Full text of Federal Reserve Bank of New York Circulars : 10573. Measures to Reduce the Regulatory Burden and Streamline Applications Processing

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FEDERAL RESERVE BANK
OF NEW YORK

[

Circular No. 10573 "1
September 15, 1992

J

MEASURES TO REDUCE THE REGULATORY BURDEN
AND STREAMLINE APPLICATIONS PROCESSING
Applications under Regulations H and Y
C om m ents Invited by O ctober 28

To All State Member Banks and Bank Holding Companies
in the Second Federal Reserve District, and Others Concerned:

The following is from a statement issued by the Board of Governors of the Federal Reserve System concerning
certain actions that the Board has taken to reduce the regulatory burden and streamline its approval procedures:
The Federal Reserve Board has approved additional measures to reduce the regulatory burden and further streamline
the process of handling applications from State member banks and bank holding companies.
Last April, as part of its program to reduce the regulatory burden, the Board directed its staff to review the processes
used in handling applications to ensure greater efficiency. The review included information required, timing, procedures
for pre-acceptance review, delegation, standardization of forms and monitoring the status of cases.
Measures now approved by the Board will:
— Limit extensions of the period for accepting applications from banks and bank holding companies.
— Offer prospective applicants the opportunity to submit a pre-filing notice of intent to file a formal application.
— Establish a general consent limit for investments in bank premises for State member banks that are well capitalized
and in satisfactory condition.
— Eliminate the stock redemption notice requirement for bank holding companies that are well capitalized and in
satisfactory condition.
— Expand the authority of Reserve Banks to process all delegable applications without Board staff review.
— Modify the Board’s delegation rules that pertain to competition and market concentration.
— Reduce redundant processing of cases acted upon by the Board.

Printed on the following pages is the text of the Board’s notice on this matter, which has been reprinted from
the Federal Register of September 1. Comments regarding the actions currently being taken and on further steps
that might be taken to improve efficiency in the applications process should be submitted by October 28, and may
be sent to the Board of Governors, as specified in the notice, or to our Banking Applications Department.




E. G e r a l d C o r r i g a n ,
President.

FEDERAL RESERVE SYSTEM
12 CFR Parts 208 and 225

[Regulations H and Y; Docket Ha R-0773]
Applications Under Regulation H and
Regulation Y

Board of Governors of the
Federal Reserve System.
ACTION: Notice of proposed rulemaking.
AGENCY:

The Board’s Regulation H
and Regulation Y establish procedures
and provide guidance for obtaining
Board approval for various transactions
that are subject to Board review under
the Federal Reserve Act, the Bank
Holding Company Act, the Bank Merger
Act, the Change in Bank Control Act
and various other statutes. The Board
periodically reviews these procedures in
an attempt to reduce burden associated
with these procedures and to ensure that
these processes function as efficiently
as possible consistent with statutory
requirements. As a result of this review,
on August 12,1992, the Board approved
several proposals to change certain
applications procedures to improve
efficiency and reduce regulatory burden
in the applications process. These
changes include establishing certain
procedures to limit extension of the preacceptance period for applications:
offering prospective applicants the
opportunity to submit a pre-filing notice
of intent to file an application:
eliminating .the stock redemption notice
requirement for bank holding companies
that are and, following the redemption
would remain, “well capitalized” on a
consolidated basis and in generally
satisfactory condition; expanding the
authority of Reserve Banks to process
all delegable applications without Board
staff review: modifying the Board’s
delegation rules pertaining to
competition and market concentration;
reducing redundant post-acceptance
processing of Board action cases;
increasing the monitoring of cases

sum m ary:




requiring extended processing; and
inviting public comment on a proposal
to establish a general consent procedure
under section 24A of the Federal
Reserve Act for investments by state
member banks in bank premises.
In addition to taking these steps, the
Board invites public comment on any
other ways in which the burden on
applicants associated with the various
application and notice procedures in the
Board’s regulations may be reduced,
consistent with the Board’s
responsibilities and obligations under
the relevant statutes.
Comments must be received by
October 28,1992.

DATES:

Comments, which should
refer to Docket No. R-0773, may be
mailed to the Board of Governors of the
Federal Reserve System, 20th Street and
Constitution Avenue, NW„ Washington,
DC 20551, to the attention of Mr.
William W. Wiles, Secretary; or #
delivered to the Board’s Mail Room
between 8:45 a.m. and 5:15 p.m., or to the
Board’s Security Control Room outside
of those hours. Both the Mail Room and
the Security Control Room are
accessible from the courtyard entrance
of 20th Street between Constitution
Avenue and C Street, NW. Comments
may be inspected in room B-1122
between 9 a.m. and 5 p.m. weekdays,
except as provided in § 261.8 of the
Board’s Rules Regarding Availability of
Information, 12 CFR 261.8.

addresses:

FOR FURTHER INFORMATION CONTACT:

Scott G. Alvarez, Associate General
Counsel (202/452-3583), Robert D.
Frierson, Managing Senior Counsel (202/
452-3711), or Terence F. Browne,
Attorney (202/452-3707), Legal Division;
or Sidney M. Sussan, Assistant Director
(202/452-2638), Beverly Evans,
Supervisory Financial Analyst (202/4522573), or Nicholas A. Kalambokidis,
Supervisory Financial Analyst (202/4523830), Division of Banking Supervision
and Regulation, Board of Governors of

the Federal Reserve System. For the
hearing impaired only,
Telecommunications Device for the Deaf
(TDD), Dorothea Thompson (202/4523544), Board of Governors of the Federal
Reserve System, 20th and C Streets,
NW., Washington, DC 20551.
SUPPLEMENTARY INFORMATION: The
Federal Reserve System (System), has
taken a number of significant steps over
the past two decades to improve the
overall efficiency of its processing of
applications. The Board has recently
reviewed its applications procedures
again, and has taken a number of
additional steps, described below, to
reduce the burden associated with these
procedures. The Board will infplement
the changes described in this notice
immediately.
In addition, the Board invites
comment on any additional steps the
Board may take to improve the
efficiency and increase the effectiveness
of the applications process. In
particular, the Board invites public
comment on any other steps that the
Board should consider for revising or
streamlining the applications and notice
procedures under the Board’s rules to
reduce the burden on applicants of these
procedures without impairing the
Board’s ability to fulfil its statutory
obligations in reviewing these proposals.
Explanation of Board Actions to Date to
Reduce Regulatory Burden
Overview of Applications Processing
The System has, for the past 15 years,
met the Board's publicly articulated goal
of processing 90 percent or more of
System-wide applications within a selfimposed processing deadline (currently,
60 days from acceptance). During that
time, more than 35,000 applications and
notices have been processed, including
approximately 10,000 nonbanking
activity applications and notices,
approximately 8,300 bank holding
company formation applications, and
5,800 bank acquisition applications. The
number of applications and notices

PRINTED IN NEW YORK, FROM FEDERAL REGISTER, VOL. 57, NO. 170, pp. 39641-46

2

processed each year increased during
the late 1970s and early 1980s to a peak
of approximately 3,000 in 1983. Annual
volumes declined in the mid 1980s, but
then increased back up to the 3,000 level
in 1991.
Over the past several years,
approximately 14 percent of
applications were processed for Board
action, 52 percent were processed under
delegated authority with Board staff
review, and the remaining 34 percent
were processed under delegated
authority without Board staff review.
The average post-acceptance processing
time per application generally has
declined to a low of 33 days in 1991. The
average processing time for delegated
cases has been significantly below the
average processing time of the typically
more complex Board action cases. In
1991, the average processing time for
delegated cases was 28 days, compared
to 50 days for Board action cases.12In
comparison, in 1986 the average post­
acceptance processing time per
application was 30 days: the average
processing time was 32 days for
delegated cases and 71 days for Board
action cases.
Based on its experience in reviewing
proposals under the Federal banking
laws, the Board has made a number of
revisions to the applications process
designed to improve the efficiency of the
process and reduce burdens on
interested parties to the process.
Reserve Banks have been delegated
substantial authority; application forms
have been streamlined consistent with
the Paperwork Reduction Act;
unnecessary application procedures
have been eliminated and notice
procedures have been substituted for
applications where appropriate under
the statutory framework; information
requirements for certain activities have
been reduced; Board standards and
policies have been more widely
disseminated; internal time guidelines
for reviewing and acting on proposals
have been voluntarily imposed by
regulation, and, after experience,
substantially shortened. These efforts
have resulted in the ability of the
System to process more quickly a large
number of increasingly complex
applications with staffing levels that
have remained relatively constant.
On April 22,1992, as part of a broad
review of the Board's regulations,
policies, and reports, the Board
requested that staff conduct a review of
1 In 1991, the average processing time for
domestic delegated cases that required Board staff
review was 29 days, compared to 25 days for
domestic delegated cases not requiring Board staff
review.




various aspects of the applications
process. This review has resulted in
several final and proposed changes to
the Board’s applications rules. For
example, the Board determined to
substantially lessen the information
required of a state member bank—in
satisfactory conditions and with
satisfactory community reinvestment
and consumer compliance ratings—
applying to establish additional
branches. In an effort to facilitate
acquisitions by nonbank subsidiaries of
bank holding companies, the Board also
revised Regulation Y to increase the
applicability of its expedited
applications procedure for small
nonbank acquisitions. This revision,
which became effective on June 29,1992,
increased the size of acquisitions that
could be made after expedited
procedures from a maximum of $15
million to a maximum of the lesser of
$100 million or 5 percent of the
applicant’s consolidated assets, subject
to certain criteria. The Board also
increased the relative size of nonbank
assets (from 20% to 50%) that may be
acquired by a bank holding company in
the ordinary course of business without
any prior System approval, and
established criteria for determining
whether an application under the Bank
Holding Company Act may be waived
for transactions involving certain bank
mergers.*
As a result of this review, the Board
also requested comment on other
proposals to reduce regulatory burden.
In particular, on June 29,1992, the Board
published for comment proposed
regulatory amendments that would
reduce from twice to once the number of
times notice must be published in a
newspaper of general circulation of the
filing, with the Board, of certain
applications under the Federal Reserve
Act and the Bank Holding Company
Act.3 These amendments, intended to
reduce the burden associated with the
Board’s notice requirements, would have
no effect on the length or timing of
public comment periods, which currently
start when the first notice is published.
At the same time, the Board also
published for comment a proposed rule
that would exempt from the limitations
of section 23A of the Federal Reserve
Act the transfer of assets and liabilities
between affiliated insured depository
institutions when such transfer is part of
the merger or consolidation of the
affiliated institutions.4 This proposed
2 57 FR 28777. June 29.1992.

3 57 FR 28807, June 29.1992.
* 57 FR 28809, June 29.1992.

3

exemption would be available for
transactions requiring the approval of
the resulting insured depository’s
primary regulator under the Bank
Merger Act.
As part of the April review, the Board
also directed staff to analyze the extent
of the information being required in
applications, timing considerations and
procedures for pre-acceptance review
and post-acceptance analysis of
applications, standardization of
application forms, and procedures for
Board monitoring of the status of cases
that exceed internal processing
guidelines. This analysis had two
primary objectives:
(1) To determine whether applications
are being processed as efficiently as
possible; and
(2) To identify opportunities to
increase efficiency and/or reduce
regulatory burden on the banking
industry without jeopardizing important
public policy objectives or the Board’s
ability to fulfill specific statutory
objectives. This review was particularly
focused on issues affecting processing
time and duplication of effort, and this
review resulted in several additional
changes to certain applications
procedures to improve efficiency,
eliminate redundancy and otherwise
reduce regulatory burden in the
applications process.
Based on the Board’s review, the
Board has determined to take the
following steps.
Change No. 1: Implementation of
Certain Procedures to Limit Extension
of the Pre-Acceptance Period for
Applications
The goal of the pre-acceptance review
is to assure that a reasonably complete
record on which to base an analysis and
supportable action has been established
at the inception of the formal processing
period. The review is generally
conducted by Reserve Bank staff
although Board staff, usually at the
request of the Reserve Bank, also may
participate in pre-acceptance review.
There is a common perception that
pre-acceptance processing has resulted
in unnecessary delays in the processing
of applications. This perception is
largely a result of certain conflicting
considerations that often exist during
the pre-acceptance period. The
applicant often elects, or is required, to
publicly announce a transaction soon
after an agreement which circumscribes
the transaction has been reached. From
the applicant's perspective, this
announcement may signal the beginning
of the "processing period’’, yet the
actual submission of the application

may not occur for several weeks or even
months after the announcement. To a
large extent, both the timing and the
quality of a submission are within the
applicant’s control, regardless of efforts
the System may make to facilitate the
process. Board and Reserve Bank staff,
faced with the responsibility of
completing processing under a tight time
schedule, understandably are reluctant
to accept a submitted application until
most of the factors requiring the Board’s
consideration are addressed.
The System has taken a number of
steps through the years to attempt to
address applicants’ concerns w'ith the
pre-acceptance process. These efforts
include a willingness to accept and
review draft applications, periodic
reviews and modifications of the
application forms, and an “open-door
policy” permitting prospective
applicants to discuss informally their
proposals with Board or Reserve Bank
staff.
In an attempt to monitor the timing of
pre-acceptance activities, the System
has adhered to formal timing guidelines
in pre-processing most applications. If
an applicant chooses to submit an
application in draft, the draft application
is to be reviewed for no more than 10
business days, with up to 3 additional
business days for complicated
applications. At the end of this period,
the Reserve Bank must return the
application to the applicant with
comments. Once a formal application is
received, the Reserve Bank has no more
than 10 business days to either accept
the application for processing, return the
application to the applicant as
materially deficient, or request
additional information from the
applicant. If more information is
requested, the applicant has 8 business
days in which to respond, after which
the Reserve Bank has up to 5 business
days to review the submission. At this
point, the Reserve Bank must either
accept the application for processing
(under either delegated authority or for
Board action) or return it.8
The pre-acCeptance timing guidelines
were last tightened in 1983 from a 13-106-day standard to the current 10-8-5-day
standard. Given weekends and holidays,
the current pre-acceptance process can
take up to approximately 34 calendar
days to complete if each step requires
the maximum number of days.
When organizations are
contemplating a large acquisition or a
sophisticated proposal, the Reserve
Banks often have encouraged the•
• Current procedures do not provide for a second
request for information during pre-acceptance
processing




applicant to file a draft application. The
Reserve Banks believe that the filing of
a draft application in these cases helps
both the System and the applicant
identify and address potential issues
early in the process. Although the filing
of a draft application may result in
fewer questions being asked during the
official pre-acceptance process, such
filing may extend the total application
processing period.
The Board always has considered
draft applications to be an option
available to an applicant, but the
Board’s rules do not require the filing of
a draft under any circumstance. In this
regard, the Board emphasizes that draft
applications are not required for any
proposals, and may be filed when an
applicant determines in its discretion to
do so.
There have been cases in which
Reserve Banks have not returned an
incomplete application at the end of the
pre-acceptance process, and instead
have accepted the application after,
expiration of the time provided in the
Board’s regulations governing the pre­
acceptance process. The Reserve Banks
have taken this step generally in an
effort to reduce the applicant’s burden
of refiling the application.
When the Board implemented its
regulations establishing a pre­
acceptance schedule, the Board
indicated that it intended the Reserve
Banks to abide by this schedule and to
return incomplete applications at the
end of the period. The Board has
determined to increase monitoring
efforts to ensure that the Reserve Banks
abide by the pre-acceptance schedule.
To address the possibility that an
applicant may be able to complete an
application if given a brief extension of
the pre-acceptance process, the Board
believes that an extension of the pre­
acceptance review period should be
permitted only where the applicant files
a written request for such an extension.
Change No. 2: Offering Prospective
Applicants the Opportunity to Submit a
Pre-Filing Notice of Intent to File an
Application
The information used in processing an
application comes from four sources: the
applicant, the System, other state and
federal agencies, and the public. Each
application form is intended to enable
the System to gather essential
information needed to make a reasoned
judgment about the proposal. The formal
questions in the application form are not
intended to limit the applicant’s
presentation, but are designed to
provide a sufficient record in a majority
of cases if answered fully and
appropriately. The applicant bears the
4

burden of presenting and documenting a
case to meet the statutory criteria for
approval, and is invited to submit any
additional information that may support
its proposal.
All applicants use the same
application form for the same type of
transaction regardless of the condition
of the applicant or differences in the
structure of the transaction. For
example, bank holding company
applications to acquire additional banks
are filed on a given application form,
and all applications to engage in
nonbanking activities are filed on
another form.
The application forms contain sunset
dates and are reviewed and updated
periodically through the System review
process. The information requested in
these forms has been streamlined
significantly over the past several years
in an attempt to limit requests for
extraneous information, less frequently
needed information, and information
that is otherwise readily available to the
System.
At the same time, however, there is
some evidence that an applicant's initial
submission is becoming, on average,
less adequate because of a general
increase in the complexity of proposed
transactions and because of a lack of
focus on emerging critical issues. As a
result, a growing volume of information
is being requested during Reserve Bank
pre-acceptance processing and post­
acceptance communications between
both Board and Reserve Bank staff and
the applicant. Although the reasons for
additional information being requested
varies, common reasons include:
• Application forms are not designed
to request information on issues that
may be unique to a particular proposal
or that involve certain issues that may
vary by proposal but are, nonetheless,
significant, such as information
regarding CRA performance and
programs, risk assessment involving
various complex activities, employment
agreements, and commitment
requirements for proposed nonbanking
activities;
• Required follow-up on developments
at subsidiaries in less than satisfactory
condition or with sub-par CRA
performance; and
• Information necessitated by
comments or protests on a proposal.
Applicants occasionally provide more
information than is needed by the
System to process a given application.
In some of these cases, the applicant is
endeavoring to anticipate possible
future questions; in general, however,
the additional information is comprised
of readily available information.

In some cases, time and expense can
be avoided if the applicant is provided
with early feedback on a proposal.
Although the draft application is
intended to serve as a vehicle for early
feedback, in some cases, a pre-filing
notice should more effectively achieve
the same goals and be less burdensome
to the applicant. The submission of a
pre-filing notice is entirely voluntary. It
would not detract from the applicant’s
opportunity to file a draft application,
although the Board believes that the
notice could diminish the need for a
draft application.
The pre-filing notice should contain
little more than a description of the
proposal, and may be communicated to
the Reserve Banks in writing or at a
face-to-face meeting. After a brief
review of the proposal, the Reserve
Bank will then discuss with the
prospective applicant what, if any,
unusual or particular information
beyond what is requested in the
application form will likely be needed to
process the application. This should
enable the applicant to better focus on
the issues in an application that are
likely to be of greatest concern.
Accordingly, the Board has determined
to offer to prospective applicants the
opportunity to submit a pre-filing notice
of intent to file an application.
Change No. 3: Elimination of the Stock
Redemption Notice Requirement for
Bank Holding Companies That are and,
Following the Redemption, Would
Remain “Well Capitalized" on a
Consolidated Basis and in Generally
Satisfactory Condition
Bank holding companies currently are
required under Regulation Y to submit a
written notice before purchasing or
redeeming their equity securities if the
gross consideration for the purchase or
redemption, when aggregated with the
net consideration paid by the company
for all such purchases or redemptions
during the preceding 12 months, is equal
to 10 percent or more of the company’s
consolidated net worth.8 This notice
requirement is a prudential requirement
imposed by the Board to monitor the
capital levels of bank holding
companies, and is not a statutory
requirement.
The Board has determined that a bank
holding company that is and will
continue to be "well capitalized” and in
generally satisfactory condition should
not be required to file this notice prior to
the redemption of its stock. The Board
believes that the elimination of this
notice requirement for companies that•
• 12 CFR 225.4(b).




meet the criteria noted above would not
compromise safety and soundness
concerns.
Change No. 4: Expansion of the
Authority of Reserve Banks to Process
All Delegable Applications Without
Board Staff Review
Upon accepting an application, the
System currently has four basic
procedures for processing the
application:
(1) Board Action ( ‘‘Nondelegated
action ’’}—Applications analyzed by
both Reserve Bank and Board staff, and
presented to the Board for action,
normally within a 60-day time frame.
(2) Delegated Action with Prior Board
Staff Review—Applications analyzed by
both Reserve Bank and Board staff, and
approved by the Reserve Bank, normally
within a 30-day time frame if no
delegation criterion is violated.
(3) Delegated Action without Prior
Board Staff Review—Applications
analyzed only by Reserve Bank staff,
and approved by the Reserve Bank,
normally within a 30-day time frame.
(4) Delegated Action for Small
Nonbank Activities—Applications
involving certain small 4(c)(8) proposals
analyzed by Reserve Bank staff, and
approved with prior review by Board
staff, normally within a 15-day time
frame.
The criteria for processing
applications under delegated authority
are enumerated in the Board’s Rules
Regarding Delegation of Authority,7 and
allow for Reserve Bank approval unless
one or more of the following conditions
is present:
(i) A member of the Board has
indicated an objection prior to the
Reserve Bank’s action;
(ii) The Board has indicated that such
delegated authority shall not be
exercised by the Reserve Bank in whole
or in part;
(iii) A written substantive objection to
the application has been properly made;
(iv) The application raises a
significant, policy issue or legal question
on which the Board has not established
its position;
(v) With respect to BHC formations,
bank acquisitions or mergers, the
proposed transaction involves two or
more banking organizations:1
1 12 CFR part 265. The Board recently amended
its delegation rules to eliminate certain numerical
criteria that restricted a Reserve Bank's authority to
act on applications involving: (a) Banking
organizations that rank among a state's five largest
banking organizations or among the 50 largest
banking organizations in the United States; and (b)
the acquisition of certain large nonbanking
companies by bank holding companies with over $1
billion in assets.

5

(A) That upon consummation of the
proposal, would control over 30 percent
of total deposits in banking offices in the
relevant geographic market, or would
result in an increase of at least 200
points in the Herfindahl-Hirschman
Index (HHI) in a highly concentrated
market (a market with a post-merger
HHI of at least 1800); or
(B) Where divestitures designed to
address any substantive anticompetitive
effects are not effected on or before
consummation of the proposed
transaction;
(vi)
With respect to nonbank
acquisitions, the nonbanking activities
involved do not clearly fall within
activities that the Board has designated
as permissible for bank holding
companies under § 225.25(b) of
Regulation Y.
As explained above, a subset of
applications delegated to Reserve Banks
currently may be approved without prior
Board staff review. In 1991,1,034 cases,
or 34 percent of all applications
processed by the System, were
approved under delegated authority
without Board staff review. In general,
these cases must be “non-complex” and
satisfy certain well-established financial
and competitive criteria. These criteria
were last revised at the end of 1990, at
which time the range of proposals
eligible for Reserve Bank approval
without prior Board staff review was
expanded. At the same time, the types
of applications that could be processed
without Board staff review also was
expanded to include applications
involving capital note requests, certain
investments in bank premises, state
member bank mergers involving
unaffiliated banks, state bank
memberships, change in bank control
notifications, and director interlocks
under the Management Interlock
Revision Act of 1988.
Although each of the three delegated
procedures described above allow for
Reserve Bank approval, only the second
category allows for Reserve Bank
approval without concurrent Board staff
involvement. In delegated cases that are
subject to prior Board staff review,
Board and Reserve Bank staff both
analyze and review the case, although
memoranda are not prepared for the
Board because approval authority has
been delegated to the Reserve Bank. In
delegated cases that are not subject to
prior Board staff review, all analysis
and review is conducted at the Reserve
Bank.
The internal timing guidelines for
post-acceptance processing of delegated
and Board action cases were last
adjusted in 1983. The processing

schedule for delegated cases was
shortened from 45 days to 30 days and
the processing schedule for Board action
cases was reduced from 90 days to 60
days.
As discussed above, Reserve Banks
over the years have been given greater
responsibility in processing
applications. Reserve Banks also have
been given the authority to process a
larger variety of increasingly complex
activities and proposals. The Board has
determined to broaden the Reserve
Banks’ responsibilities further by giving
the Reserve Banks the authority to
process all delegable cases without
Board staff review. According to the
System’s processing trends over the past
few years, this change could eliminate
the duplication of efforts by the Board
and Reserve Bank staffs on
approximately half of the total
applications and notices processed by
the System.
Although the Board believes that
some improvement in average
processing times will result from
streamlining the processing of delegated
applications, the Board believes there
are two more important benefits that
will result. First, a reduction in Board
staff involvement should permit closer
alignment of Reserve Bank authority
with responsibility and should facilitate
increased objectivity in measuring
performance. Second, streamlining of
delegated cases should permit more
effective allocation of Board staff
resources to work on the larger and
more complicated cases that go to the
Board, resulting in more efficient and
timely processing of these cases. In
addition, the Board believes that this
change will enable Board staff to rrtore
effectively assist with pre-acceptance
reviews of cases that are likely to be
accepted for Board action, which should
facilitate earlier identification of issues
and result in fewer post-acceptance
requests for information.
Because this change does not expand
the types of cases that are delegable, the
Reserve Banks essentially will be
processing cases in which they have had
prior experience. The Board’s views on
specific policy issues and legal
questions which may affect the
determination to delegate a case will
continue to be communicated to the
Reserve Banks through monthly
conference calls, periodic meetings and
conferences, Supervision and Regulation
(SR) letters, and distribution of case
memoranda and Board Orders. To
ensure that the System’s policies and
procedures are being applied
consistently across the System, Board
staff will continue to monitor processing




of applications through operational
reviews of Reserve Banks, after-the-fact
reviews of selected case files, SR letters,
conference calls, and System meetings.
In addition, Reserve Bank staffs will be
expected to continue to consult with
Board staff on issues and problems as
they arise.

applicants may be given up to six
months after consummation to complete
a divestiture provided that, prior to
consummation, the applicant has
entered into a binding agreement with
another party to acquire the relevant
offices. If the divestiture is not
accomplished within this time frame, the
branches to be divested must be placed
Change No. 5: Modification of the
with an independent trustee for
Board’s Delegation Rules Pertaining to
immediate sale. The Board has
Competition and Market Concentration determined to modify its criterion for
delegated action to reflect this position
Recent experience indicates that
on competitive divestitures.
applications not meeting the Board’s
With these two changes, the Board’s
rules for delegation solely because the
fifth delegation limitation would read as
combined market share of the merging
follows:
firms is slightly over 30 percent
(v)
With respect to bank holding
generally do not raise competitive
company formations, bank acquisitions
concerns. Furthermore, in many,
or mergers, the proposed transaction
applications the increase in the HHI is
involves two or more banking
well under 200. For example, an
organizations that, upon consummation
application representing the
of the proposal, would control over 35
combination of banks with respective
percent of total deposits (includes 50
markets shares of 30 percent and 1
percent of thrift deposits) in banking
percent would result in an increase in
offices in the relevant geographic
the HHI of only 60 points, but would not market, or would result in an increase of
be a delegable case.8 Consequently, the at least 200 points in the HerfindahlBoard has determined to increase the
Hirschman Index (HHI) in a highly
market share criterion from 30 percent
concentrated market (a market with a
post-merger HHI of at least 1800).
to 35 percent. Although it is difficult to
specify the exact level at which a
Change No. 6: Reduction of Redundant
proposed merger would be viewed as an Post-Acceptance Processing of Board
antitrust violation based on the resulting Action Cases
market share, the Board believes that 35
In processing Board action cases, both
percent would be a reasonable level and
the Reserve Bank and Board staff
would conform with the Justice
analyze the proposal, recommend
Department’s treatment of market
action, and prepare memoranda for the
concentration.9
Board. The memoranda often are
The Board also has determined to
redundant and because the Reserve
modify the delegated processing
Bank must prepare its memorandum
criterion that an applicant proposing
prior to completion of Board staff
divestitures to meet competitive
memoranda, the Reserve Bank
concerns must complete the divestiture
memorandum may contain information
on or before consummation of the
that is not as current as the information
proposed transaction. The Board has
in Board staff memoranda. In addition,
established its position on the timing of communications between the applicant
divestitures in several recent Board
and the System are occasionally
Orders.10 The Board has stipulated that duplicated.
The Board has determined to give the
Reserve Banks more discretion to
determine the extent of their
8 The increase in the HHI is calculated by
multiplying the product of the respective market
involvement in the post-acceptance
shares of the institutions involved in the transaction analysis and memoranda writing on
by 2. In other words, the increase in the HHI is
Board action cases. The Reserve Banks
determined by the formula 2xy, where x and y
will continue to receive applications and
represent the respective market shares of the
perform pre-acceptance analysis on all
merging firms.
applications. For applications accepted
* The Department of Justice guidelines include *
for Board action processing, the Reserve
what is called a leading firm proviso under which
the department is likely to challenge the acquisition
Banks generally will determine the
by the leading firm in a market of any firm that has
extent of their subsequent involvement.
a market share of 1 percent or more. The
The Board expects that Board staff will
Department of Justice considers a company to be a
request the Reserve Banks to provide
leading firm if it has a market share of at least 35
analysis for some cases in the same
percent and this share is approximately twice as
manner that the Reserve Banks
large as that of the second largest firm.
10 See a.g.. BankAmerica Corporation, 78 Federal currently analyze cases. In other cases,
however, the Reserve Banks may elect
Reserve Bulletin 338. 340 n.15 (1992).
6

not to participate in post-acceptance
analysis or to participate to a limited
extent in a more focused manner.
This change will preserve the Reserve
Bank’s opportunity to present its views
on an application or on an issue raised
by a particular proposal, and should, in
the case of requested comments, provide
further support for the record in cases
where the Reserve Bank's knowledge of
local conditions would be especially
beneficial. For example, Reserve Bank
involvement can be an essential element
in the timely resolution of protested
issues.
In addition to the efficiency benefits
of reducing duplicative processing in
general, and memoranda writing in
particular, this change also will give the
Reserve Banks greater flexibility in
allocating their resources. For example,
resources that are currently devoted to
the post-acceptance processing of
certain Board action cases could be
shifted to time sensitive delegated cases
or to pre-acceptance meetings with
prospective applicants.
Change No. 7: Increased Monitoring of
Cases That Require Extended
Processing
As part of the System’s current overall
process of monitoring applications
activity, closer scrutiny is given to cases
that are not on schedule for timely
processing or have exceeded targeted
action dates. Once a week, managers
responsible for applications processing
from the appropriate Board divisions (or
their representatives), meet to discuss
each application that is scheduled for
Board action as well as other
applications of interest. Previously
delegated cases that have not been
acted on within 30 days also are
discussed at these meetings, as these
cases usually have already been
transferred to Board action status. The
basis for this discussion is a weekly
status report of applications filed with
the System that is distributed to
managers and others involved in the
process.
Any bank holding company whose
application does not meet the internal
timing target, regardless of the reason or
responsible party, receives a letter
explaining the delay as required by




Regulation Y.11 A member of the Board
must approve the letter before it is sent.
Other monitoring efforts include an
agenda scheduling report, monthly
conference calls, and an annual
applications processing conference.
Applications being processed under
delegated authority are tracked by
either the Reserve Bank or Board staff
on an ongoing basis. More intense
scrutiny typically is given to each case
in which one-half of the processing
period for the application has elapsed
without action having been taken or
without action being imminent.
Although the System monitors all
phases of the applications process, the
Board has emphasized the importance of
minimizing the processing period and
burden on the applicant associated with
the entire process. Current monitoring
efforts of applications are driven
primarily by the post-acceptance, 60-day
internal processing guideline, and to a
lesser extent by the totalamount of time
an applicant needs to obtain regulatory
approval. In an effort to heighten
management’s focus on this timing issue,
the Board has determined that a new
report will be developed. The report will
be organized in chronological order and
will include the total length of time an
application is in process and an
explanation of the application’s status.
The report will be distributed to the
directors of the divisions that are
involved in the applications process.
Change No. 8: Establishing a General
Consent Limit for Investments in Bank
Premises for State Member Banks
Section 24A of the Federal Reserve
Act requires state member banks to
obtain the Board’s approval prior to
making investments in bank premises
that would result in the bank’s aggregate
level of direct and indirect investment in
bank premises exceeding the bank’s
capital stock account.1112 The Board has
determined to amend Regulation H to
11 12 CFR 225.14(d)(2).

12 12 U.S.C. 371d. Section 24A applies to: (1)
Investments in bank premises, or in the stock,
bonds, debentures, or other such obligations of any
corporation holding the premises of such bank; and
(2) the making of loans to or upon the security of the
stock of any such corporation.

establish a general consent procedure
that would allow a “well capitalized”
state member bank that is also in
generally satisfactory condition to make
bank premises investments up to a
certain percent of the bank’s capital
accounts. This would eliminate the
current requirement that a state member
bank obtain approval for each
investment in bank premises that
exceeds the bank’s capital stock. A
proposed revision to Regulation H to
accomplish this goal, and a request for
comments on this proposal, will be
published shortly in a separate notice.
Invitation for Public Comment
As described above, the Board invites
public comment on any additional
proposals or measures the Board should
consider for revising or streamlining the
applications and notice procedures
under the Board’s rules to reduce the
burden on applicants caused by the
current procedures without impairing
the Board’s ability to fulfil its statutory
obligations in reviewing applications
and notices requiring Board approval.
Regulatory Flexibility Act Analysis
The Board is inviting public comment
on proposals to reduce regulatory
burdens imposed by the Board's
procedures on bank holding companies.
Pursuant to section 605(b) of the
Regulatory Flexibility Act (Pub. L. 96354, 5 U.S.C. 601 et seq.), the Board does
not believe that these changes will have
a significant adverse economic impact
on a substantial number of small
entities.
Paperwork Reduction Act Analysis
No collections of information pursuant
to section 3504(h) of the Paperwork
Reduction Act (44 U.S.C. 3501 et seq.)
are contained in these changes, and
comment is invited on proposals that
may reduce the current information
collection requirements imposed in
connection with various applications.
Board of G overnors of the F ederal R eserve
S ystem , A ugust 25,1992.
Jennifer J. Johnson,

Associate Secretary of the Board.
[FR D oc. 92-20860 F iled 8-31-92; 8:45 amj
BILLING CODE 6210-01-F