Such
voting power is defined as control under
the Change in Bank Control Act. For the
purposes of this section, a redemption of
securities by a bank or bank holding
company that increases any person’s
holdings to 25 percent or more of any
class of voting securities, it triggers the
rebuttable presumption described
below, is an “acquisition” and requires
the filing of a notice by that person.
The term “acting in concert" is not
defined in the statute or the regulation.
However, the Board regards this term as
including two or more persons (which
may also include a corporation or other
entity) who have joined together
informally through parallel action or
intention for the purpose of acquiring
voting securities of a bank or bank
holding company. For example, a group
of persons who have identified
themselves as a group for purposes of
the securities laws would constitute
persons “acting in concert” for purposes
of this section. Such an informal
arrangement should be distinguished,
however, from a formal agreement or
contract among persons to purchase
bank or bank holding company
securities. A formal agreement among
persons could result in the group being
treated as a “company” within the
meaning of section 2(c) of the BHC Act,
and a purchase of bank securities by the
group could be subject to Subpart B of
the regulation instead of Subpart E.
In addition to control through the
acquisition of 25 percent or more of a
class of voting securities of a bank or
bank holding company, the Board
proposes to retain the presumption that
the acquisition of between 10 percent
and 25 percent of voting securities of a
bank or bank holding company will also
result in control, and thus requires prior
notice, if either of two circumstances
applies: (1) the institution being acquired
has securities registered under the
Securities Exchange Act of 1934 (12
U.S.C. 78/); or (2) after the transaction,
no other person owns a greater
percentage of that class of voting
securities than the acquiring person. An
acquiring person has the opportunity to
rebut this presumption, but the Board’s
experience indicates that situations
where the presumption has been
rebutted successfully have been
infrequent.
Statutory reference: 12 U.S.C. 1817(j)
(1). (13).
Current regulation: 12 CFR 225.7(a).
Section 225.42— Transactions Not
Requiring Prior Notice
The Bank Control Act specifically
exempts from its coverage transactions
that are otherwise subject to section 3 of
the BHC Act or section 18 of the Federal
Deposit Insurance Act (i.e., Bank Merger
Act). In addition, the proposed
regulation provides that certain other
transactions do not require notice.
These exemptions are essentially the
same as in § 225.7(c) of the current
regulation, except for a clarification of
the exemption relating to proxy
solicitation to indicate that the
solicitation can be for a regular or
special meeting of shareholders and the
addition of an exemption for a stock
dividend or split. As indicated in the
current regulation, the exemption for the
acquisition of voting securities of a
foreign bank holding company does not
extend to reports and information
required under paragraphs 9,10, and 12
of the Bank Control Act.
Statutory reference: 12 U.S.C. 1817(j)
(13), (16):
Current regulation: 12 CFR 225.7(c).
Section 225.43— Procedures for Filing,
Processing, and Acting on Notices
Section 225.43 (a) and (b) Filing
notices; advice to bank supervisory
agencies
This section sets forth the procedures
for processing notices. Normally, notices
are reviewed and acted upon by the
appropriate Reserve Bank under
delegated authority.
A notice required under this subpart
must be filed with the appropriate
Federal Reserve Bank at least 60 days
prior to the contemplated consummation
of a transaction. Information contained
in the notice should conform to the
notice form provided by the Reserve
Bank and be responsive to every item
specified in paragraph 6 of the Bank
Control Act (12 U.S.C, section 1817(j)(6)).
The Reserve Bank may waive any
information requirement contained in
the notice form, as well as require
additional information as it deems
appropriate. Once accepted, a copy of
the notice is forwarded to the
appropriate state bank supervisory
agency if it relates to a state member
bank; a copy of the notice is also
forwarded to the Comptroller of the
Currency and the Federal Deposit
Insurance Corporation. In the case of a
probable failure of a bank or bank
holding company, the Board may modify
the notice requirements of this section..
Statutory reference: 12 U.S.C. 1817(j)
(1),(2),(6), and (11).
Current regulation: 12 CFR 225.7(b).
Federal Register / Vol. 48, No. 102 / W ednesday, May 25, 1983 / Proposed Rules
Section 225.43(c)
Board action
Time period for
A proposed transaction may be
consummated 60 days after submission
of an informationally complete notice to
the Reserve Bank, unless the Board
notifies the acquiring person of its
disapproval of the proposed acquisition
or of extension of the 60-day period for
an additional 30 days. A proposed
acquisition may be consummated before
the expiration of the 60-day period if the
Board notifies the acquiring party of its
intention not to disapprove the
acqusition.
The Board may return a notice at any
time if it finds that the acquiring person
has not furnished all the required
information or has submitted material
information that is substantially
inaccurate. However, in unusual
circumstances, rather than returning the
notice as being incomplete, the Board
may extend the time period further in
order to permit an acquiring person to
furnish the required information
necessary to complete the processing.
Statutory reference: 12 U.S.C.
1817(j)(l).
Section 225.43(d) Investigation o f
notices
In investigating a Change in Bank
Control notice, the Board may solicit or
receive information or views from any
source. The submission of information
or presentation of views by any person
other than the acquiring person,
however, does not thereby afford that
person status as a party to the
proceeding or any standing or right to
participate in the Board’s decision on
the notice.
Section 225.43(e) D isapproval and
hearing
If the Board disapproves an
acquisition, it must notify the acquiring
person of its decision in writing and the
reasons for its decision. The person will
have 10 calendar days after receipt of
the Board’s disapproval decision to
request a hearing. Any such hearing
must be conducted in accordance with
the Board's Rules of Practice for Formal
Hearings and, at the conclusion of the
hearing, the Board will issue an order
either approving or disapproving the
proposed acquisition on the basis of the
record of the hearing.
Statutory reference: 12 U.S.C. 1817(j)
(3) and (4).
Section 225.43(f) Factors considered in
acting on notices
Paragraph 7 of the Change in Bank
Control Act (12 U.S.C. 1817(j)(7))
describes the factors to be considered
by the Board in disapproving a proposed
acquisition. In assessing such factors,
the proposed regulation provides that
the Board will consider the information
submitted in the notice, the views and
recommendations of any supervisory
agency, and any other information that
is relevant to the statutory factors.
Statutory reference: 12 U.S.C.
1817(j)(7).
List of Subjects in 12 CFR Part 225
Banks, banking; Federal Reserve
System; Holding companies; Reporting
and recordkeeping requirements;
Securities.
For the reasons set out in the
preamble, and pursuant to the Board’s
authority under section 5(b) of the Bank
Holding Company Act of 1956, as
amended (12 U.S.C. 1844(b)); section 8 of
the International Banking Act of 1978 (12
U.S.C. 3106); and section 7(j)(13) of the
Federal Deposit Insurance Act, as
amended by the Change in Bank Control
Act of 1978 (12 U.S.C. 1817(j)(13)), it is
proposed to revise 12 CFR Part 225 as
follows:
PART 225—BANK HOLDING
COMPANIES AND CHANGE IN BANK
CONTROL
Subpart A—General Provisions
Sec.
225.1
225.2
225.3
225.4
225.5
225.6
Authority, purpose, a n d scope.
Definitions.
Adm inistration.
Corporate practices.
Registration, reports, an d inspections.
Penalties for violations.
Subpart B—Acquisition of Bank Securities
or Assets
225.11 T ran sactio ns requiring Board
approval.
225.12 T ran sactio ns not requiring Board
approval.
225.13 Factors considered in deciding
applications under Subpart B.
225.14 Procedures for applications, notices,
an d hearings.
Subpart C—Nonbanking Activities and
Acquisitions of Bank Holding Companies
225.21 Perm issible nonbanking activities
and acquisitions: exem pt b an k holding
companies.
225.22 Exem pt n onbanking activities and
acquisitions.
225.23 N onbanking activities requiring
Board approval.
225.24 Factors considered in deciding
applications under S ubpart C.
225.25 Procedures for applications, notices,
and hearings.
Subpart D—Control and Divestiture
Proceedings
225.31
225.32
Control proceedings.
Divestiture proceedings.
23537
Subpart E—Change in Bank Control
Sec.
225.41 Control transactions requiring prior
notice.
225.42 T ransactions not requiring prior
notice.
225.43 Procedures for filing, processing, and
acting on notices.
Authority: Section 5(b) of the Bank Holding
Com pany A ct of 1956, a s am ended (12 U.S.C.
1844(b)); section 8 of the International
Banking Act of 1978 (12 U.S.C. 3106); and
section 7(j)(13) of the Federal Deposit
Insurance Act, a s am ended by the Change in
Bank Control A ct o f 1978 (12 U.S.C.
1817(j)(13)).
Subpart A—General Provisions
§ 225.1
Authority, purpose, and scope.
(a) Authority. This Part (Regulation Y)
is issued by the Board of Governors of
the Federal Reserve System (“Board”)
under section 5(b) of the Banking
Holding Company Act of 1956, as
amended (12 U.S.C. 1844(b)) (“BHC
Act”), under section 8 of the
International Banking Act of 1978 (12
U.S.C. 3106), and under section 7(j)(13)
of the Federal Deposit Insurance Act, as
amended by the Change in Bank Control
Act of 1978 (12 U.S.C. 1817(j)(13))
(“Banking Control Act”). The BHC Act is
codified at 12 U.S.C. 1841, et. seq.
(b) Purpose. The principal purposes of
this Part are to regulate the acquisition
of control of banks by companies and
individuals, to define the nonbanking
activities in which bank holding
companies and foreign banking
organizations with U.S. operations may
engage, and to set forth the procedures
for securing approval for such
transactions and activities.
(c) Scope.
(1) Subpart A contains general
provisions and definitions of terms used
in this regulation.
(2) Subpart B governs acquisitions of
bank or bank holding company
securities and assets by bank holding
companies or by any company that will
become a bank holding company as a
result of the acquisition.
(3) Subpart C defines the nonbanking
activities in which bank holding
companies and foreign banking
organizations may engage directly or
through a subsidiary. In addition, certain
nonbanking activities conducted by
foreign banking organizations and
certain foreign activities conducted by
bank holding companies are governed
by the Board’s Regulation K, (12 CFR
Part 211 International Banking
Operations).
(4) Subpart D specifies situations in
which a company is presumed to
exercise control over voting securities or
a controlling influence over the
23538
Federal Register / Vol. 48, No. 102 / W ednesday, May 25, 1983 / Proposed Rules
management or policies of a bank or
other company, sets forth the procedures
for making a control determination, and
provides rules governing the
effectiveness of divestitures by bank
holding companies.
(5)
Subpart E governs changes in bank
control resulting from the acquisition by
individuals or companies (other than
bank holding companies) of voting
securities of a bank holding company or
state member bank of the Federal
Reserve System.
§225.2
Definitions.
Except as modified in this section or
unless the context otherwise requires,
the terms used in this regulation have
the same meanings as set forth in the
relevant statutes.
(a)(1) “Bank” means any institution
organized under the laws of the United
States that accepts demand deposits
and engages in the business of making
commercial loans. For the purposes of
this definition:
(1) "Demand deposits” means any
deposit with transactional capability
that as a matter of practice is payable
on demand, and includes deposits
accessible by check, draft, negotiable
order of withdrawal, or other similar
instrument;
(ii) “Commercial loans" means any
loan other than a loan to an individual
for personal, family, household, or
charitable purposes, and includes the
purchase of commercial paper,
certificates of deposit, bankers'
acceptances, and similar money market
instruments, the extension of broker call
loans, the sale of federal funds, and the
deposit of interest-bearing funds; and
(iii) “United States" means the United
States and include any state of the
Unites States, the District of Columbia,
any territory of the United States, Puerto
Rico, Guam, American Samoa, or the
Virgin Islands.
(2) “Bank” does not include:
(i) Any institution that does not do
business in the United States except as
an incident to its activities outside the
United States;
(ii) Any institution the accounts of
which are insured by the Federal
Savings and Loan Insurance
Corporation or any institution chartered
by the Federal Home Loan Bank Board;
or
(iii) “Agreement” or “Edge”
corporations operating under sections 25
or 25(a) of the Federal Reserve Act (12
U.S.C. 601-604(a),'611-631).
(b)(1) “Bank holding company” means
any company (including a bank) that has
direct or indirect control of a bank,
unless such control results from the
ownership or control of:
(1) Securities held in good faith in a
fiduciary capacity (other than as
provided in paragraph (d)(2) (ii) and (iii)
of this section) without sole
discretionary voting authority, or as
otherwise exempted under section
2(a)(5)(A) of the BHC Act;
(ii) Securities or voting rights held
only for a reasonable period of time for
the purpose of underwriting securities or
participating in a proxy solicitation, as
provided in section 2(a)(5) (B) and (C) of
the BHC Act;
(iii) Securities acquired in satisfaction
of debts previously contracted in good
faith, as provided in section 2(a)(5)(D) of
the BHC Act, if the securities are
divested within two years of acquisition
unless the time is extended by the
Board; or
(iv) Securities of certain institutions
owned by a thrift institution or a trust
company, as provided in sections 2(a)(5)
(E) and (F) of the BHC Act.
(2) Except for the purposes of
§ 225.4(b) of this subpart and Subpart E
of this regulation or as otherwise
provided in this regulation, the term
“bank holding company” includes a
“foreign banking organization” as
defined in § 211.23 of the Board’s
Regulation K (12 CFR 211.23). For the
purposes of Subpart B, the term bank
holding company does not include a
foreign banking organization that does
not own or control a bank in the United
States.
(c) “Company” includes any bank,
corporation, general or limited
partnership, association or similar
organization, business trust, or any
other trust unless by its terms it must
terminate either within 25 years or
within 21 years and 10 months after the
death of individuals living on the
effective date of the trust. "Company"
does not include any organization the
majority of whose voting securities are
owned by the United States or any state.
(d)(1) “Control" of a bank or company
includes (except for the purposes of
Subpart E):
(i) Owning, controlling, or having
power to vote 25 percent or more of the
outstanding shares of any, class of voting
securities of the bank or company,
directly or indirectly or acting through
one or more other persons;
(ii) Controlling in any manner the
election of a majority of the directors or
trustees (or individuals exercising
similar functions) of the bank or
company;
(iii) Exercising or having the power to
exercise directly or indirectly a
controlling influence over the
management or policies of the bank or
company, as determined by the Board
after notice and opportunity for hearing
in accordance with § 225.31 of Subpart
D of this regulation; or
(iv) Conditioning in any manner the
transfer of 25 percent or more of any
class of voting securities of a bank or
company upon the transfer of 25 percent
or more of any class of voting securities
of another bank or company.
(2) As provided in section 2(g) of the
BHC Act, a company shall be deemed to
control securities or assets owned,
controlled, or held directly or indirectly:
(i) By any subsidiary of the company;
(ii) In a fiduciary capacity (including
by pension and profit-sharing trusts) for
the benefit of the shareholders,
members, or employees (or individuals
serving in similar capacities) of the
company or of any of its subsidiaries; or
(iii) In a fiduciary capacity for the
benefit of the company or any of its
subsidiaries.
(e) "Management official” means any
officer, director (including honorary or
advisory directors), partner, or trustee of
a company or any employee of the
company with policy-making functions.
(f) “Outstanding shares” means any
securities with voting rights, but does
not include securities owned by the
United States or by a company whollyowned by the United States.
(g) “Person” includes an individual,
bank, corporation, partnership, trust,
association, joint venture, pool,
syndicate, sole proprietorship,
unincorporated organization, or any
other form of entity.
(h) “Principal shareholder” means a
person that owns or controls directly or
indirectly 25 percent or more of any
class of voting securities of a company.
(i) “Subsidiary" means a bank or
company that is controlled by another
company or person, and unless
otherwise indicated, refers to a direct or
indirect subsidiary of a bank holding
company. An “indirect subsidiary” of a
bank holding company means a bank or
company controlled by a subsidiary of
the bank holding company.
(j) “Voting securities” means shares of
common and preferred stock, general
and limited partnership interests, and
other similar interests, if the holders are
entitled by statute, charter, or in any
manner to vote for or select directors,
trustees, or partners (or persons
exercising similar functions), or to vote
on other significant matters.
§ 225.3
Administration.
(a) Delegation o f authority.
Designated Board members and officers
and the Federal Reserve Banks are
authorized by the Board to exercise
various functions prescribed in this
regulation and in the Board’s Rules
Federal Register / Vol. 48, No. 102 / W ednesday, May 25, 1983 / Proposed Rules
Regarding Delegation of Authority (12
CFR Part 265) and the Board’s Rules of
Procedure (12 CFR Part 262).
(b) Appropriate Federal Reserve
Bank. In administering this regulation,
the appropriate Federal Reserve Bank is
as follows:
(1) For a bank holding company (or a
company applying to become a bank
holding company): the Reserve Bank of
the Federal Reserve district in which the
company's banking operations are
principally conducted, as measured by
total domestic deposits in its subsidiary
banks on the date it became (or will
become) a bank holding company;
(2) For a foreign banking organization
(as defined in 12 CFR 211.23) that has no
banking subsidiaries and is not subject
to paragraph (b)(1) of this section: the
Reserve Bank of the Federal Reserve
district in which the total assets of the
organization’s United States branches,
agencies, and commercial lending
companies are the largest as of the later
of January 1,1980, or the date it
becomes a foreign banking organization;
(3) For an individual or company
submitting a notice under Subpart E of
this regulation: the Reserve Bank of the
Federal Reserve district in which the
banking operations of the bank holding
company or state member bank to be
acquired are principally conducted, as
measured by total domestic deposits on
the date the notice is filed.
§ 225.4
Corporate practices.
(a) Bank holding company policy and
operations. (1) A bank holding company
shall serve as a source of financial and
managerial strength to its bank
subsidaries and shall conduct all of its
operations in accordance with sound
banking policy and practice.
(2) Whenever the Board believes an
activity or control of a nonbank
subsidiary constitutes a serious risk to
the financial safety, soundness, or
stability of a bank subsidiary of a bank
holding company, and is inconsistent
with sound banking principles or the
purposes of the BHC Act, the Board may
require the bank holding company to
terminate the activity or to terminate
control of the subsidiary, as provided in
section 5(e) of the BHC Act.
(b) Purchase or redemption by a bank
holding com pany o f its own securities.
A b a n k h o ld in g c o m p a n y m a y n o t
p u r c h a s e o r r e d e e m its e q u it y s e c u r itie s ,
u n le s s:
(1)
T h e g r o s s c o n s i d e r a t io n p a i d fo r
th e s e c u r itie s , w h e n a d d e d to th e n e t
c o n s i d e r a t io n 1 p a id fo r a ll s im ila r
' For the purposes of this section, “net
consideration” is the gross consideration paid by
the company for all of its equity securities
transactions during the preceding 12rnonth period, is not more than $10
million or 1 percent of the bank holding
company’s net worth, whichever is less;
or
(2) The bank holding company has:
(i) Consolidated assets of $1 billion or
more, and after the purchase or
redemption, its consolidated primary
capital-to-total assets ratio is at least 5
percent;
(ii) Consolidated assets of $150 million
to $1 billion, and after the purchase or
redemption, its consolidated primary
capital-to-total assets ratio is at least 6
percent; or
(iii) Total banking assets of $150
million or less, and after the purchase or
redemption,
(A) The primary capital-to-total assets
ratio of the bank holding company
(consolidated) is at least 6 percent or
(B) The primary capital-to-total assets
ratio of each subsidiary bank of the
holding company is at least 6 percent
and the debt-to-equity ratio of the
parent bank holding company
(nonconsolidated) is no more than 30
percent; or
(3) The bank holding company obtains
the prior approval of the Board for the
redemption or purchase on the basis of
unusual circumstances.
(c) D eposit insurance. Every bank
shall obtain Federal Deposit Insurance
prior to becoming a bank holding
company or a subsidiary of a bank
holding company, and shall remain an
insured bank as defined in section 3(h)
of the Federal Deposit Insurance Act (12
U.S.C. 1813(h)).
(d) "Tie-in"arrangem ents. A bank
holding company and any nonbanking
subsidiary conducting an activity under
§ 225.23 of this regulation may not in
any manner extend credit, lease or sell
property of any kind, provide any
service, or fix or vary the consideration
for any of these transactions, if the
provision of the credit, property, or
service is subject to any conidition that,
if imposed by a bank, would constitute
an unlawful tie-in arrangement under
section 106 of the BHC Act Amendments
of 1970 (12 U.S.C. 1971 and 1972(1)).
(e) Acting as transfer agent, m unicipal
securities dealer, or clearing agent. A
bank holding company or any
nonbanking subsidiary that is a ‘'bank,”
as defined in section 3(a)(6) of the
Securities Exchange Act of 1934 (15
U.S.C. 78c(a)(6)), and that is a transfer
agent of securities, a municipal
securities dealer, a clearing agency, or a
purchased or redeemed during the period minus the
gross consideration received for all of its equity
securities sold during the period other than as part
of a new issue.
23539
participant in a clearing agency (as
those terms are defined in section 3(a) of
the Securities Exchange Act (12 U.S.C.
78c(a)), shall be subject to § 208.8(f)—
(j)
of the Board’s Regulation H (12 CFR
208.8(f)— as if it were a state member
(j))
bank.
§ 225.5 Registration, reports, and
inspections.
(a) Registration o f bank holding
companies. Each company shall register
within 180 days after becoming a bank
holding company by furnishing
information in the manner and form
prescribed by the Board.
(b) Reports o f bank holding
companies. Each bank holding company
shall furnish in the manner and form
prescribed by the Board an annual
report of the company ’s operations for
the fiscal year in which it becomes a
bank holding company, and for each
fiscal year thereafter during which it
remains a bank holding company.
Additional information and reports shall
be furnished as the Board may require.
(c) Exam inations and inspections. The
Board may examine or inspect any bank
holding company and each of its
subsidiaries and prepare a report of
their operations and activities. With
respect to foreign banking organizations
the Board may examine any branch or
agency of a foreign bank in a State of
the United States and may examine or
inspect each of its United States
subsidiaries and prepare reports of their
operations and activities. The Board
shall rely as far as possible on the
reports of examination made by the
primary federal or state supervisor of
the bank subsidiaries of a bank holding
company or of the foreign bank.
§ 225.6
Penalties for violations.
(a) Criminal and civil penalties. (1)
Section 8 of the BHC Act provides
certain,civil and criminal penalties for a
violation by any company or individual
of the BHC Act or any regulation or
order issued under it, or for making a
false entry in any book, report, or
statement of a bank holding company.
Civil money penalty assessments for
violations of the BHC Act shall be made
in accordance with Subpart B of the
Board’s Rules of Practice for Hearing (12
CFR 263, Subpart B). For any willful
violation of the Bank Control Act or any
regulation or order issued under it, the
Board ma,y assess a civil penalty as
provided in 12 U.S.C. 1817(i)(15).
(b) Cease and desist proceedings. For
any violation of the BHC Act, the Bank
Control Act, this regulation, or any order
or notice issued thereunder, the Board
may institute a cease and desist
23540
Federal Register / Vol. 48, No. 102 / W ednesday, May 25, 1983 / Proposed Rules
proceeding in accordance with the
Financial Institutions Supervisory Act of
1966, as amended {12 U.S.C. 1818(b) (1)
and (3)).
Subpart B—Acquisition of Bank
Securities or Assets
§ 225.11 Transactions requiring Board
approval.
The following transactions require an
application for the Board’s prior
approval under section 3 of the BHC Act
unless otherwise exempted under
§ 225.12 of this subpart:
(a) Formation o f bank holding
company. Any action that causes a
company to become a bank holding
company.
(b) Acquisition o f subsidiary bank.
Any action that causes a bank to be
come a subsidiary of a bank holding
company.
(c) Acquisition o f control o f bank
securities or bank holding company
securities. The acquisition by a bank
holding company of control of any
voting securities of a bank or bank
holding company, if the acquisition
results in the company’s control of more
than 5 percent of the outstanding shares
of any class of voting securities of the
bank of bank holding company. An
acquisition includes the purchase of
additional securities through the
exercise of preemptive rights, but does
not include securities received in a stock
dividend or stock split that does not
alter the bank holding company’s
proportional share of any class of voting
security.
(d) A cquisition o f bank assets. The
acquisition by a bank holding company
(that is not a bank) or by a nonbank
subsidiary of all or substantially all of
the assets of a bank.
(e) M erger o f bank holding
companies. The merger or consolidation
of bank holding companies, including a
merger through the purchase of assets
and assumption of liabilities.
(f) Other acquisitions. Any other
acquisition of control of a bank or bank
holding company that the Board
determines, after notice to the acquiring
company, requires prior approval under
section 3 of the BHC Act.
bank holding company in good faith in a
fiduciary capacity, unless:
(1) The acquiring bank or company
has sole discretionary authority to vote
the securities and will retain such
authority for more than two years; or
(2) The acquisition is for the benefit of
the bank or company or its
shareholders, employees, or
subsidiaries.
(b) Acquisition o f securities in
satisfaction o f debts previously
contracted. The acquisition by a bank or
company of voting securities or assets of
a bank or bank holding company in the
regular course of securing or collecting a
debt previously contracted in good faith,
as provided in section 3(a) of the BHC
Act, if the bank or company divests the
securities or assets within two years of
acquisition. The Board may grant
requests for up to three one-year
extensions.
(c) A cquisition o f securities b y bank
holding com pany with m ajority control.
The acquisition by a company of
additional voting securities of a bank or
bank holding company where more than
50 percent of the outstanding voting
securities of the bank or company is
controlled by the acquiring company
prior to the acquisition.
(d) Transactions subject to Bank
Merger Act. The merger, consolidation,
or purchase of assets involving a
nonsubsidiary bank and a subsidiary
bank of a bank holding company, or a
similar transaction involving subsidiary
banks of a bank holding company, if the
transaction requires the prior approval
of a Federal supervisory agency under
the Bank Merger Act (12 U.S.C. 8128(c)).
This exception does not include the
merger of a nonsubsidiary bank and a
nonoperating subsidiary bank formed by
a company for the purpose of acquiring
the nonsubsidiary bank.
(e) Holding securities in escrow. The
holding of bank or bank holding
company securities or assets in a good
faith escrow arrangement for the benefit
of an applicant pending the Board's
action on the application for approval of
the proposed acquisition, if title to the
securities and the voting rights remain
with the seller and payment for the
securities has not been made to the
seller.
§ 225.12 Transactions not requiring Board
approval.
§ 225.13 Factors considered in deciding
applications under Subpart B.
The following transactions do not
require the Board’s approval under
§ 225.11 of this subpart:
(a) A cquisition o f securities in
fiduciary capacity. The acquisition by a
bank or company, as provided by
section 3(a) of the BHC Act, of control of
voting securities or assets of a bank or
(a) Prohibited anticom petitive
transactions. As specified in Sections
3(c) (1) and (2) of the BHC Act, the
Board may not approve any application
under this subpart if the transaction
would:
(i)
Result in a monopoly or would
further an effort to monopolize the
business of banking in any part of the
United States; or
(ii) Substantially lessen competition,
tend to create a monopoly, or in any
other manner be in restraint of trade in
any section of the country, unless the
Board finds that the anticompetitive
effects of the transaction are clearly
outweighed by the probable effect of the
transaction in meeting the convenience
and needs of the community.
(b) Other factors considered. In
deciding applications under this subpart,
the Board’s consideration shall include
the following factors with respect to the
applicant, its subsidiaries, any banks
related to the applicant through common
ownership or management, and the bank
to be acquired:
(1) Financial condition. Their financial
condition and future prospects,
including whether current and projected
capital positions and levels of
indebtedness conform to the Board's
standards.
(2) M anagement. The competence and
character of the applicant’s principals;
the applicant’s record of compliance
with laws and regulations; and its
record of fulfulling its commitments to,
and any conditions imposed by, the
Board in connection with prior
applications.
(3) Convenience and needs o f the
com m unity and perform ance under
Community R einvestm ent Act. The
convenience and needs of the
communities to be served, including:
(i) The impact of the proposed
transaction on the number and
availability of alternative sources of
banking services, and on existing and
potential competition and the
concentration of banking resources; and
(ii) The record of performance under
the Community Reinvestment Act of
1977 (12 U.S.C. 2901 et seq.) and the
Board’s Community Reinvestment
Regulation (12 CFR Part 228, Regulation
BB).
(C)(1) Interstate transactions. The
Board may not approve any transaction
that would result in:
(i) The formation of a bank holding
company that controls more than 5
percent of any class of voting securities
of two or more banks located in
different states; or
(ii) The acquisition by a bank holding
company or any of its subsidiaries of
any voting securities of, any interest in,
or substantially all of the assets of, an
additional bank located in a state other
than the state in which the operations of
the bank holding company's banking
subsidiaries were principally conducted
on July 1,1966 (as measured by total
deposits), or on the date on which the
Federal Register / Vol. 48, No. 102 / W ednesday, May 25, 1983 / Proposed Rules
company became a bank holding
company, whichever is later.
(2) Exceptions. The prohibitions of
this paragraph shall not apply if:
(i) The bank is located in a state that
has by statute expressly authorized the
acquisition of securities of, an interest
in, or substantially all of the assets of, a
bank within the state by an out-of-state
bank holding company; or
(ii) The transaction involves the
acquistion of a closed or failing bank
that has been authorized .under section
13(f) of the Federal Deposit Insurance
Act (12 U.S.C. 1823(f)).
§ 225.14 Procedures for applications,
notices, and hearings.
(a) Filing application. An application
by a company 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 § 262.3 of the Rules of Procedure
(12 CFR 262.3), which contains a
requirement for publication by the
applicant of newspaper notice of the
application.
(b) Notice.
(1) Notice to prim ary banking
supervisor. Upon receipt of an
application under this subpart, the
Reserve Bank shall give prompt notice
and a copy of the application to the
primary banking supervisor of the bank
to be acquired. The primary supervisor
shall have 30 calendar days from the
date of the letter giving notice in which
to submit its views and
recommendations to the Board.
(2) Federal Register notice. Upon
receipt by the Reserve Bank of an
application under this subpart, notice of
the application shall be promptly sent to
the Federal Register for publication. The
Federal Register notice shall invite
comment on the application for a period
of no more than 30 days.
(c) Accepting application for
processing. Within 10 calendar days
after the Reserve Bank receives an
application under this subpart, the
Reserve Bank shall either accept the
application for processing or advise
applicant that the application is
incomplete and requires additional
information. In unusual circumstances,
the Reserve Bank may extend this time
period upon written notice to the
applicant. Upon accepting an
application, the Reserve Bank shall
immediately send copies of the
application to the Board.
(d) Action on applications.
(1) Action under delegated authority.
An application shall be approved within
30 calendar days after it is accepted for
processing under paragraph (c) of this
section, unless the applicant is notified
that the application has been referred to
the Board for decision because action is
not appropriate under delegated
authority. The 30-day period may be
extended for 15 days by the Reserve
Bank upon written notice to the
applicant.
(2) Board action. In the case of
applications referred to the Board for
decision, the application shall be
approved within 60 calendar days after
it is accepted for processing under
paragraph (c) of this section, unless the
applicant is notified that the 60-day
period will be extended for a specified
period and is given the reasons for the
extension. In no event may the
extension exceed the 91-day period
provided in paragraph (f) of this section.
(e) Hearings. As provided in section
3(b) of the BHC Act, the Board shall
order a hearing if it receives from the
primary supervisor of the bank to be
acquired a written recommendation of
disapproval of an application within the
30-day period specified in paragraph
(b)(1) of this section. The Board may
order a formal or informal hearing or
other proceeding in connection with the
processing of an application, as
provided in § 262.3(i)(2) of the Rules of
Procedure. Any request for hearing other
than from the primary supervisor shall
comply with § 262.3(e) of the Rules of
Procedure (12 CFR 262.3(e)).
(f) Approval through failure to act.
(1) Ninety-one day rule. An
application under this subpart shall be
deemed approved if the Board fails to
act on the application within 91
calendar days after the date of
submission to the Board of the complete
record on the application. For this
purpose, Board action includes the
issuance of an order stating that the
Board has approved or denied the
application, reflecting the votes of the
members of the Board, and indicating
that a statement of the reasons for the
decision will follow promptly.
(2) “Complete record." For the
purpose of computing the 91-day period,
the record shall be regarded as complete
on the latest of:
(i) The date of receipt by the Board of
an application that has been accepted
for processing by the Reserve Bank
under paragraph (c) of this section;
(ii) The last day provided in any
notice for receipt of comments and
hearings requests on the application;
(iii) The date of receipt by the Board
of the last relevant material regarding
the application that is needed for the
Board’s decision, if the material is
received from a source outside of the
Federal Reserve System and is not
already in the record; or
23541
(iv) The date of completion of any
hearing or other proceeding ordered
under paragraph (e) of this section.
(g) Exceptions to notice and hearing
requirements.
(1) Probable bank failure. If the Board
finds it must act immediately on an
application in order to prevent the
probable failure of a bank or bank
holding company, the Board may modify
or dispense with the notice and hearing
requirements provided in this section.
(2) Emergency. If the Board finds that,
although immediate action on an
application is not necessary, an
emergency exists requiring expeditious
action, the Board may require the
primary supervisor to submit its
recommendation within 10 calendar
days, and the Board may act on the
application without a hearing, and may
modify or dispense with the other notice
and hearing requirements provided in
this section.
(h) W aiting period. A transaction
approved under this subpart shall not be
consummated before the thirtieth day
after the date of approval of the
application, unless the Board has
determined that the application involves
a probable bank failure or an emergency
situation under paragraph (g) of this
section.
Subpart C—Nonbanking Activities and
Acquisitions of Bank Holding
Companies
§ 225.21 Permissible nonbanking activities
and acquisitions; exempt bank holding
companies.
(a) Perm issible nonbanking activities
and acquisitions. Except as provided in
§ 225.22 of this subpart, a bank holding
company or a subsidiary may not
engage in, or acquire or control voting
securities or assets of a company
engaged in, any activity other than:
(1) Banking or managing or controlling
banks and other subsidiaries authorized
under the BHC Act; and
(2) An activity determined to be
closely related to banking as provided in
§ 225.23 of this subpart, provided the
bank holding company has obtained the
prior approval of the Board under
§ 225.25 of this subpart for that activity.
(b) Exem pt bank holding companies.
The following bank holding companies
are exempt from the provisions of this
subpart:
(1) Fam ily-owned companies. Any
company that is a “company covered in
1970,” as defined in section 2(b) of the
BHC Act, and that had more than 85
percent of its voting stock collectively
owned on June 30,1968, and
23542
Federal Register / Vol. 48, No. 102 / W ednesday, M ay 25,1983 / Proposed Rules
continuously thereafter, by members of
the same family or their spouses.
(2) Labor, agricultural, and
horticultural organizations. Any
company that was on January 4,1977,
both a bank holding company and a
labor, agricultural, or horticultural
organization exempt from taxation
under section 501 of the Internal
Revenue Code (26 U.S.C. 501).
(3) Companies granted hardship
exem ption. Any bank holding company
that has controlled only one bank since
before July 1,1968, and that has been
granted an exemption by the Board
under section 4(d) of the BHC Act,
subject to any conditions imposed by
the Board.
not extend any period for divestiture of
the property.
(2) Securities or assets required to be
divested b y subsidiary. Securities or
assets required to be divested by a
subsidiary at the request of an
appropriate examining federal or state
authority (except by the Board under the
BHC Act or this regulation), if the bank
holding company divests the securities
or assets within two years from the date
acquired from the subsidiary.
(3) Fiduciary investm ents. Securities
or assets acquired by a company in good
faith in a fiduciary capacity, if they are:
(i) Held in the ordinary course of
business; and
(ii) Not acquired for the benefit of the
company or its shareholders, employees,
§ 225.22 Exempt nonbanking activities and
or subsidiaries.
acquisitions.
(4) Securities eligible fo r investm ent
by a national bank. Securities of the
(a) Servicing activities. A bank
kinds and amounts explicitly eligible by
holding company may, without the
federal statute (other than the Bank
Board's prior approval, furnish directly,
Service Corporation Act, 12 U.S.C. 1861
or acquire all the shares of a subsidiary
et seq .) for investment by a national
to furnish, services for the internal
bank, and securities acquired prior to
operations of the holding company and
June 30,1971, in reliance on section
its subsidiaries. Such services include:
4(c)(5) of the BHC Act and
(i) accounting: (ii) advertising; (iii) data
interpretations of the Comptroller of the
processing; (iv) holding or operating
Currency under section 5136 of the
property used primarily by a subsidiary
Revised Statutes (12 U.S.C. 24(7)).
in its operations or for its future use; (v)
(5) Securities totalling 5 percent or
liquidating property acquired from a
less o f a company. Securities or property
subsidiary; (vi) liquidating property
that, in the aggregate, represent 5
acquired from any source either prior to
percent or less of any class of
May 9,1956, or the date on which the
outstanding voting securities of a
company became a bank holding
company or a 5 percent interest or less
company, whichever is later; (vii)
in the property, provided the acquiring
personnel services; and (viii) selling,
company holds the securities or
purchasing, or underwriting insurance
property as a passive investment.
such as blanket bond insurance, group
(6) Securities o f investm ent company.
insurance for employees, and property
Securities of an investment company
and casualty insurance.
that is solely engaged in investing in
(b) Safe deposit business. A bank
securities and that does not own or
holding company may, without the
control more than 5 percent of any class
Board's prior approval, conduct a safe
of outstanding voting securities of any
deposit business, or acquire voting
company.
securities of a company that conducts
(7) A ssets acquired in the ordinary
such a business.
course o f business. Assets of a company
(c) Nonbanking acquisitions not
acquired in the ordinary course of
requiring prior Board approval. A bank
business, subject to the limitations and
holding colnpany or subsidiary may,
provisions of 12 CFR 225.132, provided
without the Board's prior approval,
the assets relate to activities in which
acquire:
the acquiring company has previously
(1) DPC acquisitions, (i) Securities and received Board approval to engage
real or personal property, by foreclosure
under § 225.23 of this subpart in the
or otherwise, in satisfaction of debts
areas to be served, and the assets do not
previously contracted (“DPC property”)
represent all or substantially all of the
in good faith, if the DPC property is
assets of a company, or a subsidiary,
divested within two years of acquisition.
division, department, or office of the
(ii) Upon request, this 2-year period
company from which the assets are
may be extended for three additional
acquired.
one-year periods by the Board. In the
(8) A sset acquisitions b y consumer
case of real estate, an additional 5-year
finance or mortgage company. Assets of
period may also be permitted by the
an office(s) of a company that relate
Board for a total of 10 years.
solely to making, acquiring, or servicing
(iii) Transfers of DPC property within
loans solely for personal, family, or
the bank holding company system shall
household purposes, provided that:
(i) The acquiring company has
previously received Board’s approval to
engage in consumer finance or
residential mortgage banking activities
under § 225.23(b)(1) of this subpart in
the area to be served by the acquired
office(s);
(ii) The assets sold from any company
in any calendar year do not represent
more than 10 percent of the assets of the
acquiring consumer finance of mortgage
company or more than $10 million,
whichever is less;
(iii) The assets acquired do not
represent more than 50 percent of the
assets of the selling company;
(iv) The acquiring company notifies
the Reserve Bank of the acquisition
within 30 days after the acquisition; and
(v) The Board has not previously
notified the acquiring company that it
may not acquire assets under this
paragraph.
(d) A cquisition o f securities by
subsidiary banks.
(1) A national bank or its subsidiary
may acquire or retain securities on the
basis of section 4(c)(5) of the BHC Act in
accordance with the regulations of the
Comptroller of the Currency.
(2) A state-chartered bank or its
subsidiary may, insofar as federal law is
concerned, acquire or retain securities
on the basis of section 4(c)(5) to the BHC
Act: (i) of the kinds and amounts
explicitly eligible by federal statute for
investment by a national bank; or (ii)
that represent all of the voting securities
of a company (except director’s
qualifying shares) that engages solely in
activities in which the parent bank may
engage, at locations at which the bank
may engage in the activity, and subject
to the same limitations as if the bank
were engaging in the activity directly.
(e) A ctivities and securities o f new
bank holding companies. A company
that becomes a bank holding company
with the Board’s approval under § 225.11
of Subpart B of this regulation may, for a
period of two years, engage in
nonbanking activities and hold
nonbanking securities that it engaged in
or held on the date it became a bank
holding company. The Board may grant
requests for up to three one-year
extensions.
(f) G randfathered activities and
securities. Unless the Board orders
divestiture or termination under section
4(a)(2) of the BHC Act, a "company
covered in 1970,” as defined in section
2(b) of the BHC Act, may:
(1) Retain securities and engage in
activities that it has lawfully held or
engaged in continously since June 30,
1968; and
Federal Register / Vol. 48, No. 102 / W ednesday, May 25, 1983 / Proposed Rules
(2) Acquire securities of a newlyformed company to engage in such
activities.
(g) Securities or activities exem pt
under Regulation K. A bank holding
company may acquire voting securities
or assets and engage in activities
authorized for that bank holding
company under Regulation K (12 CFR
Part 211).
§ 225.23 Nonbanking activities requiring
Board approval.
(a) Approval required to engage in
nonbanking activities. A bank holding
company shall apply, in accordance
with § 225.25 of this subpart, for the
Board’s prior approval to engage
directly or indirectly, or to acquire or
control voting securities or assets of a
company engaged, in: (1) an activity
specified in paragraph (b) of this
section, including such incidental
activities as are necessary to carry on
the activities specified; and (2) in an
activity not specified in paragraph (b)
that the bank holding company believes
is closely related to banking or to
managing or controlling banks within
the meaning of section 4(c)(8) of the
BHC Act.
(b) A ctivities determ ined to be closely
related to banking. The following
activities are so closely related to
banking or managing or controlling
banks as to be a proper incident thereto:
(1) M aking and servicing loans.
Making, acquiring, or servicing loans or
other extensions of credit (including
issuing letters of credit and accepting
drafts) for the company’s account or for
the account of others, such as would be
made, for example, by the following
types of companies: (i) consumer
finance; (ii) credit card; (iii) mortgage;
(iv) commercial finance; and (v)
factoring.
(2) Industrial banking. Operating an
industrial bank, Morris Plan bank, or
industrial loan company, as authorized
under state law, so long as the
institution is not a bank as defined in
§ 225.2(a) of Subpart A of this
regulation.
(3) Trust com pany functions.
Performing functions or activities that
may be performed by a trust company
(including activities of a fiduciary,
agency, or custodial nature), in the
manner authorized by federal or state
law, so long as the institution does not
make loans or investments or accept
deposits other than:
(i) Deposits that are generated from
trust funds not currently invested and
that are properly secured to the extent
required by law;
(ii) Deposits representing funds
received for a special use in the capacity
of managing agent or custodian for an
owner of, or investor in, real property,
securities, or other personal property; or
for such owner or investor as agent or
custodian of funds held for investment
or as escrow agent; or for an issuer of, or
broker or dealer in securities, in a
capacity such as a paying agent,
dividend disbursing agent, or securities
clearing agent; provided such deposits
are not employed by or for the account
of the customer in the manner of a
general purpose checking account or
interest-bearing account; or
(iii) Making call loans to securities
dealers or purchasing money market
instruments such as certificates of
deposit, commercial paper, government
or municipal securities, and bankers
acceptances. (Such authorized loans and
investments, however, may not be used
as a method of channeling funds to
nonbanking affiliates of the trust
company.)
(4) Investm ent or financial advice.
Acting as investment or financial
adviser to the extent of:
(i)
Serving as the advisory company
for a mortgage or a real estate
investment trust;
(iii) Serving as investment adviser (as
defined in section 2(a)(20) of the
Investment Company Act of 1940,15
U.S.C. 80a-2(a)(20)), to an investment
company registered under that act;
(iii) Providing portfolio investment
advice 2 to any other person;
(iv) Furnishing general economic
information and advice, general
economic statistical forecasting services
and industry studies; 3 and
(v) Providing financial advice to state
and local governments, such as with
respect to the issuance of their
securities.
(5) Leasing personal or real property.
Leasing personal or real property or
acting as agent, broker, or adviser in
leasing such property if:
(i) The lease is to serve as the
functional equivalent of an extension of
credit to the lessee of the property;
(ii) The property to be leased is
acquired specifically for the leasing
transaction under consideration or was
5 The term “portfolio investment” intended to
refer generally to the investment of funds in a
“security" as defined in section 2(1) of the securities
Act of 1933 (15 U.S.C. 77b) or in real property
interests, except where the real property is to be
used in the trade or business of the person being
advised. In furnishing portfolio investment advice,
bank holding companies and their subsidiaries shall
observe the standards of care and conduct
applicable to fiduciaries.
3 This activity is to be contrasted with
“management consulting.” See the commentary for
a discussion of impermissible management
consulting activities.
23543
acquired specifically for an earlier
leasing transaction;
(iii) The lease is on a nonoperating
basis; 4
(iv) At the inception of the initial lease
the effect of the transaction (and, with
respect to governmental entities only,
reasonably anticipated future
transactions 5 will yield a return that
will compensate the lessor for not less
than the lessor’s full investment in the
property plus the estimated total cost of
financing the property over the term of
the Tease,6 from:
(A) Rentals;
(B) Estimated tax benefits (investment
tax credit, net economic gain from tax
deferral from accelerated depreciation,
and other tax benefits with a
substantially similar effect);
(C) The estimated residual value of
the property at the expiration of the
initial term of the lease, which in no
case shall exceed 20 percent of the
acquisition cost of the property to the
lessor; and
(D) In the case of a lease of personal
property of not more than seven years in
duration, such additional amount, which
shall not exceed 60 percent of the
acquisition cost of the property, as may
be provided by an unconditional
guarantee by a lessee, independent third
party, or manufacturer, which has been
determined by the lessor to have the
financial resources to meet such
obligation, that will assure the lessor of
4For purposes of the leasing of automobiles, the
requirement that the lease be on a nonoperating
basis means that the bank holding company may
not, directly or indirectly: (1) provide for the
servicing, repair, or maintenance of the leased
vehicle during the lease term; (2) purchase parts and
accessories in bulk or for an individual vehicle after
the lessee has taken delivery of the vehicle; (3)
provided for the loan of an automobile during
servicing of the leased vehicle; (4) purchase
insurance for lessee; or (5) provide for the renewal
of the vehicle’s license merely as a service to the
lessee where the lessee could renew the license
without authorization from the lessor.
5The Board understands that some federal, state
and local governmental entities may not enter into a
lease for a period in excess of one year. Such an
impediment does not prohibit a company authorized
under § 225.23(a)(5) from entering into a lease with
such governmental entities if the company
reasonably anticipates that the governmental
entities will renew the lease annually until such
time as the company is fully compensated for its
investment in the leased property plus its costs of
financing the property. Further, a company
authorized under § 225.23(a)(5) may also engage in
so-called “bridge” lease financing of personal
property, but not real property, where the lease is
short term pending completion of long-term
financing, by the same or another lender.
8The estimate by the lessor of the total cost of
financing the property over the term of the lease
should reflect, among other factors: the term of the
lease, the modes of financing available to the lessor,
the credit rating of the lessor an d/or the lessee (if a
factor in the financing), and prevailing rates in the
money and capital markets*.
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Federal Register / Vol. 48, No. 102 / W ednesday, May 25, 1983 / Proposed Rules
(i) The services are not provided on a
recovery of its investment and cost of
(8) Insurance sales. Except as
daily or continuing basis;
financing; provided, that in the
prohibited in Title VI of the Garn-St
aggregate the amount derived from
(ii) The bank holding company does
Germain Depository Institutions Act of
estimated residual value under
not control any equity securities issued
1982 (Pub. L. 97-320, 96 Stat. 1536),
subparagraph C and any unconditional
acting as insurance agent or broker in
by the client;
guarantee shall not exceed 60 percent of
offices at which the holding company or
(iii) No management official, as
the acquisition cost of the property;
its subsidiaries are otherwise engaged in defined in 12 CFR 212.2, of the bank
(v)
The maximum lease term during
business (or in an office adjacent
holding company or subsidiary serves as
which the lessor must recover the
a management official of the client,
thereto) with respect to the following
lessor's full investment on the property,
unless granted an exception by the
types of insurance:
plus the estimated total cost of financing
(i) Any insurance that (A) is directly
appropriate federal regulatory agency;
the property, shall be 40 years; and
related to an extension of credit by a
and
(vii) At the expiration of the lease
bank or bank-related firm of the kind
(iv) Each potential client is notified of
(including any renewals or extensions
described in this regulation, or (B) is
all depository institutions affiliated with
with the same lessee), all interest in the
directly related to the provision of other
the bank holding company and of all
property shall be either liquidated or re
financial services by a bank or such a
other clients located in the same market
leased on a nonoperating basis as soon
bank-related firm; and
areas as the potential client.
as practicable but in no event later than
(ii) Any insurance sold by a bank
(12) Money orders, savings bonds, and
two years from the expiration of the
holding company or a nonbanking
travelers checks. The issuance and sale
lea se;7 however, in no case shall the
subsidiary in a community that has a
at retail of money orders having a face
lessor retain any interest in the property
population not exceeding 5,000 (as
value of not more than $1,000; the sale of
beyond 50 years after its acquisition of
shown by the last preceding decennial
U.S. savings bonds; and the issuance
the property.
census), provided the principal place of
and sale of travelers checks.
(6) Community development. Investing banking business of the bank holding
(13) Real estate appraising.
in or making contributions to
company is located in a community
Performing appraisals of real estate.
corporations or projects designed
having a population not exceeding 5,000.
(14) Commercial real estate equity
primarily to promote community welfare
(9) Insurance underwriting. Acting as
financing. Acting as intermediary for the
and to further the development of low
underwriter for credit life insurance and
financing of commercial or industrial
income areas by providing housing,
credit accident and health insurance
income-producing real estate by
services, or jobs for residents.
that is directly related to an extension of arranging the transfer of the title, control
(7) Data processing, (i) Providing data
credit by the bank holding company
and risk of such a real estate project to
processing and data transmission
system.8
one or more investors, if:
services, data bases, or facilities
(10) Courier services. Providing
(i) The financing arranged exceeds $1
(including data processing and data
courier services for:
million;
transmission hardware, software,
(i)
The internal operations of the bank (ii) The bank holding company and its
documentation, and operating
holding company and its subsidiaries;
affiliate do not provide financing to the
personnel) for the internal operations of
(11) Checks, commercial papers,
investors to acquire a real estate project
the holding company or its subsidiaries;
documents, and written instruments
for which the bank holding company
(ii) Providing to others data processing
(excluding currency or bearer-type
arranges equity financing;
and transmission services, facilities,
negotiable instruments) that are
(iii) The bank holding company and
data bases, or access to such services,
exchanged among banks and financial
its affiliates do not have an interest in or
facilities, or data bases by any
institutions; and
participate in managing, developing or
technologically feasible means, where;
(iii) Audit and accounting media of a
syndicating a real estate project for
(A) Data to be processed or furnished
banking or financial nature and other
which it arranges equity financing, and
are financial, banking, or economic, and
business records and documents used in
do not promote or sponsor the
the services are provided pursuant to a
processing such media.*
development or syndication of such
written agreement so describing and
(11) Management consulting to
property; and
limiting the services;
depository institutions. Providing, on an
(iv) The fee received for arranging
(B) The facilities are designed,
explicit fee basis without regard to any
equity financing for a real estate project
marketed, and operated for the
correspondent balances, management
is not based on profits to be derived
processing and transmission of
consulting advice to banks and other
from the project and is not larger than
financial, banking, or economic data;
depository institutions 10, if:
the fee that would be charged by an
and
unaffiliated intermediary.
(C) Hardware in connection therewith
• To assure that engaging in the underwriting of
(15) Underwriting and dealing in
is offered only in conjunction with
credit life and credit accident and health insurance
government obligations. Underwriting
can resonably be expected to be in the public
software designed and marketed for the
interest, the Board will only approve applications in
and dealing in obligations of the United
processing and transmission of
which an applicant demonstrates that approval will
States, general obligations of various
financial, banking, or economic data,
benefit the consumer or result in other public
states and of political subdivisions
and where the general purpose
benefits. Normally such a showing would be made
thereof, and other obligations that state
by a projected reduction in rates or increase in
hardware does not constitute more than
policy benefits due to bank holding company
member banks of the Federal Reserve
30 percent of the cost of any packaged
performance of this service.
System may be authorized to deal in
offering.
• See also the Board's interpretation on courier
under 12 U.S.C. 24 and 355, including
activities (12 CFR 225.129), which sets forth
' In the event of a default on the lease agreement
prior to the expiration of the lease term, the lessor
shall either re-lease the property, subject to all the
conditions of this subsection, or liquidate the
property as soon as practicable but in no event later
than two years from the date of default on the lease
agreement.
conditions for bank holding company entry into the
activity.
10 In performing this activity, bank holding
companies are not authorized to perform tasks or
operations or provide services to client institutions
either on a daily or continuing basis, except as shall
be necessary to instruct the client institution on
how to perform such services for itself. See also the
Board's interpretation regarding bank management
consulting advice at 12 CFR 225.131. The provisions
of this interpretation shall apply to the performance
of management consulting services for nonbank
depository institutions as well as commercial banks.
Federal Register / Vol. 48, No. 102 / W ednesday, May 2 5 ,1983 / Proposed Rules
bankers acceptances and certificates of
deposit.
(16) Foreign exchange advisory and
transactional services. Providing, by
any means, general information and
statistical forecasting with respect to
foreign exchange markets; advisory
services designed to assist customers in
monitoring, evaluating and managing
their foreign exchange exposures; and
transactional services with respect to
foreign exchange by arranging for
“swaps” among customers with
complementary foreign exchange
exposures, if:
(i) The activity is conducted through a
separately incorporated subsidiary of
the bank holding company;
(ii) The foreign exchange subsidiary
does not take positions in foreign
exchange for its own account;
(iii) The foreign exchange subsidiary
observes the standards of care and
conduct apolicable to fiduciaries with
respect to its foreign exchange advisory
and transactional services; and
(iv) The foreign exchange subsidiary
does not itself execute foreign exchange
transactions.
(17) Futures com m ission merchant.
Acting as a futures commission
merchant (“FCM”) for nonaffiliated
persons, in the execution and clearance
on major commodity exchanges of future
contracts for bullion, foreign exchange,
government securities, negotiable
United States money market
instruments and certain other money
market instruments, if:
(i) The activity is conducted through a
separately incorporated subsidiary of
the bank holding company, subject to
the provisions of the Commodity
Exchange Act (7 U.S.C. 1 to 26), and to
regulation by the Commodity Futures
Trading Commission (“CFTC”) and at
least one of the major domestic
commodity exchanges or in the case of a
foreign office, subject to regulation by a
comparable regulatory authority and
exchange;
(ii) The FCM does hot become a
clearing member of any exchange or
clearing association that requires the
parent corporation of a clearing member
to also become a member of that
exchange or clearing association unless
a waiver of the requirement is obtained;
(iii) The FCM does not trade for its
own account;
(iv) The FCM time stamps orders of all
customers to the nearest minute,
executes all orders in chronological
sequence consistent with the customers'
specifications, and executes all orders
with reasonable promptness with due
regard to market conditions;
(v) The FCM advises each of its
customers in writing that doing business
with it will not affect any provision of
credit to that customer by other
subsidiaries of the parent bank holding
company, including its banking
affiliates;
(vi) The FCM does not extend credit
to customers for the purpose of meeting
initial or maintenance margin required
of customers except for posting margin
on behalf of customers in advance of
prompt reimbursement;
(vii) The FCM has initial
capitalization that is in substantial
excess of that required by CFTC
regulations (or comparable regulatory
authority), and will maintain fully
adequate capitalization;
(viii) Services provided to the FCM by
its affiliates are provided under specific
contract on an explicit fee basis; and
(ix) The bank holding company and its
subsidiaries have demonstrated
expertise and an established capability
in the cash, forward and futures markets
for the contracts involved.
§ 225.24 Factors considered in deciding
applications under Subpart C.
(a) Criteria fo r activities previously
determ ined to be closely related to
banking. In deciding any application by
a bank holding company to engage in a
nonbanking activity specified in
§ 225.23(b) of this subpart, the Board
shall determine whether the activity is a
proper incident to banking. In making
this determination the Board shall
consider whether the performance by
the applicant bank holding company of
the activity 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). Unless the record
clearly demonstrates otherwise, the
commencement of a nonbanking activity
de novo is presumed to result in
benefits to the public through increased
competition.
(b) Criteria fo r other nonbanking
activities. In deciding any application
by a bank holding company to engage in
a nonbanking activity not specified in
§ 225.23(b) of this subpart, the Board
shall determine whether the proposed
activity (1) is closely related to banking
or to managing or controlling banks, and
(2) is a proper incident to banking, as
described in paragraph (a) of this
section.
(c) Financial and managerial criteria.
In deciding any application described in
paragraph (a) of (b) of this section, the
Board shall also consider the financial
and managerial resources of the
23545
applicant, including its subsidiaries, and
any company to be acquired, and the
effect of the proposed transaction on
their resources.
§ 225.25 Procedures for applications,
notices, and hearings.
(a) (1) Filing application. An
application by a company for the
Board's prior approval under § 225.23 of
this subpart shall be filed with the
appropriate Reserve Bank on the
designated form and shall comply with
§ 262.3 of the Rules of Procedure (12
CFR 262.3). An application for Board
approval to engage directly or through a
subsidiary in an activity not specified in
§ 225.23(b) shall contain evidence and
argument that the activity is closely
related to banking or to managing or
controlling banks within the meaning of
section 4(c)(8) of the BHC Act.
(2) Geographic scope o f nonbanking
activities, (i) Any application required
under § 225.23 of this subpart shall
specify the states in which the company
proposes to engage de novo, or to
acquire a company engaged, in the
nonbanking activity.
(ii) A bank holding company is not
required to file an application under
§ 225.23 of this subpart to open a new
office or to form a subsidiary to engage
in a nonbanking activity in a state in
which the bank holding company has
received the Board’s approval under
§ 225.23 for that activity, unless the
Board has notified the company that an
application is required for such
expansion.
(iii) If a bank holding company fails to
engage in the nonbanking activity in the
state specified in its application within
two years of Board approval of the
application, the Board's approval of that
activity in that state terminates and the
bank holding company shall reapply for
the Board’s approval before
commencing the nonbanking activity in
that state.
(3) Alteration or relocation o f
nonbanking activity. With respect to an
application approved under § 225.23 of
this subpart, nonbanking activities shall
not be altered in any significant respect
from those considered by the Board in
acting on the application, nor provided
in any states other than those specified
in the notice published with respect to
such application.
(4) A ctivities outside the United
States. With respect to activities to be
engaged in outside the United States, 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 United States nonbank
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Federal Register / Vol. 48, No. 102 / W ednesday, May 25,1983 / Proposed Rules
subsidiary of any bank holding
company.
(b) Accepting application fo r
processing. Within 10 calendar days
after the Reserve Bank receives an
application under this subpart, the
Reserve Bank shall either accept the
application for processing or advise the
applicant that the application is
incomplete and requires additional
information. In unusual circumstances,
the Reserve Bank may extend this time
period upon written notice to the
applicant. Upon accepting an
application, the Reserve Bank shall
immediately send copies of the
application to the Board.
(c) Federal Register notice.
(1) Listed activities. Upon receipt by
the Reserve Bank of an application
involving an activity listed in § 225.23(b)
of this subpart, notice of the application
shall be promptly sent to the Federal
Register for publication. The Federal
Register notice shall invite comment for
a period of not more than 30 days.
(2) Proposed new activities. In the
case of an application involving an
activity not listed in § 225.23(b) of this
subpart, notice of the application shall
be sent to the Federal Register for
publication within 10 business days
after receipt by the Board of an
application accepted for processing
under paragraph (b) of this section,
unless (i) the activity has previously
been determined not to be closely
related to banking or a proper incident
thereto; or (ii) there is no basis for
publishing for comment whether the
activity is so closely related to banking
as to be a proper incident thereto under
§ 225.24(b) of this subpart. In the event
notice of an activity not listed in
§ 225.23(b) is not published for
comment, the applicant shall be notified
of the reasons for the decision. The
Federal Register notice shall invite
comment on the proposal for a
reasonable period of time, generally for
30 days.
(d) Action on applications.
(1) A ction under delegated authority.
An application shall be approved within
30 calendar days after it is accepted for
processing under paragraph (b) on this
section, unless the applicant is notified
that the application has been referred to
the Board for decision because action is
not appropriate under delegated
authority. The 30-day period may be
extended for 15 days by the Reserve
Bank upon written notice to the
applicant.
(2) Board action. In the case of
applications referred to the Board for
decision, the application shall be
approved within 60 calendar days after
it is accepted for processing under
paragraph (b) of this section, unless the
applicant is notified that the 60-day
period will be extended for a specified
period and is given the reasons for the
extension. In no event may the
extension exceed the 91-day period
specified in paragraph (g) of this section.
(e) Sim plified procedures fo r sm all
acquisitions. (1) As an alternative to the
application procedure of pargraph (a)(1)
of this section, a bank holding company
may apply to acquire voting securities or
assets of a company engaged in
activities authorized under § 225.23 of
this subpart by providing the
appropriate Reserve Bank with a brief
description of the transaction and a
copy of a newspaper notice, in a form
prescribed by the Board. The newspaper
notice shall have been published by the
applicant within the preceding 5 days in
a newspaper of general circulation in
the areas to be served as a result of the
acquisition, providing an opportunity for
interested persons to comment on the
application for a period of at least 10
calendar days. The procedure
prescribed in this paragraph is available
only where:
(1) Neither the book value of the assets
acquired nor the gross consideration
paid for the securities or assets exceed
$10 million; and
(ii) The bank holding company has
previously received Board approval to
engage in the activity involved in the
acquisition in the relevant state.
(2) Within five business days after the
close the comment period, the
application shall either be approved or
referred to the Board for processing if
action is not appropriate under
delegated authority. If an adverse
comment is received, the Reserve Bank
may extend this 5-day period for a
reasonable period of time upon written
notice to the applicant.
(f) Hearing. Any request for hearing
shall comply with the provisions of
§ 263.3(e) of the Rules of Procedure (12
CFR 262.3(c)). The Board may order a
formal or informal hearing or other
proceeding in connection with the
processing of an application, as
provided in § 263.3(i)(2) of the Rules of
Procedure 12 CFR 22.3(i)(2)). A hearing
shall be required only if there are
disputed issues of material fact that
cannot be resolved in some other
manner.
(g) Approval through failure to act. An
application under this subpart shall be
deemed approved if the Board fails to
act on the application within 91
calendar days after the date of the
submission to the Board of the complete
record on the application. The
procedures for computation of the 91day rule as set forth in § 225.14(f) of
Subpart B of this regulation apply to
applications under this subpart.
(h) Emergency thrift institution
acquisitions. In the case of an
application to acquire a thrift institution,
the Board may modify or dispense with
the notice and hearing requirements of
this section if the Board finds that an
emergency exists which requires the
Board to act immediately and the
primary Federal regulator of the
institution concurs in this finding.
Subpart D—Control and Divestiture
Proceedings Contents
§ 225.31
Control proceedings.
(a) Preliminary determ ination o f
control. (1) The Board may issue a
preliminary determination of control
under the procedures set forth in this
section in any case in which:
(i) One of the presumptions of control
set forth in paragraph (d) of this section
is present; or
(ii) It appears that the company
exercises or has the power to exercise a
controlling influence over the
management or policies of the other
company or bank.
(2) If the Board makes a preliminary
determination of control under this
section, the Board shall send notice to
the controlling company setting forth a
statement of the facts upon which the
preliminary determination is based.
(b) Response to prelim inary
determ ination o f control. Within 30
calendar days of issuance by the Board
of a preliminary determination of
control under this section, the company
against whom the determination has
been made shall:
(1) Submit for the Board’s approval a
specific plan for the prompt termination
of the control relationship;
(2) File an application under Subpart
B or C of this regulation to retain the
control relationship; or
(3) Contest the preliminary
determination by filing a response,
setting forth the facts and circumstances
in support of its position that no control
exists. The company may request a
hearing or other proceeding to contest
the preliminary determination. Any such
request for a hearing or other proceeding
shall accompany the response.
(c) Hearing and fin a l determination.
(1) The Board may order a formal
hearing or other appropriate proceeding
upon the request of a company that
contests a preliminary determination
that the company exercises or has the
power to exercise a controlling influence
over the management or policies of the
other company or bank, if the Board
finds that material facts are in dispute.
Federal Register / Vol. 48, No. 102 / W ednesday, May 25, 1983 / Proposed Rules
The Board may also order a formal
hearing or other proceeding with respect
to a preliminary determination that the
company controls voting securities of
the other company or bank under the
presumptions in paragraph (d)(1) of this
section.
(2) In the event a hearing or other
proceeding is held, any applicable
presumptions established by paragraph
(d) of this section shall be considered in
accordance with the rules of evidence.
(3) After considering the submissions
of the company and other evidence,
including the record of any hearing or
other proceeding, the Board shall issue a
final order determining whether the
company controls voting securities or
exercises or has the power to exercise a
controlling influence over the
management or policies of another
company or bank. If a control
relationship is found, the Board may
direct the company to terminate the
control relationship or to file an
application for the Board’s approval to
retain the control relationship.
(d) Rebuttable presum ptions o f
control. The following rebuttable
presumptions shall be used in any
proceeding under this section:
(1) Control o f voting securities, (i)
Securities convertible into voting
securities. A company that owns,
controls, or holds securities that are
immediately convertible at the option of
the holder or owner into voting
securities of the other company or bank,
controls the voting securities.
(ii) Option or restriction on voting
securities. A company that has entered
into a contract or agr <9ment under
which the rights of a holder of voting
securities of another company or bank
are restricted in any manner controls the
securities subject to such contract or
agreement. This presumption shall not
apply where the contract or agreement:
(A) Is a mutual agreement among
shareholders granting to each other a
right of first refusal with respect to their
shares;
(B) Is incident to a bona fid e loan
transaction; or
(C) Relates to restrictions on
transferability and continues only for
such time as may reasonably be
necessary to obtain approval from a
federal bank supervisory authority with
respect to acquisition by the company of
such securities.
(2) Controlling influence over
company, (i) M anagem ent agreement. A
company that has a contract or
agreement under which it directs or
exercises significant influence over the
general management or major
operations of another company or bank
controls the other company or bank.
(ii) Shares controlled by com pany and
associated individuals. A company that
together with its management officials
or principal shareholders (including
members of the immediate families of
either) owns, controls, or holds with
power to vote 25 percent or more of any
class of voting securities of another
company or bank controls the other
company or bank, if the company itself
owns, controls, or holds with power to
vote 5 percent or more of any class of
voting securities of the other company
or bank (except where such securities
are held by the company in a fiduciary
capacity and the company does not
have sole discretionary authority to
exercise the voting rights).
(iii) Common m anagem ent officials. A
company that has one or more
management officials or principal
shareholders in common with another
company or bank controls the other
company or bank, if the company owns,
controls or holds with power to vote 5
percent or more of any class of voting
securities of the other company or bank
(except where such securities are held
by the company in a fiduciary capacity
and the company does not have sole
discretionary authority to exercise the
voting rights), and no other person
controls as much as 5 percent.
§ 225.32
Divestiture proceedings.
(a) Ineffective divestitures. (1) As
provided under section 2(g)(3) of the
BHC Act, the divestiture of assets or
voting securities by a bank holding
company (or a company that would be a
bank holding company but for the
divestitute) shall be presumed
ineffective and the divesting company
shall be presumed to control the
acquiring person or the divested assets
or securities in the following
circumstances:
(1) The acquiring person is indebted in
any manner to the divesting company;
or
(ii) The divesting company has any
management official in common with the
acquiring person.
(2) For the purposes of this section:
(i) “indebtedness” does not include
routine business or personal credit that
is unrelated to the divestiture
transaction and that is extended by the
divesting company in the ordinary
course of its lending business; and
(ii) “Divesting company” and
“acquiring person" include their parent
companies and subsidiaries, and if the
acquiring person is an individual,
companies controlled by the individual.
(b) Request fo r divestitute
determination. For any divestiture that
is deemed ineffective under paragraph
(a) of this section, the divesting
23547
company may request the Board to
determine that the divestiture is
effective notwithstanding the
presumption of paragraph (a) by
submitting a letter that includes:
(1) A description of the divesture
transaction and the existing and
prospective relationship between the
divesting company and the acquiring
person;
(2) Evidence and argument showing
that the divesting company does not and
is not capable of controlling the
acquiring person or the divested assets
or securities; and
(3) Any request for a hearing.
(c) Hearing. The Board may order a
formal hearing or other appropriate
proceeding upon the request of a
divesting company under paragraph (b)
of this section, if the Board finds that
material facts are in dispute with
respect to the divestiture. The Board
may also order a formal hearing or other
proceeding if, in the Board’s judgment,
such a proceeding would be appropriate
(d) Standards fo r m aking divestiture
determination. In acting on the request
of a divesting company under paragraph
(b) of this section, the Board shall
consider the following factors, among
others, in determining whether the
divesting company is capable of
controlling the acquiring person or the
divested assets or securities:
(1) Indebtedness o f acquiring person
to divesting company.
(1) The terms of the indebtedness,
including the amount of the
indebtedness in relation to the total
purchase price;
(ii) The ability of the acquiring person
to repay its indebtedness; and
(iii) The manner in which the
divesting company would dispose of the
divested assets in the event it
reacquired the assets as a result of
default on the indebtedness.
(2) M anagem ent official interlocks.
The extent of the involvement of the
interlocking managment official in the
operations of the divesting company and
the acquiring person, and the
management official’s relationship to the
assets or securities being divested.
(e) Final determination. After
considering the submissions of the
divesting company and other evidence,
including the record of any hearing or
other proceeding, the Board shall issue
an order determining whether the
company controls of is capable of
controlling the acquiring person or the
divested assets or securities.
(f) R eview o f other divestitures. In
any divestiture of assets or securities by
a company that is not covered under
paragraph (a) of this section, the Board
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Federal Register / Vol. 48, No. 102 / W ednesday, May 25,1983 / Proposed Rules
or appropriate Reserve Bank may
review the divestiture to assure that all
control relationships between the
divesting company and the divested
assets or voting securities have been
terminated.
Subpart E—Change In Bank Control
§ 225.41 Control transactions requiring
prior notice.
(a) Prior notice requirement. (1) As
provided in the Bank Control Act, any
person acting directly or indirectly or
through or in concert with one or more
persons shall give the Board 60 days’
written notice, as specified in § 225.43 of
this subpart, before acquiring control of
a state member bank or bank holding
company, unless the acquisition is
exempt under § 225.42 of this subpart.
(2) For the purposes of this paragraph,
“acquisition” includes a purchase,
assignment, transfer, or pledge of voting
securities, or an increase in percentage
ownership of a bank or company
resulting from a redemption of voting
securities.
(b) Acquisitions requiring prior notice.
The following transactions constitute or
are presumed to constitute the
acquisition of control under the Bank
Control Act, requiring prior notice to the
Board:
(1) The acquisition of any voting
securities of a state member bank or
bank holding company if, after the
transaction, the acquiring person owns,
controls, or holds with power to vote 25
percent or more of any class of voting
securities of the institution; or
(2) The acquisition of voting securities
of a state member bank or bank holding
company if, after the transaction, the
acquiring person will own, control, or
hold with power to vote 10 percent or
more but less than 25 percent of any
class of voting securities of such
institution, and if:
(A) The institution has registered
securities under section 12 of the
Securities Exchange Act of 1934 (15
U.S.C. 78/); or
(B) No other person will own a greater
percentage of that class of voting
securities immediately after the
transaction.
(c) Rebuttal o f presumption o f control.
Prior notice to the Board is not required
for any acquisition of voting securities
under the presumption set forth in
paragraph (b)(2) of this section if the
Board finds that the acquisition will not
result in control. The Board will afford
the person seeking to rebut the
presumption established in paragraph
(b)(2) an opportunity to present views in
writing or, where appropriate, orally
before its designated representatives
either at an informal conference or at an
informal presentation of evidence.
(d) Other transactions. Transactions
other than those set forth in paragraph
(b)(2) resulting in a person's control of
less than 25 percent of a class of voting
shares of a state member bank or bank
holding company do not result in control
for purposes of the Bank Control Act.
§ 225.42
notice.
Transactions not requiring prior
The following transactions do not
require prior notice to the Board under
this subpart:
(a) Previously authorized
acquisitions. The acquisition of
additional shares of a class of voting
securities of a state member bank or
bank holding company by any person
who has lawfully acquired and
maintained control of 25 percent or more
of that class of voting securities after
filing the notice required under
§ 225.41(b)(1) of this subpart.
(b) Acquisitions subject to approval
under BHC A ct or Bank Merger Act.
Any acquisition of voting securities
subject to approval under section 3 of
the BHC Act (§ 225.11 of Subpart B), or
section 18 of the Federal Deposit
Insurance Act (Bank Merger Act, 12
U.S.C. 1828).
(c) Transactions exempt under BHC
Act. Any acquisition described in
sections 2(a)(5) or 3(a)(A) of the BHC
Act by a person described in those
provisions.
(d) Grandfathered control
relationships. (1) The acquisition of
additional voting securities of a state
member bank or bank holding company
by a person who continuously, since
March 9,1979, or since that institution
commenced business, held power to
vote 25 percent or more of any class of
voting securities of that institution; or
(2) The acquisition of additional
voting securities so long as the
aggregate securities held does not
exceed 25 percent of any class of voting
securities of a state member bank or
bank holding company by a person who
is presumed under § 225.41(b)(2) of this
subpart to have controlled the
institution continuously since March 9,
1979.
(e) Acquisitions in satisfaction of
debts previously contracted or through
inheritance or gift. The acquisition of
voting securities in any amount in
satisfaction of a debt previously
contracted in good faith, or through
inheritance or a bona fide gift, if the
acquiring person notifies the appropriate
Reserve Bank within 30 calendar days
after the acquisition and provides any
relevant information requested by the
Reserve Bank.
(f) Proxy solicitations. The acquisition
of the power to vote securities of a state
member bank or bank holding company
through receipt of a revocable proxy in
connection with a proxy solicitation for
the purpose of conducting business at a
regular or special meeting of the
institution, if the proxy terminates
within a reasonable period after the
conclusion of the meeting.
(g) Stock dividends. The receipt of
voting securities of a state member bank
or bank holding company through a
stock dividend or stock split so long as
the proportional interest of the recipient
in the institution remains substantially
the same.
(h) Acquisition o f foreign banking
organization. The acquisition of voting
securities of a foreign bank holding
company, except that this exemption
does not extend to the reports and
information required under paragraphs
9,10, and 12 of the Bank Control Act (12
U.S.C. 1817(j) (9), (10), and (12)).
§ 225.43 Procedures for filing, processing,
and acting on notices.
(a) Filing notice. Any notice required
under this subpart shall be filed with the
appropriate Reserve Bank and shall
contain information required by
paragraph 6 of the Bank Control Act (12
U.S.C. 1817(j)(6)), or prescribed in the
appropriate Board form. With respect to
personal financial statements required
by paragraph 6(B) of the Bank Control
Act, an individual acquirer may include
a current statement of assets and
liabilities, as of a date within 90 days of
the notice, a brief income summary, and
a statement of material changes since
the date thereof, subject to the authority
of the Reserve Bank or the Board to
require additional information.
(b) Advice to bank supervisory
agencies. (1) Upon accepting a notice for
processing, the Reserve Bank shall send
a copy of the notice to the appropriate
state bank supervisory agency where
the notice relates to acquisition of
securities of a state member bank. The
state supervisor shall have 30 calendar
days from the date it receives the notice
in which to submit its views and
recommendations to the Board. The
Reserve Bank shall also send a copy of
any notice it accepts to the Comptroller
of the Currency and the Federal Deposit
Insurance Corporation.
(2) If the Board finds that it must act
immediately in order to prevent the
probable failure of the bank or bank
holding company involved, the Board
may dispense with or modify the
requirements of paragraph (b)(1) of this
section with respect to notice to the
state supervisory agency.
Federal Register / Vol. 48, No. 102 / Wednesday, May 25, 1983 / Proposed Rules
(c) Time period fo r Board action. (1)
Consummation o f acquisition, (i) A
proposed acquisition may be
consummated 60 days after submission
to the Reserve Bank of a complete notice
under paragraph (a) of this section,
unless the Board issues within that 60day period a notice disapproving the
proposed acquisition or extending the
60-day period as provided under
paragraph (c)(2) of this section.
(ii) A proposed acquisition for which
notice has been filed under paragraph
(a) of this section may be consummated
before the expiration of the 60-day
period provided for review of the notice
if the Board notifies the acquiring person
in writing of the Board’s intention not to
disapprove the acquisition.
(2) Extensions o f tim e period, (i) The
Board may extend the 60-day period in
paragraph (c)(l)(i) of this section for an
additional 30 days by notifying the
acquiring person.
(ii) The Board may further extend the
time period for disapproval or may
return the notice if the Board finds that
the acquiring person has not furnished
all the information required under
paragraph (a) of this section or has
submitted material information that is
substantially inaccurate. If the Board
extends the time period, it shall notify
the acquiring person of the information
that is incomplete or inaccurate.
(d) Investigation o f notice. In
investigating any notice accepted under
this subpart, the Board or Reserve Bank
may solicit from any person (including
any bank or bank holding company
involved in the notice, and any
appropriate state, federal or foreign
governmental authority) information or
views regarding the proposal, which
may be presented in any form or manner
deemed appropriate. Any person, other
than the acquiring person, whose views
are solicited or who presents
information, does not thereby become a
party to the proceeding or acquire any
standing or right to participate in the
Board’s consideration of the notice.
(e) D isapproval and hearing. Within
three days after its decision to issue a
notice of intent to disapprove any
proposed acquisition, the Board shall
notify the acquiring person in writing of
the reasons for the action. Within 10
calendar days of receipt of a notice of
intent to disapprove by the Board, the
acquiring person may submit a written
request for a hearing on the Board's
decision. Any hearing conducted under
this paragraph shall be in accordance
23549
with the Rules of Practice for Formal
Hearings (12 CFR 263, Subpart A). At the
conclusion of the hearing, the Board
shall, by order, approve or disapprove
the proposed acquisition on the basis of
the record of the hearing. In the event
that the acquiring person does not
request a hearing, the notice of intent to
disapprove becomes final and
unappealable.
(f) Factors considered in acting on
notices. In reviewing a notice filed under
this subpart, the Board shall consider
the information in the record and the
views and recommendations of any
bank supervisory agency. The Board
may also consider any other relevant
information obtained during any
investigation of the notice. The Board
may disapprove an acquisition if it finds
adverse effects with respect to any of
the factors (i.e., competitive, financial,
managerial, banking, and completeness
of information) set forth in paragraph 7
of the Bank Control Act (12 U.S.C.
1817(j)(7)).
By order of the Board of Governors of the
Federal Reserve System, M ay 19, 1983.
W illiam W . W iles,
Secretary of the Board.
|FR Doc. 83-13021 Filed 5-24-83: 8:45 an |
BILLING CODE 6210-01-M
