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F E D E R A L F1ESEF1YE EBAMGC
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Circular No. 9S©2 "T
May 27, 1983
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BANK HOLDING COMPANIES
Proposed EevMcm of Regulation Y
To All Bank Holding Companies, and Others Concerned,
in the Second Federal Reserve District:
Following is the text of a statement issued by the Board of Governors of the Federal Reserve System:
The Federal Reserve Board has proposed for public comment a complete overhaul and updating of the Board’s
Regulation Y — concerning bank holding companies and change in bank control.
The Board requested comment by July 18, 1983.
The revision of Regulation Y is designed to ease the regulatory burden by reducing the number of required
applications for nonbanking activities, simplifying procedures for filing such applications, and expediting the processing
of all applications.
In addition, the proposed revision o f Regulation Y would reorganize, simplify and clarify the regulation, add several
activities to those generally permissible for bank holding companies, incorporate Board rulings including its recently
restated definition of ‘‘bank ’’ for purposes of bank holding company regulation, and make a number of technical changes.
The proposed revision is part of the Board’s regulatory improvement program under which all Federal Reserve regulations
are being reviewed, simplified and modernized to reduce the burden of regulation and make Board regulations more easily
understood.
The Bank Holding Company Act requires prior Board approval for a bank holding company to acquire shares of a
bank, and regulates the nonbanking activities of bank holding companies and of foreign banking organizations that control
U.S. banks or have U.S. offices. The Change in Bank Control Act requires persons and certain companies to give notice to
the Board prior to acquiring shares representing control of a bank holding company or state member bank.
The major changes proposed in the revision to ease the regulatory burden and to clarify and simplify the regulation
include:
— modification or elimination o f the current requirement that a bank holding company file an application for each
de novo office for a nonbanking activity;
— expedited procedures (reduced to 15 days) for small acquisitions involving permissible nonbanking activities;
— elimination o f applications for small acquisitions involving the assets of a consumer finance or mortgage banking
office;
— elimination of certain applications involving acquisitions of bank shares in a fiduciary capacity;
— expedited publication o f notice o f proposed new nonbanking activities;
— imposition of deadlines in the regulation to expedite processing of applications;
— incorporation of significant Board interpretations including definitions of terms; and
— clarification of those types of transactions that do and those that do not require prior Board approval under the Act.
The proposed elimination or modification for approval of nonbank offices would reduce by about 75 percent the
number of applications for nonbank acquisitions that must be filed with the Board.
(OVER)
The Board’s proposals are estimated to reduce the processing time for bank holding company applications as follows:
E s tim a te d R e d u c tio n in P r o c e s s in g T im e
N u m b er o f
A p p lica tio n s
in 1982
4(c)(8) De Novos
Delegated Applications
Board-Action
All Cases
T otal
P ro cessin g
D ays
in 1982
662
1932
161
2755
31,776
86,513
15,373
133,664
E stim ated
A p plication s
W ith this
P ro p o sa l
1661
1932
161
2259
T otal
E stim a te d
P ro cessin g
D ays
R eduction in
P ro cessin g
D ays
P ercen t
R edu ction 2
5,478
57,803
10,546
73,827
26,300
28,710
4,829
59,839
83%
33%
31%
45%
1 It is estimated that 25 percent of the de novo notices that are presently filed will result in applications that will be processed in 30 days.
2 The reduction assumes that the System will attain the same proficiency in meeting its proposed processing goals that it achieved in 1982 with its current
processing goals.
For applications processed under delegated authority, the proposed regulation requires the Reserve Bank to act on an
application within 30 days of acceptance. In 1982, 93 percent of all applications to the Board were approved under
delegated authority. Thus, it is expected that the overwhelming majority of applications would be acted upon within 30
days under the proposed revision. For applications processed for Board action, the proposed regulation requires the Board
to act on an application within 60 days of acceptance by the Reserve Bank.
In addition to expedited processing schedules, application forms are being revised to eliminate items and information
available to the Board from other sources. It is estimated that these measures will reduce the number of pages required in
application forms by 40 to 60 percent.
The revision of Regulation Y proposes to add to the list of permissible nonbanking activities several activities that the
Board previously determined by order to be closely related to banking in particular cases, including commercial real estate
equity financing, underwriting and dealing in government obligations, futures commission merchant, foreign exchange
advisory and transaction services, and issuing money orders. In addition, the Board is seeking suggestions from
commenters for additional activities that should be added to the list of nonbanking activities that are permissible for bank
holding company entry.
Nonbanking activities already on the list of activities permissible for bank holding companies remain unchanged.
The proposed revised Regulation Y would incorporate the Board’s interpretation in a recent bank holding company
case1 that demand deposits include NOW and other transaction accounts and the Board’s interpretation in another case2 that
commercial loans include the purchase of commercial paper, certificates of deposit and other money market instruments.
The proposed regulation also replaces the notice requirement for stock redemptions by a bank holding company with a
general prohibition against redemptions unless the bank holding company meets the Board’s capital guidelines or the
redemption is minimal.
*
*
*
Comment is invited on the proposed regulatory changes as well as on other aspects of the proposed revision of
Regulation Y. The Board is also interested in receiving suggestions for any further simplification of Regulation Y and any
further suggestions for easing the regulatory burden.
1 First Bancorporation, 68 Federal Reserve Bulletin 253 (1982).
2 Letter, dated December 10, 1982, 1 Federal Reserve Regulatory Service, 4-363.2.
Enclosed — for bank holding companies, branches and agencies of foreign banks, and certain investment
companies in this District — is a copy of the full text of the Board’s proposed revision of Regulation Y. It will be
published in the Federal R egister, in addition, single copies of the proposal may be obtained from our Circulars
Division (Tel. No. 212-791-5216).
Comments on the proposed revision should be submitted by July 18, 1983, and may be sent to our Domestic
Banking Applications Department.
A nthony
M.
Solom on,
President.
FEDERAL RESERVE SYSTEM
REGULATION Y
(12 C.F.R. Part 225)
(DOCKET NO. R-0470)
BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL
Proposed Revision of Regulation Y
AGENCY:
ACTION:
Board of Governors of the Federal Reserve System.
N otice of Proposed rulemaking.
SUMMARY: As part of its program to improve and simplify its regulations, the
Board is proposing a revision of Regulation Y, its regulation implementing the
Bank Holding Company A ct of 1956, as amended (12 U.S.C. 1841 et seq.) and the
Change in Bank Control Act of 1978 (12 U.S.C. 1817(j)). The Bank Holding
Company A ct requires prior Board approval for a company to become a bank
holding company or for a bank holding company to acquire more than five
percent of the shares of a bank or a bank holding company. The A ct also
regulates the nonbanking activities of bank holding companies and of foreign
banking organizations that control U.S. banks or have U.S. offices. The Change
in Bank Control Act requires generally that persons and certain companies give
notice to the Board prior to acquiring shares representing control of a bank
holding company or state member bank.
The proposed revision will reduce the number of required applications
for nonbanking activities, simplify the procedures for filing such applications,
and expedite the processing of all applications.
With respect to required
applications or notices, the regulation clarifies and describes the transactions
that are covered and those that are exempt, and the factors considered by the
Board in acting on the application or notice. In addition, the Board is adopting a
new internal procedure for the processing of applications that will result in a
shorter period, 30 to 60 days instead of 90 days, for the processing of most bank
and nonbank applications. The internal changes are being made independently of
the proposed revision of Regulation Y and will be adopted as soon as they can be
implemented.
DATE:
All comments should be received by the Board by July 18, 1983.
ADDRESS: All comments, which should refer to Docket No. R-0470, should be
mailed to the Secretary, Board of Governors of the Federal Reserve System,
Washington, D.C. 20551, or delivered to Room B-2223, 20th & Constitution
Avenue, N.W., Washington, D.C., between 8:45 a.m. and 5:15 p.m. weekdays.
Comments may be inspected in Room B-1122 between 8:45 a.m. and 5:15 p.m.
weekdays.
FOR FURTHER INFORMATION CONTACT: J. Virgil Mattingly, Associate
General Counsel, Legal Division (202/452-3430); Bronwen Mason C haiffetz,
Senior Counsel, Legal Division (202/452-3564); Carl V. Howard, Senior Counsel,
Legal Division (202/452-3786); David Kulig, Senior Counsel, Regulatory Improve-
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ment Project (202/452-2347); Lily T. Pilgrim, Attorney, Regulatory Improvement
Project (202/452-2421); Don E. Kline, Associate Director, Division of Banking
Supervision and Regulation (202/452-3421); or Sidney M. Sussan, Assistant
Director, Division of Banking Supervision and Regulation (202/452-2638).
SUPPLEMENTARY INFORMATION: The Bank Holding Company A ct of 1956,
as amended ("BHC A ct”), governs the acquisition of control of banks by
companies and regulates the nonbanking activities of bank holding companies or
covered foreign banking organizations. It was enacted to prevent the undue
concentration of banking resources and to separate banking and commerce.
Section 5(b) of the BHC Act (12 U.S.C. 1844(b)) authorizes the Board to adopt
regulations to effectu ate the purposes of the BHC Act and to prevent evasion of
its provisions. The Change in Bank Control A ct of 1978 (’’Bank Control A ct”)
imposes a 60-day prior notice requirement on persons seeking to acquire control
of a bank holding company or an insured state-chartered bank that is a member
of the Federal Reserve System ("state member bank").
I. BACKGROUND AND SUMMARY
In January 1979, the Board established a Regulatory Improvement
Project and adopted procedures to improve the quality of its regulations. The
Board’s program calls for a thorough, periodic review of each of its existing
regulations (Statement of Policy Regarding Expanded Rulemaking Procedures, 44
Federal Register 3957 (1979)). The proposed revision of Regulation Y was
conducted under this program and pursuant to the Financial Regulation Simplifi
cation Act of 1980 (12 U.S.C. 3521). In accordance with the Board’s policy
statem ent and the Simplification A ct, the review focused on easing regulatory
burden and clarifying and simplifying the regulation consistent with the terms
and purposes of the BHC A ct, In an effort to improve overall understanding of
the regulation, the proposal specifies those transactions that do and those that
do not require prior Board approval under the A ct.
The Board carefully reviewed the procedures for handling applica
tions, particularly those for nonbanking activities. As reflected in the revised
regulation, the Board proposes reducing the number of required applications for
nonbanking activities and simplifying the procedures for filing such applications.
Over the past several years, the Board has consistently achieved its goal to
complete the processing of 90 percent of all applications it receives within 90
days of acceptance of the applications. In addition, the Board has delegated to
the Reserve Banks authority to act on more than 90 percent of BHC A ct
applications, a procedure which has shortened the tim e for decision on most
applications to 45 days. In connection with its review of procedures for handling
BHC Act applications, the Board is considering a new internal processing
schedule.
The new schedule, which is embodied in the proposed revision,
reduces the tim e for processing most bank and nonbank applications from 45 days
to 30 days for applications acted on under delegated authority, and from 90 to 60
days for applications acted on by the Board.
A !0°day deadline is also
established for Reserve Banks to review applications submitted for processing to
determine if they are com plete. Based on past experience, it is anticipated that
90 percent or more of all applications will be acted upon under delegated
authority, and thus be decided within 30 days.
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The Board has also reviewed its application forms to simplify them by
eliminating duplicative information and information already available to the
Board. The Board estim ates that these measures will reduce by between 40 to 60
percent the number of pages required in the current application forms.
The Board requests comments on all aspects of its proposed revision
of Regulation Y, including definitions of terms. The Board will consider any
additional areas for simplification and deregulation of Regulation Y that are
suggested by commenters.
The Board, however, is not proposing for reexamination whether
activities already on the list of permissible nonbanking activities in Regulation Y
are closely related to banking. Those activities have been subject to rulemaking
and extensive debate over the years. The Board does, however, propose to add to
the list of permissible activities several activities that the Board has previously
determined by order to be closely related to banking. In addition, commenters
are invited to suggest other activities that should be considered for addition to
the list of permissible nonbanking activities.
The changes proposed to ease regulatory burden and to clarify and
simplify the regulation include:
(1)
elimination or modification of the requirement that a
bank holding company obtain the Board's prior approval to open a new o ffice to
engage in a nonbanking activity in a state where the bank holding company has
previously obtained the Board's approval to engage in the particular nonbanking
activity (section 225.25(a)(2));
(2)
expedited procedures (lasting 15 days) for relatively small
acquisitions involving permissible nonbanking activities (section 225.25(e));
(3)
expedited publication of notices of proposed new nonbank
ing activities (section 225.25(c)(2)>,
the assets of
225.22(c)(8));
(4)
elimination of applications for small acquisitions involving
a consumer finance or mortgage banking o ffice (section
(5)
elimination of certain applications involving acquisitions
of bank shares in a fiduciary capacity (section 225.12(a));
(6)
incorporation into the regulation of deadlines for process
ing of applications and expediting of the application process (sections 225.14 and
225.25);
(7)
incorporation of significant Board interpretations and
statem ents of policy concerning regulatory and supervisory matters; and
(8)
specification of those types of transactions that do and
those that do not require prior Board approval under the A ct.
The proposed modification of the current requirement of Regulation
Y for the approval of each new office of a nonbank subsidiary would reduce by
about 75 percent the number of current nonbank applications filed with the
Board under section 4(c)(S) of the BHC A ct.
Another area that has been revised involves the purchase or
redemption by a bank holding company of its own securities (section 225.4(b)).
The Board proposes to substitute for the current notice provision standards
governing redemptions based upon the Board’s capital adequacy guidelines.
With respect to the format of the proposed revision, the Board has
incorporated all the important statutory provisions as they have been interpreted
by the Board. Moreover, the material has been reorganized into self-contained
subparts and stated as simply as possible. These structural changes should
improve understanding of the regulation, facilitate compliance, and promote
suggestions for further substantive improvements.
The Board certifies that none of the proposed changes will have a
significant economic impact on a substantial number of small entities within the
meaning of the Regulatory Flexibility A ct (5 U.S.C. 601).
The commentary that follows includes several Board rulings that are
not included in the body of the proposed revision of the regulation. In taking
final action on the revision, the Board expects to preserve these rulings in a
convenient format as a permanent source of guidance to the regulation.
II.
SUBPART A - GENERAL PROVISIONS
SECTION 225.1 - AUTHORITY, PURPOSE, AND SCOPE
This section of the proposed regulation identifies the Board’s statu
tory authority for issuing the regulation, states the primary purposes of the
regulation, and describes the scope of each of the five subparts. Subpart A
contains definitions, administrative provisions, and a section on corporate
practices of bank holding companies; Subpart B sets forth the requirements for
the acquisition of bank and bank holding company securities and assets; Subpart
C describes the limitations and requirements regarding nonbanking activities and
acquisitions; Subpart D contains the rules for control and divestiture proceed
ings; and Subpart E sets forth the provisions implementing the Bank Control Act.
The four operational subparts are comprehensive in that each subpart identifies
the transactions that are covered and those that are exem pt, and each subpart
sets forth the applicable procedures regarding applications, notices, and hear
ings.
Current regulation: 12 C.F.R. 225.1(a)
SECTION 225.2 - DEFINITIONS
This section contains the definitions of terms used in the proposed
regulation, and differs from the current regulation, which merely incorporates by
reference the statutory definitions. Some of the definitions in the proposed
revision mirror those in the BHC Act; others incorporate various Board interpre
tations.
Statutory reference: 12 U.S.C. 1841
Current regulation: 12 C.F.R. 225.1(b)
225.2(a) "Bank”
’’Bank” is defined as any institution that accepts demand deposits and
engages in the business of making commercial loans. This definition reflects the
statutory definition in section 2(c) of the BHC A ct and incorporates Board
interpretations of the terms "demand deposits" and "commercial lending" for the
purpose of determining whether an institution is a bank.
The statutory
exclusions from the definition of bank are also set forth in the regulation.
1.
Demand deposits. "Demand deposits" are defined to include any
deposit with transactional capability that is paid on demand as a matter of
practice, and include accounts accessible by check, draft, or negotiable order of
withdrawal (NOW). (First Bancorporation (Beehive Financial Corporation), 68
Federal Reserve Bulletin 253 (1982).)
2.
Commercial loans. The definition proposed reflects the Board's
position that all loans are "commercial" loans except those made to individuals
for personal, household, family, or charitable purposes. In order to prevent
evasion of the BHC A ct, the definition proposes to identify a variety of
instruments that may serve as substitutes for commercial loans. (Cf., Board
Ruling of December 10, 1982, 1 Federal Reserve Regulatory Service ("F.R.R.S.")
4-363.2.)
Statutory reference; 12 U.S.C. 1841(c)
05°
225.2(b) "Bank holding company"
The definition of "bank holding company" reflects the statutory
definition. The six exemptions from the definition contained in section 2(a)(5) of
the BHC A ct are also included and have been consolidated into four exemptions.
The proposed revision also incorporates the provisions of section £ of the
International Banking A ct of 1978 (12 U.S.C. 3106), which applies certain
provisions of the BHC A ct to foreign banks (and their parent companies)
operating branches, agencies and commercial lending companies in the United
States.
Statutory reference: 12 U.S.C. 1841(a); 12 U.S.C. 3106
225.2(c) "Company"
The definition of "company" in the proposed regulation includes the
statutory definition and the exclusions contained in section 2(b) of the BHC A ct.
In accordance with a long-standing Board interpretation, the term
"company" generally does not include buy-sell agreements, or voting trusts of 25
years or less duration, so long as the agreement or trust pertains solely to the
securities of one bank and the parties involved in the agreement or trust do not
engage jointly in any other banking or nonbanking activities. (Board Ruling of
May 4, 1972, 1 F.R.R.S. 4-185.5.)
The Board has also taken the position that individuals and/or compan
ies acting together must be joined under a formal agreement or structure in
order to be an "association." (Board Ruling of September 13, 1977, 1 F.R.R.S. 4420, aff'd sub. nom., Central Bank v. Board of Governors, No. 77-1937 (D.C. Cir.
(Feb. 1 1979).)
,
Statutory reference: 12 U.S.C. 1841(b)
225.2(d) "Control" of a bank or company
The proposed definition of "control" of a bank or company incorpor
ates the statutory definition from section 2 of the BHC A ct, i.e ., control based
on share ownership, election of directors or trustees, or controlling influence
determinations by the Board. With respect to controlling influence determina
tions, the proposed regulation conforms the provisions of sections 2(a)(2)(C) and
2(dX3) of the BHC Act by establishing that the Board may find control and a
parent-subsidiary relationship where the Board determines that a company has
the power to exercise a controlling influence over another company.
For purposes of section 225.2(dXl) of the proposed regulation, "acting
through one or more other persons" includes an arrangement under which a
person acts as an agent or is indemnified by the company in purchasing or holding
voting securities on behalf of the company. (Board letter, dated 3une 23, 1982,
to Security Corp., Duncan, Oklahoma.) The Board has also taken the position
that the ability to control the ultimate disposition of voting securities and to
secure the economic benefits from the disposition indicates control of the
securities. (Board Ruling of March IS, 1982, 1 F.R.RoS. 4-461.)
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The definition of control in the proposed regulation incorporates the
conclusive presumption of control now contained in section 225.2(a) of the
current regulation, which relates to the transfer of 25 percent or more of the
shares of a company being conditioned in any manner upon the transfer of 25
percent or more of the shares of smother company. For example, if the voting
shares of two companies are "stapled together" so that the transfer of one would
automatically result in the transfer of the other, the presumption would apply.
For purposes of this provision, the holders of securities of both companies
constitute a company for the purposes of the BHC A ct.
As provided in section 2(g) of the BHC A ct, the proposed definition of
control specifies that a company is deemed to control securities held by its
subsidiaries, or held in a fiduciary capacity for its benefit or the benefit of
shareholders or employees of the company or its subsidiaries. The Board has also
interpreted this provision to include assets held in these capacities.
For
example, this provision would attribute control of securities or assets to a
company if a profit sharing or pension plan for the benefit of the company's
employees holds the securities.
Apart from the proposed regulation, the Board in its policy statem ent
of 3uly S, 1982, outlined situations where nonvoting equity investm ents by a bank
holding company in another company or a bank might give the bank holding
company control of the other company or bank.
(Statement of Policy on
Nonvoting Equity Investments by Bank Holding Companies, 68 Federal Reserve
Bulletin 413 (1982).)
Statutory reference; 12 U.S.C. 1841 (a)(2),(d); 12 U.S.C. 1841(g)(1), (2)
225.2(e) "Management official"
The definition of management official is an abbreviated form for
referring to a person who is an officer, director, partner, or trustee of a
company or an employee of the company with policy-making functions. Direc
tors include honorary and advisory directors. This definition, which codifies a
Board interpretation of section 2(gX3) of the BHC A ct, is relevant in control and
divestiture proceedings under Subpart D of the proposed regulation. (12 C.F.R.
225.139.)
Statutory reference; 12 U.S.C. 1841(a)(2XC) and 1841(g)(3)
C urrent regulation: 12 C .F.R . 225.2(b)(1) and (2)
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225.2(f) "Outstanding shares"
This definition clarifies that the term "outstanding shares" refers
only to shares that are issued and that have voting rights. For example, under
this provision, outstanding shares would not include treasury shares held by a
company where the company is precluded by law from voting its own shares that
are held in its treasury.
Statutory reference; 12 U.S.C. 1843(c)(6),(7)
225.2(g) "Person"
The definition of "person" reflects the definition of person contained
in the Bank Control A ct.
Statutory reference: 12 U.S.C. 1817(jX8XA)
225.2(h) "Principal shareholder"
This definition reflects the current usage found in section 225.2(b) of
Regulation Y concerning the rebuttable presumptions of control. It is relevant
to determinations of control under Subpart D of the proposed regulation.
Current regulation:
12 C.F.R. 225.2(bX2)
225.2(i) "Subsidiary"
The definition of "subsidiary" reflects the statutory definition in
section 2(d) of the BHC A ct, and refers to indirect as well as direct subsidiaries.
For example, company C is a subsidiary of B which, in turn, is a subsidiary of A.
Under the definition, C is deemed to be a subsidiary of A.
Statutory reference; 12 U.S.C. 1841(d)
' 225.2(j) "Voting securities"
This definition clarifies the meaning of the term "voting shares" used
in sections 2, 3 and 4 of the BHC A ct. In the proposed regulation "voting
securities" are defined to mean shares of common and preferred stock, partner
ship interests, and other similar interests, if the holders are entitled (under
statute, charter, or in any manner) to vote for or select directors, trustees, or
partners, or to vote on significant matters.
Under this definition, the acquisition by a bank holding company of
"nonvoting stock" of another company would be lim ited to securities that do not
normally carry the right to elect or appoint any directors, or to vote on
significant matters. For example, the right to vote on or to veto payment of
dividends, mergers, acquisitions by, or dissolution of the company would be
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regarded as the right to vote on significant corporate matters. In addition, the
contingent right of the holders of a security to elect or appoint a director to the
board of a company under specified conditions, such as failure to pay a dividend,
would cause the security to be regarded as a voting security at the time the right
to vote arises.
Even though securities may be voting securities for the purposes of
this provision, it does not follow that they will be treated as equity for purposes
of financial analysis. Whether voting securities are treated as debt or equity will
depend upon their particular characteristics, e .g ., their term, right to dividends,
and priority in creditor claims.
Statutory reference: 12 U.S.C. 1841(a)(2XA),(3); 12 U.S.C. 1842(a); 12 U.S.C.
1843(a)(1) and (c)(6),(7)
SECTION 225.3 - ADMINISTRATION
225.3(a) Delegation of authority
This provision indicates that certain actions of the Board may be
taken by individuals or Reserve Banks delegated to act for the Board. For
example, officials of the Board staff and individual Reserve Banks are authorized
to act on applications, notices, and requests under certain conditions as well as
to take certain administrative actions in the processing of applications or notices
under this regulation. The functions delegated to particular Reserve Banks and
Board officials, as well as the conditions under which the delegation of authority
may be exercised, are detailed in the Board's Rules Regarding Delegation of
Authority (12 C.F.R. Part 265). Any person aggrieved by a decision under
delegated authority may appeal the decision to the Board. In addition, the Rules
provide that an action taken by a Reserve Bank under delegated authority may
be reviewed by the Board, if within 10 days after the action, a member of the
Board requests such review (12 C.F.R. 265.3).
225.3(b) Appropriate Federal Reserve Bank
This section specifies the Reserve Bank with which individuals and
companies are to file reports, applications, and notices under the regulation.
Current regulation: 12 C.F.R. 225.1(c)
SECTION 225.4 - CORPORATE PRACTICES
225.4(a) Bank holding company policy and operations
This section codifies the policy of the Board that a bank holding
company should serve as a source of strength for its bank subsidiaries, and
conduct its bank and nonbank operations in accordance with sound banking policy
and practice. Under this provision, bank holding companies should observe the
statem ents of policy issued by the Board from tim e to tim e concerning
supervisory and other matters. The provision is derived from section 3(c) of the
BHC A ct, which requires the Board to consider the financial and managerial
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resources and future prospects of the company and banks concerned; from
section 5(b) of the BHC A ct, which authorizes the Board to issue regulations; and
from the Board's authority under the Financial Institutions Supervisory A ct to
issue cease and desist orders to prevent unsafe or unsound banking practices (12
U.S.C. 1818(b)(1) and (3)).
This provision also describes the provision in section 5(e) of the BHC
Act that the Board may order divestiture of a nonbank activity or subsidiary if it
determines that the activity or subsidiary constitutes a serious risk to the
financial safety, soundness or stability of a bank holding company bank and is
inconsistent with sound banking principles or the purposes of the BHC A ct.
Statutory reference: 12 U.S.C. 1842(c), 1844(b), 1844(e), 1818(b)
225.4(b) Purchase or redemption by a bank holding company of its own securities
As reflected in the preceding provision of the proposed regulation, a
bank holding company should serve as a source of strength to its bank
subsidiaries. Each application for a bank holding company formation or bank
acquisition that has been approved by the Board has been approved on this basis,
and the bank holding company has a continuing obligation to serve as a source of
strength to its subsidiary banks.
The current regulation requires 45 days notice to the Board for a
redemption of its securities if the redemption exceeds 10 percent of the net
worth of the bank holding company. This provision was adopted in 1976 before
the Board issued its Policy Statem ent on Capital Adequacy (1 F.R.R.S. 3-1506),
which reflects the Board’s judgment as to the minimum adequate capital levels
for banks and bank holding companies of various sizes. To update the regulation,
the Board proposes to amend the provisions of Regulation Y regarding
redemptions to prohibit a bank holding company from purchasing or redeeming
its equity securities, unless, after giving e ffe c t to the redemption or acquisition,
the bank holding company complies with the minimum standards in the Board’s
Policy Statem ent on Capital Adequacy. The references to capital contained in
the proposed regulation should be calculated in accordance with the definitions
of capital in the Board’s policy statem ent.
The proposed regulation would also permit a redemption where the
guidelines are not met only if the redemption is de minimis or with the Board’s
prior approval. Approval would only be granted in unusual circum stances, since
the Board does not believe that it is appropriate for a bank holding company that
does not meet the Board’s capital adequacy guidelines to make redemptions of
securities that detract from the bank holding company’s ability to serve as a
source of strength to its subsidiary banks.
As with the capital adequacy standards, the standards for permissible
acquisitions of equity securities are keyed to the size of the organization, and
the result of the proposed redemption ©f securities on capital ratios. Since the
Board has not published capital guidelines for large multi-national banking
organizations, those organizations would be required, for the purposes of the
redemption provision, to m eet the standards applicable to organizations with
assets of $1 billion or more. Use of these standards does not indicate that the
Board has determined that these standards should be applied to large multi
national banking organizations for other capital adequacy purposes.
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With respect to the smallest organizations (under $150 million), the
capital ratios, after giving e ffe c t to the proposed redemption of securities, are
those of either each of the subsidiary bank(s), or the consolidated organization.
This difference recognizes that most smaller organizations exist primarily for
financing the acquisition of the subsidiary bank and are highly leveraged. The
use of consolidated ratios by these organizations in most instances would not
allow them to make redemptions of equity securities. In order to compensate
for the use of the more liberal bank-only capital ratios for smaller organizations,
the proposed regulation imposes an additional test for permissible redemptions
that, giving e ffe c t to the proposed redemption, the debt-to-equity ratio of the
parent is not more than 30 percent. This additional test will lim it the ability of
highly-leveraged organizations to redeem securities where the redemptions may
adversely a ffect their financial strength.
Statutory reference: 12 U.S.C. 1844(b), 181 S(bX3)
Current regulation:
12 C.F.R. 225.6
225.4(c) Deposit insurance
This provision reflects the statutory requirement in section 3(e) of
the BHC A ct that a bank must obtain Federal Deposit Insurance before it
becomes a bank holding company or a subsidiary of a bank holding company.
Statutory reference: 12 U.S.C. 1842(e)
225.4(d) "Tie-in" arrangements
This provision, which is contained in the current regulation, imposes
on bank holding companies and nonbanking subsidiaries conducting activities
pursuant to section 4(cXS) of the BHC A ct the prohibition against "tie-in"
arrangements contained in section 106(b) of the BHC A ct Amendments of 1970.
For example, a nonbank subsidiary that is engaged in lending may not fix or vary
the interest rate on its loans on the condition that the borrower obtain additional
credit, property, or services from the parent holding company or from another
subsidiary of the bank holding company. On the other hand, consistent with this
regulation, a nonbank lending subsidiary may vary the interest rate on its loan to
a customer based on the volume of borrowing by the customer from the
subsidiary.
Statutory reference; 12 U.S.C. 1972(1)
Current regulation: 12 C.F.R. 225.4(c)(1)
225.4(e) Acting as transfer agent, municipal securities dealer, or clearing agent
This provision replaces the detailed provisions in the current regula
tion concerning securities activites of a bank holding company or a nonbanking
subsidiary that is a "bank” as defined in section 3(a)(6) of the Securities Exchange
A ct of 1934 (15 U.S.C. 78c(a)(6)). Under the Board’s Regulation H (12 C0 R.
F0
208.8(f)-(j)), a member bank acting as a transfer agent, municipal securities
on-
dealer, or clearing agent, or as a participant in a clearing agency, must comply
with requirements that are identical to those now contained in Regulation Y. In
order to avoid this duplication, the proposed regulation refers to the relevant
provisions of Regulation H, and provides that a bank holding company or covered
nonbanking subsidiary must comply with the requirements of Regulation H as if
it were a state member bank. If the bank holding company is itself a bank, it
would be subject instead to the regulations of its primary banking supervisor.
Subsidiaries of bank holding companies that are national banks, insured state
nonmember banks, or nonbanking subsidiaries not subject to this paragraph are
subject to comparable rules of the Comptroller of the Currency, the Federal
Deposit Insurance Corporation, and the Securities and Exchange Commission,
respectively.
Current regulation: 12 C.F.R. 225.5(c)-(f)
SECTION 225.5 - REGISTRATION, REPORTS, AND INSPECTIONS
A bank holding company should consult with the appropriate Reserve
Bank as to the manner, form, and content of the information it must furnish to
comply with this section. At the time of approval of an application to become a
bank holding company, the company is advised by letter of the information that
must be filed to satisfy the registration requirement. Thereafter, the company
is furnished the appropriate forms for filing annual and other required reports.
Bank holding companies and their subsidiaries are subject to examina
tion and inspection by the appropriate Reserve Bank pursuant to instructions
from the Board.
Statutory reference; 12 U»S.C. 1844
Current regulation: 12 C.F.R. 225.5(a), (b)
SECTION 225.6 - PENALTIES FOR VIOLATIONS
This section has been added to the proposed regulation to refer the
reader to those provisions of the BHC A ct, the Bank Control A ct, and the
Financial Institutions Supervisory A ct, that subject individuals and companies to
civil and criminal penalties and other administrative sanctions for violations.
Statutory reference; The statutory references are set forth in the proposed
regulation.
0 12
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III.
SUBPART B - ACQUISITION OF BANK SECURITIES OR ASSETS
SECTION 225.11 - TRANSACTIONS REQUIRING BOARD APPROVAL
This section of the proposed regulation, which is based on section 3(a)
of the BHC A ct, sets out the following transactions for which prior Board
approval is required: (a) formation of a bank holding company; (b) acquisition of
a subsidiary bank; (c) acquisition by a bank holding company of control of more
than 5 percent of the voting securities of a bank or a bank holding company; (d)
acquisition of bank assets; (e) merger or consolidation of bank holding companies;
and (f) any other acquisition that the Board determines in a particular case
requires prior approval under the BHC A ct.
Generally, the acquisition by a bank or bank holding company of its
own voting securities or those of its parent bank holding company would not
require the Board’s approval under this section of the proposed regulation. Such
an acquisition may, however, be prohibited under section 225.4(b) of Subpart A
because it reduces the capital below the minimum standards for capital adequacy
established by the Board.
Statutory reference: 12 U.S.C. 1842(a)
225.11(c) Acquisition of control of bank securities or bank holding company
securities
Under this section, a bank holding company must apply for the
Board’s prior approval to acquire voting securities of a bank or bank holding
company if, after the acquisition, it would hold more than 5 percent of any class
of voting securities of the bank or bank holding
company.
This section differs
from the literal terms of section 3(aX3) of the BHC A ct, which refers only to
acquisition of voting shares of a bank. However, the Board has determined that
section 3 also applies to the acquisition by a bank holding company of shares of
another bank holding company. (State Street Boston Corporation, 67 Federal
Reserve Bulletin 862 (1981).)
Questions have arisen with respect to the need for an application
under section 3(a) of the BHC Act in the case of a stock dividend or split, and
the need for an application by a shareholder whose interest in a bank or company
increases through a redemption by a bank or company of its own securities.
Under paragraph (c) of this section of the proposed regulation, the receipt of
securities from a stock dividend or split is not considered an acquisition requiring
the Board’s prior approval as long as the dividend or split does not alter the
holding company’s proportional share of any class of voting securities. This
reflects the position contained in an existing Board interpretation. (12 C.F.R.
225.103.)
A redemption of securities by a bank or bank holding company that
increases the proportional interest of a holder of such securities usually will be
regarded as an "acquisition” of bank securities by the holder and will require the
holder to file an application for prior Board approval, even though the holder
receives no additional shares. For example, an application would be required
under paragraph (a) of this section if the redemption results in the holder
becoming a bank holding company because its proportional interest has increased
to 25 percent or more of any class of voting securities of a bank or bank holding
company.
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225.11(d) Acquisition of bank assets
Under section 3(aX4) of the BHC A ct and under this provision, the
acquisition by a bank holding company or a nonbank subsidiary of all or
substantially all of the assets of a bank requires the Board's prior approval. This
requirement does not apply where the acquisition of bank assets is made by a
subsidiary bank of a bank holding company. For the treatm ent of mergers
involving subsidiary banks of a bank holding company, see section 225.12(d) of
the proposed regulation and the commentary to that section below.
225.11(e) Merger of bank holding companies
Under section 3(a)(5) of the BHC A ct and under this provision, a
merger or consolidation of two or more bank holding companies requires prior
Board approval. An exception to this requirement is a consolidation or merger in
connection with a corporate reorganization. For example, in a tiered corporate
structure where a bank holding company has a subsidiary that is also a bank
holding company, the subsidiary may be merged into the parent without filing an
application. However, the addition of a new bank holding company to a tiered
bank holding company system normally would require prior approval under
section 225.11 of the proposed regulation.
225.11(f) Other acquisitions
Under this provision, the Board may determine that certain other
acquisitions of securities of an institution require the Board’s prior approval
under section 3 of the BHC A ct. The Board would not make a determination that
a particular acquisition requires its approval before giving the acquiring company
notice. The Board may exercise its authority under this provision whether or not
a notice or application with respect to the proposed acquisition has been filed
under any other provision of law. This provision is proposed pursuant to the
Board's authority under section 5(b) of the BHC A ct to adopt regulations to carry
out the purposes of the A ct and to prevent evasions, and it codifies 12 U.S.C.
lS17(j)(16), which provides that a transaction subject to the Board's approval
under section 3 of the BHC A ct is not subject to the Bank Control A ct.
SECTION 225.12 - TRANSACTIONS NOT REQUIRING BOARD APPROVAL
This section specifies transactions for which prior Board approval is
not required under section 3(a) of the BHC A ct.
Statutory references 12 UoS.C. 1142(a)
225.12(a) Acquisition of securities in fiduciary capacity
This paragraph provides that Board approval is not required for the
acquisition by a company (including a bank) of voting securities of a bank or bank
holding company in good faith in a fiduciary capacity, unless (1) the company has
sole discretionary authority to vote the securities and will retain that authority
for more than two years, or (2) the acquisition is for the benefit of the company,
its shareholders, em ployees, ©r subsidiaries. The second clause is based upon the
statutory presumption in sections 2(g)(1) and (2) of the BHC A ct.
0=14°
Within 90 days of receiving voting securities of a bank or bank
holding company in a fiduciary capacity with sole discretionary voting authority,
a bank holding company is required under section 3(a) of the BHC A ct to file an
application to retain the shares. The current regulation provides that such an
application (in the form of a letter) is automatically approved within ^5 days if it
is accompanied by an unconditional undertaking to dispose of the shares or the
voting authority within two years. Since the BHC A ct gives the applicant a 2year grace period to retain the shares even if the application is denied, the Board
believes this application procedure is of little value. Therefore, under the
proposed regulation, no application is required unless the company proposes to
retain the shares with sole discretionary voting authority beyond the two-year
grace period. If an application is required under this provision, the application
should be filed in time for Board action before the two-year grace period
expires.
While the exception contained in section 3 of the BHC A ct for the
acquisition of bank or bank holding company securities in a fiduciary capacity is
lim ited to such acquisitions made by a bank, the proposed regulation extends the
exception for fiduciary acquisition of bank and bank holding company securities
to those made by a nonbank company. This liberalization is being proposed in
recognition of the fact that there are nonbank companies, including nonbank
subsidiaries of bank holding companies, that are engaged in fiduciary activities
and would receive securities in a fiduciary capacity.
The fiduciary exemption in the BHC A ct does not exem pt the
acquisition of bank or bank holding company shares by a bank as fiduciary for a
trust that is a "company” as defined in section 225.2(c) of Subpart A. Thus, an
application must be filed by such a trust if it proposes to make an acquisition of
bank or bank holding company securities covered under section 225.11 of the
proposed regulation. In this situation, however, an application would not also be
required from the fiduciary or its parent, if the fiduciary m eets the requirements
for the exemption described in section 225.12(a) of the proposed regulation.
The BHC A ct also does not exempt a transaction where the fiduciary
receives shares from a selling company that is deemed to continue to control the
shares after the divestiture under section 2(g)(3) of the BHC A ct. This statutory
provision is implemented in Subpart D of the proposed regulation.
Statutory reference: 12 U.S.C. 1842(aXAXi)
Current regulation: 12 C.F.R. 225.3(c)
225.12(b) Acquisition of securities in satisfaction of debts previously contracted
This provision exempts from the prior approval requirement the
acquisition by a company (including a bank) of voting securities of a bank or bank
holding company in the regular course of securing or collecting a debt previously
contracted in good faith, so long as the company divests the securities within
two years of acquisition. Under section 3(a) of the BHC A ct, the Board may
grant up to three one-year extensions of the two-year divestiture period.
For example, a bank subsidiary of a bank holding company that has
made a loan collateralized by more than 5 percent of the voting securities of a
bank may acquire those securities without the Board's approval in the event of a
default by the borrower. The bank and its holding company would be required to
file an application under this subpart for Board approval to retain those shares
beyond the permissible tim e period.
While the statutory exception is limited to acquisitions made by
banks, the proposed regulation extends the exception to any company that
acquires bank securities in good faith in satisfaction of a debt previously
contracted. This liberalization is being proposed in recognition of the fa ct that
there are nonbank companies, including nonbank subsidiaries of bank holding
companies, that make bank stock loans.
Statutory reference: 12 U.S.C. 1842(a)(A)(ii)
225.12(c) Acquisition of securities by bank holding company with majority
control
A bank holding company that lawfully controls a majority of the
outstanding voting securities of a bank or bank holding company may acquire,
without the Board’s approval, any number of additional voting securities of the
bank or bank holding company.
Statutory reference; 12 U.S.C. 1842(a)(B)
225.12(d) Transactions subject to Bank Merger A ct
It has been the Board's practice not to require an application under
section 3(a) of the BHC A ct for a merger, consolidation, or purchase of assets
transaction involving a nonsubsidiary bank and an operating subsidiary bank of a
bank holding company, or two or more subsidiary banks of a bank holding
company, if the transaction is subject to the approval of a federal supervisory
agency under the Bank Merger A ct (12 U.S.C. 1828) and the resulting bank is a
subsidiary of the bank holding company. However, an application under the BHC
A ct would be required for a merger or consolidation involving the acquisition of
shares of a nonsubsidiary bank, if the acquisition of shares and the merger or
consolidation do not occur simultaneously.
Section 3(aX^) of the BHC A ct provides that prior Board approval is
not required for the acquisition of bank assets by a bank subsidiary of a bank
holding company. Based upon its practice in administering the statute, the Board
has treated merger and consolidation transactions in the same manner as asset
acquisitions so long as they were subject to approval under the Bank Merger A ct,
which contains standards that are identical to those in section 3 of the BHC A ct.
The proposed regulation does not provide an exemption from prior
approval where a merger is between a nonsubsidiary bank and a nonoperating
(’’phantom”) bank formed by a bank holding company for the purpose of acquiring
mil the outstanding shares of the nonsubsidiary bank. This type of transaction is
more appropriately viewed as a bank acquisition subject to the provisions of
sections 3(aXl)> 3(a)(2), or (3)(aX3) of the BHC A ct and section 225.11 of the
proposed regulation.
Statutory reference; 12 U*S.Cs 18^2(aX^)
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225.12(e) Holding securities in escrow
This provision incorporates a Board interpretation that an application
for prior approval is not required for the acquisition of securities of a bank or
bank holding company in escrow, where the title to the securities and the voting
rights remain with the seller and the seller has not received payment for the
securities.
Current regulation: 12 C.F.R. 225.134
SECTION 225.13 - FACTORS CONSIDERED IN DECIDING APPLICATIONS
UNDER SUBPART B
225.13(a) Prohibited anticompetitive transactions
Paragraph (a) of this section incorporates the statutory prohibition in
section 3(c) of the BHC Act that the Board may not approve a transaction that
results in a monopoly. Similarly, the BHC Act bars the Board from approving a
transaction that would result in a violation of the antitrust laws (section 2 of the
Sherman Act and section 7 of the Clayton Act), unless the Board finds that the
anticompetitive effects are clearly outweighed by convenience and needs consi
derations. For example, in the case of a failing bank, the Board may find that
the continuation of the bank as a viable institution providing financial services to
the community clearly outweighs the anticompetitive effects resulting from its
acquisition by the particular bank holding company.
Statutory reference: 12 U.S.C. 1842(c)(1) and (2)
225.13(b) Other factors considered
This paragraph, which is based on section 3(c) of the BHC Act,
outlines the factors considered by the Board in acting on all applications for
acquisitions of banks and bank holding companies under this subpart. The factors
include financial and managerial resources and the convenience and needs of the
communities to be served. The Board assesses these factors with respect to the
applicant, the bank to be acquired, and all banks affiliated with the applicant by
common management or shareholders. In assessing the impact of a transaction
on community convenience and needs, the Board considers the effects of the
proposal on existing and potential competition and on the concentration of
banking resources.
In significant cases, the Board's order reflects the Board's considera
tion of these factors in the particular case. The more significant orders,
including all denials, are reprinted in full in the "Legal Developments" section of
the Federal Reserve Bulletin, typically in the following month’s issue.
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In addition to its orders, the Board from tim e to tim e issues general
policy and inform ation statem e n ts concerning bank holding company operations.
(See, e .g ., C apital Adequacy G uidelines, D ecem ber 17, 1981, 1 FoR.R°S. 3=15065
Policy S tatem en t for Assessing Financial F acto rs in th e F orm ation of Small OneBank Holding Companies pursuant to th e Bank Holding Company A c t, March 28,
1980, 1 F.R .R .S. 4-855? Com m unity R einvestm ent A ct Inform ation S ta te m e n t,
Jan . 3, 1980, 3 F.R .R .S. 6=13095 Policy S tatem en t Regarding N otice of A pplica
tions; Tim eliness of Com m ents; and Guidelines for Public M eetings, 12 C .F.R .
262.255 see also proposed Policy S tatem en t for Assessing C om petitive F acto rs
Under th e Bank M erger A ct and th e Bank Holding Company A c t, 47 Federal
R eg ister 9017 (D ocket No. R-0386, March 3, 1982). For o th er policy statem e n ts
and d irectives, see M iscellaneous Supervisory M aterial, 1 F.R .R .S., 4-800, e t
seq .)
'
^
S ta tu to ry re fe re n c e s 12 UJS.C. 1842(c)
225.13(c) In te rs ta te transactions
P aragraph (c) re fle c ts the sta tu to ry prohibition in section 3(d) of the
BHC A ct ("Douglas A m endm ent"), which provides generally th a t th e Board may
not approve an application th a t will resu lt in a bank holding company acquiring
an in te re st in banks in two or more sta te s. The provision m akes clear th a t the
prohibition applies to applications for the form ation of a m u lti-sta te bank
holding company, as well as a bank or bank holding company acquisition by an
existing bank holding company. St would not, how ever, apply to the form ation of
a bank holding company to acquire an existing in te rs ta te bank holding company.
P aragraph (cX2) contains the two exceptions in section 3(d) of the
BHC A ct to the BHC A c ts general prohibition against m u lti-sta te bank holding
com panies. The first exception is for an acquisition by an o u t-o f-sta te bank
holding company where th e s ta tu te laws of th e s ta te in which th e bank to be
acquired is located specifically allow such an acquisition. The second exception
is for the acquisition of a failing bank by an o u t-o f-sta te bank holding company,
and it Is included to re fle c t the am endm ent to section 3(d) of th e BHC A ct by
section 116 of th e G arn-St G erm ain Depository In stitu tio n s A ct of 1982 ("GarnSt Germ ain") (Pub. L. 97-320, 96 S ta t. 1477).
S ta tu to ry re fe re n c e s 12 UJS.C. 1842(d)
SECTION 225.14 - PROCEDURES FOR APPLICATIONS, NOTICES, AND HEARINGS
225.14(a)-(d) A pplications,"notices, and action on applications
The proposed regulation se ts fo rth th e procedures for applications,
notices, and hearings w ith resp ect to applications for th e Board’s prior approval
©f acquisitions of bank secu rities and assets.— In accordance with sectio n 262.3
of the Board’s R ules of P rocedure, an applicant seeking Board approval under this
~
* / For a n a rra tiv e description of the processing of applications, see
th e pam phlet Processing Bank Holding Company and M erger A pplications,
F ed eral R eserve System inform ation Series.
"
.......~
...
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subpart is required to file an application, on a form prescribed by the Board, with
the appropriate Reserve Bank. An applicant is also required to arrange for
notices in a newspaper of general circulation inviting comment on the
application for 30 days in accordance with the requirements of the Board’s Rules
of Procedure (12 C.F.R. 262.3(b)).
In an effort to expedite the processing of applications, the proposed
regulation establishes time constraints for accepting an application for process
ing or notifying the applicant that the application is incomplete and seeking
additional information. Upon receipt of an application for processing, the
Reserve Bank is required to give notice to and request the comments of the
primary banking supervisor of the bank to be acquired. Notice of the application
will also be sent to the Federal Register at that time for publication. The
Federal Register notice will provide a comment period of no more than 30 days.
The publication of the Federal Register notice upon receipt by the Reserve Bank
of an application rather than awaiting formal acceptance of the application will
reduce the processing time for many applications.
The proposed regulation provides that the application will be
approved within 30 days after acceptance by the Reserve Bank, unless the
applicant is notified that it has been referred to the Board for decision because
the application does not meet the Board's criteria for delegated action. During
1982, 93 percent of all applications submitted to the System were approved
under delegated authority. Thus, under the proposed regulation it is expected
that the vast majority of applications will be acted upon within 30 days of their
acceptance by the Reserve Bank. The Reserve Bank is authorized to extend this
30 day period for 15 days when the additional time is needed to resolve a protest
or other substantive matter.
In the case of applications referred to the Board, the proposed
regulation provides that the Board must act on an application within 60 days of
its acceptance by the Reserve Bank. This period may be extended for additional
time if the Board advises the applicant of the duration of the extension and the
reasons for it. In no event may the Board extend the period for action beyond
the 91-day period provided in paragraph (f) of this section discussed below. As
discussed earlier, the Board has established an internal processing schedule of 60
days for cases to be acted upon by the Board and expects that the great majority
of such cases will be acted upon with the 60 day period.
The proposed regulation omits a provision in the current regulation
that provides for the automatic approval of certain one-bank holding company
formations at the end of a 45-day period. In practice, the Federal Reserve
System issues orders in the case of every application submitted under section 3
of the BHC Act, and thus the automatic approval procedure has not generally
been followed. The omission of this provision should not have any impact on the
processing time for routine one-bank holding company formations, however,
since, as described above, the majority of such applications will be approved
within 30 days of acceptance by the appropriate Reserve Bank, pursuant to
delegated authority.
Statutory reference: 12 UoS.C. 1842(b)
Current regulation:
12 C.F.R. 225.3
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225.14(e) Hearings
The proposed regulation reflects the requirement in section 3(b) of
the BHC Act that the Board shall order a hearing if it receives a timely written
recommendation of disapproval of the application from the primary banking
supervisor.
In administering the BHC Act, the Board has in particular instances
found hearings or other proceedings useful in developing a complete record in
connection with the processing of an application. Accordingly, under the
proposed regulation, the Board has the discretion to order any proceeding that it
deems appropriate to facilitate action on an application.
Statutory reference: 12 U.S.C. 1842(b)
Current regulation; 12 C.F.R. 225.3(d)
225.14(f) Approval through failure to act
In judicial decisions involving the 91-day provision in sections 3(a) and
4(c)(8) of the BHC Act, courts have indicated that adoption by the Board of a
regulation regarding the calculation of the 91-day period would be desirable.
Accordingly, the proposed regulation incorporates judicial constructions of the
91-day rule in the BHC Act, and provides that an application shall be deemed
approved if the Board fails to act within 91 days after the date that the record
on the application is complete. In conformance with established rules for
computation of time periods, such as the Federal Rules of Civil Procedure, the
first complete day of the 91-day period is the day following completion of the
record. Under this method of computation, the date the record is completed is
day zero and the Board must act within 91 days thereafter. The proposed
regulation also specifies that Board action includes issuance of an order stating
that the Board has approved or denied the application, reflecting the votes of the
Board members, and indicating that a statem ent of the reasons for the action
will follow.
The proposed provision specifies that the record on an application
will not be considered complete before: (1) the date the Board receives an
application accepted for processing by a Reserve Bank; (2) the last day of the
formal comment period specified in any notice required under the regulation; (3)
the date of the receipt of the last relevant, noncumulative information needed
for the Board’s decision on the application from a source outside the Federal
Reserve System; or (4) the completion of any hearing required on the application.
Information from a source outside the Federal Reserve System
includes any information submitted by the applicant in response to a request by
the Board during the proceeding, as well as information from a government
agency or potential competitor. In addition, if the Board has requested
information that the Board believes is necessary for its decision, the record is
not complete until the Board receives that information. Similarly, if the Board
is awaiting the results of an examination of any bank involved in the application,
the record would not be complete until the Board receives the examination
report. (See Tri-State Bancorporation, Inc, v. Board of Governors, 524 F.2d 562
020=
(7th Cir. 1975); North Lawndale Economic Development Corp. v. Board of
Governors, 553 F.2d 23 (7th Cir. 1977); Central Wisconsin Bankshares, Inc, v.
Board of Governors, 5S3 F.2d 294 (7th Cir. 1978); Republic of Texas Corp. v.
Board of Governors, 649 F.2d 1026 (5th Cir. 1981).)
An applicant or other interested person may contact Board staff for
informal advice on the calculation of the 91-day period for a particular
application. In response to such requests, Board staff will inform the applicant
of the last date provided in any notice for comment on the application and the
last date that any relevant information concerning the application has been
received from outside the Federal Reserve System. It should be understood that
dates provided by the staff in response to informal requests are subject to
change if additional information is subsequently submitted to the Board.
Statutory reference: 12 U.S.C. 1842(b)
225.14(g) Exceptions to notice and hearing requirements
This provision, which is derived from section 3(b) of the BHC Act,
authorizes the Board to modify or dispense with the notice and hearing
requirements in the case of a probable bank failure or other emergency situation.
The procedures authorized under this provision normally will be utilized in close
consultation with the appropriate financial regulatory agencies. Generally, an
emergency situation is one that is less serious than a probable bank failure, and
the Board has considerable discretion to determine that an emergency exists
under particular circumstances.
Statutory reference: 12 U.S.C. 1842(b)
225.14(h) Waiting period
Under section 11(b) of the BHC Act, transactions for which an
application has been approved under section 3 of the Act, either as a result of
Board approval or the 91-day rule, may not be consummated until the thirtieth
day after approval of the application. Emergency and failing bank acquisitions
are generally exempt from the 30-day waiting period. The purpose of the
waiting period is to afford the United States Department of Justice an
opportunity to review the proposal and determine whether it conforms to the
antitrust laws. If the Department does not challenge the merger during this
period, the merger is thereafter immune from challenge under section 7 of the
Clayton Act.
The Board requests comment on the feasibility of an amendment to
Regulation Y that will allow this waiting period to be reduced with the
concurrence of the Department of Justice where the proposal does not present
any anticompetitive effects. For example, one-bank holding company formations
generally do not present anticompetitive effects and are not the type of
proposals for which the 30-day waiting period was designed.
Statutory reference: 12 U.S.C. 1849(b)
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IV. SUBPART C - NONBANKING ACTIVITIES AND
ACQUISITIONS OF BANK HOLDING COMPANIES
Section 4 of the BHC A ct embodies one of th e prim ary purposes of
the BHC A ct, the separation of banking and com m erce, by lim iting the
nonbanking activ itie s in which a bank holding company and its subsidiaries may
engage and by prohibiting th e acquisition of shares in nonbanking e n titie s unless
such acquisitions are specifically p erm itted under one of th e exem ptions to the
section. This subpart of the proposed regulation im plem ents section 4 and
applies to any bank holding company as defined in Subpart A (including certain
foreign banking organizations).
The subpart sets fo rth the lim itations on nonbanking a c tiv itie s and
describes th e m ajor exem ptions from the nonbanking prohibitions contained in
the BHC A ct. The sta tu to ry exem ption in section 4(a)(2) of the BHC A ct
relating to reten tio n of real e s ta te holdings acquired prior to 1970, and the
lim ited exem ption in section 4(cXlO) for a bank th a t is a bank holding company
have not been included in th e regulation because of th e ir lim ited applicability.
Also, the provisions of section 4(cXl2) of the BHC A ct, which p ertain to the
expansion of nonbanking a ctiv itie s th a t w ere required to be divested by 19S0, are
not included.
The sta tu to ry exem ptions in sections 4(cX9) and (13) of the BHC A ct
a re im plem ented in various provisions of R egulation K ("International Banking
O perations," 12 C .F.R . P a rt 211). Section 4(cX9) concerns shares held or
activ itie s conducted by a company organized under th e laws of a foreign country.
Section 4(c)(13) re la tes to the exem ption for shares or a c tiv itie s of a company
th a t does no business in th e U nited S ta te s ex cep t as an incident to its
international a ctiv ities.
Section 4(cXl4) of th e BHC A ct, which was added in 19S2 by the Bank
E xport Services A ct (Title II of Public Law 97°29Q), Involves an exem ption for
acquisition by a bank holding company of an investm ent in an export trading
company. The Board's proposed am endm ent to R egulation K im plem enting this
exem ption was issued for com m ent on Jan u ary 14, I9S3 (48 F e d . Reg. 3775,
D ocket No. R-0445).
SECTION 225.21 - PERMISSIBLE NONBANKING ACTIVITIES AND ACQUISI
TIONS; EXEMPT BANK HOLDING COMPANIES
225.21(a) Perm issible nonbanking a ctiv itie s and acquisitions
This paragraph re fle c ts th e prohibition of section 4(a) of th e BHC A ct
th a t a bank holding company and its subsidiaries may not engage in any activ ity
other than those of banking or managing or controlling banks or activ itie s
otherw ise deem ed perm issible under the BHC A ct, and may not acquire voting
secu rities of a company engaged in im perm issible a ctiv itie s.
Since the sta tu to ry definition of company in
A c t includes th e term "'partnership," th e prohibition
nonbanking a c tiv ity also applies to a bank holding
becom ing a p a rtn e r in a partnership (or acquiring
C~22~
section 2(b) of th e BHC
against engaging in a
company @ subsidiary
r
voting sec u rities In a
partnership) that is engaged in nonbanking activities. (See Central Colorado Co.
oc C.C.B., Inc., 66 Federal Reserve Bulletin 655 (198U7TJ Similarly," the
prohibition applies to acquiring an interest in a joint venture (either in corporate
or partnership form), where the joint venture is engaged in a nonbanking activity.
Under section 225.4(cX3) of the current regulation and a current
Board interpretation, the prohibition against nonbanking acquisitions also in
cludes acquisitions of assets of a going concern (12 C.F.R. 225.132). Specifical
ly, under these provisions, assets acquired other than in the ordinary course of
business or that constitute the acquisition in whole or in part of a going concern,
including a subsidiary, division, department or office, are subject to the
prohibitions and prior approval requirements of section 4 of the BHC Act. (As
discussed below, the Board is providing exemptions in sections 225.22(c)(7) and
(S) from prior approval requirements for assets acquired in the ordinary course of
business and for certain assets acquired by consumer finance and residential
mortgage banking companies.)
Statutory reference: 12 U.S.C. 1843(a)(1), (2)
Current regulation:
12 C.F.R. 225.4(cX3)
225.21(b) Exempt bank holding companies
This paragraph specifies the types of companies that are exempt
from the prohibitions against nonbanking activities of section 4 of the BHC Act
and the proposed regulation. Included among them are certain labor, agricultur
al, and horticultural organizations; family-owned companies; and companies
granted hardship exemptions by the Board under section 4(d) of the BHC Act.
Statutory reference: 12 U.S.C. 1843(cXi) and (ii), and (d)
SECTION 225.22 - EXEMPT NONBANKING ACTIVITIES AND ACQUISITIONS
This section sets out the exemptions from the nonbanking prohibitions
contained in section 4(a) of the BHC Act. The exemptions are derived, for the
most part, from those set forth in section 4(c) of the BHC Act, as well as
interpretations that have been issued by the Board. A bank holding company may
engage in an activity or acquire shares of a nonbanking company without prior
Board approval, if the activity or acquisition falls within one of the following
exemptions.
Statutory reference; 12 U.S.C. 1843(c)
225.22(a) Servicing activities
Under sections 4(a)(2) and 4(cXl) of the BHC A ct, a bank holding
company may provide services for its banking and nonbanking subsidiaries either
directly or indirectly through a subsidiary.
This section of the proposed
regulation clarifies the scope of the servicing activities that may be performed
for a bank holding company and its subsidiaries. Generally, a bank holding
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company may provide only services related to the internal operations of the bank
holding company or its subsidiaries. Examples of the activities are set forth in
the proposed regulation. The servicing exemption is not intended, however, to be
used by a bank holding company as a guise for providing nonbank services to
outside parties or otherwise engaging in nonbanking activities. Thus, as a
general m atter, a bank holding company or its subsidiaries may not rely on the
servicing exemption to act as principal or agent in soliciting business or
providing services to parties other than the bank holding company or its
subsidiaries. This provision differs from several Board interpretations issued
before the 1970 amendments to the Act. These interpretations will be modified
or deleted if this provision is adopted. (See e.g. 12 C0
F„R. 225.104, 225.109,
225.118, and 225.122.)
Statutory reference; 12 U.S.C. 1843(a)(2) and (cXl)
^
225.22(b) Safe deposit business
As reflected in section 4(cXlXB) of the BHC Act, the proposed
regulation allows a bank holding company to engage in or to acquire shares of a
company that conducts a safe deposit business.
Statutory reference; 12 U.5.C. 1843(c)(lXB)
225.22(c) Nonbanking acquisitions not requiring prior Board approval
1.
DPC (debts previously contracted) acquisitions. Section 4(c)(2)
of the BHC Act provides that a bank holding company or subsidiary may acquire
nonbank shares in satisfaction of a debt previously contracted and hold such
shares for a two-year period, with the possibility of three additional one-year
extensions being granted by the Board. This provision codifies the exemption and
expands it to include interests in real or personal property. Under a current
Board interpretation, the Board may approve an additional five-year period for a
total of ten years for the divestiture of real estate acquired DPC (12 CJP.R.
225.140).
Statutory reference; 12 U.S.C. 1843(cX2)
2.
Securities or assets required to be divested by subsidiary. Sec
tion 4(cX3) of the BHC Act permits certain acquisitions to be made by a bank
holding company from its subsidiaries. The regulation allows for a temporary
holding for up to two years of nonbanking shares that a subsidiary of the holding
company has been required to divest by a federal or state examining authority.
Statutory references 12 UoS.C, I§43(cX3)
3.
Fiduciary investments. Bank holding companies and their sub
sidiaries are permitted under section 4(c)(4) of the BHC Act to acquire and hold
monbanking securities and activities in a fiduciary capacity so long as they are
not held for the benefit of the bank holding company, its subsidiaries, or its
employees. Under the BHC Act, this provision does not permit a bank holding
company subsidiary to acquire nonbank securities and activities as fiduciary for a
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trust that is a "company" (as defined in section 2(b) of the BHC Act). The
legislative history of this provision suggests this limitation is intended to apply
only where the trust is also a bank holding company. Thus, if the trust itself is
not a bank holding company, the exemption is available to the bank holding
company subsidiary that acts as fiduciary. (Of course, if the trust is a bank
holding company, it is subject to the same limitations of this subpart with
respect to its nonbank securities and activities that apply to any other bank
holding company.)
While the exception for the acquisition of nonbank shares and assets
in a fiduciary capacity contained in section 4(c)(4) of the BHC Act is limited to
such acquisitions made by a subsidiary bank, the proposed regulation extends the
exception for fiduciary acquisition of nonbank shares and assets to those made by
a nonbank company. This interpretation is being proposed in recognition of the
fact that there are nonbank companies, including nonbank subsidiaries of bank
holding companies, that hold securities and assets in a fiduciary capacity.
Statutory reference: 12 U.S.C. 1843(cX4)
4.
Securities eligible for investment by a national bank. This
exemption derives from section 4(c)(5) of the BHC Act and permits a bank
holding company to acquire directly or through a nonbank subsidiary securities of
the kinds and amounts that are explicitly eligible by federal statute for
investment by a national bank. Such investments, the authorization for which is
contained in 12 U.S.C. 24, Par. Seventh, include securities issued by Federal
Home Loan Banks, the Federal National Mortgage Association, and the Govern
ment National Mortgage Association, and stock issued by a safe-deposit company
or agricultural credit corporation. (See discussion below of section 225.22(d)
concerning investments that may be made by subsidiary banks of a bank holding
company.)
The limitation to "explicitly eligible" investments was adopted by the
Board in 1971 to prevent section 4(c)(5) of the BHC Act from being used to
circumvent the requirements of section 4(cX8). For example, a bank holding
company may not acquire a consumer finance .company without prior Board
approval on the ground that a national bank is permitted by agency rule to own
such a company. For the same reason, the Board believes that section 4(c)(5)
should not be interpreted to exempt investments in bank service corporations
under the Bank Service Corporation Act amendments in section 709 of the GarnSt Germain Act since these amendments, while greatly expanding the permissible
services of such corporations, evidence an intent to limit the activities to those
permissible under section 4(cX&) of the BHC Act. The proposed regulation
specifically excludes investments in bank service corporations.
Statutory reference: 12 U.S.C. 1843(cX5),
24
Current regulation: 12 C.F.R. 225.<*(e)
5.
Securities totalling 5 percent or less of a company. This
provision, which is derived from section 4(c)(6) of the BHC Act, permits passive
investments by a bank holding company or subsidiary so long as the investment in
a company or property does not amount to more than five percent of any class of
voting securities of the company or more than a five percent interest in the
property. The regulation codifies the Board's position, as reflected in a published
0=25-
interpretation, that section 4(c)(6) may only be used for passive investments and
is not authority for a bank holding company to engage in entrepreneurial activity
through the company or property in which the investment is made (12 C.F.R.
225.137).
Statutory reference; 12 U.S.C. 1843(c)(6)
6.
Securities of investment company. Under section 4(c)(7) of the
BBC Act, a bank holding company may invest in an investment company that
limits its activities to investing in securities that do not amount to more than
five percent of any class of voting securities of any company.
Statutory reference; 12 U.S.C. 1843(c)(7)
7. Assets acquired in the ordinary course of business. Prior approval
of the Board is not required for the acquisition of certain assets in the ordinary
course of business, subject to the Board's interpretation of "ordinary course of
business" in 12 C.F.R. 225.132. Acquisitions exempt under this provision may
not represent all or substantially all the assets of a subsidiary, division,
department, or office or the employees of the selling company. This proposal,
together with the next paragraph, represents a modification of the proposal that
was issued several years ago (Docket No. R-0005) and supersedes that rulemaking
proceeding.
8.
Asset acquisitions by consumer finance or mortgage company.
This provision establishes an exemption from section 4 of the BHC Act for a
consumer finance or mortgage company to acquire assets of an office(s) engaged
in making consumer loans, provided the acquisition amounts to no more than 10
percent of the assets of the acquiring consumer finance of mortgage company or
$10 million, whichever is less. For purposes of this exemption, a consumer loan
is any loan the proceeds of which are used for personal, family or household
purposes.
The Board is proposing this exemption to promote competitive equity
between holding company affiliates and independent companies in the consumer
finance and mortgage banking industries. These independent companies buy and
sell offices frequently and generally need not await regulatory approval. The
Board believes that the BHC Act should not be interpreted to limit unduly the
normal business operations of a nonbank affiliate of a bank holding company, as
long as the exemption is not used to eliminate a competitor.
The proposed regulation indicates that the Board may withdraw the
authority to make acquisitions under this exemption by notifying the bank
holding company. It is contemplated that the Board would withdraw this
authority only in unusual circumstances, for example, where the financial
condition of the bank holding company or its subsidiaries does not warrant
further expansion.
C-26-
225.22(d) Acquisition of securities by subsidiary banks
This provision restates section 225.4(e) of the current Regulation Y
concerning acquisitions by subsidiary banks of a bank holding company. Under
the present and proposed language, a national bank or its subsidiary may acquire
or retain shares in accordance with the rules and regulations of the Comptroller
of the Currency.
In addition, for purposes of federal law, a state-chartered bank or its
subsidiary may:
(i)
acquire or retain shares if such shares are of the kinds and
amounts explicitly eligible by federal statute for investment by a national bank;
and
(ii) acquire or retain all of the shares (except directors’
qualifying shares) of a company that engages solely in activities in which the
parent bank may engage, at locations at which the bank may engage in the
activity, and subject to the same limitations as if the bank were engaging in the
activity directly.
Statutory reference: 12 U.S.C. 1843(cX5)
225.22(e) Activities and securities of new bank holding companies
This provision incorporates section 4(aX2) of the BHC Act, which
permits a company becoming a bank holding company a period of two years to
bring its nonbanking activities and investments into conformity with section 4.
The two-year period may be extended by the Board for three additional one-year
periods.
A bank holding company may not further extend the divestiture
period by forming a new bank holding company and transferring its bank and
nonconforming activities to the new company to evade the requirements of the
Act. Thus, consistent with section 2(a)(6) of the BHC Act, a successor to a bank
holding company, as defined in section 2(e) of the BHC Act, would have to
conform to any divestiture period to which the predecessor bank holding
company was subject.
Statutory reference: 12 U.S.C. 1841 (aX6) and (e); 1843(a)(2)
225.22(f) Grandfathered activities and securities
This provision incorporates the exemptions contained in sections
4(aX2) and 4(cXll) of the BHC Act, which provide certain grandfather privileges
to a "company covered in 1970” (i.e., a company that became a bank holding
company as a result of the 1970 Amendments to the BHC Act and would have
been a bank holding company on 3une 30, 1968 if those amendments had been in
effect then). Generally, such a company may continue to hold those interests
and to engage in those activities that it held or engaged in on 3une 30, 1968, and
may expand such activities, including by the formation of a new company to
engage in such activities. Subsidiaries or activities acquired after 3une 30, 1968,
pursuant to a binding written contract entered into prior to June 30, 1968, are
similarly grandfathered. As provided in section 4(aX2) of the BHC Act, the
C-27-
Board may find, a fte r notice to th e bank holding company, th a t d iv estitu re of
grandfathered activ itie s is necessary to ensure safe and sound operations or to
avoid certain an ticom petitive effects„
S ta tu to ry re fe re n c e ; 12 U.S.C. 1843(a)(2) and (c )(ll)
225.22(g) S ecurities or a ctiv ities exem pt under R egulation K
This provision exem pts secu rities acquired or a ctiv itie s engaged in by
a bank holding company under the au th o rity of the Board's R egulation K,
"International Banking O perations" (12 C .F.R . P a rt 211).
S ta tu to ry re fe re n c e s 12 U.S.C. 1843(c)(9) and (13)? 12 U<3.C. 3106
SECTION 225.23 - NQNBANK1NG ACTIVITIES REQUIRING BOARD APPROVAL
The principal au th o rity for bank holding com panies to engage in
nonbanking a ctiv itie s is se t fo rth in section 4(c)(8) of th e BHC A ct, which was
revised and expanded by the 1970 A m endm ents to the A ct. T h at section provides
generally th a t a bank holding company may seek Board approval to engage in, or
acquire shares of a company engaged in, a ctiv itie s th a t the Board has d e te rm in
ed, a fte r notice and opportunity for hearing, "to be so closely re la ted to banking
or managing or controlling banks as to be a proper incident th e re to ." The s ta tu te
provides th a t the Board may m ake this determ ination by order or by regulation,
in the exercise of its rulem aking au th o rity , the Board has to date determ ined
th a t 14 a ctiv itie s are "closely re la ted to banking."
E xcept for insurance agency a ctiv itie s discussed below, the proposed
regulation incorporates th e description of th e a ctiv itie s contained in th e cu rren t
regulation, w ith only minor, nonsubstantive changes intended to re s ta te the
description in sim pler language. Some descriptions of a c tiv itie s have not been
sim plified where they w ere the resu lt of extensive regulatory proceedings and
w ere upheld in th e ir present form following judicial review . The revised list has
been reduced to 13 activ itie s by combining the making and servicing of loans.
No com m ent is requested on th e question of th e appropriateness of th e Board's
determ ination th a t the listed activ itie s are closely related to banking since such
com m ent was received and considered in e arlier proceedings.
In addition, the Board is proposing to add to the list five nonbanking
a ctiv itie s th a t the Board has previously determ ined by order to be closely related
to banking and th erefo re perm issible for p articu lar bank holding com panies. The
Board invites com m ent on w hether they should be added to th e list or m odified in
any re sp ec t, so th a t they would be perm issible for bank holding com panies
generally. These a ctiv ities a rei issuing money orders with a fa c e value of §1,000
or less; arranging com m ercial real e sta te equity financing; underw riting and
dealing in c ertain fed eral, s ta te , and municipal securities; acting as a fu tu res
com m ission m erchant for c e rta in financial assets; and o ffering c e rta in foreign
exchange services and advice. In a sep a ra te proceeding, th e Board has also
proposed to amend the regulation to include providing c e rta in secu rities broker
age services th a t w ere approved by order (48 Fed. Reg. 77 46, D ocket No. R0455, Feb. 22, 1983). As indicated above, the Board also invites regulatory
proposals for additional nonbanking a ctiv itie s.
C-28-
For ease of reference, the descriptions of permissible data processing
activities and courier activities include providing such services for the internal
operations of the bank holding company and its subsidiaries. Such activities, if
engaged in solely for the internal operations of the bank holding company, would
be permissible on the basis of section 4(aX2) or 4(c)(lXC) of the BHC Act. The
Board will consider deleting these provisions, which are also contained in the
current regulation, if commenters consider their retention in the regulation
misleading.
Set forth below in summary form is a list of the 13 current activities
and the 5 additional proposed activities, together with citations to the current
regulation and the Federal Reserve Bulletin containing the regulatory action of
the Board, and judicial decisions relating to the Board's determinations. For the
five proposed activities, a citation is given to the case where the activity was
approved for a particular bank holding company.
(1) Making and servicing loans. 12 C.F.R. 225.4(a)(1) and (3X 37
,
Federal Reserve Bulletin 312 (l97l).
(2) Industrial banking. 12 C.F.R. 225.4(aX2X 37 Federal Reserve
Bulletin 312, 513 (1971).
(3) Trust company functions. 12 C.F.R. 225.4(aX4); 57 Federal
Reserve Bulletin 512, 513 (1971); 60 Federal Reserve Bulletin 446 and 504TT974X
An organization under this paragraph would usually be chartered by state or
federal authorities to engage in trust activities and would be subject to
regulation and examination by its chartering authority. The trust activities
intended to be permitted under this section are traditional activities carried on
by trust companies generally.
(4) Investment or financial advice. 12 C.F.R. 225.4(a)(5); 57 Fed
eral Reserve Bulletin 512, 513 ( l971); 5S Federal Reserve Bulletin 149 and 571
( l972); Board of Governors v. Investment Company Institute, 450 U.S. 46 (1981).
As reflected in a footnote to the current regulation, investment
advising is to be contrasted with "management consulting" which the Board views
as including, but not limited to, the provision of analysis or advice as to a firm's
(i) purchasing operations, such as inventory control, sources of supply, and cost
minimization subject to constraints; (ii) production operations, such as quality
control, work measurement, product methods, scheduling shifts, time and motion
studies, and safety standards; (iii) marketing operations, such as market testing,
advertising programs, market development, packaging, and brand development;
(iv) planning operations, such as demand and cost projections, plant location,
program planning, corporate acquisitions and mergers, and determination of
long-term and short-term goals; (v) personnel operations, such as recruitm ent,
training, incentive programs, employee compensation, and management-personn
el relations; (vi) internal operations, such as taxes, corporate organization,
budgeting systems, budget control, data processing systems evaluation, and
efficiency evaluation; or (vii) research operations, such as product development,
basic research, and product design and innovation. The Board has determined
that general management consulting — as opposed to management consulting to
depository institutions — is not an activity that is so closely related to banking
or managing or controlling banks as to be a proper incident thereto.
C-29-
(5) Leasing. 12 C.F.R. 225.4(a)(6)(i) and (ii); 57 Federal Reserve
Bulletin 512,513 (1971); 60 Federal Reserve Bulletin 284, 285-86 (1974); 62
Federal Reserve Bulletin 944 (1976). The proposed regulation combines the
provisions of the current regulation concerning personal and real property
leasing, since those provisions are nearly identical.
(6) Community development. 12 CoF.R. 225.4(aX7); 12 C.F.R.
225.127; 57 Federal Reserve Bulletin 512, 513 (1971). While this provision is not
intended to allow for projects designed essentially for commercial gain, the
Board believes bank holding companies should have flexibility in making invest
ments or charitable contributions that result in or are designed for community
improvement, and the receipt of modest profits would not be inconsistent with
the nature of this activity.
(7)
Data processing. 12 C.F.R. 225.4(a)(8); 57 Federal Reserve
Bulletin 512, 513 (1971); 68 Federal Reserve Bulletin 552 (1982).
(8)
Insurance sales. 12 C.F.R. 225.4(aX9); 57 Federal Reserve
Bulletin 674, 674-75 (1971); 65 Federal Reserve Bulletin 924 (1979); 67 Federal
Reserve Bulletin 629 (1981). In its interpretation concerning this activity, the
Board describes types of insurance that are regarded as directly related to an
extension of credit. (12 C.F.R. 225.128.) Several of these activities have been
limited or prohibited by the amendments to section 4(cX8) of the BHC Act made
by Title VI of Garn-St Germain. The Board is reviewing the issues raised by the
amendment in Garn-St Germain and will amend Regulation Y to reflect the
resolution of these issues. In the interim, the Board will consider applications
from companies to engage in insurance activities that the company believes are
permissible under the provisions of Garn-St Germain.
(9)
Insurance underwriting. 12 C.F.R. 225.4(a)(10> 59 Federal Re
,
serve Bulletin 19, 20 (1973). As stated in the current and proposed regulation, to
assure that engaging in the underwriting of credit life and credit accident and
health insurance can reasonably be expected to be in the public interest, the
Board will only approve applications in which an applicant demonstrates that
approval will benefit the consumer or result in other public benefits. Normally
such a showing would be made by a projected reduction in rates or increase in
policy benefits due to bank holding company performance of this service. As
reflected in a current interpretation, the Board also expects that once an
application has been approved on this basis, a bank holding company will provide
these benefits on a continuing basis by adjusting its rates and services in relation
to adjustments in the prima facie rates provided by state law (12 C.F.R.
225.135).
(10) Courier services. 12 C.F.R. 225.4(aXll); 59 Federal Reserve
Bulletin 892 (1973V National Courier Ass’n v. Board of Governors, 516 F.2d 1229
(D.Co”Cir. 1975). The Board’s interpretation at 12 C.F.R. 225.129 provides
additional conditions on bank holding company performance of this activity. All
applications for this activity must be acted on by the Board rather than the
Reserve Banks, until the Board gains experience with these applications.
(11) Management consulting for depository institutions. 12 CoF.Ro
225.4(aXl2X 60 Federal Reserve Bulletin 223 and 446 (1974); 68 Federal Reserve
Bulletin 237,
BoaTd’s interpretation at 12 C.F.R. 225.131
specifically describes permissible management consulting activities and provides
an exemption from the prohibition against holding shares of a client bank where
the shares are acquired in satisfaction of a debt previously contracted or held in
a fiduciary capacity without sole voting authority.
C-30-
(12) Money orders, savings bonds, and travelers checks. 12 C.F.R.
225.4(a)(13); 65 Federal Reserve Bulletin 249, 250 (1979); 67 Federal Reserve
Bulletin 912 (1981T The proposed revision regarding this activity includes the
issuance of money orders having a face value of $1,000 or less. That additional
activity was approved by the Board by order for a particular bank holding
company (63 Federal Reserve Bulletin 416 (1977)).
(13) Real estate appraising. 12 C.F.R. 225.4(a)(14); 66 Federal Re
serve Bulletin 975 (1980).
(14) Commercial real estate equity financing. 68 Federal Reserve
Bulletin 647 (19S2TI
(15) Underwriting and dealing in government obligations. 64 Federal
Reserve Bulletin 222, 223 (1978); 65 Federal Reserve Bulletin 363 (1979); 68
Federal Reserve Bulletin 249 (1982).
(16) Foreign-exchange advisory and transactional services. 69 Fed
eral Reserve Bulletin 221 (1983).
(17) Futures commission merchant. 63 Federal Reserve Bulletin 951
(1977); 68 Federal Reserve Bulletin 514 (1982). Under the proposal, a bank
holding company may engage in FCM activities pursuant to this provision on
major domestic exchanges and such foreign commodities or financial futures
exchanges as the Board has considered in previous applications. The Board will
consider applications to engage in FCM activities on other foreign exchanges on
a case-by-case basis. If this proposal is approved, all applications to undertake
this activity would be acted on by the Board, not the Reserve Banks, until the
Board gains more experience in this area.
Statutory reference: 12 U.S.C. 1843(c)(8)
SECTION 225.24 - FACTORS CONSIDERED IN DECIDING APPLICATIONS
UNDER SUBPART C
225.24(a) Criteria for activities previously determined to be closely related to
banking
This provision incorporates the statutory test in section 4(cX8) of the
BHC Act, which requires the Board to weigh the public benefits that are likely to
be derived by a particular bank holding company engaging in a specific
nonbanking activity against the possible adverse effects in order to determine
whether the proposal should be approved. The enumeration of benefits and
adverse effects in the regulation, as in the statute, is meant to be illustrative
and not exhaustive and, therefore, the Board is not precluded from considering
other factors in deciding an application.
Section 4(cX8) of the BHC Act allows the Board to differentiate
between activities commenced de novo and those commenced through the
acquisition of a going concern. Accordingly, the proposed regulation reflects the
general finding of the Board that performance of an activity by a bank holding
company on a de novo basis is likely to yield public benefits.
Statutory reference: 12 U.S.C. 1843(cX8)
C-31-
225.24(b) Criteria for other nonbanking activities
Section 4(c)(8) of the BHC Act provides a two-step test for determin
ing the permissibility of nonbanking activities for bank holding companies. First,
the Board must determine that the activity is closely related to banking.
Second, having made that finding, the Board must determine whether the
activity is "a proper incident” to banking by weighing the benefits of a particular
bank holding company engaging in a specific nonbanking activity against the
possible adverse effects. (Board of Governors v. Investment Company Institute,
450 U.S. 46 (1981); National Courier Ass'n. v. Board of Governors, 516 F„2d 1229
(D.C. Cir. 1975).)
Under the provisions of the BHC Act, the Board has broad discretion
in determining whether an activity is closely related to banking. In making this
determination, the Board has found the following guidelines established by the
courts to be useful:
(1)
banks generally have provided the proposed services;
(2) banks generally provide services that are operationally or
functionally so similar to the proposed service as to equip them particularly well
to provide the proposed service; and
(3) banks generally provide services that are so integrally related
to the proposed service as to require their provision in a specialized form.
(National Courier Ass’n v. Board of Governors, 516 F.2d 1229, 1237 (D.C. Cir.
1973X1
In addition, the Board may consider other factors in deciding what
activities are closely related to banking. (Alabama Association of Insurance
Agents v. Board of Governors, 533 F.2d 224, 241 (5th Cir. 1976), cert, denied^
435 U.S. 904 (1978); Board of Governors v. Investment Company Institute, 450
U.S. 46, 55 (1981).)
Statutory reference: 12 U.S.C. 1843(cX8)
225.24(c) Financial and managerial criteria
In addition to the factors specified in section 225.24(a) of the
regulation, derived from section 4(c)(8) of the BHC Act, the Board’s evaluation
of an application to engage in any nonbanking activity includes a review of the
financial and managerial resources of the bank holding company, its subsidiaries
and the company to be acquired, and the effect of the transaction on their
resources. For example, a proposal that may detract from the financial
condition of the applicant bank holding company would be weighed as an adverse
factor in the Board's overall evaluation of the application.
Statutory reference; 12 U.S.C. 1843(cX8)
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• SECTION 225.25 - PROCEDURES FOR APPLICATIONS, NOTICES, AND HEARINGS
The proposed regulation sets out the procedures for filing applica
tions for Board approval to engage in nonbanking activities. As discussed below,
where a bank holding company has received Board approval to engage in an
activity in a particular state, subsequent expansion of that activity by opening
additional offices or expanding its business in that state (other than by acquiring
companies) will generally not require additional applications. In addition,
expedited procedures for certain small acquisitions of going concerns engaged in
permissible nonbanking activities are being proposed in order to reduce the
regulatory burden on bank holding companies.
Statutory reference: 12 U.S.C. 1843(cX8); 1844(b)
Current regulation: 12 C.F.R. 225.4(b)
225.25(a)(1) Filing application
An application for Board approval to engage in an activity that the
Board has determined to 1^, closely related to banking must be filed with the
appropriate Reserve Bank.— In filing an application, the bank holding company
should specify the activities in which it proposes to engage. For example, a bank
holding company seeking to engage in mortgage lending activities should so
specify, rather than referring to the general catagory of making, acquiring, or
servicing loans under section 225.23(b)(1).
As indicated in section 225.23(aX2), the Board will entertain applica
tions to engage in other nonbanking activities that a bank holding company
believes to be so closely related to banking as to be a proper incident thereto.
Any bank holding company may also request the Board to consider an activity
previously rejected as impermissible, if the bank holding company can
demonstrate that circumstances have changed since the Board's determination.
In either case, the bank holding company must file its application in accordance
with this section, provide reasons for its belief that the activity is closely
related to banking or to managing or controlling banks within the meaning of
section 4(c)(8) of the BHC Act, and describe the public benefits likely to result
from the bank holding company engaging in the activity.
Statutory reference: 12 U.S.C. 1843(cX8)
*/ In most cases, an application to engage in a permissible nonbanking
activity will be acted upon by a Reserve Bank pursuant to delegated authority
from the Board. The Board has decided, however, that applications involving
courier activities or joint ventures should be acted upon by the Board, rather
than the Reserve Bank.
033“
225.25(a)(2) Geographic scope of nonbanking activities
Under the current regulation, an application is required to open each
new office or to expand the service area of a previously approved nonbanking
activity. The requirement for individual office approvals was imposed by the
Board in 1971 in implementing the new nonbanking authority given bank holding
companies under the 1970 Amendments to the BHC Act. However, the Board
does not believe that the BHC Act requires an application for such de novo
expansion. Section 4 of the BHC Act requires only th a t'th e Board's prior
approval be obtained by a bank holding company to engage in a nonbank activity
or to acquire shares of a company engaged in nonbank activities.
Based on its experience in administering this provision, the Board has
found that, where the bank holding company and its subsidiaries are in
satisfactory financial condition, the establishment of de novo offices has had
insignificant adverse effects, particularly on competition and the concentration
of resources. Hence, such applications have been uniformily approved. In light
of this experience and in order to reduce the burden on bank holding companies,
the Board believes it is appropriate to modify significantly the present
application procedures by eliminating the requirement for individual applications
for de novo expansion in a previously approved activity. The Board notes that
section 4(c)(8) of the BHC Act provides that, in acting on applications under th at
section, the Board may distinguish between activities established de novo and the
acquisition of a going concern.
Under the procedures proposed in this provision, a bank holding
company will specify in its initial application for approval the state or states in
which the bank holding company intends to engage in a nonbanking activity or to
acquire a going concern engaged in a nonbanking activity. If the application is
approved, the bank holding company may open new offices or form new
subsidiaries to engage in the activity in any state(s) specified in the application
without any additional Board approval. This authority is limited to engaging in
the particular activity specified by the bank holding company in its application
to enter a state. For example, a bank holding company that applied to engage in
consumer finance in a particular state may not open offices or expand into
mortgage banking without Board approval even though consumer finance and
mortgage banking are both within the authority of lending in section 225.23(b)(1).
De novo expansion will continue to be monitored by the Board in
connection with its ongoing supervision and regulation of the bank holding
company. The regulation also authorizes the Board to require an application for
permission to open a new office. This authority is expected to be exercised
rarely, however, principally where the company is experiencing financial diffi
culty.
The bank holding company must engage in the activity or acquire the
company engaged in the activity in each state(s) specified in the application
within a period of two years from the Board's approval. For any state specified
in the application where it fails to engage in the activity within two years, the
holding company's authority to expand in that state would lapse and a new
4(c)(8) application to engage in the activity in that state must be filed in
accordance with the procedures of this subpart. In administering this provision
the Board will regard a bank holding company as having engaged in an activity in
a particular state if, for example, it acquires a going concern, opens offices, or
solicits customers in the state.
034“
With respect to companies that have received approval in the past to
engage in an activity in a particular state at specific offices or on some other
limited basis under the Board's current Regulation Y, and wish to expand de novo
within that state under the Board's proposed regulation, the Board proposes to
permit the filing of a letter request for approval instead of the application
normally required. (The letter should contain the date the company received
approval to engage in the activity in a state and the extent of its authority.)
Notice of these requests would be published in the Federal Register, and the
requests would be acted upon after the close of the comment period. Such a
procedure is being proposed as a m atter of fairness to potential competitors who
may not have commented on the company's earlier application due to the limited
scope of the earlier proposal. (In such a case, of course, the company's earlier
limited authorization to engage in the activity would not be subject to
challenge.)
If, however, the holding company has received the Board’s approval to
engage in a given activity throughout a state, no further approval would be
required to open additional offices within that state, nor would the holding
company be required to file the type of letter referred to in the previous
paragraph. To avoid any misunderstandings in this situation, the company should
confer with its Reserve Bank about its existing authority before expanding on the
basis of this section of the regulation.
As a further effort to reduce the regulatory burden, the Board is
considering whether to eliminate the requirement for state-by-state approval for
de novo expansion of permissible nonbanking activities. Under this alternative
approach, a bank holding company would be permitted, without further
application to the Board, to open new offices anywhere in the country that are
engaged in nonbanking activities for which the bank holding company has
previously received Board approval. Comments are specifically invited on this
alternative, and the Board may adopt it as part of its final action on this
proposed revision of Regulation Y.
Statutory reference: 12 U.S.C. 1843(c)(8); 1844(b)
Current regulation: 12 C.F.R. 223.4(b)(1), (cX2)
223.23(b) - (d) Applications and notices
These provisions are similar to the procedures for applications for
bank acquisitions in sections 225.14(a)-(d) of Subpart B of the proposed regulation
discussed above. They establish time limits for accepting nonbanking applica
tions for processing, require prompt publication of notice in the Federal Register
inviting public comment on such applications, and provide for a prompt decision
on applications, generally within 30 days of acceptance of an application
regarding an activity on the Regulation Y list of permissible activities.
Under current practice, no time period is specified for publishing
notice of a proposal to engage in a new non banking activity not on the list of
those already found permissible by the Board. The decision whether to publish
notice of the proposal for comment is currently made by the Board at a formal
Board meeting. As a result, processing of such proposals has at times been
delayed. In order to expedite the processing of these proposals, under the
035-
proposed regulation the Board will send notice of a proposed new activity to the
Federal Register within 10 business days after receipt of the application from
the Reserve Bank, unless there is no legal basis for publication of the activity.
The notice will invite comment generally few a period of 30 days.
This 10-day period for sending notice to the Federal Register would
not apply to a proposal involving a nonbanking activity that the Board has
previously determined not to be closely related to banking. A decision whether
to publish such a notice would be made only after the Board determines whether
circumstances have changed to warrant reconsideration of the activity.
The Board requests comment on whether this proposal to publish
routinely notice of proposed new nonbank activities will impose undue burdens on
the public in commenting on an activity about which the Board has made no
preliminary judgment. In this connection, the Board will consider as an
alternative a provision that would authorize the extension of this 10-day period
for publication for an additional 30 days in order to allow for full Board
consideration of whether to publish notice of a proposed new activity. In the
event the Board decides not to publish the proposal, the Board will notify the
applicant of the reasons for the decision.
The proposed revision omits a provision in the current regulation that
provides for automatic approval, at the end of a 45-day period, of applications to
engage de novo in activities on the list of those permissible for bank holding
companies. In practice, the Federal Reserve System issues letters of approval
for every application to engage in permissible de novo nonbanking activities
under section 4 of the BHC Act, and thus, the automatic approval procedure has
not generally been followed. The omission of this provision should not have any
adverse impact on applicants, however, since the Board proposes to reduce
substantially the number of required applications for de novo activities by
exempting from application requirements expansion in a state where nonbank
operations have been approved for a bank holding company. Moreover, the
remaining applications for de novo entry into a state will ordinarily be approved
within 30 days of acceptance by the Reserve Bank.
Statutory reference: 12 U 5.C . 1843(c)(8)
Current regulation; 12 C.F.R. 225.4(a)
225.25(e) Simplified procedures for small acquisitions
In response to requests that the Board reinstitute the simplified
procedures in 12 C.F.R. 225.4(b)(3) (which were suspended in 1971) and to
establish expedited consideration for small acquisitions that raise no significant
issues, the Board is proposing in this section to adopt a simplified notice
procedure for small acquisitions involving permissible nonbanking activities
described in section 225.23. Under the proposal, a bank holding company may
apply to acquire certain voting securities or assets of a company engaged in
activities permissible under section 225.23 by filing with the Reserve Bank a
brief description of the proposed transaction and a notice of the proposed
acquisition that appeared in a newspaper of general circulation in the area(s) to
be served as a result of the acquisition.
0=36-
The description of the proposed transaction should include informa
tion responsive to items 1, 4(a, c, d), 5 and 6 of Exhibit B and item 3 of Exhibit C
in the Board's F.R. Y-4 application form. The newspaper notice must provide not
less than 10 days for public comment. This procedure applies only to an
acquisition where the book value of the assets acquired or the gross considera
tion paid for the securities or assets is $10 million or less and the bank holding
company has previously received approval to engage in the activity in the
relevant state. Within five business days after the close of the comment period
the Reserve Bank will notify the bank holding company that the proposed
acquisition has been approved pursuant to delegated authority or that the
application has been referred to the Board if action is not appropriate under
delegated authority.
The new notice procedure being proposed represents a significant
reduction in the time and expense associated with making small acquisitions
involving permissible activities. It eliminates the need for a regular application
and reduces the time a bank holding company must wait before making an
acquisition, i.e., from a maximum of 90 days to usually 15 days after the date
the newspaper notice is published. It should also be noted that the proposed
notice procedure may be used for acquisitions involving any of the nonbanking
activities in section 225.23 that the Board has determined to be closely related
to banking, whereas the suspended simplified procedures were generally only
available for the acquisition of small finance companies and certain insurance
agency activities.
The Board's experience in administering the BHC Act suggests that
the type of acquisitions that would be permitted under the new notice procedure
would not result in adverse effects and would be in the public interest. In those
instances where an acquisition might result in adverse effects, or where
substantive adverse comments raising a material issue are filed in response to
the newspaper notice, the Reserve Bank may extend the period for approval or
refer the application to the Board for consideration.
Statutory reference: 12 U.S.C. 1843(c)(8); 1844(b)
Current regulation: 12 C.F.R. 225.4(b)(3)
225.25(f) Hearing
Section 4(cX8) of the BHC Act requires the Board to provide notice
and opportunity for hearing in connection with an application by a bank holding
company to engage in an activity that is or may be closely related to banking.
Various courts have held that the Board is required to hold a hearing only where
material issues of fact are in dispute (Independent Ins. Agents of America, Inc,
v. Board of Governors, 646 F„2d 868 (4th Cir. 1981); Independent Ins. Agents of
America, Inc, v. Board of Governors, 658 F.2d 571 (8th Cir. 1981)).
Statutory reference: 12 U.S.C0 1843(cX8)
C-37-
225.25(g) Approval through failure to act
Under section 4(c) of the BHC Act, an application under section
4(c)(8) of the BHC Act that the Board fails to act on within 91 calendar days of
submission of the complete record to the Board is deemed approved. This
statutory provision is identical to that provided in section 3 of the BHC Act with
respect to bank acquisitions, and the regulatory provision in this subpart
incorporates by reference that proposed in section 225.14(f) of Subpart B for
bank acquisitions.
Statutory reference: 12 UJS.C. 1843(c)
225.25(h) Emergency thrift institution acquisitions
This provision implements the Board’s authority under section 118 of
Garn-St Germain to dispense with the notice and hearing requirements of section
4(c)(8) of the BHC Act if the Board finds that an emergency exists involving a
thrift institution.
Statutory reference; 12 U.S.C. 1843(c)(8)
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V. SUBPART D - CONTROL AND DIVESTITURE PROCEEDINGS
SECTION 225.31 - CONTROL PROCEEDINGS
225.31(a) Preliminary -determination of control
Under sections 2(a)(2XC) and 2(d)(3) of the BHC Act, the Board may
determine, after notice and opportunity for hearing, that a company exercises or
has the power to exercise a controlling influence over the management and
policies of a bank or other company, even though the company may not otherwise
have control under section 225.2(d) of Subpart A of the proposed regulation.
Section 225.2(b) and (c) of the current regulation describe circumstances and
procedures under which control determinations may be made. While these
provisions have been reorganized and simplified in the proposed regulation, the
basic approach of the current provisions has not been altered. Where facts and
circumstances are present or information is received to indicate that a company
exercises a controlling influence over the management or policies of a bank or
another company, the Reserve Bank will review the relationship to determine if
it would be appropriate for the Board to issue a preliminary determination of
control.
While it is anticipated that most situations involving possible control
relationships will be handled informally, where discussion does not resolve the
issue, the Board may institute a formal proceeding by issuing a preliminary
determination of control under the procedures described in this section. In those
situations where a preliminary determination of control is issued, the company
will be given notice of the facts and the circumstances upon which the
determination is based and provided an opportunity to contest the presumption.
Statutory reference: 12 U.S.C. 1841(aX2)(C) and (dX3)
Current regulation: 12 C.F.R. 225.2(c)
225.31(b) Response to preliminary determination of control
Upon receipt of the notice, the company would have 30 days to
respond. The company may agree to the determination and submit for the
Board’s approval a specific plan for prompt termination of the control relation
ship, or alternatively, file an application for Board approval to retain the control
relationship under Subpart B of the regulation in the case of a bank or a bank
holding company, or Subpart C in the case of a nonbanking concern. If the
company contests the ruling, it is required to submit its response to the
preliminary determination of control along with any request for a hearing.
Statutory reference: 12 U.S.C. 1841(aX2XC) and (dX3) and 1844(b)
Current regulation: 12 C.F.R.
2252(c)
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225.31(c) Hearing and final determination
If there are material issues of fact in dispute, or if it is otherwise
appropriate, the Board may order a hearing or other proceeding for the purpose
of taking testimony and receiving evidence on the issue of whether a company
exercises or has the power to exercise a controlling influence over a bank or
other company. There is no statutory requirement that the Board hold a hearing
with respect to a determination that a company controls voting securities of a
bank or company. The Board may, however, order a hearing if appropriate in
such a situation. After reviewing the evidence on the preliminary determination
of control, including any record of a hearing, the Board will issue an order
directing the company to take appropriate action.
Statutory reference: 12 U.S.C. 1841(aX2XC) and (dX3)
Current regulation: 12 C.F.R. 225.2(c)
225.31(d) Rebuttable presumptions of control
In 1971, the Board adopted five rebuttable presumptions of control
for use in control proceedings. Two of these presumptions relate to control of
voting securities; three relate to the existence of a controlling influence over
the management or policies of a bank or other company. Where voting securities
are deemed to be controlled by a company under this provision, they would be
aggregated with any securities of the other company held by the company in
other capacities (see section 225.2(dX2) of the proposed regulation) to determine
whether divestiture or an application is required. The proposed regulation
simplifies the language of these presumptions without altering their substance.
As discussed above, the conclusive presumption of control contained in section
225.2(a) of the current regulation relating to ’’stapled shares” arrangements is
incorporated into the definition of ’’control” in the proposed regulation. It is
contemplated that most situations involving these presumptions of control (or
any other situation where the facts suggest control) will be resolved through
informal discussion with the Reserve Bank.
Statutory reference: 12 U.S.C. 1841(a)(2XC) and (dX3)
Current regulation; 12 C.F.R. 225.2(b)
SECTION 225.32 - DIVESTITURE PROCEEDINGS
225.32(a) Ineffective
divestitures
Divestitures are at times required by the Board under the BHC Act
and include divestitures of DPC assets, liquidating assets, and impermissible
nonbanking interests and activities. Section 2(gX3) of the BHC Act provides
generally that a company divesting shares to any other company that is indebted
to the transferring company or has one or more management officials in common
with the transferring company is deemed to continue to own or control the
divested shares unless the Board determines, after opportunity for hearing, that
the transferring company is not capable of controlling the company or individual
that receives the divested shares. The provisions of this section of the proposed
C-40-
regulation set forth the basic requirements of the statute, the procedures for
requesting a determination of noncontrol, and a description of the standards
applied in reviewing the effectiveness of divestitures. There are no significant
changes from current procedures.
In a previous interpretation, the Board (1) exempted certain routine
business or personal credit from the definition of indebtedness, (2) provided that
references to transferor and transferee in the statute included parents and
subsidiaries of each, and (3) indicated that the presumption of continued control
extends to property as well as shares (12 C.F.R. 225.139). This interpretation is
codified in the proposed regulation, and may be rescinded if the proposed
provisions are adopted by the Board.
Statutory reference: 12 U.S.C. 1841(gX3)
225.32(b) and (c) Request for divestiture determination; hearing
Any company that is deemed to control an acquiring person as a
result of the presumptions set forth in this regulation may request a determina
tion that the divestiture is effective notwithstanding the presumption. The
company should submit a letter to the Board describing the transaction and
setting forth the reasons why the company believes it does not control the
acquiring person. Any request for a hearing should also be included in the letter.
Under the proposal, if the Board finds there are material facts in dispute, the
Board may order a hearing or other proceeding.
Statutory reference: 12 U.S.C. 1841(gX3)
225.32(d) Standards for making divestiture determination
The proposed regulation sets out the factors that are generally
considered in determining whether or not the divesting company controls the
acquiring person. The first factor concerns the nature and extent of the
indebtedness, and whether, as a result of the indebtedness, the divesting
company would be capable of controlling the acquiring person. The second
factor considered involves an assessment of the role of any interlocking officials
in both the divesting company and the acquiring person. For example, if the
interlocking official is an outside director who has no other relationship with the
companies involved, it is more likely that a favorable determination would be
issued.
Statutory reference: 12 U.S.C. 18^1 (gX3>, 18^4(b)
225.32(e) Final determination
After reviewing a company's request for a determination under this
section, the Board will issue an order, which may be in the form of a letter,
setting forth its determination as to the effectiveness of the divestiture.
Statutory reference: 12 UJS.C. 18^1(gX3); 18^(b)
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225.32(f) Review of other divestitures
This provision allows the Board to review a divestiture when a
presumption of control under the statute or this regulation is not present., While
it is not anticipated that this provision will be used frequently, the Board is,
consistent with its authority to prevent evasions of the BHC Act, preserving its
right to examine all divestitures.
Statutory reference; 12 U.S.C. l§44(b)
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VI. SUBPART E ~ CHANGE IN BANK CONTROL
SECTION
225.41
- CONTROL TRANSACTIONS REQUIRING PRIOR NOTICE
This section, which effectuates the Change in Bank Control Act (12
U.S.C. 1817(j)), is based for the most part on the existing provisions of section
225.7 of Regulation Y. (See also Policy Statement on Change in Bank Control
Act of 1978, 1 F.R.R.S. 4-801.) The proposed section specifies those transac
tions involving the acquisition of voting securities of a state member bank or
bank holding company for which 60 days' written notice must be given to the
Board. Unless exempt under the Change in Bank Control Act or this subpart, any
person or persons acting in concert must file prior notice with the Board if, after
a proposed transaction, the acquiring person(s) will control or hold the power to
vote 25 percent or more of any class of voting securities of a state member bank
or bank holding company. Such voting power is defined as control under the
Change in Bank Control Act. For the purposes of this section, a redemption of
securities by a bank or bank holding company that increases any person's holdings
to 25 percent or more of any class of voting securities, or triggers the rebuttable
presumption described below, is an "acquisition" and requires the filing of a
notice by that person.
The term "acting in concert" is not defined in the statute or the
regulation. However, the Board regards this term as including two or more
persons (which may also include a corporation or other entity) who have joined
together informally through parallel action or intention for the purpose of
acquiring voting securities of a bank or bank holding company. For example, a
group of persons who have identified themselves as a group for purposes of the
securities laws would constitute persons "acting in concert" for purposes of this
section. Such an informal arrangement should be distinguished, however, from a
formal agreement or contract among persons to purchase bank or bank holding
company securities. A formal agreement among persons could result in the
group being treated as a "company" within the meaning of section 2(c) of the
BHC Act, and a purchase of bank securities by the group could be subject to
Subpart B of the regulation instead of Subpart E.
In addition to control through the acquisition of 25 percent or more
of a class of voting securities of a bank or bank holding company, the Board
proposes to retain the presumption that the acquisition of between 10 percent
and 25 percent of voting securities of a bank or bank holding company will also
result in control, and thus requires prior notice, if either of two circumstances
applies: (1) the institution being acquired has securities registered under the
Securities Exchange Act of 1934 (12 U.S.C. 78J_); or (2) after the transaction, no
other person owns a greater percentage of that class of voting securities than
the acquiring person. An acquiring person has the opportunity to rebut this
presumption, but the Board's experience indicates that situations where the
presumption has been rebutted successfully have been infrequent.
Statutory reference: 12 U.S.C. 1817(jX 1), (13)
Current regulation: 12 C.F.R, 225.7(a)
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SECTION 225.42 - TRANSACTIONS NOT REQUIRING PRIOR NOTICE
The Bank Control Act specifically exempts from its coverage trans
actions that are otherwise subject to section 3 of the BHC Act or section IS of
the Federal Deposit Insurance Act (i.e., Bank Merger Act). In addition, the
proposed regulation provides that certain other transactions do not require
notice. These exemptions are essentially the same as in section 225.7(c) of the
current regulation, except for a clarification of the exemption relating to proxy
solicitation to indicate that the solicitation can be for a regular or special
meeting of shareholders and the addition of an exemption for a stock dividend or
split. As indicated in the current regulation, the exemption for the acquisition
of voting securities of a foreign bank holding company does not extend to reports
and information required under paragraphs 9, 10, and 12 of the Bank Control Act.
Statutory reference; 12 U.S.C. 1817(j)(13), (16)
Current regulation: 12 C.F.R. 225.7(c)
SECTION 225.43 - PROCEDURES FOR FILING, PROCESSING, AND ACTING ON NOTICES
225.43(a) and (b) Filing notices; advice to bank supervisory agencies
This section sets forth the procedures for processing notices. Nor
mally, notices are reviewed and acted upon by the appropriate Reserve Bank
under delegated authority.
A notice required under this subpart must be filed with the appropri
ate Federal Reserve Bank at least 60 days prior to the contemplated consumma
tion of a transaction. Information contained in the notice should conform to the
notice form provided by the Reserve Bank and be responsive to every item
specified in paragraph 6 of the Bank Control Act (12 U.S.C. section lS17(j)(6)).
The Reserve Bank may waive any information requirement contained in the
notice form, as well as require additional information as it deems appropriate.
Once accepted, a copy of the notice is forwarded to the appropriate state bank
supervisory agency if it relates to a state member bank; a copy of the notice is
also forwarded to the Comptroller of the Currency and the Federal Deposit
Insurance Corporation. In the case of a probable failure of a bank or bank
holding company, the Board may modify the notice requirements of this section.
Statutory reference; 12 U.S.C. 1817(jXl), (2), (6), and (11)
Current regulation; 12 C.F.R. 225.7(b)
225.43(c) Time period for Board action
A proposed transaction may be consummated 60 days after submis
sion of an informationally complete notice to the Reserve Bank, unless the Board
notifies the acquiring person of its disapproval of the proposed acquisition ©r ©f
extension of the 60-day period for an additional 30 days. A proposed acquisition
may be consummated before the expiration of the 60-day period if the Board
notifies the acquiring party of its intention not to disapprove the acquisition.
C-M-
The Board may return a notice at any time if it finds that the acquiring person
has not furnished all the required information or has submitted material
information that is substantially inaccurate. However, in unusual circumstances,
rather than returning the notice as being incomplete, the Board may extend the
time period further in order to permit an acquiring person to furnish the required
information necessary to complete the processing.
Statutory reference: 12 U.S.C. 1817(j)(l)
225.43(d) Investigation of notices
In investigating a Change in Bank Control notice, the Board may
solicit or receive information or views from any source. The submission of
information or presentation of views by any person other than the acquiring
person, however, does not thereby afford that person status as a party to the
proceeding or any standing or right to participate in the Board’s decision on the
notice.
225.43(e) Disapproval and hearing
If the Board disapproves an acquisition, it must notify the acquiring
person of its decision in writing and the reasons for its decision. The person will
have 10 calendar days after receipt of the Board's disapproval decision to request
a hearing. Any such hearing must be conducted in accordance with the Board's
Rules of Practice for Formal Hearings and, at the conclusion of the hearing, the
Board will issue an order either approving or disapproving the proposed acquisi
tion on the basis of the record of the hearing.
Statutory reference: 12 U.S.C. 1817(jX3) and (4)
225.43(f) Factors considered in acting on notices
Paragraph 7 of the Change in Bank Control Act (12 U.S.C. 1817(j)(7))
describes the factors to be considered by the Board in disapproving a proposed
acquisition. In assessing such factors, the proposed regulation provides that the
Board will consider the information submitted in the notice, the views and
recommendations of any supervisory agency, and any other information that is
relevant to the statutory factors.
Statutory reference: 12 U.S.C. 1817(j)(7)
List of Subjects in 12 CFR Part 225
Banks, banking; Federal
Reporting requirements; Securities.
Reserve System;
Holding companies;
For the reasons set out in the preamble, and pursuant to the Board’s
authority under section 5(b) of the Bank Holding Company Act of 1956, as
amended (12 U.S.C. 1844(b)); section 8 of the International Banking Act of 1978
(12 U.S.C. 3106); and section 7(jXl3) of the Federal Deposit Insurance Act, as
amended by the Change in Bank Control Act of 1978 (12 U.S.C. 1817(jXl3)), it is
proposed to revise 12 C.F.R. Part 225 as follows?
REGULATION Y
Part 225 - BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL
Subpart A - General Provisions
Sec.
225.1— Authority, purpose, and scope
225.2— Definitions
225.3— Administration
225.4— Corporate practices
225.5— Registration, reports, and inspections
225.6— Penalties for violations
Subpart B - Acquisition of Bank Securities or Assets
225.11— Transactions requiring Board approval
225.12— Transactions not requiring Board approval
225.13— Factors considered in deciding applications under Subpart B
225.14— Procedures for applications, notices, and hearings
Subpart C - Nonbanking Activities and Acquisitions of
Bank Holding Companies
225.21— Permissible nonbanking activities and acquisitions;
exempt bank holding companies
225.22—
Exempt nonbanking activities and acquisitions
225.23— Nonbanking activities requiring Board approval
225.24— Factors considered in deciding applications under Subpart C
225.25— Procedures for applications, notices, and hearings
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Subpart D - Control and Divestiture Proceedings
225.31 --Control proceedings
225.32—
Divestiture proceedings
Subpart E - Change in Bank Control
225.41 —
Control transactions requiring prior notice
225.42— Transactions not requiring prior notice
225.43— Procedures for filing, processing, and acting on notices
Authority: Section 5(b) of the Bank Holding Company Act of 1956, as amended
(12 U.S.C.
1844(b)); section 8 of the International Banking Act of 1978 (12
U.S.C. 3106); and section 7(jXl3) of the Federal Deposit Insurance Act, as
amended by the Change in Bank Control Act of 1978 (12 U.S.C. 1817(j)(13)).
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SUBPART A-GENERAL PROVISIONS
SECTION 225.1-AUTHORITY, PURPOSE, AND SCOPE
(a) Authority. This Part (Regulation Y) is issued by the Board of
Governors of the Federal Reserve System (’’Board1 under section 5(b) of the
')
Bank Holding Company Act of 1956, as amended (12 U.S.C. 1844(b)) (”BHC
Act"), under section 8 of the International Banking Act of 1978 (12 U.S.C. 3106),
and under section 7(j)(13) of the Federal Deposit Insurance Act, as amended by
the Change in Bank Control Act of 1978 (12 U.S.C. 1817(j)( 13)) ("Bank Control
Act"). The BHC Act is codified at 12 U.S.C. 1841, et. seq.
(b) Purpose. The principal purposes of this Part are to regulate
the acquisition of control of banks by companies and individuals, to define the
nonbanking activities in which bank holding companies and foreign banking
organizations with U.S. operations may engage, and to set forth the procedures
for securing approval for such transactions and activities.
(c)
Scope.
(1) Subpart A contains general provisions and definitions of
terms used in this regulation.
(2) Subpart B governs acquisitions of bank or bank holding
company securities and assets by bank holding companies or by any company that
will become a bank holding company as a result of the acquisition.
(3) Subpart C defines the nonbanking activities in which bank
holding companies and foreign banking organizations may engage directly or
through a subsidiary. In addition, certain nonbanking activities conducted by
foreign banking organizations and certain foreign activities conducted by bank
holding companies are governed by the Board's Regulation K, (12 C.F.R. Part 211
International Banking Operations).
(4) Subpart D specifies situations in which a company is pre
sumed to exercise control over voting securities or a controlling influence over
the management or policies of a bank or other company, sets forth the
procedures for making a control determination, and provides rules governing the
effectiveness of divestitures by bank holding companies.
(5) Subpart E governs changes in bank control resulting from
the acquisition by individuals or companies (other than bank holding companies)
of voting securities of a bank holding company or state member bank of the
Federal Reserve System.
SECTION 225^-DEFINITIONS
Except as modified in this section or unless the context otherwise
requires, the terms used in this regulation have the same meanings as set forth in
the relevant statutes.
(aXl)"Bank" means any institution organized under the laws of the
United States that accepts demand deposits and engages in the business of
making commercial loans. For the purposes of this definition:
(i)
"demand deposits" means any deposit with transactional
capability that as a matter of practice is payable on demand, and includes
deposits accessible by check, draft, negotiable order of withdrawal, or other
similar instrument;
(ii) "commercial loans" means any loan other than a loan to
an individual for personal, family, household, or charitable purposes, and includes
the purchase of commercial paper, certificates of deposit, bankers’ acceptances,
and similar money market instruments, the extension of broker call loans, the
sale of federal funds, and the deposit of interest-bearing funds; and
(iii) "United States" means the United States and includes any
state of the United States, the District of Columbia, any territory of the United
States, Puerto Rico, Guam, American Samoa, or the Virgin Islands.
(2)
"Bank" does not include:
(i)
any institution that does not do business in the United
States except as an incident to its activities outside the United States;
(ii) any institution the accounts of which are insured by the
Federal Savings and Loan Insurance Corporation or any institution chartered by
the Federal Home Loan Bank Board; or
(iii)
"Agreement" or "Edge" corporations operating under
sections 25 or 25(a) of the Federal Reserve A ct (12 U.S.C. 601-60^(a), 611-631).
(b)(1) "Bank holding company" means any company (including a bank)
that has direct or indirect control of a bank, unless such control results from the
ownership or control of:
(i)
securities held in good faith in a fiduciary capacity
(other than as provided in paragraph (d)(2)(H) and (iii) of this section) without sole
discretionary voting authority, or as otherwise exempted under section 2(a)(5)(A)
of the BHC Act;
(ii) securities or voting rights held only for a reasonable
period of tim e for the purpose of underwriting securities or participating in a
proxy solicitation, as provided in sections 2(a)(5)(B) and (C) of the BHC Act;
(iii) securities acquired in satisfaction of debts previous
ly contracted in good faith, as provided in section 2(a)(5)(D) of the BHC A ct, if
the securities are divested within two years of acquisition unless the tim e is
extended by the Board; or
(iv) securities of certain institutions owned by a thrift
institution or a trust company, as provided in sections 2(a)(5)(E) and (F) of the
BHC A ct.
(2)
Except for the purposes of section 225.4(b) of this subpart
and Subpart E of this regulation or as otherwise provided in this regulation, the
term ’’bank holding company" includes a "foreign banking organization" as
defined in section 211.23 of the Board's Regulation K (12 C.F.R. 211.23). For the
purposes of Subpart B, the term bank holding company does not include a foreign
banking organization that does not own or control a bank in the United States.
(c)
"Company" includes any bank, corporation, general or limited
partnership, association or similar organization, business trust, or any other trust
unless by its terms it must terminate either within 25 years or within 21 years
and 10 months after the death of individuals living on the effe ctiv e date of the
trust. "Company" does not include any organization the majority of whose voting
securities are owned by the United States or any state.
(d)
purposes of Subpart E):
(1) "Control" of a bank or company includes (except for the
(i)
owning, controlling, or having power to vote 25
percent or more of the outstanding shares of any class of voting securities of the
bank or company, directly or indirectly or acting through one or more other
persons;
(ii) controlling in any manner the election of a majority
of the directors or trustees (or individuals exercising similar functions) of the
bank or company;
(iii) exercising or having the power to exercise directly
or indirectly a controlling influence over the management or policies of the bank
or company, as determined by the Board after notice and opportunity for hearing
in accordance with section 225.31 of Subpart D of this regulation; or
(iv) conditioning in any manner the transfer of 25 per
cent or more of any class of voting securities of a bank or company upon the
transfer of 25 percent or more of any class of voting securities of another bank
or company.
(2)
As provided in section 2(g) of the BHC A ct, a company
shall be deemed to control securities or assets owned, controlled, or held directly
or indirectly:
(i)
by any subsidiary of the company;
(ii) in a fiduciary capacity (including by pension and
profit-sharing trusts) for the benefit of the shareholders, members, or employees
(or individuals serving in similar capacities) of the company ©r of any of its
subsidiaries; ®r
(iii) in a fiduciary capacity for the benefit of the com
pany or any of its subsidiaries.
(e)
"Management official" means any officer, director (including
honorary or advisory directors), partner, or trustee of a company or any
employee of the company with policy-making functions.
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(f)
’’Outstanding shares" means any securities with voting rights,
but does not include securities owned by the United States or by a company
wholly-owned by the United States.
(g)
"Person" includes an individual, bank, corporation, partnership,
trust, association, joint venture, pool, syndicate, sole proprietorship, unincorpor
ated organization, or any other form of entity.
(h)
"Principal shareholder" means a person that owns or controls
directly or indirectly 25 percent or more of any class of voting securities of a
company.
(i)
"Subsidiary" means a bank or company that is controlled by
another company or person, and unless otherwise indicated, refers to a direct or
indirect subsidiary of a bank holding company. An "indirect subsidiary" of a bank
holding company means a bank or company controlled by a subsidiary of the bank
holding company.
(j)
"Voting securities" means shares of common and preferred
stock, general and limited partnership interests, and other similar interests, if
the holders are entitled by statute, charter, or in any manner to vote for or
select directors, trustees, or partners (or persons exercising similar functions), or
to vote on other significant matters.
SECTION 225.3—ADMINISTRATION
(a)
Delegation of authority. Designated Board members and o ffi
cers and the Federal Reserve Banks are authorized by the Board to exercise
various functions prescribed in this regulation and in the Board’s Rules Regarding
Delegation of Authority (12 C.F.R. Part 265) and the Board's Rules of Procedure
(12 C.F.R. Part 262).
(b)
Appropriate Federal Reserve Bank. In administering this regu
lation, the appropriate Federal Reserve Bank is as follows:
(1) For a bank holding company (or a company applying to
become a bank holding company): the Reserve Bank of the Federal Reserve
district in which the company's banking operations are principally conducted, as
measured by total domestic deposits in its subsidiary banks on the date it became
(or will become) a bank holding company;
(2) For a foreign banking organization (as defined in 12
C.F.R. 211.23) that has no banking subsidiaries and is not subject to paragraph
(b)(1) of this section: the Reserve Bank of the Federal Reserve district in which
the total assets of the organization's United States branches, agencies, and
commercial lending companies are the largest as of the later of January 1, 19S0,
or the date it becomes a foreign banking organization;
(3) For an individual ©r company submitting a notice under
Subpart E of this regulation: the Reserve Bank of the Federal R eserve district in
which the banking operations of the bank holding company or state member bank
to be acquired are principally conducted, as measured by total dom estic deposits
on the date the notice is filed.
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SECTION 225.4—CORPORATE PRACTICES
(a)
Bank holding company policy and operations. (1) A bank holding
company shall serve as a source of financial and managerial strength to its bank
subsidiaries and shall conduct all of its operations in accordance with sound
banking policy and practice.
(2)
Whenever the Board believes an activity or control of a
nonbank subsidiary constitutes a serious risk to the financial safety, soundness,
or stability of a bank subsidiary of a bank holding company, and is inconsistent
with sound banking principles or the purposes of the BHC A ct, the Board may
require the bank holding company to terminate the activity or to terminate
control of the subsidiary, as provided in section 5(e) of the BHC A ct.
(b)
Purchase or redemption by a bank holding company of its own
securities. A bank holding company may not purchase or redeem its equity
securities, unless:
(1)
the gross. ,consideration paid for the securities, when
added to the net consideration-' paid for all similar transactions during the
preceding 12-month period, is not more than $10 million or 1 percent of the bank
holding company's net worth, whichever is less; or
(2)
the bank holding company has:
(i)
consolidated assets of $1 billion or more, and af
the purchase or redemption, its consolidated primary capital-to-total assets ratio
is at least 5 percent;
(ii) consolidated assets of $150 million to $1 billion, and
after the purchase or redemption, its consolidated primary capital-to-total
assets ratio is at least 6 percent; or
(iii) total banking assets of $150 million or less, and
after the purchase or redemption,
(A) the primary capital-to-total assets ratio of the
bank holding company (consolidated) is at least 6 percent or
(B) the primary capital-to-total assets ratio of
each subsidiary bank of the holding company is at least 6 percent and the debtto-equity ratio of the parent bank holding company (nonconsolidated) is no more
than 30 percent; or
(3)
the bank holding company obtains the prior approval of
the Board for the redemption or purchase on the basis of unusual circumstances.
1/ For the purposes of this section, M consideration" is the gross considera
net
tion paid by the company for all of its equity securities purchased or redeemed
during the period minus the gross consideration received for all of its equity
securities sold during the period other than as part of a new issue.
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(c)
Deposit insurance. Every bank shall obtain Federal Deposit
Insurance prior to becoming a bank holding company or a subsidiary of a bank
holding company, and shall remain an insured bank as defined in section 3(h) of
the Federal Deposit Insurance A ct (12 U.S.C. IS 13(h)).
>
>
(d)
’Tie-in" arrangements. A bank holding company and any non
banking subsidiary conducting an activity under section 225.23 of this regulation
may not in any manner extend credit, lease or sell property of any kind, provide
any service, or fix or vary the consideration for any of these transactions, if the
provision of the credit, property, or service is subject to any condition that, if
imposed by a bank, would constitute an unlawful tie-in arrangement under
section 106 of the BHC A ct Amendments of 1970 (12 U.S.C. 1971 and 1972(1)).
(e)
Acting as transfer agent, municipal securities dealer, or clear
ing agent. A bank holding company or any nonbanking subsidiary that is a "bank,"
as defined in section 3(aX6) of the Securities Exchange A ct of 1934 (15 U.S.C.
78c(a)(6)), and that is a transfer agent of securities, a municipal securities
dealer, a clearing agency, or a participant in a clearing agency (as those terms
are defined in section 3(a) of the Securities Exchange A ct, (12 U.S.C. 7Sc(a)),
shall be subject to sections 208.8(f) - (j) of the Board’s Regulation H (12 C.F.R.
208.8(f) - (j)) as if it were a state member bank.
SECTION 225.5-REGISTRATION, REPORTS, AND INSPECTIONS
(a)
Registration of bank holding companies. Each company shall
register within 180 days after becoming a bank holding company by furnishing
information in the manner and form prescribed by the Board.
(b)
Reports of bank holding companies. Each bank holding company
shall furnish in the manner and form prescribed by the Board an annual report of
the company's operations for the fiscal year in which it becomes a bank holding
company, and for each fiscal year thereafter during which it remains a bank
holding company. Additional information and reports shall be furnished as the
Board may require.
(c)
Examinations and inspections. The Board may examine or in
spect any bank holding company and each of its subsidiaries and prepare a report
of their operations and activities. With respect to foreign banking organizations
the Board may examine any branch or agency of a foreign bank in a State of the
United States and may examine or inspect each ©f its United States subsidiaries
and prepare reports of their operations and activities. The Board shall rely as
far as possible on the reports of examination made by the primary federal ©r
state supervisor of the bank subsidiaries of a bank holding company ©r of the
foreign bank.
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SECTION 225.6—PENALTIES FOR VIOLATIONS
(a)
Criminal and civil penalties. (1) Section 8 of the BHC Act
provides certain civil and criminal penalties for a violation by any company or
individual of the BHC A ct or any regulation or order issued under it, or for
making a false entry in any book, report, or statem ent of a bank holding
company. Civil money penalty assessments for violations of the BHC Act shall
be made in accordance with Subpart B of the Board’s Rules of Practice for
Hearings (12 C.F.R. 263, Subpart B). For any willful violation of the Bank
Control A ct or any regulation or order issued under it, the Board may assess a
civil penalty as provided in 12 U.S.C. 1817(jXl5).
(b)
Cease and desist proceedings. For any violation of the BHC
A ct, the Bank Control A ct, this regulation, or any order or notice issued
thereunder, the Board may institute a cease and desist proceeding in accordance
with the Financial Institutions Supervisory A ct of 1966, as amended (12 U.S.C.
1818(b)(1) and (3)).
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SUBPART B—ACQUISITION OF BANK SECURITIES OR ASSETS
SECTION 225.11—TRANSACTIONS REQUIRING BOARD APPROVAL
The following transactions require an application for the Board’s prior
approval under section 3 of the BHC Act unless otherwise exempted under
section 225.12 of this subpart:
(a)
Formation of bank holding company. Any action that causes a
company to become a bank holding company.
(b)
Acquisition of subsidiary bank. Any action that causes a bank
to become a subsidiary of a bank holding company.
(c)
Acquisition of control of bank securities or bank holding
company securities. The acquisition by a bank holding company of control of any
voting securities of a bank or bank holding company, if the acquisition results in
the company's control of more than 5 percent of the outstanding shares of any
class of voting securities of the bank or bank holding company. An acquisition
includes the purchase of additional securities through the exercise of preemptive
rights, but does not include securities received in a stock dividend or stock split
that does not alter the bank holding company's proportional share of any class of
voting security.
(d)
Acquisition of bank assets. The acquisition by a bank holding
company (that is not a bank) or by a nonbank subsidiary of all or substantially all
of the assets of a bank.
(e)
Merger of bank holding companies. The merger or consolidation
of bank holding companies, including a merger through the purchase of assets and
assumption of liabilities.
(f)
Other acquisitions. Any other acquisition of control of a bank
or bank holding company that the Board determines, after notice to the acquiring
company, requires prior approval under section 3 of the BHC A ct.
SECTION 225.12—TRANSACTIONS NOT REQUIRING BOARD APPROVAL
The following transactions do not require the Board's approval under
section 225.11 of this subpart:
(a)
Acquisition of securities in fiduciary capacity. The acquisition
by a bank or company, as provided by section 3(a) of the BHC A ct, of control of
voting securities or assets of a bank or bank holding company in good faith in a
fiduciary capacity, unless:
(1)
the acquiring bank or company has sole discretionary
authority to vote the securities and will retain such authority for more than two
years; or
(2)
the acquisition is for the benefit of the bank or company
or its shareholders, employees, or subsidiaries.
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(b)
Acquisition of securities in satisfaction of debts previously con
tracted. The acquisition by a bank or company of voting securities or assets of a
bank or bank holding company in the regular course of securing or collecting a
debt previously contracted in good faith, as provided in section 3(a) of the BHC
A ct, if the bank or company divests the securities or assets within two years of
acquisition. The Board may grant requests for up to three one-year extensions.
(c)
Acquisition of securities by bank holding company with majority
control. The acquisition by a company of additional voting securities of a bank
or bank holding company where more than 50 percent of the outstanding voting
securities of the bank or company is controlled by the acquiring company prior to
the acquisition.
(d)
Transactions subject to Bank Merger A c t. The merger, consoli
dation, or purchase of assets involving a nonsubsidiary bank and a subsidiary bank
of a bank holding company, or a similar transaction involving subsidiary banks of
a bank holding company, if the transaction requires the prior approval of a
Federal supervisory agency under the Bank Merger A ct (12 U.S.C. 1828(c)). This
exception does not include the merger of a nonsubsidiary bank and a nonoperat
ing subsidiary bank formed by a company for the purpose of acquiring the
nonsubsidiary bank.
(e)
Holding securities in escrow. The holding of bank or bank
holding company securities or assets in a good faith escrow arrangement for the
benefit of an applicant pending the Board’s action on the application for approval
of the proposed acquisition, if title to the securities and the voting rights remain
with the seller and payment for the securities has not been made to the seller.
SECTION 225.13-FACTORS CONSIDERED IN DECIDING APPLICATIONS
UNDER SUBPART B
(a)
Prohibited anticom petitive transactions. As specified in sec
tions 3(cX 1) and (2) of the BHC A ct, the Board may not approve any application
under this subpart if the transaction would:
(i)
result in a monopoly or would further an effort to
monopolize the business of banking in any part of the United States; or
(ii) substantially lessen com petition, tend to create a
monopoly, or in any other manner be in restraint of trade in any section of the
country, unless the Board finds that the anticom petitive e ffe c ts of the transac
tion are clearly outweighed by the probable e ffe c t of the transaction in meeting
the convenience and needs of the community.
(b)
Other factors considered. In deciding applications under this
subpart, the Board’s consideration shaiT include the following factors with
respect to the applicant, its subsidiaries, any banks related to the applicant
through common ownership or management, and the bank to be acquired:
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(1)
Financial condition. Their financial condition and future
prospects, including whether current and projected capital positions and levels of
indebtedness conform to the Board’s standards.
(2)
Management. The com petence and character of the app
licant's principals; the applicant's record of compliance with laws and regula
tions; and its record of fulfulling its commitments to, and any conditions imposed
by, the Board in connection with prior applications.
(3)
Convenience and needs of the community and perform
ance under Community Reinvestment A c t. The convenience and needs of the
communities to be served, including
(i)
the impact of the proposed transaction o
number and availability of alternative sources of banking services, and on
existing and potential competition and the concentration of banking resources;
and
(ii)
the record of performance under the Comm
Reinvestm ent A ct of 1977 (12 U.S.C. 2901 et seq.) and the Board's Community
Reinvestment Regulation (12 C.F.R. Part 22S, Regulation BB).
(cXl) Interstate transactions. The Board may not approve any trans
action that would result in:
(i)
the formation of a bank holding company that
controls more than 5 percent of any class of voting securities of two or more
banks located in different states; or
(ii)
the acquisition by a bank holding company or any of
its subsidiaries of any voting securities of, any interest in, or substantially all
of the assets of, an additional bank located in a state other than the state in
which the operations of the bank holding company’s banking subsidiaries were
principally conducted on 3uly 1, 1966 (as measured by total deposits), or on the
date on which the company became a bank holding company, whichever is later.
(2)
Exceptions. The prohibitions of this paragraph shall not
apply if:
(i) the bank is located in a state that has by statute
expressly authorized the acquisition of securities of, an interest in, or substan
tially all of the assets of, a bank within the state by an out-of-state bank holding
company; or
(ii) the transaction involves the acquisition of a closed
©r failing bank that has been authorized under section 13(f) of the Federal
Deposit Insurance A ct (12 U 3 .C . lS23(f))«
SECTION 225.14—PROCEDURES FOR APPLICATIONS, NOTICES, AND HEARINGS
(a)
Filing application. An application by a company for the Board’s
prior approval unHeTtnlssuBpart shall be filed with the appropriate Reserve
Bank on the designated form and shall comply with section 262.3 of the Rules
of Procedure (12 C.F.R. 262.3), which contains a requirement for publication
by the applicant of newspaper notice of the application.
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(b)
N otice.
(1)
N otice to primary banking supervisor. Upon receipt of an
application under this subpart, the Reserve Bank shall give prompt notice and a copy
of the application to the primary banking supervisor of the bank to be acquired. The
primary supervisor shall have 30 calendar days from the date of the letter giving
notice in which to submit its views and recommendations to the Board.
(2)
Federal Register notice. Upon receipt by the Reserve Bank of
an application under this subpart, notice of the application shall be promptly sent to
the Federal Register for publication.
The Federal Register notice shall invite
comment on the application for a period of no more than 30 days.
(c)
Accepting application for processing. Within 10 calendar days after
the Reserve Bank receives an application under this subpart, the Reserve Bank shall
either accept the application for processing or advise the applicant that the
application is incomplete and requires additional information.
In unusual
circum stances, the Reserve Bank may extend this tim e period upon written notice to
the applicant. Upon accepting an application, the Reserve Bank shall immediately
send copies of the application to the Board.
(d)
Action on applications.
(1)
Action under delegated authority. An application shall be
approved within 30 calendar days after it is accepted for processing under paragraph
(c) of this section, unless the applicant is notified that the application has been
referred to the Board for decision because action is not appropriate under delegated
authority. The 30-day period may be extended for 15 days by the Reserve Bank upon
written notice to the applicant.
(2)
Board action. In the case of applications referred to the Board
for decision, the application shall be approved within 60 calendar days after it is
accepted for processing under paragraph (c) of this section, unless the applicant is
notified that the 60-day period will be extended for a specified period and is given the
reasons for the extension. In no event may the extension exceed the 91-day period
provided in paragraph (f) of this section.
(e)
Hearings. As provided in section 3(b) of the BHC A ct, the Board shall .
order a hearing if it receives from the primary supervisor of the bank to be acquired a
written recommendation of disapproval of an application within the 30-day period
specified in paragraph (b)(1) of this section. The Board may order a formal or informal
hearing or other proceeding in connection with the processing of an application, as
provided in section 262.3(0(2) of the Rules of Procedure. Any request for hearing
other than from the primary supervisor shall comply with section 262.3(e) of the Rules
of Procedure (12 C.F.R. 262.3(e)).
Approval through failure t o a c t.
U)
Ninety-one day rule" An application under this subpart shall be
.
deemed approved if the Board fails to act on the application within 91 calendar days
after the date of submission to the Board of the com plete record on the application.
For this purpose, Board action includes the issuance of an order stating that the Board
has approved or denied the application, reflecting the votes of the members of the
Board, and indicating that a statem ent of the reasons for the decision will follow
promptly.
(f)
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(2) "Complete record." For the purpose of computing the 91=
day period, the record shall be regarded as com plete on the latest of:
(i) the date of receipt by the Board of an application that
has been accepted for processing by the Reserve Bank under paragraph (c) of this
section;
(ii) the last day provided in any notice for receipt of
comments and hearing requests on the application;
(iii) the date of receipt by the Board of the last relevant
material regarding the application that is needed for the Board’s decision, if the
material is received from a source outside of the Federal Reserve System and is
not already in the record; or
(iv) the date of completion of any hearing or other
proceeding ordered under paragraph (e) of this section.
(g)
Exceptions to notice and hearing requirements.
(1)
Probable bank failure. If the Board finds it must act
immediately on an application in order to prevent the probable failure of a bank
or bank holding company, the Board may modify or dispense with the notice and
hearing requirements provided in this section.
(2)
Emergency. If the Board finds that, although immediate
action on an application is not necessary, an emergency exists requiring
expeditious action, the Board may require the primary supervisor to submit its
recommendation within 10 calendar days, and the Board may act on the
application without a hearing, and may modify or dispense with the other notice
and hearing requirements provided in this section.
(h)
Waiting period. A transaction approved under this subpart shall
not be consummated before the thirtieth day after the date of approval of the
application, unless the Board has determined that the application involves a
probable bank failure or an emergency situation under paragraph (g) of this
section.
R-14-
SUBPART C—NONBANKING ACTIVITIES AND ACQUISITIONS OF
BANK HOLDING COMPANIES
SECTION 225.21—PERMISSIBLE NONBANKING ACTIVITIES AND ACQUISITIONS;
EXEMPT BANK HOLDING COMPANIES
(a) Permissible nonbanking activities and acquisitions. Except as provi
ded in section 225.22 of this subpart, a bank holding company or a subsidiary may
not engage in, or acquire or control voting securities or assets of a company
engaged in, any activity other than:
(1)
banking or managing or controlling banks and other subsidiaries
authorized under the BHC Act; and
(2)
an activity determined to be closely related to banking as
provided in section 225.23 of this subpart, provided the bank holding company has
obtained the prior approval of the Board under section 225.25 of this subpart for
that activity.
(b)
Exempt bank holding companies. The following bank holding compan
ies are exempt f rom the provisions of this subpart:
(1)
Family-owned companies. Any company that is a "company
covered in 1970," as defined in section 2(b) of the BHC A ct, and that had more
than 85 percent of its voting stock collectively owned on June 30, 1968, and
continuously thereafter, by members of the same family or their spouses.
(2)
Labor, agricultural, and horticultural organizations. Any com
pany that was on January 4, 1977, both a bank holding company and a labor,
agricultural, or horticultural organization exempt from taxation under section
501 of the Internal Revenue Code (26 U.S.C. 501).
(3)
Companies granted hardship exem ption. Any bank holding com
pany that has controlled only one bank since before July 1, 1968, and that has
been granted an exemption by the Board under section 4(d) of the BHC A ct,
subject to any conditions imposed by the Board.
SECTION 225.22-EXEMPT NONBANKING ACTIVITIES AND ACQUISITIONS
(a)
Servicing activ ities. A bank holding company may, without the
Boards prior approval, furnish directly, or acquire all the shares of a subsidiary
to furnish, services for the internal operations of the holding company and its
subsidiaries. Such services include: (i) accounting; (ii) advertising; (iii) data
processing; (iv) holding or operating property used primarily by a subsidiary in
its operations or for its future use; (v) liquidating property acquired from a
subsidiary, (vi) liquidating property acquired from any source either prior to May
9, 1956, or the date on which the company became a bank holding company,
whichever is later; (vii) personnel services; and (viii) selling, purchasing, or
underwriting insurance such as blanket bond insurance, group insurance for
em ployees, and property and casualty insurance.
R -15-
(b)
Safe deposit business. A bank holding company may, withput
the Board's prior approval, conduct a safe deposit business, or acquire voting
securities of a company that conducts such a business.
(c)
Nonbanking acquisitions not requiring prior Board approval. A
bank holding company or subsidiary may, without the Boards prior approval,
acquire:
(1)
DPC acquisitions, (i) Securities and real or personal pro
perty, by foreclosure or otherwise, in satisfaction of debts previously contracted
("DPC property") in good faith, if the DPC property is divested within two years
of acquisition.
(ii) Upon request, this 2-year period may be extended
for three additional one-year periods by the Board. In the case of real estate, an
additional 5-year period may also be permitted by the Board for a total of 10
years.
(iii) Transfers of DPC property within the bank holding
company system shall not extend any period for divestiture of the property.
(2) Securities or assets required to be divested by subsidiary.
Securities or assets required to be divested by a subsidiary at the request of an
appropriate examining federal or state authority (except by the Board under the
BHC A ct or this regulation), if the bank holding company divests the securities
or assets within two years from the date acquired from the subsidiary.
(3)
Fiduciary investm ents. Securities or assets acquired by a
company in good faith in a fiduciary capacity, if they are:
(i)
held in the ordinary course of business; and
(ii) not acquired for the benefit of the company or its
shareholders, employees, or subsidiaries.
(4)
Securities eligible for investment by a national bank. Se
curities of the kinds and amounts explicitly eligible by federal statute (other
than the Bank Service Corporation A ct, 12 U.S.C. 1861 et. seq.) for investment
by a national bank, and securities acquired prior to 3une 30, 1971, in reliance on
section 4(cX5) of the BHC A ct and interpretations of the Comptroller of the
Currency under section 5136 of the Revised Statutes (12 U.S.C. 24(7)).
(5)
Securities totalling 5 percent or less of a company. Se
curities or property that, in the aggregate, represent 5 percent or less of any
class of outstanding voting securities of a company or a 5 percent interest or less
in the property, provided the acquiring company holds the securities or property
as a passive investment.
(6)
Securities of investment company. Securities ©f an in
vestm ent company that is solely engaged in investing in securities and that does
not own or control more than 5 percent of any class ©f outstanding voting
securities of any company.
R-16-
(7)
Assets acquired in the ordinary course of business. Assets
of a company acquired in the ordinary course of business, subject to the
limitations and provisions of 12 C.F.R. 225.132, provided the assets relate to
activities in which the acquiring company has previously received Board approval
to engage under section 225.23 of this subpart in the areas to be served, and the
assets do not represent all or substantially all of the assets of a company, or a
subsidiary, division, department, or office of the company from which the assets
are acquired.
(8)
Asset acquisitions by consumer finance or mortgage company.
A ssets of an office(s) of a company that relate sol efy to making,
acquiring, or servicing loans solely for personal, fam ily, or household purposes,
provided that:
(i)
the acquiring company has previously received
Board approval to engage in consumer finance or residential mortgage banking
activities under section 225.23(b)(1) of this subpart in the area to be served by
the acquired office(s);
(ii)
the assets sold from any company in any calendar
year do not represent more than 10 percent of the assets of the acquiring
consumer finance or mortgage company or more than $10 million, whichever is
less;
(iii) the assets acquired do not represent more than 50
percent of the assets of the selling company;
(iv) the acquiring company notifies the Reserve Bank of
the acquisition within 30 days after the acquisition ; and
(v)
the Board has not previously notified the acquiring
company that it may not acquire assets under this paragraph.
(d)
Acquisition of securities by subsidiary banks.
(1)
A national bank or its subsidiary may acquire or retain
securities on the basis of section 4(c)(5) of the BHC A ct in accordance with the
regulations of the Comptroller of the Currency.
(2)
A state-chartered bank or its subsidiary may, insofar as
federal law is concerned, acquire or retain securities on the basis of section
4(cX5) of the BHC A ct (i) of the kinds and amounts explicitly eligible by federal
statute for investment by a national bank; or (ii) that represent all of the voting
securities of a company (except directors’ qualifying shares) that engages solely
in activities in which the parent bank may engage, at locations at which the bank
may engage in the activity, and subject to the same lim itations as if the bank
were engaging in the activity directly.
(e)
A ctivities and securities of new bank holding companies. A
company that becomes a bank holding company with the Board’s approval under
section 225.11 of Subpart B of this regulation may, for a period of two years,
engage in nonbanking activities and hold nonbanking securities that it engaged in
or held on the date it became a bank holding company. The Board may grant
requests for up to three one-year extensions.
R-17-
(f)
G randfathered activ ities and sec u rities. Unless the Board or
ders d iv estiture or term ination under section Ma)(2) of the BHC A ct, a ccompany
covered in 1970/' as defined in section 2(b) of the BHC A ct, mays
(1)
re ta in secu rities and engage in a c tiv itie s th a t it has
lawfully held or engaged in continuously since 3une 30, 196S; and
(2)
in such a ctiv ities.
acquire secu rities of a new ly-form ed company to engage
(g)
Securities or a ctiv itie s exem pt under R egulation K. A bank
holding company may acquire voting secu rities or assets and engage in a ctiv itie s
authorized for th a t bank holding company under R egulation K (12 C.FoR. P a rt
211 ).
SECTION 225.23-NONBANKING ACTIVITIES REQUIRING BOARD APPROVAL
(a)
Approval required to engage in nonbanking a e tiv itie s o A bank holding
company shall apply, in accordance with section 225.25 of this subpart, for th e
Board’s prior approval to engage directly or indirectly, or to acquire or control
voting securities or assets of a company engaged, ins (1) an a ctiv ity specified in
paragraph (b) of this section, including such incidental a c tiv itie s as are necessary
to carry on th e activ itie s specified; and (2) in an a ctiv ity not specified in
paragraph (b) th a t the bank holding company believes is closely re la te d to
banking or to managing or controlling banks w ithin th e m eaning of section Mc)(S)
of the BHC A ct.
(b)
A ctiv ities determ ined to be closely re la te d to banking. The following
a ctiv ities are so closely re la ted to banking or managing or controlling banks as to
be a proper incident th ereto ;
(1)
Making and servicing loans. Making, acquiring, or servicing
loans or other extensions of c re d it (including issuing le tte rs of c re d it and
accepting d rafts) for the company’s account or for th e account of oth ers, such as
would be m ade, for exam ple, by th e following types of companies; (i) consumer
finance; (ii) c re d it card; (iii) m ortgage; (iv) com m ercial finance; and (v) fa c to r
ing.
(2)
Industrial banking. O perating an industrial bank, Morris Plan
bank, or industrial loan company, as authorized under s ta te law, so long as th e
institu tio n is not a bank as defined in section 225.2(a) of Subpart A of this
regulation.
(3)
T rust company fu nctions. P erform ing functions ©r a ctiv itie s
th a t may be perform ed by a tru st company (including a ctiv itie s of a fiduciary,
agency, or custodial nature), in the manner authorized by fed eral ©r s ta te law , so
long as th e in stitu tio n does not m ake loans or investm ents ®r acc e p t deposits
other than;
(i)
deposits th a t are g enerated from tru s t funds not currently
invested and th a t are properly secured to th e e x ten t required by law;
R-18-
(ii)
deposits representing funds received for a special use in
the capacity of managing agent or custodian for an owner of, or investor in, real
property, securities, or other personal property; or for such owner or investor as
agent or custodian of funds held for investment or as escrow agent; or for an
issuer of, or broker or dealer in securities, in a capacity such as a paying agent,
dividend disbursing agent, or securities clearing agent; provided such deposits are
not employed by or for the account of the customer in the manner of a general
purpose checking account or interest-bearing account; or
(iii)
making call loans to securities dealers or purchasing
money market instruments such as certificates of deposit, commercial paper,
government or municipal securities, and bankers acceptances. (Such authorized
loans and investm ents, however, may not be used as a method of channeling
funds to nonbanking affiliates of the trust company.)
(4)
Investment or financial advice. Acting as investment or finan
cial adviser to the extent of:
(i)
serving as the advisory company for a mortgage or a real
estate investment trust;
(ii) serving as investment adviser (as defined in section
2(aX20) of the Investment Company A ct of 1940, 15 U.S.C. 80a-2(a)(20)), to an
investment company registered under that act;
(iii)
2/
providing portfolio investment advice^' to any other per
son;
(iv)
furnishing general economic information and advice, gen
eral economic statistical forecasting services and industry studies;-' and
(v)
providing financial advice to state and local governments,
such as with respect to the issuance of their securities.
(5)
Leasing personal or real property. Leasing personal or real
property or acting as agent, broker, or adviser in leasing such property if:
(i)
the lease is to serve as the functional equivalent of an
extension of credit to the lessee of the property;
(ii)
the property to be leased is acquired specifically for the
leasing transaction under consideration or was acquired specifically for an
earlier leasing transaction;
" 2 7 The term "portfolio investment" is intended to refer generally to the
investment of funds in a "security" as defined in section 2(1) of the Securities
A ct of 1933 (15 U.S.C. 77b) or in real property interests, except where the real
property is to be used in the trade or business of the person being advised. In
furnishing portfolio investment advice, bank holding companies and their sub
sidiaries shall observe the standards of care and conduct applicable to fiduciar
ies.
3/
This activity is to be contrasted with "management consulting!" See
the commentary for a discussion of impermissible management consulting
activities.
R-19-
(iii)
the lease is on a nonoperating basis;-^
(iv) at the inception of the initial lease the e ffe c t of the
transaction (and, with respect to governmental entities only, reasonably antici
pated future transactions-') will yield a return that will compensate the lessor
for not less than the lessor's full investment in the property plus the estimated
total cost of financing the property over the term of the lea se,-' from;
(A)
rentals;
(B) estim ated tax benefits (investment tax credit, net
economic gain from tax deferral from accelerated depreciation, and other tax
benefits with a substantially similar effect);
(C) the estim ated residual value of the property at the
expiration of the initial term of the lease, which in no case shall exceed 20
percent of the acquisition cost of the property to the lessor; and
(D) in the case of a lease of personal property of not
more than seven years in duration, such additional amount, which shall not
exceed 60 percent of the acquisition cost of the property, as may be provided by
an unconditional guarantee by a lessee, independent third party, or manufactur
er, which has been determined by the lessor to have the financial resources to
m eet such obligation, that will assure the lessor of recovery of its investment
and cost of financing; provided, that in the aggregate the amount derived from
estim ated residual value under subparagraph C and any unconditional guarantee
shall not exceed 60 percent of the acquisition cost of the property;
For purposes of the leasing of automobiles, the requirement that the
lease be on a nonoperating basis means that the bank holding company may not,
directly or indirectly: (1) provide for the servicing, repair, or maintenance of the
leased vehicle during the lease term; (2) purchase parts and accessories in bulk or
for an individual vehicle after the lessee has taken delivery of the vehicle; (3)
provide for the loan of an automobile during servicing of the leased vehicle; (4)
purchase insurance for the lessee; or (5) provide for the renewal of the vehicle's
license merely as a service to the lessee where the lessee could renew the
license without authorization from the lessor.
5/
The Board understands that some federal, state and local govern
mental entities may not enter into a lease for a period in excess of one year.
Such an impediment does not prohibit a company authorized under section
225.23(a)(5) from entering into a lease with such governmental entities if the
company reasonably anticipates that the governmental entities will renew the
lease annually until such time as the company is fully compensated for its
investment in the leased property plus its costs of financing the property.
Further, a company authorized under section 225.23(a)(5) may also engage in sen
called "bridge” lease financing of personal property, but not real property, where
the lease is short term pending completion of long-term financing, by the same
or another lender.
6 / The estim ate by the lessor of the total cost of financing the property
over the term of the lease should reflect, among other factors: the term of the
lease, the modes of financing available to the lessor, the credit rating of the
lessor and/or the lessee (if a factor in the financing), and prevailing rates in the
money and capital markets.
R-2Q-
(v)
the maximum lease term during which the lessor must
recover the lessor’s full investment in the property, plus the estim ated total cost
of financing the property, shall be 40 years; and
(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 on a nonoperating basis as soon as practicable but in no
event later than two years from the expiration of the lease;- however, in no
case shall the lessor retain any interest in the property beyond 50 years after its
acquisition of the property.
(6)
to corporations
and to further
services, or jobs
Community development. Investing in or making contributions
or projects designed primarily to promote community welfare
the development of low income areas by providing housing,
for residents.
(7)
Data processing, (i) Providing data processing and data trans
mission services, data bases, or fa cilities (including data processing and data
transmission hardware, software, documentation, and operating personnel) for
the internal operations of the holding company or its subsidiaries;
(ii) Providing to others data processing and transmission ser
vices, facilities, data bases, or access to such services, facilities, or data bases
by any technologically feasible means, where:
(A) data to be processed or furnished are financial,
banking, or economic, and the services are provided pursuant to a written
agreement so describing and limiting the services;
(B) the facilities are designed, marketed, and operated
for the processing and transmission of financial, banking, or economic data; and
(C) hardware in connection therewith is offered only in
conjunction with software designed and marketed for the processing and trans
mission of financial, banking, or economic data, and where the general purpose
hardware does not constitute more than 30 percent of the cost of any packaged
offering.
(8)
Insurance sales. Except as prohibited in T itle VI of the Garn-St
Germain Depository Institutions A ct of 1982 (Pub. L. 97-320, 96 Stat. 1536),
acting as insurance agent or broker in offices at which the holding company or
its subsidiaries are otherwise engaged in business (or in an o ffice adjacent
thereto) with respect to the following types of insurance:
7A In the event of a default on the lease agreement prior to the expiration
of the lease term, the lessor shall either re-lease the property, subject to all the
conditions of this subsection, or liquidate the property as soon as practicable but
in no event later than two years from the date of default on the lease
agreement.
R-21-
(i)
any insurance th a t (A) is directly re la ted to an extension
of cred it by a bank or bank-related firm of the kind described in this re g u latio n
or (B) is directly related to the provision of other financial services by a bank or
such a b ank-related firm; and
(ii) any insurance sold by a bank holding company or a
nonbanking subsidiary in a com m unity th a t has a population not exceeding 5,000
(as shown by the last preceding decennial census), provided the principal place of
banking business of the bank holding company is lo cated in a com m unity having a
population not exceeding 5,000.
(9)
Insurance underw riting. A cting as underw riter for c re d it life
insurance and cre d it accident and health insurance th a t i s d irectly re la ted to an
extension of cre d it by the bank holding company sy stem ,(10)
C ourier serv ices. Providing courier services for;
(i)
the internal operations of the bank holding company and
its subsidiaries;
(ii) checks, com m ercial papers, docum ents, and w ritten in
strum ents (excluding currency or b e arer-ty p e negotiable instrum ents) th a t are
exchanged among banks and financial institutions; and
(iii)
audit and accounting m edia of a banking or fin an cial n atu re and
other business records and docum ents used in processing such m ed ia.(11) M anagement consulting to depository in stitu tio n s. Providing,
on an explicit fee basis w ithout regard to any correspondent balances,
m anagem ent consulting advice to banks and other depository in s titu tio n s - - , if;
(i)
the services are not provided on a daily or continuing
basis;
~W T To assure th a t engaging in the underw riting of cre d it life and cred it
accident and health insurance can reasonably be expected to be in the public
in te re st, the Board will only approve applications in which an applicant demon
stra te s th a t approval will b en efit th e consumer or result in o ther public benefits.
Norm ally such a showing would be made by a projected reduction in ra te s or
increase in policy benefits due to bank holding company perform ance of this
service.
9 / See also the Board’s in te rp re ta tio n on courier a ctiv itie s (12 CoFoRo
225.129), which sets forth conditions for bank holding company en try into the
activ ity .
10/ In perform ing this a c tiv ity , bank holding com panies are not authorized
to perform tasks or operations or provide services to clien t in stitu tio n s eith e r on
a daily or continuing basis, except as shall be necessary to in stru c t the client
institu tio n ©n how to perform such services for itse lf. See also th e Board's
in te rp re ta tio n regarding bank m anagem ent consulting advice a t 12 C .F.R .
225.131. The provisions of this in te rp re ta tio n shall apply to th e perform ance of
m anagem ent consulting services for monbank depository in stitu tio n s as well as
com m ercial banks.
R-22-
(ii)
the bank holding company does not control any equity
securities issued by the client;
(iii) no management official, as defined in 12 CFR 212.2, of
the bank holding company or subsidiary serves as a management official of the
client, unless granted an exception by the appropriate federal regulatory agency;
and
(iv) each potential client is notified of all depository
institutions affiliated with the bank holding company and of all other clients
located in the same market areas as the potential client.
(12) Money orders, savings bonds, and travelers checks.
The
issuance and sale at retail of money orders having a face value of not more than
$1,000; the sale of U.S. savings bonds; and the issuance and sale of travelers
checks.
(13)
Real estate appraising. Performing appraisals of real estate.
(14) Commercial real estate equity financing. Acting as intermedi
ary for the financing of commercial or industrial income-producing real estate
by arranging the transfer of the title, control and risk of such a real estate
project to one or more investors, if:
(i)
the financing arranged exceeds $1 million;
(ii) the bank holding company and its affiliate do not provide
financing to the investors to acquire a real estate project for which the bank
holding company arranges equity financing;
(iii) the bank holding company and its affiliates do not have an
interest in or participate in managing, developing or syndicating a real esta te
project for which it arranges equity financing, and do not promote or sponsor the
development or syndication of such property; and
(iv) the fee received for arranging equity financing for a real
estate project is not based on profits to be derived from the project and is not
larger than the fee that would be charged by an unaffiliated intermediary.
(15) Underwriting and dealing in government obligations. Underwriting and dealing in obligations of the United States, general obligations of
various states and of political subdivisions thereof, and other obligations that
state member banks of the Federal Reserve System may be authorized to deal in
under 12 U.S.C. 24 and 355, including bankers acceptances and certifica tes of
deposit.
(16) Foreign exchange advisory and transactional services. Provid
ing, by any means, general information ana statisticaT forecasting with respect
to foreign exchange markets; advisory services designed to assist customers in
monitoring, evaluating and managing their foreign exchange exposures; and
transactional services with respect to foreign exchange by arranging for "swaps”
among customers with complementary foreign exchange exposures, if:
(i)
the activity is conducted through a separately incorpor
ated subsidiary of the bank holding company;
R-23-
(ii) the foreign exchange subsidiary does not take positions in
foreign exchange for its own account;
0
(iii) the foreign exchange subsidiary observes the standards of
care and conduct applicable to fiduciaries with respect to its foreign exchange
advisory and transactional services; and
(iv) the foreign exchange subsidiary does not itself execute
foreign exchange transactions.
(17)
Futures commission merchant. Acting as a futures commission
merchant ("FCM") for nonaffiliated persons, in the execution and clearance on
major commodity exchanges of future contracts for bullion, foreign exchange,
government securities, negotiable United States money market instruments and
certain other money market instruments, if:
(i)
the activity is conducted through a separately incorpor
ated subsidiary of the bank holding company, subject to the provisions of the
Commodity Exchange A ct (7 U.S.C. 1 to 26), and to regulation by the Commodity
Futures Trading Commission ("CFTC") and at least one of the major domestic
commodity exchanges or in the case of a foreign office, subject to regulation by
a comparable regulatory authority and exchange;
(ii) the FCM does not become a clearing member of any
exchange or clearing association that requires the parent corporation of a
clearing member to also become a member of that exchange or clearing
association unless a waiver of the requirement is obtained;
(iii)
the FCM does not trade for its own account;
(iv) the FCM tim e stamps orders of all customers to the
nearest minute, executes all orders in chronological sequence consistent with the
customers' specifications, and executes all orders with reasonable promptness
with due regard to market conditions;
(v)
the FCM advises each of its customers in writing that
doing business with it will not a ffect any provision of credit to that customer by
other subsidiaries of the parent bank holding company, including its banking
affiliates;
(vi) the FCM does not extend credit to customers for the
purpose of m eeting initial or maintenance margin required of customers except
for posting margin on behalf of customers in advance of prompt reimbursement;
(vii) the FCM has initial capitalization that is in substantial
excess of that required by CFTC regulations (or comparable regulatory
authority), and will maintain fully adequate capitalization;
(viii) services provided to the FCM by its affiliates are
provided under specific contract ©n an explicit fe e basis; and
(ix) the bank holding company and its subsidiaries have de
monstrated expertise and an established capability in the cash, forward and
futures markets for the contracts involved,.
R -24-
SECTION 225.24—FACTORS CONSIDERED IN DECIDING APPLICATIONS
UNDER SUBPART C
(a)
Criteria for activities previously determined to be closely
related to banking. In deciding any application by a bank holding company to
engage in a nonbanking activity specified in section 225.23(b) of this subpart, the
Board shall determine whether the activity is a proper incident to banking. In
making this determination the Board shall consider whether the performance by
the applicant bank holding company of the activity can reasonably be expected
to produce benefits to the public (such as greater convenience, increased
competition, and gains in efficiency) that outweigh possible adverse e ffe c ts (such
as undue concentration of resources, decreased or unfair com petition, conflicts
of interest, and unsound banking practices). Unless the record clearly demon
strates otherwise, the commencement of a nonbanking activity de novo is
presumed to result in benefits to the public through increased competition.
(b)
Criteria for other nonbanking a ctiv ities.
In deciding any
application by a bank holding company to engage in a nonbanking activity not
specified in section 225.23(b) of this subpart, the Board shall determine whether
the proposed activity (1) is closely related to banking or to managing or
controlling banks, and (2) is a proper incident to banking, as described in
paragraph (a) of this section.
(c)
Financial and managerial criteria. In deciding any application
described in paragraph (a) or (b) of this section, the Board shall also consider the
financial and managerial resources of the applicant, including its subsidiaries,
and any company to be acquired, and the e ffe c t of the proposed transaction on
their resources.
SECTION 225.25-PROCEDURES FOR APPLICATIONS, NOTICES, AND
HEARINGS
(a)
(1)
Filing application. An application by a company for the
Boarcf s prior approval under section 225.23 of this subpart shall be filed with the
appropriate Reserve Bank on the designated form and shall comply with section
262.3 of the Rules of Procedure (12 C.F.R. 262.3). An application for Board
approval to engage directly or through a subsidiary in an activity not specified in
section 225.23(b) shall contain evidence and argument that the activity is closely
related to banking or to managing or controlling banks within the meaning of
section 4(c)(8) of the BHC A ct.
(2)
Geographic scope of nonbanking a ctiv ities, (i) Any appli
cation required under section 225.23 of this subpart shall specify the states in
which the company proposes to engage de novo, or to acquire a company
engaged, in the nonbanking activity.
(ii) A bank holding company is not required to file an
application under section 225.23 of this subpart to open a new o ffice or to form a
subsidiary to engage in a nonbanking activity in a state in which the bank holding
company has received the Boards approval under section 225.23 for that
activity, unless the Board has notified the company that an application is
required for such expansion.
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(iii)
If a bank holding company fails to engage
nonbanking activity in the state specified in its application within two years of
Board approval of the application, the Boarcfs approval of that activity in that
state terminates and the bank holding company shall reapply for the Board's
approval before commencing the nonbanking activity in that state.
(3)
Alteration or relocation of nonbanking a ctivity. With
respect to an application approved under section 225.23 of this subpart,
nonbanking activities shall not be altered in any significant respect from those
considered by the Board in acting on the application, nor provided in any states
other than those specified in the notice published with respect to such applica
tion.
(k)
A ctivities outside the United S tates. With respect to
activities to be engaged in outside the United States, the procedures of this
section apply only to activities to be engaged in directly by a bank holding
company that is not a qualifying foreign banking organization or by a United
States nonbank subsidiary of any bank holding company.
(b)
Accepting application for processing. Within 10 calendar days
after the Reserve Bank receives an application under this subpart, the Reserve
Bank shall either accept the application for processing or advise the applicant
that the application is incomplete and requires additional information. In
unusual circumstances, the Reserve Bank may extend this tim e period upon
•written notice to the applicant. Upon accepting an application, the Reserve
Bank shall immediately send copies of the application to the Board.
(c)
Federal Register notice.
(l)
Listed a ctiv ities.
application involving an activity listed in
of the application shall be promptly sent
The Federal Register notice shall invite
30 days.
Upon receipt by the Reserve Bank of an
section 225.23(b) of this subpart, notice
to the Federal Register for publication.
comment for a period of no more than
(2) Proposed new a ctiv ities. In the case of an application
involving an activity not listed in section 225.23(b) of this subpart, notice of the
application shall be sent to the Federal Register for publication within 10
business days after receipt by the Board of an application accepted for
processing under paragraph (b) of this section, unless (i) the activity has
previously been determined not to be closely related to banking or a proper
incident thereto; or (ii) there is no basis for publishing for comment whether the
activity is so closely related to banking as to be a proper incident thereto under
section 225.2k (b) of this subpart. In the event notice of an activity not listed in
section 225.23(b) is not published for comment, the applicant shall be notified of
the reasons for the decision. The Federal Register notice shall invite comment
on the proposal for a reasonable period of tim e, generally for 30 days.
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(d)
Action on applications.
(1)
Action under delegated authority. An application shall be
approved within 30 calendar days" alter it is accepted for processing under
paragraph (b) of this section, unless the applicant is notified that the application
has been referred to the Board for decision because action is not appropriate
under delegated authority. The 30-day period may be extended for 15 days by
the Reserve Bank upon written notice to the applicant.
(2)
Board action. In the case of applications referred to the
Board for decision, the application shall be approved within 60 calendar days
after it is accepted for processing under paragraph (b) of this section, unless the
applicant is notified that the 60-day period will be extended for a specified
period and is given the reasons for the extension. In no event may the extension
exceed the 91-day period specified in paragraph (g) of this section.
(e)
Simplified procedures for small acquisitions. (1) As an alterna
tive to the application procedure of paragraph (a)(1) of this section, a bank
holding company may apply to acquire voting securities or assets of a company
engaged in activities authorized under section 225.23 of this subpart by providing
the appropriate Reserve Bank with a brief description of the transaction and a
copy of a newspaper notice, in a form prescribed by the Board. The newspaper
notice shall have been published by the applicant within the preceding 5 days in a
newspaper of general circulation in the areas to be served as a result of the
acquisition, providing an opportunity for interested persons to comment on the
application for a period of at least 10 calendar days. The procedure prescribed
in this paragraph is available only where;
(i)
neither the book value of the assets acquired nor the
gross consideration paid for the securities or assets exceeds $10 million; and
(ii) the bank holding company has previously received
Board approval to engage in the activity involved in the acquisition in the
relevant state.
(2)
Within five business days after the close of the comment
period, the application shall either be approved or referred to the Board for
processing if action is not appropriate under delegated authority. If an adverse
comment is received, the Reserve Bank may extend this 5-day period for a
reasonable period of time upon written notice to the applicant.
(f)
Hearing. Any request for hearing shall comply with the provi
sions of section
262.3(e) of the Rules of Procedure (12 C.F.R. 262.3(e)). The
Board may order a formal or informal hearing or other proceeding in connection
with the processing of an application, as provided in section 262.3(iX2) of the
Rules of Procedure (12 C.F.R. 262.3(iX2». A hearing shall be required only if
there are disputed issues of material fact that cannot be resolved in some other
manner.
(g)
Approval through failure to a ct. An application under this
subpart shall be
deemed approved if the Board falls to act onthe application
within 91 calendar days after the date of the submission to the Board of the
com plete record on the application. The procedures for computation of the 91day rule as set forth in section 225.14(f) of Subpart B of this regulation apply to
applications under this subpart.
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(h)
Emergency thrift institution acquisitions. In the case of an
application to acquire a thrift institution, the Board may modify or dispense with
the notice and hearing requirements of this section if the Board finds that an
emergency exists which requires the Board to act immediately and the primary
Federal regulator of the institution concurs in this finding.
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SUBPART D - CONTROL AND DIVESTITURE PROCEEDINGS
CONTENTS
SECTION 225.31—CONTROL PROCEEDINGS
(a)
Preliminary determination of control. (1) The Board may issue
a preliminary determination of control under the procedures set forth in this
section in any case in which:
(i)
one of the presumptions of control set forth in
paragraph (d) of this section is present; or
(ii) it appears that the company exercises or has the
power to exercise a controlling influence over the management or policies of the
other company or bank.
(2)
If the Board makes a preliminary determination of control
under this section, the Board shall send notice to the controlling company setting
forth a statem ent of the facts upon which the preliminary determination is
based.
(b)
Response to preliminary determination of control. Within 30
calendar days of issuance by the Board of a preliminary determination of control
under this section, the company against whom the determination has been made
shall:
(1)
submit for the Board’s approval a specific plan for the
prompt termination of the control relationship;
(2)
file an application under Subparts B or C of this regula
tion to retain the control relationship; or
(3)
contest the preliminary determination by filing a re
sponse, setting forth the facts and circumstances in support of its position that
no control exists. The company may request a hearing or other proceeding to
contest the preliminary determination. Any such request for a hearing or other
proceeding shall accompany the response.
(c)
Hearing and final determination. (1) The Board may order a
formal hearing or other appropriate proceeding upon the request of a company
that contests a preliminary determination that the company exercises or has the
power to exercise a controlling influence over the management or policies of the
other company or bank, if the Board finds that material facts are in dispute. The
Board may also order a formal hearing or other proceeding with respect to a
preliminary determination that the company controls voting securities of the
other company or bank under the presumptions in paragraph (d)(1) of this section.
(2) In the event a hearing or other proceeding is held, any
applicable presumptions established by paragraph (d) of this section shall be
considered in accordance with the rules of evidence.
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(3)
After considering the submissions of the company an
other evidence, including the record o l any hearing or other proceeding, the
Board shall issue a final order determining whether the company controls voting
securities or exercises or has the power to exercise a controlling influence over
the management or policies of another company or bank.
If a control
relationship is found, the Board may direct the company to terminate the control
relationship or to file an application for the Board’s approval to retain the
control relationship.
(d)
Rebuttable presumptions of control. The following rebuttable
presumptions shall be used in any proceeding under this section:
(1)
Control of voting securities.
(i)
Securities convertible into voting securities. A
company that owns, controls, or holds securities that are immediately converti
ble at the option of the holder or owner into voting securities of the other
company or bank, controls the voting securities. *
(ii) Option or restriction on voting securities. A com
pany that has entered into a contract or agreement under which the rights of a
holder of voting securities of another company or bank are restricted in any
manner controls the securities subject to such contract or agreement. This
presumption shall not apply where the contract or agreement:
(A) is a mutual agreement among shareholders
granting to each other a right of first refusal with respect to their shares;
(B)
is incident to a bona fide loan transaction; or
(C) relates to restrictions on transferability and
continues only for such time as may reasonably be necessary to obtain approval
from a federal bank supervisory authority with respect to acquisition by the
company of such securities.
(2)
Controlling influence over company.
(i)
Management agreem ent. A company that has a con
tract or agreement under which it directs or exercises significant influence over
the general management or major operations of another company or bank
controls the other company or bank.
(ii) Shares controlled by company and associated indivi°
duals. A company that together with its management officials or principal
shareholders (including members of the immediate fam ilies of either) owns,
controls, or holds with power to vote 25 percent or more of any class of voting
securities of another company ©r bank controls the other company or bank, if the
company itself owns, controls, or holds with power to vote 5 percent or more of
any class of voting securities of the other company or bank (except where such
securities are held by the company in a fiduciary capacity and the company dees
not have sole discretionary authority to exercise the voting rights).
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(iii)
Common management officials. A company t
has one or more management officials or principal shareholders in common with
another company or bank controls the other company or bank, if the company
owns, controls or holds with power to vote 5 percent or more of any class of
voting securities of the other company or bank (except where such securities are
held by the company in a fiduciary capacity and the company does not have sole
discretionary authority to exercise the voting rights), and no other person
controls as much as 5 percent.
SECTION 225.32— DIVESTITURE PROCEEDINGS
(a)
Ineffective divestitures. (1) As provided under section 2(gX3) of
the BHC A ct, the divestiture of assets or voting securities by a bank holding
company (or a company that would be a bank holding company but for the
divestiture) shall be presumed ineffective and the divesting company shall be
presumed to control the acquiring person or the divested assets or securities in
the following circumstances:
(i)
the divesting company; or
the acquiring person is indebted in any manner to
(ii) the divesting company has any management official
in common with the acquiring person.
(2)
For the purposes of this section:
(i)
"indebtedness" does not include routine business or
personal credit that is unrelated to the divestiture transaction and that is
extended by the divesting company in the ordinary course of its lending business;
and
(ii) "divesting company" and "acquiring person" include
their parent companies and subsidiaries, and if the acquiring person is an
individual, companies controlled by the individual.
(b)
Request for divestiture determination. For any divestiture that
is deemed in effective under paragraph (a) of this section, the divesting company
may request the Board to determine that the divestiture is e ffe ctiv e notwith
standing the presumption of paragraph (a) by submitting a letter that includes:
(1)
a description of the divestiture transaction and the exist
ing and prospective relationship between the divesting company and the acquir
ing person;
(2)
evidence and argument showing that the divesting com
pany does not and is not capable of controlling the acquiring person or the
divested assets or securities; and
(3)
any request for a hearing.
(c)
Hearing. The Board may order a formal hearing or other
appropriate proceeding upon the request of a divesting company under paragraph
(b) of this section, if the Board finds that material facts are in dispute with
respect to the divestiture. The Board may also order a formal hearing or other
proceeding if, in the Board's judgment, such a proceeding would be appropriate.
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(d)
Standards for making divestiture determination. In acting on
the request of a divesting company under paragraph (b) of this section, the Board
shall consider the following factors, among others, in determining whether the
divesting company is capable of controlling the acquiring person or the divested
assets or securities:
(1)
Indebtedness of acquiring person to divesting company.
(i)
the terms of the indebtedness, including the amount
of the indebtedness in relation to the total purchase price;
(ii)
the ability of the acquiring person to repay its
indebtedness; and
(iii)
the manner in which the divesting company w
dispose of the divested assets in the event it reacquired the assets as a result of
default on the indebtedness.
(2)
Management official interlocks. , The extent of the in
volvement of the interlocking management official in the operations of the
divesting company and the acquiring person, and the management official's
relationship to the assets or securities being divested.
(e)
Final determination. After considering the submissions of the
divesting company and other evidence, including the record of any hearing or
other proceeding, the Board shall issue an order determining whether the
company controls or is capable of controlling the acquiring person or the
divested assets or securities.
(f)
Review of other divestitures. In any divestiture of assets or
securities by a company that is not covered under paragraph (a) of this section,
the Board or appropriate Reserve Bank may review the divestiture to assure that
all control relationships between the divesting company and the divested assets
or voting securities have been terminated.
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SUBPART E - CHANGE IN BANK CONTROL
SECTION 225.41—CONTROL TRANSACTIONS REQUIRING PRIOR NOTICE
(a)
Prior notice requirement. (1) As provided in the Bank Control
Act, any person acting directly or indirectly or through or in concert with one or
more persons shall give the Board 60 days’ written notice, as specified in section
225.43 of this subpart, before acquiring control of a state member bank or bank
holding company, unless the acquisition is exempt under section 225.42 of this
subpart.
(2)
For the purposes of this paragraph, ’’acquisition” includes
a purchase, assignment, transfer, or pledge of voting securities, or an increase in
percentage ownership of a bank or company resulting from a redemption of
voting securities.
(b)
Acquisitions requiring prior notice. The following transactions
constitute or are presumed to constitute the acquisition of control under the
Bank Control A ct, requiring prior notice to the Board:
(1)
the acquisition of any voting securities of a state member
bank or bank holding company if, after the transaction, the acquiring person
owns, controls, or holds with power to vote 25 percent or more of any class of
voting securities of the institution; or
(2)
the acquisition of voting securities of a state member
bank or bank holding company if, after the transaction, the acquiring person will
own, control, or hold with power to vote 10 percent or more but less than 25
percent of any class of voting securities of such institution, and if:
(A) the institution has registered securities under sec
tion 12 of the Securities Exchange A ct of 1934 (15 U.S.C. section 780; or
(B) no other person will own a greater percentage of
that class of voting securities immediately after the transaction.
(c)
Rebuttal of presumption of control. Prior notice to the Board
is not required for any acquisition of voting securities under the presumption set
forth in paragraph (b)(2) of this section if the Board finds that the acquisition
will not result in control. The Board will afford the person seeking to rebut the
presumption established in paragraph (b)(2) an opportunity to present views in
writing or, where appropriate, orally before its designated representatives either
at an informal conference or at an informal presentation of evidence.
(d)
Other transactions. Transactions other than those set forth in
paragraph (bX2) resulting in a person’s control of less than 25 percent of a class
of voting shares of a state member bank or bank holding company do not result in
control for purposes of the Bank Control A ct.
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SECTION 225.42—TRANSACTIONS NOT REQUIRING PRIOR NOTICE
The following transactions do not require prior notice to the Board
under this subpart:
(a)
Previously authorized acquisitions. The acquisition of addition
al shares of a class of voting securities of a state member bank or bank holding
company by any person who has lawfully acquired and maintained control of 25
percent or more of that class of voting securities after filing the notice required
under section 225.41(b)(1) of this subpart.
(b)
Acquisitions subject to approval under BHC A ct or Bank Merger
A ct. Any acquisition of voting securities subject to approval under section 3 of
the BHC A ct (section 225.11 of Subpart B), or section 18 of the Federal Deposit
Insurance A ct (Bank Merger A ct, 12 U.S.C. 1828).
(c)
Transactions exempt under BHC A c t. Any acquisition described
in sections 2(a)(5) or 3(a)(A) of the BHC A ct by a person described in those
provisions.
(d)
Grandfathered control relationships. (1) The acquisition of
additional voting securities of a state member bank or bank holding company by
a person who continuously, since March 9, 1979, or since that institution
commenced business, held power to vote 25 percent or more of any class of
voting securities of that institution; or
(2)
the acquisition of additional voting securities so long as
the aggregate securities held does not exceed 25 percent of any class of voting
securities of a state member bank or bank holding company by a person who is
presumed under section 225.41 (bX2) of this subpart to have controlled the
institution continuously since March 9, 1979.
(e ) Acquisitions in satisfaction of debts previously contracted or
through inheritance or g ift. The acquisition of voting securities in any amount in
satisfaction of a debt previously contracted in good faith, or through inheritance
or a bona fide gift, if the acquiring person notifies the appropriate Reserve Bank
within 30 calendar days after the acquisition and provides any relevant informa
tion requested by the Reserve Bank.
(f)
Proxy solicitations. The acquisition of the power to vote secur
ities of a state member bank or bank holding company through receipt of a
revocable proxy in connection with a proxy solicitation for the purpose of
conducting business at a regular or special meeting of the institution, if the
proxy terminates within a reasonable period after the conclusion of the meeting.
(g)
Stock dividends. The receipt of voting securities of a state
member bank or bank holding company through a stock dividend or stock split so
long as the proportional interest of the recipient in the institution remains
substantially the same.
(h)
Acquisition of foreign banking organization The acquisition of
voting securities of a foreign bank holding company, except that this exemption
does not extend to the reports and information required under paragraphs 9, 10,
and 12 of the Bank Control A ct (12 U.S.C. 1817(jX9), (10), and (12)).
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SECTION 225.43— PROCEDURES FOR FILING, PROCESSING, AND ACTING ON
NOTICES
(a)
Filing notice. Any notice required under this subpart shall be
filed with the appropriate Reserve Bank and shall contain information required
by paragraph 6 of the Bank Control A ct (12 U.S.C. section 1817(jX6)), or
prescribed in the appropriate Board form. With respect to personal financial
statem ents required by paragraph 6(B) of the Bank Control A ct, an individual
acquirer may include a current statem ent of assets and liabilities, as of a date
within 90 days of the notice, a brief income summary, and a statem ent of
material changes since the date thereof, subject to the authority of the Reserve
Bank or the Board to require additional information.
(b)
Advice to bank supervisory agencies.
IT)
Upon accepting a notice for processing, the Reserve Bank
shall send a copy of the notice to the appropriate state bank supervisory agency
where the notice relates to acquisition of securities of a state member bank.
The state supervisor shall have 30 calendar days from the date it receives the
notice in which to submit its views and recommendations to the Board. The
Reserve Bank shall also send a copy of any notice it accepts to the Comptroller
of the Currency and the Federal Deposit Insurance Corporation.
(2)
If the Board finds that it must act imm ediately in order to
prevent the probable failure of the bank or bank holding company involved, the
Board may dispense with or modify the requirements of paragraph (b)(1) of this
section with respect to notice to the state supervisory agency.
(c)
Time period for Board action.
(1)
Consummation of acquisition, (i) A proposed acquisition
may be consummated 60 days after submission to the Reserve Bank of a
complete notice under paragraph (a) of this section, unless the Board issues
within that 60 -day period a notice disapproving the proposed acquisition or
extending the 60-day period as provided under paragraph (cX2) of this section.
(ii) A proposed acquisition for which notice has been
filed under paragraph (a) of this section may be consummated before the
expiration of the 60-day period provided for review of the notice if the Board
notifies the acquiring person in writing of the Board's intention not to disapprove
the acquisition.
(2)
Extensions of time period, (i) The Board may extend the
60-day period in paragraph (cXlXi) of this section for an additional 30 days by
notifying the acquiring person.
(ii) The Board may further extend the time period for
disapproval or may return the notice if the Board finds that the acquiring person
has not furnished all the information required under paragraph (a) of this section
or has submitted material information that is substantially inaccurate. If the
Board extends the tim e period, it shall notify the acquiring person ©f the
information that is incomplete or inaccurate.
R~35=
(d) Investigation of notice. In investigating any notice accepted
under this subpart, the Board or Reserve Bank may solicit from any person
(including any bank or bank holding company involved in the notice, and any
appropriate state, federal or foreign governmental authority) information or
views regarding the proposal, which may be presented in any form or manner
deemed appropriate. Any person, other than the acquiring person, whose views
are solicited or who presents information, does not thereby become a party to
the proceeding or acquire any standing or right to participate in the Board’s
consideration of the notice.
(e) Disapproval and hearing. Within three days after its decision to
issue a notice of intent to disapprove any proposed acquisition, the Board shall
notify the acquiring person in writing of the reasons for the action. Within 10
calendar days of receipt of a notice of intent to disapprove by the Board, the
acquiring person may submit a written request for a hearing on the Board’s
decision. Any hearing conducted under this paragraph shall be in accordance
with the Rules of Practice for Formal Hearings (12 C.F.R. 263, Subpart A). At
the conclusion of the hearing, the Board shall, by order, approve or disapprove
the proposed acquisition on the basis of the record of the hearing. In the event
that the acquiring person does not request a hearing, the notice of intent to
disapprove becomes final and unappealable.
(f) Factors considered in acting on notices. In reviewing a notice
filed under this subpart, the Board shall consider the information in the record
and the views and recommendations of any bank supervisory agency. The Board
may also consider any other relevant information obtained during any investiga
tion of the notice. The Board may disapprove an acquisition if it finds adverse
effects with respect to any of the factors (i.e., competitive, financial, manager
ial, banking, and completeness of information) set forth in paragraph 7 of the
Bank Control Act (12 U.S.C. 1817(jX7)).
By order of the Board of Governors of the Federal Reserve
System, May 19, 1983.
(signed) William W. Wiles
William W. Wiles
Secretary of the Board
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@FedFRASER