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FED ER A L RESERVE BANK O F N EW YORK f Circular No. 75661 L February 7, 1975 J BANK HOLDING COMPANIES — Proposed Amendment to Regulation Y on Acquisition of Assets by Bank Holding Companies — Technical Corrections to Regulation Y T o A ll B a n k H o ld in g Com panies, and O th ers Concerned, in the S econd F ederal R eserve D istric t: Following is the text of a statem ent issued Jan u ary 30, 1975 by the Board of Governors of the Federal Reserve System : The Board of Governors of the Federal Reserve System today proposed to amend Regulation Y—regu lation of bank holding companies—to clarify the circumstances under which a bank holding company may ac quire assets of another company without prior Board approval. The amendment proposed by the Board would require prior Board approval for any acquisition of all or substantially all of the assets of a company, or a subsidiary, division, department or office of a company. The Board invited comment on the proposal, including comment on establishment of standards for defin ing “all or substantially all,” to be sent to the Secretary of the Board not later than March 19, 1975. Printed below is the text of the proposed amendment to Regulation Y. Comments thereon should be submitted by M arch 19, and may be sent to our Domestic Banking Applications De partm ent. In addition, enclosed is a copy of amendments to Regulation Y, containing technical cor rections to the Regulation. Additional copies of the enclosure will be furnished upon request. A lfred H a y es , President. (Reg. Y) BANK HOLDING COMPANIES Nonbanking Activities Pursuant to its authority under Sections 4(c) ( 8 ) and 5(b) of the Bank Holding Company Act (12 U.S.C. 1843(c)(8) and 1844(b)), the Board proposes to amend Section 225.4(c) of its Regulation Y to clarify the circumstances under which a bank holding company engaged in nonbank activities, directly or indirectly through a subsidiary, may acquire assets of another company without first / obtaining Board approval pur suant to Section 4 (c)(8 ) of the Act. On September 13, 1974, the Board issued an inter pretation of Regulation Y regarding situations in which an acquisition of assets of a going concern by a bank holding company or its Section 4(c) ( 8 ) nonbank sub sidiary might require prior Board approval. The inter pretation noted that, in determining whether Board ap proval is required in connection with an acquisition of assets, it is necessary to determine (a) whether the ac quisition is made in the ordinary course of business1 or (b) whether it constitutes the acquisition, in whole or in part, of a going concern.2 Among the examples illu strating transactions where prior Board approval would generally be required was a transaction involving the “acquisition of all or substantially all of the assets of a company, or a subsidiary, division, department or office thereof.” Section 225.4(c)(3) of Regulation Y provides, in effect, that acquisitions of assets in the ordinary course of business do not require prior Board approval. It has come to the Board’s attention that there may exist certain circumstances under which the above-mentioned portion of the Board’s interpretation could be viewed as conflicting with Section 225.4(c)(3) of Regulation Y, 1 Section 225.4(c) (3 ) of the B o ard ’s R egulation Y (12 C F R 2 25.4(c) ( 3 ) ) generally prohibits a bank holding com pany o r its subsidiary engaged in activities pursuant to a u th o rity of Section 4 (c ) (8 ) of the A ct from being a p a rty to any m erg er “o r ac quisition of assets o th e r than in the ord in ary course of business” w ithout p rio r B oard approval. 2 In accordance w ith the provisions of Section 4 ( c ) (8 ) of the A ct and Section 2 2 5 .4 (b ) of R egulation Y, the acquisition of a going concern requires p rio r B oard approval. ( o v er) i.e., those instances in which the acquisition of all or substantially all of the assets of a company, or a sub sidiary, division, department or office thereof is made in the ordinary course of business. In order to avoid any ambiguity, the Board proposes to formalize the relevant portion of the interpretation by an appropriate amendment to Regulation Y. Under the present provisions of the regulation (12 CFR 225.4(c)(3)), a bank holding company may ac quire assets “in the ordinary course of business” with out prior Board approval. The proposed amendment would prohibit, without prior Board approval, the ac quisition of all or substantially all of the assets of a company, or a subsidiary, division, department or office thereof, even if such acquisition were made in the ordi nary course of business. The proposed amended subsection (3) of Section 225.4(c) of Regulation Y would read as follows: SECTION 225.4— NONBANKING ACTIVITIES * * * (c) Tie-ins, alterations, relocations, consolidations. Except as otherwise provided in an order in a particu lar case, the following conditions shall apply with re spect to every acquisition consummated or activity en gaged in on the authority of section 4(c) ( 8 ) of the A ct: * * * (3) except for acquisitions made in the ordinary course of business of less than substantially all of the assets of a company, or a subsidiary, division, depart ment or office thereof,1 no merger or acquisition of assets to which the acquired company is a party shall be corfsummated without prior Board approval, if there after the bank holding company will continue to own, directly or indirectly, more than 5 per cent of the vot ing shares of such company or its successor. 1 A n acquisition of assets, the effect of w hich would be to elim inate the seller as a viable com petitor in any geographic m arket, in the line of business to w hich the assets pertain, would be viewed by the B oard for the purposes of this subsection as being an acquisition of “ substantially a ll” of the assets. To aid in the consideration of this matter by the Board, interested persons are invited to submit relevant data, views, comments, or argument. Any requests for a hearing on this matter should be accompanied by a statement summarizing the evidence the person request ing the hearing proposes to submit or to elicit at the hearing and a statement of the reasons why this matter should not be resolved without a hearing. The Board also hereby solicits suggestions and comments on the establishment of standards for determining when an ac quisition of assets would constitute “substantially all” of the assets of a company, or a subsidiary, division, de partment or office thereof. Any views or requests for hearing should be sub mitted in writing to the Secretary, Board of Governors of the Federal Reserve System, Washington, D. C. 20551, to be received not later than March 19, 1975. Board of Governors of the Federal Reserve System i BANK HOLDING COMPANIES A M E N D M E N T S T O R E G U L A T IO N Y The following are corrections in the Regula tion Y pamphlet dated June 24, 1974. (Correc tions are italicized.) SECTION 225.3—ACQUISITION OR R E TE N TIO N OF BANK SHARES OR ASSETS * * * (c) Applications to retain shares acquired in a fiduciary capacity. * * * SECTION 225.4—NONBANKING ACTIVITIES (a) Activities closely related to banking or managing or controlling banks. * * * (4) * * * (iii) making of call loans to se curities dealers or purchase of money market instruments such as certificates of deposit, com mercial paper, government or municipal securi ties, and bankers acceptances (such authorized loans and investments, however, may not be used as a method of channeling funds to non banking affiliates of the trust company); * * * 6 (a) * * * (vi) at the expiration of the lease (including any renewals or extensions with the same lessee), all interest in the property shall be either liquidated or re-leased, * * * 6 (b) * * * (vi) at the expiration of the lease (including any renewals or extensions with the same lessee), all interest in the property shall be either liquidated or re-leased * * * ( 11) providing courier services * * * * * * ( 12) providing management consulting ad vice9 * * * 9 * * * See also the B o a rd ’s in te rp reta tio n of bank m anagem ent consulting advice (12 C F R 225.131). 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