Full text of District Notices (Federal Reserve Bank of Dallas) : Three Interim Rules and Three Requests for Public Comments, Notice 2000-19

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Federal Reserve Bank
of Dallas

l l★K

DALLAS, TEXAS
75265-5906

March 27, 2000
Notice 2000-19

TO: The Chief Executive Officer of each
financial institution and others concerned
in the Eleventh Federal Reserve District
SUBJECT
Three Interim Rules and Three Requests for
Public Comments
DETAILS
The Board of Governors of the Federal Reserve System has amended Regulation Y
(Banking Holding Companies and Change in Bank Control) on an interim basis. The amendment, effective March 11, 2000, includes the following:
•

A list of the financial activities permissible for a financial holding company under
the Gramm-Leach-Bliley Act;

•

Procedures a financial holding company must follow to engage in listed financial
activities as well as activities that are complementary to a financial activity; and

•

Procedures by which a financial holding company or any other party may request
that the Board determine other permissible activities not listed in the GrammLeach-Bliley Act.

The Board has requested public comments on all aspects of the interim rule and will
amend the rule as appropriate in response to comments received. Please submit comments by
May 12, 2000, and refer to Docket No. R-1062.
Under current rules, section 20 subsidiaries are subject to eight operating standards
imposed by the Board to address certain potential risks and conflicts associated with the affiliation of a bank and a securities firm. The Board has adopted an interim rule, effective March 11,

For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal
Reserve Bank of Dallas: Dallas Office (800) 333-4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012;
Houston Branch Intrastate (800) 392-4162, Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810.

-22000, to impose two of the eight operating standards on financial holding companies engaged in
securities underwriting, dealing, or market-making activities. The two operating standards
require that
•

intra-day extensions of credit by a bank, thrift, or U.S. branch or agency of a
foreign bank to a securities affiliate engaged in securities underwriting, dealing,
or market-making must be on market terms and

•

foreign banks that are or are treated as financial holding companies must comply
with certain affiliate transaction restrictions regarding lending and securities
purchase transactions between a U.S. branch or agency of a foreign bank and a
securities affiliate.

The Board must receive public comments on the interim rule by May 12, 2000. Please
refer to Docket No. R-1063.
In addition, the Board has amended Regulation H (Membership of State Banking
Institutions in the Federal Reserve System). The amendment implements provisions of the
Gramm-Leach-Bliley Act, which authorizes state member banks to control, or hold an interest in,
financial subsidiaries that may conduct certain activities that are financial in nature or incidental
to a financial activity. This rule, effective March 11, 2000, was adopted by the Board on an
interim basis to allow state member banks that meet applicable criteria to acquire control of, or
an interest in, a financial subsidiary as soon as possible.
The Board has requested public comments on all aspects of the interim rule and will
amend the rule as appropriate in response to comments received. Please submit comments by
May 12, 2000, and refer to Docket No. R-1064.
Please address comments on all three of the above interim rules to Jennifer J.
Johnson, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, N.W., Washington, DC 20551. Also, you may mail comments electronically to
regs.comments@federalreserve.gov. All comments should refer to the appropriate docket numbers.
ATTACHMENTS
Copies of the Board’s notices as they appear on pages 14433–42 and 14810–16, Vol.
65, Nos. 53 and 54 of the Federal Registers dated March 17 and 20, 2000, are attached.
MORE INFORMATION
For more information regarding permissible financial activities and financial subsidiaries, please contact Rob Jolley, Banking Supervision Department, at (214) 922-6071. For more

-3information regarding securities underwriting, dealing, or market-making activities, please
contact Gayle Teague, Banking Supervision Department, at (214) 922-6151.
For additional copies of this Bank’s notice, contact the Public Affairs Department at
(214) 922-5254 or access our web site at http://www.dallasfed.org/banking/notices/index.html.

Federal Register / Vol. 65, No. 53 / Friday, March 17, 2000 / Rules and Regulations
appraisal firm within the previous 12
months in accordance with USPAP. In
such case, the existing updated real
estate appraisal may be used to make or
service a loan.

PART 762—GUARANTEED FARM
LOANS
4. The authority citation for part 762
continues to read as follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42
U.S.C. 1480.

List of Subjects

5. Revise paragraph (d) of § 762.127
by adding the following at the end of the
introductory text:

7 CFR Part 761
Accounting, Accounting servicing,
Loan programs—Agriculture, Real
property—Appraisals, Rural Areas.

§762.127

7 CFR Part 762
Agriculture, Loan programs—
Agriculture.
Accordingly, 7 CFR parts 761 and 762
are corrected by making the following
correcting amendments:
PART 761—GENERAL AND
ADMINISTRATIVE
1. The authority citation for part 761
continues to read as follows:
Authority: 7 U.S.C. 1989.

Appraisal requirements.

(d) * * * Agency officials may
accept an appraisal that is not current if
there have been no significant changes
in the market or on the subject real
estate and the appraisal was either
completed within the past 12 months or
updated by a qualified appraisal if not
completed within the past 12 months.
*
*
*
*
*
Signed in Washington, D.C., on March 7,
2000.
Parks Shackelford,
Acting Administrator Farm Service Agency.
[FR Doc. 00–6429 Filed 3–16–00; 8:45 am]

2. Revise paragraphs (a) and (d) of
§ 761.7 to read as follows:

BILLING CODE 3410–05–P

§761.7

FEDERAL RESERVE SYSTEM

Appraisals

(a) General. This section describes
requirements for:
(1) real estate and chattel appraisals
made in connection with the making
and servicing of direct Farm Loan
Program and nonprogram loans; and,
(2) appraisal reviews conducted on
appraisals made in connection with the
making and servicing of direct and
guaranteed Farm Loan Program and
nonprogram loans.
*
*
*
*
*
(d) Use of an existing real estate
appraisal. The Agency may use an
existing real estate appraisal to reach a
loan making or servicing decision under
either of the following conditions:
(1) The appraisal was completed
within the previous 12 months and the
Agency determines that:
(i) The appraisal meets the provisions
of this section and the applicable
Agency loan making or servicing
requirements, and
(ii) Current market values have
remained stable since the appraisal was
completed; or
(2) The appraisal was not completed
in the previous 12 months, but has been
updated by the appraiser or appraisal
firm that completed the appraisal, and
both the update and original appraisal
were completed in accordance with
USPAP.
*
*
*
*
*

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17:13 Mar 16, 2000

This interim rule is effective on
March 11, 2000. Comments must be
received by May 12, 2000.

[Regulation Y; Docket No. R–1062]

AGENCY: Board of Governors of the
Federal Reserve System.
ACTION: Interim rule with request for
public comments.
SUMMARY: The Board of Governors of the
Federal Reserve System is amending its
Regulation Y on an interim basis
effective March 11, 2000, to include a
list of the financial activities
permissible for a financial holding
company under the Gramm-LeachBliley Act. The Board also is adopting
procedures a financial holding company
must follow in order to engage in listed
financial activities, as well as activities
that are complementary to a financial
activity. In addition, the Board is
adopting procedures by which a
financial holding company or any other
interested party may make requests that
the Board determine that activities not
listed in the Gramm-Leach-Bliley Act
are permissible for a financial holding
company. The Board is promulgating
this rule on an interim basis in order to
make a list of permissible activities and
the applicable notification procedures
for engaging in those activities available
to financial holding companies on the
effective date of the financial holding

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Comments should refer to
docket number R–1062 and should be
sent to Ms. Jennifer J. Johnson,
Secretary, Board of Governors of the
Federal Reserve System, 20th Street and
Constitution Avenue, N.W.,
Washington, D.C., 20551 or mailed
electronically to
regs.comments@federalreserve.gov.
Comments addressed to Ms. Johnson
also may be delivered to the Board’s
mail room between the hours of 8:45
a.m. and 5:15 p.m. and, outside those
hours, to the Board’s security control
room. Both the mail room and the
security control room are accessible
from the Eccles Building courtyard
entrance, located on 20th Street between
Constitution Avenue and C Street, N.W.
Members of the public may inspect
comments in room MP–500 of the
Martin Building between 9 a.m. and 5
p.m. on weekdays.

ADDRESSES:

Bank Holding Companies and Change
in Bank Control

PO 00000

company provisions of the GrammLeach-Bliley Act.
The interim rule adds five sections to
Subpart I of Regulation Y. The first two
sections list the financial activities in
which the Gramm-Leach-Bliley Act
permits a financial holding company to
engage and explain that Board approval
generally is not required to engage in
those activities. The third section
explains the post-commencement notice
procedures applicable to listed
activities. The fourth section establishes
a procedure by which any interested
party may request that the Board find an
activity that is not listed in the GrammLeach-Bliley Act or the rule to be
financial in nature or incidental to a
financial activity. The fifth section
establishes a procedure by which a
financial holding company may seek a
Board determination that a particular
activity is complementary to a financial
activity and receive approval to engage
in that activity.
The Board solicits comments on all
aspects of the interim rule and will
amend the rule as appropriate in
response to comments received.
DATES:

12 CFR Part 225

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14433

FOR FURTHER INFORMATION CONTACT:

Scott G. Alvarez, Associate General
Counsel (202/452–3583) or Adrianne G.
Threatt, Attorney (202/452–3554); Legal
Division; Board of Governors of the
Federal Reserve System, 20th Street and
Constitution Avenue, N.W.,
Washington, D.C., 20551. For users of
Telecommunications Device for the Deaf
(‘‘TDD’’), contact Janice Simms at 202/
452–4984.

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Federal Register / Vol. 65, No. 53 / Friday, March 17, 2000 / Rules and Regulations

SUPPLEMENTARY INFORMATION:

Background
The Gramm-Leach-Bliley Act (Pub. L.
No. 106–102, 113 Stat. 1338 (1999)) (the
‘‘GLB Act’’) authorizes affiliations
among banks, securities firms, insurance
firms, and other financial companies.
The GLB Act amends the Bank Holding
Company Act (‘‘BHC Act’’) (12 U.S.C.
1841 et seq.) to allow a bank holding
company or foreign bank that qualifies
as a financial holding company to
engage in a broad range of activities that
are defined by the GLB Act to be
financial in nature or incidental to a
financial activity, or that the Board, in
consultation with the Secretary of the
Treasury, determines to be financial in
nature or incidental to a financial
activity. The GLB Act also allows a
financial holding company to seek
Board approval to engage in any activity
that the Board determines both to be
complementary to a financial activity
and not to pose a substantial risk to the
safety and soundness of depository
institutions or the financial system
generally. Bank holding companies that
do not qualify as financial holding
companies are limited to engaging in
those nonbanking activities that were
permissible for bank holding companies
prior to the enactment of the GLB Act.
The GLB Act provides that, in most
cases, a financial holding company may
engage or acquire the shares of a
company that is engaged in financial
activities without obtaining prior
approval from the Board. A financial
holding company is required instead to
provide a post-commencement notice to
the Board within 30 days after
commencing a financial activity or
acquiring a company under the new
section 4(k).
As noted above, the GLB Act allows
the expansion by the Board in
consultation with the Secretary of the
Treasury of the list of financial activities
that are permissible for financial
holding companies. Any interested
party may request that the Board
determine that an activity not listed in
the GLB Act is financial in nature or
incidental to a financial activity. In
making its determination, the Board
must consult with the Secretary of the
Treasury and must take into account
four factors: (1) The purposes of the GLB
and BHC Acts; (2) the changes or
reasonably expected changes in the
marketplace in which financial holding
companies compete; (3) the changes or
reasonably expected changes in
technology for delivering financial
services; and (4) whether the proposed
activity is necessary or appropriate to
allow a financial holding company to
compete effectively with companies

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17:13 Mar 16, 2000

seeking to provide financial services in
the United States, efficiently deliver
financial information and services
through technological means, and offer
customers any available or emerging
technological means for using financial
services or for the document imaging of
data. The Secretary of the Treasury also
may at any time recommend that the
Board find an activity to be financial in
nature or incidental to a financial
activity.
In addition to permitting a financial
holding company to engage in activities
that are financial in nature or incidental
to a financial activity, the GLB Act
provides that a financial holding
company may engage in activities that
the Board determines are
complementary to existing financial
activities and do not pose a substantial
risk to the safety or soundness of
depository institutions or the financial
system generally. The Act requires that
a financial holding company receive
approval under section 4(j) of the BHC
Act prior to conducting or acquiring a
company engaged in an activity that the
company believes to be complementary
to a financial activity.
Interim Rule
In order to implement the provisions
of the GLB Act governing the activities
in which financial holding companies
may engage, the Board is amending
Regulation Y by adding sections that (1)
list the activities in which a financial
holding company may engage; (2) set
forth the procedures for engaging in the
listed activities; (3) establish procedures
for requesting that an additional activity
be deemed to be financial in nature or
incidental to a financial activity; and (4)
establish procedures by which a
financial holding company may request
that the Board determine that an activity
is complementary to a financial activity
and receive Board approval to conduct
a complementary activity.
Section-by-Section Analysis
Section 225.85—Is Notice To or
Approval From the Board Required
Prior To Engaging in a Financial
Activity?
Subsection (a)(1) provides that, in
most cases, a financial holding company
may, without providing prior notice to
or obtaining prior approval from the
Board, conduct an activity that is
financial in nature or incidental to a
financial activity (a ‘‘financial activity’’).
A financial holding company may
conduct a financial activity by engaging
directly in the activity or by acquiring
and retaining the shares of any company
that is engaged exclusively in one or
more financial activities. A financial

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holding company may conduct a
financial activity at any location inside
or outside of the United States, subject
to the laws of the jurisdiction in which
the activity is conducted.
Subsection (a)(2) and (3) provide that
a financial holding company may
control or acquire more than 5 percent
of the voting shares of a company that
is not engaged exclusively in financial
activities that are permissible for a
financial holding company. Under
paragraph (2), a financial holding
company may acquire control or shares
of a company that, in addition to
financial activities, engages in other
activities permissible for the acquiring
financial holding company. In this case,
the financial holding company must
comply with any approval, notice or
other requirement that governs the other
activities. Paragraph (3) would allow
acquisitions of a company with some
impermissible activities, in keeping
with the Board’s prior practice regarding
bank holding company acquisitions of
companies that were not engaged
exclusively in activities that were
permissible for bank holding
companies.
The acquisition of a company with
limited impermissible activities must
meet three requirements. First, the
acquired company must be engaged
substantially in financial activities and
other activities permissible for the
financial holding company. A financial
holding company that is uncertain about
whether a proposed acquisition meets
this standard should consult with the
Board. Second, in the postcommencement notice provided by the
financial holding company to the Board
regarding the acquisition, the financial
holding company must commit to
terminate or divest the impermissible
activities, and the company must
complete the divestiture or termination
within two years of the acquisition.
Finally, after being acquired by a
financial holding company, the
company engaged in impermissible
activities may not engage in or acquire
a company engaged in any activity that
is not permissible for the financial
holding company.
Subsection (c) identifies two
circumstances under which Board
approval still is required to engage in
financial activities. First, prior approval
in accordance with section 4(j) of the
BHC Act and § 225.24 of Regulation Y
is required to acquire more than 5
percent of the shares or control of a
savings association.1 In addition, the
1 The GLB Act did not change in any way the
requirement that a company receive prior approval

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Federal Register / Vol. 65, No. 53 / Friday, March 17, 2000 / Rules and Regulations
Board may, in the exercise of its
supervisory authority, require a
financial holding company to provide
prior notice to or obtain prior approval
from the Board if circumstances
warrant.
Section 225.86—What Activities Are
Permissible for Financial Holding
Companies?
This section consolidates in one place
a description of all activities that the
GLB Act defines as financial in nature.
Subsection (a) states that financial
holding companies may engage in any
activity that the Board had found to be
closely related to banking under section
4(c)(8) of the BHC Act by a regulation
or order that is in effect on November
12, 1999. Subsection (a)(1) provides a
cross reference to § 225.28, which
contains a list of the relevant activities
approved by regulation. Subsection
(a)(2) lists activities that have been
found by Board order in effect on
November 12, 1999, to be closely related
to banking but that are not otherwise
included in the statutory list of
permissible financial activities. For
example, section 20 activities are not
included in the list of activities
approved by order because securities
underwriting, dealing, and market
making now is authorized for financial
holding companies in a broader form at
section 4(k)(4)(E) of the BHC Act. The
Board specifically requests comment on
whether there are other activities
approved only by Board order that
should be listed in § 225.86(a)(2), and
whether the scope of any listed activity
should be clarified.
All activities in which a financial
holding company engages pursuant to
subsection (a) must be conducted
subject to the terms and conditions
contained in Regulation Y and in the
Board orders authorizing the activities.
Bank holding companies that are not
financial holding companies may
continue to seek approval to engage in
any activity that the Board determined
by regulation or order in effect on
November 12, 1999, to be closely related
to banking. These bank holding
companies must continue to use the
prior notice and approval procedures
listed at §§ 225.22 to 225.24.
Section 4(k)(4)(G) of the BHC Act
defines as financial in nature any
activity in which a bank holding
company may engage outside the United
States and that the Board has
determined in regulations prescribed or
interpretations issued under section
(4)(c)(13) of the BHC Act that are in
of the Board under section 3 of the BHC Act before
acquiring shares or control of a bank.

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effect on November 11, 1999, to be usual
in connection with the transaction of
banking or other financial services
abroad. Section 225.86(b) lists the three
activities that have been found by the
Board to be usual in connection with
the transaction of banking or other
financial operations abroad as listed in
Regulation K (see 12 CFR 211.5(d)) that
are not otherwise permissible for a bank
holding company under the Board’s
Regulation Y or included on the
statutory list of financial activities.
These activities are management
consulting services, operating a travel
agency, and organizing, sponsoring, or
managing a mutual fund.
In each case, the rule describes certain
limitations that apply to the conduct of
the activity. In the case of management
consulting services, the services may be
provided to any person on nonfinancial
matters. However, the services must be
advisory and not allow the financial
holding company to control the person
to whom the services are provided.
A financial holding company may
also operate a travel agency in
connection with financial services
offered by the holding company or by
others. Finally, a fund organized,
sponsored or managed by a financial
holding company may not exercise
managerial control over the companies
in which the fund invests and the
financial holding company must reduce
its ownership of the fund, if any, to less
than 25 percent of the equity of the fund
within one year of sponsoring the fund
(or such additional period as the Board
permits).
The remainder of the activities listed
at § 211.5(d) have been either (1)
authorized for financial holding
companies in a broader form by the GLB
Act (e.g., underwriting, distributing, and
dealing in securities and underwriting
various types of insurance); or (2)
authorized in the same or a broader
form in Regulation Y (e.g., data
processing activities, real and personal
property leasing, and acting as agent,
broker, or adviser in leasing property).
The Board notes that section 4(k)(4)(G)
of the Act and this interim rule only
authorize financial holding companies
to engage in the activities that are listed
in § 211.5(d) of Regulation K as
interpreted by the Board, not in
activities that the Board has approved in
individual orders under section 4(c)(13).
Subsection (c) incorporates by
reference the remaining activities
authorized by section 4(k)(4) of the BHC
Act. Those activities include activities
that previously have not been
permissible for bank holding
companies, such as acting as principal,
agent, or broker for purposes of

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14435

insuring, guaranteeing, or indemnifying
against loss, harm, damage, illness,
disability, or death, and issuing annuity
products. Permissible insurance
activities as principal include reinsuring
insurance products. A financial holding
company acting under that section may
conduct insurance activities without
regard to the restrictions on the
insurance activities imposed on bank
holding companies under section
4(c)(8).
The GLB Act also authorizes
underwriting, dealing in, and making a
market in securities without regard to
whether such securities may be sold by
a bank. This activity includes
underwriting or distributing shares of
open-end investment companies
commonly referred to as mutual funds.
Securities underwriting activities
conducted under section 4(k)(4)(E)
rather than section 4(c)(8) may be
conducted without regard to the 25
percent revenue limitation that is
applicable to section 20 subsidiaries of
bank holding companies that engage in
securities underwriting and dealing
under section 4(c)(8). In addition,
dealing may be done without regard to
the 5 percent limitation on ownership of
voting securities.
In a separate proposal, the Board has
determined that the operating standards
applicable to section 20 companies do
not apply to financial holding
companies that engage in securities
underwriting, dealing, and market
making under section 4(k)(4)(E) of the
BHC Act with two exceptions. First,
intra-day extensions of credit to a
securities firm from an affiliated bank or
thrift or U.S. branch or agency of a
foreign bank must be on market terms
consistent with section 23B of the
Federal Reserve Act (‘‘FRA’’). Second,
the limitations of sections 23A and 23B
of the FRA apply to covered
transactions between a U.S. branch or
agency of a foreign bank and a U.S.
securities affiliate. The operating
standards and revenue limit continue to
apply to bank holding companies that
are not financial holding companies,
and to financial holding companies that
continue to conduct securities activities
pursuant to section 4(c)(8) of the BHC
Act.
In cases where a financial holding
company already has approval under
section 4(c)(8) to engage in an activity
now available in an expanded scope
under section 4(k), the company must
provide the Board with a postcommencement notice as described in
§ 225.87 informing the Board that the
company has expanded the scope of the
activity in accordance with section 4(k).
Unless otherwise notified by the Board,

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the financial holding company may then
conduct the activity subject to the
limitations set forth in section 4(k)(4)(A)
through (E), § 225.86 and other
applicable laws governing the activity.
Any financial holding company that
feels it needs specific relief from a
commitment or condition to conduct an
activity in accordance with section
4(k)(4) may request in writing a
determination that the condition or
commitment is no longer appropriate.
The Board specifically seeks comment
on the types of commitments and
conditions the Board has imposed on
financial holding companies under
section 4(c)(8) that may hinder their
ability to conduct expanded activities
under section 4(k)(4).
The Board reminds financial holding
companies that commitments and
conditions that relate to activities for
which the GLB Act has not provided
any additional authority, such as data
processing, remain in effect. Moreover,
the Board notes that this action does not
relieve any financial holding company
of its obligation to conduct each activity
in accordance with relevant state and
federal law governing the activity.
Should a company that has notified
the Board that the company has
expanded a section 4(c)(8) activity
consistent with section 4(k)(4) choose at
a later date to conduct the activity under
section 4(c)(8), the company should
consult with Board staff to determine
the conditions under which the activity
should be conducted.
The GLB Act also allows a financial
holding company to engage in merchant
banking activities. This activity involves
directly or indirectly acquiring shares,
assets, or ownership interests of a
company engaged in an activity that is
impermissible for a financial holding
company, whether or not that interest
constitutes control of the company. The
Board and the Secretary of the Treasury
have separately proposed interim rules
regarding the conduct of this activity
that are separate from this rule.
The GLB Act requires the Board to
define the extent to which three
activities listed in section 4(k)(5) of the
BHC Act are financial in nature or
incidental to a financial activity. The
Board expects to initiate a rulemaking to
provide further guidance concerning the
4(k)(5) activities in the near future.
An activity that is not described in the
list of activities and references in this
section is not a financial activity unless
the Board, in consultation with the
Treasury, determines that the activity is
financial in nature or incidental to a
financial activity. The procedures for
obtaining a Board determination are
described in detail in the analysis of

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Section 225.88—How To Request the
Board To Determine That an Activity Is
Financial in Nature or Incidental to a
Financial Activity?

§ 225.88 below. That section also
contains a procedure by which a
financial holding company that is
uncertain about the scope of an
authorized activity may request an
advisory opinion from the Board.
Section 225.87—Is Notice to the Board
Required After Engaging in a Financial
Activity?
Section 4(k)(6)(A) of the BHC Act
generally provides that a financial
holding company may engage in
financial activities or acquire companies
engaged in financial activities pursuant
to section (4)(k)(4) by providing the
Board with a written notice that
describes the activity commenced or the
name of and activity conducted by the
acquired company, as appropriate,
within 30 days of commencing the
activity or consummating the
acquisition.
Section 225.87 implements the postcommencement notice procedure for
applicable activities commenced
pursuant to section 4(k)(4). As a general
matter, § 225.87(a) states that financial
holding companies engaging in
activities and making acquisitions listed
in § 225.86 need only provide a simple
written notice to the appropriate Federal
Reserve Bank within 30 days after
commencing the activity or making the
acquisition. The notice must describe
the activity commenced and the
subsidiaries engaged in the activity, or
identify the company acquired and
describe the activities such company
conducts, as relevant.
Subsection (b) describes two
circumstances in which no notice to the
Board is required in order to engage in
an activity. First, no notice to the Board
is required when a financial holding
company acquires shares of a company
without acquiring control of the
company. The second exception applies
to a financial holding company that is
engaged in securities activities under
4(k)(4)(E), that makes merchant banking
investments under 4(k)(4)(H), or that
makes insurance company investments
under 4(k)(4)(I) and has provided the
System with the appropriate notice
regarding the relevant activity. Under
those circumstances, the company need
only submit a notice in connection with
the acquisition of the shares of any
company as part of the securities,
merchant banking or insurance
investment activity if the cost of the
acquisition exceeds the lesser of 5
percent of the financial holding
company’s Tier 1 capital or $200
million.

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The GLB Act provides that the Board
may determine that activities are
financial in nature or incidental to
financial activities after consulting with
the Secretary of the Treasury.
Subsection (a) provides that requests for
a determination that a new activity is a
financial activity may be made by a
financial holding company or by any
other interested party.
A request for a determination that an
activity is financial in nature or
incidental to a financial activity must
identify and define the activity for
which the determination is sought. The
request must also provide specific
information about what the activity
would involve and how it would be
conducted, and explain in detail why
the activity should be considered
financial in nature or incidental to a
financial activity. Importantly, the
request must provide information that is
sufficient to support a Board finding
that the activity is financial. The request
also must provide any additional
information required by the Board.
On receiving a request, the Board will
provide the Secretary of the Treasury
with a copy of the proposal and consult
with the Secretary in accordance with
section 4(k)(2) of the BHC Act. The
Board also may request public comment
on the proposal. The Board will
endeavor to act on all requests for a
determination within 60 days of
completion of the consultative process
and the close of the public comment
period, if applicable. The Board’s initial
determination regarding a particular
activity will clarify whether a financial
holding company that subsequently
seeks to engage in the activity may do
so using the post-commencement notice
procedure of § 225.87, or whether a
different notification or approval
requirement applies.
Section 225.88(e) establishes a
procedure by which financial holding
companies may request from the Board
an advisory opinion concerning whether
a specific proposed activity falls within
the scope of an activity that is
permissible for a financial holding
company. Such requests must be in
writing and must provide detailed
information about the proposed activity,
including an explanation that supports
a finding that the activity is within the
scope of a permissible activity. The
Board will provide an advisory opinion
to the requester within 45 days of
receiving a complete written request.

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Section 225.89—How To Request
Approval To Engage in an Activity That
Is Complementary to a Financial
Activity?

The Board invites comment on all
aspects of the interim rule, and
particularly on the items specifically
identified in the foregoing discussion.

The GLB Act provides that a financial
holding company may engage in an
activity that the Board determines to be
complementary to a financial activity.
The legislative history of the GLB Act
suggests that complementary activities
are activities that are closely associated
with a financial activity or that are
normally conducted with or flow from
a financial activity. However, the GLB
Act itself does not define what qualifies
as a complementary activity. The Board
therefore requests comment on the
definition of the term of
‘‘complementary activity.’’
The GLB Act provides that a financial
holding company must obtain prior
Board approval in accordance with
section 4(j) of the BHC Act to engage in
or acquire a company engaged in any
activity that the financial holding
company believes to be complementary
to a financial activity. In addition to
applying the standards under section
4(j), the Board must determine that the
activity is complementary to a financial
activity and would not pose a
substantial risk to the safety or
soundness of depository institutions or
the financial system generally.
Section 225.87(b) implements this
requirement by requiring that a request
for prior approval to engage in a
complementary activity provide a
detailed description of the proposed
complementary activity (including the
projected scope and relative size of the
activity), identify the particular
financial activity for which the
proposed activity would be
complementary, and provide a detailed
explanation for why the proposed
activity should be considered
complementary to a financial activity.
The request also must discuss the
impact of the proposed activity on the
safety and soundness of depository
institutions controlled by the financial
holding company and on the financial
system generally. In addition, the
request must describe the potential
adverse effects that conducting the
activity could raise and explain
measures the financial holding company
intends to take to address those
concerns. Requests regarding
complementary activities also must
include any financial, managerial, and
other information required by the Board.
The Board will act on requests to engage
in complementary activities within the
time period described in section 4(j) of
the BHC Act.

Section 225.24—Procedures for Other
Nonbanking Proposals
The Board has deleted the existing
text of subsection (a)(3), which
discusses the information requirements
for proposals to engage in activities that
are not listed in § 225.28. The GLB Act
amends section 4(c)(8) to remove the
Board’s authority to authorize
additional nonbanking activities for
bank holding companies under that
section. Therefore, subsection (a)(3) is
unnecessary and has been deleted.

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Regulatory Flexibility Act
In accordance with section 3(a) of the
Regulatory Flexibility Act (5 U.S.C.
603(a)), the Board must publish an
initial regulatory flexibility analysis
with this interim regulation. This rule
implements the provisions of Title I of
the GLB Act that allow financial holding
companies to engage in a broad range of
financial activities by using a
streamlined notification procedure. In
most cases, the company need only
provide the Board a brief written notice
that identifies the activity commenced
and the subsidiary that conducts the
activity within 30 days of commencing
an activity.
In addition, the rule establishes
procedures by which a party can request
that the Board determine additional
activities are financial in nature or
incidental to a financial activity and
procedures by which a financial holding
company can seek approval to engage in
an activity it proposes to be
complementary to a financial activity.
These provisions are designed to require
only the information necessary for the
Board to evaluate the status of a
proposed activity.
The procedures described in this rule
apply only to bank holding companies
that voluntarily elect to be financial
holding companies, and those
procedures apply to all financial
holding companies regardless of their
size. For financial holding companies
that seek to engage in activities that
previously were permissible under
section 4(c)(8) of the BHC Act, the
procedures described in this rule
represent a reduction in the amount of
paperwork required to engage in such
activities. In addition, the notification
procedures applicable to financial
holding companies and the procedures
for requesting the Board to determine
that an activity is complementary are
specified by the GLB Act itself. The
Board has attempted in this rule to

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14437

implement the requirements of the
statute by requiring from a financial
holding company only that information
that is necessary for the Board to
discharge its statutory responsibility.
The Board specifically requests
comment on the likely burden this
interim rule will impose on financial
holding companies that seek to engage
in financial activities or to propose that
the Board authorize additional activities
as permissible for a financial holding
company.
Administrative Procedure Act
The Board will make this interim rule
effective on March 11, 2000, without
first reviewing public comments.
Pursuant to 5 U.S.C. 553, the Board
finds that it is impracticable to review
public comments prior to the effective
date of the interim rule and that there
is good cause to make the rule effective
on March 11, 2000. Specifically, the rule
sets forth requirements relating to
activities that are permissible for
financial holding companies as of
March 11, 2000, due to statutory
changes that become effective on that
date. The Board is seeking comment on
the interim rule and will amend the rule
as appropriate after reviewing all
comments it receives.
Paperwork Reduction Act
In accordance with section 3506 of
the Paperwork Reduction Act of 1995
(44 U.S.C. Ch. 35; 5 CFR 1320 Appendix
A.1), the Board reviewed the proposed
rule under the authority delegated to the
Board by the Office of Management and
Budget.
The collection of information
requirements in this proposed
rulemaking are found in 12 CFR 225.87,
225.88, and 225.89. This information is
required to evidence compliance with
the requirements of Title I of the
Gramm-Leach-Bliley Act (Pub. L. 106–
103, 113 Stat. 1338 (1999)) which
amends section 4 of the Bank Holding
Company Act (12 U.S.C. 1843). The
respondents are financial holding
companies.
The notice cited in 12 CFR 225.87(a)
provides that a financial holding
company that commences an activity or
acquires shares of a company engaged in
an activity listed in § 225.86, must
notify the appropriate Federal Reserve
Bank in writing within 30 calendar
days. See 12 CFR 225.87(a) for specific
details on the content of the notice. The
Federal Reserve estimates that financial
holding companies will make 500
filings of this notice annually and that
it would take approximately 1 hour to
complete this notification. This would
result in an estimated annual burden of

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500 hours. Based on a rate of $20 per
hour, the annual cost to the public for
this information collection would be
$10,000.
Financial holding companies
requesting the Board’s determination
that an activity is financial in nature or
incidental to a financial activity must
provide to the Board the information
described in 12 CFR 225.88(b).
Financial holding companies may
request an advisory opinion from the
Board about whether a specific
proposed activity falls within the scope
of an activity listed in 12 CFR 225.86 as
financial in nature or incidental to a
financial activity by submitting the
information described in 12 CFR
225.88(e). Financial holding companies
that seek prior approval to engage in an
activity that the financial holding
company believes is complementary to
a financial activity must provide to the
Board the information identified in 12
CFR 225.89(a). The Federal Reserve
estimates that only 25 financial holding
companies would file the information
requested in these sections annually and
that it would take approximately 1 hour
to complete each information collection.
This would result in estimated annual
burden of 25 hours. Based on a rate of
$20 per hour, the annual cost to the
public for this information collection
would be $500.
The Board requests comment on the
accuracy of these burden estimates.
These notifications and requests will
have no formal reporting form and may
be submitted in the form of a letter.
They will be assigned the agency form
number FR 4012. The Federal Reserve
may not conduct or sponsor, and an
organization is not required to respond
to, these information collections unless
they display currently valid OMB
control numbers. The OMB control
number for these information
collections will be 7100–0292.
A bank holding company may request
confidentiality for the information
contained in these information
collections pursuant to section (b)(4)
and (b)(6) of the Freedom of Information
Act (5 U.S.C. 552(b)(4) and (b)(6)).
Comments are invited on: (a) Whether
the collections of information are
necessary for the proper performance of
the Federal Reserve’s functions,
including whether the information has
practical utility; (b) the accuracy of the
Federal Reserve’s estimate of the burden
of the information collections, including
the cost of compliance; (c) ways to
enhance the quality, utility, and clarity
of the information to be collected; and
(d) ways to minimize the burden of
information collections on respondents,
including through the use of automated

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2. In § 225.24, remove paragraph
(a)(3).
3. In subpart I, add §§ 225.85 through
225.89 to read as follows:
§ 225.85 Is notice to or approval from the
Board required prior to engaging in a
financial activity?

(a) No prior approval required
generally—(1) In general. A financial
holding company and any subsidiary
(other than a depository institution or
subsidiary of a depository institution) of
the financial holding company may
engage in any activity listed in § 225.86,
or acquire control or shares of a
company engaged exclusively in any
activity listed in § 225.86, without
providing prior notice to or obtaining
prior approval from the Board unless
required under paragraph (c) of this
section.
(2) May a financial holding company
acquire a company engaged in other
permissible activities? In addition to the
activities listed in § 225.86, a company
acquired or to be acquired by a financial
holding company under paragraph (a)(1)
of this section may engage in activities
otherwise permissible for a financial
holding company under this part in
accordance with any applicable notice,
approval, or other requirement.
(3) May a financial holding company
acquire a financial company engaged in
limited nonfinancial activities? A

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financial holding company may control
or acquire more than 5 percent of the
voting shares of a company that is not
engaged exclusively in activities that are
financial in nature or incidental to a
financial activity or otherwise
permissible for a financial holding
company if:
(i) Substantially all of the activities
conducted by the company are financial
in nature, incidental to a financial
activity, or otherwise permissible for the
financial holding company;
(ii) As part of the notice provided
under § 225.87, the financial holding
company commits to the Board to
terminate or divest all activities that are
not financial in nature or incidental to
a financial activity or otherwise
permissible for the financial holding
company and the financial holding
company completes that termination or
divestiture within 2 years of the date the
financial holding company acquires the
company; and
(iii) Following the acquisition of the
company by the financial holding
company, the company does not engage
in or acquire shares of any company
engaged in any activity that is not
permissible for the financial holding
company.
(b) In what locations may a financial
holding company conduct financial
activities? A financial holding company
may conduct any activity listed in
§ 225.86 at any location in the United
States or at any location outside of the
United States subject to the laws of the
jurisdiction in which the activity is
conducted.
(c) Under what circumstances is prior
notice to the Board required? (1)
Acquisition of more than 5 percent of
the shares of a savings association. A
financial holding company must obtain
Board approval in accordance with
section 4(j) of the Bank Holding
Company Act (12 U.S.C. 1843(j)) and
either § 225.23 or § 225.24, as
appropriate, prior to acquiring control
or more than 5 percent of the voting
shares of a savings association.
(2) Supervisory actions. The Board
may, if appropriate in supervisory cases,
including under § 225.82(d) or
§ 225.83(d) or other relevant authority,
require a financial holding company to
provide prior notice to or obtain prior
approval from the Board to engage in
any activity or acquire shares or control
of any company.
§ 225.86 What activities are permissible for
financial holding companies?

The following activities are financial
in nature or incidental to a financial
activity:

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(a) Activities that were closely related
to banking. (1) Any activity that the
Board had determined by regulation
prior to November 12, 1999, to be so
closely related to banking as to be a
proper incident thereto, subject to the
terms and conditions contained in this
part, unless modified by the Board.
These activities are listed in § 225.28.
(2) Any activity that the Board had
determined by an order that was in
effect on November 12, 1999, to be so
closely related to banking as to be a
proper incident thereto, subject to the
terms and conditions contained in this
part and those in the authorizing orders.
These activities are:
(i) Providing administrative and other
services to mutual funds (see, e.g.,
Societe Generale, 84 Federal Reserve
Bulletin 680 (1998));
(ii) Owning shares of a securities
exchange (J.P. Morgan & Co, Inc., and
UBS AG, 86 Federal Reserve Bulletin 61
(2000));
(iii) Acting as a certification authority
for digital signatures (Bayerische Hypound Vereinsbank AG, et.al., 86 Federal
Reserve Bulletin 56 (2000));
(iv) Providing employment histories
to third parties for use in making credit
decisions and to depository institutions
and their affiliates for use in the
ordinary course of business (Norwest
Corporation, 81 Federal Reserve
Bulletin 732 (1995));
(v) Check cashing and wire
transmission services (Midland Bank,
PLC, 76 Federal Reserve Bulletin 860
(1990) (check cashing); Norwest
Corporation, 81 Federal Reserve
Bulletin 1130 (1995) (money
transmission));
(vi) In connection with offering
banking services, providing notary
public services, selling postage stamps
and postage-paid envelopes, providing
vehicle registration services, and selling
public transportation tickets and tokens
(Popular, Inc., 84 Federal Reserve
Bulletin 481 (1998)); and
(vii) Real estate title abstracting (The
First National Company, 81 Federal
Reserve Bulletin 805 (1995)).
(b) Activities that are usual in
connection with the transaction of
banking abroad. Any activity that the
Board has determined by regulation in
effect on November 11, 1999, to be usual
in connection with the transaction of
banking or other financial operations
abroad (see § 211.5(d) of this chapter),
subject to the terms and conditions in
part 211 and Board interpretations in
effect on that date regarding the scope
and conduct of the activity. In addition
to the activities listed in paragraphs (a)
and (c) of this section, these activities
are:

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(1) Providing management consulting
services, including to any person with
respect to nonfinancial matters, so long
as the management consulting services
are advisory and do not allow the
financial holding company to control
the person to which the services are
provided;
(2) Operating a travel agency in
connection with financial services
offered by the financial holding
company or others; and
(3) Organizing, sponsoring, and
managing a mutual fund, so long as:
(i) The fund does not exercise
managerial control over the entities in
which the fund invests; and
(ii) The financial holding company
reduces its ownership in the fund, if
any, to less than 25 percent of the equity
of the fund within one year of
sponsoring the fund or such additional
period as the Board permits.
(c) Activities permitted under section
4(k)(4) of the Bank Holding Company
Act (12 U.S.C. 1843(k)(4)). Any activity
defined to be financial in nature under
sections 4(k)(4)(A) through (E), (H) and
(I) of the Bank Holding Company Act
(12 U.S.C. 1843(k)(4)(A) through (E) (H)
and (I)).
§ 225.87 Is notice to the Board required
after engaging in a financial activity?

(a) Post-commencement notice is
generally required to engage in a
financial activity. A financial holding
company that commences an activity or
acquires shares of a company engaged in
an activity listed in § 225.86 must notify
the appropriate Federal Reserve Bank in
writing within 30 calendar days after
commencing the activity or
consummating the acquisition. The
notice must describe, as relevant:
(1) The activity commenced and the
identity of each subsidiary engaged in
the activity; or
(2) The identity of the company
acquired and the activities conducted by
the company.
(b) Are there any cases in which
notice to the Board is not required?
(1) Acquisitions that do not result in
control of a company. A notice under
paragraph (a) of this section is not
required to acquire shares of a company
if, following the acquisition, the
financial holding company does not
control the company.
(2) Conduct of certain investment
activities. Except as otherwise provided
in this part or as determined by the
Board in the exercise of its supervisory
authority, no post-commencement
notice is required as part of the conduct
by a financial holding company or its
subsidiary of:
(i) Securities underwriting, dealing, or
market making activities as described in

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section 4(k)(4)(E) of the Bank Holding
Company Act (12 U.S.C. 1843(k)(4)(E));
(ii) Merchant banking activities
conducted pursuant to section 4(k)(4)(H)
of the Bank Holding Company Act (12
U.S.C. 1843(k)(4)(H)), except as
provided in § 225.174(d); or
(iii) Insurance company investment
activities conducted pursuant to section
4(k)(4)(I) of the Bank Holding Company
Act (12 U.S.C. 1843(k)(4)(I)), so long as
the financial holding company provides
the notice described in § 225.174(d) in
connection with any insurance
company investment that meets the
thresholds in that section.
(3) Condition for exceptions. The
exception provided in paragraph (b)(2)
of this section applies only if the
financial holding company previously
has provided notice to the Board under
paragraph (a) of this section that the
financial holding company has
commenced or acquired control of a
company engaged in the relevant
activity for which an exception is
claimed.
§ 225.88 How to request the Board to
determine that an activity is financial in
nature or incidental to a financial activity?

(a) Requests regarding activities that
may be financial in nature or incidental
to a financial activity. A financial
holding company or other interested
party may request a determination from
the Board that an activity not listed in
§ 225.86 is financial in nature or
incidental to a financial activity.
(b) What information must the request
contain? A request submitted under this
section must be in writing and must:
(1) Identify and define the activity for
which the determination is sought,
specifically describing what the activity
would involve and how the activity
would be conducted;
(2) Explain in detail why the activity
should be considered financial in nature
or incidental to a financial activity; and
(3) Provide information supporting
the requested determination and any
other information required by the Board
concerning the proposed activity.
(c) What action will the Board take
after receiving a request? (1)
Consultation with the Secretary of the
Treasury. Upon receipt of the request,
the Board will provide the Secretary of
the Treasury a copy of the request and
consult with the Secretary in
accordance with section 4(k)(2)(A) of
the Bank Holding Company Act (12
U.S.C. 1843(k)(2)(A)).
(2) Public notice. The Board may, as
appropriate and after consultation with
the Secretary, publish a description of
the proposal in the Federal Register
with a request for public comment.

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(d) When will the Board act on a
request? The Board will endeavor to
make a decision on any request filed
under paragraph (a) of this section
within 60 days following the
completion of both the consultative
process described in paragraph (c)(1) of
this section and the public comment
period, if any.
(e) What should a financial holding
company do if it has a question about
the scope of a financial activity? (1)
Written request. A financial holding
company may request an advisory
opinion from the Board about whether
a specific proposed activity falls within
the scope of an activity listed in
§ 225.86 as financial in nature or
incidental to a financial activity. The
request must be submitted in writing
and must contain:
(i) A detailed description of the
particular activity in which the
company proposes to engage or the
product or service the company
proposes to provide;
(ii) An explanation supporting an
interpretation regarding the scope of the
permissible financial activity; and
(iii) Any additional information
requested by the Board regarding the
activity.
(2) Board response. The Board will
provide an advisory opinion within 45
days of receiving a complete written
request under paragraph (b) of this
section.
§ 225.89 How to request approval to
engage in an activity that is complementary
to a financial activity?

(a) Prior Board approval is required.
A financial holding company that seeks
to engage in or acquire a company
engaged in an activity that the financial
holding company believes is
complementary to a financial activity
must obtain prior approval from the
Board in accordance with section 4(j) of
the Bank Holding Company Act (12
U.S.C. 1843 (j)). The notice must be in
writing and must:
(1) Identify and define the proposed
complementary activity, specifically
describing what the activity would
involve and how the activity would be
conducted;
(2) Identify the financial activity for
which the proposed activity would be
complementary and provide
information sufficient to support a
finding that the proposed activity
should be considered complementary to
the identified financial activity;
(3) Describe the scope and relative
size of the proposed activity, as
measured by the percentage of the
projected financial holding company
revenues expected to be derived from

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and assets associated with conducting
the activity;
(4) Discuss the risks that conducting
the activity may reasonably be expected
to pose to the safety and soundness of
the subsidiary depository institutions of
the financial holding company and to
the financial system generally;
(5) Describe the potential adverse
effects, including potential conflicts of
interest, decreased or unfair
competition, or other risks, that
conducting the activity could raise, and
explain the measures the financial
holding company proposes to take to
address those potential effects; and
(6) Provide any information about the
financial and managerial resources of
the financial holding company and any
other information requested by the
Board.
(b) What standards will the Board
apply in evaluating the notice? In
evaluating a notice to engage in a
complementary activity, the Board must
consider whether:
(1) The proposed activity is
complementary to a financial activity;
(2) The proposed activity would pose
a substantial risk to the safety or
soundness of depository institutions or
the financial system generally; and
(3) The proposal meets the standards
in section 4(j)(2) of the Bank Holding
Company Act (12 U.S.C. 1843(j)(2)).
(c) How and when will the Board act
on a notice? The Board will inform the
financial holding company in writing of
the Board’s determination regarding the
proposed activity within the period
described in section 4(j) of the Bank
Holding Company Act (12 U.S.C.
1843(j)).
By order of the Board of Governors of the
Federal Reserve System, March 10, 2000.
Dated: March 10, 2000.
Robert deV. Frierson,
Associate Secretary of the Board.
[FR Doc. 00–6469 Filed 3–16–00; 8:45 am]
BILLING CODE 6210–01–P

FEDERAL RESERVE SYSTEM
12 CFR Part 225
[Regulation Y; Docket No. R–1063]

Bank Holding Companies and Change
in Bank Control; Securities
Underwriting, Dealing, and MarketMaking Activities of Financial Holding
Companies
AGENCY: Board of Governors of the
Federal Reserve System.
ACTION: Interim rule with request for
public comments.

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SUMMARY: Underwriting, dealing in, and
making a market in securities are
financial activities permissible for
financial holding companies under the
Gramm-Leach-Bliley Act. Bank holding
companies may currently engage in
these activities only to a limited extent
through so-called section 20
subsidiaries. Under the Board’s current
rules, section 20 subsidiaries are subject
to eight operating standards imposed by
the Board in order to address certain
potential risks and conflicts associated
with the affiliation of a bank and a
securities firm.
The Board is adopting this interim
rule to impose two of these operating
standards on financial holding
companies engaged in securities
underwriting, dealing or market-making
activities. Under the interim rule, intraday extensions of credit by a bank or
thrift, or U.S. branch or agency of a
foreign bank, to a securities affiliate
engaged in securities underwriting,
dealing, or market-making must be on
market terms. In addition, foreign banks
that are financial holding companies or
that are treated as financial holding
companies will be required to comply
with certain affiliate transaction
restrictions with respect to lending and
securities purchase transactions
between a U.S. branch or agency of a
foreign bank and a securities affiliate
engaged in securities underwriting,
dealing, or market-making.
DATES: The interim rule is effective on
March 11, 2000. Comments must be
received by May 12, 2000.
ADDRESSES: Comments, which should
refer to docket number R–1063, may be
mailed to Ms. Jennifer J. Johnson,
Secretary, Board of Governors of the
Federal Reserve System, 20th Street and
Constitution Avenue, NW., Washington,
DC 20551 or mailed electronically to
regs.comments@federalreserve.gov.
Comments addressed to Ms. Johnson
also may be delivered to the Board’s
mail room between the hours of 8:45
a.m. and 5:15 p.m. and, outside of those
hours, to the Board’s security control
room. Both the mail room and the
security control room are accessible
from the Eccles Building courtyard
entrance, located on 20th Street between
Constitution Avenue and C Street, NW.
Members of the public may inspect
comments in Room MP–500 of the
Martin Building between 9 a.m. and 5
p.m. on weekdays.
FOR FURTHER INFORMATION CONTACT:
Thomas Corsi, Managing Senior
Counsel, Legal Division (202) 452–3275;
Michael J. Schoenfeld, Senior
Supervisory Financial Analyst, Division
of Banking Supervision and Regulation

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Federal Register / Vol. 65, No. 53 / Friday, March 17, 2000 / Rules and Regulations
(202) 452–2836; for the hearing
impaired only, Telecommunications
Device for the Deaf (TDD), Janice Simms
(202) 872–4984.
SUPPLEMENTARY INFORMATION: The
Gramm-Leach-Bliley Act differs from
prior regulatory and statutory schemes
in the manner that it addresses potential
risks to a depository institution
associated with securities and other
activities conducted by affiliates. The
current section 20 operating standards,1
like the bills to repeal the Glass-Steagall
Act that were considered in the late
1980s and early 1990s contain detailed
restrictions on relationships and
transactions between depository
institutions and securities affiliates. The
Gramm-Leach-Bliley Act relies instead
on requirements that each depository
institution affiliated with a securities
firm be and remain well capitalized and
well managed. The Gramm-Leach-Bliley
Act also relies on functional regulation
of the securities firm by the SEC, full
supervision of the depository institution
by the appropriate federal banking
agency, and umbrella supervision of the
overall organization by the Board to
identify and address potential risks to
the depository institution associated
with the securities and other activities
in the organization.
The Gramm-Leach-Bliley Act grants
the Board authority to impose
restrictions or requirements on
relationships or transactions between a
depository institution and any affiliate.
The Board may impose a prudential
limitation if the Board finds that the
limitation is appropriate to avoid a
significant risk to the safety and
soundness of the depository institution
or the Federal deposit insurance funds,
to avoid other adverse effects or to
prevent evasions of the banking laws.2
The Board believes that most of the
concerns that are raised by the
affiliation of a securities firm with a
financial holding company are
addressed by the requirements of the
Gramm-Leach-Bliley Act, other banking
laws and regulations, and securities
laws and regulations.
Two concerns that the Board believes
are not addressed by current law or
regulation relate to intra-day extensions
of credit to a securities firm by an
affiliated depository insitution, and to
transactions between a U.S. branch or
agency of a foreign bank that elects to
become or be treated as a financial
1 12 CFR 225.200. The operating standards would
continue to apply to section 20 subsidiaries
controlled by bank holding companies that do not
qualify as financial holding companies.
2 Pub. L. No. 106–102, 113 Stat. 1338, 1369–71
(1999).

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10:15 Mar 16, 2000

holding company, and an affiliated
securities firm.
Intra-day extensions of credit: One
operating standard applicable to section
20 subsidiaries (‘‘operating standard 5’’)
requires that intra-day extensions of
credit to a section 20 subsidiary by an
affiliated bank or thrift, or U.S. branch
or agency of a foreign bank be on market
terms consistent with section 23B of the
Federal Reserve Act. In considering
whether to apply this limitation to
financial holding companies, the Board
notes that the Gramm-Leach-Bliley Act
requires the Board, within the next 18
months, to address how the restrictions
in section 23A apply to intra-day
extensions of credit to all affiliates.
Until such time as that effort is
complete, however, the Board believes
that operating standard 5 remains
important to ensure that intra-day
extensions of credit by a depository
institution to an affiliated securities firm
for clearing or other purposes are not
subsidizing the activities of the
securities firm to the detriment of the
depository institution affiliate.
Accordingly, the Board is applying the
limitations in operating standard 5 to
financial holding companies and foreign
banks treated as financial holding
companies to cover intra-day extensions
of credit to their subsidiary securities
firms from their subsidiary banks or
thrifts or U.S. branches or agencies at
least until such time as the analysis
regarding the application of section 23A
to intra-day extensions of credit is
complete.
Transactions with U.S. branches and
agencies of foreign banks: Another
operating standard (‘‘operating standard
8’’) applicable to section 20 subsidiaries
requires that a U.S. branch or agency of
a foreign bank comply with sections
23A and 23B of the Federal Reserve
Act 3 when extending credit to a section
20 affiliate, or when purchasing
securities for which a section 20 affiliate
is a principal underwriter.4 A branch or
agency also may not advertise or suggest
that it is responsible for the obligations
of a section 20 affiliate. Operating
standard 8 permits a branch or agency
of a foreign bank to engage in funding
and securities purchase transactions
with a section 20 affiliate subject to the
same restrictions applicable to a U.S.
depository institution.
The purpose of sections 23A and 23B
of the Federal Reserve Act, which limit
credit and other transactions between a
bank and its affiliate, is to limit the
possibility that the risks of activities
conducted in a nonbank affiliate of a
3 12
4 12

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CFR 225.200(b)(8).

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14441

depository institution be transferred to
the depository institution. The Board
originally applied lending restrictions to
transactions between U.S. branches and
agencies of a foreign bank and a section
20 affiliate as a prudential limitation,
recognizing that U.S. branches and
agencies are part of the U.S. financial
structure.5 In addition, the Board
adopted operating standard 8 because
sections 23A and 23B apply to U.S.
banks and thrifts, and the operating
standard ensures competitive equity
between foreign banks and U.S. banking
organizations in the funding of section
20 affiliates. These are the types of
concerns that section 114 of the GrammLeach-Bliley Act would require the
Board to consider in imposing
restrictions on foreign banks that
become financial holding companies.
Under the Gramm-Leach-Bliley Act,
foreign banks, as well as U.S. bank
holding companies, that become
financial holding companies will be
able to engage in a broader range of
securities activities than is permitted
now. In view of this, the prudential and
competitive equity concerns that led the
Board to adopt operating standard 8
would justify applying that prudential
limit in the case of a foreign bank that
becomes a financial holding company.
This restriction would apply only to
transactions between a securities
affiliate that underwrites, deals in, or
makes a market in securities, and a U.S.
branch or agency of a foreign bank, and
not to the foreign bank itself.
Customer disclosures: The Board is
not at this time imposing any customer
disclosure requirements on financial
holding companies with respect to the
activities of a subsidiary securities firm
engaged in securities underwriting,
dealing, or market-making pursuant to
section 4(k)(4)(E) of the BHC Act. To the
extent that the securities firm makes a
sale to a customer on the premises of a
depository institution, or through a
depository institution employee, or as a
result of a referral by a depository
institution, it will be required to make
the disclosures contained in the
Interagency Statement on Retail Sales of
Nondeposit Investment Products
(Interagency Statement).
Whether or not the activities of
subsidiary securities firms of financial
holding companies are covered by the
Interagency Statement, the Board
expects financial holding companies to
take all necessary steps to ensure that
customers are not confused about the
nature of investment products they are
purchasing. If the Board becomes aware
5 See Canadian Imperial Bank of Commerce, et
al., 76 Federal Reserve Bulletin 158, 163 (1990).

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Federal Register / Vol. 65, No. 53 / Friday, March 17, 2000 / Rules and Regulations

that customer confusion is occurring, or
that action is necessary to prevent
abuses, the Board may impose
additional disclosure requirements on
financial holding companies to address
these issues.
Regulatory Flexibility Act
In accordance with the Regulatory
Flexibility Act (5 U.S.C. 601–612), the
Board must publish an initial regulatory
flexibility analysis with this interim
regulation. The purpose of the interim
rule is to address concerns raised by the
affiliation of a securities firm with a
financial holding company that are not
otherwise addressed by current law or
regulation. The rule applies only to
bank holding companies and foreign
banks that voluntarily elect to become
or be treated as financial holding
companies under the Bank Holding
Company Act as amended by the
Gramm-Leach-Bliley Act, and also
engage in certain securities activities.
The interim rule applies to all financial
holding companies regardless of size,
and requires them to comply with
certain restrictions that already apply to
bank holding companies that control
section 20 subsidiaries engaged in
securities activities. The rule applies
fewer restrictions to financial holding
companies seeking to engage in
securities activities than apply to bank
holding companies that control section
20 subsidiaries and thus represents a
reduction in the limitations on engaging
in certain securities underwriting and
dealing activities. The Board
specifically seeks comment on the likely
burden this interim rule will impose on
small business entities and financial
holding companies that seek to engage
in securities activities.
Administrative Procedure Act
The Board will make this interim rule
effective on March 11, 2000 without
first reviewing public comments.
Pursuant to 5 U.S.C. 553, the Board
finds that it is impracticable to review
public comments prior to the effective
date of the interim rule, and that there
is good cause to make the interim rule
effective on March 11, 2000, due to the
fact that the rule sets forth a
requirement relating to activities that
financial holding companies will be
able to engage in on March 11, 2000,
due to statutory changes that become
effective on that date. The Board is
seeking public comment on the interim
rule and will amend the rule as
appropriate after reviewing the
comments.

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16:34 Mar 16, 2000

Paperwork Reduction Act
In accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C. 3506;
5 CFR 1320 Appendix A.1), the Board
reviewed the interim rule under the
authority delegated to the Board by the
Office of Management and Budget. No
collections of information pursuant to
the Paperwork Reduction Act are
contained in the interim rule.
List of Subjects in CFR 12 CFR Part 225
Administrative practice and
procedure, Banks, banking, Federal
Reserve System, Holding companies,
Reporting and recordkeeping
requirements, Securities.
For the reasons set out in the
preamble, the Board amends 12 CFR
part 225 as follows:

DEPARTMENT OF TRANSPORTATION

1. The authority citation for part 225
continues to read as follows:

Federal Aviation Administration

Authority: 12 U.S.C. 1817(j)(13), 1818,
1828(o), 1831(i), 1831p–1, 1843(c)(8),
1844(b), 1972(1), 3106, 3108, 3310, 3331–
3351, 3907, and 3909.

14 CFR Part 95
[Docket No. 29950; Amdt. No. 421]

2. Section 225.4 is amended by
adding a new paragraph (g) to read as
follows:

IFR Altitudes; Miscellaneous
Amendments

Corporate practices.

*
*
*
*
(g) Requirements for financial holding
companies engaged in securities
underwriting, dealing, or market-making
activities. (1) Any intra-day extension of
credit by a bank or thrift, or U.S. branch
or agency of a foreign bank to an
affiliated company engaged in
underwriting, dealing in, or making a
market in securities pursuant to section
4(k)(4)(E) of the Bank Holding Company
Act (12 U.S.C. 1843(k)(4)(E)) must be on
market terms consistent with section
23B of the Federal Reserve Act. (12
U.S.C. 371c–1).
(2) A foreign bank that is or is treated
as a financial holding company under
this part shall ensure that:
(i) Any extension of credit by any U.S.
branch or agency of such foreign bank
to an affiliated company engaged in
underwriting, dealing in, or making a
market in securities pursuant to section
4(k)(4)(E) of the Bank Holding Company
Act (12 U.S.C. 1843(k)(4)(E)), conforms
to sections 23A and 23B of the Federal
Reserve Act (12 U.S.C. 371c and 371c–
1) as if the branch or agency were a
member bank;
(ii) Any purchase by any U.S. branch
or agency of such foreign bank, as
principal or fiduciary, of securities for
which a securities affiliate described in

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By order of the Board of Governors of the
Federal Reserve System, March 10, 2000.
Robert deV. Frierson,
Associate Secretary of the Board.
[FR Doc. 00–6502 Filed 3–16–00; 8:45 am]
BILLING CODE 6210–01–P

PART 225—BANK HOLDING
COMPANY AND CHANGE IN BANK
CONTROL (REGULATION Y)

§ 225.4

paragraph (g)(2)(i) of this section is a
principal underwriter conforms to
sections 23A and 23B of the Federal
Reserve Act (12 U.S.C. 371c and 371c–
1) as if the branch or agency were a
member bank; and
(iii) Its U.S. branches and agencies not
advertise or suggest that they are
responsible for the obligations of a
securities affiliate described in
paragraph (g)(2)(i) of this section,
consistent with section 23B(c) of the
Federal Reserve Act (12 U.S.C. 371c–
1(c)) as if the branches or agencies were
member banks.

AGENCY: Federal Aviation
Administration (FAA), DOT.
ACTION: Final rule.
SUMMARY: This amendment adopts
miscellaneous amendments to the
required IFR (instrument flight rules)
altitudes and changeover points for
certain Federal airways, jet routes, or
direct routes for which a minimum or
maximum en route authorized IFR
altitude is prescribed. This regulatory
action is needed because of changes
occurring in the National Airspace
System. These changes are designed to
provide for the safe and efficient use of
the navigable airspace under instrument
conditions in the affected areas.
EFFECTIVE DATE: 0901 UTC, April 20,
2000.
FOR FURTHER INFORMATION CONTACT:

Donald P. Pate, Flight Procedure
Standards Branch (AMCAFS–420),
Flight Technologies and Programs
Division, Flight Standards Service,
Federal Aviation Administration, Mike
Monroney Aeronautical Center, 6500
South MacArthur Blvd., Oklahoma City,
OK 73169 (Mail Address: P.O. Box
25082, Oklahoma City, OK 73125)
telephone: (405) 954–4164.
SUPPLEMENTARY INFORMATION: This
amendment to part 95 of the Federal
Aviation Regulations (14 CFR part 95)

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Federal Register

Monday
March 20, 2000

Federal Reserve System
12 CFR Part 208
Regulation H; Docket No. R–1064
Membership of State Banking Institutions
in the Federal Reserve System

14810

Federal Register / Vol. 65, No. 54 / Monday, March 20, 2000 / Rules and Regulations

determination with the Office of
Information and Regulatory Affairs,
Office of Management and Budget.
Regulatory Flexibility Certification
In accordance with the Regulatory
Flexibility Act of 1980 (5 U.S.C. 605(b)),
the Commission certifies that this rule
will not, if promulgated, have a
significant economic impact on a
substantial number of small entities.
This rule affects only the licensing and
operation of nuclear power plants,
independent spent fuel storage facilities,
and Transnuclear. The companies that
own these plants do not fall within the
scope of the definition of ‘‘small
entities’’ set forth in the Regulatory
Flexibility Act or the Small Business
Size Standards set out in regulations
issued by the Small Business
Administration at 13 CFR Part 121.
Backfit Analysis
The NRC has determined that the
backfit rule (10 CFR 50.109 or 10 CFR
72.62) does not apply to this rule
because this amendment does not
involve any provisions that would
impose backfits as defined in the backfit
rule. Therefore, a backfit analysis is not
required.
List of Subjects in 10 CFR Part 72
Criminal penalties, Manpower
training programs, Nuclear materials,
Occupational safety and health,
Reporting and recordkeeping
requirements, Security measures, Spent
fuel.
For the reasons set out in the
preamble and under the authority of the
Atomic Energy Act of 1954, as amended;
the Energy Reorganization Act of 1974,
as amended; and 5 U.S.C. 552 and 553;
the NRC is adopting the following
amendments to 10 CFR part 72.
PART 72—LICENSING
REQUIREMENTS FOR THE
INDEPENDENT STORAGE OF SPENT
NUCLEAR FUEL AND HIGH-LEVEL
RADIOACTIVE WASTE
1. The authority citation for Part 72
continues to read as follows:
Authority: Secs. 51, 53, 57, 62, 63, 65, 69,
81, 161, 182, 183, 184, 186, 187, 189, 68 Stat.
929, 930, 932, 933, 934, 935, 948, 953, 954,
955, as amended, sec. 234, 83 Stat. 444, as
amended (42 U.S.C. 2071, 2073, 2077, 2092,
2093, 2095, 2099, 2111, 2201, 2232, 2233,
2234, 2236, 2237, 2238, 2282); sec. 274, Pub.
L. 86–373, 73 Stat. 688, as amended (42
U.S.C. 2021); sec. 201, as amended, 202, 206,
88 Stat. 1242, as amended, 1244, 1246 (42
U.S.C. 5841, 5842, 5846); Pub. L. 95–601, sec.
10, 92 Stat. 2951 as amended by Pub. L. 10d–
48b, sec. 7902, 10b Stat. 31b3 (42 U.S.C.
5851); sec. 102, Pub. L. 91–190, 83 Stat. 853

VerDate 13<MAR>2000

20:03 Mar 17, 2000

(42 U.S.C. 4332); secs. 131, 132, 133, 135,
137, 141, Pub. L. 97–425, 96 Stat. 2229, 2230,
2232, 2241, sec. 148, Pub. L. 100–203, 101
Stat. 1330–235 (42 U.S.C. 10151, 10152,
10153, 10155, 10157, 10161, 10168).
Section 72.44(g) also issued under secs.
142(b) and 148(c), (d), Pub. L. 100–203, 101
Stat. 1330–232, 1330–236 (42 U.S.C.
10162(b), 10168(c),(d)). Section 72.46 also
issued under sec. 189, 68 Stat. 955 (42 U.S.C.
2239); sec. 134, Pub. L. 97–425, 96 Stat. 2230
(42 U.S.C. 10154). Section 72.96(d) also
issued under sec. 145(g), Pub. L. 100–203,
101 Stat. 1330–235 (42 U.S.C. 10165(g)).
Subpart J also issued under secs. 2(2), 2(15),
2(19), 117(a), 141(h), Pub. L. 97–425, 96 Stat.
2202, 2203, 2204, 2222, 2244, (42 U.S.C.
10101, 10137(a), 10161(h)). Subparts K and L
are also issued under sec. 133, 98 Stat. 2230
(42 U.S.C. 10153) and sec. 218(a), 96 Stat.
2252 (42 U.S.C. 10198).

2. In § 72.214, Certificate of
Compliance 1021 is added to read as
follows:
§ 72.214 List of approved spent fuel
storage casks.

*
*
*
*
Certificate Number: 1021.
SAR Submitted by: Transnuclear, Inc.
SAR Title: Final Safety Analysis
Report for the TN–32 Dry Storage Cask.
Docket Number: 72–1021.
Certificate Expiration Date: April 19,
2020.
Model Number: TN–32, TN–32A, TN–
32B.
Dated at Rockville, Maryland, this 6th day
of March, 2000.
For the Nuclear Regulatory Commission.
William D. Travers,
Executive Director for Operations.
[FR Doc. 00–6630 Filed 3–17–00; 8:45 am]
BILLING CODE 7590–01–P

FEDERAL RESERVE SYSTEM
12 CFR Part 208
[Regulation H; Docket No. R–1064]
Membership of State Banking
Institutions in the Federal Reserve
System
AGENCY: Board of Governors of the
Federal Reserve System.
ACTION: Interim rule with request for
public comments.
SUMMARY: The Board is amending
Regulation H to implement provisions
of the Gramm-Leach-Bliley Act for state
member banks. The Gramm-LeachBliley Act authorizes state member
banks to control, or hold an interest in,
financial subsidiaries which may
conduct certain activities that are
financial in nature or incidental to a

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financial activity. The Board has
promulgated this rule on an interim
basis, effective on March 11, 2000, in
order to allow state member banks that
meet applicable criteria to acquire
control of, or an interest in, a financial
subsidiary as soon as possible following
the effective date of the relevant
provisions of the Gramm-Leach-Bliley
Act.
The Board solicits comments on all
aspects of the interim rule and will
amend the rule as appropriate in
response to comments received.
DATES: This interim rule is effective on
March 11, 2000. Comments must be
submitted on or before May 12, 2000.
ADDRESSES: Comments, which should
refer to Docket No. R–1064, may be
mailed to Ms. Jennifer J. Johnson,
Secretary, Board of Governors of the
Federal Reserve System, 20th Street and
Constitution Avenue, N.W.,
Washington, DC 20551 or mailed
electronically to
regs.comments@federalreserve.gov.
Comments addressed to Ms. Johnson
also may be delivered to Room B–2222
of the Eccles Building between 8:45 a.m.
and 5:15 p.m., weekdays or delivered to
the guard station in the Eccles Building
Courtyard on 20th Street, N.W. (between
Constitution Avenue and C Street, N.W.)
at any time. Comments will be available
for inspection and copying by any
member of the public in the Freedom of
Information Office, Room MP–500 of the
Martin Building, between 9:00 a.m. and
5:00 p.m. weekdays, except as provided
in § 261.8 of the Board’s Rules
Regarding Availability of Information
(12 CFR 261.8).
FOR FURTHER INFORMATION CONTACT:
Oliver Ireland, Associate General
Counsel (202/452–3625), Kieran J.
Fallon, Senior Counsel (202/452–5270),
Michael J. O’Rourke, Counsel (202/452–
3288), Legal Division, Board of
Governors of the Federal Reserve
System. For the hearing impaired only,
Telecommunications Device for the Deaf
(TDD), contact Janice Simms (202/872–
4984).
SUPPLEMENTARY INFORMATION:
Background
The Board is amending Regulation H
(Membership of State Banking
Institutions in the Federal Reserve
System) to implement section 121 of the
Gramm-Leach-Bliley Act (GLB Act)
(Pub. L. 106–102; 113 Stat. 1373–82) as
it applies to state member banks. The
Comptroller of the Currency has
recently issued a rule to implement
those parts of section 121 applicable to
national banks (65 FR 12905, March 10,
2000). The Board’s rule for state member

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banks parallels that adopted by the
Comptroller.
The GLB Act permits qualifying state
member banks to control, or hold an
interest in, a new type of subsidiary,
referred to as a ‘‘financial subsidiary.’’ A
financial subsidiary may engage in
activities that have been determined to
be financial in nature or incidental to
financial activities under the GLB Act,
including general insurance agency
activities in any location and travel
agency activities. In addition, a financial
subsidiary may engage in underwriting,
dealing in and making a market in all
types of securities—activities previously
prohibited for subsidiaries of state
member banks by the Glass-Steagall Act.
A financial subsidiary also may conduct
any activity that the state member bank
is permitted to conduct directly.
The GLB Act prohibits financial
subsidiaries from engaging in certain
types of activities. As a general matter,
a financial subsidiary may not engage as
principal in underwriting insurance,
providing or issuing annuities, real
estate development or real estate
investment, and merchant banking and
insurance company investment
activities.
A financial subsidiary is defined as
any company controlled by one or more
insured depository institutions, but does
not include (1) a subsidiary that the
state member bank is specifically
authorized to hold by the express terms
of Federal law (other than section 9 of
the Federal Reserve Act), such as an
Edge Act subsidiary held under section
25 of the Federal Reserve Act, or (2) a
subsidiary that engages only in activities
that the parent bank could conduct
directly and that are conducted on the
same terms and conditions that govern
the conduct of the activity by the state
member bank.
The interim rule sets forth the criteria
that state member banks must meet to
own or control a financial subsidiary,
the activities that financial subsidiaries
may and may not engage in, and the
procedures that will be applied to state
member banks that own or control a
financial subsidiary and that fail to
continue to meet the Act’s eligibility
requirements. The interim rule also
establishes a streamlined notice
procedure for state member banks to
receive the Federal Reserve’s approval
to acquire a financial subsidiary or
engage in a newly authorized financial
activity through an existing financial
subsidiary.
The authority for a state member bank
to own or control a financial subsidiary
is in addition to the existing authority
of state member banks to establish socalled operations subsidiaries that

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engage in activities that the parent bank
may conduct directly and that are
conducted on the same terms and
conditions that govern the conduct of
these activities by the bank. See 12 CFR
250.141. Thus, state member banks may
continue to retain and to establish new
operations subsidiaries permitted under
state law and the Board’s interpretation
without complying with the
requirements of this subpart applicable
to financial subsidiaries.
Description of the Interim Rule
Section 208.71—What Are the
Requirements To Invest in or Control a
Financial Subsidiary?
Under the GLB Act, a state member
bank may control, or hold an interest in,
a financial subsidiary only if certain
criteria are met. First, the state member
bank and each of its depository
institution affiliates must be well
capitalized and well managed. An
institution is well capitalized if it meets
or exceeds the capital levels designated
as ‘‘well capitalized’’ by the institution’s
appropriate Federal banking agency
under section 38 of the Federal Deposit
Insurance Act (12 U.S.C. 1831o). Well
managed is defined by reference to the
achievement of specific examination
ratings.1 Second, the aggregate
consolidated total assets of the bank’s
financial subsidiaries may not exceed
the lesser of 45 percent of the bank’s
consolidated total assets or $50 billion.
This dollar figure will be adjusted
according to an indexing mechanism to
be established jointly by the Board and
the Secretary of the Treasury.
Third, if the state member bank is one
of the largest 100 insured banks, the
bank must have at least one issue of
outstanding eligible debt that is
currently rated in one of the three
highest investment grade rating
categories by a nationally recognized
statistical rating organization. Eligible
debt refers to unsecured debt that has an
initial maturity of more than 360 days.
The debt must be issued and
outstanding, may not be supported by
any form of credit enhancement, and
may not be held in whole or in any
significant part by affiliates or insiders
of the bank or by any other person
acting on behalf of or with funds from
the bank or an affiliate. If the state
member bank is one of the second 50
largest insured banks, the bank may
meet this debt rating requirement or an
alternative criteria that the Board and
1 See

12 C.F.R. 208.77(f). A depository institution
that has not been examined will be considered well
managed if its appropriate Federal banking agency
determines that the institution’s managerial
resources are satisfactory.

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the Secretary of the Treasury anticipate
establishing by regulation in the near
future. The debt rating and alternative
criteria do not apply to a bank if its
financial subsidiaries do not engage in
any newly authorized financial activity
as principal.
Finally, the state member bank must
obtain the Federal Reserve’s approval to
acquire control of, or an interest in, the
financial subsidiary using the
streamlined notice procedures set forth
in § 208.76 of the rule. The state
member bank also must obtain any
necessary approvals from its state
supervisory authority.
Section 208.72—What activities may a
financial subsidiary conduct?
A financial subsidiary of a state
member bank may conduct only three
types of activities:
• Activities that have been
determined to be financial in nature or
incidental to financial activities and
permissible for financial holding
companies under section 4(k) of the
Bank Holding Company Act of 1956.
These activities are listed in § 225.86 of
the Board’s Regulation Y; 2
• Activities that the Secretary of the
Treasury, in consultation with the
Board, determines to be financial in
nature or incidental to financial
activities and permissible for financial
subsidiaries of national banks pursuant
to section 5136A(b) of the Revised
Statutes of the United States (12 U.S.C.
24a(b)); and
• Activities that the state member
bank is permitted to engage in directly,
subject to the same terms and
conditions that govern the conduct of
the activity by the state member bank.
As required by the GLB Act, the rule
prohibits a financial subsidiary of a state
member bank from engaging as
principal in insurance underwriting
(except to the extent permitted under
state law and the GLB Act), providing or
issuing annuities, real estate investment
or development (except to the extent
expressly authorized by applicable state
and Federal law), and merchant banking
and insurance company investment
activities permitted for financial holding
companies under sections 4(k)(4)(H) or
(I) of the Bank Holding Company Act.
2 On March 10, 2000, the Board adopted
amendments to its Regulation Y, which include a
new § 225.86 that sets forth the activities that are
financial in nature or incidental to financial
activities under section 4(k) of the Bank Holding
Company Act.

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Federal Register / Vol. 65, No. 54 / Monday, March 20, 2000 / Rules and Regulations

Section 208.73—What Additional
Restrictions Are Applicable to State
Member Banks With Financial
Subsidiaries?
The GLB Act requires that a state
member bank that owns or controls a
financial subsidiary comply with a
number of prudential safeguards.
Section 208.73 implements these
requirements.
For purposes of determining its
compliance with all applicable
regulatory capital standards, the state
member bank must deduct its aggregate
outstanding equity investment,
including retained earnings, in all
financial subsidiaries from its total
assets and tangible equity and deduct
such amount from its total risk-based
capital, and ‘‘de-consolidate’’ the assets
and liabilities of the financial subsidiary
from those of the bank. The capital
deduction must be made equally from
Tier 1 and Tier 2 capital. The bank must
meet all applicable capital
requirements—including the well
capitalized requirement of § 208.71 and
the capital levels established by the
Board under section 38 of the Federal
Deposit Insurance Act—after these
adjustments.
Subsection (b) requires that the state
member bank establish policies and
procedures to manage the financial and
operational risks arising from its
ownership of a financial subsidiary and
preserve the bank’s separate corporate
identity. In addition, the rule specifies
that a financial subsidiary of a state
member bank is considered an affiliate
(and not a subsidiary) of the bank for
purposes of sections 23A and 23B of the
Federal Reserve Act, and a subsidiary of
a bank holding company (and not a
subsidiary of a bank) for purposes of the
anti-tying prohibitions of the Bank
Holding Company Act Amendments of
1970.
Section 208.74—What Happens if the
State Member Bank Fails to Continue To
Meet Certain Requirements?
The Board will give notice to a state
member bank that owns or controls a
financial subsidiary if the Board finds
that the state member bank or any of its
depository institution affiliates fails to
continue to be well capitalized and well
managed, that the assets of the bank’s
financial subsidiaries exceed 45 percent
of the parent bank’s consolidated assets,
or that the state member bank has failed
to comply with the operational
safeguards required by the rule. To
assist the Board in enforcing the
requirements of the Act, the rule
requires a state member bank to notify
the Board if the bank learns that any of

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its depository institution affiliates has
ceased to be well capitalized and well
managed.
If a state member bank receives a
notice of noncompliance from the
Board, the bank must execute an
agreement with the Board to bring itself
back into compliance with the rule’s
requirements. Any relevant depository
institution affiliate also must execute an
agreement with its appropriate Federal
banking agency to restore itself to well
capitalized and well managed status.
The Board and the appropriate Federal
banking agency may impose conditions
on the direct or indirect activities of the
state member bank or depository
institution affiliate, respectively, until
the institution restores its compliance
with rule’s requirements. If the
deficiencies are not corrected within
180 days (or such longer period as the
Board may permit), the Board may
require the state member bank to divest
its financial subsidiaries.
If a state member bank that is one of
the largest 100 insured banks fails to
continue to meet the debt rating
requirement or alternative criteria of
§ 208.71(b), if applicable, the state
member bank may not acquire any
additional equity capital (including debt
qualifying as capital) of the financial
subsidiary until the bank once again
meets these requirements.

only in activities, that the state member
bank is permitted to engage in directly.
The prohibition applies only if the
state member bank or any of its insured
depository institution affiliates has
received a less than ‘‘satisfactory’’ rating
in meeting community credit needs at
its most recent examination under the
CRA. Accordingly, the CRA rating
requirement does not apply to special
purpose banks that are not subject to
CRA examination under the Federal
banking agencies’ CRA regulations,3 or
to de novo insured depository
institutions that have not yet received
(and are not the successor of an
institution that has received) a CRA
rating.
Section 208.76—What Federal Reserve
Approvals Are Necessary for Financial
Subsidiaries?

The rule establishes a streamlined
notice procedure for state member banks
that seek to engage in newly authorized
financial activities through a financial
subsidiary. As a general matter, the
notice must provide basic information
on the financial subsidiary and its
existing and proposed activities and
include a certification that the state
member bank and its depository
institution affiliates meet the
requirements of the GLB Act and the
rule to own or control a financial
Section 208.75—What Happens if the
State Member Bank or Any of Its Insured subsidiary. If the notice relates to the
initial affiliation of the state member
Depository Institution Affiliates Has
bank with a company engaged in
Received Less Than a ‘‘Satisfactory’’
insurance activities, the notice also
CRA Rating?
must describe the company’s insurance
The GLB Act requires the Board to
activities and identify the states where
prohibit a state member bank from
the company holds an insurance
acquiring control of a financial
license. This additional information will
subsidiary, or commencing any
assist the Board in fulfilling its
additional activity or acquiring control
obligations to consult with the relevant
of any company through an existing
state insurance authorities under section
financial subsidiary if the bank or any
307(c) of the GLB Act.
insured depository institution affiliate
A state member bank must file a
has received less than a ‘‘satisfactory’’
notice with the appropriate Reserve
rating from its appropriate Federal
Bank prior to acquiring control of, or an
banking agency at its most recent
interest in, a financial subsidiary, or
examination under the Community
engaging in an additional financial
Reinvestment Act of 1977 (12 U.S.C.
activity through an existing financial
2901 et seq.) (CRA). Section 208.75
implements these prohibitions. The rule subsidiary. A notice is not required for
a financial subsidiary to engage in an
clarifies that, if this prohibition is in
additional activity that the parent state
effect, the financial subsidiary may not
member bank is permitted to conduct
acquire control of another company by
directly. A notice will be deemed
acquiring substantially all of the assets
approved on the fifteenth day after
of the company. These prohibitions are
receipt by the appropriate Reserve Bank
effective until the bank or relevant
of an informationally complete
insured depository institution achieves
at least a ‘‘satisfactory’’ rating in its next submission, unless the notice is
examination under the CRA. Subsection disapproved or the bank is notified that
additional time to review the notice is
(b) clarifies that this section does not
needed.
prohibit a financial subsidiary from
engaging in any additional activity, or
3 See 12 C.F.R. 228.11(c)(3).
acquiring control of a company engaged

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II. Regulatory Flexibility Analysis
The Regulatory Flexibility Act (5
U.S.C. 601–612) requires an agency to
publish an initial regulatory flexibility
analysis with this interim regulation.
The interim rule implements the new
investment powers granted to state
member banks under authority of
section 121 of the Gramm-Leach-Bliley
Act. (Pub. L. 106–102; 113 Stat. 1373–
82). As the rule authorizes expanded
activities by state member banks, no
additional burdens are being placed on
the banks and, in fact, these new powers
should enhance the overall efficiency
and flexibility of the banks. The rule
does not overlap with other federal
rules, and enables state member banks
to engage in an expanded range of
activities using a streamlined
notification procedure. The notice
procedure described in this rule is
voluntary, and the criteria set forth in
the rule to control, or hold an interest
in, a financial subsidiary, are those
required by the Gramm-Leach-Bliley
Act.
The initial regulatory flexibility
analysis also requires a description of
and, where feasible, an estimate of the
number of small entities to which the
rule will apply. The interim rule will
apply to all state member banks (which
numbered 1011 as of December 31,
1999), regardless of size, and allows
small banking organizations to take
advantage of the expanded powers
conferred by the Gramm-Leach-Bliley
Act with minimal additional burdens.
The Board specifically seeks comment
on the likely burden that the interim
rule may impose on banks that seek to
control or hold an investment in
financial subsidiaries.
III. Administrative Procedure Act
The Board will make the interim rule
effective on March 11, 2000, without
first reviewing public comments.
Pursuant to 5 U.S.C. 553, the Board
finds that it is impracticable to review
public comments prior to the effective
date of the interim rule, and that there
is good cause to make the interim rule
effective on March 11, 2000. This is
because the rule sets forth procedures to
implement statutory changes that will
become effective on March 11, 2000.
The Board is seeking public comment
on the interim rule and will amend the
rule as appropriate after reviewing the
comments.
IV. Paperwork Reduction Act
In accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C. 3506;
5 CFR 1320 Appendix A.1), the Board
reviewed the interim rule under the

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authority delegated to the Board by the
Office of Management and Budget.
The OMB control number for this
interim rule is 7100–0292. The Federal
Reserve may not conduct or sponsor,
and an organization is not required to
respond to, this information collection
unless the Board has displayed a
currently valid OMB control number.
The collection of information
requirements in this rulemaking are
found in 12 CFR 208.76. This
information is required to evidence
compliance with section 121 of the
Gramm-Leach-Bliley Act. The
respondents are current and future state
member banks.
The notice cited in 12 CFR 225.76
provides that a state member bank may
control, or hold an interest in, a
financial subsidiary, or engage in an
additional financial activity through an
existing financial subsidiary, by filing a
single written declaration with the
appropriate Federal Reserve Bank. The
notice must identify the financial
subsidiary and its activities and certify
that the bank meets the relevant
statutory criteria to own or control a
financial subsidiary. In addition, if the
notice reflects the initial affiliation of a
bank with a company engaged in
permissible insurance activities,
information regarding the nature, scope,
and authority of such activities must be
provided. There will be no reporting
form for this information collection. The
agency form number for this declaration
will be the FR 4017. The Board
estimates that approximately 100 state
member banks will file this notice
during the first year and that it will take
an average of 1 hour to complete this
notice. This would result in an
estimated annual burden of 100 hours.
Based on a rate of $20 per hour, the
annual cost to the public for this
information collection is estimated to be
$2,000.
A bank may request confidentiality
for the information contained in these
information collections pursuant to
section (b)(4) and (b)(6) of the Freedom
of Information Act (5 U.S.C. 552(b)(4)
and (b)(6)).
Comments are invited on: (1) whether
the collections of information are
necessary for the proper performance of
the Federal Reserve’s functions,
including whether the information has
practical utility; (2) the accuracy of the
Federal Reserve’s estimate of the burden
of the information collections, including
the cost of compliance; (3) ways to
enhance the quality, utility, and clarity
of the information to be collected; and
(4) ways to minimize the burden of
information collection on respondents,
including through the use of automated

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collection techniques or other forms of
information technology. Comments on
the collections of information should be
sent to the Office of Management and
Budget, Paperwork Reduction Project,
Washington, DC 20503, with copies of
such comments to be sent to Mary M.
West, Federal Reserve Clearance Officer,
Mail Stop 97, Board of Governors of the
Federal Reserve System, Washington,
DC 20551.
V. Solicitation of Comments Regarding
the Use of ‘‘Plain Language’’
Section 722 of the GLB Act requires
the Board to use ‘‘plain language’’ in all
proposed and final rules published after
January 1, 2000. The Board invites
comments about how to make the
interim rule easier to understand,
including answers to the following
questions:
(1) Is the material organized is an
effective manner? If not, how could the
material be better organized?
(2) Are the terms of the rule clearly
stated? If not, how could the terms be
more clearly stated?
(3) Does the rule contain technical
language or jargon that is unclear? If not,
which language requires clarification?
(4) Would a different format (with
respect to the grouping and order of
sections and use of headings) make the
rule easier to understand? If so, what
changes to the format would make the
rule easier to understand?
(5) Would increasing the number of
sections (and making each section
shorter) clarify the rule? If so, which
portions of the rule should be changed
in this respect?
(6) What additional changes would
make the rule easier to understand?
List of Subjects in 12 CFR Part 208
Accounting, Agriculture, Banks,
Banking, Confidential business
information, Crime, Currency, Federal
Reserve System, Mortgages, Reporting
and recordkeeping requirements,
Securities.
Authority and Issuance
For the reasons set forth in the
preamble, Title 12, Chapter II, Part 208
of the Code of Federal Regulations is
amended as follows:
PART 208—MEMBERSHIP OF STATE
BANKING INSTITUTIONS IN THE
FEDERAL RESERVE SYSTEM
(REGULATION H)
1. The authority citation for Part 208
continues to read as follows:
Authority: 12 U.S.C. 24, 36, 92a, 93a,
248(a), 248(c), 321–338a, 371d, 461, 481–486,
601, 611, 1814, 1816, 1818, 1820(d)(9),

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1823(j), 1828(o), 1831, 1831o, 1831p–1,
1831r–1, 1831w, 1835a, 1882, 2901–2907,
3105, 3310, 3331–3351, and 3906–3909; 15
U.S.C. 78b, 78l(b), 78l(g), 78l(i), 78o–4(c)(5),
78q, 78q–1, and 78w; 31 U.S.C. 5318; 42
U.S.C. 4012a, 4104a, 4104b, 4106 and 4128.

2. The existing Subpart G—
Interpretations is redesignated as
Subpart H.
3. A new Subpart G is added to read as
follows:

Subpart G—Financial Subsidiaries of
State Member Banks
208.71 What are the requirements to invest
in or control a financial subsidiary?
208.72 What activities may a financial
subsidiary conduct?
207.73 What additional provisions are
applicable to state member banks with
financial subsidiaries?
208.74 What happens if the state member
bank fails to continue to meet certain
requirements?
208.75 What happens if the state member
bank or any of its insured depository
institution affiliates has received a less
than a ‘‘satisfactory’’ CRA rating?
208.76 What Federal Reserve approvals are
necessary for financial subsidiaries?
208.77 Definitions.

Subpart G—Financial Subsidiaries of
State Member Banks
§ 208.71 What are the requirements to
invest in or control a financial subsidiary?

(a) In general. A state member bank
may control, or hold an interest in, a
financial subsidiary only if:
(1) The state member bank and each
depository institution affiliate of the
state member bank are well capitalized
and well managed;
(2) The aggregate consolidated total
assets of all financial subsidiaries of the
state member bank do not exceed the
lesser of:
(i) 45 percent of the consolidated total
assets of the parent bank; or
(ii) $50,000,000,000, which dollar
amount shall be adjusted according to
an indexing mechanism jointly
established by the Board and the
Secretary of the Treasury;
(3) The state member bank, if it is one
of the largest 100 insured banks (based
on consolidated total assets of the bank
as of the end of each calendar year),
meets the debt rating or alternative
requirement of paragraph (b) of this
section, if applicable; and
(4) The Board or the appropriate
Reserve Bank has approved the bank to
acquire the interest in or control the
financial subsidiary under § 208.76.
(b) Debt rating or alternative
requirement for 100 largest insured
banks—

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(1) General. A state member bank
meets the debt rating or alternative
requirement of this paragraph (b) if:
(i) The bank has at least one issue of
outstanding eligible debt that is
currently rated in one of the three
highest investment grade rating
categories by a nationally recognized
statistical rating organization; or
(ii) If the bank is one of the second 50
largest insured banks (based on
consolidated total assets of the bank as
of the end of each calendar year), the
bank satisfies any alternative criteria
jointly established by the Board and the
Secretary of the Treasury.
(2) Financial subsidiaries engaged
only in financial agency activities. This
paragraph (b) does not apply to a state
member bank if the financial
subsidiaries of the bank engage in
financial activities described in
§ 208.72(a)(1) and (2) only in an agency
capacity.
§ 208.72 What activities may a financial
subsidiary conduct?

(a) Authorized activities. A financial
subsidiary may engage in only the
following activities:
(1) Any activity listed in § 225.86 of
the Board’s Regulation Y (12 CFR
225.86);
(2) Any activity that has been
determined to be financial in nature or
incidental to a financial activity by the
Secretary of the Treasury, in
consultation with the Board, pursuant to
Section 5136A(b) of the Revised Statutes
of the United States (12 U.S.C. 24a(b));
and
(3) Any activity that the state member
bank is permitted to engage in directly
(subject to the same terms and
conditions that govern the conduct of
the activity by the state member bank).
(b) Impermissible activities.
Notwithstanding paragraph (a) of this
section, a financial subsidiary may not
engage as principal in the following
activities:
(1) Insuring, guaranteeing, or
indemnifying against loss, harm,
damage, illness, disability or death
(except to the extent permitted under
applicable state law and sections 302 or
303(c) of the Gramm-Leach-Bliley Act
(Pub. L. 106–102, 113 Stat. 1407–1409,
15 U.S.C. 6712 or 6713(c)), or providing
or issuing annuities the income of
which is subject to tax treatment under
section 72 of the Internal Revenue Code
(26 U.S.C. 72);
(2) Real estate development or real
estate investment, unless otherwise
expressly authorized by applicable state
and Federal law; and
(3) Any activity permitted for
financial holding companies by section

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4(k)(4)(H) or (I) of the Bank Holding
Company Act (12 U.S.C. 1843(k)(4)(H)
and (I)).
§ 208.73 What additional provisions are
applicable to state member banks with
financial subsidiaries?

(a) Capital deduction.
(1) Capital deduction required. For
purposes of determining compliance
with applicable regulatory capital
standards (including the well
capitalized standard of § 208.71(a)(1)), a
state member bank that controls or
holds an interest in a financial
subsidiary must:
(i) Deduct the aggregate amount of the
bank’s outstanding equity investment,
including retained earnings, in all
financial subsidiaries from its total
assets and tangible equity and deduct
such investment from its total risk-based
capital (this deduction shall be made
equally from Tier 1 and Tier 2 capital);
and
(ii) Not consolidate the assets and
liabilities of any financial subsidiary
with those of the bank.
(2) Financial statement disclosure of
capital deduction. Any published
financial statement of a state member
bank that controls or holds an interest
in a financial subsidiary must, in
addition to providing information
prepared in accordance with generally
accepted accounting principles,
separately present financial information
for the bank reflecting the capital
deduction and adjustments required by
paragraph (a)(1) of this section.
(b) Safeguards for the bank. A state
member bank that establishes, controls
or holds an interest in a financial
subsidiary must:
(1) Establish procedures for
identifying and managing financial and
operational risks within the state
member bank and the financial
subsidiary that adequately protect the
state member bank from such risks; and
(2) Establish reasonable policies and
procedures to preserve the separate
corporate identity and limited liability
of the state member bank and the
financial subsidiaries of the state
member bank.
(c) Application of sections 23A and
23B of the Federal Reserve Act. For
purposes of sections 23A and 23B of the
Federal Reserve Act (12 U.S.C. 371c,
371c–1):
(1) A financial subsidiary of a state
member bank shall be deemed an
affiliate, and not a subsidiary, of the
bank;
(2) The restrictions contained in
section 23A(a)(1)(A) of section 23A shall
not apply with respect to covered
transactions between the bank and any

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individual financial subsidiary of the
bank;
(3) The bank’s investment in a
financial subsidiary shall not include
retained earnings of the financial
subsidiary;
(4) Any purchase of, or investment in,
the securities of a financial subsidiary
by an affiliate of the bank will be
considered to be a purchase of, or
investment in, such securities by the
bank; and
(5) Any extension of credit by an
affiliate of the bank to a financial
subsidiary of the bank will be
considered to be an extension of credit
by the bank to the financial subsidiary
if the Board determines that such
treatment is necessary or appropriate to
prevent evasions of the Federal Reserve
Act and the Gramm-Leach-Bliley Act.
(d) Application of anti-tying
prohibitions. A financial subsidiary of a
state member bank shall be deemed a
subsidiary of a bank holding company
and not a subsidiary of the bank for
purposes of the anti-tying prohibitions
of section 106 of the Bank Holding
Company Act Amendments of 1970 (12
U.S.C. 1971 et seq.).
§ 208.74 What happens if the state
member bank fails to continue to meet
certain requirements?

(a) Qualifications and safeguards. The
following procedures apply to a state
member bank that controls or holds an
interest in a financial subsidiary.
(1) Notice by Board. If the Board finds
that a state member bank or any of its
depository institution affiliates fails to
continue to be well capitalized and well
managed or comply with the asset
limitation set forth in § 208.71(a)(2) or
the safeguards set forth in § 208.73(b),
the Board will notify the state member
bank in writing and identify the areas of
noncompliance.
(2) Notification by state member bank.
A state member bank must promptly
notify the Board if the bank becomes
aware that any depository institution
affiliate of the bank has ceased to be
well capitalized and well managed.
(3) Execution of agreement. Within 45
days after receiving a notice under
paragraph (a)(1) of this section, or such
additional period of time as the Board
may permit, the:
(i) State member bank must execute
an agreement acceptable to the Board to
comply with all applicable capital,
management, asset and safeguard
requirements; and
(ii) Any relevant depository
institution affiliate of the state member
bank must execute an agreement
acceptable to its appropriate Federal
banking agency to comply with all

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applicable capital and management
requirements.
(4) Imposition of limits. Until the
Board determines that the conditions
described in the notice under paragraph
(a)(1) of this section are corrected:
(i) The Board may impose any
limitations on the conduct or activities
of the state member bank or any
subsidiary of the bank as the Board
determines to be appropriate under the
circumstances and consistent with the
purposes of section 121 of the GrammLeach-Bliley Act (12 U.S.C. 24a, 335,
371c, and 1971), including requiring the
Board’s prior approval for any financial
subsidiary of the bank to acquire any
company or engage in any additional
activity; and
(ii) The appropriate Federal banking
agency for any relevant depository
institution affiliate may impose any
limitations on the conduct or activities
of the depository institution or any
subsidiary of that institution as the
agency determines to be appropriate
under the circumstances and consistent
with the purposes of section 121 of the
Gramm-Leach-Bliley Act (12 U.S.C. 24a,
335, 371c, and 1971).
(5) Divestiture. The Board may require
a state member bank to divest control of
any financial subsidiary if the
conditions described in a notice under
paragraph (a)(1) of this section are not
corrected within 180 days of receipt of
the notice or such additional period of
time as the Board may permit. Any
divestiture must be completed in
accordance with any terms and
conditions established by the Board.
(6) Consultation. The Board will
consult with all relevant Federal and
state regulatory authorities in taking any
action under this subsection.
(b) Debt rating or alternative
requirement. If a state member bank
does not continue to meet any
applicable debt rating or alternative
requirement of § 208.71(b), the bank
may not, directly or through a
subsidiary, purchase or acquire any
additional equity capital of any
financial subsidiary until the bank
restores its compliance with the
requirements of that section. For
purposes of this paragraph, the term
‘‘equity capital’’ includes, in addition to
any equity investment, any debt
instrument issued by the financial
subsidiary if the instrument qualifies as
capital of the subsidiary under federal
or state law, regulation or interpretation
applicable to the subsidiary.

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§ 208.75 What happens if the state
member bank or any of its insured
depository institution affiliates has received
less than a ‘‘satisfactory’’ CRA rating?

(a) Limits on establishment of
financial subsidiaries and expansion of
existing financial subsidiaries. If a state
member bank, or any of its insured
depository institution affiliates, has
received less than a ‘‘satisfactory’’ rating
in meeting community credit needs in
its most recent examination under the
Community Reinvestment Act of 1977
(12 U.S.C. 2901 et seq.):
(1) The state member bank may not,
directly or indirectly, acquire control of
any financial subsidiary; and
(2) Any financial subsidiary
controlled by the state member bank
may not commence any additional
activity or acquire control, including all
or substantially all of the assets, of any
company.
(b) Exception for certain activities.
The prohibition in paragraph (a)(2) of
this section does not apply to any
activity, or to the acquisition of control
of any company that is engaged only in
activities, that the state member bank is
permitted to conduct directly and that
are conducted on the same terms and
conditions that govern the conduct of
the activity by the state member bank.
(c) Duration of prohibitions. The
prohibitions described in paragraph (a)
of this section shall continue in effect
until such time as the state member
bank and each insured depository
institution affiliate of the state member
bank has achieved at least a
‘‘satisfactory’’ rating in meeting
community credit needs in its most
recent examination under the
Community Reinvestment Act.
§ 208.76 What Federal Reserve approvals
are necessary for financial subsidiaries?

(a) Notice requirements. (1) A state
member bank may not acquire control
of, or an interest in, a financial
subsidiary unless it files a notice (in
letter form, with enclosures) with the
appropriate Reserve Bank.
(2) A state member bank may not
engage in any additional activity
pursuant to § 208.72(a)(1) or (2) through
an existing financial subsidiary unless
the state member bank files a notice (in
letter form, with enclosures) with the
appropriate Reserve Bank.
(b) Contents of notice. Any notice
required by paragraph (a) of this section
must:
(1) In the case of a notice filed under
paragraph (a)(1) of this section, describe
the transaction(s) through which the
bank proposes to acquire control of or
an interest in the financial subsidiary;
(2) Provide the name and head office
address of the subsidiary;

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Federal Register / Vol. 65, No. 54 / Monday, March 20, 2000 / Rules and Regulations

(3) Provide a description of the
current and proposed activities of the
financial subsidiary and the specific
authority permitting each activity;
(4) Certify that the bank and each of
its depository institution affiliates, was
well capitalized at the close of the
previous calendar quarter, and remains
well capitalized as of the date the bank
files its notice;
(5) Certify that the bank and each of
its depository institution affiliates is
well managed as of the date the bank
files its notice;
(6) Certify that the bank meets the
debt rating or alternative requirement of
§ 208.71(b), if applicable; and
(7) Certify that the bank and its
financial subsidiaries are in compliance
with the asset limit set forth in
§ 208.71(a)(3) both before the proposal
and on a pro forma basis.
(c) Insurance activities. (1) If a notice
filed under paragraph (a) of this section
relates to the initial affiliation of the
bank with a company engaged in
insurance activities, the notice must
describe the type of insurance activity
that the company is engaged in or plans
to conduct and identify each state where
the company holds an insurance license
and the state insurance regulatory
authority that issued the license.
(2) The appropriate Reserve Bank will
send a copy of any notice described in
this subsection to the appropriate state
insurance regulatory authorities and
provide such authorities with an
opportunity to comment on the
proposal.
(d) Approval procedures. A notice
filed with the appropriate Reserve Bank
will be deemed approved on the
fifteenth day after receipt of a complete
notice by the appropriate Reserve Bank,
unless prior to that date the Board or the
appropriate Reserve Bank notifies the
bank that the notice is approved, that
the notice will require additional
review, or that the bank does not meet
the requirements of this subpart.
§ 208.77

Definitions.

The following definitions shall apply
to this subpart:
(a) Affiliate, Company, Control, and
Subsidiary. The terms ‘‘affiliate’’,
‘‘company’’, ‘‘control’’, and
‘‘subsidiary’’ have the meanings given
those terms in section 2 of the Bank
Holding Company Act of 1956 (12
U.S.C. 1841).
(b) Appropriate Federal Banking
Agency, Depository Institution, Insured
Bank and Insured Depository
Institution. The terms ‘‘appropriate
Federal banking agency’’, ‘‘depository
institution’’, ‘‘insured bank’’ and
‘‘insured depository institution’’ have

the meanings given those terms in
section 3 of the Federal Deposit
Insurance Act (12 U.S.C. 1813).
(c) Eligible Debt. The term ‘‘eligible
debt’’ means unsecured debt with an
initial maturity of more than 360 days
that:
(1) Is not supported by any form of
credit enhancement, including a
guarantee or standby letter of credit; and
(2) Is not held in whole or in any
significant part by any affiliate, officer,
director, principal shareholder, or
employee of the bank or any other
person acting on behalf of or with funds
from the bank or an affiliate of the bank.
(d) Financial Subsidiary. The term
‘‘financial subsidiary’’ means any
company that is controlled by one or
more insured depository institutions
other than:
(1) A subsidiary that only engages in
activities that the state member bank is
permitted to engage in directly and that
are conducted on the same terms and
conditions that govern the conduct of
the activities by the state member bank;
or
(2) A subsidiary that the state member
bank is specifically authorized by the
express terms of a Federal statute (other
than section 9 of the Federal Reserve
Act (12 U.S.C. 321 et seq.)), and not by
implication or interpretation, to control,
such as by section 25 or 25A of the
Federal Reserve Act (12 U.S.C. 601–
604a or 12 U.S.C. 611–631) or the Bank
Service Company Act (12 U.S.C. 1861 et
seq.).
(e) Well Capitalized. The term ‘‘well
capitalized’’ has the meaning given the
term in section 38 of the Federal Deposit
Insurance Act (12 U.S.C. 1831.).
(f) Well Managed. The term ‘‘well
managed’’ means:
(1) Unless otherwise determined in
writing by the appropriate Federal
banking agency, the institution has
received a composite rating of 1 or 2
under the Uniform Financial
Institutions Rating System (or an
equivalent rating under an equivalent
rating system) in connection with its
most recent examination or subsequent
review and at least a rating of 2 for
management (if such rating is given); or
(2) In the case of any depository
institution that has not been examined
by its appropriate Federal banking
agency, the existence and use of
managerial resources that the
appropriate Federal banking agency
determines are satisfactory.
By order of the Board of Governors of the
Federal Reserve System, March 10, 2000.
Robert deV. Frierson,
Associate Secretary of the Board.
[FR Doc. 00–6468 Filed 3–17–00; 8:45 am]
BILLING CODE 6210–01–P

Full text of District Notices (Federal Reserve Bank of Dallas) : Three Interim Rules and Three Requests for Public Comments, Notice 2000-19

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